U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
For the Quarter Ended June 30, 1999
[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,
5,236,534 shares
outstanding
as of August 4, 1999
<PAGE>
FORM 10-Q
BELMONT BANCORP.
Quarter Ending June 30,1999
INDEX
Part I. Financial information
Management's report on financial statements
Consolidated Statements of Condition - June 30, 1999,
December 31, 1998, and June 30, 1998
Consolidated Statements of Income-Six Months Ended
June 30, 1999 and June 30, 1998
Consolidated Statements of Income-Three Months
Ended June 30, 1999 and June 30, 1998
Consolidated Statements of Cash Flows-Six Months
Ended June 30, 1999 and June 30, 1998
Consolidated Statements of Changes in Shareholders'
Equity Six Months Ended June 30, 1999 and June 30, 1998
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
<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 is intended to provide reason-
able 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 seven 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.
BASIS OF PRESENTATION
The consolidated financial statements include the
accounts of Belmont Bancorp. and its subsidiaries,
Belmont National Bank and Belmont Financial Network.
<PAGE>
Belmont Bancorp. and Subsidiaries
Consolidated Condensed Balance Sheet `
(Unaudited) ($000s except per share amounts)
June 30, December 31, June 30,
1999 1998 1998
ASSETS
Cash and due from banks $ 10,272 $ 9,439 $ 11,190
Federal funds sold - - 475
Loans held for sale 2,548 1,734 1,615
Trading securities - 2,281 988
Securities available for sale at
market value 165,485 184,995 148,187
Securities held to maturity - 12,516 14,254
Loans 197,515 206,452 221,954
Less allowance for possible loan
losses (6,932) (5,475) (4,307)
Net loans 190,583 200,977 217,647
Premises and equipment, net 7,485 7,377 7,445
Other real estate owned 205 - -
Accrued income receivable 2,826 2,731 2,921
Other assets 19,551 16,233 11,576
Total assets $398,955 $438,283 $416,298
LIABILITIES
Non-interest bearing deposits:
Demand $ 26,757 $ 30,219 $ 27,524
Interest-bearing deposits:
Demand 36,723 42,437 43,554
Savings 81,424 88,265 81,593
Time 134,778 143,430 136,593
Total deposits 279,682 304,351 289,264
Securities sold under repurchase
agreements 5,397 6,239 7,685
Federal funds purchased and other
short-term borrowings 66 3,950 -
Long term debt 91,021 91,401 72,214
Accrued interest on deposits and
other borrowings 845 896 928
Other liabilities 2,355 6,082 12,991
Total liabilities $379,366 $412,919 $383,082
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 at
6/30/99 $ 1,321 $ 1,321 $ 1,321
Surplus 7,904 7,854 7,854
Treasury stock (51,792 shares at
6/30/99; 66,174 shares at 12/31/98;
52,660 shares at 6/30/98) (1,170) (1,400) (501)
Retained earnings:
Unappropriated 13,757 17,938 23,910
Appropriated for
contingencies 850 850 850
Accumulated other comprehensive
(loss) (3,073) (1,199) (218)
Total shareholders' equity $ 19,589 $ 25,364 $ 33,216
Total liabilities and
shareholders' equity $398,955 $438,283 $416,298
<PAGE>
<PAGE>
Belmont Bancorp. and Subsidiaries
Consolidated Condensed Statement of Income
(Unaudited) ($000s except per share amounts)
For the Six Months Ended June 30,
1999 1998
INTEREST INCOME
Loans and lease financing
Taxable $ 9,031 $ 10,451
Tax-exempt 142 133
Investment securities:
Taxable 3,687 3,517
Tax-exempt 915 635
Dividends 180 163
Interest on trading
securities 86 6
Interest on fed funds sold 48 56
Total interest income 14,089 14,961
INTEREST EXPENSE
Deposits 5,639 5,515
Borrowings 2,707 2,228
Total interest expense 8,346 7,743
Net interest income 5,743 7,218
Provision for possible
loan losses 7,606 275
Net interest income
(loss) after provision
for possible loan
losses (1,863) 6,943
NON-INTEREST INCOME
Trust fees 232 237
Service charges on
deposits 424 353
Other operating income 428 452
Investment securities
gains (losses) (1) (1)
Trading profits (losses) (10) 31
Gains (losses) on
securities available for sale (16) 587
Total non-interest
income 1,057 1,659
NON-INTEREST EXPENSE
Salary and employee
benefits 2,153 2,129
Net occupancy expense of
premises 473 405
Equipment expenses 439 476
Other operating expenses 1,839 1,502
Total non-interest
expense 4,904 4,512
Income (loss) before
income taxes (5,710) 4,090
INCOME TAXES (CREDIT) (2,156) 1,085
Net income (loss) ($3,554) $ 3,005
PER COMMON SHARE DATA
Net income (loss) per
share ($0.68) $ 0.57
Cash dividend per share $ 0.120 $ 0.185
Book value per share $ 3.74 $ 6.31
Weighted average shares
outstanding 5,234,309 5,262,797
<PAGE>
Belmont Bancorp. and Subsidiaries
Consolidated Condensed Statement of Income
(Unaudited) ($000s except per share amounts)
Three months ended June 30,
1999 1998
INTEREST INCOME
Loans and lease financing
Taxable $ 4,172 $ 5,236
Tax-exempt 72 67
Investment securities:
Taxable 1,710 1,689
Tax-exempt 530 344
Dividends 92 82
Interest on trading
securities 34 5
Interest on fed funds sold 11 17
Total interest income 6,621 7,440
INTEREST EXPENSE
Deposits 2,747 2,855
Borrowings 1,352 1,068
Total interest expense 4,099 3,923
Net interest income 2,522 3,517
Provision for possible
loan losses 1,871 125
Net interest income
(loss) after provision
for possible loan losses 651 3,392
NON-INTEREST INCOME
Trust fees 104 128
Service charges on
deposits 237 182
Other operating income 203 222
Investment securities
gains (losses) - (1)
Trading profits (losses) 50 17
Gains (losses) on
securities available for sale (57) 267
Total non-interest income 537 815
NON-INTEREST EXPENSE
Salary and employee
benefits 1,071 1,063
Net occupancy expense of
premises 222 206
Equipment expenses 210 255
Other operating expenses 1,129 762
Total non-interest
expense 2,632 2,286
Income (loss) before
income taxes (1,444) 1,921
INCOME TAXES (CREDIT) (499) 494
Net income (loss) ($945) $1,427
PER COMMON SHARE DATA
Net income (loss) per
share ($0.18) $0.27
Cash dividend per share - $0.100
Weighted average shares
outstanding 5,236,534 5,261,996
<PAGE>
Belmont Bancorp. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30 (Unaudited)
1999 1998
Operating Activities
Net income (loss) ($3,554) $ 3,005
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Provision for possible loan losses 7,606 275
Depreciation and amortization expense 360 403
Amortization of investment security
premiums 1,599 897
Accretion of investment security discounts and
interest recorded on zero-coupon securities (279) (126)
Trading (gains) losses 10 (31)
Investment securities (gains) losses 1 1
(Gains) losses on securities available for sale 17 (587)
Gain on sale of loans (25) (70)
Proceeds on sale of trading assets 13,592 3,152
Purchase of trading assets (15,516) (3,640)
(Increase) decrease in interest receivable (95) (335)
Increase (decrease) in interest payable (51) 197
Others, net (6,083) 9,543
Net cash provided (used) by operating
activities (2,418) 12,684
Investing Activities
Net decrease in federal funds sold 0 (475)
Proceeds on sale of securities available for
sale 32,104 37,845
Proceeds from maturities and calls of investment
securities 171 3,161
Purchase of securities available for sale (27,754) (81,826)
Principal collected on mortgage-backed
securities 27,526 14,206
Net (increase) decrease in loans and
leases, net of charge offs (5,408) (12,952)
Proceeds on sale of loans 6,922 14,220
Recoveries on loans previously charged off 280 12
Proceeds from sale of other real estate owned 0 39
Purchases of premises and equipment (468) (447)
Net cash provided (used) by investing
activities 33,373 (26,217)
Financing Activities
Net increase (decrease) in deposits (24,669) 25,356
Net increase (decrease) in repurchase agreements (842) 2,429
Net increase (decrease) in short-term borrowings (3,884) (14,635)
Proceeds on long-term debt 0 15,000
Payments on long-term debt (380) (12,421)
Purchase of treasury stock 0 (409)
Treasury stock issued 280 112
Dividends paid on common and preferred stock (627) (974)
Net cash provided (used) by financing
activities (30,122) 14,458
Increase (Decrease) in Cash and Cash Equivalents 833 925
Cash and Equivalents at Beginning of Year 9,439 10,265
Cash and Equivalents at June 30 $ 10,272 $ 11,190
<PAGE>
<TABLE>
Belmont Bancorp. and Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Six Months Ended June 30, 1999 and 1998
<CAPTION>
Accumulated
Other
Compre- Compre- Retained Earnings
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, 1997 $31,899 $ 199 $1,321 $7,781 $21,879 $850 ($131)
1998 Year-to-date net income 3,005 3,005 3,005
Change in unrealized loss-
securities available-for-sale,
net of reclassification
adjustment (1) (417) (417) (417)
Comprehensive income $2,588
Purchase of treasury stock (409) (409)
Issuance of treasury stock 112 73 39
Cash dividends declared:
Common stock ($.185 per
share) (974) (974)
Balance, June 30, 1998 $33,216 ($218) $1,321 $7,854 $23,910 $850 ($501)
(1) Disclosure of
reclassification adjustment:
Unrealized holding losses
arising during period ($30)
Less: reclassification
adjustment for gains (loss)
included in net income, net
of tax 387
Net unrealized losses on
securities ($417)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Compre- Retained Earnings
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, 1998, as
previously reported $33,430 ($1,199) $1,321 $7,854 $26,004 $850 ($1,400)
Prior period adjustment, net of
tax (8,066) 0 0 (8,066) 0 0
Balance as restated, December 31,
1998 25,364 (1,199) 1,321 7,854 17,938 850 (1,400)
1999 Year-to-date net loss (3,554) ($3,554) (3,554)
Change in unrealized loss-
securities available-for-sale,
net of reclassification
adjustment (2) (1,874) (1,874) (1,874)
Comprehensive loss ($5,428)
Purchase of treasury stock 0
Issuance of treasury stock 280 50 230
Cash dividends declared:
Common stock ($.12 per share) (627) (627)
Balance, June 30, 1999 $19,589 ($3,073) $1,321 $7,904 $13,757 $850 ($1,170)
(2) Disclosure of
reclassification adjustment:
Unrealized holding losses
arising during period ($1,885)
Less: reclassification
adjustment for gains (loss)
included in net income, net of tax (11)
Net unrealized losses on
securities ($1,874)
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SUMMARY
For the six months ended June 30, 1999, Belmont
Bancorp. incurred a loss of $3,554,000, or a loss of
$0.68 per share, compared to earnings of $3,005,000, or
$0.57 per share, for the first six months of 1998. For
the second quarter ended June 30, 1999, the Corporation
incurred a loss of $945,000,or a loss of $0.18 per
common share, compared to earnings of $1,427,000, or
$0.27 per common share for the comparative quarter last
year.
The losses reported for the year and quarter to
date periods for 1999 were primarily the result of a provision
for loan losses totaling $$7,606,000 for the first six
months of 1999 and a provision for loan losses totaling
$1.871,000 during the second quarter of 1999. Loans
charged off against the reserve for loan losses, net of
recoveries, totaled $6,149,000 for the first six months
of 1999 and $1,621,000 for the three months ended June
30, 1999.
The following table presents the annualized return
on average shareholders' equity and the annualized
return on average assets for comparative periods of
1999 and 1998.
Quarter ended Six months ended
June 30, June 30,
($000s) 1999 1998 1999 1998
Return on average
assets -0.91% 1.44% -1.69% 1.52%
Return on
shareholders' equity -16.94% 17.23% -31.86% 18.10%
Average assets $414,692 $396,090 $421,010 $394,923
Average shareholders'
equity $ 22,316 $ 33,125 $ 22,310 $ 33,202
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 six months and three months ended
June 30, 1999, 1998, and 1997. 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 8.39% during the first six months
of 1998 to 7.50% in 1999, a decrease of 89 basis
points. (A basis point (bp) is equivalent to .01%.)
The yield on earning assets was negatively impacted by
a decline in loan volume and lower yields on both the
loan and investment portfolio. The cost of interest
bearing liabilities decreased 13 basis points from
4.72% during the first half of 1998 to 4.59% in 1999.
The net interest margin (net interest income divided by
interest earning assets) was 3.21% during the first
half of 1999 compared to 4.14% during the same period
last year.
The taxable equivalent yield on interest earning
assets decreased from 8.27% during the second quarter
of 1998 to 7.21% in 1999, a decrease of 106 basis
points. The cost of interest bearing liabilities
declined 19 basis points from 4.74% during the second
quarter of 1998 to 4.55% in 1999. The net interest
margin decreased from 4.01% to 2.93%.
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).
<PAGE>
<TABLE>
TABLE 1. - CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET
INTEREST INCOME (Fully Taxable Equivalent Basis)($000's)
<CAPTION>
Six Months Ended June 30,
1999 1998 1997
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 $203,160 $ 9,240 9.17% $224,414 $10,646 9.57% $198,140 $9,283 9.45%
Securities
Taxable 144,755 3,864 5.38% 117,436 3,683 6.32% 111,257 3,837 6.95%
Exempt from
income tax 38,095 1,336 7.07% 23,973 916 7.71% 24,157 906 7.56%
Trading account
assets 3,573 86 4.85% 199 6 6.08% 0 0
Federal funds
sold 2,040 48 4.74% 2,081 56 5.43% 2,036 53 5.25%
Total interest
earning assets 391,623 14,574 7.50% 368,103 15,307 8.39% 335,590 14,079 8.46%
Cash and due from
banks 10,783 10,770 9,954
Other assets 27,660 20,242 15,710
Valuation
allowance-
available for
sale securities (2,237) 9 (1,013)
Allowance for
possible loan loss (6,728) (4,201) (3,261)
Total assets 421,101 394,923 356,980
Liabilities
Interest bearing
liabilities
Interest
checking 43,310 657 3.06% 43,156 718 3.36% 43,319 729 3.39%
Savings 85,627 1,338 3.15% 81,465 1,323 3.27% 79,263 1,202 3.06%
Other time
deposits 137,911 3,644 5.33% 127,322 3,475 5.50% 112,987 2,949 5.26%
Other Borrowings 100,169 2,707 5.45% 78,903 2,227 5.69% 62,335 1,763 5.70%
Total interest
bearing
liabilities 367,017 8,346 4.59% 330,846 7,743 4.72% 297,904 6,643 4.50%
Demand deposits 29,125 29,703 28,883
Other liabilities 2,649 1,172 2,161
Total liabilities 398,792 361,721 328,948
Shareholders'
equity 22,310 33,202 28,032
Liabilities &
shareholders'
equity 421,101 394,923 356,980
Net interest
income
Margin on a
taxable equivalent
basis 6,228 3.21% 7,564 4.14% 7,436 4.47%
Net interest rate
spread 2.92% 3.67% 3.96%
Interest bearing
liabilities
to interest
earning assets 93.72% 89.88% 88.77%
</TABLE>
<PAGE>
<TABLE>
TABLE 2. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
<CAPTION>
Six Months Ended June 30, 1998
1999 Compared to 1998 1998 Compared to 1997
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 (1,008) (439) 41 (1,406) 1,231 117 15 1,363
Securities
Taxable 857 (548) (128) 181 213 (348) (18) (153)
Exempt from
Income Taxes 540 (75) (45) 420 (7) 17 - 10
Trading account
assets 102 (1) (21) 80 - - 6 6
Federal Funds Sold (1) (7) - (8) 1 2 - 3
Total Interest
Income Change 490 (1,070) (153) (733) 1,438 (212) 3 1,229
Increase (Decrease)
in Interest Expense
Interest Checking 3 (63) - (60) (3) (8) - (11)
Savings 68 (50) (3) 15 33 85 2 120
Other Time
Deposits 289 (111) (9) 169 374 135 17 526
Other
Borrowings 600 (95) (26) 479 469 (4) - 465
Total Interest
Expense Change 960 (319) (38) 603 873 208 19 1,100
Increase (Decrease)
in Net Interest
Income on a Taxable
Equivalent Basis (470) (751) (115) (1,336) 565 (420) (16) 129
(Increase) Decrease
in Taxable
Equivalent
Adjustment (139) 19
Net Interest Income
Change (1,475) 148
</TABLE>
<TABLE>
<PAGE>
TABLE 3. - CONSOLIDATED AVERAGE BALANCE SHEETS AND
ANALYSIS OF NET INTEREST INCOME
(Fully Taxable Equivalent Basis)($000's)
<CAPTION>
Three Months Ended June 30,
1999 1998 1997
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 $203,093 $4,288 8.47% $223,588 $5,334 9.57% $203,096 $4,799 9.48%
Securities
Taxable 135,026 1,800 5.35% 118,143 1,775 6.03% 122,944 2,083 6.80%
Exempt from
income tax 42,515 775 7.31% 26,327 491 7.48% 27,104 503 7.44%
Trading account
assets 2,955 34 4.62% 322 5 6.23% 0 0
Federal funds
sold 955 11 4.62% 1,248 17 5.46% 70 1 5.73%
Total interest
earning assets 384,544 6,908 7.21% 369,628 7,622 8.27% 353,214 7,386 8.39%
Cash and due from
banks 11,156 10,701 9,883
Other assets 28,154 20,214 16,325
Valuation
allowance-
available for
sale securities (2,500) (198) (1,448)
Allowance for
possible loan loss (6,662) (4,255) (3,330)
Total assets 414,692 396,090 374,644
Liabilities
Interest bearing
liabilities
Interest
checking 39,622 293 2.97% 42,101 345 3.29% 40,440 337 3.34%
Savings 84,285 661 3.15% 81,292 665 3.28% 79,092 605 3.07%
Other time
deposits 138,141 1,793 5.21% 132,834 1,846 5.57% 114,102 1,494 5.25%
Other Borrowings 99,402 1,352 5.46% 75,492 1,067 5.67% 81,361 1,156 5.70%
Total interest
bearing
liabilities 361,450 4,099 4.55% 331,719 3,923 4.74% 314,995 3,592 4.57%
Demand deposits 28,321 30,167 29,227
Other liabilities 2,605 1,079 2,189
Total liabilities 392,376 362,965 346,411
Shareholders'
equity 22,316 33,125 28,233
Liabilities &
shareholders'
equity 414,692 396,090 374,644
Net interest
income
Margin on a
taxable equivalent
basis 2,809 2.93% 3,699 4.01% 3,794 4.31%
Net interest rate
spread 2.66% 3.53% 3.81%
Interest bearing
liabilities
to interest
earning assets 93.99% 89.74% 89.18%
</TABLE>
<PAGE>
<TABLE>
TABLE 4. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
<CAPTION>
Three Months Ended June 30
1999 Compared to 1998 1998 Compared to 1997
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 (489) (613) 56 (1,046) 484 46 5 535
Securities
Taxable 254 (200) (29) 25 (81) (236) 9 (308)
Exempt from
Income Taxes 302 (11) (7) 284 (14) 2 - (12)
Trading account
assets 41 (1) (11) 29 - - 5 5
Federal Funds Sold (4) (3) 1 (6) 17 - (1) 16
Total Interest
Income Change 104 (828) 10 (714) 406 (188) 18 236
Increase (Decrease)
in Interest Expense
Interest Checking (20) (34) 2 (52) 14 (6) - 8
Savings 24 (27) (1) (4) 17 42 1 60
Other Time
Deposits 74 (122) (4) (52) 245 92 15 352
Other
Borrowings 338 (40) (14) 284 (83) (6) - (89)
Total Interest
Expense Change 416 (223) (17) 176 193 122 16 331
Increase (Decrease)
in Net Interest
Income on a Taxable
Equivalent Basis (312) (605) 27 (890) 213 (310) 2 (95)
(Increase) Decrease
in Taxable
Equivalent
Adjustment (105) 18
Net Interest Income
Change (995) (77)
</TABLE>
OTHER OPERATING INCOME
Other operating income, excluding securities gains
and losses, were nearly the same for the first six
months of 1999 compared to 1998. For the quarter ended
June 30, 1999, other operating income, excluding
securities gains and losses, increased 8.2% or $45,000
compared to the respective period last year. Securities
gains realized on the Available for Sale portfolio fell
from $587,000 for the first six months of 1998 to a
loss of $16,000 for the first six months of 1999.
Changes in various categories of other income are
depicted in the table below.
Three months ended Six months ended
($000s) 1999 1998 % Change 1999 1998 % Change
Trust fees $104 $128 -18.8% $ 232 $237 -2.1%
Service charges on
deposits 237 182 30.2% 424 353 20.1%
Gain on sale of
loans 3 29 -89.7% 25 70 -64.3%
Trading gains
(losses) 50 17 194.1% (10) 31 -132.3%
Other income 200 193 3.6% 403 382 5.5%
Subtotal 594 549 8.2% 1,074 1,073 0.1%
Security gains
(losses) 0 (1) 100.0% (1) (1) 0.0%
Gains (losses)
securities held
for sale (57) 267 -121.3% (16) 587 -102.7%
Total $537 $815 -34.1% $1,057 $1,659 -36.3%
INVESTMENT SECURITIES
The amortized cost and estimated market values of
securities available for sale at June 30, 1999 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 $ 11,106 $ 9 $ 427 $ 10,688
Obligations of states and
political subdivisions 44,875 90 2,756 42,209
Mortgage-backed securities 80,653 164 1,257 79,560
Mortgage derivatives 24,523 100 498 24,125
Corporate trust preferred
securities 3,109 0 88 3,021
Marketable equity securities 5,875 119 129 5,865
Total $170,141 $482 $5,155 $165,468
The Corporation elected to transfer the balance of
securities previously classified as Held to Maturity to
the Available for Sale portfolio effective April 1,
1999 in accordance with Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities.
The mortgage derivatives are comprised solely of
collateralized mortgage obligations. Privately issued
CMOs included in the table above have a book value of
$10,716,000 and an estimated market value of
$10,425,000. Credit risk on privately issued CMOs is
evaluated based upon independent rating agencies and on
the underlying collateral of the obligation.
At June 30, 1999, the Corporation owned an
aggregate par value of $3,599,000 in privately issued
collateralized mortgage obligations issued by the
Residential Funding Mortgage Securities Corporation and
an aggregate par value of $3,699,000 of privately
issued collateralized mortgage obligations issued by
Norwest Asset Securities Corporation. No other
securities of a single issuer, other than U.S. Treasury
or other U.S. government agency securities, exceeded
10% of shareholders' equity.
Corporate trust preferred securities consist of
four separate issues, none with a par value in excess
of $1 million.
Market factors and prepayment speeds can have an
impact on the yield and average lives of mortgage-
backed securities including mortgage derivatives.
OPERATING EXPENSES
The following table shows the dollar amounts and
growth in various components of operating expenses.
Three months ended June 30, Six months ended June 30,
($000s) 1999 1998 % change 1999 1998 % change
Salaries and
wages $ 817 $ 803 1.7% $1,608 $1,577 2.0%
Employee benefits 254 260 -2.3% 545 552 -1.3%
Net occupancy
expense 222 206 7.8% 473 405 16.8%
Equipment expense 210 255 -17.6% 439 476 -7.8%
Other operating
expenses 1,129 762 48.2% 1,839 1,502 22.4%
Total $2,632 $2,286 15.1% $4,904 $4,512 8.7%
Operating expenses were higher during 1999
compared to 1998 due to legal and collection expenses
associated with the failure of a large commercial
borrower, a retailer of manufactured housing. Costs
associated with the workout of this credit totaled
$215,000 for the first half of 1999 and additional expenses
are anticipated.
In June 1999, the Board of Directors engaged FiCap
Strategic Partners, L.L.C. to provide interim executive
management services following the resignations of the
Corporation's former chief executive officer, J.
Vincent Ciroli, Jr., in June 1999 and the Bank's former
executive vice president and chief operating officer,
William Wallace, in March 1999. Expenses related to the
interim management group for the quarter and year to
date periods total $178,000. The Board of Directors
anticipates that the interim management group will
provide their services, including assisting the Board
with the recruitment of permanent executive management,
through the end of 1999.
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
provision 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 first half of 1999, $7,606,000 was added
to the allowance and charged to expense compared to
$275,000 in 1998. At June 30, 1999, the allowance for
possible loan losses to total loans and leases was
3.46% compared to 1.93% last year. The ratio of the
Allowance for Possible Loan Losses to under-performing
assets was 68.05% at June 30, 1999. The following
table details the Allowance for Possible Loan Losses
and also includes various loan charge-off statistics
for 1999 and 1998.
Allowance for Possible Loan Losses
Three months ended Six months ended
June 30, June 30,
($000s) 1999 1998 1999 1998
Balance, beginning of period $ 6,681 $ 4,186 $ 5,475 $ 4,134
Provision for possible loan
losses 1,872 125 7,606 275
Loans charged-off 1,900 5 6,429 114
Recoveries on loans
previously charged-off 279 1 280 12
Net charge offs 1,621 4 6,149 102
Balance, end of period $ 6,932 $ 4,307 $ 6,932 $ 4,307
Loans and leases outstanding
at period $200,063 $223,569 $200,063 $223,569
Average loans and leases $203,093 $223,588 $203,160 $224,414
Annualized net charge offs
as a percent of:
Average loans and leases 3.19% 0.01% 6.05% 0.09%
Total loans at end of
period 3.24% 0.01% 6.15% 0.09%
Reserve for possible loan
losses 93.54% 0.37% 177.41% 4.74%
Reserve for possible loan
losses to:
Average loans and leases 3.41% 1.93% 3.41% 1.92%
Total loans at end of
period 3.46% 1.93%
Under-performing assets 68.05% 504.33%
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
June 30 follows:
Under-performing assets June 30,
($000s) 1999 1998
Non-accrual loans and
leases $ 9,963 $849
Ninety days past due loans
and leases still accruing
interest 19 5
Other real estate owned 205 -
Total $10,187 $854
Loans restructured and in compliance with modified
terms are not included in total under-performing
assets. Total under-performing assets were
$10,187,000 or 2.55% of total assets at June 30, 1999
compared to $854,000 or 0.21% of total assets at June
30, 1998. Included in under-performing assets are $5.8
million in consumer homebuilder loans related to the
cessation of business of the manufactured housing
retailer previously reported. These loans were placed
on non-accrual status until such time as the home is
complete and the consumer can obtain permanent
financing or the valuation for the collateral
supporting the loan is complete. Also included in non-
accrual loans are $2.8 million in commercial loans
associated directly with the manufactured housing
retailer. An allocation of the Allowance for Loan
Losses related to these consumer and commercial loans
totals $3,058,000. The commercial loans are secured by
real estate, equipment and inventory.
Management maintains a watch list of loans requiring a
higher level of monitoring due to a change in the financial
position of the borrower, delinquency, deteriorating
collateral or other adverse trends or uncertainties that
might increase the risk of loss associated with the credit.
At June 30, 1999, loans, excluding nonaccrual loans,
monitored based upon these conditions totaled $9,927,000.
The management of under-performing and problem loans is an
ongoing process. While management believes the reserve for
loan losses is adequate based on current estimates, there
can be no assurance that future losses will not occur.
LOAN CONCENTRATIONS
The Corporation uses the Standard Industry Code
(SIC) system to determine concentrations of credit risk
by industry. While there are no aggregate loan
balances based on a single SIC classification that
exceed 10% of total loans, loans to the amusement
industry including amusement services and manufacturers
of amusement rides and concession trailors totaled
$23.2 million, or 11.6% of total loans, at June 30, 1999.
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 $ 5,000 6.10% 09/17/1999
Fixed rate, non-
amortizing advance 5,000 6.20% 09/15/2000
Fixed rate, non-
amortizing advance 10,000 6.56% 10/01/2007
Fixed rate, non-
amortizing advance 30,000 5.09% 12/10/2007
Fixed rate, non-
amortizing advance 7,000 5.60% 04/30/2008
Fixed rate, non-
amortizing advance 8,000 5.46% 06/19/2008
Fixed rate, non-
amortizing advance 10,000 4.78% 09/25/2008
Fixed rate, non-
amortizing advance 10,000 4.53% 10/02/2008
Fixed rate, amortizing
advance 1,290 6.05% 11/18/2001
Fixed rate, amortizing
advance 85 5.80% 12/01/2005
Fixed rate, amortizing
advance 1,065 6.85% 06/06/2011
Fixed rate, amortizing
advance 99 6.75% 06/06/2011
Fixed rate, amortizing
advance 617 6.85% 06/12/2011
Fixed rate, amortizing
advance 241 6.95% 08/31/2015
Fixed rate, amortizing
advance 2,126 6.70% 08/01/2012
Fixed rate, amortizing
advance 498 6.25% 11/01/2017
$91,021
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, shareholders' equity was
$19,589,000 compared to $25,364,000 at December 31,
1998 and $33,216,000 at June 30, 1998. The following
table presents various capital ratios as of June 30:
June 30, 1999 1998
Average shareholder's
equity to :
Average assets 5.3% 8.4%
Average deposits 7.5% 11.8%
Average loans and
leases 11.0% 14.8%
Primary capital 6.6% 9.0%
Risk-based capital
ratio:
Tier 1 8.6% 11.9%
Total 9.8% 13.2%
Leverage ratio 5.6% 7.9%
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
June 30, 1999, the Corporation had a Tier 1 capital
ratio of 8.6% and a total capital ratio of 9.8%.
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 June 30, 1999, the Corporation's leverage
ratio was 5.6%.
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. Average total deposits were $290.4 million for
the second quarter of 1999 compared to $301.6 million for
the first quarter of 1999. Approximately $5.6 million of
the decline in deposits is related to public funds which
fluctuate based on the timing of tax collections or other
investment alternatives available to the depository.
The Bank also has secured and unsecured lines of credit
with various correspondent banks totaling $6,500,000 which
may be used as an alternative funding source; at June 30,
1999 none of these lines were utilized.
Year 2000
The Corporation is aware of the overall potential
impact the 1999 to 2000 calendar changes could present.
The loss of hardware and/or software systems as well as
the loss of electricity and/or telecommunications are
areas of concern throughout the entire industry. A
smooth transition to the Year 2000 is planned with
little or no impact to our customer base.
The Corporation began gathering Year 2000 data in
August 1997. A written project plan was researched and
delivered during the fourth quarter of 1997. The Year
2000 project plan was presented to the Board of
Directors in February 1998 and was approved at the
February board meeting. The Year 2000 Project Team was
assigned in December 1997 and is comprised of
representatives from all affected departments. Monthly
meetings are held to review the current project status
and to assign various tasks to departments.
As a financial institution, the Corporation
follows Year 2000 guidelines written by the Federal
Financial Institutions Examination Council as well as
OCC Advisory Letters. The Office of the Comptroller of
the Currency has completed three extensive examinations
of Belmont National Bank and the Year 2000 plan. The
assigned examiner reviews all plans, research, and
results on a continual basis.
The Belmont National Bank Year 2000 plan is
comprised of the five Y2K phases: Awareness,
Assessment, Renovation, Validation and Implementation.
The Awareness phase consists of the institution being
aware of the potential problem(s) that could result
from the Year 2000. This phase was completed in
December 1997. The Assessment phase was completed in
January 1998 and included inventories of all equipment
including hardware, software, environmental controls,
fax machines, copiers, vault timers, security systems,
network systems etc. The Renovation phase, January
1998 through October 1998, consisted of known
renovations such as upgrading network routers, servers,
and software, and the installation of a new mainframe
system. June 1998 through December 1998 was the time
frame designated for the Validation phase. This phase
consisted of testing the software and hardware at
Belmont National Bank. During this phase all "mission
critical" systems were tested by changing the date and
completing transactions with calculation results
validated. From March 1998 through the remainder of
1999 Belmont National Bank will implement new software,
hardware and/or any equipment that did not pass all Y2K
tests.
As of January 1999, all "mission critical" systems
have been tested. All mission critical systems passed
Year 2000 testing. Other less critical systems that
did not pass have been replaced by June 1999. The
regulatory agency examiner has reviewed all test
results.
Belmont National Bank has included a customer
awareness policy dedicated to maintaining updated
communication with its customer base. The Bank
provided a project update in June 1998 and issued a new
update in February 1999. Both Y2K status reports were
available through the Bank's WEB site on the internet
as well as to customers and employees at all branch
locations.
At its June 1998 meeting, the Loan Committee
established a Year 2000 evaluation form, which was
included in the lending policy for all new commercial
loan applicants. The lending department prepared and
distributed Y2K readiness surveys to existing loan
customers with aggregate balances greater than
$150,000. All returned survey responses were evaluated
and a rating was assigned to each commercial customer.
The customer's Y2K readiness status was reviewed
quarterly.
Year 2000 surveys were also sent to commercial
deposit account holders with balances greater than
$250,000. Senior Management reviewed these surveys and
took appropriate action based on a low to high risk
rating system.
Regular update reports have been presented to the
Board of Directors of the Corporation.
Forward-looking Statements
Various statements in this Report concerning the manner
in which the Corporation intends to conduct its future
operations and potential trends that may affect future
results of operations are forward-looking statements. The
Corporation may be unable to realize its plans and
objectives due to various important factors. These factors
include changes in general economic conditions, changes in
the interest rates at which the Bank borrows and lends
funds, the adoption or application of laws or regulations
relating to the banking industry or changes in the level of
regulatory review, the incurrence of loan losses, and
changes in the banking industry generally due to the effects
of mergers and competition from other financial institutions
and service providers.
ITEM 7A-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Interest rate risk management focuses on maintaining
net interest income within Board-approved policy limits.
The Corporation uses an earnings simulation model to analyze
net interest income sensitivity to movements in interest
rates. Given an immediate, sustained 200 basis point upward
shock to the yield curve used in the simulation model, it is
estimated that net interest income for the Corporation would
decrease by approximately 6.7% over one year. A 200 basis
point sustained downward shock in the yield curve would
increase net interest income by an estimated 3.2%. These
estimated changes are within the policy guidelines
established by the Corporation's board of directors.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
As disclosed on its Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, the Corporation disclosed
(1) a suit for damages brought in the Court of Common Pleas
for Belmont County, Ohio in April 1999 by George Michael
Riley, et al. against the Bank and certain former officers,
among others, alleging torts to have occurred and (2) a suit
for damages pending in the Circuit Court of Ohio County,
West Virginia by Charles N. and Gay R. Monroe against the
Bank and others based upon a loan transaction for the
purchase of a manufactured home from another named
defendant. There have been no material developments in
either case since the filing of the Form 10-Q. In addition,
in May 1999, Charles J. McKeegan et al. filed a lawsuit
against the Bank and certain former officers, among others,
alleging torts to have occurred. Based on the advise of
counsel, the Corporation continues to believe its exposure
to liability, if any, is minimal in each case.
As disclosed in its Current Report on Form 8-K filed
with the SEC on August 11, 1999, in August 1999, the
Corporation's directors unanimously approved and executed
agreements with the Office of the Comptroller of the
Currency and the Federal Reserve Bank of Cleveland under
which the Corporation and the Bank agreed to meet
specified conditions relating to its future operations and
capital requirements. The Bank had largely anticipated
these conditions and previously began instituting many of
the policies and procedures specified in the agreements.
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)
s/W. Quay Mull, II
W. Quay Mull, II
Interim CEO
s/Jane Marsh
By: Jane Marsh
Secretary (Principal
Financial Officer)
August 13, 1999
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