U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
For the Quarter Ended September 30, 1997
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ___________________ to
__________________
Commission file number 0-12724
Belmont Bancorp.
An Ohio Corporation
IRS Employer ID number - 34-1376776
325 Main Street
Bridgeport, Ohio 43912
Telephone (614) 695-3323
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 ___
The number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Common Stock, $0.50 par value,
2,637,498 shares outstanding
as of October 28, 1997
FORM 10-Q
BELMONT BANCORP.
Quarter Ending September 30,1997
INDEX
Part I. Financial information
Management's report on the financial statements
Financial highlights
Consolidated Statements of Condition - September 30, 1997,
December 31, 1996, and September 30, 1996
Consolidated Statements of Income-Three Months
Ended September 30, 1997 and September 30, 1996
Consolidated Statements of Income-Nine Months
Ended September 30, 1997 and September 30, 1996
Consolidated Statements of Cash Flows-Nine Months
Ended September 30, 1997 and September 30, 1996
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1997 and 1996
Notes to the Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition
and
Results of Operations
Part II - Other Information
Legal Proceedings
Changes in Securities
Defaults upon Senior Securities
Submission of Matters to a Vote of Security Holders
Other Information
Signature page
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The following consolidated financial statements and
related notes of Belmont Bancorp. and subsidiaries were
prepared by management which has the primary responsibility
for the integrity of the financial information. The
statements are prepared in conformity with generally
accepted accounting principles appropriate in the
circumstances, and include amounts that are based on
management's best estimates and judgments. Financial
information elsewhere in the quarterly report is prepared on
a basis consistent with that in the financial statements.
In meeting its responsibility for the accuracy of the
financial statements, management relies on the Corporation's
comprehensive system of internal accounting controls. This
system provides reasonable assurance that assets are
safeguarded and transactions are recorded to permit the
preparation of appropriate financial information. The
system of internal controls is characterized by an effective
control oriented environment within the Corporation which is
augmented by written policies and procedures, internal
audits and the careful selection and training of qualified
personnel.
The functioning of the accounting system and related
internal accounting controls is under the general oversight
of the Audit Committee of the Board of Directors which is
comprised of five outside directors. The accounting system
and related controls are reviewed by a program of internal
audits and by the Corporations' independent accountants.
The Audit Committee meets regularly with the contract
internal auditor and the independent public accountants to
review the work of each and ensure that each group is
properly discharging its responsibilities. In addition, the
Committee reviews and approves the scope and timing of the
internal and external audits and any findings with respect
to the system of internal controls. Reports of examinations
conducted by federal regulatory agencies are also reviewed
by the Committee.
The annual consolidated financial statements of Belmont
Bancorp. and subsidiaries will be examined by S.R. Snodgrass
A.C., the Corporation's independent certified public
accountants. Their examination will be conducted in
accordance with generally accepted auditing standards and
will include a review of internal controls and a test of
transactions in sufficient detail to allow them to report on
the fair presentation of the consolidated operating results
and financial condition of Belmont Bancorp. and
subsidiaries.
BASIS OF PRESENTATION
The consolidated financial statements include the
accounts of Belmont Bancorp. and its subsidiaries, Belmont
National Bank and Belmont Financial Network.
BELMONT BANCORP. AND
SUBSIDIARIES
Financial Highlights
September 30 1997 1996 % Change
Earnings and dividends
($000's)
Net income $ 4,408 $ 3,657 20.5
Operating earnings (1) 5,423 4,712 15.1
Cash dividends declared on
common stock 1,166 910 28.1
Per common share (2):
Net income $ 1.67 $ 1.36 22.8
Cash dividends declared 0.442 0.344 28.5
Book value 11.64 9.60 21.2
Market price :
High 30.00 22.40 33.9
Low 25.13 20.80 20.8
At quarter-end ($000's)
Assets $ 375,871 $ 349,315 7.6
Loans and leases 220,188 181,465 21.3
Deposits 268,817 256,309 4.9
Stockholders' equity 30,701 26,380 16.4
Key Ratios
Return on average assets 1.61% 1.45%
Return on average common
shareholders' equity 20.43% 19.22%
Net interest margin (TE) 4.40% 4.42%
Number of shares 2,637,498 2,643,123 (0.2)
Number of full time equivalent
employees 142.0 120.0 18.3
Total assets per FTE employee $ 2,647 $ 2,911 (9.1)
(1) Operating earnings are defined as earnings before income taxes
minus securities and trading gains or plus securities and trading losses.
(2) All per share amounts have been restated for the effect of a 25% common
stock dividend paid on July 1, 1997.
Consolidated Condensed Balance Sheet
(Unaudited) ($000s except per September December September
share amounts) 30, 31, 30,
1997 1996 1996
ASSETS
Cash and due from banks $ 11,006 $ 10,948 $ 11,970
Federal funds sold - 24,450 665
Securities available for sale
at market value 115,024 78,728 122,516
Securities held to maturity (1) 16,583 19,299 20,056
Loans 220,188 188,783 181,465
Less allowance for possible
loan losses (3,671) (3,153) (3,060)
Net loans 216,517 185,630 178,405
Premises and equipment, net 7,397 7,260 6,272
Other real estate owned 20 66 645
Accrued income receivable 2,560 1,921 2,547
Other assets 6,764 5,601 6,239
Total Assets $375,871 $333,903 $349,315
LIABILITIES
Non-interest bearing deposits
Demand $ 29,764 $ 29,232 $ 28,499
Interest-bearing deposits:
Demand 41,937 40,569 40,285
Savings 79,234 80,961 79,070
Time 117,882 110,777 108,455
Total deposits 268,817 261,539 256,309
Securities sold under
repurchase agreements 5,972 8,280 5,572
Short-term borrowings 39,494 10,000 37,352
Long term debt 29,111 19,676 21,910
Accrued interest on deposits
and other borrowings 810 664 700
Other liabilities 966 6,412 1,092
Total liabilities $345,170 $306,571 $322,935
SHAREHOLDERS' EQUITY
Preferred stock -
authorized 90,000 shares with
no par value; issued and
outstanding, none - - -
Senior cumulative preferred
stock - authorized, issued and
outstanding, no shares at
Sept. 30, 1997 and December 31,
1996; 10,000 shares of $100
par value at Sept. 30, 1996 $ 0 $ 0 $ 1,000
Common stock - $0.50 par
value, 8,900,000 shares
authorized; 2,644,163
issued in 1997 and 1996 1,321 1,057 1,057
Surplus 7,781 7,781 7,781
Treasury stock ( 6,665
shares at Sept.30, 1997; 1,040
shares at December 31, 1996
and Sept. 30, 1996) (131) (8) (8)
Retained earnings:
Unappropriated 20,790 17,820 16,835
Appropriated for
contingencies 850 850 850
Net unrealized gain (loss)
on securities available for sale 90 (168) (1,135)
Total shareholders' equity $ 30,701 $ 27,332 $ 26,380
Total liabilities and
shareholders' equity $375,871 $333,903 $349,315
(1) Market value at Sept.30, 1997, $16,704; December 31, 1996,
$19,302; Sept. 30, 1996, $19,813.
Consolidated Condensed Statement of Income
(Unaudited) ($000s except per share amounts)
Three months ended September 30,
1997 1996
INTEREST INCOME
Loans and lease financing
Taxable $4,984 $4,079
Tax-exempt 80 83
Investment securities:
Taxable 1,837 1,999
Tax-exempt 342 363
Dividends 84 52
Interest on fed funds sold 10 0
Total interest income 7,337 6,576
INTEREST EXPENSE
Deposits 2,574 2,384
Borrowings 1,112 817
Total interest expense 3,686 3,201
Net interest income 3,651 3,375
Provision for possible
loan losses 200 105
Net interest income
after provision
for possible loan
losses 3,451 3,270
NON-INTEREST INCOME
Trust fees 27 111
Service charges on
deposits 181 166
Other operating income 224 150
Investment securities
gains (losses) (2) 0
Trading profits (losses) - 0
Gains (losses) on
securities available for sale 236 34
Total non-interest
income 666 461
NON-INTEREST EXPENSE
Salary and employee
benefits 947 843
Net occupancy expense of
premises 199 175
Equipment expenses 121 206
Other operating expenses 857 1,100
Total non-interest
expense 2,124 2,324
Income before income
taxes 1,993 1,407
INCOME TAXES 570 324
Net income $1,423 $1,083
PER COMMON SHARE DATA
Net income per share $ 0.54 $ 0.40
Cash dividend per share $0.170 $0.120
Consolidated Condensed Statement of Income
(Unaudited) ($000s except per share amounts)
For the Nine Months Ended September 30,
1997 1996
INTEREST INCOME
Loans and lease financing
Taxable $ 13,999 $ 11,647
Tax-exempt 262 244
Investment securities:
Taxable 5,553 6,021
Tax-exempt 966 1,005
Dividends 208 133
Interest on fed funds sold 63 7
Total interest income 21,051 19,057
INTEREST EXPENSE
Deposits 7,454 6,997
Borrowings 2,875 2,111
Total interest expense 10,329 9,108
Net interest income 10,722 9,949
Provision for possible
loan losses 555 360
Net interest income
after provision
for possible loan
losses 10,167 9,589
NON-INTEREST INCOME
Trust fees 254 374
Service charges on
deposits 527 481
Other operating income 606 458
Investment securities
gains (losses) (4) (1)
Trading profits (losses) - -
Gains (losses) on
securities available for sale 590 268
Total non-interest
income 1,973 1,580
NON-INTEREST EXPENSE
Salary and employee
benefits 2,627 2,463
Net occupancy expense of
premises 583 515
Equipment expenses 588 593
Other operating expenses 2,333 2,619
Total non-interest
expense 6,131 6,190
Income before income
taxes 6,009 4,979
INCOME TAXES 1,601 1,322
Net income $ 4,408 $ 3,657
PER COMMON SHARE DATA
Net income per share $ 1.67 $ 1.36
Cash dividend per share $ 0.442 $ 0.344
Book value per share $ 11.64 $ 9.60
Weighted average shares
outstanding 2,639,608 2,643,123
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30
(Unaudited) ($ expressed in 000s)
1997 1996
Operating Activities:
Net income 4,408 3,657
Adjustments to reconcile net income
to net cash flows provided by operating
activities:
Provision for loan losses 555 360
Depreciation expense 619 483
Amortization of investment security
premiums 969 1,147
Accretion of investment security
discounts (174) (294)
Investment and trading securities
(gains) losses (586) (267)
Proceeds on sale of securities
available for sale 71,098 60,003
Purchase of securities available for
sale (119,794) (90,103)
Loss (gain) on sale of fixed assets (1) 7
Gain on sale of loans (59) (50)
Gain on sale of other real estate
owned (7) 0
(Increase) decrease in interest
receivable (639) (397)
Increase (decrease) in interest
payable 146 39
Others, net (6,741) 668
Net cash provided by
operating activities (50,206) (24,747)
Investing Activities:
Net (increase) decrease in federal
funds sold 24,450 (665)
Proceeds from maturities and calls of
investment securities 3,119 1,198
Proceeds from sale of investment
securities 0 551
Purchases of investment securities 0 0
Principal collected on mortgage-
backed securities 12,179 18,800
Net (increase) decrease in loans and
leases, net of charge offs (32,380) (28,359)
Proceeds on loans sold 10,088 6,787
Loans purchased (9,124) 0
Recoveries on loans previously
charged off 13 45
Proceeds on sale of other real estate
owned 73 0
Purchases of fixed assets (776) (1,679)
Proceeds on sale of fixed assets 20 8
Net cash used by
investing activities 7,662 (3,314)
Financing Activities:
Net increase (decrease) in deposits 7,278 9,459
Net increase (decrease) in repurchase
agreements (2,308) (8,967)
Net increase (decrease) in short-term
borrowings 29,494 13,226
Dividends paid on common and
preferred stock (1,167) (970)
Purchase of treasury stock (123) 0
Fractional shares purchased in five-
for-four stock split effected in the
form of a stock dividend (7) 0
Proceeds on long term borrowings 12,300 17,225
Repayments on long term borrowings (2,865) (117)
Net cash provided by financing
activities 42,602 29,856
Increase (decrease) in cash and
cash equivalents 58 1,795
Cash and equivalents, beginning 10,948 10,175
Cash and equivalents, ending 11,006 11,970
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) ($000s except per share amounts)
Nine Months Ended
September 30,
1997 1996
Balance, beginning of period $ 27,332 $ 25,164
Net income 4,408 3,657
Cash dividends:
Common stock ($0.442 per share in 1997; $0.344 in
1996) (1,167) (910)
Senior cumulative preferred stock, $100 par value - (60)
Fractional shares purchased in five-for-four stock
split effected in the form of a stock dividend (7) -
Change in unrealized holding losses on securities
available for sale, net of tax 258 (1,471)
Purchase of treasury stock (123) -
$ 30,701 $ 26,380
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The foregoing financial statements are unaudited,
however, in the opinion of Management, all adjustments
necessary for a fair presentation of the financial
statements have been included. A summary of the
Corporation's significant accounting policies is set forth
in Note 1 to the Consolidated Financial Statements in the
Corporation's Annual Report on Form 10-K for 1996.
Related party transactions - The Corporation's and it
Subsidiaries' directors and officers and their associates
were customers of, and had other transactions with, the
subsidiary bank in the ordinary course of business during
1997. 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 other persons
and did not involve more than the normal risk of
collectibility.
Per share data has been restated in previous periods
for a 5 for 4 common stock split payable in the form of a
25% common stock dividend paid in July 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SUMMARY
The third quarter of 1997 added another quarter of
solid earnings to Belmont Bancorp.'s year to date
performance. The net income of Belmont Bancorp. for the
third quarter of 1997 increased 31.39% to $1,423,000,
compared to $1,083,000 in the third quarter of 1996. The
third quarter of 1996 included a "one time" deposit
insurance premium assessment on deposits insured by the
Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation (FDIC) totaling $397,000, or
$262,000 after the effect of income taxes. Results for the
third quarter remained strong with return on common
shareholders' equity (ROE) at 18.82%. Earnings per common
share were $0.54 for the quarter, up from $0.40 per share
during the comparable quarter last year. The SAIF
assessment reduced earnings per share by $0.10 in 1996.
For the nine months ended September 30, 1997, net
income increased 20.54% to $4,408,000, compared to
$3,657,000 for the first nine months of 1996. Earnings per
common share for the nine months were $1.67, up $0.31 per
share or 22.79% from the first nine months of 1996. ROE for
the year to date period was 20.43%.
Operating earnings increased to $5,423,000 for the nine
months ended September 30, 1997, up 15.09% from $4,712,000
for the same period last year. For the third quarter of
1997, operating earnings were $1,759,000, up 28.11% from
$1,373,000 during the year ago quarter.
The following table presents the return on average
shareholders' equity and the return on average assets for
comparative periods of 1997 and 1996.
Quarter ended Nine Months ended
September 30, September 30,
($000s) 1997 1996 1997 1996
Return on average
assets 1.50% 1.25% 1.61% 1.45%
Return on
shareholders' equity 18.82% 16.55% 20.43% 18.78%
Return on average
common equity 18.82% 16.89% 20.43% 19.22%
Average assets $378,374 $346,453 $364,112 $336,798
Average shareholders'
equity $ 30,250 $ 26,171 $ 28,771 $ 25,959
NET INTEREST INCOME
A major share of the Corporation's income results from
the spread between income on earning assets and interest
expense on the liabilities used to fund those assets. Net
interest income is affected by changes in interest rates and
the 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 paid on
liabilities without regard to the amounts outstanding in
either category.
Tables 1 and 3, Consolidated Average Balance Sheets and
Analysis of Net Interest Income, compares interest revenue
and interest earning assets outstanding with interest cost
and liabilities outstanding for the nine months and three
months ended September 30, 1997, 1996, and 1995. The tables
contain 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 taxable equivalent yield on interest earning assets
increased from 8.26% during the first nine months of 1996 to
8.43% in 1997, an increase of 17 basis points. (A basis
point (bp) is equivalent to .01%.) The cost of interest
bearing liabilities increased 22 basis points from 4.33%
during the first nine months of 1996 to 4.55% in 1997. The
net interest margin (net interest income divided by interest
earning assets) declined from 4.42% to 4.40% during the
comparative year-to-date periods.
The taxable equivalent yield on interest earning assets
increased from 8.21% during the third quarter of 1996 to
8.38% in 1997, an increase of 17 basis points. The cost of
interest bearing liabilities rose 24 basis points from 4.39%
during the third quarter of 1996 to 4.63% in 1997. The net
interest margin decreased 5 basis points from 4.33% to 4.28%
during the comparative quarters.
Tables 2 and 4, 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 asset 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).
<TABLE>
TABLE 1. - CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET
INTEREST INCOME (Fully Taxable Equivalent Basis) ($000's)
<CAPTION>
Nine Months Ended September 30,
1997 1996 1995
Average Average Average Average Average Average
Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/
standing Cost Rate standing Cost Rate standing Cost Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest
earning assets
Loans and
leases $203,432 $14,385 9.45% $171,028 $11,987 9.37% $151,005 $10,668 9.45%
Securities
Taxable 112,583 5,757 6.84% 121,267 6,150 6.78% 114,616 5,926 6.91%
Exempt from
income tax 24,940 1,401 7.51% 24,952 1,466 7.86% 25,757 1,554 8.07%
Trading
account assets 0 0 0.00% 0 0 0.00% 0 0 0.00%
Federal funds
sold 1,578 63 5.34% 188 7 4.98% 1,054 46 5.84%
Interest
bearing
deposits 0 0 0.00% 0 0 0.00% 0 0 0.00%
Total interest
earning assets 342,533 21,606 8.43% 317,435 19,610 8.26% 292,432 18,194 8.32%
Cash and due
from banks 10,069 8,860 8,424
Other assets 15,630 14,100 12,926
Valuation
allowance-
available for
sale
securities (771) (725) (955)
Allowance for
possible loan
loss (3,349) (2,872) (2,016)
Total assets 364,112 336,798 310,811
Liabilities
Interest
bearing
liabilities
Interest
checking 43,924 1,107 3.37% 37,639 888 3.15% 25,570 450 2.35%
Savings 78,827 1,832 3.11% 79,272 1,808 3.05% 79,067 1,771 2.99%
Other time
deposits 114,104 4,516 5.29% 112,334 4,301 5.12% 123,089 4,570 4.96%
Other
borrowings 66,968 2,874 5.74% 52,198 2,111 5.41% 33,840 1,393 5.50%
Total interest
bearing
liabilities 303,823 10,329 4.55% 281,443 9,108 4.33% 261,566 8,184 4.18%
Demand deposits 29,399 27,144 25,377
Other
liabilities 2,119 2,252 1,619
Total
liabilities 335,341 310,839 288,562
Shareholders'
equity 28,771 25,959 22,249
Liabilities
& shareholders'
equity 364,112 336,798 310,811
Net interest
income
Margin on a
taxable
equivalent
basis 11,277 4.40% 10,502 4.42% 10,010 4.58%
Net interest
rate spread 3.89% 3.93% 4.14%
Interest
bearing
liabilities
to interest
earning assets 88.70% 88.66% 89.45%
</TABLE>
<TABLE>
TABLE 2. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
<CAPTION>
Nine Months Ended September 30,
1997 Compared to 1996 1996 Compared to 1995
Volume Yield Mix Total Volume Yield Mix Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(Decrease) in
Interest Income
Loans and
Leases $2,271 $ 107 $ 20 $2,398 $1,415 ($84) ($12) $1,319
Securities
Taxable (440) 51 (4) (393) 344 (113) (7) 224
Exempt from
Income Taxes (1) (64) 0 (65) (49) (41) 1 (89)
Trading Account
Assets 0 0 0 0 0 0 0 0
Federal Funds
Sold 52 1 4 57 (38) (7) 6 (39)
Interest
Bearing Deposits 0 0 0 0 0 0 0 0
Total Interest
Income Change 1,882 95 20 1,997 1,672 (245) (12) 1,415
Increase
(Decrease) in
Interest Expense
Interest
Checking 148 61 10 219 212 153 72 437
Savings (10) 34 0 24 5 32 0 37
Other Time
Deposits 68 145 2 215 (399) 143 (12) (268)
Other
Borrowings 597 129 37 763 756 (24) (15) 717
Total Interest
Expense Change 803 369 49 1,221 574 304 45 923
Increase
(Decrease) in Net
Interest
Income on a
Taxable
Equivalent Basis $1,079 ($274) ($29) $776 $1,098 ($549) ($57) $492
(Increase)
Decrease in
Taxable
Equivalent
Adjustment (3) 26
Net Interest
Income Change $773 $518
</TABLE>
<TABLE>
TABLE 3. - CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET
INTEREST INCOME (Fully Taxable Equivalent Basis) ($000's)
<CAPTION>
Three Months Ended September 30,
1997 1996 1995
Average Average Average Average Average Average
Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/
standing Cost Rate standing Cost Rate standing Cost Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest earning
assets
Loans and
leases $214,017 $5,102 9.46% $178,969 $4,182 9.27% $155,384 $3,682 9.40%
Securities
Taxable 115,234 1,920 6.61% 121,462 2,049 6.69% 111,329 1,914 6.82%
Exempt from
income tax 26,506 495 7.41% 26,892 541 7.98% 27,588 550 7.91%
Trading
account assets 0 0 0.00% 0 0 0.00% 0 0 0.00%
Federal funds
sold 664 10 5.97% 25 0 0.00% 1,158 16 5.48%
Interest
bearing deposits 0 0 0.00% 0 0 0.00% 0 0 0.00%
Total interest
earning assets 356,421 7,527 8.38% 327,348 6,772 8.21% 295,459 6,162 8.27%
Cash and due
from banks 10,299 9,064 8,575
Other assets 15,467 14,933 12,808
Valuation
allowance-
available for
sale
securities (289) (1,899) (416)
Allowance for
possible loan
loss (3,524) (2,993) (2,318)
Total assets 378,374 346,453 314,108
Liabilities
Interest bearing
liabilities
Interest
checking 45,134 378 3.32% 42,131 356 3.35% 25,618 153 2.37%
Savings 77,953 630 3.21% 79,844 618 3.07% 79,033 598 3.00%
Other time
deposits 116,340 1,566 5.34% 108,970 1,410 5.13% 115,916 1,452 4.97%
Other
borrowings 76,233 1,112 5.79% 58,430 817 5.55% 42,522 587 5.48%
Total interest
bearing
liabilities 315,660 3,686 4.63% 289,375 3,201 4.39% 263,089 2,790 4.21%
Demand deposits 30,430 28,594 26,082
Other
liabilities 2,034 2,313 1,448
Total
liabilities 348,124 320,282 290,619
Shareholders'
equity 30,250 26,171 23,489
Liabilities &
shareholders'
equity 378,374 346,453 314,108
Net interest
income
Margin on a
taxable
equivalent basis 3,841 4.28% 3,571 4.33% 3,372 4.53%
Net interest
rate spread 3.75% 3.82% 4.07%
Interest bearing
liabilities
to interest
earning assets 88.56% 88.40% 89.04%
</TABLE>
TABLE 4. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
Three Months Ended September 30,
1997 Compared to 1996 1996 Compared to 1995
Volume Yield Mix Total Volume Yield Mix Total
Increase (Decrease) in
Interest Income
Loans and Leases $819 $ 84 $17 $ 920 $559 ($51) ($8) $500
Securities
Taxable (105) (25) 2 (128) 174 (36) (3) 135
Exempt from Income
Taxes (8) (39) 1 (46) (14) 5 0 (9)
Trading Account
Assets 0 0 0 0 0 0 0 0
Federal Funds Sold 0 0 10 10 (16) (16) 16 (16)
Interest Bearing
Deposits 0 0 0 0 0 0 0 0
Total Interest Income
Change 706 20 30 756 703 (98) 5 610
Increase (Decrease) in
Interest Expense
Interest Checking 25 (3) 0 22 99 63 41 203
Savings (15) 27 0 12 6 14 0 20
Other Time Deposits 95 57 4 156 (87) 48 (3) (42)
Other Borrowings 249 35 11 295 220 8 1 229
Total Interest Expense
Change 354 116 15 485 238 133 39 410
Increase (Decrease) in
Net Interest
Income on a Taxable
Equivalent Basis $352 ($96) $15 $271 $465 ($231) ($34) $200
(Increase) Decrease in
Taxable Equivalent
Adjustment 5 11
Net Interest Income
Change $276 $211
OTHER OPERATING INCOME
Other operating income, excluding securities gains and
losses, increased 5.6%, or $74,000, and totaled $1,387,000
for the first nine months of 1997, compared to $1,313,000
for the respective period last year. Changes in various
categories of other income are depicted in the table below.
Three months ended Sept. 30 Nine months ended Sept. 30
($000s) 1997 1996 % Change 1997 1996 % Change
Trust fees $ 27 $111 -75.7% $ 254 $ 374 -32.1%
Service charges on
deposits 181 166 9.0% 527 481 9.6%
Gain on sale of
loans 29 19 52.6% 59 50 18.0%
Other income 195 131 48.9% 547 408 34.1%
Subtotal 432 427 1.2% 1,387 1,313 5.6%
Security gains
(losses) (2) 0 na (4) (1) -300.0%
Gains (losses)
securities held
for sale 236 34 594.1% 590 268 120.1%
Total $666 $461 44.5% $1,973 $ 1,580 24.9%
Trust fees are down during the comparative year to date
periods based upon a change in accounting for trust fees
from the cash to accrual basis during 1996.
INVESTMENT SECURITIES
The amortized cost and estimated market values of
securities held to maturity at September 30, 1997 are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
($000s) Cost Gains Losses Value
U.S. Treasury securities and
obligations of
U.S. Government
corporations and agencies $ 2,261 $ 0 $ 65 $ 2,196
Obligations of states and
political subdivisions 4,588 149 20 4,717
Mortgage-backed securities 9,734 112 55 9,791
Total $16,583 $261 $140 $16,704
Included above in U.S. Government corporations and
agencies is a structured note with a book value of
$2,261,000 and a market value of $2,196,000 which matures in
the year 2000.
The amortized cost and estimated market values of
securities available for sale at September 30, 1997 are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
($000s) Cost Gains Losses Value
U.S. Treasury securities and
obligations of
U.S. Government
corporations and agencies $ 10,769 $ 24 $ 24 $ 10,769
Obligations of states and
political subdivisions 27,204 160 52 27,312
Mortgage-backed securities 48,990 372 223 49,139
Mortgage derivatives 23,301 19 139 23,181
Marketable equity securities 4,623 0 0 4,623
Total $114,887 $575 $438 $115,024
The mortgage derivatives are comprised solely of
collateralized mortgage obligations (CMOs) including one
principal only CMO issued by FNMA with a book value of
$105,000 and an estimated market value of $82,000.
Privately issued CMOs included in the table above have a
book value of $2,664,,000 and an estimated market value of
$2,606,000. Credit risk on privately issued CMOs is
evaluated based upon independent rating agencies and on the
underlying collateral of the obligation. At September 30,
1997, no privately issued bonds from any issuer exceeded ten
percent of shareholders' equity.
Market factors and prepayment speeds can have an impact
on the yield and average lives of mortgage-backed securities
including mortgage derivatives.
OPERATING EXPENSES
Successful expense control is an essential element in
maintaining the Corporation's profitability. Historically,
when comparing the Corporation to various peer groups, the
overhead costs of the Corporation have been significantly
lower than peer. The following table shows the dollar
amounts and growth in various components of operating
expenses.
Three Months ended Sept. 30 Nine Months ended Sept. 30
($000s) 1997 1996 % Change 1997 1996 % Change
Salaries and
wages $ 737 $ 654 12.7% $2,000 $1,856 7.8%
Employee
benefits 210 189 11.1% 627 607 3.3%
Net occupancy
expense 199 175 13.7% 583 515 13.2%
Equipment
expense 121 206 -41.3% 588 593 -0.8%
Other operating
expenses 857 1,100 -22.1% 2,333 2,619 -10.9%
Total $2,124 $2,324 -8.6% $6,131 $6,190 -1.0%
Increases in employee related costs and occupancy
expenses during the quarter and year-to-date comparative
periods are due to the opening of new offices in the Elm
Grove section of Wheeling, WV and at Plaza West in St.
Clairsville, Ohio. In addition, the Bank accelerated
depreciation on some data processing equipment beginning in
September of 1996. Other operating expenses were positively
impacted by the a reduction in a nonrecurring expense for
other real estate owned during 1996 of $140,000. As
discussed above during the third quarter of 1996, the
subsidiary bank was assessed $397,000 in insurance premiums
on deposits insured through the Savings Association
Insurance Fund ("SAIF"), included in other operating expense
in the table above. These reductions were partially offset
by an increase in corporate state net income and franchise
taxes, corporate development expense and telecommunication
charges. Eliminating the impact of the SAIF assessment in
1996, other operating expense increased $111,000 for the
comparative nine month period. Also, total operating
expenses would have reflected an increase of $338,000, or
5.8%.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation provides as an expense an amount which
reflects expected loan losses. This provision is based on
the growth of the loan and lease portfolio and on historical
loss experience. The expense is called the provision for
possible loan losses in the Consolidated Statement of
Income. Actual losses on loans and leases are charged
against the allowance built up on the Consolidated Balance
Sheet through the allowance for possible loan losses. The
amount of loans and leases actually removed as assets from
the Consolidated Balance Sheets is referred to as charge-
offs and, after netting out recoveries previously charged-
off assets, becomes net charge-offs.
For the nine months of 1997, $555,000 was added to the
allowance and charged to expense compared to $360,000 in
1996. At September 30, 1997, the allowance for possible
loan losses to total loans and leases was 1.69% compared to
1.67% last year. The ratio of the Allowance for Possible
Loan Losses to underperforming assets was 304.14% at
September 30, 1997. The following table details the
Allowance for Possible Loan Losses and also includes various
loan charge off statistics for 1997 and 1996.
Three months ended Nine months ended
Sept. 30 Sept. 30
($000s) 1997 1996 1997 1996
Balance, beginning of period $3,474 $2,945 $3,153 $2,703
Provision for possible loan
losses 200 105 555 360
Loans charged-off 6 2 50 48
Recoveries on loans
previously charged-off 3 12 13 45
Net charge offs 3 (10) 37 3
Balance, end of period $3,671 $3,060 $3,671 $3,060
Three months ended Nine months ended
Sept. 30 Sept. 30
($000s) 1997 1996 1997 1996
Loans and leases outstanding
at period $220,188 $181,465
Average loans and leases $214,017 $178,969 $203,432 $171,028
Annualized net charge offs
as a percent of:
Average loans and leases 0.01% -0.02% 0.04% 0.00%
Total loans at end of
period 0.03% 0.00%
Reserve for possible loan
losses 0.33% -1.31% 2.02% 0.20%
Reserve for possible loan
losses to:
Average loans and leases 1.72% 1.71% 1.80% 1.79%
Total loans at end of
period 1.67% 1.69%
Under-performing assets 304.14% 332.61%
UNDER-PERFORMING ASSETS
Under-performing assets consist of (1) non-accrual
loans, leases and debt securities on which the ultimate
collectibility of the full amount of interest is uncertain,
(2) loans and leases past due ninety days or more as to
principal or interest and (3) other real estate owned. A
summary of under-performing assets at September 30 follows:
Under-performing assets Sept. 30,
($000s) 1997 1996
Non-accrual loans and
leases $1,175 $238
Ninety days past due loans
and leases still accruing
interest 11 37
Other real estate owned 21 645
Total $1,207 $920
Restructured loans and
leases included
in above totals $537 $ 0
Restructured loans and
leases in compliance with
modified terms 63 641
LONG TERM DEBT
Long term debt consists of advances from the Federal
Home Loan Bank. Details are as follows:
Amount Current
Type ($000s) Rate Maturity
Fixed rate, non-amortizing
advance 10,000 5.40% 1/4/98
Fixed rate, non-amortizing
advance 2,000 5.90% 6/2/98
Fixed rate, non-amortizing
advance 5,000 6.10% 9/17/99
Fixed rate, non-amortizing
advance 5,000 6.20% 9/17/00
Fixed rate, amortizing advance 131 5.55% 12/22/98
Fixed rate, amortizing advance 2,049 6.05% 11/18/01
Fixed rate, amortizing advance 2,285 6.85% 8/1/12
Fixed rate, amortizing advance 159 5.80% 12/1/05
Fixed rate, amortizing advance 1,282 6.85% 6/6/11
Fixed rate, amortizing advance 113 6.75% 6/6/11
Fixed rate, amortizing advance 836 6.85% 6/12/11
Fixed rate, amortizing advance 256 6.95% 8/31/15
Total $29,111
CAPITAL RESOURCES
At September 30, 1997, shareholders' equity was
$30,701,000 compared to $27,332,000 at December 31, 1996 and
$26,380,000 at September 30, 1996. The following table
presents various capital ratios as of September 30:
September 30, 1997 1996
Average shareholder's
equity to :
Average assets 7.9% 7.7%
Average deposits 10.8% 10.1%
Average loans and
leases 14.1% 15.2%
Primary capital 9.1% 8.4%
Risk-based capital
ratio:
Tier 1 11.9% 12.0%
Total 13.2% 13.3%
Leverage ratio 8.0% 7.5%
The Federal Reserve Board has adopted risk-based
capital guidelines that assign risk weightings to assets and
off-balance sheet items. The guidelines also define and set
minimum capital requirements (risk-based capital ratios).
Banks are required to have core capital (Tier 1) of at least
4.0% of risk-weighted assets and total capital of 8.0% of
risk-weighted assets. Tier 1 capital consists principally
of shareholders' equity less goodwill, while total capital
consists of core capital, certain debt instruments and a
portion of the reserve for possible loan losses. At
September 30, 1997, the Corporation had a Tier 1 capital
ratio of 11.9% and a total capital ratio of 13.2%, well
above regulatory minimum requirements.
National banks are required to maintain Tier 1 capital
in an amount equal to at least 3.0% of adjusted total
assets, referred to as a total assets leverage ratio. At
September 30, 1997, the Corporation's leverage ratio was
8.0%.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security
shareholders
None
Item 5. Other information
None
Item 6. Exhibits
None
SIGNATURE
Pursuant to the requirements 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.
Belmont Bancorp.
(Registrant)
November 10, 1997 s/J. Vincent Ciroli, Jr.
J. Vincent Ciroli, Jr.
President & CEO
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