United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2005

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 0-12724

Belmont Bancorp.

(Exact name of registrant as specified in its charter)


Ohio		34-1376776
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

325 Main St., Bridgeport, Ohio		43912
(Address of principal executive offices)		(Zip Code)

(740)-695-3323

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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 requirement for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $0.25 par value,

11,126,278 shares outstanding

as of May 10, 2005

BELMONT BANCORP.

Quarter Ended March 31, 2005

INDEX


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets – March 31, 2005 and December 31, 2004		3

Consolidated Statements of Income-Three Months Ended March 31, 2005 and March 31, 2004		4

Condensed Consolidated Statements of Cash Flows-Three Months Ended March 31, 2005 and March 31, 2004		5

Condensed Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2005 and March 31, 2004		6

Notes to the Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosure about Market Risk		19

Item 4. Controls and Procedures		19

Part II – OTHER INFORMATION

Item 1. Legal Proceedings		20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		20

Item 3. Defaults upon Senior Securities		20

Item 4. Submission of Matters to a Vote of Security Holders		20

Item 5. Other Information		20

Item 6. Exhibits		21

Signature page		22

Certifications		23

Belmont Bancorp. and Subsidiaries

Consolidated Balance Sheets

(Unaudited) ($000s except share and per share amounts)


	March 31, 2005			December 31, 2004
Assets
Cash and due from banks	$	7,632		$	7,770
Interest-bearing deposits in other banks		1,107			68
Federal funds sold		4,360			10,650

Cash and cash equivalents		13,099			18,488
Securities available for sale at fair value		95,547			91,992
Securities held to maturity (estimated fair value of $268 at 3/31/05 and $269 at 12/31/04)		250			250
Federal Home Loan Bank stock, at cost		3,786			3,744
Federal Reserve Bank stock, at cost		517			517
Loans held for sale		145			276
Loans		168,357			174,838
Less allowance for loan losses		(2,950	)		(3,007	)

Net loans		165,407			171,831
Premises and equipment, net		6,682			6,944
Deferred federal tax assets		4,224			4,033
Cash surrender value of life insurance		1,393			1,387
Accrued income receivable		1,296			1,172
Other assets		1,835			1,727

Total assets	$	294,181		$	302,361

Liabilities and Shareholders’ Equity
Liabilities
Non-interest bearing deposits:
Demand	$	33,229		$	35,675
Interest-bearing deposits:
Demand		30,676			32,153
Savings		91,821			95,775
Time		70,583			68,874

Total deposits		226,309			232,477
Securities sold under repurchase agreements		286			1,717
Federal Home Loan Bank advances		35,047			35,051
Accrued interest on deposits and other borrowings		285			285
Other liabilities		1,227			1,273

Total liabilities		263,154			270,803

Shareholders’ Equity
Preferred stock - authorized 90,000 shares with no par value; no shares issued or outstanding		—			—
Common stock - $0.25 par value, 17,800,000 shares authorized; 11,153,195 shares issued		2,788			2,788
Additional paid-in capital		17,564			17,564
Retained earnings		11,640			11,517
Treasury stock at cost (26,917 shares at 3/31/05 and 12/31/04)		(569	)		(569	)
Accumulated other comprehensive income (loss)		(396	)		258

Total shareholders’ equity		31,027			31,558

Total liabilities and shareholders’ equity	$	294,181		$	302,361

See the Notes to the Consolidated Financial Statements.

Belmont Bancorp. and Subsidiaries

Consolidated Statements of Income

(Unaudited) ($000s except per share amounts)


	For the Three Months Ended March 31,
	2005		2004
Interest and Dividend Income
Loans:
Taxable	$	2,580	$	2,452
Tax-exempt		37		37
Securities:
Taxable		987		1,178
Tax-exempt		15		18
Dividends		49		44
Interest on federal funds sold		44		5

Total interest and dividend income		3,712		3,734

Interest Expense
Deposits		776		780
Borrowings		354		331

Total interest expense		1,130		1,111

Net interest income		2,582		2,623
Provision for Loan Losses		—		—

Net interest income after provision for loan losses		2,582		2,623

Noninterest Income
Trust fees		170		166
Service charges on deposits		277		323
Mortgage servicing fees		40		46
Other operating income		200		200
Securities gains		—		22
Gains on sale of loans held for sale		27		29

Total noninterest income		714		786

Noninterest Expense
Salary and employee benefits		1,205		1,258
Net occupancy expense		318		243
Equipment expense		270		205
Legal fees		101		38
Other operating expenses		668		718

Total noninterest expense		2,562		2,462

Income before income taxes		734		947
Income Tax Expense		166		260

Net Income	$	568	$	687

Basic and Diluted Earnings Per Common Share	$	0.05	$	0.06

See the Notes to the Consolidated Financial Statements.

Belmont Bancorp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2005 and 2004

(Unaudited) ($000’s)


	2005			2004
Cash from Operating Activities	$	1,013		$	473

Investing Activities

Proceeds from:
Maturities and calls of securities		6,550			2,669
Sales of securities available for sale		—			33
Principal collected on mortgage-backed securities		3,154			4,385
Sales of loans from portfolio		3,355			—
Sales of other real estate owned		—			2
Purchases of:
Mortgage-backed securities available for sale		(7,430	)		(10,363	)
Other securities available for sale		(6,979	)		—
Loans		(2,360	)		(4,060	)
Premises and equipment		(73	)		(111	)
Changes in:
Loans, net		5,429			(5,035	)

Cash from investing activities		1,646			(12,480	)

Financing Activities
Proceeds from:
Advances on long-term debt		—			10,300
Payments on Federal Home Loan Bank advances		(4	)		(5	)
Dividends paid on common stock		(445	)		(333	)
Changes in:
Deposits		(6,168	)		(5,136	)
Repurchase agreements		(1,431	)		(442	)
Short-term borrowings		—			4,000

Cash from financing activities		(8,048	)		8,384

Increase (Decrease) in Cash and Cash Equivalents		(5,389	)		(3,623	)
Cash and Cash Equivalents, Beginning of Year		18,488			13,036

Cash and Cash Equivalents at March 31	$	13,099		$	9,413

Cash payments for interest	$	1,130		$	1,137
Cash payments for income taxes		30			—
Non-cash transfers from loans to other real estate owned and repossessions		—			—

See the Notes to the Consolidated Financial Statements.

Belmont Bancorp. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited) ($000s except per share amounts)


	Three Months Ended March 31,
	2005			2004
Balance, beginning of period	$	31,558		$	35,522
Comprehensive income (loss):
Net income		568			687
Change in net unrealized gain (loss) on securities available for sale, net of reclassification and tax effects		(654	)		189

Total comprehensive income (loss)		(86	)		876
Cash dividends ($0.04 in 2005; $0.03 in 2004)		(445	)		(333	)
Common stock options vested		—			2

Balance, end of period	$	31,027		$	36,067

See the Notes to the Consolidated Financial Statements.

PART I - FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Belmont Bancorp and its subsidiaries, Belmont National Bank (the “Bank”) and Belmont Financial Network. Material intercompany accounts and transactions have been eliminated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

The foregoing financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for a fair presentation of the financial statements have been included. A summary of the Company’s significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the Company’s Annual Report to Shareholders on Form 10-K for the year ended December 31, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates particularly subject to change would include the allowance for loan losses, deferred tax valuation allowance, other than temporary impairment of securities, and loss contingencies.

While management monitors the revenue streams of the various Company products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s service operations are considered by management to be aggregated in one reportable operating segment.

Earnings Per Common Share: Average shares outstanding used to compute basic and diluted earnings per share differ due to stock option grants. The average number of shares outstanding used to compute basic and diluted earnings per share was as follows:


	Basic		Diluted
Average shares outstanding	2005	2004	2005	2004
For the three months ending March 31	11,126,278	11,108,903	11,229,948	11,213,334

Comprehensive Income: The components of other comprehensive income were as follows:


	Three months ended March 31,
(Expressed in thousands)	2005			2004
Unrealized holding gains (losses) arising during the period	$	(991	)	$	309
Reclassification adjustment		—			(22	)

Change in unrealized gains (losses) on securities		(991	)		287
Tax effect		337			(98	)

Other comprehensive income (loss)	$	(654	)	$	189

Stock Compensation: Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income for options granted with an exercise price equal to or greater than the market

price of the underlying common stock at date of grant. Compensation expense is reflected in net income for certain options granted with an exercise price below the market price of the underlying common stock at the date of the grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”.


	For the Three Months Ended March 31,
(Expressed in thousands except per share amounts)	2005			2004
Net income as reported	$	568		$	687
Add: Expense, net of tax, included in net income for options granted below fair value		—			1
Deduct: Stock-based compensation expense determined under fair value based method		(44	)		(39	)

Pro forma net income	$	524		$	649

Basic earnings per share as reported	$	0.05		$	0.06
Pro forma basic earnings per share		0.05			0.06

Diluted earnings per share as reported		0.05			0.06
Pro forma diluted earnings per share		0.05			0.06

2. Securities

The estimated fair values of securities available for sale were as follows:


	March 31, 2005
	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises	$	16,967	$	—	$	(236	)
Tax-exempt obligations of states and political subdivisions		1,110		104		(1	)
Taxable obligations of states and political subdivisions		13,464		77		(44	)
Mortgage-backed securities		49,697		297		(715	)
Collateralized mortgage obligations		6,319		105		(99	)
Corporate debt		5,024		60		(111	)

Total debt securities		92,581		643		(1,206	)
Marketable equity securities		2,966		11		(48	)

Total available for sale	$	95,547	$	654	$	(1,254	)


	December 31, 2004
(Expressed in thousands)	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises	$	14,678	$	10	$	(49	)
Tax-exempt obligations of states and political subdivisions		1,153		128		(1	)
Taxable obligations of states and political subdivisions		15,195		164		(5	)
Mortgage-backed securities		45,543		494		(351	)
Collateralized mortgage obligations		6,893		125		(58	)
Corporate debt		5,554		71		(110	)

Total debt securities		89,016		992		(574	)
Marketable equity securities		2,976		12		(39	)

Total available for sale	$	91,992	$	1,004	$	(613	)

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity are summarized as follows:


	March 31, 2005
(Expressed in thousands)	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
Corporate debt	$	250	$	18	$	—	$	268

	December 31, 2004
(Expressed in thousands)	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
Corporate debt	$	250	$	19	$	—	$	269

Securities with unrealized losses at March 31, 2005 and year-end 2004, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:


March 31, 2005	Less than 12 months					12 Months or More					Total
(Expressed in thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises	$	15,851	$	(217	)	$	1,116	$	(19	)	$	16,967	$	(236	)
Obligations of States and Political Subdivisions		5,106		(44	)		1		(1	)		5,107		(45	)
Mortgage-backed securities		22,782		(291	)		19,364		(523	)		42,146		(814	)
Corporate debt		—		—			3,012		(111	)		3,012		(111	)
Marketable equity securities		—		—			2,952		(48	)		2,952		(48	)

Total temporarily impaired	$	43,739	$	(552	)	$	26,445	$	(702	)	$	70,184	$	(1,254	)



December 31, 2004	Less than 12 months					12 Months or More					Total
(Expressed in thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises	$	9,312	$	(47	)		99		(2	)	$	9,411	$	(49	)
Obligations of States and Political Subdivisions		4,418		(6	)		—		—			4,418		(6	)
Mortgage-backed securities		25,454		(188	)		7,920		(221	)		33,374		(409	)
Corporate debt		542		(10	)		2,476		(100	)		3,018		(110	)
Marketable equity securities		—		—			2,961		(39	)		2,961		(39	)

Total temporarily impaired	$	39,726	$	(251	)	$	13,456	$	(362	)	$	53,182	$	(613	)

The Company evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

Unrealized losses on securities have not been recognized into income because management has the intent and ability to hold the securities for the foreseeable future and believes the issuers have the ability to repay its obligations upon maturity, repayment, or redemption.

3. Loans and Allowance for Loan Losses

Loans outstanding are as follows:


(Expressed in thousands)	March 31, 2005		December 31, 2004
Real estate:
Construction	$	6,787	$	6,161
Residential		61,799		62,320
Commercial		81,286		85,186
Commercial, financial and agricultural		13,989		16,659
Obligations of political subdivisions in the U.S.		1,355		1,399
Consumer		3,141		3,113

Loans receivable	$	168,357	$	174,838

Non-accruing loans amounted to $2,953,000 at March 31, 2005, down from $3,353,000 at year-end 2004. Generally, non-accruing loans are considered impaired and are also included in the impaired loan table below. Loans past due 90 days and still accruing interest were $173,000 at March 31, 2005 and $5,000 at year-end 2004.

Impaired loans were as follows:


(Expressed in thousands)	March 31, 2005		December 31, 2004
Impaired loans with allocated allowance for loan losses	$	2,423	$	2,761
Impaired loans with no allocated allowance for loan losses		—		—

Total	$	2,423	$	2,761

Amount of the allowance for loan losses allocated	$	395	$	488

	Three Months Ended March 31,
(Expressed in thousands)	2005		2004
Average impaired loans	$	2,592	$	1,538
Interest income recognized during impairment		—		—
Cash-basis interest income recognized		—		—

Activity in the allowance for loan losses is summarized as follows:


	Three months ended March 31,
(Expressed in thousands)	2005			2003
Balance, beginning of period	$	3,007		$	3,300

Provision for loan losses		—			—

Loans charged-off		(83	)		(73	)
Recoveries on loans previously charged-off		26			90

Net (charge-offs) recoveries		(57	)		17

Balance, end of period	$	2,950		$	3,317

The entire allowance represents a valuation reserve which is available for future charge-offs.

4. Stock Option Plan

In May 2001, the Company’s shareholders approved the Belmont Bancorp. 2001 Stock Option Plan (the “Plan”). The Plan authorized the granting of up to 1,000,000 shares of common stock as incentive and nonqualified stock options. Generally, one fourth of the options awarded become exercisable on each of the four anniversaries of the date of grant. However, some of the options granted in 2001 vested immediately on the date of the grant with the remaining amount vesting over the next three to four years. The option period expires 10 years from the date of grant. If the Company’s shareholders approve the proposed merger with Sky Financial Group, Inc., all options will vest immediately.

The following is a summary of the activity in the Plan for the three months ended March 31, 2005:


	Available for Grant	Options Outstanding	Weighted Average Exercise Price
Balance at January 1, 2005	660,625	314,500	$	4.06
Forfeitures	—	—		—
Granted	—	—		—

Balance at March 31, 2005	660,625	314,500	$	4.06

Pro forma information for net income and earnings per common share is presented in Note 1.

5. Litigation

The Company and its subsidiaries are involved in legal proceedings through the normal course of business and could face claims, including unasserted claims, which may ultimately result in litigation. It is management’s opinion that the Company’s financial position, results of operations, and cash flows would not be materially affected by the outcome of any pending or threatened legal proceedings, commitments, or claims.

6. Agreement and Plan of Merger

On December 21, 2004, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Sky Financial Group, Inc. (“Sky Financial”). The proposed transaction, subject to approval by the Company’s shareholders, involves the acquisition and merger of the Company with and into Sky Financial with Sky Financial being the survivor of the holding company merger. Shortly after the holding company merger, Sky Financial intends to merge Belmont National Bank with and into Sky Bank, with Sky Bank being the survivor of the bank merger. The parties anticipate that, subject to shareholder approval at a special meeting of shareholders on May 23, 2005, the holding company merger will occur on or about June 1, 2005, and the bank merger will occur on or about June 3, 2005.

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

In addition to historic information, this quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, statements concerning the manner in which the Company intends to conduct its future operations and potential trends that may impact future results of operations. Forward-looking statements are statements other than statements of historical fact, including statements regarding the Company’s expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Readers should not place undue reliance on forward-looking statements, which reflect management’s opinion only as of the date on which they were made and, due to many factors, are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward looking statements. These factors include general economic conditions which could increase loan losses above loan loss reserves, competition from other banking institutions, financial institutions and nonbank or non-regulated companies or firms that engage in similar activities with significantly greater resources, credit, market, operational, liquidity and interest rate risks, fiscal and monetary policies and legislation impacting future operations and performance and adverse business conditions. Readers should carefully review the risk factors set forth below and other risk factors described in the Company’s reports filed with the Securities and Exchange Commission. Except as required by law, the Company disclaims any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

RISK FACTORS

•

The Company has recognized substantial loan losses in past years, principally related to loans made under the direction of prior management. The volume of classified loans remains high relative to the Company’s peers. While the Company has created what it believes is an appropriate loan loss allowance, the Company could incur significant additional loan losses in future periods, particularly if general economic conditions or conditions in particular industries in which its loans are concentrated deteriorate.

•

The Company is subject to increasingly vigorous and intense competition from other banking institutions and from various financial institutions and other nonbank or non-regulated companies or firms that engage in similar activities. Many of these institutions have significantly greater resources than the Company. If the Company is unable to compete effectively with existing or new competitors, the loss of competitive position could result in reduced revenues, reduced margins, reduced levels of profitability, and loss of market share.

•

Certain credit, market, operational, liquidity and interest rate risks associated with the Company’s business operations as well as changes in business and economic conditions, competition, fiscal and monetary policies and legislation could impact the future operations and performance of the Company.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Belmont’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial

statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management.

The most significant accounting policies followed by the Company are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosure presented in the other financial statement notes and in management’s discussion and analysis of the financial condition and results of operations of the Company, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses and the valuation of deferred federal tax assets to be accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents more than half of the assets on the consolidated balance sheet.

The valuation of deferred federal tax assets represents management’s judgment that the Company will have sufficient taxable income in future years to utilize these assets. The deferred federal tax assets at March 31, 2005, are largely comprised of net operating loss and tax credit carryforwards to future periods. The Company’s ability to use these assets is based on its ability to generate taxable income in sufficient amounts to use the operating losses and tax credits before the applicable expiration dates. Forecasting taxable income in future periods requires the use of estimates for loan, investment and deposit levels, loan losses, noninterest income and expenses, the interest rates applicable to earning assets and interest paying liabilities, and unforeseen events that could have a material impact on the Company’s earnings prospects. Actual results in future periods may vary significantly from the forecasts.

RESULTS OF OPERATIONS

SUMMARY

For the three months ended March 31, 2005, Belmont Bancorp. earned $568,000, or $0.05 per common share, compared to earnings of $687,000, or $0.06 per common share, for the three months ended March 31, 2004.

Earnings during the first quarter of 2005 were impacted by the announcement that the Company’s subsidiary, Belmont National Bank, would close three branch offices, each located no more than four miles from another full service branch office of the Bank. Two of the offices to be closed are leased, and additional depreciation and amortization expense totaling $134,000 was recorded since the estimated remaining useful lives of the fixed assets associated with these leases were reduced to correspond with the date the offices are expected to close at the end of May 2005.

The Company also incurred legal expenses of approximately $75,000 during the first quarter of 2005 related to the previously announced proposed merger with Sky Financial Group, Inc. (“Sky”).

Average assets decreased to $298 million for the first quarter of 2005, compared to $304 million for the first quarter of 2004. Total assets at March 31, 2005 were $294 million, down from $302 million at year-end 2004.

NET INTEREST INCOME

During the first quarter of 2005, interest rates were generally higher than at year-end 2004. The Federal Open Market Committee (the “FOMC”) increased the targeted federal funds rate two times during the first quarter of 2005 to 2.75%. Since the beginning of 2001, the targeted federal funds rate was reduced from 6.50% to 1.00% by June 2003. In June 2004, the FOMC began to increase the targeted federal funds rate with successive rate increases of 25 basis points, and by December 2004, the target had increased to 2.25%. Despite the rise in short term interest rates, longer term interest rates remain low and the yield curve continued to flatten. The 10 year U.S. Treasury note is an indicator of the trend in mortgage interest rates, and the closing yield on the 10 year note was 4.49% at March 31, 2005, up from 4.22% at year-end 2004. Changing interest rates impact the Company through loan refinancing activity, reinvestment opportunities in loans and investments, and financing costs on its deposit base and other borrowings.

Net interest income on a taxable equivalent basis decreased $43,000 for the first quarter of 2005 compared to the first quarter of 2004. Average earning assets decreased to $277 million during the first quarter of 2005 from $282 million for the first quarter of 2004. The taxable equivalent net interest margin was 3.81% for both the first quarter of 2005 and the first quarter of 2004. The taxable equivalent net interest margin for the fourth quarter of 2004 was 3.89%. The net interest rate spread (the difference between the average yields on earning assets and interest-bearing liabilities) was 3.48% for the first three months of 2005 compared to 3.50% for the comparable period of 2004. The taxable equivalent yield on earning assets increased to 5.47% from 5.41%, an increase of 6 basis points, during the first quarter of 2005 compared to the first quarter of 2004. This increase was offset by an increase of 8 basis points in the cost of interest-bearing liabilities to 1.99% from 1.91%.

OTHER OPERATING INCOME

Changes in various categories of other income are depicted in the table below.


	Three months ended March 31,
(Expressed in thousands)	2005		2004		% Change
Trust fees	$	170	$	166	2.4	%
Service charges on deposits		277		323	-14.2	%
Mortgage servicing fees		40		46	-13.0	%
Other income (individually less than 1% of total income)		200		200	0.0	%

Subtotal		687		735	-6.5	%
Gain on sale of loans held for sale		27		29	-6.9	%
Securities gains		—		22	-100.0	%

Total	$	714	$	786	-9.2	%

Trust fees increased 2.4% to $170,000 for the first quarter of 2005 compared to $166,000 for the first quarter of 2004. Trust fees are affected by the valuation of the stock and bond markets because most fees are assessed based on the underlying market values of trust accounts.

Service charges on deposits totaled $277,000 for the first quarter of 2005 compared to $323,000 for the comparable period of 2004, a decline of 14.2%. Fees charged for insufficient funds decreased $28,000 during the first quarter of 2005 compared to 2004, and activity and account maintenance service fees declined by about $19,000 for the comparable periods.

Mortgage servicing fees are collected from the Federal Home Loan Mortgage Corporation (“Freddie Mac”) for the Company’s role in servicing mortgage loans sold to Freddie Mac. Generally, the Company receives 0.25% of the outstanding loan balance for servicing. Mortgage servicing fees decreased to $40,000 for first quarter of 2005 compared to $46,000 for the comparable quarter of 2004. The portfolio of loans serviced for Freddie Mac declined slightly to $67.2 million at March 31, 2005 compared to $67.9 million at year-end 2004. The portfolio totaled $71.4 million at March 31, 2004. Mortgage servicing fees are largely dependent upon the volume of mortgage loans originated and sold in the secondary market.

Other income includes, among other miscellaneous items, commissions and fees unrelated to loan origination, brokerage fees, loan documentation preparation fees, rental income, and check printing charges. Other income was unchanged for the first quarter of 2005 compared to the comparable period of 2004.

OPERATING EXPENSES

The following table shows the dollar amounts and the percent change in various components of operating expenses.


	Three months ended March 31,
(Expressed in thousands)	2005		2004		% Change
Salaries and wages	$	934	$	993	-5.9	%
Employee benefits		271		265	2.3	%
Occupancy expense		318		243	30.9	%
Furniture and equipment expense		270		205	31.7	%
Legal fees		101		38	165.8	%
Insurance, including federal deposit insurance		44		41	7.3	%
Examinations and audits		33		61	-45.9	%
Directors’ fees		56		57	-1.8	%
Data processing expense		57		52	9.6	%
Taxes other than payroll and real estate		113		95	18.9	%
Supplies and printing		48		37	29.7	%
Amortization of mortgage servicing rights, net		27		41	-34.1	%
Other (individually less than 1% of total income)		290		334	-13.2	%

Total	$	2,562	$	2,462	4.1	%

At March 31, 2005, the Company employed 128 full time equivalent employees compared to 131 full time equivalent employees at the end of March 2004. Compensation expense decreased $59,000, or 5.9%, for the first quarter of 2005 compared to the first quarter of 2004. Benefit costs increased 2.3% for the same period reflecting the increased cost of providing healthcare benefits to employees.

Occupancy costs increased $75,000, or 30.9%, for the first quarter of 2005 compared to the same period of 2004. Likewise, furniture and equipment expense increased $65,000, or 31.7%. These increases were principally related to accelerated depreciation on fixed assets for leased branch offices that are expected to close at the end of May 2005.

Legal fees increased $63,000, or 165.8%, for the first quarter of 2005 compared to the same period of 2004. Legal fees for the current quarter included approximately $75,000 for fees related to the proposed merger with Sky. The proposed merger is subject to shareholder approval at a special meeting to be held on May 23, 2005, and is expected to be completed on June 1, 2005.

Examination and audit costs decreased 45.9% to $33,000 for the first quarter of 2005 from $61,000 for the same period of 2004. The reduction in cost reflects a cost savings for eliminating costs associated with external audits for 2005 for the Company and its Trust Department pending completion of the anticipated merger into Sky during 2005.

Data processing expenses include costs associated with data communication lines, outsourced data processing services for the Trust Department, and fees charged for contingent disaster recovery processing. Data processing costs increased $5,000, or 9.6%, for the first quarter of 2005 compared to the same period of 2004 and included approximately $3,000 in de-conversion fees paid to the Bank’s core processing software provider for the proposed merger with Sky.

Other taxes increased $18,000, or 18.9%, for the first quarter of 2005 compared to the same period of 2004. Of this increase, $15,000 was related to higher costs for Ohio corporate franchise tax which is a tax assessed on the Bank’s capital base.

Net amortization of mortgage servicing rights (“MSR”) decreased to $27,000 for the first quarter of 2005 compared to $41,000 for the comparable quarter of 2004. Activity associated with MSR, amortization of MSR and reductions to a valuation allowance established during 2002 to reduce the carrying value of MSR to estimated fair value is summarized in the following table.


	Three Months Ended March 31,
(Expressed in thousands)	2005			2004
Servicing rights:
Beginning of the period	$	299		$	433
Additions		14			19
Amortized to expense		(32	)		(45	)

End of period balance	$	281		$	407

Valuation allowance:
Beginning of the period	$	22		$	59
Additions expensed		—			—
Reductions credited to expense		(5	)		(4	)

End of period balance	$	17		$	55

SECURITIES

The estimated fair value of securities available for sale at March 31, 2005 and December 31, 2004 are detailed in Note 2 of the quarterly financial statements.

At March 31, 2005, there were no holdings of securities of any one issuer, other than $3,786,000 in stock issued by the Federal Home Loan Bank of Cincinnati and securities issued by U.S. Government-sponsored enterprises, in an amount greater than 10% of shareholders’ equity.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The Company provides as an expense an amount that reflects the change in probable loan losses. This provision is based on several factors including the growth of the loan portfolio and on historical loss experience. The expense is called the provision for loan losses in the Consolidated Statements of Income. Actual losses on loans are charged against the allowance established on the Consolidated Balance Sheets through the provision for loan losses.

Details of the activity in the Allowance for Loan Losses for the first quarter of 2005 and 2004 are included in Note 3 of the quarterly financial statements. No loan loss provision was recorded during the first quarters of 2005 or 2004 because the Company had an appropriate balance in the allowance based on its analysis of loan quality. The following table depicts various loan and loan-related statistics.


	Three months ended March 31,
(Expressed in thousands)	2005			2004
Loans outstanding, end of period	$	168,357		$	166,550
Average loans	$	170,710		$	159,971
Annualized (net charge offs) recoveries as a percent of:
Average loans		-0.13	%		0.04	%
Allowance for loan losses		-7.73	%		2.05	%
Allowance for loan losses to:
Total loans at end of period		1.75	%		1.99	%
Non-performing assets		90.21	%		199.22	%

NON-PERFORMING ASSETS

Non-performing assets consist of (1) non-accrual loans, leases and debt securities for which the ultimate collectibility of the full amount of interest is uncertain, (2) loans and leases past due ninety days or more as to principal or interest (unless management determines that, based on specific circumstances, interest should continue to accrue on such loans) and (3) other real estate owned. A loan is placed on non-accrual status when payment of the full amount of principal and interest is not expected, or when principal or interest has been in default for a period of ninety days or more unless the loan is well secured and in the process of collection. A summary of non-performing assets follows:


(Expressed in thousands)	March 31, 2005		December 31, 2004
Non-accrual loans and leases	$	2,953	$	3,353
Loans 90 days or more past due but accruing interest		173		5
Other real estate owned		144		144

Total	$	3,270	$	3,502

Details of impaired loans and related information are included in Note 3 of the quarterly financial statements.

In addition to the schedule of non-performing assets, management prepares a watch list consisting of loans which they have determined require closer monitoring to further protect the Company against loss. The balance of loans classified by management as substandard due to delinquency, a change in financial position, or other factors and not included as non-performing assets totaled $4,832,000 at March 31, 2005 and $5,387,000 at December 31, 2004.

LOAN CONCENTRATIONS

The Company uses the Standard Industry Code (SIC) system to determine concentrations of credit risk by industry. Management monitors concentrations of credit as measured by an industry’s total available and outstanding credit balance expressed as a percent of Tier 1 capital. Loan concentrations exceeding 25% of the Bank’s Tier 1 capital are detailed in the following table.


	(Expressed in thousands)
Industry	March 31, 2005			December 31, 2004
Real estate - operators of nonresidential buildings:
Loan balance and available credit	$	21,309		$	21,272
Percent of tier 1 capital		80.1	%		81.2	%

Real estate - apartment buildings:
Loan balance and available credit	$	9,011		$	10,235
Percent of tier 1 capital		33.9	%		39.0	%

Services - motel, hotel:
Loan balance and available credit	$	7,828		$	7,900
Percent of tier 1 capital		29.4	%		30.1	%

DEFERRED FEDERAL TAX ASSETS

Deferred federal tax assets totaled $4.2 million at March 31, 2005. The deferred federal tax assets include significant balances related to tax loss carryforwards and tax credits. It also includes the tax effect of recording securities available for sale at estimated fair value. At March 31, 2005, management believes no deferred tax valuation allowance is needed as future estimated taxable income will be sufficient to realize the net deferred tax assets.

FEDERAL HOME LOAN BANK ADVANCES

Advances at March 31, 2005 from the Federal Home Loan Bank of Cincinnati are summarized in the following table.


(Expressed in thousands)	March 31, 2005
Fixed rate advances with balances due at maturity, maturities ranging from September 2005 through July 2010 and fixed rates ranging from 2.13% to 4.29%, averaging 3.01%	$	9,035
Fixed rate advances with quarterly FHLB option to convert to floating rate tied to LIBOR maturing in 2008 and rates ranging from 4.53% to 4.78%, averaging 4.66%		20,000
Fixed rate advance with FHLB option to convert to floating rate tied to LIBOR and maturing in 2009 with rate of 3.16% and a conversion strike rate of 7.50%		5,000
Amortizing balloon advance maturing in 2017 with fixed rate of 4.654%		1,012

Total FHLB advances	$	35,047

(LIBOR is the 3 month London Interbank Offered Rate)

CAPITAL RESOURCES

The table below depicts the capital ratios for the Bank and for the Company on a consolidated basis as of March 31, 2005. In addition, the table depicts the requirements for classification as “adequately capitalized” and “to be well capitalized” under the regulatory guidelines for Prompt Corrective Action. Tier 1 capital consists principally of shareholders’ equity less goodwill and deferred tax assets, while Tier 2 capital consists of certain debt instruments and a portion of the allowance for loan losses. Total capital consists of Tier 1 and Tier 2 capital.


	Actual				Minimum Required For Capital Adequacy Purposes				Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations
(Expressed in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk based capital to risk weighted assets:
Consolidated	$	29,791	15.3	%	$	15,624	8.0	%	$	19,530	10.0	%
Bank		29,065	14.8	%		15,699	8.0	%		19,624	10.0	%
Tier 1 capital to risk weighted assets:
Consolidated		27,343	14.0	%		7,812	4.0	%		11,718	6.0	%
Bank		26,606	13.6	%		7,849	4.0	%		11,774	6.0	%
Tier 1 capital to average assets:
Consolidated		27,343	9.3	%		11,775	4.0	%		14,719	5.0	%
Bank		26,606	9.1	%		11,746	4.0	%		14,682	5.0	%

LIQUIDITY

Effective liquidity management involves ensuring that the cash flow requirements of depositors and borrowers, as well as the operating needs of the Company, are met. Funds are available through the operation of the Bank’s branch banking network that gathers demand and retail time deposits. The Bank also acquires funds through repurchase agreements, overnight federal funds, and FHLB advances that provide additional sources of liquidity. Total deposits decreased $6.2 million from year-end of 2004 to March 31, 2005, and average deposits declined $2.9 million. Overnight federal funds sold declined $6.3 million to $4.4 million at March 31, 2005, compared to $10.7 million at year-end 2004.

The Bank has a line of credit with a correspondent bank totaling $4.1 million that may be used as an alternative funding source; this line was not drawn upon at March 31, 2005. The Bank also has an unused credit line with the Federal Home Loan Bank for $20 million. All borrowings at the Federal Home Loan Bank are subject to eligible collateral requirements.

The main source of liquidity for the parent company is dividends from the Bank. At March 31, 2005, the parent had cash and marketable securities with an estimated fair value of $321,000. The parent company does not have any debt to third parties. Management believes sufficient liquidity is currently available to meet estimated short-term and long-term funding needs for the Bank and the parent company.

ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by Item 3 has been disclosed in Item 7A of the Company’s Annual Report to Shareholders on Form 10-K for the year ended December 31, 2004. There has been no material change in the disclosure regarding market risk.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this quarterly report (the “Evaluation Date”), that the Company’s disclosure controls and procedures are effective for the timely recording, processing, summarizing and reporting of the information required to be disclosed in reports filed under the Securities and Exchange Act of 1934.

As of the Evaluation Date, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon senior securities

None

Item 4. Submission of matters to a vote of security shareholders

None

Item 5. Other information

None

Item 6. Exhibits


Exhibit Number		Description
2.1		Agreement and Plan of Merger dated as of December 21, 2004, by and between Belmont Bancorp. and Sky Financial Group, Inc. (1)

3.1		Charter (2)

3.2		Charter Amendment regarding Series A Preferred Stock (3)

3.3		Bylaws as currently in effect (2)

10.1		Employment Agreement dated December 15, 1999 between Wilbur R. Roat, Belmont Bancorp. and Belmont National Bank (4)

10.2		Change of Control Agreement dated November 24, 2004, between Jane R. Marsh and Belmont Bancorp. (6)

10.3		Belmont Bancorp. 2001 Stock Option Plan (5)

31.1		Certification of the President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (7)

31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (7)

32.1		Certification of the President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (7)

32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (7)

(1)	Filed as an exhibit to the Company’s Current Report on Form 8-K dated December 21, 2004, filed with the Securities and Exchange Commission on December 22, 2004.

(2)	Filed as an exhibit to the Company’s Registration Statement on Form S-2 filed with the Securities and Exchange Commission (Registration No. 333-91035) on November 16, 1999 and incorporated herein by reference.

(3)	Filed as an exhibit to Amendment No. 3 to the Company’s Registration Statement on Form S-2 filed with the Securities and Exchange Commission (Registration No. 333-91035) on February 3, 2000 and incorporated herein by reference.

(4)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 (Registration No. 0-12724) and incorporated herein by reference.

(5)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (Registration No. 0-12724) and incorporated herein by reference.

(6)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

(7)	Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Belmont Bancorp.

(Registrant)

/s/ Wilbur R. Roat

By: Wilbur R. Roat

President & CEO

/s/ Jane R. Marsh

By: Jane R. Marsh

Chief Financial Officer

May 10, 2005

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BELMONT BANCORP 10-Q