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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For Quarter Ended March 31, 2004

Commission File Number 000-24147

KILLBUCK BANCSHARES, INC.

(Exact name of registrant as specified in its Charter)

165 N. Main Street, Killbuck, OH 44637

(Address of principal executive offices and zip code)

(330) 276-2771

(Registrant’s 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 an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x

The aggregate market value of the voting stock held by nonaffiliates of the registrant, calculated by reference to the stock valuation done on Killbuck Bancshares, Inc. common stock as of December 31, 2003 was $61,048,520 and was $60,990,095 as of March 31, 2004 (Registrant has assumed that all of its executive officers and directors are affiliates. Such assumption shall not be deemed to be conclusive for any other purpose):

State the number of shares outstanding for each of the issuer’s classes of common equity as of the latest practicable date:

Class: Common Stock, no par value

Outstanding at May 4, 2004: 663,044

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KILLBUCK BANCSHARES, INC.

Index

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Killbuck Bancshares, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

See accompanying notes to the consolidated financial statements.

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Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

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Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2004

See accompanying notes to the unaudited consolidated financial statements.

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Killbuck Bancshares, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

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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, 2003 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:

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MANAGEMENT’S 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.

Financial Condition

Total assets at March 31, 2004 were $289,589,000 compared to $284,139,000 at December 31, 2003.

Cash and cash equivalents decreased by $595,000 or 3.4% from December 31, 2003, to March 31, 2004, with federal funds sold increasing $500,000. This decrease improved the Bank’s net interest margin by investing in higher yielding assets at March 31, 2004.

Investment securities available for sale decreased by $2,719,000 or 15.5% from December 31, 2003, due to net maturities, calls, and repayments. Investments held to maturity decreased $664,000 or 1.6% due to maturities, calls and repayments.

Net loans increased by $9,236,000 or 4.6% from December 31, 2003, to March 31, 2004. An increase of $4,965,000 occurred in the real estate loan category, which is attributable primarily to residential and commercial lending activity; which was created by a continuation of aggressively marketing loans in this low rate environment. Commercial and other loan balances increased by $4,826,000 due to seasonal changes and inventory growth while consumer loan balances decreased by $555,000.

Total deposits at March 31, 2004 were $247,448,000 compared to $241,724,000 at December 31, 2003. Time deposits decreased $939,000, demand accounts increased $2,160,000 and money market and savings accounts increased $4,503,000. Management attributes these changes to maturing time deposits and the volatility of interest rates and consumer expectations of rising rates.

Federal Home Loan Bank advances decreased $192,000 due to scheduled repayments and short-term borrowings decreased $850,000 at March 31, 2004 from December 31, 2003.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Financial Condition (Continued)

Shareholders’ Equity increased by $744,000 or 2.2%, which was mainly due to earnings of $773,000 for the first three months of 2004 increased by a $29,000 unrealized gain on securities included in other comprehensive income and decreased by the purchase of Treasury stock for $58,000. Treasury stock purchases are monitored against the Company’s Strategic Plan and the goals set forth in the plan. The Treasury stock purchases have been within the Strategic Plan’s guidelines for the first three months of 2004. Management monitors risk-based capital and leveraged capital ratios in order to assess compliance of the regulatory guidelines. At March 31, 2004, the total capital ratio was 17.36%; the Tier I capital ratio was 16.12%, and the leverage ratio was 11.83%, compared to regulatory capital requirements of 8.00%, 4.00% and 4.00% respectively. These ratios are well in excess of regulatory capital requirements.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2004 and 2003

Net income for the three-month period ended March 31, 2004, was $773,000 an increase of $21,000 or 2.8% from the $752,000 reported at March 31, 2003.

Total interest income of $3,386,000 for the three-month period ended March 31, 2004, compares to $3,653,000 for the same period in 2003, a decrease of $267,000 or 7.3%. The majority of the overall decrease in total interest income is attributed to a decrease in interest on taxable securities of approximately $236,000 or 88.4% of the overall decrease, which is due mainly to a decline in the average balance. The overall decrease in interest income resulted primarily from a decrease in the average yield on the underlying principle balances of interest earning assets. See “Average Balance Sheet” for the three-month periods ended March 31, 2004 and March 31, 2003.

Total interest expense of $812,000 for the three-month period ending March 31, 2004, represents a decrease of $312,000 from the $1,124,000 reported for the same three-month period in 2003. The decrease in interest expense resulted primarily from a decrease in the average principle balances of interest bearing liabilities. See “Average Balance Sheet” for the three-month periods ended March 31, 2004 and March 31, 2003.

Net interest income of $2,574,000 for the three months ended March 31, 2004, compares to $2,529,000 for the same three-month period in 2003, an increase of $45,000 or 1.8%.

Total other income for the three month period ended March 31, 2004 remains stable at approximately $245,000 compared to $245,000 for the same three month period in 2003. Gains on sale of loans decreased $34,000 due to decreased activity caused by fluctuating fixed loan rates, other income decreased $1,000 due to a decrease of $3,000 in miscellaneous income, and an increase of $35,000 in miscellaneous service charges due to a fee increase instituted in the second quarter of 2003.

Total other expense of $1,746,000 for the three months ended March 31, 2004, compares to $1,720,000 for the same three-month period in 2003. This represents an increase of $26,000 or 1.5%. Of the $26,000 approximately $46,000 was attributable to normal recurring employee cost increases for annual salary increases, staff additions, employee benefits and a commercial calling officer being hired in the second quarter of 2003 for the Apple Valley branch. A decrease of approximately $29,000 was attributable to occupancy and equipment expenses. Of this $29,000, approximately $22,000 is due to the main components of the computer network being fully depreciated in the fourth quarter of 2003.

According to the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, Management periodically evaluates goodwill for impairment. At this time, no impairment has been recognized.

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Liquidity

Management monitors projected liquidity needs and determines the level desirable based in part on the Company’s commitments to make loans and management’s assessment of the Company’s 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 $16,960,000 at March 31, 2004. These assets provide the primary source of liquidity for the Company. In addition, management has designated a portion of the investment portfolio, $14,863,000 as available for sale and has an available unused line of credit of $33,134,000 with the Federal Home Loan Bank of Cincinnati to provide additional sources of liquidity at March 31, 2004. As of March 31, 2004, the Company had commitments to fund loans of approximately $2,281,000 and unused lines of credit totaling $24,800,000.

Cash was provided during the three month period ended March 31, 2004, mainly from operating activities of $.7 million, the maturities and repayments of investment securities of $4.0 million, and net increase in deposits of $5.7 million. Cash was used during the three month period ended March 31, 2004, mainly to fund a net increase in loans of $9.3 million, and for the purchase of investment securities of $.6 million. In addition $1.0 million was also used to reduce Federal Home Loan Bank advances and short-term borrowings during the first three months of 2004 and $.1 million was used to purchase Treasury Stock. Cash and cash equivalents totaled $17.0 million at March 31, 2004, a decrease of $.6 million from $17.6 million at December 31, 2003.

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.

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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 March 31, 2004, and December 31, 2003. A loan is classified as nonaccrual when, in the opinion of management, there are doubts about collectibility of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. 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.

Management monitors impaired loans on a continual basis. As of March 2004, impaired loans had no material effect on the Company’s financial position or results from operations.

The allowance for loan losses at March 31, 2004, totaled $2,792,000 or 1.32% of total loans as compared to $2,702,000 or 1.34% at December 31, 2003. Provisions for loan losses were $90,000 for the three months ended March 31, 2004 and $105,000 for the three months ended March 31, 2003.

The level of funding for the provision is a reflection of the overall loan portfolio. Nonperforming loans consist of approximately $41,000 in commercial real estate, $142,000 in one to four family residential mortgages, and $2,000 in consumer loans. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in management’s 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.

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AVERAGE BALANCE SHEET

Average Balance Sheet for the Three-Month Period Ended March 31

The following table sets forth certain information relating to the Company’s 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.

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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).

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Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Market risk for the Company is comprised primarily from interest rate risk exposure and liquidity risk. Since virtually all of the interest-earning assets and paying liabilities are at the Bank, virtually all of the interest rate risk and liquidity risk lies at the Bank level. The Bank is not subject to any trading risk. In addition, the Bank does not participate in hedging transactions such as interest rate swaps and caps. Changes in interest rates will impact both income and expense recorded and also the market values of long-term interest-earnings assets. Interest rate risk and liquidity risk managements is performed at the Bank level. Although the Bank has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the immediate trade area.

One of the principal functions of the Company’s asset/liability management program is to monitor the level to which the balance sheet is subject to interest rate risk. The goal of the asset/liability program is to manage the relationship between interest rate sensitive assets and liabilities, thereby minimizing the fluctuations in the net interest margin, which achieves consistent growth of net interest income during periods of changing interest rates.

Interest rate sensitivity is the result of differences in the amounts and repricing dates of a bank’s rate sensitive assets and rate sensitive liabilities. These differences, or interest rate repricing “gap” provide an indication of the extent that the Company’s net interest income is affected by future changes in interest rates. During a period of rising interest rates, a positive gap, a position of more rate sensitive assets than rate sensitive liabilities, is desired. During a falling interest rate environment, a negative gap is desired, that is, a position in which rate sensitive liabilities exceed rate sensitive assets.

At March 31, 2004, the Company had a cumulative positive gap of $104.8 million or 35.75% at the one-year horizon. The gap analysis indicates that if interest rates were to rise 200 basis points (2.00%), the Company’s net interest income would improve at the one-year horizon because the Company’s rate sensitive assets would reprice faster than rate sensitive liabilities. Conversely, if rates were to fall 200 basis points, the Company’s net interest income would decline.

Management also manages interest rate risk with the use of simulation modeling which measures the sensitivity of future net interest income as a result of changes in interest rates. The analysis is based on repricing opportunities for variable rate assets and liabilities and upon contractual maturities of fixed rate instruments.

The simulation also calculates net interest income based upon rate increases or decrease of + or – 200 basis points (or 2.00%) in 100 basis point (or 1.00%) increments. The analysis reprices the balance sheet and forecasts future cash flows over a one-year horizon at the net interest rate levels. The cash flows are then totaled to calculate net interest income. Assumptions are made for loan and investment pre-payment speeds and are incorporated into the simulation as well. Loan and investment pre-payment speeds will increase as interest rates decrease and slow as interest rates rise. The current analysis indicates that, given a 200 basis point overnight decrease in interest rates, the Company would experience a potential $645,000 or 19.69% decline in net interest income. If rates were to increase 200 basis points, the analysis indicates that the Company’s net interest income would increase $651,000 or 19.86%. It is important to note, however, that this exercise would be a worst-case scenario. It would be more likely to have incremental changes in interest rates, rather than a single significant increase or decrease.

When management believes interest rate movements will occur, it can restructure the balance sheet and thereby the ratio of rate sensitive assets to rate sensitive liabilities which in turn will effect the net interest income. It is important to note; however, that in gap analysis and simulation modeling not all assets and liabilities with similar maturities and repricing opportunities will reprice at the same time or to the same degree and therefore, could effect forecasted results.

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Much of the Bank’s deposits have the ability to reprice immediately, however, deposit rates are not tied to an external index. As a result, although changing market interest rates impact repricing, the Bank retains much of the control over repricing by determining itself the extent and timing of repricing deposit products. In addition, the Bank maintains a portion of its investment portfolio as available for sale securities and also has a significant variable rate loan portfolio, which is used to offset rate sensitive liabilities.

Changes in market interest rates can also affect the Bank’s liquidity position through the impact rate change may have on the market value of the available for sale portion of the investment portfolio. Increase in market rates can adversely impact the market values and therefore, make it more difficult for the Bank to sell available for sale securities needed for general liquidity purposes without incurring a loss on the sale. This issue is addressed by the Bank with the use of borrowings from the Federal Home Loan Bank (“FHLB”) and the selling of fixed rate mortgages as a source of liquidity to the Bank.

The Company’s liquidity plan allows for the use of long-term advances or short-term lines of credit with the FHLB as a source of funds. Borrowing from FHLB not only provides a source of liquidity for the Company, but also serves as a tool to reduce interest risk as well. The Company may structure borrowings from FHLB to match those of customers’ credit requests, and therefore, lock in interest rate spreads over the lives of the loans.

In addition to borrowing from the FHLB as a source for liquidity, the Company also participates in the secondary mortgage market. Specifically, the Company sells fixed rate, residential real estate mortgages to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The sales to Freddie Mac not only provide an opportunity for the Bank to remain competitive in the market place, by allowing it to offer a fixed rate mortgage product, but also provide an additional source of liquidity and an additional tool for management to limit interest rate risk exposure. The Bank continues to service all loans sold to Freddie Mac.

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Item 4 – CONTROLS AND PROCEDURES

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President and Chief Executive Officer and Vice President and Chief Financial Officer concluded that the Company’s 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 Company’s periodic SEC filings. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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 Commission’s rules and forms.

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Part II – OTHER INFORMATION

Item 1 - Legal Proceedings

None

Item 2 - Changes in the rights of the Company’s security holders

None

ISSUER PURCHASES OF EQUITY SECURITIES