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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

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, 2002 was $61,536,891 and was $62,544,200 as of March 31, 2003 (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 April 30, 2003:  677,026

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 CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003

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, 2002 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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NOTE 4 – NEW ACCOUNTING STANDARDS

In August 2001, the Financial Accounting Standards Board (“FASB”) issued FAS No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability be recognized when incurred for the retirement of a long-lived asset and the value of the asset be increased by that amount.  The statement also requires that the liability be maintained at its present value in subsequent periods and outlines certain disclosures for such obligations.  The adoption of this statement, which was effective January 1, 2003, did not have a material effect on the Company’s financial position or results of operations.

In April 2002, the FASB issued FAS No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  FAS No. 145 rescinds FAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect.  As a result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. This statement also amends FAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This statement also makes technical corrections to existing pronouncements, which are not substantive but in some cases may change accounting practice.  The provisions of this statement related to the rescission of FAS No. 4 shall be applied in fiscal years beginning after May 15, 2002.  Any gain or loss on extinguishments of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB Opinion No. 30 for classification as an extraordinary item shall be reclassified.  Early adoption of the provisions of this statement related to FAS No. 13 shall be effective for transactions occurring after May 15, 2002.  All other provisions of this statement shall be effective for financial statements issued on or after May 15, 2002.   The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.

In July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.  This statement replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).  The new statement is effective for exit or disposal activities initiated after December 31, 2002.  The adoption of this statement did not have a material effect on the Company’s financial position or results of operations. 

On December 31, 2002, the FASB issued FAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amends FAS No. 123, Accounting for Stock-Based Compensation.  FAS No. 148 amends the disclosure requirements of FAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation.  Under the provisions of FAS No. 123, companies that adopted the preferable, fair value based method were required to apply that method prospectively for new stock option awards.  This contributed to a “ramp-up” effect on stock-based compensation expense in the first few years following adoption, which caused concern for companies and investors because of the lack of consistency in reported results.  To address that concern, FAS No. 148 provides two additional methods of transition that reflect an entity’s full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect.  FAS No. 148 also improves the clarity and prominence of disclosures about the pro forma effects of using the fair value based method of accounting for stock-based compensation for all companies—regardless of the accounting method used—by requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements.  In addition, the statement improves the timeliness of those disclosures by requiring that this information be included in interim as well as annual financial statements. The transition guidance and annual disclosure provisions of FAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances.  The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.  The adoption of this statement did not have a material effect on the Company’s financial statements. 

In April, 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133.  The amendments set forth in FAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in FAS No. 133.

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NOTE 4 – NEW ACCOUNTING STANDARDS (Continued)

In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. FAS No. 149 amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting.   This statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively.  The provisions of this statement that relate to FAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003.

In November, 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.  This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued.  This interpretation clarifies that a guarantor is required to disclose (a) the nature of the guarantee, including the approximate term of the guarantee, how the guarantee arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability, if any, for the guarantor’s obligations under the guarantee; and (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee.  This interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur.  The objective of the initial measurement of that liability is the fair value of the guarantee at its inception.  The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002.  The adoption of this interpretation did not have a material effect on the Company’s financial position or results of operations. 

In January, 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity.  The objective of this interpretation is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities.  Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests.  This interpretation changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of this interpretation apply immediately to variable interest entities created after January 31, 2003.  The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established.  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. 

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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, 2003 were $282,944,000 compared to $283,174,000 at December 31, 2002.

Cash and cash equivalents decreased by $936,778 or 4.6% from December 31, 2002, to March 31, 2003, with federal funds sold decreasing $800,000.  This decrease improved the Bank’s net interest margin by investing in higher yielding assets at March 31, 2003.

Investment securities available for sale decreased by $3,181,000 or 8.2% from December 31, 2002, due to maturities, calls, and repayments.  Investments held to maturity increased $196,000 or .5%.

Net loans increased by $2,806,000 or 1.6% from December 31, 2002, to March 31, 2003.  An increase of $4,464,000 occurred in the real estate loan category, which is attributable primarily to residential and commercial lending activity.  Commercial and other loan balances decreased by $645,000 and consumer loan balances decreased by $894,000. 

Total deposits at March 31, 2003 were $239,721,000 compared to $239,039,000 at December 31, 2002.  Time deposits decreased $2,953,000, demand accounts increased $155,000 and money market and savings accounts increased $3,482,000.  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 and short-term borrowings decreased $224,000 and $1,095,000 respectively at March 31, 2003 from December 31, 2002.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Financial Condition (Continued)

Shareholders’ Equity increased by $325,000 or 1.0%, which was mainly due to earnings of $752,000 for the first three months of 2003 decreased by a $133,000 unrealized loss on securities included in other comprehensive income and by the purchase of Treasury stock for $293,000. 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 2003.  Management monitors risk-based capital and leveraged capital ratios in order to assess compliance of the regulatory guidelines.  At March 31, 2003, the total capital ratio was 18.81%; the Tier I capital ratio was 17.58%, and the leverage ratio was 11.68%, 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, 2003 and 2002

Net income for the three-month period ended March 31, 2003, was $752,000, a decrease of $51,000 or 6.4% from the $803,000 reported at March 31, 2002.

Total interest income of $3,653,000 for the three-month period ended March 31, 2003, compares to $4,176,000 for the same period in 2002, a decrease of $523,000 or 12.5%.  The majority of the overall decrease in total interest income is attributed to a decrease in interest on taxable securities of approximately $327,000 or 62.5% of the overall decrease, which is due to a decline in the average balance.  The overall decrease in interest income resulted primarily from a decrease in the average rate on the underlying principle balances of interest earning assets.  See “Average Balance Sheet” for the three-month periods ended March 31, 2003 and March 31, 2002.

Total interest expense of $1,124,000 for the three-month period ending March 31, 2003, represents a decrease of $551,000 from the $1,675,000 reported for the same three-month period in 2002.  The decrease in interest expense resulted primarily from a decrease in the average yield on the underlying principle balances of interest bearing liabilities.  See “Average Balance Sheet” for the three-month periods ended March 31, 2003 and March 31, 2002.

Net interest income of $2,528,000 for the three months ended March 31, 2003, compares to $2,500,000 for the same three-month period in 2002, an increase of $28,000 or 1.1%.

Total other income for the three month period ended March 31, 2003, of $245,000 compares to $190,000 for the same three month period in 2002, an increase of $55,000 or 28.9%.  Gains on sale of loans increased $40,000 due to increased activity caused by declining fixed loan rates, and other income increased $8,000 due to an increase of $2,200 in alternative investment income, and an increase of  $5,100 in miscellaneous service charges. 

Total other expense of $1,720,000 for the three months ended March 31, 2003, compares to $1,589,000 for the same three-month period in 2002.  This represents an increase of $131,000 or 8.2%.  Of the $131,000 approximately $92,000 was attributable to normal recurring employee cost increases for annual salary increases, staff additions and employee benefits; and approximately $29,000 was attributable to normal and recurring occupancy and equipment expenses. 

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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 $19,371,000 at March 31, 2003.  These assets provide the primary source of liquidity for the Company.  In addition, management has designated a substantial portion of the investment portfolio, $35,867,000 as available for sale and has an available unused line of credit of $30,156,000 with the Federal Home Loan Bank of Cincinnati to provide additional sources of liquidity at March 31, 2003.  As of March 31, 2003, the Company had commitments to fund loans of approximately $4,640,000 and unused lines of credit totaling $18,398,000.

Cash was provided during the three month period ended March 31, 2003, mainly from operating activities of $.1 million, the maturities and repayments of investment securities of $8.0 million, and net increase in deposits of $.7 million.  Cash was used during the three month period ended March 31, 2003, mainly to fund a net increase in loans of $2.9 million, and for the purchase of investment securities of   $5.2 million.  In addition $1.3 million was also used to reduce Federal Home Loan Bank advances and short-term borrowings during the first three months of 2003 and $.3 million was used to purchase Treasury Stock.  Cash and cash equivalents totaled $19.4 million at March 31, 2003, a decrease of $.9 million from $20.3 million at December 31, 2002.

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, 2003, and December 31, 2002.  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 2003, impaired loans had no material effect on the Company’s financial position or results from operations.

The allowance for loan losses at March 31, 2003, totaled $2,444,00 or 1.37% of total loans as compared to $2,326,000 or 1.33% at December 31, 2002.  Provisions for loan losses were $105,000 for the three months ended March 31, 2003 and $45,000 for the three months ended March 31, 2002.

The level of funding for the provision is a reflection of the overall loan portfolio.  Nonperforming loans consist of approximately $151,000 in commercial real estate, $20,000 in one to four family residential mortgages, and $44,000 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.