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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 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)

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

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

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

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.

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.

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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.

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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.

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)

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

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.

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

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.

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Consolidated Average Balance Sheets and Analysis of Net Interest Income

For the Years Ended December 31 (Taxable Equivalent Basis)

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

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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

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.

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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:

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

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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.