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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For Quarter Ended June 30, 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 $60,720,865 as of June 30, 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 July 31, 2004: 661,644

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KILLBUCK BANCSHARES, INC.

Index

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Killbuck Bancshares, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

See accompanying notes to the unaudited 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 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)

SIX MONTHS ENDED JUNE 30, 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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Recent Accounting Pronouncements

In December 2003, the FASB issued a revision to Interpretation 46, Consolidation of Variable Interest Entities, which established standards for identifying a variable interest entity (“VIE”) and for determining under what circumstances a VIE should be consolidated with its primary beneficiary. The Interpretation requires consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the interpretation, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. The adoption of this Interpretation has not and is not expected to have a material effect on the Company’s financial position or results of operations.

In December 2003, the Financial Accounting Standards Board (“FASB”) revised FAS No. 132, Employers’ Disclosures about Pension and Other Postretirement Benefit. This statement retains the disclosures required by FAS No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the extent practicable and requires additional information on changes in the benefit obligations and fair value of plan assets. Additional disclosures include information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This statement retains reduced disclosure requirements for nonpublic entities from FAS No. 132, and it includes reduced disclosure for certain of the new requirements. This statement is effective for financial statements with fiscal years ending after December 15, 2003. The interim disclosures required by this statement are effective for interim periods beginning after December 15, 2003. The adoption of this statement did not have a material effect on the Company’s disclosure requirements.

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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 June 30, 2004 were $283,804,000 compared to $284,139,000 at December 31, 2003.

Cash and cash equivalents decreased by $8,562,000 or 48.8% from December 31, 2003, to June 30, 2004, with federal funds sold decreasing $7,800,000. This decrease improved the Bank’s net interest margin by investing in higher yielding assets at June 30, 2004.

Investment securities available for sale decreased by $5,391,000 or 30.7% from December 31, 2003, due to net maturities, calls, and repayments. Investments held to maturity decreased $1,301,000 or 3.2% due to maturities, calls and repayments.

Net loans increased by $14,974,000 or 7.5% from December 31, 2003, to June 30, 2004. An increase of $10,872,000 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 $5,020,000 due to seasonal changes and inventory growth while consumer loan balances decreased by $918,000.

Total deposits at June 30, 2004 were $236,756,000 compared to $241,724,000 at December 31, 2003. Time deposits decreased $1,386,000, demand accounts decreased $3,299,000 and money market and savings accounts decreased $283,000. Management attributes these changes to maturing time deposits and the volatility of interest rates and consumer expectations of rising rates. Furthermore, management also believes various customers are investing their funds in their businesses and the stock market.

Federal Home Loan Bank advances increased $3,631,000 due to $4,000,000 in new advances, which was used to help fund loan growth, and scheduled repayments and short-term borrowings increased $655,000 at June 30, 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 $471,000 or 1.4%, which was mainly due to earnings of $1,555,000 for the first six months of 2004 decreased by a $156,000 unrealized loss on securities included in other comprehensive income, dividends paid totaling $630,000, and by the purchase of Treasury stock for $298,000. 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 six months of 2004. Management monitors risk-based capital and leveraged capital ratios in order to assess compliance of the regulatory guidelines. At June 30, 2004, the total capital ratio was 17.46%; the Tier I capital ratio was 16.21%, and the leverage ratio was 12.06%, 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 Six Months Ended June 30, 2004 and 2003

Net income for the six-month period ended June 30, 2004, was $1,555,000, an increase of $34,000 or 2.2% from the $1,521,000 reported at June 30, 2003.

Total interest income of approximately $6,821,000 for the six-month period ended June 30, 2004, compares to $7,258,000 for the same period in 2003, a decrease of $437,000 or 6.0%. $460,000 of the decrease in total interest income is attributed to a decrease in investment securities – taxable. Investment income decreased $508,000 or 30.0% for the six-month period ended June 30, 2004 compared to the same period for 2003. The decrease in investment income is due to a decrease in volume. Average investment balances were $55,987,000 compared to $77,533,000 and the yields were 4.2% compared to 4.4% for the first six months of 2004 and 2003 respectively. See “Average Balance Sheet” for the six-month periods ended June 30, 2004 and 2003. Interest and fees on loans increased $113,000 or 2.1% for the six-month period ended June 30, 2004 compared to the same period for 2003. The increase in interest and fees on loans is due to an increase in the volume of loans. Average loan balances were $209,107,000 for the first six months of 2004 compared to $180,187,000 for the first six months of 2003 and the yield on loans decreased to 5.4% for the first six months of 2004 compared to 6.1% for the first six months of 2003.

Total interest expense of $1,591,000 for the six-month period ending June 30, 2004 represents a decrease of $579,000 from the $2,170,000 reported for the same six-month period in 2003. The decrease in interest expense on deposits of $552,000 is due mainly to the decreases in the average yield on the underlying principle balances of the interest bearing liabilities. Average interest bearing deposits were $201,420,000 for the first six months of 2004 compared to $204,809,000 for the first six months of 2003. The cost on interest bearing deposits was 1.5%, compared to 2.0% for the six-month periods of 2004 and 2003 respectively. See “Average Balance Sheet” for the six-month periods ended June 30, 2004 and 2003.

Net interest income of $5,230,000 for the six months ended June 30, 2004, compares to $5,088,000 for the same six-month period in 2003, an increase of $142,000 or 2.8%.

Total other income for the six month period ended June 30, 2004, of $495,000 compares to $573,000 for the same six month period in 2003, a decrease of $78,000 or 13.6%. Gains on sale of loans decreased $123,000 due to decreased activity caused by increasing loan rates. The increase of $41,000 in service charges on deposit accounts was attributable to various service charges that were increased effective April 1, 2003. Other income increased $4,000 due to the increases in miscellaneous other service charges.

Total other expense of $3,629,000 for the six months ended June 30, 2004, compares to $3,526,000 for the same six-month period in 2003. This represents an increase of $103,000 or 2.9%. Salary and employee benefits increased approximately $109,000 due to normal increases in salaries and employee benefits and additional business development staff hired in March 2003. The changes in the remaining expense accounts were attributable to increases in items that are normal and recurring in nature.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2004 and 2003

Net income for the three-month period ended June 30, 2004, was $782,000, an increase of $12,000 or 1.6% from the $770,000 reported at June 30, 2003.

Total interest income of approximately $3,435,000 for the three-month period ended June 30, 2004, compares to $3,604,000 for the same period in 2003, a decrease of $169,000 or 4.7%. $221,000 of the decrease in total interest income is attributed to a decrease in investment securities – taxable. The decrease in interest on investment securities of $247,000 was due to a decrease in the average balances outstanding of $54,209,000 for 2004 compared to $76,449,000 for 2003 and the yield was 4.3% compared to 4.3% for this three-month period of 2004 and 2003 respectively. See “Average Balance Sheet” for the three-month periods ended June 30, 2004 and 2003. Interest and fees on loans increased $99,000 or 3.6% for the three-month period ended June 30, 2004 compared to the same period for 2003. The increase in interest and fees on loans is due to an increase in the volume of the loan portfolio. Average loan balances were $213,524,000 compared to $183,342,000 and the yield was 5.3% compared to 6.0% for this three-month period of 2004 and 2003 respectively.

Total interest expense of $779,000 for the three-month period ending June 30, 2002, represents a decrease of $266,000 from the $1,045,000 reported for the same three-month period in 2003. The decrease in interest expense on deposits of $254,000 is due mainly to a decrease in volume of Time deposits. Average interest bearing deposits were $201,815,000 for this three-month period of 2004 compared to $205,757,000 for the same three months of 2003. The cost of interest bearing deposits was 1.4% compared to 1.9% for this three-month period of 2004 and 2003 respectively. See “Average Balance Sheet” for the three-month periods ended June 30, 2004 and 2003.

Net interest income of $2,655,000 for the three months ended June 30, 2004, compares to $2,559,000 for the same three-month period in 2003, an increase of $96,000 or 3.8%.

Total other income for the three month period ended June 30, 2004, of $250,000 compares to $328,000 for the same three month period in 2003, a decrease of $78,000 or 23.8%. Gains on sale of loans decreased $89,000 due to the Bank’s decreased activity caused by increasing loan rates. The service fee income on deposits increased $6,000 due to various service charges that were increased effective April 1, 2003. Other income increased $5,000 due to the increases in miscellaneous other service charges also effective April 1, 2003.

Total other expense of $1,883,000 for the three months ended June 30, 2004, compares to $1,806,000 for the same three-month period in 2003. This represents an increase of $77,000 or 4.3%. Salary and employee benefits increased $63,000 due to normal recurring employee cost increases for salary and employee benefits.

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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 $8,993,000 at June 30, 2004. These assets provide the primary source of liquidity for the Company. In addition, management has designated a portion of the investment portfolio, $12,191,000 as available for sale and has an available unused line of credit of $29,860,000 with the Federal Home Loan Bank of Cincinnati to provide additional sources of liquidity at June 30, 2004. As of June 30, 2004, the Company had commitments to fund loans of approximately $5,367,000 and unused lines of credit totaling $30,176,000.

Cash was provided during the six month period ended June 30, 2004, mainly from operating activities of $1.9 million, the maturities and repayments of investment securities of $7.0 million, and a net increase of $4.3 million in Federal Home Loan Bank advances and short-term borrowings. Cash was used during the six month period ended June 30, 2004, mainly to fund a net increase in loans of $15.1 million, for the purchase of investment securities of $.6 million, and the net decrease in deposits of $5.0 million. In addition $.2 million was used to purchase equipment, $.3 million was used to purchase Treasury Stock, and $.6 million was used to pay dividends to shareholders. Cash and cash equivalents totaled $9.0 million at June 30, 2004, a decrease of $8.6 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 June 30, 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 June, 2004, impaired loans had no material effect on the Company’s financial position or results from operations.

The allowance for loan losses at June 30, 2004, totaled $2,849,035 or 1.32% of total loans as compared to $2,792,430 or 1.33% at December 31, 2003. Provisions for loan losses were $120,000 for the six months ended June 30, 2004 and $210,000 for the six months ended June 30, 2003.

The level of funding for the provision is a reflection of the overall loan portfolio. Nonperforming loans consist of approximately $37,000 in commercial real estate, and $209,000 in one to four family residential mortgages. 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.

Subsequent to June 30, 2004, a commercial loan for $ 1.3 million, has become delinquent and has been placed on nonaccrual. Management has contacted an auctioneer, who specializes in this type of facility, to evaluate the property and equipment. After the evaluation, the property may require a write-down to the allowance for loan losses before being sold. The auctioneer will market and sell the property. Management anticipates the completion of the transaction by the end of the fiscal year, December 31, 2004.

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AVERAGE BALANCE SHEET

Average Balance Sheet for the Six-Month Period Ended June 30

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.