UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended June 30, 2008
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 000-24147
KILLBUCK BANCSHARES, INC.
(Exact name of registrant as specified in its Charter)
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OHIO
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34-1700284
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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165 N. Main Street, Killbuck, OH 44637
(Address of principal executive offices and zip code)
(330) 276-2771
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
¨
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
¨
No
x
State the number of shares outstanding for each of the issuers classes of common equity as of the latest practicable date:
Class: Common Stock, no par value
Outstanding at July 31, 2008: 626,841
KILLBUCK BANCSHARES, INC.
Index
-2-
Killbuck Bancshares, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
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June 30,
2008
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December 31,
2007
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ASSETS
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Cash and cash equivalents:
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Cash and amounts due from depository institutions
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$
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10,920,127
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$
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11,794,750
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Federal funds sold
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28,080,000
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29,378,000
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Total cash and cash equivalents
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39,000,127
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41,172,750
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Investment securities:
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Securities available for sale
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53,532,659
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54,115,975
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Securities held to maturity (fair value of $31,550,721 and $30,247,416)
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31,133,967
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29,552,217
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Total investment securities
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84,666,626
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83,668,192
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Loans (net of allowance for loan losses of $2,486,212 and $2,510,011)
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198,233,597
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196,519,881
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Loans held for sale
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170,000
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Premises and equipment, net
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6,510,487
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6,537,553
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Accrued interest receivable
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1,442,862
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1,589,899
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Goodwill, net
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1,329,249
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1,329,249
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Other assets
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7,665,305
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5,349,524
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Total assets
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$
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338,848,253
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$
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336,337,048
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LIABILITIES
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Deposits:
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Noninterest bearing demand
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$
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50,171,932
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$
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51,195,017
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Interest bearing demand
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27,101,463
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27,475,379
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Money market
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20,356,698
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16,306,095
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Savings
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38,569,619
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37,467,917
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Time
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151,918,756
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153,006,933
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Total deposits
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288,118,468
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285,451,341
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Short-term borrowings
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5,510,000
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5,745,000
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Federal Home Loan Bank advances
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2,179,092
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2,536,851
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Accrued interest and other liabilities
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1,063,338
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1,486,215
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Total liabilities
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296,870,898
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295,219,407
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SHAREHOLDERS EQUITY
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Common stock No par value: 1,000,000 shares authorized, 718,431 issued
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8,846,670
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8,846,670
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Retained earnings
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41,252,028
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39,848,570
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Accumulated other comprehensive loss
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232,527
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498,651
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Treasury stock, at cost (91,214 and 88,849 shares)
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(8,353,870
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)
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(8,076,250
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)
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Total shareholders equity
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41,977,355
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41,117,641
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Total liabilities and shareholders equity
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$
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338,848,253
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$
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336,337,048
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See accompanying notes to the unaudited consolidated financial statements.
-3-
Killbuck Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
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Six Months Ended
June 30,
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2008
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2007
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INTEREST INCOME
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Interest and fees on loans
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$
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7,415,755
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$
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8,504,788
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Federal funds sold
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332,011
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579,819
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Investment securities:
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Taxable
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1,413,447
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1,010,808
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Exempt from federal income tax
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653,740
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687,614
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Total interest income
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9,814,953
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10,783,029
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INTEREST EXPENSE
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Deposits
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3,539,243
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3,722,540
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Short term borrowings
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11,290
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74,969
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Federal Home Loan Bank advances
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67,414
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86,670
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Total interest expense
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3,617,947
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3,884,179
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NET INTEREST INCOME
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6,197,006
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6,898,850
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Provision for loan losses
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67,119
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
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6,197,006
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6,831,731
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NON INTEREST INCOME
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Service charges on deposit accounts
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180,494
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166,952
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NSF & OD fees, net
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424,778
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383,163
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Gain on sale of loans, net
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23,837
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4,370
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BOLI
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340,513
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69,997
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Other income
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78,383
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74,979
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Total non interest income
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1,048,005
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699,461
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NON INTEREST EXPENSE
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Salaries and employee benefits
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2,509,789
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2,407,870
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Occupancy and equipment expense
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543,238
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488,333
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Professional fees
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183,260
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141,939
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Franchise tax
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248,540
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222,170
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Other expenses
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805,642
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808,238
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Total non interest expense
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4,290,469
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4,068,550
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INCOME BEFORE INCOME TAXES
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2,954,542
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3,462,642
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Income taxes
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641,620
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982,066
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NET INCOME
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$
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2,312,922
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$
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2,480,576
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Earning per common share
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|
$
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3.68
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$
|
3.89
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|
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|
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Dividend per share
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|
$
|
1.45
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$
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1.35
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Weighted Average shares outstanding
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628,832
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|
637,350
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See accompanying notes to the unaudited consolidated financial statements.
-4-
Killbuck Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
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|
|
|
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Three Months Ended
June 30,
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|
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2008
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|
2007
|
INTEREST INCOME
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
3,573,113
|
|
$
|
4,339,331
|
Federal funds sold
|
|
|
134,998
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|
|
288,543
|
Investment securities:
|
|
|
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|
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Taxable
|
|
|
716,642
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|
502,431
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Exempt from federal income tax
|
|
|
309,116
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|
|
352,621
|
|
|
|
|
|
|
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Total interest income
|
|
|
4,733,869
|
|
|
5,482,926
|
|
|
|
|
|
|
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INTEREST EXPENSE
|
|
|
|
|
|
|
Deposits
|
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|
1,657,892
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|
|
1,933,508
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Short term borrowings
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|
2,990
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|
|
36,500
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Federal Home Loan Bank advances
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|
|
32,580
|
|
|
42,140
|
|
|
|
|
|
|
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Total interest expense
|
|
|
1,693,462
|
|
|
2,012,148
|
|
|
|
|
|
|
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NET INTEREST INCOME
|
|
|
3,040,407
|
|
|
3,470,778
|
|
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Provision for loan losses
|
|
|
|
|
|
61,899
|
|
|
|
|
|
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|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
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3,040,407
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3,408,879
|
|
|
|
|
|
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NON INTEREST INCOME
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
95,203
|
|
|
87,382
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NSF & OD fees, net
|
|
|
214,800
|
|
|
199,079
|
Gain on sale of loans, net
|
|
|
7,634
|
|
|
2,406
|
BOLI
|
|
|
291,434
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|
|
36,237
|
Other income
|
|
|
38,966
|
|
|
43,971
|
|
|
|
|
|
|
|
Total non interest income
|
|
|
648,037
|
|
|
369,075
|
|
|
|
|
|
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NON INTEREST EXPENSE
|
|
|
|
|
|
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Salaries and employee benefits
|
|
|
1,136,191
|
|
|
1,087,390
|
Occupancy and equipment expense
|
|
|
264,377
|
|
|
240,802
|
Professional fees
|
|
|
97,010
|
|
|
73,018
|
Franchise tax
|
|
|
125,490
|
|
|
105,120
|
Other expenses
|
|
|
414,158
|
|
|
399,176
|
|
|
|
|
|
|
|
Total non interest expense
|
|
|
2,037,226
|
|
|
1,905,506
|
|
|
|
|
|
|
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INCOME BEFORE INCOME TAXES
|
|
|
1,651,218
|
|
|
1,872,448
|
Income taxes
|
|
|
325,836
|
|
|
559,707
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
1,325,382
|
|
$
|
1,312,741
|
|
|
|
|
|
|
|
Earning per common share
|
|
$
|
2.11
|
|
$
|
2.06
|
|
|
|
|
|
|
|
Dividend per share
|
|
$
|
1.45
|
|
$
|
1.35
|
|
|
|
|
|
|
|
Weighted Average shares outstanding
|
|
|
628,247
|
|
|
636,455
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
-5-
Killbuck Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2008
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Treasury
Stock
|
|
|
Total
Shareholders
Equity
|
|
|
Comprehensive
Income (Loss)
|
|
Balance, December 31, 2007
|
|
$
|
8,846,670
|
|
$
|
39,848,570
|
|
|
$
|
498,651
|
|
|
$
|
(8,076,250
|
)
|
|
$
|
41,117,641
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
2,312,922
|
|
|
|
|
|
|
|
|
|
|
|
2,312,922
|
|
|
$
|
2,312,922
|
|
Purchase of Treasury stock, at cost (2,365 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(277,620
|
)
|
|
|
(277,620
|
)
|
|
|
|
|
Cash dividends paid ($1.45 per share)
|
|
|
|
|
|
(909,464
|
)
|
|
|
|
|
|
|
|
|
|
|
(909,464
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) on securities, net of tax benefit $111,677
|
|
|
|
|
|
|
|
|
|
(266,124
|
)
|
|
|
|
|
|
|
(266,124
|
)
|
|
|
(266,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,046,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
$
|
8,846,670
|
|
$
|
41,252,028
|
|
|
$
|
232,527
|
|
|
$
|
(8,353,870
|
)
|
|
$
|
41,977,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
-6-
Killbuck Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,312,922
|
|
|
$
|
2,480,576
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
|
67,119
|
|
Gain on sale of loans
|
|
|
(23,837
|
)
|
|
|
(4,370
|
)
|
Provision for depreciation and amortization
|
|
|
250,076
|
|
|
|
190,958
|
|
Origination of loans held for sale
|
|
|
(2,705,600
|
)
|
|
|
(2,938,580
|
)
|
Proceeds from the sale of loans
|
|
|
2,899,437
|
|
|
|
2,743,450
|
|
Federal Home Loan Bank stock dividend
|
|
|
|
|
|
|
(19,700
|
)
|
Bank Owned Life Insurance (BOLI) benefit income
|
|
|
(234,396
|
)
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
(497,935
|
)
|
|
|
(446,832
|
)
|
Accrued expenses and other liabilities
|
|
|
(143,528
|
)
|
|
|
(105,457
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,857,139
|
|
|
|
1,967,164
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
Proceeds from maturities and repayments
|
|
|
12,107,505
|
|
|
|
6,141,967
|
|
Purchases
|
|
|
(11,902,043
|
)
|
|
|
(9,947,313
|
)
|
Investment securities held to maturity:
|
|
|
|
|
|
|
|
|
Proceeds from maturities and repayments
|
|
|
360,054
|
|
|
|
351,225
|
|
Purchases
|
|
|
(1,956,330
|
)
|
|
|
(2,827,923
|
)
|
Net (increase) in loans
|
|
|
(1,713,716
|
)
|
|
|
(10,674,597
|
)
|
Net Disposal of foreclosed real estate
|
|
|
|
|
|
|
80,000
|
|
Bank Owned Life Insurance (BOLI)
|
|
|
|
|
|
|
|
|
Proceeds
|
|
|
395,915
|
|
|
|
|
|
Purchases
|
|
|
(2,000,000
|
)
|
|
|
|
|
Net Purchase of premises and equipment
|
|
|
(208,431
|
)
|
|
|
(389,133
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(4,917,046
|
)
|
|
|
(17,265,774
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand, money market and savings deposits
|
|
|
3,755,304
|
|
|
|
(4,477,829
|
)
|
Net (decrease) increase in time deposits
|
|
|
(1,088,177
|
)
|
|
|
13,012,930
|
|
Repayments of Federal Home Loan Bank advances
|
|
|
(357,759
|
)
|
|
|
(380,586
|
)
|
Net (decrease) in short term borrowings
|
|
|
(235,000
|
)
|
|
|
(705,281
|
)
|
Purchase of Treasury stock
|
|
|
(277,620
|
)
|
|
|
(266,043
|
)
|
Dividends paid
|
|
|
(909,464
|
)
|
|
|
(858,975
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
887,284
|
|
|
|
6,324,216
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,172,623
|
)
|
|
|
(8,974,394
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
41,172,750
|
|
|
|
42,705,362
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
39,000,127
|
|
|
$
|
33,730,968
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flows Information
|
|
|
|
|
|
|
|
|
Cash Paid During the Period For:
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings
|
|
$
|
3,731,100
|
|
|
$
|
3,860,460
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
644,193
|
|
|
$
|
966,760
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
-7-
Killbuck Bancshares, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Killbuck Bancshares, Inc. (the
Company) and its wholly-owned subsidiary Killbuck Savings Bank Company (the Bank). All significant intercompany balances and transactions have been eliminated in the consolidation.
The accompanying reviewed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily
include all information that would be included in audited financial statements. The information furnished reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results of operations. All such
adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the consolidated statements of and for the year ended December 31, 2007 and related notes which are included on the Form 10-K (file no. 000-24147).
NOTE 2 EARNINGS PER SHARE
The Company currently maintains
a simple capital structure; therefore, there are no dilutive effects on earnings per share. As such, earnings per share are calculated using the weighted number of shares for the period.
NOTE 3 COMPREHENSIVE INCOME
The Company is required to present comprehensive income and its components in a
full set of general purpose financial statements. Comprehensive income is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30, 2008
|
|
|
Six Months
Ended
June 30, 2007
|
|
Net income
|
|
$
|
2,312,922
|
|
|
$
|
2,480,576
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Net unrealized loss on securities
|
|
|
(377,801
|
)
|
|
|
(189,851
|
)
|
Tax effect
|
|
|
111,677
|
|
|
|
64,549
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
2,046,798
|
|
|
$
|
2,355,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2008
|
|
|
Three Months
Ended
June 30, 2007
|
|
Net income
|
|
$
|
1,325,382
|
|
|
$
|
1,312,741
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Net unrealized loss on securities
|
|
|
(949,785
|
)
|
|
|
(237,443
|
)
|
Tax effect
|
|
|
306,152
|
|
|
|
80,730
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
681,749
|
|
|
$
|
1,156,028
|
|
|
|
|
|
|
|
|
|
|
-8-
NOTE 4 FAIR VALUE MEASUREMENTS (SFAS No. 157)
Effective January 1, 2008, the Company adopted SFAS No. 157, which, among other things, requires enhanced disclosures about assets and liabilities carried at
fair value. SFAS No. 157 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by SFAS No. 157 hierarchy
are as follows:
|
|
|
Level I:
|
|
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
|
|
Level II:
|
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include
items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
|
|
Level III:
|
|
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using managements best estimate of
fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
|
The following table presents the assets reported on the consolidated statements of financial condition at their
fair value as of June 30, 2008 by level within the fair value hierarchy. As required by SFAS No. 157, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
|
|
$
|
53,532,659
|
|
$
|
|
|
$
|
53,532,659
|
Loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
NOTE 5 RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued FAS No. 141 (revised 2007),
Business Combinations
(FAS 141(R)), which establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS
No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Companys results of
operations or financial position.
In December 2007, the FASB issued FAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among
other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated
income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of this standard is not expected to have a material effect on the Companys results of operations or financial position.
In May 2008, the FASB issued FAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles
. FAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). FAS No. 162 will become effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles
. The Company does not expect the adoption of FAS
No. 162 to have a material effect on its results of operations and financial position.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a
recognized intangible asset under FAS No. 142
, Goodwill and Other Intangible Assets
. This standard is intended to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The measurement provisions of
this standard will apply only to intangible assets of the Company acquired after the effective date.
In June 2008, the FASB issued FASB Staff Position
(FSP) No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
, to clarify that instruments granted in share-based payment transactions can be participating securities prior to
the requisite service having been rendered. A basic principle of the FSP is that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and
are to be included in the computation of EPS pursuant to the two-class method. The provisions of this FSP are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years.
All prior-period EPS data presented (including interim financial statements, summaries of earnings, and selected financial data) are required to be adjusted retrospectively to conform with the provisions of the FSP. The adoption of this FSP is not
expected to have a material effect on the Companys results of operations or financial position.
-10-
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The
Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words believes, anticipates, contemplates,
expects, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks
and uncertainties include changes in interest rates, risks associated with the ability to control costs and expenses, and general economic conditions. Killbuck Bancshares, Inc. undertakes no obligation to publicly release the results of any
revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The Company conducts no significant business or operations of its own other than holding all of the outstanding stock of the Killbuck Savings Bank Company. As a result, references to the Company generally refer to the
Bank unless the context indicates otherwise.
Critical Accounting Policies
The Companys accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the consolidated
financial statements filed with the Commission as part of the Companys annual report on Form 10-K for its fiscal year ended December 31, 2007. Our most complex accounting policies require managements judgment to ascertain the
valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In
addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management
valuation judgments.
Allowance for Loan Losses
Arriving at an appropriate level of allowance for loan losses involve a high degree of
judgment. The Companys allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio.
Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment as it is affected by changing economic conditions and various external factors, which may impact
the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Companys methodology of
assessing the adequacy of the reserve for loan losses, refer to Note 1 of the consolidated financial statements filed with the Commission as part of the Companys annual report on Form 10-K for its fiscal year ended December 31, 2007.
Goodwill and Other Intangible Assets
As discussed in Note 7 of the consolidated financial statements, filed with the Commission as part of the
Companys annual report on Form 10-K for its fiscal year ended December 31, 2007; the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If
the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.
Deferred Tax Assets
We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future
income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. Our deferred tax assets are described further in
Note 14 of the consolidated financial statements filed with the Commission as part of the Companys annual report on Form 10-K for its fiscal year ended December 31, 2007.
-11-
Financial Condition
Total assets at June 30, 2008 were $338,848,000 compared to $336,337,000 at December 31, 2007.
Cash and cash
equivalents decreased by $2,173,000 or 5.3% from December 31, 2007, to June 30, 2008, with federal funds sold decreasing $1,298,000. The decrease was used to partially fund the increase in the Banks loan portfolio.
Investment securities available for sale decreased by $583,000 or 1.1% from December 31, 2007, to June 30, 2008 due to an increase in the securities that were
called and a lack of suitable securities to purchase for the portfolio. Investments held to maturity increased $1,582,000 or 5.4% due to some attractive municipal securities available for the portfolio.
Net loans increased by $1,714,000 or .9% from December 31, 2007 to June 30, 2008. A decrease of $3,231,000 occurred in the real estate loan category, which is
attributable primarily to residential real estate of $2,598,000 with additional decreases in both commercial and farm lending of $460,000 and $583,000 respectively, and an increase of $410,000 in construction loan activity. Management believes the
residential loan activities have slowed significantly in the Banks lending area. Commercial and other loan balances increased by $5,046,000 due to continued inventory growth, which will start to pay down in the third quarter. The Consumer loan
balances decreased by $101,000.
Total deposits at June 30, 2008 were $288,118,000 compared to $285,451,000 at December 31, 2007. Money market
accounts and savings accounts increased $4,051,000 and $1,102,000, respectively, while demand accounts and time deposits accounts decreased $1,397,000 and $1,088,000 respectively. Management attributes these changes to the changes in interest rates.
A Money Market account is a short term investment that customers use while waiting until the interest rates meet their expectations for longer term Time deposits. Management believes the demand accounts decreases are attributable to normal
fluctuations due to customer usage.
Federal Home Loan Bank advances decreased $358,000 due to maturities and scheduled repayments, and short-term
borrowings decreased $235,000 at June 30, 2008 from December 31, 2007.
Shareholders Equity increased by $859,000 or 2.1%, which was mainly
due to earnings of $2,313,000 for the first six months of 2008 decreased by a $266,000 unrealized loss on securities included in other comprehensive income, dividends paid totaling $910,000 and by the purchase of Treasury stock for $278,000.
Treasury stock purchases are monitored against the Companys Strategic Plan and the goals set forth in the plan. The Treasury stock purchases have not exceeded the Strategic Plans guidelines for the first six months of 2008. Management
monitors risk-based capital and leveraged capital ratios in order to assess compliance of the regulatory guidelines. At June 30, 2008, the total capital ratio was 18.84%; the Tier I capital ratio was 17.75%, and the leverage ratio was 11.97%,
compared to regulatory capital requirements of 8.00%, 4.00% and 4.00% respectively. These ratios are well in excess of regulatory capital requirements.
-12-
RESULTS OF OPERATIONS
Comparison of the Six Months Ended June 30, 2008 and 2007
Net income for the six-month period ended
June 30, 2008, was $2,313,000, a decrease of $168,000 or 6.8% from the $2,481,000 reported at June 30, 2007.
Total interest income of
approximately $9,815,000 for the six-month period ended June 30, 2008, compares to $10,783,000 for the same period in 2007, a decrease of $968,000 or 9.0%. The decrease in total interest income is primarily attributable to a decrease in
interest and fees on loans due primarily to a decrease in the average yield on the underlying principle balances. See Average Balance Sheet for the six-month periods ended June 30, 2008 and 2007. The yield on loans decreased to
7.36% for the first six months of 2008 compared to 8.35% for the first six months of 2007. Average loan balances were $201,399,000 for the first six months of 2008 compared to $203,821,000 for the first six months of 2007. The increase in interest
on taxable investment securities partially offsets the interest decrease from loans. The interest on taxable investment securities of $1,413,000 for 2008 compares to $1,011,000 for 2007. The increase in investment income is primarily attributable to
an increase in volume. Average investment balances were $53,382,000 compared to $37,478,000 and the yields were 5.11% compared to 5.14% for the first six months of 2008 and 2007 respectively.
Total interest expense of $3,618,000 for the six-month period ending June 30, 2008 represents a decrease of $266,000 from the $3,884,000 reported for the same
six-month period in 2007. The decrease in interest expense on deposits of $183,000 is due mainly to a decrease in interest rates. The decreases in the average rate paid on the underlying principle balances of the interest bearing liabilities are due
mainly to the Time deposits. The cost of Time deposits was 4.11% compared to 4.59% for this six-month period of 2008 and 2007, respectively. The cost on interest bearing deposits was 2.97%, compared to 3.33% for the six-month periods of 2008 and
2007 respectively. Average interest-bearing deposits were $238,682,000 for the first six months of 2008 compared to $223,821,000 for the first six months of 2007. See Average Balance Sheet for the six-month periods ended June 30,
2008 and 2007.
Net interest income of $6,197,000 for the six months ended June 30, 2008, compares to $6,899,000 for the same six-month period in
2007, a decrease of $702,000 or 10.2%. Management anticipates interest rates will remain relatively stable for the remainder of 2008; therefore, the net interest margin is expected to begin stabilizing in 2008.
Total non-interest income for the six-month period ended June 30, 2008, of $1,048,000 compares to $699,000 for the same six-month period in 2007, an increase of
$349,000 or 49.9%. The net Non-sufficient funds fees and overdraft fees increased $42,000 due to an increase in Non-sufficient funds activity. Gains on sale of loans increased $20,000. Bank Owned Life Insurance (BOLI) income increased $271,000
primarily due to a benefit payout of approximately $234,000. Approximately $35,000 of the increase is due to the additional $2 million Bank Owned Life Insurance (BOLI) purchased on certain Bank officers.
Total non-interest expense of $4,290,000 for the six months ended June 30, 2008, compares to $4,069,000 for the same six-month period in 2007. This represents an
increase of $221,000 or 5.4%. Salary and employee benefits increased approximately $102,000. The expenses are due to normal increases in salaries and employee benefits. Occupancy and Equipment costs increased approximately $55,000; approximately
$38,000 is due to increased depreciation expense on updated branch facilities and updated technologies in the computer network area in the last year. Approximately $9,000 of the increase was attributable to snow related expenses associated with more
severe winter weather conditions in early 2008. Professional fees increased approximately $41,000, which includes additional auditing fees for SOX 404 compliance and other regulatory requirements such as Bank Secrecy Act and Gramm-Leach-Bliley Act,
increasing regulatory examination costs, and legal expenses. Franchise tax expense to the State of Ohio increased approximately $27,000. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal
and recurring in nature.
-13-
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2008 and 2007
Net income for the three-month period ended
June 30, 2008, was $1,325,000, an increase of $12,000 or 0.9% from the $1,313,000 reported at June 30, 2007.
Total interest income of
approximately $4,734,000 for the three-month period ended June 30, 2008, compares to $5,483,000 for the same period in 2007, a decrease of $749,000 or 13.7%. The decrease in total interest income is primarily attributable to a decrease in the
loan category. Interest and fees on loans decreased $766,000 or 17.7% for the three-month period ended June 30, 2008 compared to the same period for 2007. The decrease in interest and fees on loans is due to both a decrease in the volume of
principal loan balances and the yields earned on the underlying principle balances. Average loan balances were $202,567,000 compared to $207,517,000 and the yield was 7.06% compared to 8.36% for this three-month period of 2008 and 2007,
respectively. See Average Balance Sheet for the three-month periods ended June 30, 2008 and 2007. The increase in interest on taxable investment securities of $217,000 was primarily attributable to an increase in the average
balances outstanding of taxable investment securities of $52,768,000 for 2008 compared to $36,937,000 for 2007 and the yield was 5.24% compared to 5.13% for this three-month period of 2008 and 2007 respectively. See Average Balance Sheet
for the three-month periods ended June 30, 2008 and 2007.
Total interest expense of $1,693,000 for the three-month period ending June 30, 2008,
represents a decrease of $319,000 from the $2,012,000 reported for the same three-month period in 2007.
The decrease in interest expense on deposits of
$276,000 is due mainly to the decreases in the average rate paid on the underlying principle balances of the interest bearing liabilities, specifically the Time deposits. The cost of Time deposits was 3.87% compared to 4.66% for this three-month
period of 2008 and 2007, respectively and the cost of interest bearing deposits was 2.76% compared to 3.40% for this three-month period of 2008 and 2007 respectively. The average time deposits were $154,275,000 for this three-month period of 2008
compared to $142,318,000 for the same three months of 2007. Average interest-bearing deposits were $240,391,000 for this three-month period of 2008 compared to $227,673,000 for the same three months of 2007. See Average Balance Sheet for
the three-month periods ended June 30, 2008 and 2007.
Net interest income of $3,040,000 for the three months ended June 30, 2008, compares to
$3,471,000 for the same three-month period in 2007, a decrease of $431,000 or 12.4%. Management anticipates interest rates will remain relatively stable for the remainder of 2008; therefore, the net interest margin is expected to begin stabilizing
in 2008.
Total non-interest income for the three-month period ended June 30, 2008, of $648,000 compares to $369,000 for the same three-month period
in 2007, an increase of $279,000 or 75.6%. Non-sufficient funds (NSF) fees and Overdraft fees increased $16,000. Approximately $255,000 of the increase was due to income from the Bank-Owned Life Insurance (BOLI), of which, approximately $234,000 was
due to a benefit payout; the remaining $21,000 was due to the additional $2 million purchased in the first quarter of 2008. The changes in the remaining income accounts were attributable to increases/decreases in items that are normal and recurring
in nature
Total non-interest expense of $2,037,000 for the three months ended June 30, 2008, compares to $1,906,000 for the same three-month period
in 2008. This represents an increase of $131,000 or 6.9%. Salary and employee benefits increased $49,000. The expense was due to normal recurring employee cost increase for salary and employee benefits and staff additions. Occupancy and equipment
expenses increased $23,000 or 9.5%, of which, approximately $19,000 is due to increased depreciation expense on updated branch facilities and updated technologies in the computer network area in the last year. Franchise tax expense to the State of
Ohio increased approximately $20,000. The changes in the remaining expense accounts were attributable to increases/decreases in items that are normal and recurring in nature.
-14-
Liquidity
Management monitors projected liquidity needs and determines the level desirable based in part on the Companys commitments to make loans and managements assessment of the Companys ability to generate
funds.
The primary sources of funds are deposits, repayment of loans, maturities of investments, funds provided from operations and advances from the FHLB
of Cincinnati. While scheduled repayments of loans and maturities of investment securities are predictable sources of funds, deposit flows and loan repayments are greatly influenced by the general level of interest rates, economic conditions and
competition. The Company uses its sources of funds to fund existing and future loan commitments, to fund maturing time deposits and demand deposit withdrawals, to invest in other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
Cash and amounts due from depository institutions and federal funds sold totaled $39,000,000 at June 30, 2008. These assets provide the
primary source of liquidity for the Company. In addition, management has designated a portion of the investment portfolio, $53,533,000 as available for sale and has an available unused line of credit of $40,704,000 with the Federal Home Loan Bank of
Cincinnati to provide additional sources of liquidity at June 30, 2008. As of June 30, 2008, the Company had commitments to fund loans of approximately $2,031,000 and unused lines of credit totaling $38,924,000.
Cash was provided during the six month period ended June 30, 2008, mainly from operating activities of $1.8 million, and the net increase in deposits of $2.7
million, the maturities and repayments of investment securities of $12.5 million, and the proceeds from a Bank Owned Life Insurance (BOLI) benefit payment of $.4 million. Cash was used during the six month period ended June 30, 2008, mainly to
fund a net increase in loans of $1.7 million, for the purchase of investment securities of $13.9 million, to purchase an additional $2.0 million of Bank Owned Life Insurance (BOLI), and to reduce $.6 million in Federal Home Loan Bank advances and
short-term borrowings. In addition, $.2 million was used to purchase equipment, $.3 million was used to purchase Treasury Stock, and $.9 million was used to pay dividends to shareholders. Cash and cash equivalents totaled $39.0 million at
June 30, 2008, a decrease of $2.2 million from $41.2 million at December 31, 2007.
Management is not aware of any conditions, including any
regulatory recommendations or requirements, which would adversely affect its liquidity or ability to meet its funding needs in the normal course of business.
-15-
Risk Elements
The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans and repossessed assets at June 30,
2008, and December 31, 2007. The Company ceased accruing interest on residential mortgages secured by real estate and consumer loans when principal or interest payments are delinquent 90 days or more. Commercial loans, that are 90 days or more
past due, are reviewed by the Executive Vice President and the loan officer to determine whether they will be classified as nonperforming. These officers review various factors, which include, but are not limited to, the timing of the maturity of
the loan in relation to the ability to collect, whether the loan is deemed to be well secured, whether the loan is in the process of collection, and the favorable results of the analysis of customer financial data. A nonperforming loan will only be
re-classified as a performing loan when stringent criteria have been met. At the time the accrual of interest is discontinued, future income is recognized only when cash is received or the loan has been returned to performing loan status.
Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as of result of the deterioration of the borrower.
|
|
|
|
|
|
|
|
|
|
|
June 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(dollars in thousands)
|
|
Loans on nonaccrual basis
|
|
$
|
108
|
|
|
$
|
839
|
|
Loans past due 90 days or more
|
|
|
|
|
|
|
|
|
Renegotiated loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
108
|
|
|
$
|
839
|
|
Other real estate
|
|
|
|
|
|
|
|
|
Repossessed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
108
|
|
|
$
|
839
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percent of total loans
|
|
|
0.05
|
%
|
|
|
0.14
|
%
|
|
|
|
Nonperforming loans as a percent of total assets
|
|
|
0.03
|
%
|
|
|
0.09
|
%
|
|
|
|
Nonperforming assets as a percent of total assets
|
|
|
0.03
|
%
|
|
|
0.09
|
%
|
Management monitors impaired loans on a continual basis. As of June 2008, impaired loans had no material effect on
the Companys financial position or results from operations.
The allowance for loan losses at June 30, 2008, totaled $2,486,000 or 1.24% of
total loans as compared to $2,510,000 or 1.26% at December 31, 2007. Provisions for loan losses were $0 for the six months ended June 30, 2008 and $67,000 for the six months ended June 30, 2007.
The level of funding for the provision is a reflection of the overall loan portfolio. Nonperforming loans consist of approximately $81,000 in commercial real estate,
$22,000 in one to four family residential mortgages, and $5,000 in consumer loans. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in managements opinion.
Management performs a quarterly evaluation of the allowance for loan losses. The evaluation incorporates internal loan review, actual historical losses, as well as any
negative economic trends in the local market. The evaluation is presented to and approved by the Board of Directors. Although the Company maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods.
-16-
AVERAGE BALANCE SHEET
Average Balance Sheet for the Six-Month Period Ended June 30
The following table sets forth certain information
relating to the Companys average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by dividing
income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end balances instead of daily average
balances has caused any material differences in the information presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earnings Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)(3)
|
|
$
|
201,399,245
|
|
|
$
|
7,415,755
|
|
7.36
|
%
|
|
$
|
203,820,981
|
|
|
$
|
8,504,788
|
|
8.35
|
%
|
Securities-taxable (4)
|
|
|
53,382,523
|
|
|
|
1,364,802
|
|
5.11
|
%
|
|
|
37,477,776
|
|
|
|
962,269
|
|
5.14
|
%
|
Securities-nontaxable (4)
|
|
|
30,234,021
|
|
|
|
653,740
|
|
4.32
|
%
|
|
|
31,298,166
|
|
|
|
687,614
|
|
4.39
|
%
|
Securities-Equity (4,5)
|
|
|
1,689,532
|
|
|
|
48,645
|
|
5.76
|
%
|
|
|
1,680,486
|
|
|
|
48,539
|
|
5.78
|
%
|
Federal funds sold
|
|
|
25,300,562
|
|
|
|
332,011
|
|
2.62
|
%
|
|
|
21,805,478
|
|
|
|
579,819
|
|
5.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earnings assets
|
|
|
312,005,883
|
|
|
|
9,814,953
|
|
6.29
|
%
|
|
|
296,082,887
|
|
|
|
10,783,029
|
|
7.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from other institutions
|
|
|
11,255,494
|
|
|
|
|
|
|
|
|
|
10,397,086
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
6,546,152
|
|
|
|
|
|
|
|
|
|
5,729,065
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
1,439,102
|
|
|
|
|
|
|
|
|
|
1,457,562
|
|
|
|
|
|
|
|
Other assets
|
|
|
7,560,007
|
|
|
|
|
|
|
|
|
|
5,811,910
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(2,499,920
|
)
|
|
|
|
|
|
|
|
|
(2,426,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earnings assets
|
|
|
24,300,835
|
|
|
|
|
|
|
|
|
|
20,969,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
336,306,718
|
|
|
|
|
|
|
|
|
$
|
317,052,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
26,371,723
|
|
|
|
56,718
|
|
0.43
|
%
|
|
$
|
27,597,021
|
|
|
$
|
80,360
|
|
0.58
|
%
|
Money market accounts
|
|
|
20,137,976
|
|
|
|
173,661
|
|
1.72
|
%
|
|
|
19,360,582
|
|
|
|
256,463
|
|
2.65
|
%
|
Savings deposits
|
|
|
38,116,901
|
|
|
|
142,659
|
|
0.75
|
%
|
|
|
37,647,413
|
|
|
|
190,778
|
|
1.01
|
%
|
Time deposits
|
|
|
154,055,664
|
|
|
|
3,166,205
|
|
4.11
|
%
|
|
|
139,215,991
|
|
|
|
3,194,939
|
|
4.59
|
%
|
Short term borrowings
|
|
|
5,298,620
|
|
|
|
11,290
|
|
0.43
|
%
|
|
|
5,031,655
|
|
|
|
74,969
|
|
2.98
|
%
|
Federal Home Loan Advances
|
|
|
2,334,680
|
|
|
|
67,414
|
|
5.78
|
%
|
|
|
3,029,302
|
|
|
|
86,670
|
|
5.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
246,315,564
|
|
|
|
3,617,947
|
|
2.94
|
%
|
|
|
231,881,964
|
|
|
|
3,884,179
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
47,248,392
|
|
|
|
|
|
|
|
|
|
43,674,497
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
2,779,012
|
|
|
|
|
|
|
|
|
|
2,617,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
50,027,404
|
|
|
|
|
|
|
|
|
|
46,292,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
39,963,750
|
|
|
|
|
|
|
|
|
|
38,877,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
336,306,718
|
|
|
|
|
|
|
|
|
$
|
317,052,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
6,197,006
|
|
|
|
|
|
|
|
|
$
|
6,898,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (6)
|
|
|
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
3.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets (7)
|
|
|
|
|
|
|
|
|
3.97
|
%
|
|
|
|
|
|
|
|
|
4.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For purposes of these computations, the daily average loan amounts outstanding are net of deferred loan fees.
|
(2)
|
Included in loan interest income are loan related fees of $186,000 and $166,000 in 2008 and 2007, respectively.
|
(3)
|
Nonaccrual loans are included in loan totals and do not have a material impact on the information presented.
|
(4)
|
Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for securities.
|
(5)
|
Equity securities are comprised of common stock of the Federal Home Loan Bank, Federal Reserve Bank, and Great Lakes Bankers Bank.
|
(6)
|
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.
|
(7)
|
Net yield on interest earning assets represents net interest income as a percentage of average interest earning assets.
|
-17-
AVERAGE BALANCE SHEET
Average Balance Sheet for the Three-Month Period Ended June 30
The following table sets forth certain
information relating to the Companys average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end balances instead of
daily average balances has caused any material differences in the information presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earnings Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)(3)
|
|
$
|
202,567,482
|
|
|
$
|
3,573,113
|
|
7.06
|
%
|
|
$
|
207,517,313
|
|
|
$
|
4,339,331
|
|
8.36
|
%
|
Securities-taxable (4)
|
|
|
52,767,906
|
|
|
|
691,380
|
|
5.24
|
%
|
|
|
36,936,759
|
|
|
|
473,637
|
|
5.13
|
%
|
Securities-nontaxable (4)
|
|
|
30,661,178
|
|
|
|
309,116
|
|
4.03
|
%
|
|
|
32,133,770
|
|
|
|
352,621
|
|
4.39
|
%
|
Securities-Equity (4,5)
|
|
|
1,698,155
|
|
|
|
25,262
|
|
5.95
|
%
|
|
|
1,680,910
|
|
|
|
28,794
|
|
6.85
|
%
|
Federal funds sold
|
|
|
26,151,679
|
|
|
|
134,998
|
|
2.06
|
%
|
|
|
22,001,325
|
|
|
|
288,543
|
|
5.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earnings assets
|
|
|
313,846,400
|
|
|
|
4,733,869
|
|
6.03
|
%
|
|
|
300,270,077
|
|
|
|
5,482,926
|
|
7.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from other institutions
|
|
$
|
11,506,796
|
|
|
|
|
|
|
|
|
|
10,659,480
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
6,543,027
|
|
|
|
|
|
|
|
|
|
5,760,112
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
1,501,470
|
|
|
|
|
|
|
|
|
|
1,572,772
|
|
|
|
|
|
|
|
Other assets
|
|
|
7,958,378
|
|
|
|
|
|
|
|
|
|
5,855,449
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(2,495,839
|
)
|
|
|
|
|
|
|
|
|
(2,451,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest earnings assets
|
|
|
25,013,832
|
|
|
|
|
|
|
|
|
|
21,396,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
338,860,232
|
|
|
|
|
|
|
|
|
$
|
321,666,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
$
|
26,648,190
|
|
|
$
|
25,882
|
|
0.39
|
%
|
|
$
|
26,910,123
|
|
|
$
|
39,714
|
|
0.59
|
%
|
Money market accounts
|
|
|
21,225,595
|
|
|
|
78,945
|
|
1.49
|
%
|
|
|
20,633,349
|
|
|
|
138,790
|
|
2.69
|
%
|
Savings deposits
|
|
|
38,242,265
|
|
|
|
59,630
|
|
0.62
|
%
|
|
|
37,811,948
|
|
|
|
96,594
|
|
1.02
|
%
|
Time deposits
|
|
|
154,275,126
|
|
|
|
1,493,435
|
|
3.87
|
%
|
|
|
142,317,491
|
|
|
|
1,658,410
|
|
4.66
|
%
|
Short term borrowings
|
|
|
5,220,867
|
|
|
|
2,990
|
|
0.23
|
%
|
|
|
4,964,434
|
|
|
|
36,500
|
|
2.94
|
%
|
Federal Home Loan Advances
|
|
|
2,251,002
|
|
|
|
32,580
|
|
5.79
|
%
|
|
|
2,942,608
|
|
|
|
42,140
|
|
5.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
247,863,045
|
|
|
|
1,693,462
|
|
2.73
|
%
|
|
|
235,579,953
|
|
|
|
2,012,148
|
|
3.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
47,919,665
|
|
|
|
|
|
|
|
|
|
44,158,663
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
3,410,318
|
|
|
|
|
|
|
|
|
|
3,322,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
51,329,983
|
|
|
|
|
|
|
|
|
|
47,481,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
39,667,204
|
|
|
|
|
|
|
|
|
|
38,605,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
338,860,232
|
|
|
|
|
|
|
|
|
$
|
321,666,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
3,040,407
|
|
|
|
|
|
|
|
|
$
|
3,470,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (6)
|
|
|
|
|
|
|
|
|
3.30
|
%
|
|
|
|
|
|
|
|
|
3.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets (7)
|
|
|
|
|
|
|
|
|
3.88
|
%
|
|
|
|
|
|
|
|
|
4.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For purposes of these computations, the daily average loan amounts outstanding are net of deferred loan fees.
|
(2)
|
Included in loan interest income are loan related fees of $100,000 and $82,000 in 2008 and 2007, respectively.
|
(3)
|
Nonaccrual loans are included in loan totals and do not have a material impact on the information presented.
|
(4)
|
Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for securities.
|
(5)
|
Equity securities are comprised of common stock of the Federal Home Loan Bank, Federal Reserve Bank, and Great Lakes Bankers Bank.
|
(6)
|
Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.
|
(7)
|
Net yield on interest earning assets represents net interest income as a percentage of average interest earning assets.
|
-18-
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate) and (ii) changes in rates (changes in rate multiplied by old average volume). Changes, which are not
solely attributable to rate, or volume are allocated to changes in rate due to rate sensitivity of interest-earning assets and interest-bearing liabilities (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June
2008 Compared to
2007
Increase (Decrease) Due To
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(202
|
)
|
|
$
|
(887
|
)
|
|
$
|
(1,089
|
)
|
Securities-taxable
|
|
|
817
|
|
|
|
(414
|
)
|
|
|
403
|
|
Securities-nontaxable
|
|
|
(47
|
)
|
|
|
13
|
|
|
|
(34
|
)
|
Securities-equities
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
Federal funds sold
|
|
|
186
|
|
|
|
(434
|
)
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
755
|
|
|
|
(1,723
|
)
|
|
|
(968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
(7
|
)
|
|
|
(16
|
)
|
|
|
(23
|
)
|
Money market accounts
|
|
|
21
|
|
|
|
(104
|
)
|
|
|
(83
|
)
|
Savings deposits
|
|
|
5
|
|
|
|
(53
|
)
|
|
|
(48
|
)
|
Time deposits
|
|
|
681
|
|
|
|
(710
|
)
|
|
|
(29
|
)
|
Short-term borrowing
|
|
|
8
|
|
|
|
(72
|
)
|
|
|
(64
|
)
|
Federal Home Loan Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
|
|
|
(40
|
)
|
|
|
21
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
668
|
|
|
|
(934
|
)
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
|
$
|
87
|
|
|
$
|
(789
|
)
|
|
$
|
(702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate) and (ii) changes in rates (changes in rate multiplied by old average volume). Changes, which are not
solely attributable to rate, or volume are allocated to changes in rate due to rate sensitivity of interest-earning assets and interest-bearing liabilities (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June
2008 Compared to
2007
Increase (Decrease) Due To
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(414
|
)
|
|
$
|
(352
|
)
|
|
$
|
(766
|
)
|
Securities-taxable
|
|
|
812
|
|
|
|
(595
|
)
|
|
|
217
|
|
Securities-nontaxable
|
|
|
(65
|
)
|
|
|
21
|
|
|
|
(44
|
)
|
Securities-equities
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Federal funds sold
|
|
|
218
|
|
|
|
(371
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
552
|
|
|
|
(1,302
|
)
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
(2
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
Money market accounts
|
|
|
16
|
|
|
|
(76
|
)
|
|
|
(60
|
)
|
Savings deposits
|
|
|
4
|
|
|
|
(41
|
)
|
|
|
(37
|
)
|
Time deposits
|
|
|
557
|
|
|
|
(722
|
)
|
|
|
(165
|
)
|
Short-term borrowing
|
|
|
8
|
|
|
|
(41
|
)
|
|
|
(33
|
)
|
Federal Home Loan Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
|
|
|
(40
|
)
|
|
|
30
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
543
|
|
|
|
(862
|
)
|
|
|
(319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
|
$
|
9
|
|
|
$
|
(440
|
)
|
|
$
|
(431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-20-
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not Applicable to Smaller
Reporting Companies.
Item 4 CONTROLS AND PROCEDURES
The Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys President and
Chief Executive Officer and Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
President and Chief Executive Officer and Vice President and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective, as of the end of the period covered by this report, in timely alerting them to
material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings.
Disclosure controls and procedures are the control and other procedures of the Company that are designed to ensure that the information required to be disclosed by the Company in its reports or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Securities and Exchanges Commissions rules and forms.
There was no
change in the Companys internal control over financial reporting that occurred during the Companys fiscal quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
-21-
Part II OTHER INFORMATION
Item 1Legal Proceedings
None
Item 1ARisk Factors
There have been no material changes from the risk factors disclosed in the registrants form 10K.
Item 2Unregistered sales of equity securities and use of proceeds
The Company did not engage in any unregistered sales of
its securities during the quarter ended June 30, 2008.
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
Period
|
|
(a) Total
Number of
Shares (or
Units)
Purchased
|
|
(b)
Average Price
Paid per Share
(or
Unit)
|
|
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or
Programs
|
|
(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under
the
Plans or Programs
|
April 1 30, 2008
|
|
360
|
|
$
|
114.44
|
|
N/A
|
|
N/A
|
May 1 31, 2008
|
|
|
|
$
|
|
|
N/A
|
|
N/A
|
June 1 30, 2008
|
|
|
|
$
|
|
|
N/A
|
|
N/A
|
Total (1)
|
|
360
|
|
$
|
114.44
|
|
N/A
|
|
N/A
|
(1)
|
360 shares of common stock were purchased by Killbuck Bancshares in open-market transactions.
|
Item 3Default upon senior securities
None
Item 4Results of votes of security holders
-22-
The following represent the results of matters submitted to a vote of the shareholders at the annual meeting held on
April 28, 2008.
Affixing the number of directors at nine for 2008:
|
|
|
For
|
|
501,908
|
Abstain
|
|
534
|
Absent
|
|
125,740
|
Election of Directors:
The following directors were elected with terms to expire 2011:
|
|
|
|
|
|
|
For
|
|
Withheld
|
John W. Baker
|
|
501,908
|
|
126,274
|
Gail E. Patterson
|
|
501,908
|
|
126,274
|
Kenneth E. Taylor
|
|
501,908
|
|
126,274
|
Other directors not up for election but continuing in office include: Allan R. Mast, Dean J.
Mullet, Luther E. Proper, Theodore A. Bratton, Max A. Miller, and Michael S. Yoder.
Item 5Other Information
None
Item 6Exhibits
The following exhibits are included in this report or incorporated herein by
reference:
|
3.1(i)
|
Articles of Incorporation of Killbuck Bancshares, Inc.*
|
|
3.1(ii)
|
Amendment to the Articles of Incorporation of Killbuck Bancshares, Inc. increasing authorized shares.**
|
|
3.2
|
Code of Regulations of Killbuck Bancshares, Inc.*
|
|
31.1
|
Rule 13a-14(a) Certification
|
|
31.2
|
Rule 13a-14(a) Certification
|
|
32.1
|
Section 1350 Certifications
|
|
32.2
|
Section 1350 Certifications
|
|
99.1
|
Report of Independent Registered Public Accounting Firm
|
*
|
Incorporated by reference to an identically numbered exhibit to the Form 10 (file No. 0-24147) filed with SEC on April 30, 1998 and subsequently amended on July 8, 1998
and July 31, 1998.
|
**
|
Incorporated by reference to Registrants report on Form 10-Q for the quarter ended March 31, 2004, filed with the Commission on May 13, 2004.
|
-23-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
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Killbuck Bancshares, Inc.
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Date: August 11, 2008
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By:
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/s/ Luther E. Proper
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Luther E. Proper
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President and Chief Executive Officer
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Date: August 11, 2008
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By:
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/s/ Diane Knowles
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Diane Knowles
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Chief Financial Officer
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-24-
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