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United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2004

or

For the transition period from              to             

Commission File Number: 0-12724

Belmont Bancorp.

(Exact name of registrant as specified in its charter)

(740)-695-3323

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.     Yes  x    No  ¨

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

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

Common Stock, $0.25 par value,

11,110,028 shares outstanding

as of May 10, 2004

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BELMONT BANCORP

Quarter Ending March 31, 2004

INDEX

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Belmont Bancorp. and Subsidiaries

Consolidated Balance Sheets

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

See the Notes to the Consolidated Financial Statements.

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Belmont Bancorp. and Subsidiaries

Consolidated Statements of Income

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

See the Notes to the Consolidated Financial Statements.

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Belmont Bancorp. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

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

See the Notes to the Consolidated Financial Statements.

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Belmont Bancorp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2004 and 2003

(Unaudited) ($000’s)

See the Notes to the Consolidated Financial Statements.

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PART I - FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

BASIS OF PRESENTATION

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

The foregoing financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for a fair presentation of the financial statements have been included. A summary of the Company’s significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the Company’s Annual Report to Shareholders on Form 10-K for the year ended December 31, 2003.

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

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

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

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

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Stock Compensation: Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income for options granted with an exercise price equal to or greater than the market price of the underlying common stock at date of grant. Compensation expense is reflected in net income for certain options granted with an exercise price below the market price of the underlying common stock at the date of the grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”.

2. Securities

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

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Unrealized losses on corporate debt have not been recognized into income because management has the intent and ability to hold the securities for the foreseeable future and believes the issuers have the ability to repay their obligations upon maturity.

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

3. Loans and Allowance for Loan Losses

Loans outstanding are as follows:

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Non-accruing loans amounted to $1,421,000 at March 31, 2004, down from $1,808,000 at year-end 2003. Generally, non-accruing loans are considered impaired and are also included in the impaired loan table below. Loans past due 90 days and still accruing interest were $11,000 at March 31, 2004 and $3,000 at year-end 2003.

Impaired loans were as follows:

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

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

4. Stock Option Plan

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

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The following is a summary of the activity in the Plan for the three months ended March 31, 2004:

The Company accounts for the stock options under Accounting Principles Board Opinion No. 25, which requires expense recognition only when the exercise price is less than the market value of the underlying stock at the measurement date. Compensation expense, net of taxes, of $1,000 and $3,000 was recognized for the three months ended March 31, 2004 and 2003, respectively, to reflect the impact of granting certain options below their market price. Pro forma information for net income and earnings per common share is presented in Note 1.

5. Litigation

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

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

FORWARD-LOOKING STATEMENTS

In addition to historic information, this report, as well as the notes to the consolidated financial statements, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Forward-looking statements 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. 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. 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. Readers should also carefully review any risk factors described in Company reports filed with the Securities and Exchange Commission.

Various statements made in this Report concerning the manner in which the Company intends to conduct its future operations, and potential trends that may impact future results of operations, are forward-looking statements. The Company may be unable to realize its plans and objectives due to various important factors, including, but not limited to, the factors described below. These and other factors are more fully discussed elsewhere in this Report.

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RESULTS OF OPERATIONS

SUMMARY

For the three months ended March 31, 2004, Belmont Bancorp. earned $687,000, or $0.06 per common share, compared to earnings of $470,000, or $0.04 per common share, for the three months ended March 31, 2003.

Average assets increased to $304 million for the first quarter of 2004, compared to $288 million for the first quarter of 2003. Total assets at March 31, 2004 were $308 million, up from $299 million at year end 2003.

Net interest income on a taxable equivalent basis increased $398,000 for the first quarter of 2004 compared to the first quarter of 2003. Average earning assets increased to $282 million during the first quarter of 2004 from $265 million for the first quarter of 2003. The taxable equivalent net interest margin was 3.81% for the first quarter of 2004 and 3.45% for the first quarter of 2003. The taxable equivalent net interest margin for the fourth quarter of 2003 was 3.51%. The net interest rate spread (the difference between the average yields on earning assets and interest-bearing liabilities) was 3.50% for the first three months of 2004 compared to 3.05% for the comparable period of 2003. The taxable equivalent yield on earning assets declined to 5.41% from 5.53%, a decrease of 12 basis points, during the first quarter of 2004 compared to the first quarter of 2003. This decline was offset by a decrease of 57 basis points in the cost of interest-bearing liabilities to 1.91% from 2.48%.

Interest rates across the maturity horizon remained low relative to historical levels during the first quarter of 2004. The Federal Open Market Committee (the “FOMC”) has maintained a very accommodative stance to aid economic recovery keeping its targeted federal funds rate at 1.00%—the lowest level in 46 years. 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. Generally, higher interest rates will positively impact the Company’s net interest income, while lower interest rates will negatively impact net interest income. The Company has significantly reduced it 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 result in a migration of its funds to different products paying a higher rate of interest.

OTHER OPERATING INCOME

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

Overall, noninterest income, excluding gains on sale of securities and loans held for sale, increased $149,000, or 25.4%, during the first quarter of 2004 compared to 2003.

Trust fees increased 32.8% to $166,000 for the first quarter of 2004 compared to $125,000 for the first quarter of 2003 as the result of market conditions and an increase in the trust fee schedule. Trust fees are affected by the valuation of the stock market because most fees are assessed based on the underlying market values of trust accounts.

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Service charges on deposits totaled $323,000 for the first quarter of 2004 compared to $253,000 for the comparable period of 2003. The increase in service charges for 2004 was principally due to the introduction in June 2003 of a new product and the implementation of a new service charge.

Mortgage servicing fees are collected from the Federal Home Loan Mortgage Corporation (“Freddie Mac”) for the Company’s role in servicing mortgage loans previously sold to Freddie Mac. Generally, the Company receives 0.25% of the outstanding loan balance for servicing. Mortgage servicing fees increased to $46,000 for first quarter of 2004 compared to $44,000 for the comparable quarter of 2003. The portfolio of loans sold to Freddie Mac declined slightly to $71.4 million at March 31, 2004 compared to $72.6 million at year-end 2003. The portfolio totaled $68.4 million at March 31, 2003. Future increases to mortgage servicing fees are largely dependent upon the volume of mortgage loans originated and sold in the secondary market.

Other income includes, among other miscellaneous items, commissions and fees unrelated to loan origination, brokerage fees, loan documentation preparation fees, rental income, and check printing charges. Other income increased 22.0% to $200,000 for the first quarter of 2004 compared to $164,000 for the comparable period of 2003.

Mortgage lending volumes declined during the first quarter of 2004 compared to the first quarter of 2003 reflecting the cyclical nature of the mortgage lending business. A component of gains on sale of loans held for sale includes capitalized mortgage servicing rights. This right represents the value associated with servicing loans sold in the secondary market. Capitalization of mortgage servicing rights totaled $19,000 for the first quarter of 2004 compared to $59,000 for the first quarter of 2003. Total gains on sales of loans (including the component for capitalized mortgage servicing rights) decreased 78.8% to $29,000 for the first quarter of 2004 compared to $137,000 for the same period of 2003.

OPERATING EXPENSES

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

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At March 31, 2004 the Company employed 131 full time equivalent employees compared to 130 full time equivalent employees at the end of March 2003. Compensation expense was relatively unchanged for the first quarter of 2004 compared to the first quarter of 2003, and benefit costs increased 2.7% for the same period.

Insurance expense included costs for federal deposit insurance premiums, directors’ and officers’ liability insurance, and fidelity bond insurance. Insurance costs decreased 21.2% to $41,000 for the first quarter of 2004 from $52,000 for the same period of 2003. The decrease was principally related to lower costs associated with directors’ and officers’ liability insurance.

Examination and audit costs decreased 29.9% to $61,000 for the first quarter of 2004 from $87,000 for the same period of 2003. During the first quarter of 2003, certain internal audit and loan review functions were outsourced. Beginning in 2004, the Company’s staff performed the internal audit and loan review functions. Consequently, some costs related to examinations and audit expenses are now reflected in compensation cost.

Directors’ fees increased to $57,000 for the first quarter of 2004 compared to the same quarter of 2003. Retainer and attendance fees for directors were increased beginning in 2004.

Data processing expenses decreased 8.8% to $52,000 for the first quarter of 2004 compared to the same quarter of 2003 as the result of the conversion of the trust accounting system in early 2003 from a third party provider to an in-house system.

Net amortization of mortgage servicing rights (“MSR”) increased to $41,000 for the first quarter of 2004 compared to $29,000 for the comparable quarter of 2003. Activity associated with MSR, amortization of MSR and reductions to a valuation allowance established during 2002 to reduce the carrying value of MSR to estimated fair value is summarized in the following table.

SECURITIES

The estimated fair value of securities available for sale at March 31, 2004 and December 31, 2003 are detailed in Note 2 of the quarterly financial statements.

At March 31, 2004, the Company did not own any investments of a single issuer, the value of which exceeded 10% of total shareholders’ equity, or $3,607,000, except for stock in the Federal Home Loan Bank of Cincinnati. The carrying value of this stock was $3,629,000 at March 31, 2004.

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PROVISION AND ALLOWANCE FOR LOAN LOSSES

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

Details of the activity in the Allowance for Loan Losses for the first quarter of 2004 and 2003 are included in Note 3 of the quarterly financial statements. No loan loss provision was recorded during the first quarters of 2004 or 2003 because the Company had an appropriate balance in the allowance based on its analysis of loan quality. The following table depicts various loan and loan-related statistics.

NON-PERFORMING ASSETS

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

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

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In addition to the schedule of non-performing assets, management prepares a watch list consisting of loans which they have determined require closer monitoring to further protect the Company against loss. The balance of loans classified by management as substandard due to delinquency, a change in financial position, or other factors and not included as non-performing assets totaled $8,166,000 at March 31, 2004 and $8,214,000 at December 31, 2003.

LOAN CONCENTRATIONS

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

DEFERRED FEDERAL TAX ASSETS

Deferred federal tax assets totaled $4.2 million at March 31, 2004. The deferred federal tax assets include significant balances related to tax loss carryforwards and tax credits. It also includes the tax effect of recording securities available for sale at estimated fair value. At March 31, 2004, management believes no deferred tax valuation allowance is needed as future estimated taxable income will be sufficient to realize the net deferred tax assets.

SHORT-TERM FEDERAL HOME LOAN BANK ADVANCES

Short-term borrowings at March 31, 2004 totaled $4 million and consisted of a draw on a line of credit with the Federal Home Loan Bank.

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LONG-TERM FEDERAL HOME LOAN BANK ADVANCES

Long-term advances at March 31, 2004 from the Federal Home Loan Bank of Cincinnati are summarized in the following table.

CAPITAL RESOURCES

The table below depicts the capital ratios for the Bank and for the Company on a consolidated basis as of March 31, 2004. In addition, the table depicts the requirements for classification as “adequately capitalized” and “to be well capitalized” under the regulatory guidelines for Prompt Corrective Action. Tier 1 capital consists principally of shareholders’ equity less goodwill and deferred tax assets, while Tier 2 capital consists of certain debt instruments and a portion of the allowance for loan losses. Total capital consists of Tier 1 and Tier 2 capital.