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

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

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

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDERS' MATTERS
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
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.

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

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
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.
(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.
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

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

ITEM 9 - DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10

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

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

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

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