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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period from _____________ to _________________
Commission file number 0-12724
BELMONT BANCORP.
(Name of small business issuer in its charter)
Ohio (State of Incorporation) I.R.S. Employer ID
No. 34-1376776
325 MAIN STREET
BRIDGEPORT, OHIO 43912
(Address of principal executive offices)
Telephone (614)-695-3323
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of each class: Name of each exchange on
which registered:
Common stock, $0.50 par value NASDAQ SmallCap Market
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of the
Registrant's knowledge. In definitive proxy or information
statements incorporated by reference to Part III of this Form 10-
K or any amendment to this Form 10-K.X
Aggregate market value of voting stock held by nonaffiliates as
of March 13, 1996 - $57,624,000
There were 2,114,644 shares of $0.50 par value, common stock
outstanding as of March 13, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant dated March 15,
1996 are incorporated in Items 10, 11, 12, and 13. The Annual
Report of the Registrant is incorporated by reference in Items 5,
6, 7, and 8.
PART I
ITEM 1-BUSINESS
BELMONT BANCORP.
Belmont Bancorp. 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 (formerly Belmont County National
Bank), a banking corporation organized as a national banking
association. Belmont National Bank provides a variety of
financial services. In addition to Belmont National Bank, the
Corporation owns Belmont Financial Network, Inc., a non-bank
subsidiary.
BELMONT NATIONAL BANK
Belmont National Bank resulted from the merger on January 2,
1959, of the First National Bank of St. Clairsville, and the
First National Bank of Bridgeport. Both banks were organized as
national associations prior to the turn of the century. Belmont
National Bank operates through a network of ten branches located
in Belmont, Harrison and Tuscarawas Counties in Ohio. The main
office is located in the city of St. Clairsville. Other branch
locations in Belmont County include Bridgeport, Lansing,
Shadyside, and the Ohio Valley Mall. Branches in Harrison County
are located in Jewett and Cadiz, Ohio. Branches in Tuscarawas
County are located in New Philadelphia, Ohio. The three New
Philadelphia offices were acquired on October 2, 1992, when
Belmont National Bank acquired the deposits and loans of these
offices from Diamond Savings and Loan.
Belmont National Bank 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, credit cards, residential mortgage
loans, home equity loans, and other consumer oriented financial
services including IRA and Keogh accounts, safe deposit and night
depository facilities. Belmont National Bank also owns automatic
teller machines located at the Ohio Valley Mall and in New
Philadelphia, Ohio providing 24 hour banking service to our
customers. Belmont National Bank belongs to MAC, a nationwide
ATM network with thousands of locations nationwide. Belmont
National Bank offers a wide variety of fiduciary services. The
trust department of the Bank administers pension, profit-sharing,
employee benefit plans, personal trusts and estates.
BELMONT FINANCIAL NETWORK
On July 1, 1985, Belmont Bancorp. formed a subsidiary
corporation, Belmont Financial Network, Inc.(BFN). The purpose
of the subsidiary was primarily to engage in lease consulting for
personal or real property. Changes to the federal tax code that
eliminated new investment tax credits as of December 31, 1987
adversely affected the leasing business. The daily operations of
Belmont Financial Network were suspended during 1989 to reduce
overhead costs. The leases formerly serviced by Belmont
Financial Network are presently administered by Belmont National
Bank. BFN was inactive throughout 1995.
BELMONT INVESTMENT AND FINANCIAL SERVICES, INC.
During 1988, Belmont National Bank began the operations of
Belmont Investment and Financial Services, Inc., a wholly-owned
subsidiary of the Bank. Belmont Investment and Financial
Services, Inc. was organized so that the Bank's customers would
have available to them a wider array of financial products as
well as sound investment and financial planning. Through Belmont
Investment and Financial Services, Inc., customers can purchase
government or corporate bonds, and mutual fund products. In
1990, the services provided by the Corporation, other than
advisory services, were reorganized into a department of the
Bank.
SUPERVISION AND REGULATION
Belmont Bancorp. is subject to regulation under the Bank
Holding Company Act of 1956, as amended (the "Act"). The 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 Act restricts Belmont's non-banking activities
to those which are closely related to banking. The 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 intercompany
loans and investments. A substantial portion of Belmont's cash
revenues is derived from dividends paid by its subsidiary bank.
These dividends are subject to various legal and regulatory
restrictions as summarized in Note 15 of the financial
statements.
The Bank is subject to the provisions of the National
Banking Act and the regulations of the Federal Reserve Board and
the Federal Deposit Insurance Corporation. Under the Bank
Holding Company Act of 1956, as amended, and under regulations of
the Federal Reserve Board pursuant thereto, a bank holding
company is prohibited from engaging in certain tie-in
arrangements in connection with extensions of credit.
The monetary policies of regulatory authorities, including
the Federal Reserve Board, have a significant effect on the
operating results of banks and bank holding companies. The
nature and future monetary policies and the effect of such
policies on the future business and earnings of Belmont Bancorp.
and its subsidiary bank cannot be predicted.
FOREIGN OPERATIONS
Belmont Bancorp. has no foreign operations.
EXECUTIVE OFFICERS
For information concerning executive officers of Belmont
Bancorp. and Belmont National Bank, see Item 10 of Form 10-K.
ITEM 2-PROPERTIES
DESCRIPTION ON PROPERTIES
The principal executive offices of Belmont National Bank are
located in St. Clairsville, Ohio, the seat of Belmont County.
This office consists of a two story brick building owned by the
Bank with attached drive-in facilities. The building consists of
9,216 square feet which houses the commercial bank operations and
the executive, marketing and human resources offices. In
addition, the Bank transacts business in the following branch
locations:
Mall Office-This office is located at the Ohio Valley Mall,
a major shopping mall located two miles east of St.
Clairsville, Ohio, and consists of a 4,000 square foot
office inside the mall proper, plus a stand alone drive-in
facility at the perimeter of the Mall. Automatic teller
machines are located at the drive-in location and inside the
branch office.
Lansing Office-This 1,352 square foot office is located in
Lansing, Ohio, a small community approximately six miles
east of St. Clairsville on US. Route 40. The facility is a
masonry building with adjoining drive-in facilities.
Bridgeport Office-This office is located in Bridgeport,
Ohio, a community located on the Ohio/West Virginia border,
approximately 10 miles east of St. Clairsville. This 5,096
square foot facility is a recently remodeled masonry
building with adjoining drive-in facilities.
Shadyside Office-This 1,792 square foot office is located in
Shadyside, a village located on Ohio State Route 7. The
facility is a masonry building with accompanying drive-in
facilities.
Jewett Office-This office is located in Harrison County
approximately twenty-six miles north of St. Clairsville,
across from Cross Street, the intersection of State Routes 9
and 151. The building is constructed of masonry brick and
contains 2,400 square feet with an accompanying drive-in
facility.
Cadiz Office-This office is located in Cadiz, Ohio in
Harrison County, approximately seventeen miles north of St.
Clairsville at the intersection of State Routes 9 and 22.
The brick and tile building contains 1,800 square feet with
an accompanying drive-in facility.
New Philadelphia Office-This office, located at 152 North
Broadway Avenue, is a 33,792 square foot site improved with
two inter-connected, two story brick office buildings with a
total building area of 13,234 square feet. Part of the
office space is leased to other businesses. This location
also has a drive-in facility and an automatic teller
machine.
New Philadelphia Office-This office, located at 2300 East
High Avenue, is comprised of a one story, 1,605 square foot
brick structure with a 783 square foot drive-thru canopy.
New Philadelphia Office-This office, located at 525 Wabash
Avenue, is comprised of a 14,250 square foot site with a 246
square foot drive-thru banking facility.
All offices are owned by the Bank except for the Mall
Office. The lease at the Mall location is in effect until the
year 1996 with options to renew thereafter.
Wheeling, WV Office - In January 1996, Belmont National Bank
relocated its corporate headquarters to Wheeling, WV. The office
is a leased facility located at 980 National Road, Wheeling, WV.
ITEM 3-LEGAL PROCEEDINGS
None.
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
ITEM 5-MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDERS' MATTERS
1995
Dividend
Quarter High Low per Share
1st $18.00 $14.25 $ 0.105
2nd 19.75 16.00 0.110
3rd 25.00 18.50 0.130
4th 26.50 23.50 0.130
Total $ 0.475
1994
Dividend
Quarter High Low per Share
1st $8.80 $8.40 $ 0.084
2nd 9.80 8.80 0.084
3rd 12.88 10.00 0.105
4th 18.00 11.50 0.105
Total $ 0.378
The number of shareholders of record for the Corporation's
stock as of March 6, 1996 was 614. The latest available market
price based on an actual trade price was $27.25 per share on
March 13, 1996.
Belmont Bancorp.'s common stock has a par value of $0.50
and, since October 1994, has been traded on the Nasdaq SmallCap
market.
The tables above show its high and low market prices and
dividend information for the past two years. Prior to the Nasdaq
listing in October 1995, market prices were based on actual
trades known to the Corporation due to lack of an established
market. Market prices and cash dividends paid per share have been
restated to reflect the effect of a 10% common stock dividend
paid in January 1994, a 25% common stock dividend paid in July
1994 and a 2-for 1 split paid in May 1995.
Information regarding the limitations on dividends available
to be paid can be located in Footnote 15 of the Notes to the
Consolidated Financial Statements in the Corporation's Annual
Report (Exhibit B).
Treasury stock is accounted for using the cost method.
There were 832 shares held in treasury on December 31, 1995 and
424 shares in treasury on December 31 1994.
ITEM 6.-SELECTED FINANCIAL DATA
The Summarized Quarterly Financial Information and the
Consolidated Five Year Summary of Operations contained in the
Corporation's annual report (Exhibit B) are hereby incorporated
by reference.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The data presented in this discussion should be read in
conjunction with the audited consolidated financial statements.
RESULTS OF OPERATIONS
SUMMARY
For 1995, net income increased 30.06% from the previous
year; net income for the year ended 1994 increased 25.89%
compared to 1993. Net income per common share for 1995 was $1.95
compared to $1.49 per common share in 1994 and 1.18 in 1993. The
Corporation's net income to average assets, referred to as return
on assets, increased to 1.35% for the year ended 1995 from 1.12%
last year and 0.96% during 1993. Operating income consists of
earnings before income taxes, minus net investment and trading
gains or plus net investment and trading losses. Operating
income increased by $1,113,000 or 25.74% from 1994 to 1995. The
table below summarizes earnings performance for the past three
years.
($000s) except per share data 1995 1994 1993
Operating income $5,437 $4,324 $2,032
Net income 4,206 3,234 2,569
Net income per share $ 1.95 $ 1.49 $ 1.18
Return on average assets 1.35% 1.12% 0.96%
Return on average common
equity 18.90% 16.71% 14.57%
Return on average total
equity 18.42 16.27% 14.21%
1995 1994
compared compared
% Increase from previous year to 1994 to 1993
Operating income 25.74% 112.80%
Net income 30.06% 25.89%
NET INTEREST REVENUE
A major share of the Corporation's income results from the
spread between income on interest earning assets and interest
expense on the liabilities used to fund those assets, known as
net interest income. Net interest income is affected by changes
in interest rates and amounts and distributions of interest
earning assets and interest bearing liabilities outstanding. Net
interest margin is net interest income divided by the average
earning assets outstanding. A third frequently used measure is
net interest rate spread which is the difference between the
average rate earned on assets and the average rate incurred on
liabilities without regard to the amounts outstanding in either
category.
The Consolidated Average Balance Sheets and Analysis of Net
Interest Income Changes included in the Corporation's annual
report (Exhibit B), compare interest revenue and interest earning
assets outstanding with interest cost and liabilities outstanding
for the years ended December 31, 1995, 1994, and 1993, and
computes 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.
The Corporation's net interest income grew by $1,764,000 on
a taxable equivalent basis during 1995 compared to the same
period last year, a 15.30% increase. The increase in net
interest income was primarily attributable to the increase in
average earning assets and improved net interest margins. During
1995, the Corporation's average interest-earning assets grew by
approximately $20.9 million, up 7.68% from 1994.
The yield on interest earning assets improved from 7.49%
during 1994 to 8.28% during 1995, an increase of 79 basis points.
(A basis point (bp) is equivalent to .01%.) However this
increase was offset by an increase in the cost of interest
bearing liabilities of 57 basis points from 1994 to 1995.
Consequently, the net interest rate spread increased from 3.87%
during 1994 to 4.09% during 1995.
The Analysis of Net Interest Income Changes, separates the
dollar change in the Corporation's net interest income into
three components: changes caused by (1) an increase or decrease
in the average assets and liability balances outstanding
(volume); (2) the changes in average yields on interest earning
assets and average rates for interest bearing liabilities
(yield/rate); and (3) combined volume and yield/rate effects
(mix).
This table shows that the increase in the Corporation's net
interest income during the year-to-date periods presented from
1994 to 1995 was generated by growth in the levels of earning
assets and average interest bearing liabilities outstanding
(depicted by the volume column).
OTHER OPERATING INCOME
Other operating income excluding securities gains and
losses, increased 30.47% and totaled $1,683,000 in 1995, compared
to $1,290,000 in 1994 and $1,193,000 in 1993. The table below
shows the dollar amounts and growth rates of the components of
other operating income.
1995 1994 1993
($000s) Total Change Total Change Total
Trust income $ 431 $ 21.11% $ 341 24.45% $ 274
Service charges on 555 5.31% 527 11.18% 474
deposits
Gain on sale of 136 491.30% 23 -65.67% 67
loans
Recovery on class 189 na - na -
action lawsuit
Other income 390 -2.26% 399 5.56% 378
Subtotal $1,683 30.47% 1,290 8.13% 1,193
Investment (11) -22.22% (9) 95.61% (205)
securities gains
(losses)
Gains (losses) on
securities
available for sale 113 305.45% (55) -104.35% 1,264
Trading gains -
(losses) - 100.00% 1 100.86% (116)
Total $1,785 45.48% $1,227 -42.56% $2,136
During the fourth quarter of 1995, the Corporation recovered
$189,000 for settlement of a class action lawsuit arising out of
the issuance and sale of taxable municipal bonds. This accounts
for nearly half of the increase in Noninterest income.
Another significant increase in Noninterest income is
attributable to gains on sale of loans which increased $113,000
from 1994 to 1995. The Corporation utilized the secondary
mortgage market during 1995 to divest itself of fixed rate
mortgage loans with rates below a target rate for purposes of
managing the interest rate risk associated with these loans.
Servicing rights were retained on the loans sold. The
Corporation continues to utilize the secondary market as a means
of offering competitively priced mortgage loan products without
retaining the interest rate risk associated with long term, fixed
rate product.
Trust income increased 21.11% from 1994 to 1995 and 24.45%
from 1993 to 1994. This is an area that the Corporation expects
to continue to develop and aggressively grow in the future.
Losses on investments held in the maturity portfolio during
1995 and 1994 occurred as a result of calls on municipal bonds in
the portfolio. These losses totaled $11,000 during 1995 and
9,000 during 1994. Net gains were realized on securities
available for sale during 1995 totaling $113,000 compared to
losses of $55,000 during 1994 and gains of $1,264,000 during
1993.
The related income taxes on securities transactions,
including trading and securities available for sale, were $25,000
and $67,000 for the years ended 1995 and 1993, respectively. A
tax credit of $15,000 was attributable to securities transactions
for 1994.
OPERATING EXPENSES
Successful expense control is an essential element in
maintaining the Corporation's profitability. The table below
details the percentage changes in various categories of expense
for the three years ended 1995, 1994, and 1993.
($000s) 1995 % 1994 % 1993 % 1992
Change Change Change
Salaries and $2,555 12.01% $2,281 8.98% $2,093 26.16% $1,659
wages
Employee 802 20.60% 665 -6.99% 715 46.22% 489
benefits
Net occupancy 552 3.56% 533 -1.48% 541 28.50% 421
expense
Equipment 764 23.62% 618 25.87% 491 8.63% 452
expense
Other 2,950 -0.74% 2,972 1.89% 2,917 39.84% 2,086
operating
expenses
Total $7,623 7.84% $7,069 4.62% $6,757 32.31% $5,107
Salaries and wages included incentive performance bonuses
tied to earnings performance totalling $343,000 in 1995, $247,000
during 1994 and $129,000 during 1993. The increase in employee
benefits from 1994 to 1995 was impacted by a higher contribution
to the employees' profit sharing plan and by the purchase of
personal computers for use by employees and directors at home. A
goal of the Corporation's subsidized purchase of personal
computers for its employees was to enhance their proficieny and
skill on personal computers and translate that into added
productivity in the workplace.
A commonly used measure of operating efficiency is the
amount of assets managed per full time equivalent employee (FTE).
The table below depicts assets managed per FTE for each of the
last 3 years compared to the Corporation's peer group as measured
by the most recently available Uniform Bank Performance Report.
($000s) 1995 1994 1993
Total assets $317,279 $312,963 $267,505
FTEs 113.0 110.5 118.0
Assets managed per $ 2,808 $ 2,832 $ 2,267
FTE
Peer group(1) $ 2,310 $ 2,200 $ 1,900
(1) 1995 Peer data as of September 30, 1995
Equipment expense increased from 1994 to 1995 due an
increase in depreciation expense and repair and maintenance
expense associated with the Corporation's in-house data
processing system. During most of 1994 and all of 1993, the
Corporation utilized a third party data processing servicer;
payments for these services were included in other operatng
expenses.
Other noninterest operating expense includes FDIC insurance
assessments. The premiums paid during 1995 were impacted by a
reduction of the FDIC insurance premium rate in September and
December on deposits insured by the Bank Insurance Fund (BIF).
Approximately 70% of the Corporation's deposits are insured by
the BIF. As a result FDIC and other insurance included in other
operating expenses were $430,000, $616,000 and $581,000 in 1995,
1994 and 1993 respectively.
Approximately 30% of the Corporation's deposits are insured
through the Savings Association Insurance Fund (SAIF) of the FDIC
and continue to be assessed at 23 cents per $100. These deposits
had been acquired from a thrift in 1992. However Congress is
currently considering a special, one-time assessment on SAIF-
insured deposits. If enacted, this assessment could result in a
one-time, pretax charge of up to $500,000, which could be offset
by lower ongoing insurance costs in the future.
FINANCIAL CONDITION
SECURITIES
The book values of investments as of December 31, 1995 and
1994 are detailed in Footnote 3 of the Notes to the Consolidated
Financial Statements in the Corporation's annual report (Exhibit
B).
The investment portfolio consists largely of fixed and
floating rate mortgage related securities, predominantly
underwritten to the standards of and guaranteed by the government
agency GNMA and by the government-sponsored agencies of FHLMC and
FNMA. These securities differ from traditional debt securities
primarily in that they have uncertain maturity dates and are
priced based on estimated prepayment rates on the underlying
mortgages.
Securities Held to Maturity
December 31, 1995
Over 10 Year
Maturity < 1-5 Year 6-10 Year Maturity Total
1 year Maturity Maturity
($000s) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U.S.
Government
agencies and
corporations $ - - $ 2,269 4.79 $ - - $ - - $ 2,269 4.79%
States and
political
subdivisions 35 9.23 654 8.21 1,145 7.77 3,200 10.43% 5,034 9.53%
(a)
Agency
mortgage-
backed
securities 866 0.47 9,094 6.78 3,651 7.36 2,812 8.46% 16,423 6.86%
(b)
Total $901 0.81% $12,017 6.48% $4,796 7.46% $6,012 9.51% $23,726 7.23%
(a) Taxable equivalent
yields
(b) Maturities of
mortgage-backed
securities are based on
estimated average life.
Securities
Available for
Sale
(excluding
Equity
Securities)
December 31,
1995
Maturity < 1-5 Year 6-10 Year Over 10 Year
1 year Maturity Maturity Maturity Total
($000s) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U. S. $ - - $ 101 5.89% $ - - $ - - $ 101 5.89%
Treasury
securities
U.S.
Government
agencies
and - - 11,695 6.41% - - 967 9.58% $ 12,662 6.65%
corporations
Agency
mortgage-
backed
securities 129 6.16% 43,596 7.04% 14,756 7.62% 10,869 8.38% 69,350 7.37%
(b)
States and
political
subdivisions - - 679 6.62% 6,157 7.18% 11,536 7.71% 18,372 7.49%
(a)
Mortgage
derivative - - - - - - 9,378 7.45% 9,378 7.45%
securities
Total fair $129 6.16% $56,071 6.90% $20,913 7.49% $32,750 7.91% $109,863 7.31%
value
Amortized
cost $131 $56,093 $20,796 $32,334 $109,354
(a) Taxable equivalent
yields
(b) Maturities of
mortgage-backed
securities are based on
estimated average life.
The mortgage derivative securities consist solely of
collateralized mortgage obligations (CMOs) including one
principal-only CMO issued by FNMA with a book value of $267,000
and a market value of $209,000. The remaining CMOs are privately
issued. Credit risk on privately issued CMOs is evaluated based
upon independent rating agencies and on the underlying collateral
of the obligation. At December 31, 1995, the Corporation held
one CMO issued by Prudential Home Mortgage with a book value of
$3,046,000 and a market value of $3,073,000.
The state and political subdivision portfolio includes
approximately $1.9 million zero coupon revenue bonds. These
bonds are purchased at a significant discount to par value and
the income recognized on the bonds is derived from the accretion
of the discount using a method that approximates a level yield.
MARKETABLE EQUITY SECURITIES
The Corporation held marketable equity securities in its
investment portfolio as of December 31, 1995. In accordance with
regulatory requirements, all equity securities were transferred
to Securities Available for Sale on January 1, 1994 because these
securities do not have a stated maturity. Current accounting
principles require that marketable equity securities be recorded
at the lower of cost or market value with a corresponding
adjustment to reduce shareholders' equity if market value is
lower than cost. At December 31, 1995 and 1994, estimated market
values approximated original cost.
Taxable
Equivalent
December 31, 1995 ($000s) Cost Market Value Yield
Federal Home Loan Bank stock $1,844 $1,844 6.82%
Corporate Stock 215 215 4.57%
Federal Reserve Bank 187 187 6.00%
Stock
$2,246 $2,246
Equivalent
December 31, 1994 ($000s) Cost Market Value Yield
Federal Home Loan Bank stock $1,724 $1,724 6.38%
Corporate Stock 155 155 2.74%
Federal Reserve Bank 187 187 6.00%
Stock
$2,066 $2,066
LOANS AND LEASES
The following table shows the history of commercial and
consumer loans and leases by major category at December 31.
($000s) 1995 1994 1993 1992 1991
Commercial loans:
Real estate construction $ 1,530 $ 1,801 $ 2,081 $ 973 $ 771
Acceptances of other banks - - - - -
Real estate mortgage 28,744 23,701 21,211 19,184 20,817
Commercial, financial
and agricultural 50,532 38,983 25,317 19,568 9,424
Direct financing leases 3 5 9 58 476
Total commercial loans $ 80,809 $ 64,490 $ 48,618 $ 39,783 $31,488
Consumer loans:
Residential mortgage $ 69,999 $ 76,094 $ 70,301 $ 65,536 $38,720
Installment loans 6,959 5,116 5,281 7,535 6,538
Credit card and other 2,190 1,396 1,032 1,123 1,309
consumer
Total consumer loans $ 79,148 $ 82,606 $ 76,614 $ 74,194 $46,567
Total loans and leases $159,957 $147,096 $125,232 $113,977 $78,055
An analysis of maturity and interest rate sensitivity of business
loans at the end of 1995 follows:
Under 1 to 5 Over 5
($000s) 1 Year Years Years Total
Domestic loans:
Real estate construction $ 1,213 $ 4 $ 313 $ 1,530
Real estate mortgage 17,813 4,247 6,684 28,744
Commercial, financial
and agricultural 35,193 9,932 5,407 50,532
Direct financing leases 0 3 3
Total business loans (a) $54,219 $14,186 $12,404 $80,809
Rate sensitivity:
Predetermined rate $ 4,200 $ 5,272 $12,224 $21,696
Floating or adjustable rate 50,019 8,914 180 59,113
Total domestic business loans $54,219 $14,186 $12,404 $80,809
Foreign loans 0 0 0 0
(a) does not include nonaccrual loans
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation, as part of its philosophy of risk
management, has established various credit policies and
procedures intended to minimize the Corporation'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 specific industry.
Credit risk is continuously monitored by Management 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.
Management determines the appropriate level of the allowance
for possible loan losses by continually evaluating the quality of
the loan portfolio. The reserve is allocated to specific loans
that exhibit above average credit loss potential based upon their
payment history and the borrowers' financial conditions.
Management maintains a watch list of substandard loans for
monthly review. Although several of these loans are not
delinquent and may be adequately secured, Management believes
that due to location, size, or past payment history, it is
necessary to monitor these loans monthly.
The allowance for possible loan losses totaled $2,703,000,
or 1.69% of total loans and leases at December 31, 1995. At the
end of the previous year, the allowance for possible loan losses
was $1,537,000, or 1.04% of total loans and leases. The
provision charged to expense during 1995 was $1,150,000 compared
to $805,000 in the year ago period.
Management's allocation of the allowance for possible loan
losses for the past four years based on estimates of potential
future loan loss is set forth in the table below:
% of % of % of % of
Total Total Total Total
($000s) 1995 Loans 1994 Loans 1993 Loans 1992 Loans
Specific reserves:
Commercial $ 310 0.19% $ 10 0.01% $ 960 0.77% $ 370 0.32%
Mortgage 10 0.01% 5 0.00% 38 0.03% 51 0.04%
Consumer 5 0.00% 7 0.00% 21 0.02% 41 0.04%
Criticized loans without
specific allocation 414 0.26% 315 0.21% 160 0.13% 153 0.13%
Provision for loan categories
based on historical loss
experience:
Commercial 1,344 0.84% 687 0.47% 335 0.27% 284 0.25%
Commercial real estate 152 0.10% 103 0.07% 7 0.01% 10 0.01%
Residential mortgage 325 0.20% 298 0.20% 28 0.02% 29 0.03%
Consumer 143 0.09% 112 0.08% 68 0.05% 86 0.08%
Total $ 2,703 1.69% $ 1,537 1.04% $ 1,617 1.29% $ 1,024 0.90%
Total loans and leases $159,957 $147,096 $125,232 $113,977
outstanding
The allocation of the loan loss reserve in the manner
described above is not available for 1991.
The following table sets forth the five year historical
information on the reserve for loan losses:
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Five year history
($000s) 1995 1994 1993 1992 1991
Balance as of January 1 $1,537 $1,617 $1,024 $1,013 $ 891
Provision of loan losses
1,150 805 577 405 125
Adjustment incident to
acquisition - - - 4 -
Loans charged off:
Real estate
25 49 19 13 19
Commercial
- 806 - 59 6
Consumer
26 85 15 25 22
Direct financing leases
- - - 340 -
Total loans charged-off
51 940 34 437 47
Recoveries of loans
previously
charged-off:
Real estate 3 18 - 2 9
Commercial
1 29 21 22 19
Consumer
18 7 11 6 16
Direct financing leases
45 1 18 9 -
Total recoveries
67 55 50 39 44
Net charge-offs (recoveries)
(16) 885 (16) 398 3
Balance at December 31 $2,703 $1,537 $1,617 $1,024 $1,013
($000s) 1995 1994 1993 1992 1991
Loans and leases outstanding
at December 31 $159,957 $147,096 $125,232 $113,977 $78,055
Allowance as a percent of
loans
and leases outstanding 1.69% 1.04% 1.29% 0.90% 1.30%
Average loans and leases $152,502 $134,952 $120,218 $ 95,489 $76,333
Net charge-offs as a percent
of average loans and leases -0.01% 0.66% -0.01% 0.42% 0.00%
The following schedule shows the amount of under-performing
assets and loans 90 days or more past due but accruing interest.
UNDER-PERFORMING ASSETS
($000s) 1995 1994 1993
Nonaccrual loans and leases $162 $ 478 $2,358
Loans 90 days or more past
due but accruing interest 14 11 436
Other real estate owned 579 586 69
Total $755 $1,075 $2,863
In addition to the above schedule of non-performing assets,
Management prepares a watch list consisting of loans over
$100,000 which Management has determined require closer
monitoring to further protect the Corporation against loss. The
balance of loans classified by Management as substandard due to
delinquency and a change in financial position at the end of 1995
and not included in the table above was $787,000. There are no
other loans classified for regulatory purposes that would
materially impact future operating results, liquidity or capital
resources or which management doubts the ability of the borrower
to comply with loan repayment terms.
DEPOSITS
Primarily core deposits are used to fund interest-earning
assets. The Corporation has a lower volume of interest-free
checking accounts than its peer group which is typical for its
market area. This results in an overall higher cost of funds
than peer average. The accompanying tables show the relative
composition of the Corporation's average deposits and the change
in average deposit sources during the last three years.
AVERAGE DEPOSITS ($000s) 1995 1994 1993
Demand $ 25,819 $ 24,797 $ 21,093
Interest bearing checking 25,953 26,764 30,895
Savings 78,679 95,655 85,865
Other time 108,578 89,431 96,045
Certificates-$100,000 and 12,751 10,229 10,661
over
Total average deposits $251,780 $246,876 $244,559
DISTRIBUTION OF AVERAGE 1995 1994 1993
DEPOSITS
Demand 10.26% 10.04% 8.63%
Interest bearing checking 10.31% 10.84% 12.63%
Savings 31.25% 38.75% 35.11%
Other time 43.12% 36.23% 39.27%
Certificates-$100,000 and 5.06% 4.14% 4.36%
over
Total 100.00% 100.00% 100.00%
CHANGE IN AVERAGE
DEPOSIT SOURCES ($000s) 1994 to 1995 1993 to 1994
Demand $ 1,022 $ 3,704
Interest bearing checking
(811) (4,131)
Savings
(16,976) 9,790
Other time
19,147 (6,614)
Certificates-$100,000 and
over 2,522 (432)
Total $ 4,904 $ 2,317
Average deposits increase 1.99% from 1994 to 1995. The mix
of deposits is directly affected by the interest rate
environment. During periods of low interest rates, customers
tend to maintain their balances in savings accounts. As deposit
rates increase, funds flow from savings deposits to time
deposits. As part of its asset/liability strategy during 1995,
the Corporation offered several certificate of deposit promotions
to extend maturities on deposits. This resulted in a decrease in
average savings balances and an increase in average time
balances.
BORROWINGS
Other sources of funds for the Corporation include short-
term repurchase agreements and Federal Home Loan Bank borrowings.
Borrowings at the Federal Home Loan Bank are utilized to match
the maturities of selected loans and to leverage the capital of
the Corporation to enhance profitability for shareholders.
CAPITAL RESOURCES
At December 31, 1995, shareholders' equity was $25,164,000
compared to $20,214,000 at December 31, 1994, an increase of
$4,950,000 or 24.49%. The increase in capital during 1995 was
due to retention of earnings and the increase in market value of
Securities Available for Sale.
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).
Banks 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, while total capital
consists of core capital, certain debt instruments and a
portion of the reserve for loan losses. At December 31, 1995,
the Corporation had a Tier 1 capital ratio of 13.07% and a
total capital ratio of 14.59%, well above the regulatory
minimum requirements.
The following table shows several capital and liquidity
ratios for the last three years:
December 31 1995 1994 1993
Average shareholder's equity
to :
Average assets 7.34% 6.87% 6.76%
Average deposits 9.07% 8.05% 7.39%
Average loans and leases 14.97% 14.73% 15.04%
Primary capital 8.78% 6.95% 7.84%
Risk-based capital ratio:
Tier 1 13.07% 12.26% 12.82%
Total 14.59% 13.21% 14.04%
Leverage ratio 7.39% 6.33% 6.42%
National banks must maintain a total assets leverage
ratio of at least 3.0%. The total assets leverage ratio is
calculated by dividing capital less intangibles into assets,
net of intangibles. In many cases, regulators require an
additional cushion of at least 1.0% to 2.0%. At December 31,
1995, the Corporation's Tier One leverage ratio was 7.39%.
The following table presents dividend payout ratios for the
past three years.
1995 1994 1993
Total dividends declared
as a percentage of net 25.77% 27.18% 30.36%
income
Common dividends declared
as a percentage of earnings
per common share 24.36% 25.37% 28.05%
Currently there are no known trends, events or
uncertainties that would have a material effect on the
Corporation's liquidity, capital resources or results of
operations.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation meets its liability based needs through the
operation of Belmont National Bank's branch banking network that
gathers demand and retail time deposits. The Bank also acquires
funds through repurchase agreements and overnight federal funds
that provide additional sources of liquidity. Total deposits
decreased by $9.1 million, or 3.55%, from the end of 1994 to
1995. Short term borrowings increased by $3.2 million over the
same period. Average deposits increased 1.99% during 1995
compared to 1994.
The Corporation also has unused lines of credit with various
correspondent banks totaling $10.4 million which may be used as
an alternative funding source.
INTEREST RATE SENSITIVITY
The Corporation's net interest revenue can be vulnerable to
wide fluctuations arising from a change in the general level of
interest rates to the degree that the average yield on assets
responds differently to such a change than does the average cost
of funds. To maintain a consistent earnings performance, the
Corporation actively manages the repricing characteristics of its
assets and liabilities to control net interest income rate
sensitivity.
The mismatching of asset and liability repricing
characteristics in specific time frames is referred to as
interest rate sensitivity gaps. Mismatching or "gapping" can be
profitable when the term structure of interest rates (the yield
curve) is positive, i.e. short term yields are lower than long
term yields, but gapping entails an element of risk, particularly
in volatile markets. An institution is said to have a negative
gap when its liabilities reprice in a shorter time period than
its assets. A positive gap exists when assets reprice more
quickly than liabilities. A negative gap in a period when the
general level of interest rates is declining will produce a
larger net interest income spread than would be the case if all
assets and liabilities were perfectly matched. Conversely, net
interest income will be adversely affected by a negative gap
position in a period when the general level of interest rates is
rising. Gaps, therefore, must be prudently managed.
The Corporation examines its interest rate sensitivity
position by categorizing the balance sheet into respective
repricing time periods similar to those shown on the accompanying
table. Repricing of certain assets, such as installment loans,
mortgage loans and leases, is based upon contractual amortization
or repricing, although experience indicates that they reprice
more quickly due to early payoffs. Mortgage-backed securities
are included in maturity/repricing categories based upon
historical prepayment speeds. Based upon historical deposit rate
relationships, savings and interest bearing checking are
partially included in the non-rate sensitive category since rate
changes on these products are not completely sensitive to
fluctuations in the interest rate environment.
Asset/liability management encompasses both interest rate
risk and liquidity management. The resulting net cumulative gap
positions reflect the Corporation's sensitivity to interest rate
changes over time. The calculation is a static indicator and is
not a net interest income predictor of a dynamic business in a
volatile environment. As a static indicator, the gap methodology
does capture major trends.
Rate Sensitivity
Analysis
December 31, 1995
Maturing or repricing
Non-rate
Total Sensitive
31-90 91-180 181-365 1 year 1-5 & over
1-30 days days days days & under years 5 years Total
Interest earning
assets:
Loans and leases $43,672 $ 9,688 $ 6,851 $13,783 $ 73,994 $ 28,496 $ 57,467 $159,957
Investment securities 697 3,703 1,106 1,678 7,184 6,608 9,934 23,726
Securities available 2,681 1,628 6,688 6,908 17,905 39,496 54,708 112,109
for sale
Total interest $47,050 $15,019 $14,645 $22,369 $ 99,083 $ 74,600 $122,109 $295,792
earning assets
Interest bearing
liabilities:
Interest checking $ - $ - $ - $ - $ - $ - $ 27,193 $ 27,193
Savings 21,145 - - - 21,145 - 57,738 78,883
Certificates-$100,000 2,360 1,266 3,410 3,205 10,241 1,327 309 11,877
and over
Other time 6,498 16,185 23,621 24,050 70,354 24,877 7,172 102,403
Short term borrowings 38,665 - - - 38,665 - - 38,665
Long term debt - - - - - 4,802 - 4,802
Total interest $ 68,668 $ 17,451 $ 27,031 $ 27,255 $140,405 $ 26,204 $ 92,412 $259,021
bearing liabilities
Rate sensitivity gap $(21,618) (2,432) $(12,386) (4,886) $(41,322) $ 48,396 $ 29,697 $ 36,771
Cumulative gap $(21,618)$(24,050) $(36,436) $(41,322) $ 7,074 $ 36,771
Cumulative gap as a
percentage of
interest earning -7.31% -8.13% -12.32% -13.97% 2.39% 12.43%
assets
Interest bearing checking and savings deposits that have no
contractual maturity are scheduled in the table above according
to Management's best estimate of their repricing sensitivity to
changes in market rates. If all of these deposits had been
included in the 1-30 days category above, the cumulative gap as a
percentage of earning assets would have been negative 36.02%,
36.84%, 41.03%, 42.68%, 26.32% and positive 12.43%, respectively,
for the 1-30 days, 31-90 days, 91-180 days, 181-365 days, 1-5
years, and greater than 5 years categories at December 31, 1995.
In January 1996, the maturity of $10 million included in
short term borrowings was extended to one year and an additional
$10 million was extended to two years.
ITEM 8 - FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The annual report of Belmont Bancorp. is hereby incorporated
by reference and appears as Exhibit B. Management's report on
their responsibility for financial reporting is included in the
Corporation's annual report.
ITEM 9 - DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in Belmont Bancorp.'s definitive proxy
statement dated March 15, 1996 (Exhibit C) is incorporated by
reference in response to this item.
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JANUARY 1, 1996:
Name Age Position
J. Vincent Ciroli, Jr. 50 President and Chief
Executive, Officer,
Belmont Bancorp. &
Belmont National Bank
William Wallace 40 Vice President, Belmont Bancorp.;
Executive Vice President & Chief
Operating Officer,
Belmont National Bank
Jane R. Marsh 34 Secretary, Belmont Bancorp.;
Senior Vice President,
Controller & Cashier, Belmont
National Bank
Each of the officers listed above has been an executive
officer of the Corporation or one of its subsidiaries during the
past five years.
ITEM 11 - EXECUTIVE COMPENSATION
The information appearing in Belmont Bancorp.'s definitive
proxy statement dated March 15, 1996 (Exhibit C) is incorporated
by reference in response to this item.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing in Belmont Bancorp.'s definitive
proxy statement dated March 15, 1996 (Exhibit C) is incorporated
by reference in response to this item.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in Belmont Bancorp.'s definitive
proxy statement dated March 15, 1996 (Exhibit C) is incorporated
by reference in response to this item.
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 19, 1996.
By Terrence A. Lee, Chairman BELMONT BANCORP
Terrence A. Lee, Chairman (Registrant)
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.
John A. Belot John A. Belot Director
Vincent Ciroli, Jr. J. Vincent Ciroli, Jr. Director,President & CEO.
Belmont Bancorp.,
Belmont National Bank
Samuel Mumley Samuel Mumley Director
Mary L. Holloway Haning Mary L. Holloway Haning Director
Charles J. Kaiser, Jr. Charles J. Kaiser, Jr. Director
John H. Goodman, II John H. Goodman, II Director
Dana Lewis Dana Lewis Director
Jane R. Marsh Jane R. Marsh Secretary, Belmont
Bancorp. and Sr.
Vice President,
Controller & Cashier,
Belmont National Bank
James Miller James Miller Director
W. Quay Mull, II W. Quay Mull, II Director
Tom Olszowy Tom Olszowy Director
Keith Sommer Keith Sommer Director
William Wallace William Wallace Director & Vice
President, Belmont
Bancorp.;
Executive Vice
President & COO,
Belmont National Bank
Charles A. Wilson, Jr. Charles A. Wilson, Jr. Vice Chairman
Terrence A. Lee Chairman of the
Board
Terrence A. Lee March 19, 1996
INDEX TO EXHIBITS
Exhibit 1 - Consent of Independent Certified Public Accountants
Exhibit 2 - Belmont Bancorp.'s 1995 Annual Report to Shareholders
Exhibit 3 - Belmont Bancorp.'s Proxy Statement to Shareholders, dated
March 15, 1996
Exhibit 27 - Financial Data Schedule