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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 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 6, 1997 - $58,417,000
There were 2,114,644 shares of $0.50 par value, common stock
outstanding as of March 3, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant dated March 21,
1997 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 eleven branches
located in Belmont, Harrison and Tuscarawas Counties in Ohio and
Ohio County in West Virginia. The main office is located in the
Woodsdale section of Wheeling, West Virginia. In addition to its
main office in West Virginia, the Bank operates a branch in the
Elm Grove section of Wheeling. Branch locations in Belmont
County, Ohio include St. Clairsville, 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 branches in Elm Grove, Cadiz, the Ohio
Valley Mall and New Philadelphia 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 1996. During 1997, BFN will
act as a community development corporation investing in a low
income housing project that also includes historic renovation.
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 16 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
In January 1996, the Bank relocated its corporate
headquarters to Wheeling, WV. The office is located at 980
National Road and consists of a 14,000 square floor combination
one and two story masonry block building. Approximately half of
the space is leased to a tenant. In addition, the Bank transacts
business in the following branch locations:
St. Clairsville Office-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 and human resources offices.
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.
Elm Grove Office-This office is located at 2066 National
Road in Wheeling, WV, and includes a drive-thru facility and an ATM.
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. The land for the Elm
Grove office is also leased.
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
1996
Dividend
Quarter High Low per Share
1st $27.50 $25.00 $ 0.130
2nd 28.00 26.00 0.150
3rd 28.00 26.00 0.150
4th 27.50 25.50 0.170
Total $0.600
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
The number of shareholders of record for the Corporation's stock
as of March 5, 1997 was 614. The closing price of Belmont
Bancorp. stock on March 6, 1997 was $27.625 per share.
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. Market prices and
cash dividends paid per share have been restated to reflect the
effect of a 2-for 1 split paid in May 1995.
Information regarding the limitations on dividends available
to be paid can be located in Footnote 16 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, 1996 and
1995.
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 1996, net income increased 18.93% from the previous
year; net income for the year ended 1995 increased 30.06%
compared to 1994. Net income per common share for 1996 was $2.34
compared to $1.95 per common share in 1995 and $1.49 in 1994.
The Corporation's net income to average assets, referred to as
return on assets, increased to 1.49% for the year ended 1996 from
1.35% last year and 1.12% during 1994. 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 $945,000 or 17.38% from 1995 to 1996. The
table below summarizes earnings performance for the past three
years.
($000s) except per share data 1996 1995 1994
Operating income $6,382 $5,437 $4,324
Net income 5,002 4,206 3,234
Net income per share $ 2.34 $ 1.95 $ 1.49
Return on average assets 1.49% 1.35% 1.12%
Return on average common
equity 19.55% 18.90% 16.71%
Return on average total
equity 19.05% 18.42% 16.27%
1996 1995
compared compared
% Increase from previous year to 1995 to 1994
Operating income 17.38% 25.74%
Net income 18.93% 30.06%
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, 1996, 1995, and 1994, 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 $776,000 on a
taxable equivalent basis during 1996 compared to the same period
last year, a 5.84% increase. The increase in net interest income
was attributable to an increase in average earning assets.
During 1996, the Corporation's average interest-earning assets
grew by approximately $23.9 million, up 8.18% from 1995.
The yield on interest earning assets was unchanged at 8.28%
from 1995 to 1996. However the cost of interest bearing
liabilities rose 14 basis points from 1995 to 1996. Consequently,
the net interest rate spread decreased from 4.09% during 1995 to
3.95% during 1996. The taxable equivalent net interest margin
was 4.45% during 1996 compared to 4.55% for 1995 and 4.25% during
1994.
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
1995 to 1996 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 10.58% and totaled $1,861,000 in 1996, compared
to $1,683,000 in 1995 and $1,290,000 in 1994. The table below
shows the dollar amounts and growth rates of the components of
other operating income.
1996 1995 1994
($000s) Total Change Total Change Total
Trust income $ 502 21.55% $ 413 21.11% $ 341
Service charges on deposits 660 18.92% 555 5.31% 527
Gain on sale of loans 72 -47.06% 136 491.30% 23
Recovery on class action lawsuit 27 -85.71% 189 na -
Other income 600 53.85% 390 -2.26% 399
Subtotal 1,861 10.58% 1,683 30.47% 1,290
Investment securities gains
(losses) (1) 90.91% (11) -22.22% (9)
Gains (losses) on securities
available for sale 397 251.33% 113 305.45% (55)
Trading gains (losses) - na - -100.00% 1
Total $2,257 26.44% $1,785 45.48% $1,227
During the fourth quarters of 1996 and 1995, the Corporation
recovered $27,000 and $189,000, respectively for settlement of a
class action lawsuit arising out of the issuance and sale of
taxable municipal bonds.
Another significant increase in Noninterest income is
attributable to gains on sale of loans which increased $113,000
from 1994 to 1995 and contributed $72,000 to noninterest income
during 1996. The Corporation utilized the secondary mortgage
market 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 21.55% from 1995 to 1996 and 21.11%
from 1994 to 1995. This is an area that the Corporation expects
to continue to develop in the future.
Losses on investments held in the maturity portfolio during
1996 and 1995 occurred as a result of calls on municipal bonds in
the portfolio. These losses totaled $1,000 during 1996 and
11,000 during 1995. Net gains were realized on securities
available for sale during 1996 totaling $397,000 compared to
gains of $113,000 during 1995 and losses of $55,000 during 1994.
The related income taxes on securities transactions, including
trading and securities available for sale, were $104,000 and
$25,000 for the years ended 1996 and 1995, 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 1996, 1995, and 1994.
($000s) % %
1996 Change 1995 Change 1994
Salaries and wages $2,646 3.56% $2,555 12.01% $2,281
Employee benefits 790 -1.50% 802 20.60% 665
Net occupancy expense 686 24.28% 552 3.56% 533
Equipment expense 817 6.94% 764 23.62% 618
Other operating
expenses 3,449 16.92% 2,950 -0.74% 2,972
Total $8,388 10.04% $7,623 7.84% $7,069
Salaries and wages included incentive performance bonuses
tied to earnings performance totalling $243,000 in 1996, $343,000
during 1995 and $247,000 during 1994. Overall, operating
expenses were impacted by the addition of two new offices during
1996.
Other noninterest operating expense includes FDIC insurance
assessments. FDIC and other insurance included in other
operating expenses were $567,000, $430,000 and $616,000 in 1996,
1995 and 1994, respectively, including a one time, pre-tax
assessment on deposits insured through the Savings Association
Insurance Fund during the third quarter of 1996 totaling
$397,000.
Taxes, other than payroll and real estate taxes, included in
noninterest expense totaled $395,000 during 1996, up from
$287,000 in 1995. This includes the Ohio state corporate
franchise tax based on the equity of the subsidiary bank which
increased $82,000 from 1995 to 1996.
Other noninterest expense also includes expense associated
with other real estate owned. During 1996 this expense was
$143,000 compared to $3,000 during 1995. Expenses associated
with one property which was disposed of during the fourth quarter
of 1996 totaled $140,000.
FINANCIAL CONDITION
SECURITIES
The book values of investments as of December 31, 1996 and
1995 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 at December 31, 1996 ($000s)
U.S. Government States and Agency mortgage-
agencies political backed
Maturity Period and corporations subdivisions(a) securities (b) Total
Less than 1 year $2,264 $31 $3,010 $5,305
Yield 4.80% 11.30% 6.21% 5.64%
1-5 Years 0 1,373 4,373 5,746
Yield 6.50% 7.38% 7.17%
6-10 Years 0 896 2,585 3,481
Yield 8.16% 7.69% 7.81%
Over 10 Years 0 2,512 2,255 4,767
Yield 10.74% 8.26% 9.57%
Total $2,264 $4,812 $12,223 $19,299
Yield 4.80% 9.05% 7.32% 7.46%
Securities Available for Sale at December 31, 1996
At estimated fair value
($000s)
U.S.
Government States and Agency Mortgage Total Total
Treasury agencies and political mortgage-backed derivative Fair Amortized
Maturity Period securities corporations subdivisions (a) securities (b) securities (b) Value Cost
Less than 1 year $100 $0 $1,083 $7,552 $525 $9,260 $9,295
Yield 5.89% 7.12% 6.36% 6.95% 6.48%
1-5 Years 0 3,958 2,731 18,185 1,872 26,746 26,696
Yield 6.35% 7.13% 7.05% 8.56% 7.06%
6-10 Years 0 0 2,891 7,256 10,445 20,592 20,677
Yield 7.42% 7.74% 7.85% 7.75%
Over 10 Years 0 0 2,839 6,463 9,561 18,863 19,047
Yield 8.37% 8.01% 8.13% 8.13%
Total fair value $100 $3,958 $9,544 $39,456 $22,403 $75,461 $75,715
Yield 5.89% 6.35% 7.59% 7.20% 8.01% 7.45%
(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. At December 31,
1996, there were no securities of a single issuer, other than
U.S. Treasury or other U.S. government agency securities, which
exceeded 10% of shareholders' equity.
The state and political subdivision portfolio includes
approximately $2.0 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, 1996. 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, 1996 and 1995, estimated market
values approximated original cost.
Taxable
Market Equivalent
December 31, 1996 ($000s) Cost Value Yield
Federal Home Loan Bank
stock $2,960 $2,960 7.00%
Corporate Stock 120 120 8.00%
Federal Reserve Bank
Stock 187 187 6.00%
Total $3,267 $3,267
Taxable
December 31, 1995 ($000s) Market Equivalent
Cost Value Yield
Federal Home Loan Bank
stock $1,844 $1,844 6.82%
Corporate Stock 215 215 4.57%
Federal Reserve Bank
Stock 187 187 6.00%
Total $2,246 $2,246
LOANS AND LEASES
The following table shows the history of commercial and
consumer loans and leases by major category at December 31.
($000s) 1996 1995 1994 1993 1992
Commercial loans:
Real estate construction $1,327 $1,530 $1,801 $2,081 $973
Acceptances of other banks 0 0 0 0 0
Real estate mortgage 25,954 28,744 23,701 21,211 19,184
Commercial, financial
and agricultural 80,554 50,532 38,983 25,317 19,568
Direct financing leases 0 3 5 9 58
Total commercial loans $107,835 $80,809 $64,490 $48,618 $39,783
Consumer loans:
Residential mortgage $71,715 $69,999 $76,094 $70,301 $65,536
Installment loans 7,626 6,959 5,116 5,281 7,535
Credit card and other 1,607 2,190 1,396 1,032 1,123
consumer
Total consumer loans $80,948 $79,148 $82,606 $76,614 $74,194
Total loans and leases $188,783 $159,957 $147,096 $125,232 $113,977
An analysis of maturity and interest rate sensitivity of business
loans at the end of 1996 follows:
Under 1 to 5 Over 5
($000s) 1 Year Years Years Total
Domestic loans:
Real estate construction $1,002 $20 $305 $1,327
Real estate mortgage 17,504 4,160 4,288 25,952
Commercial, financial
and agricultural 48,143 23,700 8,646 80,489
Direct financing leases 0 0 0 0
Total business loans (a) $66,649 $27,880 $13,239 $107,768
Rate sensitivity:
Predetermined rate $2,694 $13,248 $12,825 $28,767
Floating or adjustable rate 63,955 14,632 414 79,001
Total domestic business loans $66,649 $27,880 $13,239 $107,768
Foreign loans 0 0 0 0
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. The
adequacy of the allowance for possible loan losses is evaluated
based on an assessment of the losses inherent in the loan
portfolio. This assessment results in an allowance consisting of
two components, allocated and unallocated. The allocations are
made for analytical purposes. The total allowance is available
to absorb losses from any segment of the portfolio. Management
maintains a watch list of substandard loans for monthly review.
Although these loans may not be delinquent and may be adequately
secured, Management believes that due to location, size, or past
payment history, it is necessary to monitor these loans monthly.
The allowance for possible loan losses totaled $3,153,000,
or 1.67% of total loans and leases at December 31, 1996. At the
end of the previous year, the allowance for possible loan losses
was $2,703,000, or 1.69% of total loans and leases. The
provision charged to expense during 1996 was $465,000 compared to
$1,150,000 in the year ago period.
Management's allocation of the allowance for possible loan
losses for the past five years based on estimates of potential
future loan loss is set forth in the table below:
($000s) 1996 1995 1994 1993 1992
Specific reserves:
Commercial $330 $310 $10 $960 $370
Mortgage 10 10 5 38 51
Consumer 176 5 7 21 41
Criticized loans without
specific allocation 296 414 315 160 153
Provision for loan categories
based on historical loss
experience:
Commercial 1,607 1,344 687 335 284
Commercial real estate 269 152 103 7 10
Residential mortgage 328 325 298 28 29
Consumer 137 143 112 68 86
Total $3,153 $2,703 $1,537 $1,617 $1,024
Total loans and leases out-
standing $188,783 $159,957 $147,096 $125,232 $113,977
Reserves as a % of total loans
1996 1995 1994 1993 1992
Specific reserves:
Commercial 0.17% 0.19% 0.01% 0.77% 0.32%
Mortgage 0.01% 0.01% 0.00% 0.03% 0.04%
Consumer 0.09% 0.00% 0.00% 0.02% 0.04%
Criticized loans without
specific allocation 0.16% 0.26% 0.21% 0.13% 0.13%
Provision for loan categories
based on historical loss
experience:
Commercial 0.85% 0.84% 0.47% 0.27% 0.25%
Commercial real estate 0.14% 0.10% 0.07% 0.01% 0.01%
Residential mortgage 0.17% 0.20% 0.20% 0.02% 0.03%
Consumer 0.07% 0.09% 0.08% 0.05% 0.08%
Total 1.67% 1.69% 1.04% 1.29% 0.90%
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) 1996 1995 1994 1993 1992
Balance as of January 1 $2,703 $1,537 $1,617 $1,024 $1,013
Provision of loan losses 465 1,150 805 577 405
Adjustment incident to
acquisition 0 0 0 0 4
Loans charged off:
Real estate 30 25 49 19 13
Commercial 0 0 806 0 59
Consumer 32 26 85 15 25
Direct financing leases 0 0 0 0 340
Total loans charged-off 62 51 940 34 437
Recoveries of loans
previously
charged-off:
Real estate 2 3 18 0 2
Commercial 0 1 29 21 22
Consumer 45 18 7 11 6
Direct financing leases 0 45 1 18 9
Total recoveries 47 67 55 50 39
Net charge-offs (recoveries) 15 (16) 885 (16) 398
Balance at December 31 $3,153 $2,703 $1,537 $1,617 $1,024
($000s) 1996 1995 1994 1993 1992
Loans and leases outstanding
at December 31 $188,783 $159,957 $147,096 $125,232 $113,977
Allowance as a percent
of loans and leases outstanding 1.67% 1.69% 1.04% 1.29% 0.90%
Average loans and leases $174,445 $152,502 $134,952 $120,218 $95,489
Net charge-offs as a percent
of average loans and leases 0.01% -0.01% 0.66% -0.01% 0.42%
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) 1996 1995 1994 1993 1992
Nonaccrual debt securities $0 $0 $0 $0 $1,500
Nonaccrual loans and leases 143 162 478 2,358 1,647
Loans 90 days or more past
due but accruing interest 74 14 11 436 11
Other real estate owned 66 579 586 69 155
Total $283 $755 $1,075 $2,863 $3,313
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 1996
and not included in the table above was $1,249,000. 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) 1996 1995 1994
Demand $27,878 $25,819 $24,797
Interest bearing checking 38,576 25,953 26,764
Savings 79,341 78,679 95,655
Other time 99,649 108,578 89,431
Certificates-$100,000 and
over 12,008 12,751 10,229
Total average deposits $257,452 $251,780 $246,876
DISTRIBUTION OF AVERAGE
DEPOSITS
1996 1995 1994
Demand 10.83% 10.26% 10.04%
Interest bearing checking 14.98% 10.31% 10.84%
Savings 30.82% 31.25% 38.75%
Other time 38.71% 43.12% 36.23%
Certificates-$100,000 and 4.66% 5.06% 4.14%
over
Total 100.00% 100.00% 100.00%
CHANGE IN AVERAGE DEPOSIT SOURCES ($000s)
1995 to 1994 to
1996 1995
Demand $2,059 $1,022
Interest bearing checking 12,623 (811)
Savings 662 (16,976)
Other time (8,929) 19,147
Certificates-$100,000 and
over (743) 2,522
Total $5,672 $4,904
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, 1996, shareholders' equity was $27,332,000
compared to $25,164,000 at December 31, 1995, an increase of
$2,168,000 or 8.62%. The increase in capital during 1996 was due
to retention of earnings. The Corporation also retired
$1,000,000 in senior cumulative preferred stock during the
fourth quarter of 1996.
The Federal Reserve Board has adopted risk-based capital
guidelines that assign risk weightings to assets and off-
balance sheet items. The guidelines also define and set
minimum capital requirements (risk-based capital ratios).
Bank holding companies are required to have core capital (Tier
1) of at least 4.0% of risk-weighted assets and total capital
of 8.0% of risk-weighted assets. Tier 1 capital consists
principally of shareholders' equity less goodwill, while total
capital consists of core capital, certain debt instruments and
a portion of the reserve for loan losses. At December 31,
1996, the Corporation had a Tier 1 capital ratio of 12.43%
and a total capital ratio of 13.68%, well above the regulatory
minimum requirements.
The following table shows several capital and liquidity
ratios for the Corporation for the last three years:
December 31 1996 1995 1994
Average shareholder's equity to:
Average assets 7.81% 7.34% 6.87%
Average deposits 10.20% 9.07% 8.05%
Average loans and leases 15.06% 14.97% 14.73%
Primary capital 9.13% 8.78% 6.95%
Risk-based capital ratio:
Tier 1 12.43% 13.07% 12.26%
Total 13.68% 14.32% 13.21%
Leverage ratio 7.93% 7.39% 6.33%
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,
1996, the Corporation's Tier One leverage ratio was 7.93%.
The following table presents dividend payout ratios for the
past three years.
1996 1995 1994
Total dividends declared
as a percentage of net income 26.59% 25.77% 27.18%
Common dividends declared
as a percentage of earnings per
common share 25.64% 24.36% 25.37%
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
increased by $14.7 million, or 5.95%, from the end of 1995 to
1996. Repurchase agreements and short term borrowings declined
by $6.3 million and $14.1 million, respectively, during the same
period. Long term borrowings increased by $14.9 million over the
same period. Average deposits increased 2.25% during 1996
compared to 1995.
The Bank also has unused lines of credit with various
correspondent banks totaling $35.5 million which may be used as
an alternative funding source. In addition, the Bank has an
available repurchase agreement-based cash management advance with
the Federal Home Loan Bank for $30 million.
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, 1996 Non-rate
Total Sensitive
1-30 31-90 91-180 181-365 1 year 1-5 & over
days days days days & under years 5 years Total
Interest earning assets:
Loans and leases $48,916 $10,465 $8,495 $18,282 $86,158 $41,141 $61,484 $188,783
Investment securities 172 2,961 1,342 831 5,306 5,746 8,247 19,299
Securities available for sale 639 4,700 3,254 3,628 12,221 26,746 39,761 78,728
Total interest earning
assets 49,727 18,126 13,091 22,741 103,685 73,633 109,492 286,810
Interest bearing liabilities:
Interest checking 8,897 0 0 0 8,897 0 31,672 40,569
Savings 19,787 0 0 0 19,787 0 61,174 80,961
Certificates-$100,000 and over 2,023 1,224 2,125 4,667 10,039 2,074 1,020 13,133
Other time 7,504 12,794 12,106 29,815 62,219 25,461 9,964 97,644
Repurchase agreements 3,780 0 0 0 3,780 4,500 0 8,280
Short term borrowings 10,000 0 0 0 10,000 0 0 10,000
Long term debt 0 0 2,000 0 2,000 14,571 3,105 19,676
Total interest bearing
liabilities 51,991 14,018 14,231 34,482 114,722 32,035 103,830 250,587
Rate sensitivity gap -2,264 4,108 -1,140 -11,741 -11,037 41,598 5,662 36,223
Cumulative gap -$2,264 $1,844 $704 -$11,037 $30,561 $36,223
Cumulative gap as a percentage
of interest earning assets -0.79% 0.64% 0.25% -3.85% 10.66% 12.63%
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.
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 21, 1997 (Exhibit C) is incorporated by
reference in response to this item.
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JANUARY 1, 1997:
Name Age Position
J. Vincent Ciroli, Jr. 51 President and Chief Executive Officer,
Belmont Bancorp. & Belmont National Bank
William Wallace 41 Vice President, Belmont Bancorp.;
Executive Vice President & Chief
Operating Officer, Belmont National Bank
Jane R. Marsh 35 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 21, 1997 (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 21, 1997 (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 21, 1997 (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 17, 1997.
By s/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 s/John A. Belot Director
Vincent Ciroli, Jr. s/J. Vincent Ciroli, Jr. Director, President
& CEO. Belmont Bancorp., Belmont National
Bank
Samuel Mumley s/Samuel Mumley Director
Mary L. Holloway Haning s/Mary L. Holloway Haning Director
Charles J. Kaiser, Jr. s/Charles J. Kaiser, Jr. Director
John H. Goodman, II s/John H. Goodman, II Director
Dana Lewis s/Dana Lewis Director
Jane R. Marsh s/Jane R. Marsh Secretary, Belmont
Bancorp. and
Sr. Vice President,
Controller
& Cashier, Belmont
National Bank
James Miller s/James Miller Director
W. Quay Mull, II s/W. Quay Mull, II Director
Tom Olszowy s/Tom Olszowy Director
Keith Sommer s/Keith Sommer Director
William Wallace s/William Wallace Director &
Vice President,
Belmont Bancorp.;
Executive Vice
President & COO,
Bank
Charles A. Wilson, Jr. Vice Chairman
s/Terrence A. Lee
Chairman of the Board
Terrence A. Lee
March 17, 1997