-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WlHzBZLWYirvZ2lm4OrVHI6jWlDnK9UuC8JUiBepY5biJEwkb1CkPKbOIiEe/hH0 eXYIZVQLzt57g+KPvLt+LA== 0000726294-97-000005.txt : 19970325 0000726294-97-000005.hdr.sgml : 19970325 ACCESSION NUMBER: 0000726294-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELMONT BANCORP CENTRAL INDEX KEY: 0000726294 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 341374776 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12724 FILM NUMBER: 97561161 BUSINESS ADDRESS: STREET 1: 325 MAIN ST CITY: BRIDGEPORT STATE: OH ZIP: 43912 BUSINESS PHONE: 6146953323 MAIL ADDRESS: STREET 1: P O BOX 249 CITY: ST CLAIRSVILLE STATE: OH ZIP: 43950 10-K 1 10-K TEXT 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 EX-27 2 FINANCIAL DATA SCHEDULES
9 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 10948 0 24450 0 78728 19299 19302 188783 3153 333903 261539 18280 7076 19676 0 0 1057 26275 333903 16234 9267 0 25501 9386 12127 13374 465 396 8388 6778 6778 0 0 5002 2.34 2.34 4.45 143 74 0 1249 2703 62 47 3153 3153 0 2341
EX-1 3 ACCOUNTANT'S CONSENT EXHIBIT 1 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and the Board of Directors of Belmont Bancorp. We consent to incorporation by reference of our report dated January 24, 1997, relating to the consolidated balance sheets of Belmont Bancorp. as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and statements of cash flows for each of the three years in the period ended December 31, 1996. Said report appears as Exhibit 2 of Belmont Bancorp.'s annual form 10-K. s/ S.R. Snodgrass A.C. Wheeling, WV March 17, 1997 EX-2 4 ANNUAL REPORT MODULE REF The Belmont Bancorp. 1996 Annual Report Corporate Profile Belmont Bancorp. (the Corporation) is a $334 million bank holding company, incorporated in Ohio. Belmont National Bank, a wholly-owned subsidiary of the Corporation, is an FDIC-insured, federally chartered commercial bank. The Bank delivers a comprehensive range of financial products and services to individuals, families, businesses and corporations through eleven full service offices and two drive-up service locations. Belmont National Bank's primary market areas for its consumer, commercial, trust and investment services are Belmont, Harrison, Tuscarawas and Jefferson counties in Ohio, and Marshall and Ohio counties in West Virginia. Financial Highlights (unaudited) (000's except per share data)
1996 1995 % change Net income $ 5,002 $ 4,206 18.9% Operating Return on average assets 1.49% 1.35% results Return on average common equity 19.55% 18.90% Return on average total equity 19.05% 18.42% Per Net income $ 2.34 $ 1.95 20.0% common Dividend 0.600 0.475 26.3% share Book value at year-end 12.93 11.43 13.1% At Total assets $333,903 $317,279 5.2% year- Total loans 188,783 159,957 18.0% end Total deposits 261,539 246,850 6.0% Total shareholders' equity 27,332 25,164 8.6% Liquidity Average common equity and to average total assets 7.51% 7.02% capital Average total equity ratios to average total assets 7.81% 7.34% Tier one capital ratio 12.43% 13.07% Total risk-based capital ratio 13.68% 14.32% Leverage ratio 7.93% 7.39% Dividend payment ratio 26.59% 25.77%
From Management We are pleased to report that we have just concluded the most successful year in the 150 year history of Belmont Bancorp. Performance improvement was shown in nearly every meaningful area of measurement over our record results in 1995. Our accomplishments are particularly noteworthy in light of an unanticipated $397,000 bill from the U.S. Government (which we will explain in a moment) and the cost associated with the unparalleled geographic expansion of your Corporation. Belmont Bancorp. continues to experience double digit income growth. Net income for 1996 was a record $5,002,000 after recognition of a $397,000 pre-tax charge during the third quarter for a special federal government assessment to capitalize the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). This "onetime" expense on about 30% of our deposits relates back to our 1992 purchase of three offices of a savings and loan in Tuscarawas County. Without this charge, earnings would have been $5,264,000 or $2.46 per share for 1996 compared to $4,206,000 for 1995, representing a 25.2% increase. Earnings per share were $2.34 for 1996 versus $1.95 for the prior year. Our compounded annual earning per share growth rate over the past five years is now 22.74%, which compares very favorably with noted growth companies such as Intel, Banc One, Hewlett-Packard and Microsoft. Also noteworthy was our return on average equity and our return on average assets. Return on average equity increased to 19.55% from 18.90% in 1995. Return on average assets increased to 1.49% from 1.35% in 1995. Without the SAIF charge, the return on average equity and the return on average assets would have been 20.59% and 1.57%, respectively. Total shareholders' equity for 1996 increased 8.6% to $27,332,000 from $25,164,000. From Management In 1996, our loan portfolio grew 18% to $188,783,000 while maintaining outstanding asset quality. Nonperforming assets as a percentage of total assets decreased to just 0.08% of total assets compared to 0.24% in 1995, while nonperforming assets as a percentage of allowance for loan losses was only 8.98% versus 27.93% in the prior year. Additionally, our allowance for possible loan loss as a percentage of total loans decreased slightly to 1.67% from 1.69% in the prior year. Our 150th year of service to families, businesses and communities was an exciting and busy one. During the year we moved Belmont National Bank headquarters to Wheeling, West Virginia and celebrated the opening of our first and second West Virginia office in the Woodsdale and Elm Grove areas of Wheeling. Our Elm Grove Office offers express drive-up service and 24-hour ATM banking, and both West Virginia offices feature extended banking hours. Construction began on our newest Ohio facility, the Plaza West Solution Center in St. Clairsville, and we committed to opening an office in the new Imperial Plaza located in Bellaire, Ohio. Both locations will be fully operational during the second quarter of 1997 with extended banking hours, including express drive-up service and 24-hour ATM banking. By the end of the first quarter of 1997, we will also provide the Ohio communities of Bridgeport and Cadiz with 24-hour ATM banking service. Our aggressive approach to providing customers with new and innovative financial solutions and additional electronic banking convenience took another form as well in 1996. If you are a computer user with internet access, we now have an interactive web site designed to help our customers plan for retirement, plan and finance the education of children, purchase a new home and much more from the comfort of their home or office. Please stop by and visit us on the World Wide Web at www.belmontbank.com. This annual report is dedicated to each and every Belmont National Bank customer, some of whom are depicted on its cover as well as profiled within the annual report. We are grateful for the opportunity to be your financial partner... to work with you through your constantly changing needs in your lifelong pursuit of financial well-being and security. Our objective is to bring order and expertise to the process of understanding and evaluating the rapidly expanding and complex financial services options you face throughout your life. We extend our sincerest appreciation to all the officers and staff of the Corporation, and the Board of Directors whose dedication and hard work make Belmont Bancorp. and Belmont National Bank one of the top banking organizations in the country. And, as always, we thank our shareholders across the country who have shown confidence and trust in the leadership of your Corporation. We pledge to you our continuing best effort and look forward to providing you with another prosperous year. J. Vincent Ciroli, Jr. Terrence A. Lee President & CEO Chairman A Customer Profile Planning For Their Children's Education During one of our visits with John and Vickie Miller, it become clear to us, their financial partner, that the education of their two young daughters was an important objective. It wasn't until recently that John managed to pay off his old student loans. If possible, they want the kids to avoid a similar burden of enormous college debt. Our first step was to provide John and Vickie with an estimate of future tuition, room and board at a state university based on each child's current age. Fortunately, at birth the Millers had set up college savings accounts for each daughter and were periodically depositing money. Based on this information, we calculated the amount that would be available for each child, factoring in the balance, deposits, the interest rate and years until college. Our work with the Millers validated a concern which John had expressed early in our discussions-the goal was not realistic based on their present efforts. Together, over time, we have explored a number of specific actions designed to help reach the objective: 1) Establish a set amount to be automatically transferred from the family checking account to each college fund savings account on payday. 2) For the funds already saved, pursue long-term investments which provide a greater rate of return. 3) Ask relatives, who normally give each child a Christmas present, to help fund the college fund by making the gift a monetary one. Through our brokerage services, John and Vickie Miller are now investing in quality "blue chip" stocks for their daughters' education and have weekly deposits into the college fund savings. As their financial partner, we will meet with the Millers periodically to make sure we are doing everything possible to help them reach this important goal. A Customer Profile Preparing For Retirement With the pressures of raising children, retirement thoughts had never been a discussion for Doug and Alice Gibson... until now. The kids are grown and on their own; Alice is back to work, using her pay to invest in certificates of deposit. The last time Alice was in, she mentioned retirement savings and concerns about future financial security. As their financial partner, we offered to work with the Gibsons to help them understand what is needed to live in retirement and what their financial resources will be based on their current savings habits. Since our brief conversation about a month ago, we have met with Doug and Alice twice. Fortunately, they have some time, about a dozen years, and two incomes to help support the cost of meeting retirement goals. During our first meeting, we discussed the collaborative effort required by both partners-the Gibsons and Belmont National Bank. The Gibsons helped us establish a snapshot of their financial situation, to know what assets were already available: Doug's 401(k) plan, other savings, investments and life insurance, their home and other personal property, as well as, amounts owed-mortgage, car loans, etc. We also put the Gibsons in touch with the Social Security Administration to obtain their Personal Earnings and Benefit Estimate Statement. Since then, we completed a net worth and cash flow analysis and estimated what the Gibsons will need to maintain their lifestyle, factoring in live expectancy and inflation. The Gibsons were delighted when we then presented a no-cost way to increase their retirement funding and lower federal and state income tax using Doug's 401(k) plan plus IRA's for Doug and Alice. Now, with greater confidence in reaching financial security, the Gibsons are looking forward to their next visit with their financial partner to discuss specific IRA investment options. A Customer Profile Growing Your Own Business The pressures of owning a business in today's competitive environment can be an imposing task for even the most skilled owner. Rodney Strong, owner of River City Tool and a successful, machine tool manufacturer, was in the middle of a crisis that impacts most growth businesses. His company was increasing annual sales at 20% and his customer base was expanding in size and geography. Unfortunately, his cash flow was not keeping pace with his sales. Mr. Strong was facing a dilemma which, if not dealt with, could permanently cripple his business. River City Tool has been our customer since its birth by Mr. Strong in 1989. At that time, he used an equipment loan and a second mortgage on his home to finance the start-up. He was familiar with our high level of expertise in dealing with his business and has come to rely on the bank. Now, he was coming to us with what he thought was an embarrassing, unique problem-running out of money as his business grew. Our meeting with Mr. Strong was frank and open as he explained the problem and suggested he had no solutions within his company. As his financial partner, our solution was both quick and effective. We provided for his immediate short-term cash flow needs and also designed and implemented a cash management system that allowed him to quickly collect and monitor his customer accounts. The solution provided an operating line of credit tied to account receivables and an electronic cash collection mechanism to accelerate cash flow despite the growing geographic diversity of his customers. The most important result of the bank designed system is Rodney Strong now devotes more time in serving his customers, and less time worrying about his company's cash flow. Mr. Strong knew Belmont National Bank provided quality service and business loans. Now he knows what many of our customers have come to realize-we provide financial solution for their complex problems. Belmont Bancorp. and Subsidiaries Summarized Quarterly Financial Information (Unaudited) ($000's except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter 1996 Interest income $6,150 $6,331 $6,576 $6,444 Interest expense 2,849 3,058 3,201 3,019 Net interest income 3,301 3,273 3,375 3,425 Provision for credit losses 150 105 105 105 Security gains (losses) 229 4 34 129 Net overhead 1,423 1,557 1,897 1,650 Income before income taxes 1,957 1,615 1,407 1,799 Income taxes 548 450 324 454 Net income $1,409 $1,165 $1,083 $1,345 Net income per common share $ 0.66 $ 0.54 $ 0.50 $ 0.64 1995 Interest income $5,898 $5,763 $5,955 $5,838 Interest expense 2,746 2,648 2,791 2,742 Net interest income 3,152 3,115 3,164 3,096 Provision for credit losses 400 300 200 250 Security gains (losses) 127 37 18 (80) Net overhead 1,510 1,391 1,377 1,662 Income before income taxes 1,369 1,461 1,605 1,104 Income taxes 363 363 385 222 Net income $1,006 $1,098 $1,220 $ 882 Net income per common share $ 0.46 $ 0.51 $ 0.57 $ 0.41 1994 Net income $ 641 $ 792 $1,135 $ 666 Net earnings per common share $ 0.29 $ 0.37 $ 0.53 $ 0.30
Belmont Bancorp. and Subsidiaries Consolidated Five Year Summary of Operations For the Years Ending December 31, 1996, 1995, 1994, 1993, 1992 (Unaudited) ($000's except per share data)
1996 1995 1994 1993 1992 Interest income $ 25,501 $ 23,454 $ 19,715 $ 16,789 $ 14,717 Interest expense 12,127 10,927 8,807 8,616 8,082 Net interest income 13,374 12,527 10,908 8,173 6,635 Provision for credit losses 465 1,150 805 577 405 Net interest income after provision for credit losses 12,909 11,377 10,103 7,596 6,230 Securities and trading gains (losses) 396 102 (63) 943 323 Other operating income 1,861 1,683 1,290 1,193 966 Operating expenses 8,388 7,623 7,069 6,757 5,107 Income before income taxes 6,778 5,539 4,261 2,975 2,412 Income taxes 1,776 1,333 1,027 406 574 Net income $ 5,002 $ 4,206 $ 3,234 $ 2,569 $ 1,838 Earnings per common share (1) $ 2.34 $1.95 $ 1.49 $ 1.18 $ 0.85 Cash dividend declared per share (1) $ 0.600 $ 0.475 $ 0.378 $ 0.331 $ 0.324 Book value per common share (1) $ 12.93 $ 11.43 $ 9.09 $ 8.68 $ 7.84 Total loans $ 188,783 $159,957 $147,096 $125,232 $113,977 Total assets 333,903 317,279 312,963 267,505 267,332 Total deposits 261,539 246,850 255,923 243,232 245,743 Total shareholders' equity 27,332 25,164 20,214 19,355 17,565 (1) Restated for stock dividends paid during 1994 and 1995.
Belmont Bancorp. and Subsidiaries Consolidated Balance Sheets For the Years Ended December 31, 1996 and 1995 ($000's)
Assets 1996 1995 Cash and due from banks $ 10,948 $ 10,175 Federal funds sold 24,450 - Securities available for sale (at market value) 78,728 112,109 Securities held to maturity (market value of $19,302 - 1996; and $23,758 - 1995) 19,299 23,726 Loans 188,783 159,957 Less allowance for possible loan losses (3,153) (2,703) Net loans 185,630 157,254 Premises and equipment, net 7,260 5,090 Other real estate owned 66 579 Accrued income receivable 1,921 2,150 Other assets 5,601 6,196 Total assets $ 333,903 $ 317,279 Liabilities and Shareholders' Equity Liabilities Non-interest bearing deposits: Demand $ 29,232 $ 26,494 Interest bearing deposits: Demand 40,569 27,193 Savings 80,961 78,883 Time 110,777 114,280 Total deposits 261,539 246,850 Securities sold under repurchase agreements 8,280 14,539 Short-term borrowings 10,000 24,126 Long-term debt 19,676 4,802 Accrued interest on deposits and other borrowings 664 661 Other liabilities 6,412 1,137 Total liabilities 306,571 292,115 Shareholders' Equity Preferred stock - authorized 90,000 shares with - - no par value; issued and outstanding, none Senior cumulative preferred stock - authorized, - 1,000 issued and outstanding no shares and 10,000 shares with a $100 par value at December 31, 1996 and 1995, respectively Common stock - $0.50 par value, 8,900,000 shares authorized, 2,115,476 issued 1,057 1,057 Surplus 7,781 7,781 Treasury stock (832 shares) (8) (8) Retained earnings: Unappropriated 17,820 14,148 Appropriated for contingencies 850 850 Net unrealized gain (loss) on securities available for sale (168) 336 Total shareholders' equity 27,332 25,164 Total liabilities and shareholders' equity $ 333,903 $ 317,279
The accompanying notes are an integral part of the financial statements. Belmont Bancorp. and Subsidiaries Consolidated Statements of Income For the Years Ended December 31, 1996, 1995 and 1994 ($000's)
Interest Income 1996 1995 1994 Loans and lease financing: Taxable $ 15,905 $ 13,924 $ 11,499 Tax-exempt 329 288 190 Investment securities: Taxable 7,660 7,638 6,714 Tax-exempt 1,251 1,424 1,209 Dividends 175 133 98 Interest on trading securities - - 1 Interest on federal funds sold 181 47 4 Total Interest income 25,501 23,454 19,715 Interest Expense Deposits 9,386 9,022 7,865 Short-term borrowings 2,741 1,905 942 Total interest expense 12,127 10,927 8,807 Net interest income 13,374 12,527 10,908 Provision for Possible Loan Losses 465 1,150 805 Net interest income after provision for possible loan losses 12,909 11,377 10,103 Non-lnterest Income Trust fees 502 413 341 Service charges on deposits 660 555 527 Other operating income 699 715 422 Investment securities gains (losses) 396 102 (64) Trading gains (losses) - - 1 Total non-interest income 2,257 1,785 1,227 Non-lnterest Expense Salary and employee benefits 3,436 3,357 2,946 Net occupancy expense of premises 686 552 533 Equipment expenses 817 764 618 Other operating expenses 3,449 2,950 2,972 Total non-interest expense 8,388 7,623 7,069 Income before income taxes 6,778 5,539 4,261 Income Taxes 1,776 1,333 1,027 Net income $ 5,002 4,206 $ 3,234 Weighted - Average Number of Shares Outstanding 2,114,644 2,114,644 2,114,524 Earnings Per Common Share $ 2.34 $ 1.95 $ 1.49
The accompanying notes are an integral part of the financial statements. Belmont Bancorp. and Subsidiaries Consolidated Statements of Shareholders' Equity For the Years Ended December 31, 1996, 1995 and 1994 ($000's)
Unrealized Gain (Loss) Retained Earnings on Securities Preferred Common Unappro- Appro- Treasury Available Stock Stock Surplus priated priated Stock for Sale Balance, December 31, 1993 $ 1,000 $ 2,749 $ 3,647 $ 11,122 $ 850 $ (13) $ - Effect of adopting SFAS 115 - - - - - - 6 10% Common stock dividend at fair market value - 274 1,413 (1,687) - - - 25% Common stock dividend at par value - 754 - (754) - - - 1994 Net income - - - 3,234 - - - Cash dividends declared: Preferred stock - - - (80) - - - Common stock ($.378 per share) - - - (799) - - - Cash paid in lieu-stock dividends - - - (10) - - - Change in unrealized loss- securities available for sale - - - - - - (1,498) Sale of treasury stock - - 1 - - 5 - Balance, December 31,1994 $ 1,000 $ 3,777 $ 5,061 $ 11,026 $ 850 $ (8) $(1,492) Transfer to surplus resulting from change in par value of common stock - (3,248) 3,248 - - - - 2 for 1 stock split - 528 (528) - - - - 1995 Net income - - - 4,206 - - - Cash dividends declared: Preferred stock - - - (80) - - - Common stock (per share $.475) - - - (1,004) - - - Change in unrealized gain (loss) securities available for sale - - - - - - 1,828 Balance, December 31, 1995 $ 1,000 $ 1,057 $ 7,781 $ 14,148 $ 850 $ (8) $ 336 1996 net income - - - 5,002 - - - Cash dividend declared: Preferred stock - - - (61) - - - Common stock (per share $.60) - - - (1,269) - - - Redemption of preferred stock (1,000) - - - - - - Change in unrealized gain (loss)- securities available to sale - - - - - - (504) Balance, December 31, 1996 $ - $ 1,057 $ 7,781 $ 17,820 $ 850 $ (8) $ (168)
The accompanying notes are an integral part of the financial statements. Belmont Bancorp. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 1996, 1995 and 1994 ($000's)
Operating Activities 1996 1995 1994 Net income $ 5,002 $ 4,206 $ 3,234 Adjustments to reconcile net income to net cash flows provided (used) by operating activities: Provision for loan losses 465 1,150 805 Depreciation and amortization expense 674 601 519 Amortization of investment security premiums 1,469 1,123 1,877 Accretion of investment security discounts and interest recorded on zero-coupon securities (358) (305) (403) Investment securities (gains) losses 1 11 10 Trading (gains) losses - - (1) (Gains) losses on securities available for sale (397) (113) 55 Proceeds from sale of securities held in trading acct - - 1,517 Purchase of securities for trading account - - (1,516) Loss (gain) on sale of fixed assets 6 23 2 Gain on sale of loans (72) (136) (23) Loss (gain) on sale of other real estate owned 65 - (1) (Increase) decrease in interest receivable 229 (17) (420) Increase in interest payable 3 71 137 Others, net 6,130 (65) 1,859 Net cash provided (used) by operating activities 13,217 6,549 7,651 Investing Activities Net increase in federal funds sold (24,450) - - Proceeds from maturities and calls of investment securities 1,859 12,154 3,207 Purchase of securities available for sale (99,267) (106,839) (26,052) Purchase of investment securities - (2,321) (47,621) Proceeds on sale of securities available for sale 110,808 85,414 16,198 Principal collected on mortgage-backed securities 22,930 19,405 29,434 Net increase in loans and leases, net of charge-offs (38,756) (23,491) (25,486) Proceeds on sale of loans 9,874 10,816 2,104 Loans purchased - (94) - Recoveries on loans previously charged-off 47 67 55 Proceeds from sale of other real estate owned 514 - 84 Purchase of premises and equipment (2,859) (1,071) (711) Proceeds from sale of fixed assets 8 4 1 Net cash provided by (used in) investing activities (19,292) (5,956) (48,787) Financing Activities Net increase (decrease) in deposits 14,689 (9,073) 12,691 Net increase (decrease) in repurchase agreements (6,259) 5,803 5,027 Net increase (decrease) in short-term borrowings (14,126) (2,636) 26,762 Proceeds from the issuance of long-term debt 15,125 4,805 - Payments on long-term debt (251) (3) - Dividends paid on common and preferred stock (1,330) (1,084) (889) Redemption of preferred stock (1,000) - - Sale of treasury stock - - 6 Net cash provided by (used in) financing activities 6,848 (2,188) 43,597 Increase (Decrease) in Cash and Cash Equivalents 773 (1,595) 2,461 Cash and Cash Equivalents at Beginning of Year 10,175 11,770 9,309 Cash and Cash Equivalents at End of Year $ 10,948 10,175 $ 11,770
The accompanying notes are an integral part of the financial statements. Belmont Bancorp. and Subsidiaries Notes to the Consolidated Financial Statements For the Years Ended December 31, 1996, 1995 and 1994 ($000's) 1. Summary of Significant Accounting Policies The accounting and reporting policies and practices of the corporation are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. The more significant of these policies and practices are summarized below. Nature of Operations: Belmont Bancorp. provides a variety of banking services to individuals and businesses through the branch network of its wholly-owned subsidiary, Belmont National Bank (BNB). BNB operates eleven full-service banking facilities located in Belmont, Harrison, and Tuscarawas Counties in Ohio, and Wheeling, West Virginia. Principles of Consolidation: The consolidated financial statements include the accounts of Belmont Bancorp. and its wholly-owned subsidiaries, Belmont National Bank and Belmont Financial Network, Inc. Material intercompany accounts and transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Held to Maturity Securities: These securities are purchased with the original intent to hold to maturity and events which may be reasonably anticipated are considered when determining the corporation's intent and ability to hold to maturity. Securities meeting such criteria at date of purchase and as of the balance sheet date are carried at cost, adjusted for amortization of premiums and accretion of discounts. Available for Sale Securities: Debt and equity securities to be held for indefinite periods of time and not intended to be held to maturity are classified as available for sale and carried at market value with net unrealized gains and losses, net of tax, reflected as a component of shareholders' equity until realized. Securities held for indefinite periods of time include securities that may be sold to meet liquidity needs or in response to significant changes in interest rates or prepayment risks as part of the corporation's overall asset/liability management strategy. Trading Securities: Trading securities are held for resale within a short period of time and are stated at market value. Trading gains and losses include the net realized gain or loss and market value adjustments of the trading account portfolio. Income Recognition: Income earned by the corporation and its subsidiaries is recognized principally on the accrual basis of accounting. Certain fees, principally service, are recognized as income when billed. The subsidiary bank suspends the accrual of interest when, in management's opinion, the collection of all or a portion of interest has become doubtful. Generally, when a loan is placed on nonaccrual, the bank charges all previously accrued and unpaid interest against income. In future periods, interest will be included in income to the extent received only if complete principal recovery is reasonably assured. The corporation adopted the provisions of Statement of Financial Accounting Standards No.114 and No.118, "Accounting for Creditors for Impairment of a Loan." It is the corporation's policy not to recognize interest income on specific impaired loans unless the likelihood of future loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Since the adoption of SFAS Nos. 114 and 118, the corporation had no loans which management has determined to be impaired. The corporation defers and amortizes loan fees and related origination costs. These fees and costs are amortized into interest or other income over the estimated life of the loan using a method which approximates the interest method. Direct Financing Leases: The leasing operation of the corporation consists of the leasing of various types of equipment under leases classified as direct financing leases. Interest and service charges, net of initial direct costs, are deferred and reported as income in decreasing amounts over the term of the lease so as to provide an approximate constant yield on the outstanding principal balance. Allowance For Loan Losses: The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge- offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Because of uncertainties inherent in the estimation process, management's estimate of credit losses inherent in the loan portfolio and the related allowance may change in the near term. Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization are computed generally using the straight line method over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight line basis over the lease period. When units of property are disposed of, the premises and equipment accounts are relieved of the cost and the accumulated depreciation related to such units. Any resulting gains or losses are credited to or charged against income. Costs of repairs and maintenance are charged to expense as incurred. Major renewals and betterments are capitalized at cost. Other Real Estate: Real estate acquired in satisfaction of indebtedness is recorded at the lesser of the loan balance prior to foreclosure, plus certain costs incurred for improvements to the property, or fair value less estimated selling costs of the property. Earnings Per Common Share: Earnings per common share are calculated based on net income after preferred dividend requirements and the weighted average number of shares of common stock outstanding during the year. Stock Split and Stock Dividends: On February 2, 1994, the corporation distributed 76,672 shares of common stock in connection with a 10% stock dividend. On July 22, 1994, the corporation distributed 211,275 shares of common stock in connection with a 25% stock dividend. On February 21, 1995, the corporation declared a two-for-one stock split, which was effected in the form of a 100% stock dividend to shareholders of record on May 1, 1995, and paid on May 8, 1995. On April 18, 1995, shareholders approved a change in the par value of the corporation's common stock to $0.50 per share from $3.57 per share. Shareholder approval was also received to increase the number of shares of common stock authorized to 8,900,000. Excess of Cost Over Net Assets Acquired: The excess of cost over net assets of branches purchased in 1991 is being amortized on the straight line method over ten years. The excess of cost over net assets of branches purchased in 1992 is being amortized on the straight line method over a five to eight year period for the portion allocated to the core deposit base and ten years for the remaining excess. The unamortized balances at December 31, 1996 and 1995, were $1,092,000 and $1,508,000, respectively. Amortization charged to expense was $415,000 in each of the three years in the period ended December 31, 1996. Reclassifications: Certain prior year amounts have been reclassified to conform with current year presentation. 2. Changes in Accounting Policies On January 1, 1994, the corporation adopted Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires entities to classify debt and equity securities as either held to maturity, available for sale, or trading securities. Under SFAS No. 115, held to maturity securities are recorded at amortized cost; whereas available for sale securities and trading securities are carried at market value. SFAS No. 115 further requires that unrealized gains and losses on available for sale securities be reported, net of tax, as a separate component of shareholders' equity. Adoption of SFAS No. 115 had no effect on 1994 earnings. In November, 1995, the Financial Accounting Standards Board issued implementation guidance on SFAS No. 115. In accordance with this guidance, the corporation reassessed the appropriateness of the classifications of all securities. As a result, securities with an amortized cost of $56,490,000 and unrealized loss of $95,000 were transferred from the held to maturity category to the available for sale category in December 1995. 3. Investment Securities The estimated market value of investment securities are as follows at December 31:
1996 1995 -------------------------------------------- ----------------------------------------------- Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value Securities held to maturity: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $2,264 $ - $ (94) $ 2,170 $ 2,269 $ - $ (65) $ 2,204 Obligations of states and political subdivisions 4,812 131 (58) 4,885 5,034 127 (78) 5,083 Mortgage-backed securities 12,223 121 (97) 12,247 16,423 147 (99) 16,471 Total held to maturity $19,299 $252 $ (249) $19,302 $ 23,726 $ 274 $ (242) $ 23,758 Securities available for sale: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $4,098 $ - $ (40) $ 4,058 $ 12,697 $ 66 $ - $ 12,763 Obligations of states and political subdivisions 9,618 19 (93) 9,544 18,162 296 (86) 18,372 Mortgage derivative securities 22,776 104 (477) 22,403 9,180 256 (58) 9,378 Mortgage-backed securities 39,223 412 (179) 39,456 69,315 466 (431) 69,350 Total debt securities 75,715 535 (789) 75,461 109,354 1,084 (575) 109,863 Equity securities 3,267 - - 3,267 2,246 - - 2,246 Total available for sale $78,982 $535 $ (789) $78,728 $111,600 $1,084 $ (575) $112,109
The amortized cost and estimated market value of investment securities at December 31, 1996, by contractual maturity, follow. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Securities Held to Maturity Available for Sale Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Due in one year or less $ 31 $ 33 $ 500 $ 502 Due after one year through five years 3,637 3,558 4,273 4,233 Due after five years through ten years - - - - Due after ten years 3,408 3,464 8,943 8,867 Mortgage-backed securities 12,223 12,247 39,223 39,456 Mortgage derivative securities - - 22,776 22,403 Equity securities - - 3,267 3,267 Total $19,299 $19,302 $78,982 $78,728
At December 31, 1996 and 1995, the mortgage derivative securities consist solely of collateralized mortgage obligations (CMO), including one principal-only CMO with a book value of $169,000 and an estimated fair market value of $126,000 at December 31, 1996, and a book value of $267,000 and an estimated fair market value of $209,000 at December 31, 1995. At December 31, 1996, securities held to maturity include a U.S. Government Agency structured note with a carrying value of $2,264,000 and an estimated market value of 2,170,000. At December 31, 1995, securities held to maturity include a U.S. Government Agency structured note with a carrying value of $2,269,000, and an estimated market value of $2,204,000; securities available for sale include two U.S. Government Agency structured notes with a carrying value of $1,931,000 and an estimated market value of $1,997,000. Sales and write-downs of investment securities resulted in the following:
1996 1995 1994 Proceeds from sales $110,808 $85,414 $16,198 Gross gains 745 464 31 Gross losses (346) (352) (86) Losses on securities called (3) (26) (9) Gains on securities called - 16 -
All securities sold were classified as available for sale at the time of sale. There were no transfers of securities between classifications, except for those discussed in Note 2. Assets carried at $26,724,000 and $39,149,000 at December 31, 1996 and 1995, respectively, were pledged to secure United States Government and other public funds, and for other purposes as required or permitted by law. 4. Loans and Allowance for Possible Loan Losses Loans outstanding at December 31 are as follows:
1996 1995 Real estate-construction $ 1,327 $ 1,530 Real estate-mortgage 71,715 69,999 Real estate-secured by nonfarm, nonresidential property 25,954 28,744 Commercial, financial and agricultural 76,035 46,055 Obligations of political subdivisions in the U.S. 4,519 4,477 Installment and credit card loans to individuals 9,233 9,149 Direct financing leases - 3 Loans receivable $188,783 $159,957
The bank discontinues accruing interest income on loans and leases when, in the opinion of management, the collectibility of such interest appears doubtful. Non-accruing loans and leases amounted to $143,000 and $162,000 at December 31, 1996 and 1995, respectively. The after-tax effect of the interest that would have been accrued on these loans was $7,000 in 1996 and $5,000 in 1995. The following is an analysis of loan activity to directors, executive officers, and their associates (see Note 13):
1996 1995 Balance previously reported $6,800 $4,904 New loans during the year 2,760 4,097 Total 9,560 9,001 Less repayments during the year 1,748 2,201 Balance, December 31 $7,812 $6,800
Activity in the allowance for loan losses is summarized as follows:
December 31 1996 1995 1994 Balance at beginning of year $2,703 $1,537 $1,617 Additions charged to operating expense 465 1,150 805 Recoveries on loans previously charged-off 47 67 55 Total 3,215 2,754 2,477 Loans charged-off 62 51 940 Balance at end of year $3,153 $2,703 $1,537
The entire allowance represents a valuation reserve which is available for future charge-offs. 5. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization, as follows:
Original December 31 Useful Life 1996 1995 Years Land and land improvements $ 1,161 $ 1,009 Buildings 5,546 3,534 30 - 50 Furniture, fixtures and equipment 4,890 4,272 5 - 12 Leasehold improvements 377 373 5 - 20 Total 11,974 9,188 Less accumulated depreciation and amortization 4,714 4,098 Premises and equipment, net $ 7,260 $ 5,090
Charges to operations for depreciation and amortization approximate $674,000, $601,000, and $519,000 for 1996, 1995, and 1994, respectively. 6. Deposits The distribution of the bank's deposits at December 31, 1996 and 1995, are as follows:
1996 1995 Non- Non- interest interest Bearing Interest Bearing Bearing Interest Bearing Demand Demand Savings Time Demand Demand Savings Time Individuals, partnerships and Corporations $13,020 $40,569 $80,961 $105,878 $12,422 $27,193 $78,883 $110,258 U.S. Government 285 - - - 272 - - - States and political subdivisions 14,705 - - 4,899 12,124 - - 4,022 Other depository institutions in the U.S. - - - - - - - - Certified, officers' checks, travelers cheques, etc. 1,222 - - - 1,676 - - - Total $29,232 $40,569 $80,961 $110,777 $26,494 $27,193 $78,883 $114,280
6. Deposits (continued) Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $13,133,000 at December 31, 1996, and $11,877,000 at December 31, 1995. A maturity distribution of time certificates of deposit of $100,000 or more follows:
1996 1995 Due in three months or less $ 3,247 $ 3,626 Due after three months through six months 2,125 3,303 Due after six months through twelve months 4,667 3,312 Due after one year through five years 2,074 1,327 Due after five years 1,020 309 Total $13,133 $11,877
7. Federal Funds Purchased and Securities Sold Under Repurchase Agreements Federal funds purchased and securities sold under agreements to repurchase represent primarily overnight borrowings. However, as of December 31, 1996, BNB had two repurchase agreements outstanding with maturities from twelve to twenty- four months. For all repurchase agreements, the securities underlying the agreements were under BNB's control. Information related to these borrowings is summarized below:
1996 1995 1994 Securities sold under repurchase agreements: Balance at year end $ 8,280 $14,539 $8,736 Average during the year $11,529 $17,669 $8,210 Maximum month-end balance $21,362 $24,012 $9,653 Weighted average rate during the year 4.86% 4.82% 3.56% Rate at December 31 3.07- 3.05% 4.93% 4.69% Federal funds purchased: Balance at year end $ - $ - $4,500 Average during the year $ 1,132 $700 $ 397 Maximum month-end balance $ 5,338 $ - $4,500 Weighted average rate during the year 5.61% 6.87% 4.43% Rate at December 31 - - 6.25%
At December 31, 1996, BNB also had available additional credit totaling $30 million under a repurchase agreement- based cash management advance agreement, all of which was unused. This agreement will expire on August 22, 1997. 8. Short-Term Borrowings Short-term borrowings consist of advances from the Federal Home Loan Bank of Cincinnati. Advances are made under agreements which allow for maximum borrowings of $30,000,000. Advances can be made at fixed or variable rates of interest. Collateral for the advances consists of residential mortgage loans and shares of stock of the Federal Home Loan Bank of Cincinnati. Information related to these borrowings at December 31, 1996 and 1995, is summarized below:
1996 1995 Balance at year end $10,000 $24,126 Average balance during the year $11,222 $11,790 Maximum month-end balance $27,352 $29,796 Weighted average rate during the year 5.59% 5.54% Interest rate at December 31 5.45% 6.15% Collateral: Residential mortgage loans $15,000 $36,190 Federal Home Loan Bank stock $2,959 $ 1,844
9. Long-Term Debt Long-term debt consists of advances from the Federal Home Loan Bank of Cincinnati. Fixed-rate, single payment loans totaling $14,000,000 and $4,000,000 at December 31, 1996 and 1995, respectively, mature in 1997 and 1998 with interest rates ranging from 5.4% to 7.0%. Fixed-rate, amortizing loans totaling $5,676,000 and $802,000 at December 31, 1996 and 1995, respectively, reach final maturity in years 1998 through 2015, with interest rates ranging from 5.55% to 6.95%. The loans are secured by residential mortgage loans with a carrying value of $29,514,000 and $7,203,000 at December 31, 1996 and 1995, respectively, and Federal Home Loan Bank Stock. Scheduled principal payments on long-term debt in each of the five years subsequent to December 31, 1996, are as follows:
1997 $ 2,662 1998 $12,703 1999 $ 634 2000 $ 674 2001 $ 670
10. Income Tax The components of applicable income taxes are as follows:
1996 1995 1994 Currently payable $1,910 $1,726 $ 880 Deferred (134) (393) 147 Income tax $1,776 $1,333 $1,027
The following temporary differences gave rise to the deferred tax asset at December 31, 1996 and 1995:
1996 1995 Allowance for loan losses $ 923 $ 770 Interest on non-accrual loans 4 9 Unrealized (gains) losses on investments 105 (145) Deferred loan origination fees 11 19 Deferred compensation and liability for future employees benefits 85 81 Intangible assets 283 216 Premises and equipment due to differences in depreciation (132) (121) Direct finance leases (86) (86) Federal Home Loan Bank stock dividends (141) (84) Total deferred tax assets $1,052 $ 659
A reconciliation between the amount of reported income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:
1996 1995 1994 Amount Percent Amount Percent Amount Percent Tax at statutory rate $2,305 34.0 $1,883 34.0 $1,449 34.0 Reductions in taxes resulting from: Tax exempt interest on investments and loans (537) (7.9) (582) (10.5) (476) (11.2) Excess of tax loss over book gains on investment securities (37) (0.6) (22) (0.4) - - Earnings on life insurance policies (39) (0.6) (33) (0.6) (18) (0.4) Non-deductible interest expense 78 1.2 75 1.4 64 1.5 Others - net 6 0.1 12 0.2 8 0.2 Actual tax expense $1,776 26.2 $1,333 24.1 $1,027 24.1
The bank has available $623,000 in capital loss carryforwards which will expire in 1998. 11. Employee Benefit Plans The corporation has a profit-sharing retirement plan which includes all full-time employees who have reached the age of twenty-one and have completed a least one year of service. Each participant can elect to contribute to the plan an amount not to exceed 10% of their salary. The plan provides for an employer matching contribution on the first 4% of the participant's elective contribution. In addition to the matching contribution, the plan provides for a discretionary contribution to be determined by the bank's Board of Directors. Total pension expense for 1996, 1995, and 1994 was $234,000, $242,000, and $180,000, respectively. In addition to providing the profit-sharing plan, Belmont Bancorp. sponsors two defined benefit postretirement plans that cover both salaried and nonsalaried employees. Employees must be fifty-five years old and have ten years of service to qualify for both plans. One plan provides medical and dental benefits, and the other provides life insurance benefits. The postretirement health care plan is contributory, with retiree contributions adjusted annually; the life insurance plan is noncontributory. On January 1, 1993, Belmont Bancorp. adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employer's Accounting for Postretirement Benefits Other than Pensions." The statement requires the accrual of the expected cost of providing postretirement benefits to employees and certain dependents during the years that an employee renders service. The following table sets forth the plan's combined funded status reconciled with the amount shown in the corporation's balance sheet at December 31:
1996 1995 Accumulated post-retirement benefit obligation: Retirees $ 44 $ 42 Fully eligible active plan participants 30 50 Other active plan participants 54 53 128 145 Plan assets at fair value - - Accumulated post-retirement benefit obligation in excess of plan assets 128 145 Unrecognized net gain (loss) from past experience different from that assumed and from changes in assumptions 6 (26) Prior service cost not yet recognized in expense 14 38 Unrecognized transition obligation - (12) Accrued post-retirement benefit cost in the balance sheet $148 $ 145
The Corporation's post-retirement health care plan is underfunded. The accumulated post-retirement benefit obligation and plan assets for that plan are $128,000 and $- 0-, respectively at December 31, 1996, and $145,000 and $-0- respectively at December 31, 1995. Post-retirement expense includes the following components:
1996 1995 1994 Service cost $ 6 $ 4 $ 6 Interest cost on accumulated post-retirement benefit obligation 10 10 10 Net amortization and deferral (10) (11) (5) Post-retirement expense $ 6 $ 3 $ 11
The annual assumed rate of increase in the per capita cost of covered benefits for 1997 is 11.0% for medical benefits and 8.5% for dental benefits (compared to 11.5% and 8.5% for 1996 for the respective benefits). The rates are assumed to decrease gradually to 5.5% (for medical in 2005 and for dental in 2003), and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, by $4,000, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996 by $1,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7%. The long-term inflation rate assumed was 4%. 12. Leases The subsidiary bank utilized certain bank premises and equipment under long-term leases expiring at various dates. In certain cases, these leases contain renewal options and generally provide that the corporation will pay for insurance, taxes and maintenance. As of December 31, 1996, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:
Operating Leases Year ending December 31, 1997 $112 1998 59 1999 42 2000 42 2001 44 Thereafter 212 Total minimum lease payments $511
Rental expense under operating leases approximated $129,000 in 1996, $86,000 in 1995, and $83,000 in 1994. 13. Related Party Transactions Certain directors and executive officers and their associates were customers of, and had other transactions with, the subsidiary bank in the ordinary course of business in 1996 and 1995. The outstanding balance of all loans to the related parties was $7,812,000 and $6,800,000 at December 31, 1996 and 1995, respectively. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and did not involve more than the normal risk of collectibility or present other unfavorable features. 14. Financial Instruments with Off-Balance-Sheet Risk The subsidiary bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the corporation has in particular classes of financial instruments. The corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following represents financial instruments whose contract amounts represent credit risk at December 31:
Contract Amount 1996 1995 Commitments to extend credit $20,827 $16,021 Standby letters of credit 859 866 Commitments to purchase when-issued securities 5,500 -
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the corporation upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing properties. Standby letters of credit are conditional commitments issued by the corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. Of the standby letters of credit, $294,000 expire in 1997, while the remaining $565,000 expire in various years through 2005. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 15. Concentrations of Credit Risk The subsidiary bank extends commercial, consumer, and real estate loans to customers primarily located in Belmont, Harrison, and Tuscarawas Counties in Ohio and Ohio County, West Virginia. While the loan portfolios are diversified, the ability of the borrowers to meet their contractual obligations partially depends upon the general economic condition of Southeastern Ohio and the Northern Panhandle of West Virginia. 16. Limitations on Dividends The approval of the Comptroller of the Currency is required to pay dividends if the total of all dividends declared by a national bank in any calendar year exceeds the total of its retained net profits of the preceding two years. Under this formula, the bank can declare dividends in 1997 without approval of the Comptroller of the Currency of approximately $7,700,000 plus an additional amount equal to the bank's net profit for 1997 up to the date of any such dividend declaration. The subsidiary bank is the primary source of funds to pay dividends to the shareholders of Belmont Bancorp. 17. Other Operating Expenses Other operating expenses include the following:
1996 1995 1994 Taxes other than payroll and real estate $ 395 $ 287 $ 228 Supplies and printing 301 295 262 Insurance, including Federal Deposit Insurance 567 430 616 Data processing 71 64 281 Advertising 101 159 102 Amortization of intangibles 415 415 415 Other (individually less than 1% of total interest income) 1,599 1,300 1,068 Total $3,449 $2,950 $2,972
18.Restrictions on Cash The subsidiary bank is required to maintain an average reserve balance with the Federal Reserve Bank. The average amounts of the reserve balance for the years ended December 31, 1996 and 1995, were $3,095,000 and $1,724,000, respectively. 19. Cash Flow Information The corporation's policy is to include cash on hand and amounts due from banks in the definition of cash and cash equivalents. Cash payments for interest in 1996, 1995, and 1994 were $12,124,000, $10,856,000, and $8,670,000, respectively. Cash payments for income taxes for 1996, 1995, and 1994 were $1,733,000, $1,740,000, and $1,030,000, respectively. 20. Preferred Stock On October 2, 1992, the corporation issued 10,000 shares of $100 par value, non-voting, senior cumulative preferred stock with dividends payable quarterly in an amount equal to $8 per annum. All of the shares were redeemed in the year ended December 31, 1996. 21. Regulatory Matters The subsidiary bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the bank must meet specific capital guidelines that involve quantitative measures of the bank's assets, liabilities, and certain off- balance-sheet items as calculated under regulatory accounting practices. The bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk, weighting, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk- weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1996, that the bank meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notifications from the Office of the Comptroller of the Currency categorized the bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank must maintain minimum total risk- based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since those notifications that management believes have changed the institution's category.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 1996: Total Capital $28,368 13.4% $16,917 8.0% $ 21,146 10.0% (to Risk Weighted Assets) Tier I Capital $25,718 12.2% $8,458 4.0% $ 12,687 6.0% (to Risk Weighted Assets) Tier I Capital $25,718 7.7% $13,357 4.0% $ 16,696 5.0% (to Average Assets)
22. Fair Value of Financial Statements Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and,in many cases, could not be realized in immediate settlements of the instruments. Statement 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. In addition, the value of long- term relationships with depositors and other customers is not reflected. The value of these items is significant. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the corporation. The following methods and assumptions were used in estimating fair values of financial instruments as disclosed herein: Cash and Cash Equivalents: For those short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment Securities and Securities Held for Sale: For debt securities, derivative instruments and marketable equity securities held for investment purposes and for sale, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans: For certain homogeneous categories of loans, such as some residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposit Liabilities: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Short-Term Borrowings: These liabilities represent primarily overnight borrowings and debt maturing within ninety days of issuance with interest rates adjusted weekly. Accordingly, the carrying amount is a reasonable estimate of fair value. Long-Term Debt: The fair values of long-term debt are estimated using discounted cash flow analyses based on the corporation's current incremental borrowing rates for similar types of borrowing arrangements. The estimated fair values as of December 31 for the corporation's financial instruments are as follows:
1996 1995 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Financial assets: Cash and federal funds sold $ 35,398 $ 35,398 $ 10,175 $ 10,175 Securities available for sale 78,728 78,728 112,109 112,109 Securities held to maturity 19,299 19,302 23,726 23,758 Loans, net 185,630 188,755 157,254 160,186 Financial liabilities: Deposits 261,539 261,602 246,850 247,255 Repurchase agreements 8,280 8,280 14,539 14,539 Short-term borrowings 10,000 10,000 24,126 24,126 Long-term debt 19,676 17,808 4,802 4,864
23. Condensed Parent Company Financial Statements Presented below are the condensed balance sheets, statements of income, and statements of cash flows for Belmont Bancorp.
Balance Sheets 1996 1995 Assets Cash $ 101 $ 23 Investment in subsidiaries (at equity in net assets) 26,535 24,485 Equity securities 120 120 Advances to subsidiaries, net 429 398 Prepaid taxes 4 158 Other assets 422 - Total Assets $27,611 $25,184 Liabilities Accrued dividends $ - $ 20 Accrued taxes 23 - Deferred compensation 256 - Total liabilities 279 20 Shareholders' Equity Preferred stock - - Senior cumulative preferred stock - 1,000 Common stock 1,057 1,057 Capital surplus 7,781 7,781 Treasury stock-832 shares (8) (8) Retained earnings-appropriated 850 850 Retained earnings-unappropriated 17,820 14,148 Net unrealized gain (loss) on securities available for sale (168) 336 Total shareholders' equity 27,332 25,164 Total Liabilities and Shareholders' Equity $27,611 $25,184
Statements of Income 1996 1995 1994 Operating Income Dividends from subsidiaries $2,479 $1,084 $ 879 Other income 19 10 10 Total income 2,498 1,094 889 Operating Expenses (67) (59) (33) Income before income tax and equity in undistributed income of subsidiaries 2,431 1,035 856 Income Tax Credit 18 18 8 Equity in Undistributed Income of Subsidiaries 2,553 3,153 2,370 Net Income $5,002 $4,206 $3,234
Statements of Cash Flows 1996 1995 1994 Operating Activities Net income $ 5,002 $ 4,206 $ 3,234 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of affiliates (2,553) (3,153) (2,370) Changes in operating assets and liabilities: Prepaid taxes 153 (10) (148) Accrued expenses and dividends 259 - (166) Other assets (422) - - Net cash provided by operating activities 2,439 1,043 550 Investing Activities Payments (to) from subsidiaries (31) (253) 539 Investment purchases - (60) - Net cash provided (used) by investing activities (31) (313) 539 Financing Activities Cash paid for fractional shares - - (10) Sale of treasury stock - - 5 Redemption of preferred stock (1,000) - - Dividends (1,330) (1,084) (879) Net cash used by financing activities (2,330) (1,084) (884) Increase (Decrease) in Cash & Cash Equivalents 78 (354) 205 Cash and Cash Equivalents at Beginning of Year 23 377 172 Cash and Cash Equivalents at End of Year $ 101 $ 23 $ 377
Supplemental disclosures: The Corporation made income tax payments of $1,733,000, $1,740,000, and $1,030,000 in 1996, 1995, and 1994, respectively. These payments represented income tax payments for the Corporation and its consolidated subsidiaries. The Corporation incurred no interest expense in 1996, 1995 or 1994. Belmont Bancorp. and Subsidiaries Opinion of Independent Certified Public Accountants Board of Directors Belmont Bancorp. St. Clairsville, Ohio We have audited the accompanying consolidated balance sheets of Belmont Bancorp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Belmont Bancorp. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of its operations, changes in shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 1996, in conformity and with generally accepted accounting principles. As discussed in Note 2 to the Consolidated Financial Statements, in 1994, Belmont Bancorp. changed its method of accounting for debt and equity securities. S. R. Snodgrass A. C. Wheeling, West Virginia January 24, 1997 Belmont Bancorp. and Subsidiaries Report on Management's Responsibilities Management of Belmont Bancorp. is responsible for the accurate and objective preparation of the consolidated financial statements and the estimates and judgements upon which certain financial statements are based. Management is also responsible for preparing the other financial information included in this annual report. In our opinion, the financial statements on the preceding pages have been prepared in conformity with generally accepted accounting principles and other financial information in this annual report is consistent with the financial statements. Management is also responsible for establishing and maintaining an adequate internal control system which encompasses policies, procedures and controls directly related to, and designed to provide reasonable assurance as to the integrity and reliability of the financial reporting process and the financial statements generated therefrom. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal control, and that the cost of such systems should not exceed the benefits to be derived therefrom. The systems and controls and compliance therewith are reviewed by an extensive program of internal audits and by our independent auditors. Their activities are coordinated to obtain maximum audit coverage with a minimum of duplicate effort and cost. The independent auditors have access to all internal audit work papers. Management believes the system of internal control effectively meets its objectives of reliable financial reporting. The Board of Directors pursues its responsibility for the quality of the Corporation's financial reporting primarily through its Audit Committee which is comprised solely of outside directors. The Audit Committee meets regularly with management, the internal auditor and independent auditors to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls, accounting and financial reporting. The internal auditor and independent auditors have full and free access to the Audit Committee. J. Vincent Ciroli, Jr. President and Chief Executive Officer Belmont Bancorp. Belmont National Bank William Wallace Vice President, Belmont Bancorp. Executive Vice President and Chief Operating Officer Belmont National Bank Jane R. Marsh Secretary, Belmont Bancorp. Senior Vice President Controller and Cashier Belmont National Bank Belmont Bancorp. and Subsidiaries Consolidated Average Balance Sheets For the Years Ended December 31, 1996, 1995 and 1994 (Fully Taxable Equivalent Basis) (000's)
1996 1995 1994 Average Average Average Average Average Average Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/ standing cost Rate standing cost Rate standing cost Rate Assets Interest earning assets Loans and leases $174,445 $16,389 9.39% $152,502 $14,347 9.41% $134,952 $11,779 8.73% Securities Taxable 115,070 7,828 6.80% 113,409 7,768 6.85% 114,468 6,810 5.95% Exempt from income taxes 23,403 1,802 7.70% 25,689 2,062 8.03% 21,866 1,746 7.98% Trading account assets - - - - - -% 138 1 .72% Federal funds sold 3,409 181 5.31% 805 47 5.84% 130 4 3.08% Total interest earning assets 316,327 26,200 8.28% 292,405 24,224 8.28% 271,554 20,340 7.49% Cash and due from banks 9,328 8,448 8,275 Other assets 14,229 12,927 12,014 Market value appreciation (depreciation) of securities available for sale (767) (731) (860) Allowance for possible loan loss (2,928) (2,139) (1,427) Total Assets $336,189 $310,910 $289,556 Liabilities Interest bearing liabilities Interest checking $ 38,576 $ 1,225 3.18% $25,953 $ 614 2.37% $ 26,764 $ 581 2.17% Savings 79,341 2,423 3.05% 78,679 2,359 3.00% 95,655 2,850 2.98% Other time deposits 111,657 5,738 5.14% 121,329 6,049 4.99% 99,660 4,434 4.45% Other borrowings 50,274 2,741 5.45% 34,665 1,905 5.50% 21,217 942 4.44% Total interest bearing liabilit 279,848 12,127 4.33% 260,626 10,927 4.19% 243,296 8,807 3.62% Demand deposits 27,878 25,819 24,797 Other liabilities 2,199 1,632 1,583 Total liabilities 309,925 288,077 269,676 Shareholders' Equity 26,264 22,833 19,880 Total Liabilities and Shareholders' Equity $336,189 $310,910 $289,556 Net interest income margin on a taxable equivalent basis 14,073 4.45% 13,297 4.55% 11,533 4.25% Net interest rate spread 3.95% 4.09% 3.87% Interest bearing liabilities to interest earning assets 88.47% 89.13% 89.59%
Fully taxable equivalent basis computed at effective federal tax rate of 34%. Average loan balances include nonperforming loans. Belmont Bancorp. and Subsidiaries Analysis of Net Interest Income Changes For the Years Ended December 31, 1996, 1995 and 1994 (Fully Taxable Equivalent Basis) (000's)
1996 Compared to 1995 1995 Compared to 1994 Volume Yield Mix Total Volume Yield Mix Total Increase (decrease) in interest income Loans and leases $2,064 $ (20) $ (2) $2,042 $1,532 $ 917 $ 119 $ 2,568 Securities Taxable 114 (53) (1) 60 (63) 1,031 (10) 958 Exempt from income taxes (183) (84) 7 (260) 305 9 2 316 Trading account assets - - - - (1) (1) 1 (1) Federal funds sold 152 (4) (14) 134 21 4 18 43 Total interest income change 2,147 (161) (10) 1,976 1,794 1,960 130 3,884 Increase (decrease) in interest expense Interest checking 299 210 102 611 (18) 52 (1) 33 Savings 20 44 - 64 (506) 18 (3) (491) Other time deposits (482) 186 (15) (311) 964 535 116 1,615 Short-term borrowings 858 (15) (7) 836 597 224 142 963 Total interest expense change 695 425 80 1,200 1,037 829 254 2,120 Increase (decrease) in net interst income on a taxable equivalent basis $1,452 $(586) $(90) $ 776 $ 757 $1,131 $(124) $ 1,764 (Increase) decrease in taxable equivalent adjustment 71 (145) Net interest income change $ 847 $ 1,619
Belmont Bancorp. Directors John A. Belot President, Walden Industries, Inc. J. Vincent Ciroli, Jr. President and Chief Executive Officer, Belmont Bancorp. and Belmont National Bank John H. Goodman, II Realtor, President, Goodman Group, Inc. Mary L. Holloway Haning Teacher, Mount DeChantal Visitation Academy Charles J. Kaiser, Jr. Attorney-at-Law, Partner, Phillips, Gardill, Kaiser and Altmeyer Terrence A. Lee Chairman, Belmont Bancorp. and Belmont National Bank; CPA, Partner, Lee & Associates Dana J. Lewis President, Zanco Enterprises, Inc. James R. Miller President, New Philadelphia Fan Company W. Quay Mull, II Chairman, Mull Industries, Inc. Samuel A. Mumley Executive Secretary, Ohio Valley Athletic Conference Tom Olszowy Independent Insurance Agent, Tom Olszowy Insurance Agency Keith A. Sommer Attorney, Partner, Sommer, Liberati & Hoffman William Wallace Vice President, Belmont Bancorp.; Executive Vice President and Chief Operating Officer, Belmont National Bank Charles A. Wilson, Jr. Vice Chairman, Belmont Bancorp. and Belmont National Bank; President, Wilson Funeral & Furniture Co. Belmont Bancorp. Officers Terrence A. Lee Chairman Charles A. Wilson, Jr. Vice Chairman J. Vincent Ciroli, Jr. President and Chief Executive Officer William Wallace Vice President Jane R. Marsh Secretary Belmont National Bank Officers Terrence A. Lee Chairman Charles A. Wilson, Jr. Vice Chairman J. Vincent Ciroli, Jr. President and Chief Executive Officer William Wallace Executive Vice President and Chief Operating Officer Jane R. Marsh Senior Vice President, Controller and Cashier Robert A. Brown Vice President, Marketing and Product Development Manager J. Douglas Cash Vice President and Regional Manager Gerald J. Elliott Vice President and Compliance Officer Larry G. Gibbs Vice President & Trust Officer Logan B. Sturgeon Vice President & Senior Trust Officer Belmont Financial Network, Inc. J. Vincent Ciroli, Jr. Jane R. Marsh Chairman and President Secretary and Treasurer William Wallace Vice President Belmont Investment and Financial Services,Inc. J. Vincent Ciroli, Jr. William Wallace President and Chief Executive Officer Vice President, Secretary and Treasurer Belmont National Bank Locations Bridgeport Office 325 Main Street Bridgeport, OH 43912 (614) 635-1142 Cadiz Office 657 Lincoln Avenue Cadiz, OH 43907 (614) 942-4664 Elm Grove Office 2066 National Road Wheeling, WV 26003 (304) 243-6570 Jewett Office 318 East Main Street Jewett, OH 43986 (614) 946-2411 Lansing Office 55160 National Road Lansing, OH 43934 (614) 635-1454 New Philadelphia Office 152 North Broadway New Philadelphia, OH 44663 (330) 343-5518 Ohio Valley Mall Office Ohio Valley Mall St. Clairsville, OH 43950 (614) 695-9926 St. Clairsville Office 154 West Main Street St. Clairsville, OH 43950 (614) 695-3323 Schoenbrunn Office 2300 East High Avenue New Philadelphia, OH 44663 (330) 339-9200 Shadyside Office 4105 Central Avenue Shadyside, OH 43947 (614) 671-9346 Woodsdale Office 980 National Road Wheeling, WV 26003 (304) 233-9691 Wabash Avenue Drive-In Office 525 Wabash Avenue New Philadelphia, OH 44663 Corporate Information Stock Listing Belmont Bancorp.'s common stock is listed on The Small-Cap Market of NASDAQ under the symbol BLMT. The Transfer Agent is Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, telephone 1-800-368-5948. Annual Shareholders' All shareholders are invited to attend Meeting Belmont Bancorp.'s annual meeting to be held at Belmont National Bank, 100 Plaza Drive, St. Clairsville, Ohio, on Monday, April 21, 1997, at 11 a.m. Dividend Payment Subject to approval of the board of directors, dividends are paid on Belmont Bancorp.'s common stock on or about the 28th day of March, June, September and December. Automatic Dividend Through the corporation's Automatic Reinvestment Plan Dividend Reinvestment Plan, shareholders may elect to reinvest dividends, and invest optional cash payments of up to $1,500 per quarter, in additional shares of Belmont Bancorp.'s common stock at the market value. To join the plan, please write to Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, or call 1-800-368-5948. Form 10-K Upon written request of any shareholder on record on December 31, 1996, the Corporation will provide, without charge, a copy of its 1996 Annual Report on Form 10- K, including financial statements and schedules, as required to be filed with the Securities and Exchange Commission. To obtain a copy of Form 10-K, contact Ms. Teri Walters, Administrative Officer, Belmont Bancorp., 325 Main Street, Bridgeport, OH 43912. Inquiries Inquiries, comments and suggestions concerning Belmont Bancorp. are welcome. Individual shareholders, analysts and institutional investors should contact Ms. Jane Marsh, Secretary, at 1-614-695-3323 or 1-800-542-0174. Equal Employment Belmont Bancorp. is committed to providing equal employment opportunities to every employee and every applicant for employment, regardless of, but not limited to such factors as race, color, religion, sex, national origin, age, familial or marital status, ancestry, citizenship, sexual orientation, veteran status or being a qualified individual with a disability. Belmont Bancorp. 325 Main Street Bridgeport, OH 43912 (614) 695-3323 EX-3 5 PROXY MODULE REF SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant (X) Filed by a Party other than the Registrant ( ) Check the appropriate box: ( ) Preliminary Proxy Statement ( ) Confidential, for Use of the Commission Only (as permitted ( X ) Definitive Proxy Statement by Rule 14a-6(e)(2)) ( ) Definitive Additional Materials ( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 BELMONT BANCORP. _______________________________________________________________________ (Name of Registrant as Specified In Its Charter _______________________________________________________________________ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): ( X )$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. ( )$500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). ( )Fee computed on table below per Exchange Act Rules14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transactions computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: ( )Fee paid previously with preliminary materials. ( )Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: NOTICE OF ANNUAL MEETING OF SHAREHOLDERS BELMONT BANCORP. April 21, 1997 To the Shareholders of BELMONT BANCORP.: The Annual Meeting of Shareholders of BELMONT BANCORP. will be held in the Belmont National Bank conference room at Belmont National Bank, 100 Plaza Drive, St. Clairsville, Ohio, on Monday, April 21, 1997, at 11:00 a.m. for the following purposes: 1. To elect five (5) persons as Directors to serve for a three-year term expiring at the annual shareholders' meeting in 2000. 2. To consider and act upon a proposal to ratify the appointment of S. R. Snodgrass A.C. as independent auditors for the year ending December 31, 1997. 3. To transact such other business as may properly come before the meeting and any adjournment thereof. Only shareholders of record at the close of business on February 28, 1997, are entitled to notice of and to vote at the meeting. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. PROXIES MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING THEREOF. THUS, IF YOU ARE PRESENT AT THE MEETING AND SO REQUEST YOUR PROXY WILL NOT BE USED. BY ORDER OF THE BOARD OF DIRECTORS. JANE R. MARSH, Secretary Bridgeport, Ohio March 21, 1997 PROXY STATEMENT OF BELMONT BANCORP. 325 Main Street Bridgeport, Ohio 43912 ANNUAL MEETING OF SHAREHOLDERS April 21, 1997 This Proxy Statement is furnished to the shareholders of Belmont Bancorp. in connection with the solicitation by the Board of Directors of Belmont Bancorp. (the "Corporation") of proxies for the Annual Meeting of Shareholders of the Corporation to be held on April 21, 1997, in the conference room of Belmont National Bank, 100 Plaza Drive, St. Clairsville, Ohio, and any adjournment thereof. Shares represented by properly executed proxies received at the time of the meeting that have not been revoked will be voted at the meeting in the manner described in the proxies. Any proxy may be revoked any time before it is exercised. This Proxy Statement and the accompanying Proxy are being mailed to shareholders on March 21, 1997. The Board of Directors has fixed the close of business on February 28, 1997, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. On the record date 2,114,644 shares of Common Stock of the Corporation were outstanding and entitled to be voted at the meeting. Each share of Common Stock is entitled to one vote except in the election of Directors where shareholders are entitled to cumulate their votes. Cumulative voting permits each shareholder as many votes as shall equal the number of the shareholders' shares of Common Stock multiplied by the number of Directors to be elected, and the shareholder may cast all of such votes for a single Director, or such votes may be distributed among the nominees, as each shareholder may see fit. The proxies are solicited by the Board of Directors of the Corporation, and the cost thereof is borne by the Corporation. Proxies may be revoked by the shareholders who execute them at any time prior to the exercise thereof, by written notice to the Corporation or by announcement at the Shareholders' Meeting. Unless so revoked, the shares represented by all proxies will be voted by the persons named in the proxies at the Shareholders' Meeting and at all adjournments thereof, in accordance with the specifications set forth therein, or, absent such specifications, in accordance with the judgment of the holders of such proxies. PROPOSAL NUMBER 1: ELECTION OF DIRECTORS The Board of Directors of the Corporation by resolution at its meeting on January 20, 1997, set the number of Directors at fourteen (14) members with five (5) members to be elected to the class which expires at the annual meeting in 2000. All nominees are currently Directors of the Corporation and its principal subsidiary, Belmont National Bank. Each of the nominees to be elected has continuously served in the principal occupation shown for the past five years. The following persons have been nominated for election to the Board of Directors to serve for a three-year term expiring at the annual shareholders' meeting in 2000:
Common Stock Name And Year First % of Principal Occupation Age Elected Amount Total John A. Belot 54 1979 18,706 (1) * President, Walden Industries, Inc. Terrence A. Lee, CPA 47 1987 1,733 (2) * Chairman, Belmont Bancorp. and Belmont National Bank; Partner, Lee & Associates Dana J. Lewis 53 1994 13,370 * President, Zanco Enterprises, Inc., New Philadelphia, Ohio; Owner/Operator of McDonalds restaurants W. Quay Mull, II 54 1984 12,594 (3) * Chairman of the Board Mull Industries, Inc. William Wallace 41 1991 9,867 (4) * Executive Vice President & Chief Operating Officer, Belmont National Bank; Vice President, Belmont Bancorp.
Footnotes 1. This amount includes 6,324 shares held jointly by Terry L. Belot, wife of John A. Belot, and Jason Michael Belot, son of John A. Belot; 6,324 shares held jointly by Terry L. Belot and John A. Belot, Jr., son of John A. Belot; 3,575 shares held in the name of Jason Michael Belot; and 549 shares held in the name of John A. Belot, Jr. Mr. John A. Belot has retained voting rights with respect to these shares. This amount also includes 1,000 shares held in the name of Terry L. Belot, IRA, to which Mr. Belot disclaims any beneficial interest. 2. This amount includes 12 shares held in the name of Terrence A. Lee, Custodian for Katherine M. Lee, UOTMA; 12 shares held in the name of Terrence A. Lee, Custodian for Natalie A. Lee, UOTMA; and 12 shares held in the name of Terrence A. Lee, Custodian for Tara N. Lee, UOTMA; Mr. Lee's minor daughters. This amount does not include 21,194 shares held in the name of John H. Goodman, II and Terrence A. Lee, Trustees for a trust dated February 2, 1991, to which Mr. Lee disclaims any beneficial interest. 3. This amount includes 8,040 shares held in the name of Mull Machine Company of which Mr. Mull is President and holds a substantial ownership interest. 4. This amount includes 2,632 shares held jointly with Christine Wallace, Mr. Wallace's wife, in which he shares voting and investment power; 2,061 shares held in the name of Christine Wallace, IRA, to which Mr. Wallace disclaims any beneficial interest; 453 shares held in the name of William Wallace as Custodian for Joseph J. Wallace, UWVTMA; 453 shares held in the name of William Wallace as Custodian for Lauren C. Wallace, UWVTMA; 421 shares held in the name of William Wallace as Custodian for Adrienne C. Wallace, UWVTMA; and 388 shares held in the name of William Wallace as Custodian for William J. Wallace, UWVTMA; Mr. Wallace's minor children. * Denotes less than a 1% interest. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE ABOVE NOMINEES TO THE BOARD OF DIRECTORS OF BELMONT BANCORP. In addition to the foregoing nominees, the following persons are presently serving as members of the Board of Directors: Directors Whose Term of Office Will Expire at the Annual Shareholders' Meeting in 1998
Common Stock Name And Year First % of Principal Occupation Age Elected Amount Total J. Vincent Ciroli, Jr. 51 1984 10,043 * President & Chief Executive Officer, Belmont Bancorp. and Belmont National Bank John H. Goodman, II 52 1974 44,886 (5) 2.12 Realtor, President Goodman Group, Inc. Keith A. Sommer 56 1995 2,734 * Attorney, Partner, Sommer, Liberati & Hoffman James R. Miller 54 1995 400 * President, New Philadelphia Fan Company (Jan. 1997 to Present) Vice President & General Manager, Joy Technologies Inc. (April 1992-Dec. 1996)
Footnotes 5. This amount includes 2,854 shares held in the name of Marylouise Goodman IRA, and 133 shares held in the name of Marylouise Goodman, wife of John H. Goodman, II, to which Mr. Goodman disclaims any beneficial interest. This amount also includes 21,194 shares held in the name of John H. Goodman, II and Terrence A. Lee, Trustees under a trust dated February 2, 1991, to which Mr. Goodman disclaims any beneficial interest. This amount also includes 1,612 shares held by John H. Goodman, II and J. Harvey Goodman, Trustees under a trust dated February 13, 1995 and 4,283 shares held by J. Harvey Goodman and John H. Goodman, II, Trustees under a trust dated April 26, 1995. Directors Whose Term of Office Will Expire at the Annual Shareholders' Meeting in 1999
Common Stock Name And Year First % of Principal Occupation Age Elected Amount Total Mary L. Holloway Haning 41 1993 1,565 (6) * Teacher, Mount De Chantal School (Sept. 1996 - Present) Special Projects Coordinator, Plastic Surgery, Inc. (Sept. 1995-Sept. 1996) Director of Admissions, Wheeling Country Day School (1987-1995) Charles J. Kaiser, Jr. 47 1979 10,548 (7) * Attorney, Partner, Phillips, Gardill, Kaiser & Altmeyer Samuel A. Mumley 65 1996 100 * Executive Secretary, Ohio Valley Athletic Conference Thomas Olszowy 50 1993 15,066 (8) * Independent Insurance Agent, Tom Olszowy Insurance Agency Charles A. Wilson, Jr. 54 1973 21,816 (9) 1.03 President, Wilson Funeral & Furniture Co.
Footnotes 6. This amount includes 1,024 shares held for the benefit of Mary L. Holloway Haning in trust in which Wesbanco Bank Wheeling is trustee. 7. This amount includes 72 shares held in the name of Deborah P. Kaiser, IRA, wife of Charles J. Kaiser, Jr., to which Mr. Kaiser disclaims any beneficial interest and 600 shares held in the name of Marchak Investment Co., a partnership, in which Mr. Kaiser is a general partner and holds a substantial beneficial interest. 8. This amount includes 11,982 shares held in the names of Tom and Diana Olszowy joint tenants with right of survivorship in which Mr. Olszowy shares voting and investment power. This amount also includes 302 shares held in the name of Tom Olszowy, custodian for Dana Paul Olszowy, and 802 shares held in the name of Tom Olszowy, custodian for Jonathan T. Olszowy, to which Mr. Olszowy disclaims any beneficial interest. 9. This amount includes 3,122 shares held in the name of Wilson Funeral and Furniture Company of which Mr. Wilson is President, holds a substantial stock interest and has voting power. As of February 28, 1997, the Directors and Officers of the Corporation as a group beneficially owned 162,428 shares or 7.68 percent of the outstanding common stock of the Corporation. Transactions with Directors and Officers Certain Directors and Executive Officers and their associates were customers of and had transactions with the Bank in the ordinary course of the Bank's business during 1996. From time to time the law firms of Phillips, Gardill, Kaiser & Altmeyer, of which Charles J. Kaiser, Jr. is a partner, and Sommer, Liberati & Hoffman, of which Keith A. Sommer is a partner, have rendered legal services to the Corporation and the Bank. Messrs. Kaiser and Sommer are directors of both the Corporation and the Bank. It is contemplated that these firms will be retained to perform legal services during the current year. Meetings of the Board of Directors and Committees and Compensation of Members The Board of Directors of the Corporation met six (6) times during the year 1996. Each member of the Board of Directors of the Corporation attended seventy-five percent (75%) or more of the total number of meetings of the Board and its committees of which they were members. The Board of Directors of Belmont National Bank met thirteen (13 ) times during 1996. The Directors of the Corporation and the Bank are the same. The Board of Directors elects an Executive Committee annually. Messrs. Ciroli, Goodman, Kaiser, Lee, Mull, Olszowy and Wilson are members of the Executive Committee of both the Corporation and the Bank. Meetings of the Executive Committee are called to consider Corporation or Bank business which may arise between normally scheduled meetings or to consider in depth policies and make recommendations to the Board of Directors. The Executive Committee of the Bank met eight (8) times during 1996. The Executive Committee of the Corporation also serves as a Nominating Committee. As such, the Committee seeks and recommends individuals for nomination as directors. The Nominating Committee will consider as prospective directors persons suggested to them by any shareholder. Messrs. Goodman, Kaiser, Lee, Miller, Mull and Olszowy are members of the Audit Committee of the Bank and the Corporation. The Audit Committee reviews the reports of the Bank's internal auditor, the Bank's compliance officer, and the reports of the Corporation's independent Certified Public Accountants, the adequacy of internal controls and procedures, and reports to the Board of Directors of the Corporation and the Bank. This Committee met four (4) times during 1996. The Bank also has a Trust Committee that met three (3) times in 1996 whose members are Ms. Haning and Messrs. Belot, Lewis, Mumley, Sommer, Wallace, Wilson and Logan B. Sturgeon. The Trust Committee of the Bank approves the operations of the Trust Department and reports to the Board of Directors. Directors who are not employees of the Corporation or the Bank receive an annual retainer fee of Two Thousand Dollars, payable quarterly in arrears, plus an attendance fee of Two Hundred Dollars for each Bank or Committee Meeting attended. Also, Directors receive an attendance fee of One Hundred Dollars per regularly scheduled quarterly Bancorp. Meeting, not to exceed Four Hundred Dollars. During 1996, a total of $81,266.67 was paid to Directors. In addition to the fees paid to Directors, Mr. Richard G. Anderson and Mr. Wilbur L. Terhune, each of whom is a retired Chairman of the Board, received payments under a Deferred Compensation Plan adopted by the Board of Directors on December 15, 1983. Mr. Anderson received $2,423.04 and Mr. Terhune received $5,567.04 during 1996 under this plan. The Deferred Compensation Plan provided an early retirement benefit to covered individuals equal to eighty percent (80%) of a factor corresponding to the number of years the employee's early retirement date preceded his normal retirement date, multiplied by the employee's average compensation as defined under the Bank's retirement plan, minus the employee's monthly accrued benefit under the Bank's retirement plan on a straight life annuity basis. This amount is further reduced by the employee's primary social security benefit. Mr. Terhune's benefit is further reduced by a pension which he receives from a plan unrelated to the Corporation or the Bank. EXECUTIVE COMPENSATION The Executive Committee without the executive officers but with the addition of James R. Miller and Keith A. Sommer serves as the Compensation Committee for Belmont National Bank. The officers of the Corporation are currently serving without compensation from Belmont Bancorp. They are, however, compensated by Belmont National Bank for services rendered as officers of the Bank. This Committee is responsible for setting compensation levels for the President and CEO, J. Vincent Ciroli, Jr.; the Executive Vice President and COO, William Wallace; and the Senior Vice President, Controller and Cashier, Jane R. Marsh. The Committee also consults with senior officers with respect to the compensation and benefits of other officers and employees of the Corporation. Compensation Philosophy The Corporation bases different portions of its executive compensation program on differing measures of corporate performance. As a result, the Corporation's compensation program currently reflects the following themes: -- A material portion of compensation should be meaningfully related to corporate performance. -- Since the Corporation has chosen a senior executive team to manage the operations of the Corporation, bonus compensation for these senior executives should be based on team effort and performance of the Corporation as a whole. -- Bonus compensation should be related to the return on shareholders' equity and should be payable only if the shareholders have received a reasonable return on equity. -- Compensation should play a critical role in attracting and retaining executives whom the Corporation deems most able to further its goals and, therefore, should be comparable to compensation paid by comparable peer organizations. Summary Compensation Table For the year ended December 31, 1996, J. Vincent Ciroli, Jr., William Wallace and Jane R. Marsh were the only officers compensated in excess of $100,000. Their compensation is summarized in the following table:
Name and All Other Principal Position Year Salary Bonus Compensation J. Vincent Ciroli, Jr. 1996 $152,000.00 $68,400.00 $16,767.99 President & 1995 $145,000.00 $116,000.00 $14,159.04 Chief Executive 1994 $129,900.06 $88,181.00 $9,439.38 Officer Belmont Bancorp. and Belmont National Bank William Wallace 1996 $110,000.17 $49,500.00 $15,722.09 Vice President, 1995 $105,000.00 $84,000.00 $11,162.44 Belmont Bancorp. and 1994 $94,734.91 $64,303.00 $6,685.09 Executive Vice President & Chief Operating Officer Belmont National Bank Jane R. Marsh 1996 $70,000.01 $31,500.00 $9,915.19 Secretary, Belmont 1995 $58,000.02 $46,400.00 $6,097.44 Bancorp. and Senior 1994 $51,877.20 $35,212.00 $3,665.09 Vice President, Controller, and Cashier, Belmont National Bank
Pay Mix and Measurement The Corporation's executive compensation program is based on three components, each of which is intended to serve the overall compensation philosophy. Base Salary is targeted at the competitive median for peer banking organizations. In order to determine these amounts, the Committee utilizes the Sheshunoff tables, the Executive Studies Group (a division of Ben S. Cole Financial, Inc.), and the Bank Wage-Hour & Personnel Service, and comparisons with other Ohio and regional banking organizations of similar size. Salaries for the executive officers named in the Summary Compensation Table are reviewed by the Committee on an annual basis and may be increased or decreased at that time based on the Committee's analysis of how the management team and the respective individual contributes to the Corporation, as well as increases in median competitive pay levels. Annual Bonus Incentives for executive officers are intended to reflect the Corporation's belief that management's contribution to corporate performance comes, in part, from maximizing the Corporation's return on common shareholders' equity. Accordingly, the Board of Directors adopted an Executive Incentive Compensation Plan in 1989 to provide incentive compensation based upon the earnings of Belmont National Bank. Amounts paid under the Plan are included in the "Bonus" column in the Summary Compensation Table above. The individuals covered by the Plan are J. Vincent Ciroli, Jr., William Wallace and Jane R. Marsh. Since 1990, the formula for calculating the Executive Incentive Compensation Plan bonus has been based upon the return on equity (ROE) achieved by Belmont National Bank. Twenty percent (20%) of earnings in excess of a selected rate of return on shareholders' equity as of the beginning of each year has comprised the bonus pool. The selected rate of return on shareholders' equity is established annually by the Board of Directors. The bonus pool is allocated among the executive officers based upon the ratio of the participant's salary to total participants' salaries. Beginning in 1996, a sliding cap was placed on the calculation of the bonus pool so that no bonus would exceed eighty percent (80%) of an executive officer's base salary. For the year 1995, the formula was altered to correlate the return on equity base to ninety percent (90%) of the December 31, 1995, Uniform Bank Performance Report's calculation of net income as a percent of average total equity for the peer group of which the Bank is a part. Since the information was not available until March of the following year, the bonus was calculated and paid based upon the September 1995 peer numbers and final adjustments made when the final information was received. The selected rates of return on beginning shareholders' equity was thirteen percent (13.00%) for 1994. In part based upon the delay in obtaining peer numbers and in part based upon the variance between the Bank's performance and peer performance, for the year 1996 the selected rate of return on beginning shareholder's equity was established at eighteen percent (18%). The Committee believes that this program provides an appropriate link between the Corporation's performance and the incentives paid to the executive officers. The return on equity goal is established by the Committee annually. Other Compensation is provided so that the Corporation's overall benefits are comparable with other similar organizations so as to attract and retain competent management. The Bank has a Defined Contribution 401(k) Savings Plan which allows employees who work over 1,000 hours per year to defer up to 10% of their pre-tax salary to the Plan. The Bank matches fifty percent (50%) of the first four percent (4%) deferred. The Bank may also make voluntary contributions to the Plan. In 1996, the Bank paid $36,166.74 in matching funds and made a voluntary contribution of $184,462.57, or nine percent (9%) of annual salary. In 1996, the profit sharing contribution attributed to Mr. Ciroli was $13,500.00; the matching funds contribution was $2,583.99. The profit sharing contribution paid for Mr. Wallace was $13,500.00; the matching funds contribution was $1,991.09. The profit sharing contribution paid for Mrs. Marsh was $8,389.08 and the matching funds contribution was $1,400.11. This compensation is included in the "All Other Compensation" column in the Summary Compensation Table above. The Bank provides reimbursement for club fees, membership dues and entertainment expenses for business use by Mr. Ciroli and Mr. Wallace. The Bank also provides Mr. Ciroli and Mr. Wallace with the use of a company car. Personal benefits from such expenditures are less than 10% of salary and bonus and, therefore, have been excluded from the Summary Compensation Table above. The Bank maintains a split-dollar life insurance plan for several of its officers. Under the plan, the Bank maintains ownership of all cash value in the insurance policies and a portion of the death benefits. The participant's named beneficiary is entitled to three times the participant's annual salary at his death. Annually, the participant recognizes taxable income to the extent of the assumed term cost of the coverage. At the death of the participant, the Bank's share of the death benefit will be sufficient to recover all costs associated with the plan. For 1996, the amount of income attributable for a split-dollar insurance plan was $684.00, $231.00 and $126.00 for Mr. Ciroli, Mr. Wallace and Mrs. Marsh respectively. These amounts are included in the "All Other Compensation" column in the Summary Compensation Table above. The Corporation adopted a Supplemental Retirement Plan for the three executive officers at its meeting on January 18, 1994, and subsequently amended the plan on December 19, 1995, in order to augment the retirement benefits payable to these officers and make them more comparable to the benefits provided under the defined benefit plan which was terminated in 1990. The persons covered under the plan are J. Vincent Ciroli, Jr., President and Chief Executive Officer; William Wallace, Vice President of the Corporation and Executive Vice President and Chief Operating Officer of the Bank; and Jane R. Marsh, Secretary of the Corporation and Senior Vice President, Controller and Cashier of the Bank. Under the Plan the Corporation credited the sum of $163,000 during 1995 to a book reserve account for the benefit of Mr. Ciroli, the sum of $19,000 for Mr. Wallace and the sum of $3,000 for Ms. Marsh. The balance in the book reserve account will be invested as directed by the Board and distributed to the officer over a ten (10) year period following retirement. The officer will bear the risk of earnings in the book reserve account. Under the Plan the maximum amount that can be paid to Mr. Ciroli is $43,000 per annum; to Mr. Wallace $40,000 per annum; and to Ms. Marsh $11,250 per annum. The supplemental retirement benefits may be forfeited if the employee is terminated for cause. COMPENSATION COMMITTEE John H. Goodman, II W. Quay Mull, II Charles J. Kaiser, Jr. Thomas Olszowy Terrence A. Lee Keith A. Sommer James R. Miller Charles A. Wilson, Jr. Stock Price Performance Graph The following graph compares for each of the last five years ending December 31 the cumulative total return of the Corporation's Common Stock, All Nasdaq U.S. Stocks Index and SNL Securities' Index of Banks with Assets Size less than $500 million. The cumulative total return of the Corporation's Common Stock assumes $100 invested on December 31, 1991 and assumes reinvestment of dividends. Belmont Bancorp. Stock Price Performance PROPOSAL NUMBER 2: SELECTION OF AUDITORS The Board of Directors has retained S.R. Snodgrass A.C. as independent auditors for both the Corporation and the Bank for the year ending December 31, 1997. There will be presented to the shareholders at the Annual Meeting a proposal that this selection be ratified by the shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THIS SELECTION BE SO RATIFIED. The services rendered by S.R. Snodgrass A.C. during the year 1996 involved auditing services primarily and consisted of the examination of the financial statements of the Corporation and its subsidiaries, principally the Bank. It is expected that a representative of the accounting firm will be present at the shareholders' meeting. Such representative will be given the opportunity to make a statement if he desires to do so, and will be available to respond to appropriate questions from the shareholders who are present. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors, executive officers, and persons who own more than 10% of a registered class of the Corporation's equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock of the Corporation. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Corporation's knowledge, based solely on a review of the copies of such reports furnished to the Corporation and written representations that no other reports were required, during the two fiscal years ended December 31, 1996, all section 16(a) filing requirements applicable to the Corporation's officers, directors, and greater than 10% beneficial owners were complied with. Other Matters As of the date of this Proxy Statement, the Board of Directors and Management were unaware of any matters not referred to in this proxy statement for action at the meeting. If any other business comes before the meeting, the persons named in the proxy will have the authority to vote the shares represented by them in accordance with their best judgment. Method and Cost of Solicitation The solicitation of proxies will be made primarily by mail. Proxies may also be solicited personally and by telephone by regular employees and Directors of the Corporation and the Bank without any additional remuneration and at minimal cost. Management intends to request banks, brokerage houses, custodians, nominees, and fiduciaries to obtain authorization for the execution of proxies. The Corporation will bear the entire cost of soliciting proxies. Shareholder Proposals for Next Year's Annual Meeting Proposals which shareholders intend to present at next year's annual meeting, now scheduled to be held on April 20, 1998, will be eligible for inclusion in the Corporation's proxy material for that meeting if they are submitted to the Corporation in writing no later than November 21, 1997. At the time of the submission of the proposal, a proponent may also submit a statement in support of the proposal. The proposal and its supporting statement in the aggregate shall not exceed 500 words. When submitted to the Corporation, a proposal should be accompanied by a written notice of the proponent's intention to appear personally at the meeting for the purpose of presenting the proposal for action. Bridgeport, Ohio BY ORDER OF THE BOARD OF DIRECTORS March 21, 1997 J. VINCENT CIROLI, JR., PRESIDENT & CEO APPENDIX A PROXY BELMONT BANCORP., BRIDGEPORT, OHIO ANNUAL MEETING OF SHAREHOLDERS APRIL 21, 1997 KNOW ALL MEN BY THESE PRESENT that I the undersigned Shareholder of BELMONT BANCORP. do hereby nominate, constitute and appoint David L. Barnes and Kelley Archer, or either of them, my true and lawful attorney with full power of substitution, for me and in my name, place and stead to vote all of the Common Stock of said Corporation standing in my name at the Annual Meeting of its Shareholders to be held at Belmont National Bank, 100 Plaza Drive, St. Clairsville, Ohio, on April 21, 1997, at 11:00 A.M., or at any adjournments thereof with all the powers the undersigned would possess if personally present as follows: 1. For the election to the Board of Directors, except as otherwise specified below, of the following nominees, or any one or more of them to serve a three-year term expiring at the annual shareholders' meeting in 2000: John A. Belot W. Quay Mull, II Terrence A. Lee William Wallace Dana J. Lewis with full authority to cumulate the votes represented by such shares and to distribute the same among the nominees in such manner and numbers as said proxies in their discretion may determine. THE AUTHORITY TO VOTE FOR THE ELECTION OF ANY OF THE NOMINEES LISTED ABOVE MAY BE WITHHELD BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE NOMINEE. For 2. To consider and act upon a proposal to ratify the Against appointment of S.R. Snodgrass A.C. as independent auditors Abstain for the year ending December 31, 1997. For 3. In accordance with the judgment of the said proxies to vote Against upon such other matters as may be presented for Abstain consideration and action. DATED ___________________ ________________________________________ ________________________________________ Signature(s) When signing in a fiduciary capacity, please give full title. All joint owners should sign. Please sign, date and return your Proxy promptly in the enclosed envelope to BELMONT NATIONAL BANK, 154 West Main Street, St. Clairsville, Ohio 43950. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE ABOVE ITEMS. -----END PRIVACY-ENHANCED MESSAGE-----