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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, 1998 - $121,568,000
There were 2,628,498 shares of $0.50 par value, common stock
outstanding as of March 6, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant dated March 20,
1998 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 thirteen 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, Ohio Valley Mall, Bellaire and Plaza West, St.
Clairsville. 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 Bellaire, Bridgeport,Elm
Grove, Cadiz, the Ohio Valley Mall, Plaza West 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 the fourth
quarter of 1997, BFN acted as a community development corporation
by investing as a limited partner 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 and an ATM.
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.
Bellaire Office - This leased office, located in the
Imperial Shopping Center, is comprised of approximately
1,750 square feet with an adjoining drive-thru facility and
ATM.
Plaza West Solution Center - This office is located at the
west end of St. Clairsville and features a different concept
in retail banking. It includes a drive-thru facility and an
ATM.
All offices are owned by the Bank except for the Mall and
Bellaire offices. All leased offices contain renewal options.
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
The number of shareholders of record for the Corporation's stock
as of March 6, 1998 was 613. The closing price of Belmont
Bancorp. stock on March 6, 1998 was $46.25 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.
1997
Dividend
Quarter High Low per Share
1st $22.40 $20.40 $0.136
2nd 25.20 20.80 0.136
3rd 30.00 25.13 0.170
4th 41.50 29.00 0.170
Total $0.612
1996
Dividend
Quarter High Low per Share
1st $22.00 $20.00 $0.104
2nd 22.40 20.80 0.120
3rd 22.40 20.80 0.120
4th 22.00 20.40 0.136
Total $0.480
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 5-for 4 common stock split effected in the form of a
25% common stock dividend paid July 1, 1997.
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 6,665 shares and 832 shares held in treasury on
December 31, 1997 and 1996, respectively.
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 1997, net income increased 18.9% from the previous year;
net income for the year ended 1996 also increased 18.9% compared
to 1995. Net income per common share for 1997 was $2.25 compared
to $1.87 per common share in 1996 and $1.56 in 1995. Return on
average common shareholders' equity was 20.21% for 1997, up from
19.55% in 1996 and 18.90% in 1995. The Corporation's net income
to average assets, referred to as return on assets, increased to
1.62% for the year ended 1997 from 1.49% last year and 1.35%
during 1995. 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
$185,000 or 2.9% from 1996 to 1997. The table below summarizes
earnings performance for the past three years.
($000s) except per share data 1997 1996 1995
Operating income $6,567 $6,382 $5,437
Net income 5,945 5,002 4,206
Net income per share $ 2.25 $ 1.87 $ 1.56
Return on average assets 1.62% 1.49% 1.35%
Return on average common equity 20.21% 19.55% 18.90%
Return on average total equity 20.21% 19.05% 18.42%
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, 1997, 1996, and 1995, 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 $1,002,000 on
a taxable equivalent basis during 1997 compared to the same
period last year, a 7.1% increase. The increase in net interest
income was attributable to an increase in average earning assets.
During 1997, the Corporation's average interest-earning assets
grew by approximately $28.7 million, up 9.1% from 1996.
The yield on interest earning assets was up 15 basis points
from 8.28% in 1996 to 8.43% in 1997. However the cost of
interest bearing liabilities rose 25 basis points from 1996 to
1997. Consequently, the net interest rate spread decreased from
3.95% during 1996 to 3.84% during 1997. The taxable equivalent
net interest margin was 4.37% during 1997 compared to 4.45% for
1996 and 4.55% 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
1996 to 1997 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 8.0% and totaled $2,010,000 in 1997, compared
to $1,861,000 in 1996 and $1,683,000 in 1995. The table below
shows the dollar amounts and growth rates of the components of
other operating income.
1997 1996 1995
($000s) Total Change Total Change Total
Trust income $ 466 -7.17% $ 502 21.55% $ 413
Service charges on deposits 707 7.12% 660 18.92% 555
Gain on sale of loans 91 26.39% 72 -47.06% 136
Recovery on class action lawsuit - -100.00% 27 -85.71% 189
Other income 746 24.33% 600 53.85% 390
Subtotal 2,010 8.01% 1,861 10.58% 1,683
Investment securities gains(losses) (3) -200.00% (1) 90.91% (11)
Gains (losses) on securities
available for sale 802 102.02% 397 251.33% 113
Total $2,809 24.46% $2,257 26.44% $1,785
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.
Gains on sale of loans contributed $91,000 to noninterest
income during 1997, up from $72,000 in 1996. The Corporation
utilizes 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.
Losses on investments held in the maturity portfolio during
1997 and 1996 occurred as a result of calls on municipal bonds in
the portfolio. These losses totaled $3,000 during 1997 and 1,000
during 1996. Net gains were realized on securities available for
sale during 1997 totaling $802,000 compared to gains of $397,000
during 1996 and losses of $113,000 during 1995. The related
income taxes on securities transactions, including trading and
securities available for sale, were $174,000, $104,000, and
$25,000 for the years ended 1997, 1996 and 1995, respectively.
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 1997, 1996, and 1995.
($000s) 1997 % Change 1996 % Change 1995
Salaries and wages $3,034 14.66% $2,646 3.56% $2,555
Employee benefits 914 15.70% 790 -1.50% 802
Net occupancy expense 783 14.14% 686 24.28% 552
Equipment expense 947 15.91% 817 6.94% 764
FDIC insurance 64 -87.74% 522 38.46% 377
Other operating expenses 2,990 2.15% 2,927 13.76% 2,573
Total $8,732 4.10% $8,388 10.04% $7,623
Management strives to maintain the Corporation's efficiency
ratio at or below 50%. (The efficiency ratio is computed by
dividing the sum of fully taxable equivalent net interest margin
plus non-interest income by non-interest expenses.) For the year
ended 1997, the efficiency ratio was 48.8% compared to 51.4% in
1996 and 50.6% in 1995.
Salaries and wages included incentive performance bonuses
tied to earnings performance totalling $299,000 in 1997, $243,000
during 1996 and $343,000 during 1995. Overall, operating expenses
were impacted by the addition of two new offices in Wheeling, West
Virginia during 1996 and new offices in Bellaire, Ohio and at Plaza
West in St. Clairsville, Ohio in 1997.
Other non-interest operating expense includes FDIC insurance
assessments. FDIC insurance expense included in other operating
expenses were $64,000, $522,000 and $377,000 in 1997, 1996 and
1995, 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 $426,000 during 1997, up from
$395,000 in 1996. This includes the Ohio state corporate
franchise tax based on the equity of the subsidiary bank.
Other noninterest expense also includes expense associated
with other real estate owned. During 1997 this expense was
$20,000 compared to $143,000 during 1996. Expenses associated
with one property which was disposed of during the fourth quarter
of 1996 totaled $140,000.
Federal income taxes were reduced by $482,000 in historic
tax credits associated with a low income housing project that the
subsidiary, Belmont Financial Network, invested in as a limited
partner during the fourth quarter of 1997. The project is expected
to generate low income housing credits in excess of $150,000 in
each of the next ten years.
FINANCIAL CONDITION
SECURITIES
The book values of investments as of December 31, 1997 and
1996 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.
The maturities and yields of securities held to maturity and
available for sale (excluding equity securities) are detailed in
the following tables.
Securities Held to Maturity
December 31, 1997
U.S.
Government States and Agency
agencies and Political mortgage-backed
Maturity Period corporations Subdivisions(a) securities(b) Total
Less than 1 year 2,260 466 - 2,726
Yield 4.80% 3.06% 4.50%
1-5 Years - 1,714 6,455 8,169
Yield 8.17% 6.98% 7.23%
6-10 Years - 332 1,725 2,057
Yield 10.68% 7.60% 8.10%
Over 10 Years - 1,975 1,028 3,003
Yield 10.07% 8.77% 9.63%
Total 2,260 4,487 9,208 15,955
Yield 4.80% 8.66% 7.30% 7.33%
Securities Available for Sale
December 31, 1997
At estimated fair value
U.S. U.S. Govt. States and Agency Mortgage Total
Treasury agencies and political mortgage-backed derivatives Fair Amortized
Maturity Period securities corporations subdivisions(a) securities(b) securities(b) Value Cost
Less than 1 year - - - 180 1,524 1,704 1,705
Yield 3.24% 5.48% 5.25%
1-5 Years 100 6,528 - 36,873 20,445 63,946 64,131
Yield 6.38% 6.75% 6.37% 6.61% 6.40%
6-10 Years - 8,264 103 18,605 - 26,972 26,851
Yield 6.35% 7.58% 7.19% 6.93%
Over 10 Years - - 18,075 3,294 2,462 23,831 23,465
Yield 8.10% 9.05% 7.73% 8.19%
Total fair value 100 14,792 18,178 58,952 24,431 116,453 116,152
Yield 6.38% 6.53% 8.10% 6.77% 6.65% 6.87%
(a) Taxable equivalent yields
(b) Maturities of mortgage-backed securities are based on
estimated average life.
At December 31, 1997, 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 $2.4 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, 1997. 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, 1997 and 1996, estimated market
values approximated original cost.
Taxable
Equivalent
December 31, 1997 ($000s) Cost Market Value Yield
Federal Home Loan Bank Stock $4,450 $4,450 7.19%
Corporate Stock 66 66 5.17%
Federal Reserve Bank Stock 187 187 6.00%
$4,703 $4,703
Taxable
Equivalent
December 31, 1996 ($000s) Cost Market 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%
$3,267 $3,267
LOANS AND LEASES
The following table shows the history of commercial and
consumer loans and leases, including loans held for sale, by
major category at December 31.
($000s) 1997 1996 1995 1994 1993
Commercial loans:
Real estate construction $ 1,418 $ 1,327 $ 1,530 $ 1,801 $ 2,081
Acceptances of other banks 0 0 0 0 0
Real estate mortgage 19,984 25,954 28,744 23,701 21,211
Commercial, financial
and agricultural 109,618 80,554 50,532 38,983 25,317
Direct financing leases 0 0 3 5 9
Total commercial loans $131,020 $107,835 $80,809 $64,490 $48,618
Consumer loans:
Residential mortgage $ 77,995 $ 71,715 $69,999 $76,094 $70,301
Installment loans 14,435 7,626 6,959 5,116 5,281
Credit card and other
consumer 1,450 1,607 2,190 1,396 1,032
Total consumer loans $ 93,880 $ 80,948 $79,148 $82,606 $76,614
Total loans and leases $224,900 $188,783 $159,957 $147,096 $125,232
An analysis of maturity and interest rate sensitivity of business
loans at the end of 1997 follows:
Under 1 to 5 Over 5
($000s) 1 Year Years Years Total
Domestic loans:
Real estate construction $ 1,145 $ 18 $ 255 $ 1,418
Real estate mortgage 13,285 1,880 4,818 19,983
Commercial, financial
and agricultural 53,560 41,722 13,442 108,724
Direct financing leases 0 0 0 0
Total business loans (a) $67,990 $43,620 $18,515 $130,125
Rate sensitivity:
Predetermined rate $ 3,518 $21,303 $17,833 $ 42,654
Floating or adjustable rate 64,472 22,317 682 87,471
Total domestic business loans $67,990 $43,620 $18,515 $130,125
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. 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 $4,134,000,
or 1.84% of total loans and leases at December 31, 1997. At the
end of the previous year, the allowance for possible loan losses
was $3,153,000, or 1.67% of total loans and leases. The provision
charged to expense during 1997 was $1,055,000 compared to $465,000
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) 1997 1996 1995 1994 1993
Specific reserves:
Commercial $ 560 $ 330 $ 310 $ 10 $ 960
Mortgage 0 10 10 5 38
Consumer 161 176 5 7 21
Criticized loans without
specific allocation 470 296 414 315 160
Provision for loan
categories based on
historical loss
experience:
Commercial 2,063 1,607 1,344 687 335
Commercial real estate 313 269 152 103 7
Residential mortgage 358 328 325 298 28
Consumer 209 137 143 112 68
Total $ 4,134 $ 3,153 $ 2,703 $ 1,537 $ 1,617
Total loans and leases
outstanding $224,899 $188,783 $159,957 $147,096 $125,232
Reserves as a % of total loans
($000s) 1997 1996 1995 1994 1993
Specific reserves:
Commercial 0.25% 0.17% 0.19% 0.01% 0.77%
Mortgage 0.00% 0.01% 0.01% 0.00% 0.03%
Consumer 0.07% 0.09% 0.00% 0.00% 0.02%
Criticized loans without
specific allocation 0.21% 0.16% 0.26% 0.21% 0.13%
Provision for loan categories
based on historical loss
experience:
Commercial 0.92% 0.85% 0.84% 0.47% 0.27%
Commercial real estate 0.14% 0.14% 0.10% 0.07% 0.01%
Residential mortgage 0.16% 0.17% 0.20% 0.20% 0.02%
Consumer 0.09% 0.07% 0.09% 0.08% 0.05%
Total 1.84% 1.67% 1.69% 1.04% 1.29%
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) 1997 1996 1995 1994 1993
Balance as of January 1 $3,153 $2,703 $1,537 $1,617 $1,024
Provision of loan losses 1,055 465 1,150 805 577
Adjustment incident to
acquisition 0 0 0 0 0
Loans charged off:
Real estate 24 30 25 49 19
Commercial 23 0 0 806 0
Consumer 43 32 26 85 15
Direct financing leases 0 0 0 0 0
Total loans charged-off 90 62 51 940 34
Recoveries of loans
previously charged-off:
Real estate 2 2 3 18 0
Commercial 1 0 1 29 21
Consumer 13 45 18 7 11
Direct financing leases 0 0 45 1 18
Total recoveries 16 47 67 55 50
Net charge-offs (recoveries) 74 15 (16) 885 (16)
Balance at December 31 $4,134 $3,153 $2,703 $1,537 $1,617
($000s) 1997 1996 1995 1994 1993
Loans and leases outstanding
at December 31 $224,899 $188,783 $159,957 $147,096 $125,232
Allowance as a percent of
loans and leases outstanding 1.84% 1.67% 1.69% 1.04% 1.29%
Average loans and leases $208,265 $174,445 $152,502 $134,952 $120,218
Net charge-offs as a percent
of Average loans and leases 0.04% 0.01% -0.01% 0.66% -0.01%
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) 1997 1996
Nonaccrual loans and leases $1,515 $143
Loans 90 days or more past
due but accruing interest 44 74
Other real estate owned 20 66
Total $1,579 $283
In addition to the above schedule of non-performing assets,
Management prepares a watch list consisting of loans over
$150,000 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 1997 and not
included in the table above was $3,693,000. 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) 1997 1996 1995
Demand $ 29,878 $ 27,878 $ 25,819
Interest bearing checking 43,476 38,576 25,953
Savings 78,636 79,341 78,679
Other time 101,405 99,649 108,578
Certificates-$100,000 and over 13,899 12,008 12,751
Total average deposits $267,294 $257,452 $251,780
DISTRIBUTION OF AVERAGE DEPOSITS 1997 1996 1995
Demand 11.18% 10.83% 10.26%
Interest bearing checking 16.27% 14.98% 10.31%
Savings 29.42% 30.82% 31.25%
Other time 37.94% 38.71% 43.12%
Certificates-$100,000 and over 5.20% 4.66% 5.06%
Total 100.00% 100.00% 100.00%
CHANGE IN AVERAGE
DEPOSIT SOURCES ($000s) 1996 to 1997 1995 to 1996
Demand $2,000 $ 2,059
Interest bearing checking 4,900 12,623
Savings (705) 662
Other time 1,756 (8,929)
Certificates-$100,000 and over 1,891 (743)
Total $9,842 $ 5,672
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, 1997, shareholders' equity was $31,899,000
compared to $27,332,000 at December 31, 1996, an increase of
$4,567,000 or 16.7%. The increase in capital during 1997 was due
prmarily to the retention of earnings. During the fourth quarter
of 1996, the Corporation retired $1,000,000 in senior cumulative
preferred stock.
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,
1997, the Corporation had a Tier 1 capital ratio of 11.8% and
a total capital ratio of 10.6%, 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 1997 1996 1995
Average shareholder's equity
to:
Average assets 8.02% 7.81% 7.34%
Average deposits 11.01% 10.20% 9.07%
Average loans and leases 14.13% 15.06% 14.97%
Primary capital 9.10% 9.13% 8.78%
Risk-based capital ratio:
Tier 1 11.81% 12.43% 13.07%
Total 10.60% 13.68% 14.32%
Leverage ratio 8.00% 7.93% 7.39%
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,
1997, the Corporation's Tier One leverage ratio was 8.00%.
The following table presents dividend payout ratios for the
past three years.
1997 1996 1995
Total dividends declared
as a percentage of net income 27.17% 26.59% 25.77%
Common dividends declared
as a percentage of earnings
per common share 27.20% 25.64% 24.36%
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 $2.4 million, or 0.9%, from the end of 1996 to 1997.
Average deposits increased $9.8 million, or 3.8%, during 1997
compared to 1996.
The Bank has utilized alternative funding sources to
leverage shareholders' equity and improve overall profitability.
Sources include the Federal Home Loan Bank of Cincinnati and
various correspondent bank relationships.
The Bank also has lines of credit with various correspondent
banks totaling $6,500,000 which may be used as an alternative
funding source; the unused portion of these lines at December 31,
1997 was $694,000. In addition, the Bank has a line of credit
with the Federal Home Loan Bank of Cincinnati for $30 million.
At December 31, 1997, the balance of the overnight cash
management advance was $8,829,000 with an available balance of
$21,171,000. The Bank also has a repurchase-agreement based
advance with the Federal Home Loan Bank for $70 million. All
borrowings at the Federal Home Loan Bank are subject to eligible
collateral requirements.
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, 1997
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 $54,723 $10,320 $11,965 $21,025 $98,033 $ 60,971 $ 65,895 $224,899
Investment securities 0 2,555 754 474 3,783 7,565 4,607 15,955
Securities available
for sale 13,051 0 11,686 25,302 50,039 35,519 35,598 121,156
Total interest
earning assets 67,774 12,875 24,405 46,801 151,855 104,055 106,100 362,010
Interest bearing
liabilities:
Interest checking 1,504 1,504 31,959 33,463
Savings 18,101 18,101 61,728 79,829
Certificates-$100,000
and over 3,053 2,913 4,093 4,526 14,585 1,996 1,135 17,716
Other time 8,925 17,797 14,202 20,546 61,470 29,960 11,483 102,913
Repurchase agreements 756 756 756
Short term borrowings 14,635 14,635 14,635
Long term debt 10,000 2,000 12,000 17,635 40,000 69,635
Total interest
bearing liabilities 56,974 20,710 20,295 25,072 123,051 49,591 146,305 318,947
Rate sensitivity gap 10,800 -7,835 4,110 21,729 28,804 54,464 -40,205 43,063
Cumulative gap $10,800 $ 2,965 $ 7,075 $28,804 $ 83,268 $ 43,063
Cumulative gap as a
percentage of
interest earning
assets 2.98% .82% 1.95% 7.96% 23.00% 11.90%
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.
Year 2000
The Corporation initiated the process of preparing its
computer systems and applications for the Year 2000 during 1997.
This process involves modifying or replacing certain hardware and
software maintained by the Corporation as well as communicating
with external service providers to ensure that they are taking
the appropriate action to remedy their Year 2000 issues.
Management expects testing for Year 2000 functionality to be
complete by the end of 1998. Purchased hardware and software
will be capitalized in accordance with normal policy. Personnel
and other costs related to the project will be expensed as
incurred. The Corporation does not expect to spend any
significant amounts with outside contractors relative to the
completion of this task. Therefore, cost estimates do not
represent any material incremental costs, but rather will
represent the redeployment of existing technology resources. The
majority of information systems are vendor-supplied, and all
vendors have provided a certification or a delivery commitment
letter. Management believes that modifications to existing
systems, conversions to new systems, and vendor delivery of
millennium-compliant systems will be resolved on a timely basis,
and any related costs will not have a material impact on the
operations, cash flows, or financial condition of future periods.
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 20, 1998 (Exhibit C) is incorporated by
reference in response to this item.
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JANUARY 1, 1998:
Name Age Position
J. Vincent Ciroli, Jr. 52 President and Chief Executive Officer,
Belmont Bancorp. & Belmont National Bank
William Wallace 42 Vice President, Belmont Bancorp.;
Executive Vice President & Chief
Operating Officer, Belmont National Bank
Jane R. Marsh 36 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 20, 1998 (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 20, 1998 (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 20, 1998 (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 16, 1998.
By Terrence A. Lee, Chairman BELMONT BANCORP
Terrence A. Lee, Chairman (Registrant)
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 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 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
Terrence A. Lee Chairman of the Board
Terrence A. Lee
March 16, 1998