U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
For the Quarter Ended September 30, 1998
[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 (740) 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, $0.25 par value,
5,239,152 shares outstanding
as of October 23, 1998
FORM 10-Q
BELMONT BANCORP.
Quarter Ending September 30,1998
INDEX
Part I. Financial information
Management's report on the financial statements
Financial highlights
Consolidated Statements of Condition - September 30, 1998,
December 31, 1997, and September 30, 1997
Consolidated Statements of Income-Three Months
Ended September 30, 1998 and September 30, 1997
Consolidated Statements of Income-Nine Months
Ended September 30, 1998 and September 30, 1997
Consolidated Statements of Cash Flows-Nine Months
Ended September 30, 1998 and September 30, 1997
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1998 and 1997
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 1998 1997 % Change
Earnings and dividends
($000's)
Net income $ 4,609 $ 4,408 4.6
Operating earnings (1) 5,063 5,423 (6.6)
Cash dividends declared on
common stock 1,498 1,166 28.5
Per common share (2):
Net income $ 0.88 $ 0.83 6.0
Cash dividends declared 0.285 0.221 29.0
Book value 6.33 5.82 8.7
Market price :
High 27.25 15.00 81.7
Low 19.75 12.56 57.2
At quarter-end ($000's)
Assets $ 428,456 $ 375,871 14.0
Loans and leases 221,716 220,188 0.7
Deposits 298,830 268,817 11.2
Stockholders' equity 33,172 30,701 8.0
Key Ratios
Return on average assets 1.52% 1.61% (5.6)
Return on average common
shareholders' equity 18.45% 20.43% (9.7)
Net interest margin (TE) 4.03% 4.40% (8.4)
Number of shares outstanding 5,242,152 5,274,996 (0.6)
Number of full time equivalent
employees 140.0 142.0 (1.4)
Total assets per FTE employee $ 3,060 $ 2,647 15.6
(1) Operating earnings are defined as earnings before
income taxes minus securities gains or plus securities
losses.
(2) All per share amounts have been restated for the
effect of a 25% common stock dividend paid on July 1,
1997 and a 100% common stock dividend paid May 22, 1998.
Belmont Bancorp.
Consolidated Balance Sheet
Unaudited ($000s except per share amounts)
Sept. 30, Dec. 31, Sept. 30,
1998 1997 1997
ASSETS
Cash and due from banks $ 11,995 $ 10,265 $11,006
Federal funds sold 2,091 - -
Assets held for trading 2,455 - -
Securities available for
sale at market value 156,638 121,156 115,024
Securities held to maturity 13,613 15,955 16,583
Loans held for sale 1,272 884 -
Loans 220,444 224,016 220,188
Less allowance for possible
loan losses (4,466) (4,134) (3,671)
Net loans 215,978 219,882 216,517
Premises and equipment, net 7,339 7,401 7,397
Accrued income receivable 2,525 2,586 2,560
Other assets 14,550 10,564 6,764
Total Assets $428,456 388,713 375,871
LIABILITIES
Non-interest bearing
deposits
Demand $ 25,861 $ 29,987 $ 29,764
Interest-bearing deposits:
Demand 47,266 33,463 41,937
Savings 83,860 79,829 79,234
Time 141,843 120,629 117,882
Total deposits 298,830 263,908 268,817
Securities sold under
repurchase agreements 5,154 5,256 5,972
Short-term borrowings - 14,635 39,494
Long term debt 81,726 69,635 29,111
Accrued interest on
deposits and other borrowings 1,005 731 810
Other liabilities 8,569 2,649 966
Total liabilities $395,284 $356,814 $345,170
SHAREHOLDERS' EQUITY
Preferred stock -
authorized 90,000 shares with
no par value; issued and
outstanding, none - - -
Common stock - $0.25
par value, 17,800,000 shares
authorized; 5,288,326
issued in 1998 and 1997 $ 1,321 $ 1,321 $ 1,321
Surplus 7,854 7,781 7,781
Treasury stock (46,174
shares at Sept. 30, 1998;
13,330 shares at
December 31, 1997 and
Sept. 30, 1997) (991) (131) (131)
Retained earnings:
Unappropriated 24,990 21,879 20,790
Appropriated for
contingencies 850 850 850
Accumulated other
comprehensive income (852) 199 90
Total shareholders'
equity $ 33,172 $ 31,899 $ 30,701
Total liabilities and
shareholders' equity $428,456 $388,713 $375,871
Belmont Bancorp.
Consolidated Statement of Income
Unaudited ($000s except per share amounts)
Three months ended Sept. 30,
1998 1997
INTEREST INCOME
Loans and lease financing
Taxable $5,338 $4,984
Tax-exempt 68 80
Investment securities:
Taxable 1,894 1,837
Tax-exempt 343 342
Dividends 86 84
Interest on trading securities 25 -
Interest on fed funds sold 124 10
Total interest income 7,878 7,337
INTEREST EXPENSE
Deposits 3,118 2,574
Borrowings 1,163 1,112
Total interest expense 4,281 3,686
Net interest income 3,597 3,651
Provision for possible loan losses 185 200
Net interest income after
provision for possible loan losses 3,412 3,451
NON-INTEREST INCOME
Trust fees 113 27
Service charges on deposits 193 181
Other operating income 239 224
Investment securities gains (losses) 2 (2)
Trading profits (losses) (39) -
Gains (losses) on securities
available for sale 673 236
Total non-interest income 1,181 666
NON-INTEREST EXPENSE
Salary and employee benefits 1,137 947
Net occupancy expense of premises 203 199
Equipment expenses 245 221
Other operating expenses 774 757
Total non-interest expense 2,359 2,124
Income before income taxes 2,234 1,993
INCOME TAXES 630 570
Net income $1,604 $1,423
PER COMMON SHARE DATA
Net income per share $ 0.31 $ 0.27
Belmont Bancorp.
Consolidated Statement of Income
Unaudited ($000s except per share amounts)
For the Nine Months Ended Sept. 30,
1998 1997
INTEREST INCOME
Loans and lease financing
Taxable 15,789 $13,999
Tax-exempt 201 262
Investment securities:
Taxable 5,411 5,553
Tax-exempt 978 966
Dividends 249 208
Interest on trading securities 31 -
Interest on fed funds sold 180 63
Total interest income 22,839 21,051
INTEREST EXPENSE
Deposits 8,633 7,454
Borrowings 3,391 2,875
Total interest expense 12,024 10,329
Net interest income 10,815 10,722
Provision for possible loan losses 460 555
Net interest income after
provision for possible loan losses 10,355 10,167
NON-INTEREST INCOME
Trust fees 350 254
Service charges on deposits 546 527
Other operating income 691 606
Investment securities gains (losses) 1 (4)
Trading profits (losses) (8) -
Gains (losses) on securities
available for sale 1,260 590
Total non-interest income 2,840 1,973
NON-INTEREST EXPENSE
Salary and employee benefits 3,266 2,627
Net occupancy expense of premises 608 583
Equipment expenses 721 688
Other operating expenses 2,276 2,233
Total non-interest expense 6,871 6,131
Income before income taxes 6,324 6,009
INCOME TAXES 1,715 1,601
Net income $ 4,609 $ 4,408
PER COMMON SHARE DATA
Net income per share $ 0.88 $ 0.83
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 1998
Unaudited ($000s)
1998 1997
Operating Activities:
Net income 4,609 4,408
Adjustments to reconcile net income
to net
cash flows provided by operating
activities:
Provision for loan losses 460 555
Depreciation expense 579 619
Amortization of investment security
premiums 1,533 969
Accretion of investment security
discounts (236) (174)
Investment and trading securities
(gains) losses (1,253) (586)
Proceeds on sale of securities
available for sale 77,771 71,098
Purchase of securities available for
sale (140,325) (119,794)
Proceeds on sale of trading
securities 3,252 0
Purchase of trading securities (5,311) 0
Loss (gain) on sale of fixed assets (1) (1)
Gain on sale of loans (117) (59)
Gain on sale of other real estate
owned 0 (7)
(Increase) decrease in interest
receivable 61 (639)
Increase (decrease) in interest
payable 274 146
Others, net 2,477 (6,741)
Net cash provided by
operating activities (56,227) (50,206)
Investing Activities:
Net (increase) decrease in federal
funds sold (2,091) 24,450
Proceeds from maturities and calls of
investment securities 3,219 3,119
Principal collected on mortgage-
backed securities 24,160 12,179
Net (increase) decrease in loans and
leases, net of charge offs (13,894) (32,380)
Proceeds on loans sold 17,035 10,088
Loans purchased 0 (9,124)
Recoveries on loans previously
charged off 13 13
Proceeds on sale of other real estate
owned 39 73
Purchases of fixed assets (517) (776)
Proceeds on sale of fixed assets 1 20
Net cash used by
investing activities 27,965 7,662
Financing Activities:
Net increase (decrease) in deposits 34,922 7,278
Net increase (decrease) in repurchase
agreements (102) (2,308)
Net increase (decrease) in short-term
borrowings (14,635) 29,494
Dividends paid on common stock (1,498) (1,167)
Purchase of treasury stock (899) (123)
Issuance of treasury stock 112 0
Fractional shares purchased in five-
for-four stock split effected in the
form of a stock dividend 0 (7)
Proceeds on long term borrowings 25,000 12,300
Repayments on long term borrowings (12,908) (2,865)
Net cash provided by financing
activities 29,992 42,602
Increase (decrease) in cash and
cash equivalents 1,730 58
Cash and equivalents, beginning 10,265 10,948
Cash and equivalents, ending 11,995 11,006
<TABLE>
<CAPTION>
Accumulated
Other Retained Earnings
Compre- Compre-
hensive hensive Common Unappro- Appro- Treasury
Total Income Income Stock Surplus priated priated Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996 $27,332 ($168) $1,057 $7,781 $17,820 $850 ($8)
1997 Year-to-date net
income 4,408 4,408 4,408
Change in unrealized
loss-securities
available-for-sale 258 258 258
Comprehensive income $4,666
Purchase of treasury
stock (123) (123)
5-for-4 stock split 0 264 (264)
Fractional shares
purchased in 5-for-4
stock split (7) (7)
Cash dividends
declared:
Common stock
($.221 per share) (1,167) (1,167)
Balance, September 30,
1997 $30,701 $90 $1,321 $7,781 $20,790 $850 ($131)
Balance, December 31,
1997 $31,899 $199 $1,321 $7,781 $21,879 $850 ($131)
1998 Year-to-date net
income 4,609 4,609 4,609
Change in unrealized
loss-securities
available-for-sale,
net of reclassification
adjustment (1) (1,051) (1,051) (1,051)
Comprehensive income $3,558
Purchase of treasury
stock (899) (899)
Issuance of treasury
stock 112 73 39
Cash dividends
declared:
Common stock
($.285 per share) (1,498) (1,498)
Balance, September 30,
1998 $33,172 ($852) $1,321 $7,854 $24,990 $850 ($991)
</TABLE>
(1) Disclosure of reclassification adjustment:
Unrealized holding losses
arising during period (219)
Less: reclassification
adjustment for gains included
in net income, net of tax 832
Net unrealized losses on
securities (1,051)
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 1997.
Related party transactions - The Corporation's and Subsidiaries
and their associates were customers of, and had other transactions with,
the subsidiary bank in the ordinary course of business during 1998. 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 and a 2-for-1 common stock
split payable in the form of a 100% common stock dividend on
May 22, 1998.
Forward Looking Statements
Certain sections of this report may contain forward
looking statements and can be identified by the use of such
words as "anticipates," "expects," "estimates," and similar
expressions. These statements are subject to certain risks and
uncertainties. These risks and uncertainties could cause
actual results to differ materially from the current
statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SUMMARY
The third quarter of 1998 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 1998
increased 12.72% to $1,604,000, compared to $1,423,000 in the
third quarter of 1997. Results for the third quarter remained
strong with return on common shareholders' equity (ROE) at
19.14% campared to 18.82% for the same quarter last year.
Earnings per common share were $0.31 for the quarter, up from
$0.27 per share during the comparable quarter last year.
For the nine months ended September 30, 1998, net income
increased 4.56% to $4,609,000, compared to $4,408,000 for the
first nine months of 1997. Earnings per common share for the
nine months were $0.88, up $0.05 per share or 6.02% from the
first nine months of 1997. ROE for the year to date period was
18.45%.
The following table presents the return on average
shareholders' equity and the return on average assets for
comparative periods of 1998 and 1997.
Quarter ended Nine Months ended
September 30, September 30,
($000s) 1998 1997 1998 1997
Return on average
assets 1.53% 1.50% 1.52% 1.61%
Return on
shareholders' equity 19.14% 18.82% 18.45% 20.43%
Average assets $419,477 $378,374 $403,108 $364,112
Average shareholders'
equity $ 33,518 $ 30,250 $ 33,307 $ 28,771
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, 1998, 1997, and 1996. 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
decreased from 8.43% during the first nine months of 1997 to
8.29% in 1998, a decrease of 14 basis points. (A basis point
(bp) is equivalent to .01%.) The cost of interest bearing
liabilities increased 19 basis points from 4.55% during the
first nine months of 1997 to 4.74% in 1998. The net interest
margin (net interest income divided by interest earning assets)
declined from 4.40% to 4.03% during the comparative year-to-
date periods.
The taxable equivalent yield on interest earning assets
decreased from 8.38% during the third quarter of 1997 to 8.11%
in 1998, a decrease of 27 basis points. The cost of interest
bearing liabilities rose 15 basis points from 4.63% during the
third quarter of 1997 to 4.78% in 1998. The net interest
margin decreased 48 basis points from 4.28% to 3.80% 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,
1998 1997 1996
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 $224,188 $16,084 9.59% $203,432 $14,385 9.45% $171,028 $11,987 9.37%
Securities
Taxable 122,866 5,836 6.35% 112,583 5,757 6.84% 121,267 6,150 6.78%
Exempt from
income tax 24,618 1,235 6.71% 24,940 1,401 7.51% 24,952 1,466 7.86%
Trading account
assets 703 31 5.90% 0 0 0 0
Federal funds
sold 4,362 180 5.52% 1,578 63 5.34% 188 7 4.98%
Total interest
earning assets 376,737 23,366 8.29% 342,533 21,606 8.43% 317,435 19,610 8.26%
Cash and due from
banks 10,795 10,069 8,860
Other assets 20,001 15,630 14,100
Valuation
allowance-
available for
sale securities (179) (771) (725)
Allowance for
possible loan loss (4,246) (3,349) (2,872)
Total assets 403,108 364,112 336,798
Liabilities
Interest bearing
liabilities
Interest
checking 45,369 1,162 3.42% 43,924 1,107 3.37% 37,639 888 3.15%
Savings 81,865 2,011 3.28% 78,827 1,832 3.11% 79,272 1,808 3.05%
Other time
deposits 131,896 5,460 5.53% 114,104 4,516 5.29% 112,334 4,301 5.12%
Other Borrowings 79,989 3,391 5.67% 66,968 2,874 5.74% 52,198 2,111 5.41%
Total interest
bearing
liabilities 339,119 12,204 4.74% 303,823 10,329 4.55% 281,443 9,108 4.33%
Demand deposits 29,535 29,399 27,144
Other liabilities 1,147 2,119 2,252
Total liabilities 369,801 335,341 310,839
Shareholders' Equity 33,307 28,771 25,959
Liabilities and
shareholders' equity 403,108 364,112 336,798
Net interest income/
margin on a
taxable equivalent
basis 11,342 4.03% 11,277 4.40% 10,502 4.42%
Net interest rate
spread 3.55% 3.89% 3.93%
Interest bearing
liabilities
to interest
earning assets 90.01% 88.70% 88.66%
</TABLE>
TABLE 2. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
Nine Months Ended September 30, 1998
1998 Compared to 1997 1997 Compared to 1996
Volume Yield Mix Total Volume Yield Mix Total
Increase (Decrease)
in Interest Income
Loans and Leases 1,468 210 22 1,700 2,271 107 20 2,398
Securities
Taxable 526 (409) (37) 80 (440) 51 (4) (393)
Exempt from
Income Taxes (18) (150) - (168) (1) (64) - (65)
Trading account
assets - - 31 31 - - - -
Federal Funds Sold 111 2 4 117 52 1 4 57
Total Interest
Income Change 2,087 (347) 20 1,760 1,882 95 20 1,997
Increase (Decrease)
in Interest Expense
Interest Checking 36 18 1 55 148 61 10 219
Savings 71 104 4 179 (10) 34 - 24
Other Time
Deposits 704 207 32 943 68 145 2 215
Other
Borrowings 559 (35) (6) 518 597 129 37 763
Total Interest
Expense Change 1,370 294 31 1,695 803 369 49 1,221
Increase (Decrease)
in Net Interest
Income on a Taxable
Equivalent Basis 717 (641) (11) 65 1,079 (274) (29) 776
(Increase) Decrease
in Taxable Equivalent
Adjustment 28 (3)
Net Interest Income
Change 93 773
<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,
1998 1997 1996
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 $223,737 $5,438 9.64% $214,017 $5,102 9.46% $178,969 $4,182 9.27%
Securities
Taxable 133,726 2,153 6.39% 115,234 1,920 6.61% 121,462 2,049 6.69%
Exempt from
income tax 25,907 319 4.89% 26,506 495 7.41% 26,892 541 7.98%
Trading account
assets 1,712 25 5.79% - - - -
Federal funds
sold 8,923 124 5.51% 664 10 5.97% 25 0 0.00%
Total interest
earning assets 394,005 8,059 8.11% 356,421 7,527 8.38% 327,348 6,772 8.21%
Cash and due
from banks 10,846 10,299 9,064
Other assets 19,520 15,467 14,933
Valuation
allowance-
available for
sale securities (557) (289) (1,899)
Allowance for
possible loan
loss (4,337) (3,524) (2,993)
Total assets 419,477 378,374 346,453
Liabilities
Interest bearing
liabilities
Interest
checking 49,797 445 3.55% 45,134 378 3.32% 42,131 356 3.35%
Savings 82,664 688 3.30% 77,953 630 3.21% 79,844 618 3.07%
Other time
deposits 141,042 1,985 5.58% 116,340 1,566 5.34% 108,970 1,410 5.13%
Other
Borrowings 82,159 1,163 5.62% 76,233 1112 5.79% 58,430 817 5.55%
Total interest
bearing
liabilities 355,662 4,281 4.78% 315,660 3,686 4.63% 289,375 3,201 4.39%
Demand deposits 29,199 30,430 28,594
Other liabilities 1,098 2,034 2,313
Total liabilities 385,959 348,124 320,282
Shareholders'
equity 33,518 30,250 26,171
Liabilities &
shareholders'
equity 419,477 378,374 346,453
Net interest
income
Margin on a
taxable
equivalent basis 3,778 3.80% 3,841 4.28% 3,571 4.33%
Net interest
rate spread 3.34% 3.75% 3.82%
Interest bearing
liabilities
to interest
earning assets 90.27% 88.56% 88.40%
</TABLE>
TABLE 4. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
Three Months Ended September 30,
1998 Compared to 1997 1997 Compared to 1996
Volume Yield Mix Total Volume Yield Mix Total
Increase (Decrease)
in Interest Income
Loans and Leases 232 100 5 337 819 84 17 920
Securities
Taxable 308 (65) (10) 233 (105) (25) 2 (128)
Exempt from
Income Taxes (11) (169) 4 (176) (8) (39) 1 (46)
Trading account
assets - - 25 25 - - - -
Federal Funds Sold 124 (1) (10) 113 - - 10 10
Total Interest
Income Change 653 (135) 14 532 706 20 30 756
Increase (Decrease)
in Interest Expense
Interest Checking 39 25 3 67 25 (3) - 22
Savings 38 19 1 58 (15) 27 - 12
Other Time
Deposits 333 71 15 419 95 57 4 156
Other
Borrowings 86 (33) (2) 51 249 35 11 295
Total Interest
Expense Change 496 82 17 595 354 116 15 485
Increase (Decrease)
in Net Interest
Income on a Taxable
Equivalent Basis 157 (217) (3) (63) 352 (96) 15 271
(Increase) Decrease
in Taxable
Equivalent
Adjustment 9 5
Net Interest Income
Change (54) 276
OTHER OPERATING INCOME
Other operating income, excluding securities gains and
losses, increased 22.3%, or $309,000, and totaled $1,696,000 for
the first nine months of 1998, compared to $1,387,000 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) 1998 1997 % Change 1998 1997 % Change
Trust fees $ 113 $ 27 318.5% $ 350 $ 254 37.8%
Service charges on
deposits 193 181 6.6% 546 527 3.6%
Gain on sale of
loans 47 29 62.1% 117 59 98.3%
Trading gains
(losses) (39) 0 na (8) 0 na
Other income 309 195 58.5% 691 547 26.3%
Subtotal 623 432 44.2% 1,696 1,387 22.3%
Security gains
(losses) 2 (2) 200.0% 1 (4) 125.0%
Gains (losses)
securities held
for sale 673 236 185.2% 1,260 590 113.6%
Total $1,298 $666 94.9% $2,957 $1,973 49.9%
INVESTMENT SECURITIES
The amortized cost and estimated market values of
securities held to maturity at September 30, 1998 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 $ 2,256 $ 0 $16 $ 2,240
Obligations of states and
political subdivisions 4,334 245 2 4,577
Mortgage-backed securities 7,023 84 30 7,077
Total $13,613 $329 $48 $13,894
Included above in U.S. Government corporations and
agencies is a structured note with a book value of $2,256,000
and a market value of $2,240,000 which matures in the year
2000.
The amortized cost and estimated market values of
securities available for sale at September 30, 1998 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 $ 15,218 $ 1 $ 78 $ 15,141
Obligations of states and
political subdivisions 8,037 48 4 8,081
Mortgage-backed securities 90,940 281 1,231 89,990
Mortgage derivatives 31,893 91 243 31,741
Marketable equity securities 5,310 0 132 5,178
Corporate debt 6,530 29 52 6,507
Total $157,928 $450 $1,740 $156,638
Included above in U.S. Government corporations and
agencies is a structured note with a book value of $1,925,000
and a market value of $1,884,000 which matures in the year
2005.
The mortgage derivatives are comprised solely of
collateralized mortgage obligations (CMOs) including one
principal only CMO issued by FNMA with a book value of $81,000
and an estimated market value of $79,000. Privately issued
CMOs included in the table above have a book value of
$6,519,000 and an estimated market value of $6,544,000. Credit
risk on privately issued CMOs and corporate debt is evaluated
based upon independent rating agencies and on the underlying
collateral of the obligation. At September 30, 1998, 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) 1998 1997 % Change 1998 1997 % Change
Salaries and
wages $ 889 $ 737 20.6% $2,466 $2,000 23.3%
Employee benefits 248 210 18.1% 800 627 27.6%
Net occupancy
expense 203 199 2.0% 608 583 4.3%
Equipment expense 245 221 10.9% 721 688 4.8%
Other operating
expenses 774 757 2.2% 2,276 2,233 1.9%
Total $2,359 $2,124 11.1% $6,871 $6,131 12.1%
Increases in employee related costs resulted from the
expansion of the asset management area and the branch network.
Staff additions were also made in credit administration. Full
time equivalent employees decreased from 142 at the end of
September 1997 to 140 at the third quarter of 1998. Assets
managed per full time equivalent employee increased from $2.6
million to $3.1 million.
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 1998, $460,000 was added to the
allowance and charged to expense compared to $555,000 in 1997.
At September 30, 1998, the allowance for possible loan losses
to total loans and leases was 2.01% compared to 1.67% last
year. The ratio of the Allowance for Possible Loan Losses to
underperforming assets increased to 981.54% at September 30,
1998 from 304.14% last year. The following table details the
Allowance for Possible Loan Losses and also includes various
loan charge off statistics for 1998 and 1997.
Three months ended Nine months ended
Sept. 30, Sept. 30,
($000s) 1998 1997 1998 1997
Balance, beginning of period $ 4,307 $ 3,474 $ 4,134 $ 3,153
Provision for possible loan
losses 185 200 460 555
Loans charged-off 27 6 141 50
Recoveries on loans
previously charged-off 1 3 13 13
Net charge offs 26 3 128 37
Balance, end of period $ 4,466 $ 3,671 $ 4,466 $ 3,671
Loans and leases outstanding $221,716 $220,188
Average loans and leases $223,737 $214,017 $224,188 $203,432
Annualized net charge offs
as a percent of:
Average loans and leases 0.05% 0.01% 0.11% 0.04%
Total loans at end of
period 0.12% 0.03%
Reserve for possible loan
losses 2.33% 0.33% 5.73% 2.02%
Reserve for possible loan
losses to:
Average loans and leases 2.00% 1.72% 1.99% 1.80%
Total loans at end of
period 2.01% 1.67%
Under-performing assets 981.54% 304.14%
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) 1998 1997
Non-accrual loans and leases $ 449 $1,175
Ninety days past due loans
and leases still accruing interest 6 11
Other real estate owned 0 21
Total $ 455 $1,207
Restructured loans and
leases included
in above totals $ 30 $ 537
Restructured loans and
leases in compliance with
modified terms 1,642 63
LONG TERM DEBT
Long term debt consists of advances from the Federal Home
Loan Bank detailed in the table below.
Amount Current
Type ($000s) Rate Maturity
Fixed rate advance 5,000 6.10% 9/17/99
Fixed rate advance 5,000 6.20% 9/17/00
Fixed rate advance 10,000 6.56% 10/1/07
Six month convertible
advance 30,000 5.09% 12/10/07
Three year convertible
advance 7,000 5.60% 4/30/08
Three year convertible
advance 8,000 5.46% 6/19/08
Three year convertible
advance 10,000 4.76% 9/24/08
Fixed rate, amortizing
advance 36 5.55% 12/22/98
Fixed rate, amortizing
advance 1,641 6.05% 11/18/01
Fixed rate, amortizing
advance 2.200 6.85% 8/1/12
Fixed rate, amortizing
advance 116 5.80% 12/1/05
Fixed rate, amortizing
advance 1,106 6.85% 6/6/11
Fixed rate, amortizing
advance 103 6.75% 6/6/11
Fixed rate, amortizing
advance 641 6.85% 6/12/11
Fixed rate, amortizing
advance 636 6.25% 11/1/17
Fixed rate, amortizing
advance 247 6.95% 8/31/15
$81,726
CAPITAL RESOURCES
At September 30, 1998, shareholders' equity was
$33,172,000 compared to $31,899,000 at December 31, 1997 and
$30,701,000 at September 30, 1997. The following table
presents various capital ratios as of September 30:
September 30, 1998 1997
Average shareholder's
equity to :
Average assets 8.3% 7.9%
Average deposits 11.5% 10.8%
Average loans and
leases 14.9% 14.1%
Primary capital 8.8% 9.1%
Risk-based capital
ratio:
Tier 1 12.0% 11.9%
Total 13.2% 13.2%
Leverage ratio 7.8% 8.0%
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 11.8%
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,
1998, the Corporation's leverage ratio was 7.8%.
Year 2000 Readiness
The Corporation initiated the process of preparing its
computer systems and applications for the Year 2000 during
1997. The Year 2000 Readiness Team completed their
assessment of the systems which may be affected by the Year
2000 issue. The Corporation is replacing its mainframe
computer with a Year 2000 compliant system in December 1998.
The expense associated with this installation will not
impact expenses, because the present mainframe was fully
depreciated in August 1998. Management expects testing for
Year 2000 functionality to be substantially complete by the
middle of January 1999. A company-wide contingency plan has
been prepared for each department to address mission
critical systems in the event of any system problem not
discovered during the assessment, testing and validation
phases.
Purchased hardware and software will be capitalized in
accordance with normal policy. Personnel and other costs
related to the project will be expensed as incurred. The
Corporation does not expect to spend any significant amounts
with outside contractors relative to the completion of this
task. Therefore, cost estimates do not represent any
material incremental costs, but rather will represent the
redeployment of existing technology resources. The majority
of information systems are vendor-supplied, and all vendors
have provided a certification or a delivery commitment
letter. Management believes that modifications to existing
systems, conversions to new systems, and vendor delivery of
millennium-compliant systems will be resolved on a timely
basis, and any related costs will not have a material impact
on the operations, cash flows, or financial condition of
future periods.
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 16, 1998 s/J. Vincent Ciroli, Jr.
J. Vincent Ciroli, Jr.
President & CEO
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