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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



or



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



For the transition period from  to



Commission file number 0-12724



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BELMONT BANCORP.

(Exact name of registrant as specified in its charter)



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



|                                         |  |           
|---------------------------------------- |  | ----------
|325 Main Street, Bridgeport, Ohio        |  | 43912     
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number, including area code: (740) 695-3323



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|Common stock, $0.25 par value |  | NASDAQ Small Cap Market                  



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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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.  x



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



State the aggregate market value of the voting stock held by nonaffiliates of the registrant at June 30, 2004: $56,368,273



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 11,126,278 shares



Documents Incorporated by Reference:



None.



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PART 1



ITEM 1. BUSINESS



General



Belmont
Bancorp., (the Company or Belmont), is a bank holding company which was organized under the laws of the State of Ohio in 1982. On April 4, 1984, Belmont Bancorp. acquired all of the outstanding capital stock of Belmont
National Bank (BNB or the Bank), a banking corporation organized as a national banking association. BNB provides a variety of financial services and employs 144 people. In addition to the Bank, the Company owns Belmont
Financial Network, Inc., a non-bank subsidiary (BFN).



BNB provides a wide range of retail banking services to individuals and small to medium-sized businesses. These services include various deposit products, business and personal loans, residential mortgage loans, home equity loans, and other
consumer oriented financial services including IRA and Keogh accounts, safe deposit and night depository facilities. BNB also owns automatic teller machines located at branches in Bellaire, Bridgeport, Woodsdale, Elm Grove, Cadiz, the Ohio Valley
Mall, Plaza West, Shadyside, Schoenbrunn and New Philadelphia providing 24 hour banking service to our customers. BNB belongs to STAR Systems, Inc., a nationwide ATM network with thousands of locations nationwide. BNB offers a wide variety of
fiduciary services. The trust department of the Bank administers personal trusts and estates.



On July 1, 1985, Belmont formed a subsidiary corporation, Belmont Financial Network, Inc. (BFN). BFN serves as a community development corporation by investing in a low-income housing project that provides
low-income housing and historic tax credits.



Supervision and Regulation



Belmont is supervised and examined by the Board of
Governors of the Federal Reserve system under the Bank Holding Company Act of 1956, as amended (the BHC Act). The BHC Act requires the prior approval of the Federal Reserve Board for a bank holding company to acquire or hold more than a
5% voting interest in any bank, and restricts interstate banking activities. The BHC Act allows interstate branching by acquisitions anywhere in the country and acquisition and consolidation in those states that had not opted out by January 1, 1997.



The BHC Act restricts Belmonts nonbanking activities to
those which are determined by the Federal Reserve Board to be closely related to banking and a proper incident thereto. The BHC Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies.
Belmonts banking subsidiary is subject to limitations with respect to transactions with affiliates.



The enactment of the Graham-Leach-Bliley Act of 1999 (the GLB Act) represented a pivotal point in the history of the financial services
industry. The GLB Act swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance
companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for
regulation through the financial holding company which has as its umbrella regulator the Federal Reserve Board. Functional regulation of the financial holding companys separately regulated subsidiaries will be conducted by their primary
functional regulator. The GLB Act requires satisfactory or higher Community Reinvestment Act compliance for insured depository institutions and their financial holding companies in order for them to engage in new financial activities.
The GLB Act provides a federal right to privacy of non-public personal information of individual customers.



BNBs deposits are insured by the Federal Deposit Insurance Corporation (FDIC). As a national bank, BNB is supervised and examined by the
Office of the Comptroller of the Currency.



A substantial
portion of the Companys cash revenue is dividends paid by its subsidiary bank. These dividends are subject to various regulatory restrictions as summarized in Note 15 of the Companys Consolidated Financial Statements.



1



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A fundamental principle underlying the Federal Reserves supervision and regulation of bank holding
companies is that bank holding companies should be a source of managerial and financial strength to their subsidiary banks. Subsidiary banks in turn are to be operated in a manner that protects the overall soundness of the institution and the safety
of deposits. Bank regulators can take various remedial measures to deal with banks and bank holding companies that fail to meet legal and regulatory standards.



The Financial Reform, Recovery and Enforcement Act of 1989 provides that a holding companys controlled insured depository institutions are liable
for any loss incurred by the FDIC in connection with the default of any FDIC-assisted transaction involving an affiliated insured bank or savings association. The Federal Deposit Insurance Corporation Improvement Act of 1991 created five
capital-based supervisory levels for banks and requires bank holding companies to guarantee compliance with capital restoration plans of undercapitalized insured depository affiliates.



The monetary policies of regulatory authorities, including the Federal Reserve Board and the FDIC, have a significant effect
on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of Belmont and its subsidiary bank cannot be predicted.



ITEM 2. PROPERTIES



BNB operates a network of twelve full service branches located in Belmont,
Harrison and Tuscarawas Counties in Ohio and Ohio County in West Virginia. In addition to its main office in the Woodsdale section of Wheeling, West Virginia, BNB operates a branch in the Elm Grove section of Wheeling. Locations in Belmont County,
Ohio include three branch offices in St. Clairsville and offices in Bridgeport, Lansing, Shadyside, and Bellaire. BNBs West Main Street office in downtown St. Clairsville serves as the location for the Companys and the Banks
executive, administrative, finance and operations functions. The Harrison County branch is located in Cadiz, Ohio. In Tuscarawas County, Ohio, BNB operates two full service offices in New Philadelphia, Ohio. In Washington County, Pennsylvania, BNB
operates a loan production office.



All offices are owned by
BNB except for the Ohio Valley Mall and Bellaire offices in Ohio and the McMurray office in Pennsylvania. The land for the Elm Grove office is also leased. The Ohio Valley Mall office lease expires in 2008. The Bellaire office lease expires in 2007
and contains a ten year renewal option. The land lease for the Elm Grove office expires in 2005 and provides for four, five-year renewal options. The office lease in McMurray, Pennsylvania expires in 2006 and contains a three-year renewal option.



During February 2005, the Board of Directors approved
closing three full service branch offices located in Bellaire and Lansing, Ohio, and in the Elm Grove section of Wheeling, West Virginia. An official 90 day advance notification was filed with the Licensing Manager of the Comptroller of the Currency
as required by that office. The customer accounts of each branch office will be consolidated into existing full service branch offices each located no more than four miles from the closed office. The branch closings are expected to be complete after
the close of business on June 3, 2005.



ITEM 3. LEGAL PROCEEDINGS



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.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted during the fourth quarter of 2004 to a vote of security holders through the solicitation of proxies or otherwise.



2



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PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES



Belmont Bancorp.s common stock has a par value of $0.25 and, since
October 1994, has been traded on the Nasdaq SmallCap market.



The number of shareholders of record for the Companys stock as of March 1, 2005, was 967. The closing price of Belmont stock on February 28, 2005, was $6.04 per share.



High and low market prices and dividend information for the past two years for Belmonts common stock are depicted in
the following tables.



|        |  |      |       |     |   |                    |  |         |      |      |       |     |   |                    |  |   |       |  |   |     
|------- |  | ---- | ----- | --- | - | ------------------ |  | ------- | ---- | ---- | ----- | --- | - | ------------------ |  | - | ----- |  | - | ----
|2004    |  | 2003
|Quarter |  | High |       | Low |   | Dividend per Share |  | Quarter |      | High |       | Low |   | Dividend per Share
|1st     |  | $    | 6.500 |     | $ | 5.060              |  | $       | 0.03 |      | 1st   |     | $ | 5.500              |  | $ | 4.000 |  | $ | 0.00
|2nd     |  | $    | 7.000 |     | $ | 5.350              |  |         | 0.44 |      | 2nd   |     | $ | 5.750              |  | $ | 4.200 |  |   | 0.00
|3rd     |  | $    | 6.350 |     | $ | 5.360              |  |         | 0.04 |      | 3rd   |     | $ | 5.200              |  | $ | 4.570 |  |   | 0.13
|4th     |  | $    | 6.300 |     | $ | 5.010              |  |         | 0.04 |      | 4th   |     | $ | 6.000              |  | $ | 5.010 |  |   | 0.00
|        |  |      |       |     |   |                    |  |         |      |      |       |     |   |                    |  |   |       |  |   |     
|Total   |  |      |       |     |   |                    |  | $       | 0.55 |      | Total |     |   |                    |  |   |       |  | $ | 0.13
|        |  |      |       |     |   |                    |  |         |      |      |       |     |   |                    |  |   |       |  |   |     



Information regarding
the limitations on dividends available to be paid can be located in Note 15 of the Notes to the Consolidated Financial Statements in the Companys financial statements beginning on page F-1 (Item 8).



Treasury stock is accounted for using the cost method. There were 26,917
shares held in treasury on December 31, 2004 and 44,292 shares on December 31, 2003.



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ITEM 6. SELECTED FINANCIAL DATA



The data presented herein should be read in conjunction with the audited Consolidated Financial Statements beginning
on page F-1.



Consolidated Five Year Summary of Operations



For the Years Ended December 31, 2004, 2003, 2002, 2001
and 2000

($000s except per share data)



|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                              |  | 2004 |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Interest and dividend income                                  |  | $    | 14,905  |   |      | $ | 14,236  |      |  | $ | 15,277  |   |  | $    | 18,131  |   |  | $ | 19,137  |  
|Interest expense                                              |  |      | 4,500   |   |      |   | 5,053   |      |  |   | 6,360   |   |  |      | 9,810   |   |  |   | 10,702  |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income                                           |  |      | 10,405  |   |      |   | 9,183   |      |  |   | 8,917   |   |  |      | 8,321   |   |  |   | 8,435   |  
|Provision (benefit) for loan losses                           |  |      | (555    | ) |      |   | (1,350  | )    |  |   | (1,029  | ) |  |      | (600    | ) |  |   | 242     |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income after provision (benefit) for loan losses |  |      | 10,960  |   |      |   | 10,533  |      |  |   | 9,946   |   |  |      | 8,921   |   |  |   | 8,193   |  
|Securities gains (losses)                                     |  |      | 166     |   |      |   | 348     |      |  |   | 27      |   |  |      | (120    | ) |  |   | 4       |  
|Gain (loss) on sale of real estate                            |  |      | 22      |   |      |   | (37     | )    |  |   | (5      | ) |  |      | 11      |   |  |   |        |  
|Gain (loss) on sale of loans and loans held for sale          |  |      | 99      |   |      |   | 492     |      |  |   | 278     |   |  |      | 281     |   |  |   | (40     | )
|Interest on federal tax refund                                |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 256     |  
|Legal settlements                                             |  |      |        |   |      |   |        |      |  |   | 6,311   |   |  |      |        |   |  |   |        |  
|Other operating income                                        |  |      | 2,692   |   |      |   | 2,818   |      |  |   | 2,089   |   |  |      | 2,317   |   |  |   | 2,163   |  
|Operating expenses                                            |  |      | 10,373  |   |      |   | 10,369  |      |  |   | 11,839  |   |  |      | 12,690  |   |  |   | 9,870   |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before income taxes                             |  |      | 3,566   |   |      |   | 3,785   |      |  |   | 6,807   |   |  |      | (1,280  | ) |  |   | 706     |  
|Income taxes (benefit)                                        |  |      | 865     |   |      |   | 1,007   |      |  |   | 810     |   |  |      | (865    | ) |  |   | (680    | )
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                             |  | $    | 2,701   |   |      | $ | 2,778   |      |  | $ | 5,997   |   |  | $    | (415    | ) |  | $ | 1,386   |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic and diluted earnings (loss) per common share            |  | $    | 0.24    |   |      | $ | 0.25    |      |  | $ | 0.54    |   |  | $    | (0.04   | ) |  | $ | 0.16    |  
|Cash dividend declared per share                              |  |      | 0.55    |   |      |   | 0.13    |      |  |   |        |   |  |      |        |   |  |   |        |  
|Book value per common share                                   |  |      | 2.84    |   |      |   | 3.20    |      |  |   | 3.13    |   |  |      | 2.33    |   |  |   | 2.31    |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans                                                   |  | $    | 174,838 |   |      | $ | 157,528 |      |  | $ | 130,759 |   |  | $    | 115,674 |   |  | $ | 129,876 |  
|Total assets                                                  |  |      | 302,361 |   |      |   | 299,475 |      |  |   | 289,468 |   |  |      | 288,856 |   |  |   | 281,788 |  
|Total deposits                                                |  |      | 232,477 |   |      |   | 235,039 |      |  |   | 230,243 |   |  |      | 238,486 |   |  |   | 231,686 |  
|Long term borrowings                                          |  |      | 35,051  |   |      |   | 25,269  |      |  |   | 21,050  |   |  |      | 20,000  |   |  |   | 20,000  |  
|Total shareholders equity                                    |  |      | 31,558  |   |      |   | 35,522  |      |  |   | 34,757  |   |  |      | 25,846  |   |  |   | 25,602  |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION



The data presented in this discussion should be read in conjunction with the audited consolidated financial statements beginning on page F-1.



FORWARD-LOOKING STATEMENTS



In addition to historic information, this annual 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



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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.



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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
December 31, 2004 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 prepared
as of the date of the financial statements.



RESULTS OF OPERATION



Summary



Belmont Bancorp. reported net income of $2,701,000, or $0.24 per common
share, for the year ended December 31, 2004, compared to $2,778,000, or $0.25 per common share, for the year ended December 31, 2003. For the fourth quarter of 2004, the Company reported net income of $661,000, or $0.06 per common share, versus
$542,000, or $0.05 per common share, for the fourth quarter of 2003. During 2002, the Company earned $5,997,000, or $0.54 per common share. Earnings for 2002 were positively impacted by proceeds from a legal settlement.



Earnings during each of the past three years were positively impacted by
recoveries on loans previously charged-off and improvements to the credit quality of the loan portfolio. For 2004, the Company recorded a negative loan loss provision totaling $555,000 to reduce the amount of its allowance for loan loss; the
after-tax effect was to increase net income by $366,000. Likewise in 2003, the Company recorded a negative loan loss provision in the amount of $1,350,000. The after-tax effect of this transaction was to increase net income by $891,000. During 2002,
the Company recorded negative loan loss provisions totaling $1,029,000; the after-tax effect was to increase net income for 2002 by $679,000. Additional information is discussed below under the heading, Provision and Allowance for Loan
Losses.



During 2002, the Company resolved a number of
legal actions resulting in gross settlement proceeds before expenses of $6,311,000. Various expenses related to the legal actions during 2002 totaled $1,168,000. The Company also incurred substantial expenses related to litigation during 2001.



Aided by low interest rates during 2002, the Company reduced
the amount of tax-exempt securities held in its investment portfolio. This restructure was completed to ensure that the Company can utilize net operating loss and tax credit carryforwards in future years. As a result, the Company and Bank eliminated
a deferred tax asset valuation allowance of $1,000,000. The elimination of the deferred tax asset valuation allowance contributed $1,000,000 to net income during 2002.



6



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The following table depicts the Companys performance for the past three years.



|                                            |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|($000s) except per share data               |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Income before income taxes                  |  | $    | 3,566 |   |      | $ | 3,785 |      |  | $ | 6,807 |  
|Net income                                  |  | $    | 2,701 |   |      | $ | 2,778 |      |  | $ | 5,997 |  
|                                            |  |      |      
|Basic and diluted earnings per common share |  | $    | 0.24  |   |      | $ | 0.25  |      |  | $ | 0.54  |  
|                                            |  |      |      
|Return on average assets                    |  |      | 0.89  | % |      |   | 0.95  | %    |  |   | 2.10  | %
|Return on average total equity              |  |      | 8.21  | % |      |   | 7.86  | %    |  |   | 19.82 | %



During December 2004,
the Company entered into an Agreement and Plan of Merger (Merger Agreement) with Sky Financial Group, Inc. (Sky Financial). The proposed transaction, which is subject to regulatory approval and the approval of 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 obtaining necessary approvals, the holding company merger will occur on or about June 1, 2005, and the bank
merger will occur on or about June 3, 2005.



In exchange for
their shares, the shareholders of the Company may elect to receive one of the following, subject to certain adjustments: (a) shares of Sky Financial common stock based upon a fixed exchange ratio of 0.219 shares of Sky Financial common stock for
each share of the Companys common stock, (b) cash in the amount of $6.15 for each share of the Companys common stock, or (c) a combination of Sky Financial shares and cash, each at the respective exchange ratios described above. Although
the consideration that an individual shareholder receives depends on the shareholders election, in the aggregate 72.5% of the Companys outstanding common shares will be exchanged for Sky Financial common stock and 27.5% of the
Companys outstanding common shares will be exchanged for cash.



Additional information regarding the proposed merger is discussed in Note 24 of the Consolidated Financial Statements.



Net Interest Income



The primary source of the Companys revenue is net interest income. Net interest income is the difference between interest income on earning assets
such as loans and securities, and interest expense paid on liabilities such as deposits and borrowings. Net interest income is affected by the general level of interest rates, changes in interest rates and by changes in the amount and composition of
interest-earning assets and interest-bearing liabilities. The relative performance of the lending and deposit-raising functions is frequently measured by two statisticsnet interest margin and net interest rate spread. The net interest margin
is determined by dividing fully-taxable equivalent net interest income by average interest-earning assets. The net interest rate spread is the difference between the average fully-taxable equivalent yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. The net interest margin is generally greater than the net interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, or free funding, such
as demand deposits and shareholders equity.



The
Consolidated Average Balance Sheets and Analysis of Net Interest Income compare interest revenue and interest-earning assets outstanding with interest cost and liabilities outstanding for the years ended 2004, 2003, and 2002, and compute net
interest income, net interest margin and net interest rate spread for each period. All three of these measures are reported on a taxable equivalent basis computed using a 34% effective federal tax rate. Loan fees included in interest income were
$317,000 in 2004, $616,000 in 2003, and $513,000 in 2002. Nonaccrual loans and loans held for sale have been included in the average loan balances. Average outstanding securities balances are based upon amortized cost excluding any unrealized gains
or losses on securities available for sale.



7



---

Consolidated Average Balance Sheets and Analysis of Net Interest Income

For the Years Ended December 31 (Taxable Equivalent Basis)



|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|------------------------------------------------------------------------- |  | -------------------- | ------- | - | ------------ | - | ----------------- | ---- | ------ | -------------------- |  | - | ------------ | - | ----------------- | - | ------ | --------------------- | ------ | - | ------------ | - | ----------------- | - |  | - | ------ |  | ------ | -
|                                                                          |  | 2004                 |         |   | 2003         |   |                   | 2002 |       
|(Expressed in thousands)                                                  |  | AverageOut- standing |         |   | Revenue/Cost |   | AverageYield/Rate |      |        | AverageOut- standing |  |   | Revenue/Cost |   | AverageYield/Rate |   |        | Average Out- standing |        |   | Revenue/Cost |   | AverageYield/Rate |  
|Assets                                                                    |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Interest-earning assets:                                                  |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Loans                                                                     |  | $                    | 168,883 |   |              | $ | 10,506            |      | 6.22   | %                    |  | $ | 140,330      |   |                   | $ | 9,347  |                       | 6.66   | % |              | $ | 120,484           |   |  | $ | 9,009  |  | 7.48   | %
|Securities:                                                               |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Taxable                                                                   |  |                      | 104,399 |   |              |   | 4,298             |      | 4.12   | %                    |  |   | 118,249      |   |                   |   | 4,740  |                       | 4.01   | % |              |   | 108,728           |   |  |   | 5,205  |  | 4.79   | %
|Exempt from income tax                                                    |  |                      | 1,350   |   |              |   | 100               |      | 7.41   | %                    |  |   | 2,113        |   |                   |   | 162    |                       | 7.67   | % |              |   | 18,003            |   |  |   | 1,272  |  | 7.07   | %
|Federal funds sold                                                        |  |                      | 7,521   |   |              |   | 112               |      | 1.49   | %                    |  |   | 10,258       |   |                   |   | 111    |                       | 1.08   | % |              |   | 17,173            |   |  |   | 275    |  | 1.60   | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Total interest-earning assets                                             |  |                      | 282,153 |   |              | $ | 15,016            |      | 5.32   | %                    |  |   | 270,950      |   |                   | $ | 14,360 |                       | 5.30   | % |              |   | 264,388           |   |  | $ | 15,761 |  | 5.96   | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Cash and due from banks                                                   |  |                      | 8,505   |   |              |   |                   |      |        |                      |  |   | 8,598        |   |                   |   |        |                       |        |   |              |   | 8,532             |   |  |   |        |  |        |  
|Other assets                                                              |  |                      | 15,512  |   |              |   |                   |      |        |                      |  |   | 16,356       |   |                   |   |        |                       |        |   |              |   | 17,222            |   |  |   |        |  |        |  
|Market value appreciation (depreciation) of securities available for sale |  |                      | 813     |   |              |   |                   |      |        |                      |  |   | 1,787        |   |                   |   |        |                       |        |   |              |   | (31               | ) |  |   |        |  |        |  
|Allowance for loan loss                                                   |  |                      | (3,238  | ) |              |   |                   |      |        |                      |  |   | (4,187       | ) |                   |   |        |                       |        |   |              |   | (5,206            | ) |  |   |        |  |        |  
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Total Assets                                                              |  | $                    | 303,745 |   |              |   |                   |      |        |                      |  | $ | 293,504      |   |                   |   |        |                       |        |   |              | $ | 284,905           |   |  |   |        |  |        |  
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Liabilities                                                               |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Interest bearing liabilities:                                             |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Interest checking                                                         |  | $                    | 31,301  |   |              | $ | 158               |      | 0.50   | %                    |  | $ | 29,305       |   |                   | $ | 170    |                       | 0.58   | % |              | $ | 27,570            |   |  | $ | 242    |  | 0.88   | %
|Savings                                                                   |  |                      | 97,261  |   |              |   | 671               |      | 0.69   | %                    |  |   | 98,594       |   |                   |   | 1,205  |                       | 1.22   | % |              |   | 89,045            |   |  |   | 1,614  |  | 1.81   | %
|Other time deposits                                                       |  |                      | 71,597  |   |              |   | 2,263             |      | 3.16   | %                    |  |   | 75,311       |   |                   |   | 2,647  |                       | 3.51   | % |              |   | 86,097            |   |  |   | 3,558  |  | 4.13   | %
|Other borrowings                                                          |  |                      | 36,407  |   |              |   | 1,408             |      | 3.87   | %                    |  |   | 23,555       |   |                   |   | 1,031  |                       | 4.38   | % |              |   | 21,380            |   |  |   | 946    |  | 4.42   | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Total interest-bearing liabilities                                        |  |                      | 236,566 |   |              | $ | 4,500             |      | 1.90   | %                    |  |   | 226,765      |   |                   | $ | 5,053  |                       | 2.23   | % |              |   | 224,092           |   |  | $ | 6,360  |  | 2.84   | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Demand deposits                                                           |  |                      | 32,037  |   |              |   |                   |      |        |                      |  |   | 29,029       |   |                   |   |        |                       |        |   |              |   | 28,277            |   |  |   |        |  |        |  
|Other liabilities                                                         |  |                      | 2,237   |   |              |   |                   |      |        |                      |  |   | 2,363        |   |                   |   |        |                       |        |   |              |   | 2,276             |   |  |   |        |  |        |  
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Total liabilities                                                         |  |                      | 270,840 |   |              |   |                   |      |        |                      |  |   | 258,157      |   |                   |   |        |                       |        |   |              |   | 254,645           |   |  |   |        |  |        |  
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Shareholders Equity                                                      |  |                      | 32,905  |   |              |   |                   |      |        |                      |  |   | 35,347       |   |                   |   |        |                       |        |   |              |   | 30,260            |   |  |   |        |  |        |  
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Liabilities & Shareholders Equity                                        |  | $                    | 303,745 |   |              |   |                   |      |        |                      |  | $ | 293,504      |   |                   |   |        |                       |        |   |              | $ | 284,905           |   |  |   |        |  |        |  
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Net interest income margin on a taxable equivalent basis                  |  |                      |         |   |              | $ | 10,516            |      | 3.73   | %                    |  |   |              |   |                   | $ | 9,307  |                       | 3.43   | % |              |   |                   |   |  | $ | 9,401  |  | 3.56   | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Net interest rate spread                                                  |  |                      |         |   |              |   |                   |      | 3.42   | %                    |  |   |              |   |                   |   |        |                       | 3.07   | % |              |   |                   |   |  |   |        |  | 3.12   | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  
|Interest-bearing assets to interest-earning liabilities                   |  |                      |         |   |              |   |                   |      | 119.27 | %                    |  |   |              |   |                   |   |        |                       | 119.48 | % |              |   |                   |   |  |   |        |  | 117.98 | %
|                                                                          |  |                      |         |   |              |   |                   |      |        |                      |  |   |              |   |                   |   |        |                       |        |   |              |   |                   |   |  |   |        |  |        |  



Fully taxable equivalent basis
computed at effective federal tax rate of 34%. Average loan balances include nonperforming loans.





8



---

The following table shows changes in taxable-equivalent interest income, interest expense, and net
interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities. The change in interest not solely due to changes in volume or rates has been consistently allocated in proportion to the
absolute dollar amount of the change in each and is reflected as the mix.



Analysis of Net Interest Income Changes

Taxable Equivalent Basis



|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|------------------------------------------------------------------------ |  | --------------------- | ----- | - | --------------------- | - | ---- | --- |  | - | ----- | - |  | ------ | ----- | - | ----- | - | ------ | --- |  | - | ------ | - |  | - | ---- | - |  | - | ------ | -
|                                                                         |  | 2004 Compared to 2003 |       |   | 2003 Compared to 2002 |  
|(Expressed in thousands)                                                 |  | Volume                |       |   | Yield                 |   |      | Mix |  |   | Total |   |  | Volume |       |   | Yield |   |        | Mix |  |   | Total  |  
|Increase (decrease) in interest income:                                  |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Loans                                                                    |  | $                     | 1,902 |   |                       | $ | (617 | )   |  | $ | (126  | ) |  | $      | 1,159 |   |       | $ | 1,484  |     |  | $ | (984   | ) |  | $ | (162 | ) |  | $ | 338    |  
|Securities:                                                              |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Taxable                                                                  |  |                       | (555  | ) |                       |   | 128  |     |  |   | (15   | ) |  |        | (442  | ) |       |   | 456    |     |  |   | (847   | ) |  |   | (74  | ) |  |   | (465   | )
|Exempt from income taxes                                                 |  |                       | (58   | ) |                       |   | (5   | )   |  |   | 1     |   |  |        | (62   | ) |       |   | (1,123 | )   |  |   | 108    |   |  |   | (95  | ) |  |   | (1,110 | )
|Federal funds sold                                                       |  |                       | (30   | ) |                       |   | 42   |     |  |   | (11   | ) |  |        | 1     |   |       |   | (111   | )   |  |   | (89    | ) |  |   | 36   |   |  |   | (164   | )
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Total interest income change                                             |  |                       | 1,259 |   |                       |   | (452 | )   |  |   | (151  | ) |  |        | 656   |   |       |   | 706    |     |  |   | (1,812 | ) |  |   | (295 | ) |  |   | (1,401 | )
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Increase (decrease) in interest expense:                                 |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Interest checking                                                        |  |                       | 12    |   |                       |   | (22  | )   |  |   | (1    | ) |  |        | (11   | ) |       |   | 15     |     |  |   | (82    | ) |  |   | (5   | ) |  |   | (72    | )
|Savings                                                                  |  |                       | (16   | ) |                       |   | (525 | )   |  |   | 7     |   |  |        | (534  | ) |       |   | 173    |     |  |   | (526   | ) |  |   | (56  | ) |  |   | (409   | )
|Other time deposits                                                      |  |                       | (131  | ) |                       |   | (267 | )   |  |   | 13    |   |  |        | (385  | ) |       |   | (446   | )   |  |   | (532   | ) |  |   | 67   |   |  |   | (911   | )
|Other borrowings                                                         |  |                       | 563   |   |                       |   | (120 | )   |  |   | (66   | ) |  |        | 377   |   |       |   | 96     |     |  |   | (10    | ) |  |   | (1   | ) |  |   | 85     |  
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Total interest expense change                                            |  |                       | 428   |   |                       |   | (934 | )   |  |   | (47   | ) |  |        | (553  | ) |       |   | (162   | )   |  |   | (1,150 | ) |  |   | 5    |   |  |   | (1,307 | )
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Increase (decrease) in net interest income on a taxable equivalent basis |  | $                     | 831   |   |                       | $ | 482  |     |  | $ | (104  | ) |  | $      | 1,209 |   |       | $ | 868    |     |  | $ | (662   | ) |  | $ | (300 | ) |  | $ | (94    | )
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Decrease in taxable equivalent adjustment                                |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        | 13    |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   | 360    |  
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  
|Net interest income change                                               |  |                       |       |   |                       |   |      |     |  |   |       |   |  | $      | 1,222 |   |       |   |        |     |  |   |        |   |  |   |      |   |  | $ | 266    |  
|                                                                         |  |                       |       |   |                       |   |      |     |  |   |       |   |  |        |       |   |       |   |        |     |  |   |        |   |  |   |      |   |  |   |        |  



Short, intermediate,
and long term interest rates remained low relative to historical levels during the periods covered by this report. The Federal Open Market Committee (the FOMC), while continuing an accommodative stance, began to increase the targeted
federal funds rate during 2004. 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 as the yield curve flattened. While interest rates through the five year maturity increased
from year-end 2003 to year-end 2004, interest rates on the 10 year U.S. Treasury note was nearly unchanged, and the 30 year U.S. Treasury bond was down 23 basis points. Additional federal funds rate increases are anticipated during 2005 although the
expectation for significantly higher interest rates has eased somewhat. The 10 year U.S. Treasury note is an indicator of the trend in mortgage interest rates. 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. Because the Company expects its interest earning assets to reprice more quickly than its interest bearing liabilities, higher interest
rates should positively impact the Companys net interest income, while lower interest rates would negatively impact net interest income. The Company has significantly reduced its cost of funds since 2001; there is little room for further
reductions. To increase and retain deposits, competitive pressures may prompt the Company to offer deposit products that could result in a migration of its funds to different products paying a higher rate of interest.



The taxable equivalent yield on earning assets increased to 5.32% for the
year ended 2004 compared to 5.30% in 2003. The yield on earning assets in 2002 was 5.96%. The cost of interest-bearing liabilities fell to 1.90% for the year ended 2004 compared to 2.23% in 2003, a decline of 33 basis points. The cost of
interest-bearing liabilities was 2.84% during 2002. The Companys net interest margin improved to 3.73% in 2004 from 3.43% in 2003. On a linked quarter basis, the net interest margin increased from 3.72% for the third quarter of 2004 to 3.89%
for the fourth quarter of 2004. The net interest margin for 2002 was 3.56%.



The Companys taxable equivalent net interest income increased 13.0% to $10,516,000 in 2004 from $9,307,000 in 2003. Average total interest-earning assets increased to $282.2 million in 2004 from $271.0 million
in 2003 and $264.4 million in 2002. Average loans increased to $168.9 million during 2004 compared to $140.3 million in 2003. Average securities exempt from income tax declined to $1.4 million for 2004 compared to $2.1 million during 2003 and $18.0
million during 2002.



9



---

Average total interest-bearing liabilities increased to $236.6 million during 2004 compared to $226.8
million during 2003 and $224.1 million during 2002. Other borrowings increased to $36.4 million during 2004 from $23.6 million during 2003 and $21.4 million during 2002. Interest-bearing checking and savings accounts increased to $128.6 million in
2004 compared to $127.9 million in 2003 and $116.6 million in 2002. Average time deposits fell to $71.6 million during 2004 compared to $75.3 in 2003 and $86.1 million in 2002.



Other Operating Income



Changes in various categories of other income are depicted in the following table:



|                                                         |  |      |       |        |       |   |      |   |        |  |        |      |  |   |      
|-------------------------------------------------------- |  | ---- | ----- | ------ | ----- | - | ---- | - | ------ |  | ------ | ---- |  | - | -----
|(Expressed in thousands)                                 |  | 2004 |       | Change |       |   | 2003 |   | Change |  |        | 2002
|Trust income                                             |  | $    | 593   |        | 8.4   | % |      | $ | 547    |  | 14.7   | %    |  | $ | 477  
|Service charges on deposits                              |  |      | 1,339 |        | -4.8  | % |      |   | 1,407  |  | 53.3   | %    |  |   | 918  
|Gain on sale of loans and loans held for sale            |  |      | 99    |        | -79.9 | % |      |   | 492    |  | 77.0   | %    |  |   | 278  
|Legal settlements                                        |  |      |      |        | na    |   |      |   |       |  | -100.0 | %    |  |   | 6,311
|Mortgage servicing fees                                  |  |      | 185   |        | 2.8   | % |      |   | 180    |  | 13.2   | %    |  |   | 159  
|Other income (individually less than 1% of total income) |  |      | 597   |        | -7.7  | % |      |   | 647    |  | 22.1   | %    |  |   | 530  
|                                                         |  |      |       |        |       |   |      |   |        |  |        |      |  |   |      
|Subtotal                                                 |  |      | 2,813 |        | -14.1 | % |      |   | 3,273  |  | -62.3  | %    |  |   | 8,673
|Securities gains                                         |  |      | 166   |        | -52.3 | % |      |   | 348    |  | 1188.9 | %    |  |   | 27   
|                                                         |  |      |       |        |       |   |      |   |        |  |        |      |  |   |      
|Total                                                    |  | $    | 2,979 |        | -17.7 | % |      | $ | 3,621  |  | -58.4  | %    |  | $ | 8,700
|                                                         |  |      |       |        |       |   |      |   |        |  |        |      |  |   |      



Trust fees are
affected by the valuation of the stock market because most fees are assessed based on market values. Stocks rose for the second straight year during 2004. Trust fees increased 8.4% to $593,000 from $547,000 in 2003. Trust fees increased 14.7% from
2002 to 2003 as the result of market conditions and an increase in the trust fee schedule.



Service charges on deposits totaled $1,339,000 for 2004 compared to $1,407,000 for 2003 and $918,000 for 2002. The increase in service charges for 2003 was principally due to the introduction during the second quarter
of a new product and the implementation of a new service charge. Monthly account maintenance fees were down $66,000 for 2004 compared to 2003; a free-checking account product was introduced during 2003.



Mortgage lending volumes slowed during 2004 compared to the solid mortgage
loan demand experienced during 2003 when refinancing activity was strong. The Company sells some of its mortgage loan production to the secondary market with servicing rights retained. Generally, the Company receives a 25 basis point service fee to
process mortgage loan payments and administer insurance, real estate taxes and collections on loans it sells. A component of gains on sale of loans and loans held for sale includes capitalized mortgage servicing rights. This right represents the
value associated with servicing those loans sold in the secondary market. Capitalization of mortgage servicing rights totaled $54,000 for 2004, $220,000 for 2003, and $166,000 for 2002. Mortgage servicing fees increased to $185,000 for 2004,
$180,000 for 2003, and $159,000 for 2002 corresponding to the increase in total loans serviced for others during these periods. Future increases to mortgage servicing fees are largely dependent upon the volume of mortgage loans originated and sold
in the secondary market.



Included in noninterest income for
the year ended 2002 was $6.3 million in proceeds from legal settlements. During December 2001, the Company reached a comprehensive legal settlement wherein the Company resolved five lawsuits, including a costly derivative action. Each case,
concluded as a result of the comprehensive settlement, was either directly or indirectly related to loan losses incurred by the Company during 1998 and 1999.



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 decreased 7.7% to $597,000 for 2004 from $647,000 for 2003. Loan documentation fees declined $56,000



10



---

during 2004 compared to 2003 due to lower mortgage lending volume. Other income increased 22.1% for 2003 compared to
2002. Contributing to the increase in other income from 2002 to 2003 were increases in brokerage fees totaling $41,000 and restitution payments received from a former employee totaling $102,000.



Securities gains realized during 2004 totaled $166,000 compared to $348,000
in 2003. Gains recorded during 2003 included gains on sales of equity securities of $142,000. During 2002, the Company sold approximately $29 million in tax-exempt municipal bonds for an aggregate loss of $212,000. Other gains realized through
investment sales resulted in net securities gains of $27,000 for the year ended 2002. Calls and maturities of bonds totaled approximately $21 million during 2004, $15 million during 2003, and $17 million 2002. The sale of the tax-exempt municipal
bonds during 2002 was a continuation of the Companys efforts to minimize interest rate risk exposure in long-term investments and to increase taxable income. (At year-end 2004, the Company had a net operating loss carryforward totaling $11.9
million and tax credit carryforwards totaling $1.7 million.)



Operating
Expenses



The table below details the dollar amounts of
and percentage changes in various categories of expense.



|                                                  |  |      |        |        |        |   |      |   |        |  |       |      |  |   |       
|------------------------------------------------- |  | ---- | ------ | ------ | ------ | - | ---- | - | ------ |  | ----- | ---- |  | - | ------
|(Expressed in thousands)                          |  | 2004 |        | Change |        |   | 2003 |   | Change |  |       | 2002
|Salaries                                          |  | $    | 4,007  |        | -3.8   | % |      | $ | 4,167  |  | 6.2   | %    |  | $ | 3,922 
|Employee benefits                                 |  |      | 1,086  |        | 3.4    | % |      |   | 1,050  |  | 10.9  | %    |  |   | 947   
|Net occupancy expenses of premises                |  |      | 984    |        | 9.5    | % |      |   | 899    |  | 1.9   | %    |  |   | 882   
|Equipment expenses                                |  |      | 858    |        | 6.6    | % |      |   | 805    |  | -11.4 | %    |  |   | 909   
|Legal fees                                        |  |      | 183    |        | 30.7   | % |      |   | 140    |  | -86.8 | %    |  |   | 1,057 
|Legal settlement expenses                         |  |      |       |        | -100.0 | % |      |   | 103    |  | -83.8 | %    |  |   | 635   
|Taxes other than payroll and real estate          |  |      | 370    |        | 14.2   | % |      |   | 324    |  | 64.5  | %    |  |   | 197   
|Supplies and printing                             |  |      | 246    |        | 18.8   | % |      |   | 207    |  | 0.5   | %    |  |   | 206   
|Data processing                                   |  |      | 214    |        | 27.4   | % |      |   | 168    |  | -44.2 | %    |  |   | 301   
|Insurance, including federal deposit insurance    |  |      | 169    |        | -8.2   | % |      |   | 184    |  | -68.6 | %    |  |   | 586   
|Examinations and audits                           |  |      | 243    |        | -32.9  | % |      |   | 362    |  | -21.0 | %    |  |   | 458   
|Amortization of intangibles                       |  |      | 151    |        | -2.6   | % |      |   | 155    |  | -42.8 | %    |  |   | 271   
|Consulting expense                                |  |      | 273    |        | 65.5   | % |      |   | 165    |  | 33.1  | %    |  |   | 124   
|Advertising                                       |  |      | 194    |        | -6.7   | % |      |   | 208    |  | -8.4  | %    |  |   | 227   
|Directors fees                                   |  |      | 309    |        | 71.7   | % |      |   | 180    |  | na    |      |  |   |      
|Other (individually less than 1% of total income) |  |      | 1,086  |        | -13.3  | % |      |   | 1,252  |  | 12.1  | %    |  |   | 1,117 
|                                                  |  |      |        |        |        |   |      |   |        |  |       |      |  |   |       
|Total                                             |  | $    | 10,373 |        | 0.0    | % |      | $ | 10,369 |  | -12.4 | %    |  | $ | 11,839
|                                                  |  |      |        |        |        |   |      |   |        |  |       |      |  |   |       



The Company employed
135 full time equivalent employees (FTEs) at year-end 2004, 133 FTEs at year-end 2003 and 132 FTEs at year-end 2002. Salaries and wages declined 3.8%, or $160,000, for 2004 compared to 2003. The decrease was principally due to a decrease
in incentive compensation, largely driven by lower mortgage lending activity. The increase in salaries and wages from 2002 to 2003 was principally the result of incentive compensation paid and merit increases. Compensation cost associated with the
grant of stock options was $8,000 for 2004, $17,000 for 2003, and $33,000 for 2002.



Employee insurance benefits included as part of employee benefits expense increased approximately $57,000 for 2004 compared to 2003, an increase of 13%. Insurance benefits increased $22,000 for 2003 compared to 2002,
an increase of approximately 5%. The Company also recorded benefit expense for profit sharing contributions totaling $115,000 for 2004, $117,000 for 2003, and $88,000 for 2002.



Occupancy costs increased 9.5% to $984,000 for 2004 compared to $899,000 for 2003. The increase was due to higher real
estate tax expense, repair and maintenance costs, insurance, utilities and rent. Part of the increase was related to the opening of a loan production office in mid-2003.



11



---

Equipment expenses increased 6.6% to $858,000 for 2004 compared to $805,000 for 2003. During 2004, the
Company invested in new information technology converting to a new core processing system. This resulted in an increase to depreciation expense that was partially offset by a decline in repair and maintenance agreements.



Legal fees increased to $183,000 for 2004, up from $140,000 for 2003. Legal
expenses incurred during the fourth quarter of 2004 related to the proposed merger with Sky Financial. totaled $66,000. Legal expenses totaled $1,057,000 for 2002 and were principally related to the settlement of the derivative action previously
discussed.



There were no legal settlements recorded during
2004. Legal settlements expense for 2003 totaled $103,000. Expense totaling $635,000 was recorded during 2002 and included $179,000 in settlement charges related to the comprehensive legal settlement previously described. The remaining settlement
charges relate to various other claims against the Company described under Item 3 - Legal Proceedings in the Companys Annual Report to Shareholders and Form 10-K for the year ended December 31, 2001.



Taxes (other than payroll and real estate taxes) were $370,000 for 2004
compared to $324,000 for 2003 and $197,000 for 2002. The increase in expense for the reported periods was largely the result of a larger capital base; the Bank is subject to corporate franchise tax in the State of Ohio based on its capital base.



Supplies and printing increased 18.8% to $246,000 for 2004
from $207,000 for 2003. The increase was due to the cost of new forms associated with the core processing conversion during the fourth quarter of 2004.



Data processing costs increased 27.4% to $214,000 for 2004 from $168,000 for 2003. The increase in cost was related to telecommunication bandwidth
expansion to several of the Companys branch locations. Data processing costs during 2002 included a one-time charge of $66,000 to fulfill a minimum contract fee for trust account processing upon termination of that contract.



Insurance expense included costs for federal deposit insurance premiums,
directors and officers liability insurance, and fidelity bond insurance. Insurance costs decreased 8.2% to $169,000 for 2004 from $184,000 for 2003. The decrease was principally related to lower costs associated with directors and
officers liability insurance subsequent to the expiration in July 2003 of coverage for tail insurance purchased when the Company changed insurers. Insurance expense declined $402,000 for 2003 compared to 2002 because of a decline in FDIC
insurance premiums totaling $393,000 that resulted from improvements to the Banks regulatory risk profile.



Examination and audit expense declined during 2004 compared to 2003 largely as the result of hiring personnel to replace outsourced services for internal
audit and compliance services. Examination and audit expense declined to $243,000 for 2004 compared to $362,000 for 2003. Examination and audit expense for 2003 declined $96,000 compared to 2002; this reduction included $78,000 in lower fees
assessed by the Banks principal regulator for bank examinations due to improvements to the Banks regulatory risk profile.



Amortization of mortgage servicing rights totaled $151,000 for 2004, $155,000 for 2003, and $271,000 for 2002. During 2002, amortization expense included
$109,000 to establish a valuation allowance to reduce the carrying amount of mortgage servicing rights to its estimated fair value; this valuation allowance was reduced by $37,000 in 2004 and $50,000 in 2003 as the underlying principal balance of
the loans associated with the impaired rights were reduced through repayments. At December 31, 2004, mortgage servicing rights were valued at $277,000 and represented a 40.8 basis point capitalization rate on a mortgage servicing portfolio of
approximately $67.9 million.



Consulting expense increased to
$273,000 for 2004 compared to $165,000 for 2003 and $124,000 for 2002. The expense for 2004 included approximately $175,000 for investment banking services related to corporate planning and the proposed merger with Sky Financial. Consulting expense
also included $70,000 in 2004 and $99,000 in 2003 for fees paid to a consultant based on improvements to certain categories of service charge revenue.



Directors fees increased to $309,000 in 2004 and included $79,000 in attendance fees paid for special meetings related to planning and the proposed
merger with Sky Financial. During 2003, the Board of Directors resumed the payment of board and committee fees that totaled $180,000. Payment of directors fees had been suspended since May 1999.



12



---

Other expenses include telephone expense, postage and freight, travel and entertainment, correspondent
bank service charges, loan-related expenses, charge-offs related to deposit accounts, and other expenses. Other expense decreased $166,000, or 13.3%, for 2004 compared to 2003. This reduction resulted from lower expenses for loan collections, credit
reports and other loan-related items, telephone, other real estate owned, and charge-offs of non-sufficient funds. The increase in other expenses for 2003 compared to 2002 was $135,000, or 12.1%. The increase resulted from higher expenses for credit
reports and other loan-related items, travel and entertainment, other real estate owned, and charge-offs of non-sufficient funds.



FINANCIAL CONDITION



Securities



The Company
uses securities to generate interest and dividend revenue, to manage interest rate risk and to provide liquidity to meet operating cash needs. The securities portfolio yield at December 31, 2004 was 4.35%. Net unrealized gains in the available for
sale securities portfolio at December 31, 2004, totaled $391,000, compared to net unrealized gains of $1,348,000 at December 31, 2003. Management believes any unrealized losses within the investment portfolio are temporary.



The maturities and yields of securities available for sale (excluding equity
securities) at December 31, 2004 are detailed in the following table. The yields are expressed on a taxable equivalent basis. Maturities of mortgage-backed securities are based on estimated average life.



|                                          |  |               |        |       |              |   |        |               |        |  |                |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  
|----------------------------------------- |  | ------------- | ------ | ----- | ------------ | - | ------ | ------------- | ------ |  | -------------- | ------ |  | ----- | ------ |  | ------ | - | ----- | - | ----- | ------ | ---- | ----- |  | - | ------ |  | ---- | -
|                                          |  | Within 1 Year |        |       | 1 to 5 Years |   |        | 6 to 10 Years |        |  | After 10 Years |        |  | Total |       
|(Expressed in thousands)                  |  | Amount        |        | Yield |              |   | Amount |               | Yield  |  |                | Amount |  | Yield |        |  | Amount |   | Yield |   |       | Amount |      | Yield | 
|U. S. Treasury securities                 |  | $             |       |       | 0.00         | % |        | $             | 1,096  |  | 2.41           | %      |  | $     |       |  |       |   |       | $ |      |        |     |       |  | $ | 1,096  |  | 2.41 | %
|U.S. Government-sponsored enterprises (a) |  |               | 3,020  |       | 4.23         | % |        |               | 10,562 |  | 2.81           | %      |  |       |       |  |       |   |       |   |      |        |     |       |  |   | 13,582 |  | 3.13 | %
|States and political subdivisions (b)     |  |               | 5,320  |       | 4.02         | % |        |               | 9,528  |  | 4.46           | %      |  |       | 997    |  | 8.56   | % |       |   | 503   |        | 4.89 | %     |  |   | 16,348 |  | 4.58 | %
|Corporate debt                            |  |               | 1,979  |       | 4.91         | % |        |               | 542    |  | 3.28           | %      |  |       |       |  |       |   |       |   | 3,033 |        | 6.75 | %     |  |   | 5,554  |  | 5.76 | %
|Mortgage-backed Securities (a)            |  |               | 581    |       | 2.10         | % |        |               | 28,111 |  | 4.11           | %      |  |       | 15,513 |  | 4.90   | % |       |   | 1,338 |        | 7.68 | %     |  |   | 45,543 |  | 4.46 | %
|Collateralized mortgage obligations       |  |               | 1,443  |       | 2.54         | % |        |               | 5,450  |  | 5.41           | %      |  |       |       |  | 0.00   | % |       |   |      |        |     |       |  |   | 6,893  |  | 4.81 | %
|                                          |  |               |        |       |              |   |        |               |        |  |                |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  
|Total fair value                          |  | $             | 12,343 |       | 3.96         | % |        | $             | 55,289 |  | 4.00           | %      |  | $     | 16,510 |  | 5.10   | % |       | $ | 4,874 |        | 6.75 | %     |  | $ | 89,016 |  | 4.35 | %
|                                          |  |               |        |       |              |   |        |               |        |  |                |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  
|Amortized cost                            |  | $             | 12,276 |       |              |   |        | $             | 55,144 |  |                |        |  | $     | 16,320 |  |        |   |       | $ | 4,858 |        |      |       |  | $ | 88,598 |  |      |  
|                                          |  |               |        |       |              |   |        |               |        |  |                |        |  |       |        |  |        |   |       |   |       |        |      |       |  |   |        |  |      |  

---

|(a) | Maturities of mortgage-backed securities are based on estimated average life.
|--- | -----------------------------------------------------------------------------

|(b) | Taxable equivalent yields
|--- | -------------------------



The amortized cost, maturities and yields of securities held to maturity at December 31, 2004, are depicted in the following table:



|                         |  |                |     |       |      |  
|------------------------ |  | -------------- | --- | ----- | ---- | -
|                         |  | After 10 Years |    
|(Expressed in thousands) |  | Amount         |     | Yield |     
|Corporate debt           |  | $              | 250 |       | 7.80 | %



13



---

Loans



The Companys loan portfolio is comprised of a variety of loan types. Different types of lending involve different elements of risk. For example,
residential loans secured by single family homes typically involve substantially less collateral risk than other types of loans such as commercial loans that may be secured by inventory, equipment and accounts receivable. The following table shows
the history of commercial and consumer loans by major category at December 31:



|                                       |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|(Expressed in thousands)               |  | 2004 |         | 2003 |   | 2002    |  | 2001 |         | 2000
|Commercial loans:                      |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Real estate construction               |  | $    | 6,161   |      | $ | 5,679   |  | $    | 3,856   |      | $ | 3,318   |  | $ | 12,856 
|Real estate mortgage                   |  |      | 85,186  |      |   | 69,265  |  |      | 47,698  |      |   | 35,892  |  |   | 22,738 
|Commercial, financial and agricultural |  |      | 18,058  |      |   | 22,369  |  |      | 26,562  |      |   | 34,085  |  |   | 48,789 
|                                       |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total commercial loans                 |  | $    | 109,405 |      | $ | 97,313  |  | $    | 78,116  |      | $ | 73,295  |  | $ | 84,383 
|                                       |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|                                       |  |      |         |      |  
|(Expressed in thousands)               |  | 2004 |         | 2003 |   | 2002    |  | 2001 |         | 2000
|Consumer loans:                        |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Residential mortgage                   |  | $    | 62,320  |      | $ | 57,213  |  | $    | 49,536  |      | $ | 38,701  |  | $ | 40,794 
|Installment loans                      |  |      | 2,983   |      |   | 2,698   |  |      | 2,677   |      |   | 2,870   |  |   | 3,832  
|Credit card and other consumer         |  |      | 130     |      |   | 304     |  |      | 430     |      |   | 808     |  |   | 867    
|                                       |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total consumer loans                   |  | $    | 65,433  |      | $ | 60,215  |  | $    | 52,643  |      | $ | 42,379  |  | $ | 45,493 
|                                       |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total loans and leases                 |  | $    | 174,838 |      | $ | 157,528 |  | $    | 130,759 |      | $ | 115,674 |  | $ | 129,876
|                                       |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        



An analysis of
maturity and interest rate sensitivity of business loans at the end of 2004 follows:



|                                       |  |              |        |              |   |              |  |       |        |  |   |        
|-------------------------------------- |  | ------------ | ------ | ------------ | - | ------------ |  | ----- | ------ |  | - | -------
|(Expressed in thousands)               |  | Under 1 year |        | 1 to 5 Years |   | Over 5 Years |  | Total
|Domestic loans:                        |  |              |        |              |   |              |  |       |        |  |   |        
|Real estate construction               |  | $            | 630    |              | $ | 0            |  | $     | 5,531  |  | $ | 6,161  
|Real estate mortgage                   |  |              | 5,410  |              |   | 15,491       |  |       | 64,285 |  |   | 85,186 
|Commercial, financial and agricultural |  |              | 7,091  |              |   | 7,123        |  |       | 3,844  |  |   | 18,058 
|                                       |  |              |        |              |   |              |  |       |        |  |   |        
|Total business loans                   |  | $            | 13,131 |              | $ | 22,614       |  | $     | 73,660 |  | $ | 109,405
|                                       |  |              |        |              |   |              |  |       |        |  |   |        
|Rate sensitivity:                      |  |              |        |              |   |              |  |       |        |  |   |        
|Predetermined rate                     |  | $            | 865    |              | $ | 9,772        |  | $     | 4,104  |  | $ | 14,741 
|Floating or adjustable rate            |  |              | 12,266 |              |   | 12,842       |  |       | 69,556 |  |   | 94,664 
|                                       |  |              |        |              |   |              |  |       |        |  |   |        
|Total domestic business loans          |  | $            | 13,131 |              | $ | 22,614       |  | $     | 73,660 |  | $ | 109,405
|                                       |  |              |        |              |   |              |  |       |        |  |   |        



Provision and Allowance for Loan
Losses



The Company, as part of its philosophy of risk
management, has established various credit policies and procedures intended to minimize the Companys exposure to undue credit risk. Credit evaluations of borrowers are performed to ensure that loans are granted on a sound basis. In addition,
care is taken to minimize risk by diversifying among industries. The Bank has certain concentrations of credit, which are more fully described in Note 14 of the Companys Consolidated Financial Statements beginning on page F-1. Management
regularly monitors credit risk through the periodic review of individual credits to ensure compliance with policies and procedures. Adequate collateralization, contractual guarantees, and compensating balances are also utilized by management to
mitigate risk.



14



---

Management determines the appropriate level of the allowance for loan losses by regularly evaluating the
quality of the loan portfolio. The allowance is allocated to specific loans where management has identified probable losses based upon their payment history and the borrowers financial conditions. The adequacy of the allowance for loan losses
is evaluated based on an assessment of the probable losses incurred in the loan portfolio. The total allowance is available to absorb losses from any segment of the portfolio. Management maintains a watch list of substandard loans for monthly
review. Although these loans may not be delinquent and may be adequately secured, management believes that due to location, size, or past payment history, it is necessary to monitor these loans regularly.



The evaluation of each element and the overall allowance are based on the
size and current risk characteristics of the loan portfolio and include an assessment of individual problem loans, actual loss experience, current economic events in specific industries and geographical areas, including unemployment levels, and
other pertinent factors, including regulatory guidance and general economic conditions. While management considers the allowance for loan losses to be adequate based on information currently available, future adjustments to the allowance may be
necessary due to changes in economic conditions and delinquencies or loss rates. In addition, the allowance for loan losses is periodically reviewed by the bank regulatory agencies as an integral part of their examination process. Based on their
review, the agencies may require the Company to adjust the allowance for loan losses based on their judgments about information available to them at the time of their review.



The Company has recorded benefits for loan losses (a negative loan loss provision) in each of the last four calendar years
based on improvements in the credit quality of its loan portfolio and recoveries on loans previously charged off. The amount of the loan loss benefit was $555,000 for 2004, $1,350,000 for 2003, and $1,029,000 for 2002. These benefits contributed
$0.03, $0.08, and $0.06 per common share (basic and diluted) to earnings per share after income taxes for the years ended 2004, 2003, and 2002. If the Company continues to experience either low net charge-offs or net recoveries in future periods,
improvements in its loan loss rates, and payoffs or significant principal reductions to its classified loans, it is possible that the Company will record additional reductions to its allowance for loan loss through negative loan loss provisions in
forthcoming periods. However, there is no assurance that this will occur.



Charge-offs for 2004 totaled $104,000, down from $895,000 for 2003. Charge-offs during 2003 included $866,000 for commercial loans of which approximately $793,000 had been included in the specific allocation of the
allowance for loan loss at year-end 2002. Recoveries on loans previously charged off during 2003 totaled $1,258,000 and included $937,000 for the sale of real estate the Bank acquired through bankruptcy proceedings in June 2003 involving a former
borrower. During 2001, most of the $2.4 million in loans charged off also had specific reserves through an allocation of the allowance for loan loss established during previous reporting periods. During 2000, the Bank received settlement proceeds
from the bankruptcy of a former borrower of $3.2 million of which $1.2 million was applied to the remaining credit exposure for this relationship, $1.8 million was recorded as recoveries in the allowance for loan losses, and the remainder was
recorded as a recovery of legal expenses



Managements
allocation of the allowance for loan losses based on estimates of incurred loan losses is set forth in following table:



Allocation of the Allowance for Loan Losses



|                                       |  |      |       |      |   |       |  |      |       |      |   |       |  |   |      
|-------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|(Expressed in thousands)               |  | 2004 |       | 2003 |   | 2002  |  | 2001 |       | 2000
|Domestic:                              |  |      |       |      |   |       |  |      |       |      |   |       |  |   |      
|Commercial, financial and agricultural |  | $    | 604   |      | $ | 1,078 |  | $    | 1,739 |      | $ | 1,682 |  | $ | 4,096
|Commercial real estate                 |  |      | 1,254 |      |   | 1,300 |  |      | 1,604 |      |   | 2,443 |  |   | 2,207
|Residential mortgage                   |  |      | 257   |      |   | 155   |  |      | 235   |      |   | 314   |  |   | 301  
|Consumer                               |  |      | 19    |      |   | 16    |  |      | 15    |      |   | 90    |  |   | 94   
|Unallocated                            |  |      | 873   |      |   | 751   |  |      | 694   |      |   | 781   |  |   | 969  
|                                       |  |      |       |      |   |       |  |      |       |      |   |       |  |   |      
|Total                                  |  | $    | 3,007 |      | $ | 3,300 |  | $    | 4,287 |      | $ | 5,310 |  | $ | 7,667
|                                       |  |      |       |      |   |       |  |      |       |      |   |       |  |   |      



15



---

The unallocated portion of the allowance reflects estimated probable but undetected losses within the
portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrowers financial condition, the difficulty in identifying triggering events that correlate perfectly to
subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors. Historical loss experience data used to establish allocation estimates might not precisely correspond to the current portfolio.



Loans outstanding as a percentage of each loan category are depicted in
the following table:



|                                                  |  |       |   |  |       |   |  |       |   |  |       |   |  |       |  
|------------------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                                                  |  | 2004  |   |  | 2003  |   |  | 2002  |   |  | 2001  |   |  | 2000  |  
|Real estate:                                      |  |       |   |  |       |   |  |       |   |  |       |   |  |       |  
|Construction                                      |  | 3.5   | % |  | 3.6   | % |  | 2.9   | % |  | 2.9   | % |  | 9.9   | %
|Mortgage                                          |  | 35.6  | % |  | 36.3  | % |  | 37.9  | % |  | 33.4  | % |  | 31.4  | %
|Commercial                                        |  | 48.8  | % |  | 44.0  | % |  | 36.5  | % |  | 31.0  | % |  | 17.5  | %
|Commercial, financial and agricultural            |  | 9.5   | % |  | 12.8  | % |  | 18.4  | % |  | 27.1  | % |  | 35.3  | %
|Obligations of political subdivisions in the U.S. |  | 0.8   | % |  | 1.4   | % |  | 1.9   | % |  | 2.4   | % |  | 2.3   | %
|Consumer                                          |  | 1.8   | % |  | 1.9   | % |  | 2.4   | % |  | 3.2   | % |  | 3.6   | %
|                                                  |  |       |   |  |       |   |  |       |   |  |       |   |  |       |  
|Total                                             |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
|                                                  |  |       |   |  |       |   |  |       |   |  |       |   |  |       |  



The following tables
set forth the five-year historical and statistical information for the allowance for loan losses:



|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|----------------------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ----- | - |  | - | -----
|(Expressed in thousands)            |  | 2004 |       |   | 2003 |   |        | 2002 |  |   | 2001   |   |  | 2000
|Balance as of January 1             |  | $    | 3,300 |   |      | $ | 4,287  |      |  | $ | 5,310  |   |  | $    | 7,667 |   |  | $ | 9,702
|Provision (benefit) for loan losses |  |      | (555  | ) |      |   | (1,350 | )    |  |   | (1,029 | ) |  |      | (600  | ) |  |   | 242  
|Loans charged off:                  |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Real estate                         |  |      | 25    |   |      |   | 0      |      |  |   | 48     |   |  |      | 218   |   |  |   | 119  
|Commercial                          |  |      | 74    |   |      |   | 866    |      |  |   | 291    |   |  |      | 2,134 |   |  |   | 812  
|Consumer                            |  |      | 5     |   |      |   | 29     |      |  |   | 8      |   |  |      | 21    |   |  |   | 3,369
|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Total loans charged-off             |  |      | 104   |   |      |   | 895    |      |  |   | 347    |   |  |      | 2,373 |   |  |   | 4,300
|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Recoveries of loans previously      |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|charged-off:                        |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Real estate                         |  |      | 93    |   |      |   | 0      |      |  |   | 1      |   |  |      | 0     |   |  |   | 6    
|Commercial                          |  |      | 236   |   |      |   | 1,162  |      |  |   | 180    |   |  |      | 262   |   |  |   | 136  
|Consumer                            |  |      | 37    |   |      |   | 96     |      |  |   | 172    |   |  |      | 354   |   |  |   | 1,881
|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Total recoveries                    |  |      | 366   |   |      |   | 1,258  |      |  |   | 353    |   |  |      | 616   |   |  |   | 2,023
|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Net charge-offs (recoveries)        |  |      | (262  | ) |      |   | (363   | )    |  |   | (6     | ) |  |      | 1,757 |   |  |   | 2,277
|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      
|Balance at December 31              |  | $    | 3,007 |   |      | $ | 3,300  |      |  | $ | 4,287  |   |  | $    | 5,310 |   |  | $ | 7,667
|                                    |  |      |       |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |      



|                                                           |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|(Expressed in thousands)                                   |  | 2004 |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Loans outstanding at December 31                           |  | $    | 174,838 |   |      | $ | 157,528 |      |  | $ | 130,759 |   |  | $    | 115,674 |   |  | $ | 129,876 |  
|Allowance as a percent of loans outstanding                |  |      | 1.72    | % |      |   | 2.09    | %    |  |   | 3.28    | % |  |      | 4.59    | % |  |   | 5.90    | %
|Average loans                                              |  | $    | 168,883 |   |      | $ | 140,330 |      |  | $ | 120,484 |   |  | $    | 121,238 |   |  | $ | 143,012 |  
|Net charge-offs (recoveries) as a percent of average loans |  |      | -0.16   | % |      |   | -0.26   | %    |  |   | 0.00    | % |  |      | 1.45    | % |  |   | 1.59    | %



16



---

The following schedule depicts the five-year history of non-performing assets.



|                                                        |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|(Expressed in thousands)                                |  | 2004 |       |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|Nonaccrual loans                                        |  | $    | 3,353 |   |      | $ | 1,808 |      |  | $ | 3,171 |   |  | $    | 2,559 |   |  | $ | 8,518 |  
|Loans 90 days or more past due but accruing interest    |  |      | 5     |   |      |   | 3     |      |  |   | 50    |   |  |      | 187   |   |  |   | 2     |  
|Other real estate owned                                 |  |      | 144   |   |      |   | 120   |      |  |   | 33    |   |  |      | 104   |   |  |   | 766   |  
|                                                        |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total                                                   |  | $    | 3,502 |   |      | $ | 1,931 |      |  | $ | 3,254 |   |  | $    | 2,850 |   |  | $ | 9,286 |  
|                                                        |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Allowance for loan loss as a % of non-performing assets |  |      | 85.9  | % |      |   | 170.9 | %    |  |   | 131.7 | % |  |      | 186.3 | % |  |   | 82.6  | %



In addition to the
above schedule of non-performing assets, management prepares a watch list consisting of loans which management has determined require closer monitoring to further protect the Company against loss. The balance of loans classified by management as
substandard due to delinquency and a change in financial position and not included in non-performing assets was $5,387,000 at year-end 2004 and $8,214,000 at year-end 2003. No loans were classified as doubtful and not included in non-performing
assets at year-end 2004 or 2003. The increase in nonaccrual loans in 2004 is largely attributable to two loan relationships being placed on nonaccrual. These loans were classified as substandard at year-end 2003 so the impact on the allowance for
loan loss of this increase was minimal.



Deposits



The accompanying tables show the relative composition of the Companys
average deposits and the change in average deposit sources during the last three years:



(Expressed in thousands)



|                                               |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|Average Deposits                               |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Demand                                         |  | $    | 32,037  |   |      | $ | 29,029  |      |  | $ | 28,277  |  
|Interest bearing checking                      |  |      | 31,301  |   |      |   | 29,305  |      |  |   | 27,570  |  
|Savings                                        |  |      | 97,261  |   |      |   | 98,594  |      |  |   | 89,045  |  
|Other time                                     |  |      | 58,938  |   |      |   | 64,115  |      |  |   | 74,894  |  
|Certificates-$100,000 and over                 |  |      | 12,659  |   |      |   | 11,196  |      |  |   | 11,203  |  
|                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Total average deposits                         |  | $    | 232,196 |   |      | $ | 232,239 |      |  | $ | 230,989 |  
|                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Distribution of Average
Deposits               |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Demand                                         |  |      | 13.8    | % |      |   | 12.5    | %    |  |   | 12.2    | %
|Interest bearing checking                      |  |      | 13.5    | % |      |   | 12.6    | %    |  |   | 11.9    | %
|Savings                                        |  |      | 41.9    | % |      |   | 42.5    | %    |  |   | 38.6    | %
|Other time                                     |  |      | 25.4    | % |      |   | 27.6    | %    |  |   | 32.4    | %
|Certificates-$100,000 and over                 |  |      | 5.4     | % |      |   | 4.8     | %    |  |   | 4.9     | %
|                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Total                                          |  |      | 100.0   | % |      |   | 100.0   | %    |  |   | 100.0   | %
|                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Change in Average Deposits  From Previous
Year |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Demand                                         |  | $    | 3,008   |   |      | $ | 752     |      |  | $ | 2,820   |  
|Interest bearing checking                      |  |      | 1,996   |   |      |   | 1,735   |      |  |   | 2,433   |  
|Savings                                        |  |      | (1,333  | ) |      |   | 9,549   |      |  |   | 19,208  |  
|Other time                                     |  |      | (5,177  | ) |      |   | (10,779 | )    |  |   | (22,668 | )
|Certificates-$100,000 and over                 |  |      | 1,463   |   |      |   | (7      | )    |  |   | (5,137  | )
|                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Total                                          |  | $    | (43     | ) |      | $ | 1,250   |      |  | $ | (3,344  | )
|                                               |  |      |         |   |      |   |         |      |  |   |         |  



17



---

Average deposits declined slightly during 2004 and the deposit mix continued to shift from time deposits.
Average demand deposits increased $3.0 million as the Company promoted a free checking product throughout 2004. Average deposits increased by $1.3 million during 2003 compared to 2002. The mix of deposits shifted from time deposits to savings
deposits; depositors were reluctant to extend maturities as low interest rates prevailed throughout the periods presented. During 2002, average deposits increased declined $3.3 million. Higher interest rates will likely result in a shift in deposits
from savings to time deposits.



Deferred Federal Tax Assets



Deferred federal tax assets declined to approximately $4.0 million at
year-end 2004 from $4.5 million at year-end 2003. The deferred federal tax assets include significant balances related to tax loss carryforwards and tax credits carryforwards. The temporary differences between book income and taxable income that
give rise to net deferred tax assets and the changes in those components from year-end 2003 to year-end 2004 are included in Note 9 in the Notes to the Consolidated Financial Statements.



Borrowings



Other sources of funds for the Company include short-term repurchase agreements and Federal Home Loan Bank borrowings. Information concerning borrowings
is included in Note 7 and Note 8 in the Notes to the Consolidated Financial Statements.



Liquidity and Capital Resources



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 BNBs branch banking network that gathers
demand and retail time deposits. BNB also acquires funds through repurchase agreements, overnight federal funds, and FHLB advances that provide additional sources of liquidity. Total deposits decreased $2.6 million from the end of 2003 to 2004
although average deposits were nearly unchanged. As a consequence of low interest rates, loan refinance activity, calls on investment securities and investment sales, the Company had a relatively large liquidity position throughout 2004 and 2003.



The Bank also 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 December 31, 2004. The Bank 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 December 31, 2004, the parent had cash and marketable securities with an estimated fair value of $609,000. 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.



At December 31, 2004, the Company had various contractual obligations and commitments to extend credit that require liquid resources. These obligations
and commitments are summarized in the following tables.



Contractual Obligations



|                                                                  |  |                        |         |                 |   |           |  |           |        |               |   |        |  |   |      
|----------------------------------------------------------------- |  | ---------------------- | ------- | --------------- | - | --------- |  | --------- | ------ | ------------- | - | ------ |  | - | -----
|                                                                  |  | Payments Due by Period
|(Expressed in thousands)                                          |  | Total                  |         | Less than1 Year |   | 1-3 Years |  | 4-5 Years |        | After 5 Years
|Time deposits                                                     |  | $                      | 68,874  |                 | $ | 35,224    |  | $         | 24,955 |               | $ | 8,107  |  | $ | 588  
|FHLB Advances                                                     |  |                        | 35,051  |                 |   | 516       |  |           | 4,673  |               |   | 28,757 |  |   | 1,105
|Capital contributions for low income housing partnership interest |  |                        | 306     |                 |   | 153       |  |           | 153    |               |   |       |  |   |     
|Operating leases                                                  |  |                        | 354     |                 |   | 140       |  |           | 167    |               |   | 47     |  |   |     
|                                                                  |  |                        |         |                 |   |           |  |           |        |               |   |        |  |   |      
|Total contractual cash obligations                                |  | $                      | 104,585 |                 | $ | 36,033    |  | $         | 29,948 |               | $ | 36,911 |  | $ | 1,693
|                                                                  |  |                        |         |                 |   |           |  |           |        |               |   |        |  |   |      



18



---

Other Commercial Commitments



|                                     |  |                       |        |                                            |   |           |  |               |       |  |   |    |  |   |       
|------------------------------------ |  | --------------------- | ------ | ------------------------------------------ | - | --------- |  | ------------- | ----- |  | - | -- |  | - | ------
|(Expressed in thousands)             |  | TotalAmountsCommitted |        | Amount of Commitment Expiration Per Period
|                                     |  | Less than1 Year       |        | 1-3 Years                                  |   | 4-5 Years |  | After 5 Years
|Lines of credit                      |  | $                     | 12,845 |                                            | $ | 8,411     |  | $             | 2,528 |  | $ | 26 |  | $ | 1,880 
|Residential lines of credit          |  |                       | 8,383  |                                            |   |          |  |               | 236   |  |   | 38 |  |   | 8,109 
|Residential construction commitments |  |                       | 253    |                                            |   |          |  |               |      |  |   |   |  |   | 253   
|Standby letters of credit            |  |                       | 393    |                                            |   | 393       |  |               |      |  |   |   |  |   |      
|Other commercial commitments         |  |                       | 1,438  |                                            |   | 1,438     |  |               |      |  |   |   |  |   |      
|                                     |  |                       |        |                                            |   |           |  |               |       |  |   |    |  |   |       
|Total commercial commitments         |  | $                     | 23,312 |                                            | $ | 10,242    |  | $             | 2,764 |  | $ | 64 |  | $ | 10,242
|                                     |  |                       |        |                                            |   |           |  |               |       |  |   |    |  |   |       



There are no
recommendations by the Company or Banks regulatory authorities, which, if implemented, would have a material effect on liquidity, capital resources, or operations.



At December 31, 2004, shareholders equity was $31.6 million compared to $35.5 million at December 31, 2003. The
decrease in capital occurred principally due to the payment of a special cash dividend of $0.40 per common share totaling $4.4 million during the second quarter of 2004. The change in the market value of securities available for sale, net of the
related tax effect, also affects shareholders equity and is included as accumulated other comprehensive income.



The Federal Reserve Board has adopted risk-based capital guidelines that assign risk weightings to assets and off-balance sheet items. The guidelines also
define and set minimum capital requirements (risk-based capital ratios). Bank holding companies are required to have core capital (Tier 1) of at least 4.0% of risk-weighted assets and total capital of 8.0% of risk-weighted assets. Tier 1 capital
consists principally of shareholders equity less goodwill, and may include a portion of deferred tax assets. However, presently none of the Companys deferred tax assets are included as Tier 1 capital. Total capital consists of Tier 1
capital, plus certain debt instruments and a portion of the allowance for loan losses.



The following table depicts several capital and liquidity ratios for the Company:



|                                 |  |      |   |  |      |  
|-------------------------------- |  | ---- | - |  | ---- | -
|December 31                      |  | 2004 |   |  | 2003 |  
|Average shareholders equity to: |  |      |   |  |      |  
|Average assets                   |  | 10.8 | % |  | 12.0 | %
|Average deposits                 |  | 14.2 | % |  | 15.2 | %
|Average loans and leases         |  | 19.5 | % |  | 25.2 | %
|                                 |  |     
|Risk-based capital ratio:        |  |      |   |  |      |  
|Tier 1                           |  | 13.4 | % |  | 15.4 | %
|Total                            |  | 14.6 | % |  | 16.7 | %
|Tier 1 leverage ratio            |  | 9.1  | % |  | 10.1 | %



The Banks
capital ratios are detailed in Note 19 of the Notes to the Consolidated Statements in the Companys financial statements beginning on page F-1.



Dividends



During 2003, the Company resumed dividend payments, and details of the payout ratios are depicted in the following table. No dividends were paid during
2002.



|                                                                       |  |       |   |  |      |  
|---------------------------------------------------------------------- |  | ----- | - |  | ---- | -
|                                                                       |  | 2004  |   |  | 2003 |  
|Common dividends declared as a percentage of earnings per common share |  | 229.2 | % |  | 52.0 | %



19



---

The subsidiary Bank is the primary source of funds to pay dividends to the shareholders of the Company.
The Board of Governors of the Federal Reserve Bank has issued a policy statement stating that a bank holding company generally should not maintain its existing rate of cash dividends on common stock unless (1) the organizations net income
available to common shareholders over the past year has been sufficient to fully fund the dividends and (2) the prospective rate of earnings retention appears consistent with the organizations capital needs, asset quality, and overall
financial condition.



Recent Accounting Pronouncements



The Financial Accounting Standards Board (FASB) recently issued
a revised accounting standard for share-based payments (Statement 123R). Statement 123R addresses accounting for share-based payments to employees, including the Companys stock option plan. The Company will adopt Statement 123R in the third
quarter 2005 as required by the standard. Under the new rules, compensation expense will be based on the fair value of options granted, determined at the date of grant, spread over the employees vesting or service period; whereas under
previous rules, compensation expense was based on the intrinsic value of options granted, which was always zero for the Companys plan for options granted at or above fair market value. When adopted in 2005, net income will be reduced by
approximately $88,000 based on current assumptions about the fair value options granted. Previously reported net income and earnings per share for 2004 and 2003 will not be restated.



Management does not believe that any of the recently issued but not yet effective accounting standards, except for Statement
123R, will have a material effect on the Companys results of operations, financial position or liquidity when adopted in 2005.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in
interest rates, exchange rates and equity prices. The Companys market risk is composed primarily of interest rate risk. Interest rate risk results from timing differences in the repricing of assets, liabilities and off-balance sheet
instruments, changes in relationships between rate indices and the potential exercise of explicit or embedded options. The Asset/Liability Management Committee (ALCO) meets regularly to review the interest rate sensitivity position of
the Company and to monitor and limit exposure to interest rate risk. The goal of asset/liability management is to maximize net interest income and the net value of the Companys future cash flows within the interest rate risk limits established
by the Board of Directors.



Interest rate risk is monitored
primarily through the use of two complementary measures: earnings simulation modeling and net present value estimation. While each of these interest rate risk measurements has limitations, taken together they represent a reasonably comprehensive
view of the magnitude of interest rate risk in the Company. The key assumptions underlying these measures are periodically reviewed by ALCO.



The earnings simulation model forecasts the effects on income under a variety of scenarios. This model includes assumptions about how the balance sheet is
likely to evolve through time in different interest rate environments. Loan and deposit growth rate assumptions are derived from historical analysis and managements outlook, as are the assumptions used to project yields and rates for new loans
and deposits. Securities portfolio maturities and prepayments are assumed to be reinvested in similar instruments. Mortgage loan prepayment assumptions are developed from industry median estimates of prepayment speeds.



20



---

Based on the earnings simulation model, changes in net interest income were projected as follows given a
parallel shift in the yield curve:



|                                                   |  |       |   |  |      |  
|-------------------------------------------------- |  | ----- | - |  | ---- | -
|One-Year Net Interest Income Simulation Projection |  | 2004  |   |  | 2003 |  
|                                                   | 
|Down 200 basis points                              |  | -10.6 | % |  | n/a  |  
|Down 100 basis points                              |  | -2.2  | % |  | -8.9 | %
|                                                   |  |      
|Up 100 basis points                                |  | 2.8   | % |  | 7.4  | %
|Up 200 basis points                                |  | 4.4   | % |  | 8.3  | %
|Up 300 basis points                                |  | 7.0   | % |  | 14.4 | %



Due to the low
interest rate environment that prevailed at year-end 2003, a decline of 200 basis points is not presented.



The net present value estimation (NPV) measure is used for discerning levels of risk present in the balance sheet that might not be taken into
account in the earnings simulation model due to the shorter time horizon used by that model. The NPV of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability
cash flows. The NPV measure also assumes a static balance sheet, versus the growth assumptions that are incorporated into the earnings simulation measure and an unlimited time horizon instead of the one-year horizon applied in the earnings
simulation. As with earnings simulation modeling, assumptions about the timing and variability of balance sheet cash flows are important to NPV analysis. The estimated decline in the present value of equity as a percentage of the total market value
of equity at December 31, 2004 would be 3.2% given a 300 basis point increase in interest rates.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The Consolidated Financial Statements are set forth beginning on page F-1. Quarterly financial data is presented in Note 26.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE



There were no changes in or disagreements
with the Companys external auditors on accounting and financial disclosure.



ITEM 9A. 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 annual 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 materially affect, the Companys internal control over financial operating.



ITEM 9B. OTHER INFORMATION



None.



21



---

PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Directors



Set forth below is information concerning each director of the Company, including his business experience during at least the past five years, his
positions with the Company and/or Belmont National Bank, a subsidiary of the Company (the Bank) and certain directorships held by such person. There are no family relationships among any of the directors, nor, except as hereinafter
described, are there any arrangements or understandings between any director and another person pursuant to which he was selected as a director. The Board of Directors has affirmatively determined that at least a majority of the members of the Board
of Directors are independent directors under the applicable rules of the Securities and Exchange Commission and The Nasdaq Stock Market (Nasdaq). Specifically, the Board has determined that Messrs. Beck, Giffin, Goodman, Lee, Miller,Petrozzi, Schambach, Sommer and Wilson are independent directors.



|                                    |  |     |  |                                                                                 
|----------------------------------- |  | --- |  | --------------------------------------------------------------------------------
|Name                                |  | Age |  | Current Position with the
Company                                               
|                                    |  |    
|Directors with Terms Ending in 2005 |  |     |  |                                                                                 
|                                    |  |    
|Jay Beck                            |  | 57  |  | Director                                                                        
|Charles A. Wilson, Jr.              |  | 62  |  | Director                                                                        
|Tillio P. Petrozzi                  |  | 72  |  | Director                                                                        
|                                    |  |    
|Directors with Terms Ending in 2006 |  |     |  |                                                                                 
|                                    |  |    
|David R. Giffin                     |  | 60  |  | Chairman of the Board                                                           
|Terrence A. Lee                     |  | 56  |  | Director                                                                        
|Wilbur R. Roat                      |  | 58  |  | President, Chief Executive Officer and Director of both the Company and the Bank
|                                    |  |    
|Directors with Terms Ending in 2007 |  |     |  |                                                                                 
|                                    |  |    
|John H. Goodman, II                 |  | 60  |  | Director                                                                        
|James R. Miller                     |  | 62  |  | Director                                                                        
|Brian L. Schambach                  |  | 48  |  | Director                                                                        
|Keith A. Sommer                     |  | 64  |  | Director                                                                        



22



---

Directors with Terms Ending in 2005



Jay A. Beck has served as a member of the Board of Directors of the Bank since July 2000 and of the Company since August
2000. He has served as the manager and director of Beck-Altmeyer Funeral Home since 1998. From 1990 to 1998 he was the owner of Beck Funeral Home. Mr. Beck also serves on the boards or advisory boards of various organizations, including St.
Clairsville Schools, the St. Clairsville Chamber of Commerce and the National and State Funeral Directors Association.



Charles A. Wilson, Jr. has served as a member of the Board of Directors of the Company and the Bank since 1973. He currently is an Ohio State Senator. Mr.
Wilson has been the president and owner of Wilson Funeral & Furniture Co., Inc. since 1967.



Tillio P. Petrozzi was appointed as a member of the Board of Directors on March 18, 2002. Since 1980, he has been president and chief executive officer of
T.P. Mining, Inc., with responsibility for all financial matters of the corporation. Mr. Petrozzi also serves as the president and chief executive officer of New Horizon Youth Center, LLC, a residential treatment center for juvenile boys aged 13 to
18, and as president of North Point Consulting and Behavioral Health Services, LLC, a non-profit organization providing outpatient health services to children and their families.



Directors with Terms Ending in 2006



David R. Giffin has served as a member of the Board of Directors of the Bank since July 2000 and of the Company since October 2000. He has served as
Chairman of the Board of Directors of the Company and the Bank since May 2001. He is vice president of Beaconsfield Financial Services, Inc., a securities brokerage firm based in Carnegie, Pennsylvania. In addition, Mr. Giffin has owned and served
as president of Giffin Financial Group, a financial planning firm, since 1978, Giffin Management Group, a provider of property management services, since 1989, Giffin Mortgage Company, Inc., a mortgage brokerage firm, since 1992, Pension Systems,
Inc., a provider of pension administration and management services, since 1979, and Marina Investors Group, Inc., an owner and operator of Grand Isle Marina, Grand Haven, Michigan, since 1992. He also serves on the board of directors of NorthPointe
Bank, Grand Rapids, Michigan. In addition, Mr. Giffin serves as commissioner on the Michigan State Waterways Commission, having originally been appointed to a three-year term by Michigan Governor John Engler in 1996 and reappointed to a second
three-year term in 1999 and a third three-year term in 2002. Mr. Giffin has held an NASD Series 7 and Series 24 license since 1969.



Terrence A. Lee has served as a member of the Board of Directors of the Company and the Bank since 1987. He also has owned the accounting firm, Lee &
Associates, since January 1996.



Wilbur R. Roat has served as a
member of the Board of Directors and the President and Chief Executive Officer of the Company and the Bank since December 1999. Prior to accepting this appointment, Mr. Roat served as the president and chief executive officer of First Lehigh Bank
from September 1994 until February 1999. From March 1992 to September 1994, Mr. Roat served as the president and chief executive officer of St. Edmonds Savings and Loan.



Directors with Terms Ending in 2007



John H. Goodman, II has served as a member of the Board of Directors of the Company and the Bank since 1974. Since 1969, he also has served as the
president of Goodman Group, Inc. Mr. Goodman has been the owner of Harvey Goodman Realtor since 1975.



James R. Miller has served as a member of the Board of Directors of the Company and the Bank since 1995. He also has served as the chief executive officer
of Howden Industrial since November 1998. From April 1992 until November 1998, Mr. Miller was the president of New Philadelphia Fan Co., a subsidiary of Howden Buffalo, Inc.



Brian L. Schambach has served as a member of the Board of Directors since March 2002. Since 1988, he has been the regional
marketing manager with Nalco Chemical Company, formerly Calgon Corporation. He presently manages the Ohio, Pennsylvania, West Virginia and Maryland territories.



Keith A. Sommer has served as a member of the Board of Directors of the Company and the Bank since 1995. He also is president of the law firm, Sommer
and Liberati Co., LPA. Mr. Sommer has been an attorney at Sommer and Liberati Co., LPA since 1968.



23



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Executive Officers



The following table sets forth certain information concerning each executive officer or key employee of the Company, including such persons business
experience during at least the past five (5) years and positions held with the Company or its subsidiaries. Executive officers are appointed by the Board of Directors and serve at the discretion of the Board. There are no family relationships among
the executive officers, nor are there any arrangements or understandings between any executive officer and another person pursuant to which he was selected as an officer except as may be hereinafter described.



|               |  |    |  |                                                                                                 
|-------------- |  | -- |  | ------------------------------------------------------------------------------------------------
|Wilbur R. Roat |  | 57 |  | President, Chief Executive Officer and Director of the Company and of the Bank                  
|Jane R. Marsh  |  | 43 |  | Secretary, Chief Financial Officer of the Company and Bank and Senior Vice President of the Bank



Wilbur R. Roat. See
Information Concerning Directors for information concerning Mr. Roat.



Jane R. Marsh has held various responsible accounting positions with the Bank and the Company since 1987, most recently as the Chief Financial Officer of the Company and Bank and Senior Vice President of the Bank.



Audit Committee



The Company has a standing Audit Committee. The functions of the Audit
Committee include recommending independent auditors to be retained by the Company; conferring with the independent auditors regarding their audit of the Companys financial statements; reviewing the fees of such auditors and other terms of
their engagement; considering the adequacy of internal financial controls and the results of fiscal policies and financial management of the Company; meeting with the Companys internal auditors; reviewing with the independent and internal
auditors the results of their examinations; and recommending changes in financial policies or procedures as suggested by the auditors. All members of the Audit Committee are independent directors as defined by its charter and the applicable rules of
the Securities and Exchange Commission and Nasdaq, and are financially literate as defined by the applicable Nasdaq rules. The Board of Directors has determined that Mr. Lee is an audit committee financial expert as defined
in the applicable rules of the Securities and Exchange Commission, and is also financially sophisticated as defined in the applicable Nasdaq rules. Messrs. Beck, Lee, Miller and Schambach are members of the Audit Committee.



Nominations Process



The Nominating Committee will consider nominees recommended by shareholders pursuant to the procedures set forth in the
Nominating Committees charter, which was adopted on March 15, 2004. A copy of this charter was attached to the Companys Proxy Statement for the 2004 Annual Meeting as Exhibit A. There has been no material change to the Companys
nominations process.



Section 16(a) Beneficial Ownership Reporting
Compliance



Section 16(a) of the Securities Exchange Act
of 1934 requires the Companys directors, certain of its officers and persons who own more than 10% of the Companys common stock to file reports of ownership and changes in ownership with the SEC. Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they file.



Based solely on review of the copies of such forms furnished to the Company, the Company believes that all Section 16(a) filing requirements applicable to persons who are officers or directors of the Company or
holders of 10% of the Companys common stock were complied with in 2004.



24



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Code of Conduct and Ethics



On April 21, 2003, the Board of Directors unanimously approved and adopted a Code of Conduct and Ethics applicable to the
senior financial officers of the Company (the principal executive, financial and accounting officers, controller, or any person serving in an equivalent position) in accordance with Section 406 of the Sarbanes-Oxley Act of 2002. Pursuant to
applicable Nasdaq rules that will be effective for the Company on May 4, 2004, the Board of Directors on March 22, 2004 unanimously approved and adopted a Code of Conduct and Ethics Policy applicable to all directors, officers and employees of the
Company. A copy of the current Code of Conduct and Ethics Policy for Directors, Officers and Employees and the Code of Conduct and Ethics Policy for Senior Financial Officers was attached to the Companys Proxy Statement for the 2004 Annual
Meeting as Exhibits B and C, respectively.



ITEM 11. EXECUTIVE
COMPENSATION



Summary Compensation Table



The following table shows all compensation paid by the Company and its
subsidiaries for the years ended December 31, 2004, 2003 and 2002 to the persons who have served as the executive officers of the Company throughout 2004. No other person who served as an executive officer during 2004 had income that exceeded
$100,000.



|                                                              |  |              |        |           |                     |                       |                                                       |   |                           |  |               |  |   |                   |          
|------------------------------------------------------------- |  | ------------ | ------ | --------- | ------------------- | --------------------- | ----------------------------------------------------- | - | ------------------------- |  | ------------- |  | - | ----------------- | ---------
|Name and Principal Position                                   |  | Year         |        |           | Annual Compensation |                       | Long TermCompensationSecurities UnderlyingOptions (#) |   | All OtherCompensation ($) | 
|                                                              |  | Salary ($)   |        | Bonus ($) |                     |                      
|Wilbur R. Roat, President and Chief Executive Officer         |  | 200420032002 |        |           | $                   | 217,769200,000185,000 |                                                       | $ | 50,00050,00050,000        |  | 035,00050,000 |  | $ | 10,47110,0769,208 | (1)(1)(1)
|                                                              |  |              |        |           |                    
|David B. Kelley Sr. Vice President Commercial Lending         |  | 200420032002 | (2)(3) |           | $                   | 81,396100,000         |                                                       | $ | 012,500                   |  | 07,500        |  | $ | 05,431            | (1)      
|                                                              |  |              |        |           |                    
|Jane R. Marsh, Sr. Vice President and Chief Financial Officer |  | 200420032002 | (3)    |           | $                   | 105,18097,500         |                                                       | $ | 20,00010,000              |  | 07,500        |  | $ | 6,9057,448        | (1)(1)   

---

|(1) | 401(k) Matching, Profit Sharing and Forfeiture Contributions
|--- | ------------------------------------------------------------

|(2) | Mr. Kelley left the Company in June 2004
|--- | ----------------------------------------

|(3) | Salary and bonus did not exceed $100,000 for 2002
|--- | -------------------------------------------------



Grants of Options



There were no grants of options made during the 2004 fiscal year to the executive officers of the Company. The Company has never granted stock
appreciation rights.



25



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Option Exercises and Holdings



The following table summarizes information concerning options exercised during, and unexercised options held, as of the end
of the 2004 fiscal year by each of the executive officers of the Company. No options were exercised by any of the executive officers during the fiscal year ended 2004.



Aggregated Option Exercises in Last Fiscal Year

and Fiscal Year-End Option Values



|               |  |                                |             |                  |               |                                                                        |             |                                                                    |               |  |   |         |  |   |       
|-------------- |  | ------------------------------ | ----------- | ---------------- | ------------- | ---------------------------------------------------------------------- | ----------- | ------------------------------------------------------------------ | ------------- |  | - | ------- |  | - | ------
|Name           |  | Shares Acquiredon Exercise (#) |             | ValueRealized($) |               | Number of SecuritiesUnderlying UnexercisedOptions at Year-End 2004 (#) |             | Value of Unexercised In-the-Money Options at Year-End 2004 ($) (1)
|               |  |                                | Exercisable |                  | Unexercisable |                                                                        | Exercisable |                                                                    | Unexercisable
|Wilbur R. Roat |  | 0                              |             | $                |              |                                                                        | 138,750     |                                                                    | 61,250        |  | $ | 416,013 |  | $ | 71,888
|Jane R. Marsh  |  | 0                              |             | $                |              |                                                                        | 14,375      |                                                                    | 13,125        |  | $ | 24,506  |  | $ | 15,619

---

|(1) | Value of Unexercised In-the-Money Options at Fiscal Year-End is based upon the closing price of the Companys common stock on December 31, 2004, the last trading
day of the 2004 fiscal year. The closing price on this day was $6.13 per share.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Director Compensation and Arrangements



Each non-employee director receives an annual cash retainer of $7,500. The Chairman of the Board, who also serves as Chairman of the Compensation Committee, receives an annual cash retainer of $25,000. The Chairman of
the Audit Committee receives an annual cash retainer of $25,000 and the Chairman of the Trust Committee receives an annual cash retainer of $12,500. Additionally, each non-employee director receives a fee of $1,000 for each Board of Directors
meeting attended. Non-employee directors who are members of the Audit Committee receive $500 for each meeting attended, and non-employee directors who are members of the Trust Committee receive $250 for each meeting attended.



Employment Contracts



In December 1999, the Bank and the Company entered into an employment agreement with Mr. Roat, which provides for his
employment as the President and Chief Executive Officer of the Bank and the Company for an initial term of three (3) years (which term, unless otherwise terminated, automatically renews for successive terms of one year each), at an annual base
salary of $160,000. In addition, pursuant to the agreement, options to purchase 75,000 shares of the Companys common stock at an exercise price of $2.00 per share were granted. The agreement further provides that if, prior to a change of
control, the Company terminates or fails to renew the agreement without cause, Mr. Roat will be entitled to continuation of his compensation and benefits for the remaining term, if any, and for a six (6) month severance period. If the Company
terminates or fails to renew the agreement without cause, within two (2) years following a change of control or if Mr. Roat voluntarily terminates his employment within six (6) months following a change of control, he will be entitled to receive a
lump-sum payment of an amount equal to 299% of his annualized base salary and most recent bonus, as well as the purchase from him by the Company of his personal residence for the price originally paid by him.



In September 2001, the Compensation Committee approved a $15,000 salary
increase for Mr. Roat retroactive to January 1, 2001, thereby increasing his annual base salary to $175,000. In July 2002, the Compensation Committee approved a $10,000 salary increase for Mr. Roat retroactive to January 1, 2002, thereby increasing
his annual base salary to $185,000. At that time the Committee approved a bonus for Mr. Roat for the 2001 calendar year, based on his exceptional performance. In December 2002, the Committee approved a bonus for



26



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the 2002 calendar year of $50,000 and an 8% salary increase taking his salary to $200,000. In December 2003, the
committee approved a $10,000 salary increase to $210,000, and a $50,000 bonus. In December 2004, the committee approved a 5% salary increase to $220,500, and a $50,000 bonus.



Other Compensation Plans and Arrangements



On November 24, 2004, the Company entered into an agreement with Mrs. Marsh, which provides that the Company will make a severance payment to Mrs.
Marsh upon the occurrence of a Change in Control Event, which is defined in the agreement to include: (i) the termination without good cause of Mrs. Marshs employment within two years of the occurrence of a change of control of the
Company; (ii) the assignment to Mrs. Marsh, within two years of the occurrence of a change of control of the Company, of duties materially inconsistent with or in material diminution of her positions, duties, responsibilities and status as of the
date of the agreement; (iii) the voluntary termination of her employment within six months of a change of control; or (iv) the Company transferring Mrs. Marsh to a location outside of a 30 mile radius of St. Clairsville, Ohio, within two years of a
change of control.



The amount of the severance payment to be
made to Mrs. Marsh in the circumstances described above will consist of: (i) a lump sum equal to 200% of the sum of (A) her base annual salary at the time and (B) the most recent bonus earned by her; and (ii) for two years following the change of
control, continuation of health, life and dental insurance benefits comparable to those received by her at the time of termination of her employment.



The agreement contains restrictive covenants that prohibit Mrs. Marsh from (i) during the term of her employment with the Company, engaging in any other
business activity pursued for profit or gain; and (ii) during the term of her employment with the Company and for 6 months immediately following the termination of her employment, (A) serving as an officer, director, shareholder, owner, partner,
joint venturer, consultant or advisor to any bank, savings bank or other financial institution within a 50 mile radius of the Companys principal office in St. Clairsville, Ohio; (B) soliciting any of the Companys customers except on
behalf of the Company; (C) influencing any of the Companys employees to terminate their employment with the Company or accept employment with any competitor of the Company; (D) interfering with any of the Companys business relationship;
or (E) entering into any business relationship with any of the Companys customers or suppliers absent approval by the Companys board of directors.



The Bank has a Defined Contribution 401(k) Savings Plan, which allows employees who work over 1,000 hours per year to defer up to allowable IRS limits
of their pre-tax salary to the Plan. The Bank matches fifty percent (50%) of the first four percent (4%) deferred. The Bank may also make voluntary contributions to the Plan. For 2004, the Bank paid $65,389.97 in matching funds and $113,340.24 in
voluntary contributions to the plan. The matching funds contribution for Mr. Roat was $4,320.97 and $2,849.31 for Mrs. Marsh. The voluntary contribution for Mr. Roat was $6,150, and for Mrs. Marsh, $4,055.40.



In February 2000, the Board adopted the Belmont Bancorp. 2001 Stock Option
Plan, which was subsequently approved by the shareholders at the 2001 annual meeting. In December 2003, 76,000 incentive options were awarded at a price of $5.66 per share. Mr. Roat was awarded 35,000 options, Mr. Kelley and Mrs. Marsh were each
awarded 7,500 options. Ten other bank officers also received incentive options at that time at a price of $5.66 per share. In June 2003 one other bank officer was awarded an incentive option to purchase 5,000 shares at a price of $4.99 per share. A
total of 442,500 options have been awarded under the plan. Of these, 24,875 have been exercised and 103,125 nonvested options have been forfeited due to termination of employment.



Compensation Committee Interlocks and Insider Participation



Messrs. Giffin, Goodman and Petrozzi serve on the Companys Compensation Committee. There are no interlocking
relationships, as defined in the regulations of the Securities and Exchange Commission, involving any of these individuals.



27



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Securities Ownership of Certain Beneficial Owners and Management



The following table sets forth the number of shares and
percentage of common stock beneficially owned as of April 7, 2005 by (i) each person who is known by the Company to own beneficially more than 5% of the shares of common stock, (ii) each director of the Company, (iii) the executive officer included
in the Summary Compensation Table and (iv) all directors and executive officers of the Company as a group. Unless stated otherwise, each person so named exercises sole voting and investment power as to the shares of common stock so
indicated. There were 11,126,278 shares of common stock issued and outstanding as of April 7, 2005.



Security Ownership Table



|                                             |  |           |      |  |            
|-------------------------------------------- |  | --------- | ---- |  | -----------
|Name and Address of Beneficial Owner         |  | Amount    |      |  | Percent (%)
|Jay A. Beck                                  |  | 8,634     | (1)  |  | *          
|David R. Giffin                              |  | 1,000,000 | (2)  |  | 9.0        
|John H. Goodman, II                          |  | 318,232   | (3)  |  | 2.9        
|Terrence A. Lee                              |  | 29,614    | (4)  |  | *          
|Jane R. Marsh                                |  | 19,765    | (5)  |  | *          
|James R. Miller                              |  | 15,000    | (6)  |  | *          
|Tillio P. Petrozzi                           |  | 200,970   | (7)  |  | 1.8        
|Wilbur R. Roat                               |  | 163,750   | (8)  |  | 1.5        
|Brian L. Schambach                           |  | 25,000    | (9)  |  | *          
|Keith A. Sommer                              |  | 74,008    | (10) |  | *          
|Charles A. Wilson, Jr.                       |  | 153,556   | (11) |  | 1.4        
|Directors and Executives Officers as a Group |  | 2,008,529 |      |  | 18.1       

---

|* | Less than 1%.
|- | -------------

|1. | These shares are held in the name of the Jay A. Beck IRA.
|-- | ---------------------------------------------------------

|2. | This amount includes (i) 889,000 shares held in the name of the David R. Giffin Trust and (ii) 111,000 shares held in the name of Pension Systems Inc. Profit Sharing Plan f/b/o
David R. Giffin. Mr. Giffins business address is 151 South Rose Street, Suite 623, Kalamazoo, Michigan 49007.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | This amount includes (i) 32,134 shares held in the name of Marylouise Goodman IRA, (ii) 66,535 shares held in the name of Marylouise Goodman, wife of Mr. Goodman, to which Mr.
Goodman disclaims any beneficial interest, (iii) 52,704 shares held in the name of John H. Goodman, II and Terrence A. Lee, Trustees under a trust dated February 2, 1991, to which Mr. Goodman disclaims any beneficial interest, (iv) 28,101 shares
held by John H. Goodman, II, Trustee under a trust dated April 26, 1995, (v) 23,784 shares held in the name of John H. Goodman, II, and (vi) 114,974 shares held in the name of the John H. Goodman, II IRA.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | This amount includes 32 shares each held in the names of Terrence A. Lee, Custodian for Katherine M. Lee, UGMA, Terrence A. Lee, and Terrence A. Lee, Custodian for Tara N. Lee,
UGMA. Katherine and Tara are Mr. Lees minor daughters. This amount also includes 25,000 shares held in the name of Terrence A. and Cathy C. Lee as joint tenants; and 4,550 shares held in the name of Terrence A. Lee. This amount does not
include 52,704 shares held in the name of John H. Goodman, II and Terrence A. Lee, Trustees for a trust dated February 2, 1991, as to which Mr. Lee disclaims any beneficial interest.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | This amount includes (i) 7,500 shares issuable upon the exercise of currently exercisable options at an exercise price of $4.00, expiring in December 2011, (ii) 5,000 shares
issuable upon the exercise of currently exercisable options at an exercise price of $4.60, expiring in December 2012, (iii) 1,875 shares issuable upon the exercise of currently exercisable options at an exercise price of $5.60, expiring in December
2013, (iv) 1,068 shares held in the name of Jane R. Marsh, Custodian for Laura Claire Marsh, UGMA, and (v) 538 shares held in the name of Jane and David Marsh as joint tenants.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

|6. | These shares are held in the name of the James R. Miller IRA.
|-- | -------------------------------------------------------------

|7. | This amount includes (i) 198,700 shares held in the name of Tillio P. Petrozzi Revocable Trust, (ii) 1,200 shares held in the name of Tillio P. Petrozzi IRA, and (iii) 1,000 shares
held in the name of Louise Petrozzi IRA.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | This amount includes (i) 75,000 shares issuable upon the exercise of currently exercisable options at an exercise price of $2.00 per share, expiring in February 2011, (ii) 30,000
shares issuable upon the exercise of currently exercisable options at an exercise price of $4.00 per share, expiring in December 2011, and 25,000 shares issuable upon the exercise of currently exercisable options at an exercise price of $4.60 per
share, expiring in December 2012, (iii) 8,750 shares issuable upon exercise of currently exercisable options at an exercise price of $5.66 per share, expiring in December 2013, and (iv) 25,000 shares are held in the names of Wilbur R. and Joanne
Roat as joint tenants.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | This amount includes (i) 15,000 shares held in the names of Brian and Lee Ann Schambach as joint tenants in which Mr. Schambach shares voting and investment power and (ii) 10,000
shares held in the name of Brian Schambach IRA.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | These shares are held in the name of the Keith A. Sommer SEP IRA.
|--- | -----------------------------------------------------------------

|11. | This amount includes (i) 7,804 shares held in the name of Wilson Funeral and Furniture Company, of which Mr. Wilson is President, and in which Mr. Wilson holds a substantial stock
interest and has voting power, (ii) 62,052 shares issuable to Mr. Wilson, and (iii) 83,700 shares held in the name of Charles A. Wilson, Jr. IRA.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Equity Compensation Plan Information



The following table provides information as of December 31, 2004 with respect to shares of Belmont Bancorp. common stock that may be issued under our
existing equity compensation plan.



|                                                               |  |                                                                                             |  |                                                                             |      |                                                                                                                                             |        
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                               |  | (a)                                                                                         |  | (b)                                                                         |      | (c)                                                                                                                                        
|Plan Category                                                  |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options, warrants and rights |      | Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|Equity compensation plans approved by security holders (1)     |  | 314,500                                                                                     |  | $                                                                           | 4.06 |                                                                                                                                             | 660,625
|Equity compensation plans not approved by security holders (2) |  | 0                                                                                           |  |                                                                             | 0    |                                                                                                                                             | 0      
|Total                                                          |  | 314,500                                                                                     |  | $                                                                           | 4.06 |                                                                                                                                             | 660,625

---

|(1) | Consists of the options issued under the Belmont Bancorp. 2001 Stock Option Plan approved by shareholders at the annual meeting held May 21, 2001. See Note 25 to the Consolidated
Financial Statements for additional information.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | There are no equity compensation plans not approved by security holders.
|--- | ------------------------------------------------------------------------



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



In December 1999, the Bank and the Company entered into an employment agreement with Mr. Roat, which provides for his
employment as the President and Chief Executive Officer of the Bank and the Company for an initial term of three (3) years (which term, unless otherwise terminated, automatically renews for successive



29



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terms of one year each), at an annual base salary of $160,000. In addition, pursuant to the agreement, options to purchase 75,000 shares of the
Companys common stock at an exercise price of $2.00 per share were granted. The agreement further provides that if, prior to a change of control, the Company terminates or fails to renew the agreement without cause, Mr. Roat will be entitled
to continuation of his compensation and benefits for the remaining term, if any, and for a six (6) month severance period. If the Company terminates or fails to renew the agreement without cause, within two (2) years following a change of control or
if Mr. Roat voluntarily terminates his employment within six (6) months following a change of control, he will be entitled to receive a lump-sum payment of an amount equal to 299% of his annualized base salary and most recent bonus, as well as the
purchase from him by the Company of his personal residence for the price originally paid by him.



In September 2001, the Compensation Committee approved a $15,000 salary increase for Mr. Roat retroactive to January 1, 2001, thereby increasing his
annual base salary to $175,000. In July 2002, the Compensation Committee approved a $10,000 salary increase for Mr. Roat retroactive to January 1, 2002, thereby increasing his annual base salary to $185,000. At that time the Committee approved a
bonus for Mr. Roat for the 2001 calendar year, based on his exceptional performance. In December 2002, the Committee approved a bonus for the 2002 calendar year of $50,000 and an 8% salary increase taking his salary to $200,000. In December 2003,
the committee approved a $10,000 salary increase to $210,000, and a $50,000 bonus. In December 2004, the committee approved a 5% salary increase to $220,500, and a $50,000 bonus.



Some of the directors of the Company, as well as the companies with which such directors are associated, are customers of,
and have had banking transactions with the Bank in the ordinary course of the Banks business and the Bank expects to have such ordinary banking transactions with such persons in the future. In the opinion of management of the Company and the
Bank, all loans and commitments to lend included in such transactions were made in compliance with applicable laws on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other
persons of similar creditworthiness and did not involve more than a normal risk of collectibility or present other unfavorable features.



The Bank expects to have in the future banking transactions in the ordinary course of its business with directors, officers and principal shareholders,
and their associates on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others and which do not involve more than the normal risk of collectibility
or present other unfavorable features.



From time to time the
law firm of Sommer and Liberati Co., LPA, of which Keith A. Sommer is a partner, provides legal services to the Company and the Bank. Mr. Sommer is a director of both the Company and the Bank. It is contemplated that this firm may be retained to
perform additional legal services during the current year.



ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES



Independent Auditors



The Board of Directors appointed Crowe Chizek and Company
LLC, independent certified public accountants, to audit the financial statements of the Company and its wholly owned subsidiaries for the fiscal year ending December 31, 2005. Crowe Chizek and Company LLC also audited the Companys financial
statements for the year ended December 31, 2004.



Independent Auditor Fees
and Services



The following table shows the aggregate fees
paid to Crowe Chizek and Company LLC for audit and other services rendered to the Company during 2003 and 2004:



|                   |  |      |         |     |      |   |         |    
|------------------ |  | ---- | ------- | --- | ---- | - | ------- | ---
|                   |  | 2004 |         |     | 2003 |  
|Audit fees         |  | $    | 79,350  |     |      | $ | 83,750  |    
|Audit-related fees |  |      | 2,100   |     |      |   | 4,725   |    
|Tax fees           |  |      | 6,100   | (3) |      |   | 18,900  | (1)
|Other fees         |  |      | 21,590  | (4) |      |   | 86,575  | (2)
|                   |  |      |         |     |      |   |         |    
|                   |  | $    | 109,140 |     |      | $ | 193,950 |    
|                   |  |      |         |     |      |   |         |    

---

|(1) | Tax fees paid during 2003 include $9,000 for fees for the 2002 tax year.
|--- | ------------------------------------------------------------------------

|(2) | Other fees paid during 2003 include $82,125 for internal audit services of which $44,500 was paid for calendar year 2002
|--- | ------------------------------------------------------------------------------------------------------------------------



30



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|(3) | Tax fees paid during 2004 include $4,700 for the 2003 tax year
|--- | --------------------------------------------------------------

|(4) | Other fees include $21,375 for internal audit services rendered for the 2003 calendar year.
|--- | -------------------------------------------------------------------------------------------



Audit fees include fees paid for the annual financial statement audit and for the review of the Companys interim
consolidated financial statements for each quarter in 2004 and 2003.



Audit-related fees include fees paid for consents required for filings with the Securities and Exchange Commission and for collateral opinions for the Federal Home Loan Bank.



Tax fees include amounts paid for the preparation of the consolidated federal tax return, various state tax return
preparation, and miscellaneous tax research.



Other fees paid
for 2004 include internal audit services performed for calendar year 2003.



Audit Committee Pre-approval Policies and Procedures



The Audit Committees pre-approval policies and procedures require the independent auditor to seek pre-approval by the Audit Committee of all audit and permitted non-audit services by providing a prior description of the services to be
performed and specific fee and expense estimates for each such service. The Audit Committee periodically monitors the services rendered by and actual fees paid to the independent auditors to ensure that such services are within the parameters
approved by the Audit Committee. The Audit Committee approved all of the services performed by Crowe Chizek and Company LLC during the 2004 fiscal year.



PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|    |  |                                                                                                                                                |  |     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|(a) |  | The following documents are filed as a part of this report:                                                                                    |  |     
|    |  | (1)    Financial Statements                                                                                                                    |  |     
|    |  |                                                                                                                                               
|    |  | Consolidated Balance Sheets                                                                                                                    |  | F-1 
|    |  | Consolidated Statements of Income                                                                                                              |  | F-2 
|    |  | Consolidated Statements of Changes in Shareholders Equity                                                                                     |  | F-3 
|    |  | Consolidated Statements of Cash Flows                                                                                                          |  | F-4 
|    |  | Notes to Consolidated Financial Statements                                                                                                     |  | F-5 
|    |  | Summary of Quarterly Financial Data                                                                                                            |  | F-26
|    |  |                                                                                                                                               
|    |  | (2)    Financial Statements Schedules                                                                                                          |  |     
|    |  | All schedules are omitted as such information is inapplicable or is included in the financial statements.                                      |  |     
|    |  |                                                                                                                                               
|(b) |  | The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed in the Index to Exhibits |  | E-1 



31



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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 on March 29, 2005.



|   |  |                                     |  |                 
|-- |  | ----------------------------------- |  | ----------------
|By |  | /s/ Wilbur R. Roat                  |  | BELMONT BANCORP.
|   |  | Wilbur R. Roat                      |  | (Registrant)    
|   |  | President & Chief Executive Officer |  |                 



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.



|                           |  |                                               |  |        
|-------------------------- |  | --------------------------------------------- |  | -------
|SIGNATURE                  |  | TITLE                                         |  | DATE   
|/s/ Wilbur R. Roat         |  | Director, President & Chief Executive Officer |  | 3/29/05
|/s/ Jane R. Marsh          |  | Chief Financial Officer and Secretary         |  | 3/29/05
|/s/ Jay A. Beck            |  | Director                                      |  | 3/29/05
|/s/ David R. Giffin        |  | Chairman of the Board and Director            |  | 3/29/05
|/s/ John H. Goodman, II    |  | Director                                      |  | 3/29/05
|/s/ Terrence A. Lee        |  | Director                                      |  | 3/29/05
|/s/ James R. Miller        |  | Director                                      |  | 3/29/05
|/s/ Tillio P. Petrozzi     |  | Director                                      |  | 3/29/05
|/s/ Brian L. Schambach     |  | Director                                      |  | 3/29/05
|/s/ Keith A. Sommer        |  | Director                                      |  | 3/29/05
|/s/ Charles A. Wilson, Jr. |  | Director                                      |  | 3/29/05



32



---

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | 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. (7)                                                                                                                
|              | 
|10.3          |  | Belmont Bancorp. 2001 Stock Option Plan (5)                                                                                                                                                                        
|              | 
|13.0          |  | Financial Statements (7)                                                                                                                                                                                           
|              | 
|14.1          |  | Code of Conduct and Ethics Policy for Directors, Officers and Employees (6)                                                                                                                                        
|              | 
|14.2          |  | Code of Conduct and Ethics Policy for Senior Financial Officers (6)                                                                                                                                                
|              | 
|21.1          |  | List of Subsidiaries (7)                                                                                                                                                                                           
|              | 
|23.1          |  | Consent of Crowe Chizek and Company LLC (7)                                                                                                                                                                        
|              | 
|31.1          |  | Certification of the President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Annual Report on Form 10-K of Belmont Bancorp. for the year ended
December 31, 2004 (7)
|              | 
|31.2          |  | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Annual Report on Form 10-K of Belmont Bancorp. for the year ended December 31,
2004 (7)              
|              | 
|32.1          |  | Certification of the President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Annual Report on Form 10-K of Belmont Bancorp. for the year ended
December 31, 2004 (7)
|              | 
|32.2          |  | Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Annual Report on Form 10-K of Belmont Bancorp. for the year ended December 31,
2004 (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 Proxy Statement for its Annual Meeting of Shareholders filed with the Securities and Exchange Commission on Schedule 14A on April 21, 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Filed herewith.
|--- | ---------------



A copy of an exhibit may be obtained from the Company via written request. Please specify each exhibit requested and your name, address and telephone number. A nominal photocopying charge may apply.



Belmont Bancorp.

Attn: Jane Marsh, Corporate Secretary

P.O. Box 249, St. Clairsville, Ohio

43950



E-1