U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
For the Quarter Ended March 31, 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 (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, $0.25 par value,
5,236,534 shares outstanding
as of May 10, 1999
FORM 10-Q
BELMONT BANCORP.
Quarter Ending March 31, 1999
INDEX
Part I. Financial information
Management's report on financial statements
Consolidated Statements of Condition - March 31, 1999,
December 31, 1998, and March 31, 1998
Consolidated Statements of Income-Three Months
Ended March 31, 1999 and March 31, 1998
Consolidated Statements of Cash Flows-Three Months
Ended March 31, 1999 and March 31, 1998
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1999 and March 31, 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
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.
Consolidated Balance Sheet
(Unaudited) ($000s except per share amounts)
March 31, December 31, March 31,
1999 1998 1998
ASSETS As Restated
Cash and due from banks $ 10,307 $ 9,439 $ 11,223
Federal funds sold - - -
Loans held for sale 1,744 1,734 1,713
Trading securities 4,953 2,281 -
Securities available for sale at
market value 171,121 184,995 126,758
Securities held to maturity 11,863 12,516 15,237
Loans 201,626 206,452 222,417
Less allowance for possible loan
losses (6,681) (5,475) (4,186)
Net loans 194,945 200,977 218,231
Premises and equipment, net 7,524 7,377 7,481
Other real estate owned 160 - -
Accrued income receivable 3,136 2,731 3,013
Other assets 18,321 16,233 10,190
Total Assets $424,074 $438,283 $393,846
LIABILITIES
Non-interest bearing deposits
Demand $ 25,925 $ 30,219 $ 29,380
Interest-bearing deposits:
Demand 42,905 42,437 46,732
Savings 86,898 88,265 81,168
Time 139,242 143,430 126,266
Total deposits 294,970 304,351 283,546
Securities sold under repurchase
agreements 5,293 6,239 7,801
Federal funds purchased and other
short-term borrowings 2,850 3,950 5,525
Long term debt 91,197 91,401 59,410
Accrued interest on deposits and
other borrowings 906 896 814
Other liabilities 6,638 6,082 4,316
Total liabilities $401,854 $412,919 $361,412
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
3/31/99 $ 1,321 $ 1,321 $ 1,321
Surplus 7,904 7,854 7,854
Treasury stock (51,792 shares at
3/31/99; 66,174 shares at 12/31/98;
26,330 shares at 3/31/98) (1,170) (1,400) (501)
Retained earnings:
Unappropriated 14,701 17,938 23,010
Appropriated for
contingencies 850 850 850
Accumulated other comprehensive
income (loss) (1,386) (1,199) (100)
Total shareholders' equity $ 22,220 $ 25,364 $ 32,434
Total liabilities and
shareholders' equity $424,074 $438,283 $393,846
Belmont Bancorp.
Consolidated Statements of Income
(Unaudited) ($000s except per share amounts)
For the Three Months Ended March 31,
1999 1998
INTEREST INCOME
Loans and lease financing
Taxable $ 4,859 $ 5,215
Tax-exempt 70 66
Investment securities:
Taxable 1,977 1,828
Tax-exempt 385 291
Dividends 88 81
Interest on trading
securities 52 1
Interest on fed funds sold 37 39
Total interest income 7,468 7,521
INTEREST EXPENSE
Deposits 2,892 2,660
Borrowings 1,355 1,160
Total interest expense 4,247 3,820
Net interest income 3,221 3,701
Provision for possible loan
losses 5,735 150
Net interest income (loss) after
provision for possible loan
losses (2,514) 3,551
NON-INTEREST INCOME
Trust fees 128 109
Service charges on deposits 187 171
Other operating income 225 230
Investment securities gains
(losses) (1) -
Trading profits (losses) (60) 14
Gains (losses) on securities
available for sale 41 320
Total non-interest
income 520 844
NON-INTEREST EXPENSE
Salary and employee benefits 1,082 1,066
Net occupancy expense of
premises 251 199
Equipment expenses 229 221
Other operating expenses 710 740
Total non-interest
expense 2,272 2,226
Income (loss) before income
taxes (4,266) 2,169
INCOME TAX EXPENSE (CREDIT) (1,657) 591
Net income (loss) $ (2,609) $ 1,578
PER COMMON SHARE DATA
Net income (loss) per share
(basic and diluted) $ (0.50) $ 0.30
Cash dividend per share $ 0.120 $ 0.085
Book value per share $ 4.24 $ 6.16
Weighted average shares
outstanding 5,232,060 5,263,307
Belmont Bancorp.
Consolidated Statement of Cash Flows
For the Three Months Ended March 31
(Unaudited) ($000s)
1999 1998
Operating Activities
Net income $ (2,609) $ 1,578
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Provision for possible loan losses 5,735 150
Depreciation and amortization expense 180 201
Amortization of investment security
premiums 862 368
Accretion of investment security discounts
and interest recorded on zero-coupon
securities (114) (69)
Investment securities (gains) losses 1 -
(Gains) losses on securities available for
sale (41) (320)
(Gains) losses on sale of trading assets 60 (14)
Purchase of securities for trading account (13,132) -
Proceeds from sale of trading assets 10,243 483
Gain on sale of loans (22) (41)
(Increase) decrease in interest receivable (405) (427)
Increase (decrease) in interest payable 10 83
Others, net (1,440) 2,195
Net cash provided (used) by operating
activities (672) 4,187
Investing Activities
Net (increase) decrease in federal funds sold 0 0
Proceeds on sale of securities available for
sale 15,709 17,940
Proceeds from maturities and calls of
investment securities 54 3,107
Purchase of securities available for sale (17,756) (32,970)
Principal collected on mortgage-backed
securities 15,685 6,139
Net (increase) decrease in loans and
leases, net of charge offs (5,387) (9,940)
Proceeds on sale of loans 5,539 10,641
Recoveries on loans previously charged off 1 11
Purchases of premises and equipment (326) (281)
Proceeds on sale of other real estate owned 0 20
Net cash provided (used) by investing
activities 13,519 (5,333)
Financing Activities
Net increase (decrease) in deposits (9,381) 19,638
Net increase (decrease) in repurchase
agreements (946) 2,545
Net increase (decrease) in short-term
borrowings (1,100) (9,110)
Payments on long-term debt (204) (10,225)
Purchase of treasury stock 0 (409)
Proceeds on issuance of treasury stock 280 112
Dividends paid on common and preferred stock (628) (447)
Net cash provided (used) by financing
activities (11,979) 2,104
Increase (Decrease) in Cash and Cash
Equivalents 868 958
Cash and Equivalents at Beginning of Year 9,439 10,265
Cash and Equivalents at March 31 $ 10,307 $ 11,223
<TABLE>
Belmont Bancorp.
Consolidated Statement of Shareholders' Equity
(Unaudited) ($000s except per share amounts)
For the Three Months Ended March 31, 1999 and 1998
<CAPTION>
Accumulated
Compre- Other 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 1,578 1,578 1,578
Change in unrealized loss-
securities available-for-
sale, net of reclassification
adjustment (299) (299) (299)
Comprehensive income $1,279
Purchase of treasury stock (409) (409)
Issuance of treasury stock 112 73 39
Cash dividends declared:
Common stock ($.085 per
share) (447) (447)
Balance, March 31, 1998 $32,434 ($100) $1,321 $7,854 $23,010 $850 ($501)
Balance, December 31, 1998,
as previously reported $33,430 ($1,199) $1,321 $7,854 $26,004 $850 ($1,400)
Prior period adjustment (8,066) 0 0 0 (8,066) 0 0
Balance as restated, December
31, 1998 25,364 ( 1,199) 1,321 7,854 17,938 850 ( 1,400)
1999 Year-to-date net income (2,609) (2,609) (2,609)
Change in unrealized loss-
securities available-for-
sale, net of reclassification
adjustment (1) (187) (187) (187)
Comprehensive income (2,796)
Purchase of treasury stock 0 0
Issuance of treasury stock 280 50 230
Cash dividends declared:
Common stock ($.12 per
share) (628) (628)
Balance, March 31, 1999 $22,220 ($1,386) $1,321 $7,904 $14,701 $850 ($1,170)
(1) Disclosure of reclassification
adjustment:
Unrealized holding
losses arising during period (160)
Less: reclassification
adjustment for gains included
in net income, net of tax 27
Net unrealized losses
on securities (187)
</TABLE>
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 1998.
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
1999. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SUMMARY
The Corporation reports a loss of $2.609,000 for the
first quarter of 1999, or $0.50 per share, and will restate
its fourth quarter of 1998 earnings for a prior period
adjustment. The loss and prior period adjustment are
attributable to loan relationships with a large commercial
borrower (the "Borrower") from New Philadelphia, Ohio. As
publicly announced on April 28, 1999, the Borrower, a
retailer of manufactured housing, voluntarily and
unexpectedly ceased operations at the close of business on
April 26, 1999. Belmont National Bank has a significant
commercial loan relationship with the Borrower. In addition,
the Bank provided temporary interim financing during the
construction period for homes for the Borrower's customers.
In the course of assessing the impact of this event on
the Bank, management discovered certain irregularities
related to indirect consumer loans which had been obtained
from the Bank through the Borrower's finance department.
Restated financial statements as of December 31, 1998 will be
issued to shareholders as soon as practical. Previously reported
net income for the year ended December 31, 1998 was $6,147,000;
earnings for the year will be restated to reflect a loss of
$1,919,000 or a loss of $0.37 per share.
With respect to the consumer loans provided to the
Borrower's customers, the Bank advanced the proceeds of the
consumer loans directly to the Borrower with the permission
of the customer. There were instances where the customer
would subsequently cancel the sales contract with Borrower,
but the funds were not returned by the Borrower to the Bank.
These funds were apparently used by the Borrower to fund its
operations. In many instances, the Borrower failed to
perform on the retail sales contract even though the Bank had
provided the funds to the Borrower so the Borrower could
complete the terms of the sales agreement. In addition, the
Borrower often failed to payoff the floor-plan lender on the
home purchased which has further impacted the Bank's
collateral position with respect to the homes. The Bank
continues to assess the impact of this segment of its
consumer loan portfolio on its current and future operations.
Any cancelled sales contracts that were originated prior to
1999 are recognized as a loss during the fourth quarter of
1998 as a prior period adjustment. Also, loss associated
with contracts in the progress of construction that were
funded prior to 1999 have been recognized as part of the
prior period adjustment. Losses on contracts funded during
1999 have been recognized during the first quarter of 1999.
In addition, the estimate of loss associated with the
commercial loan relationship has been recognized during the
first quarter of 1999.
The remaining indirect consumer loans have been placed
on non-accrual status. At March 31, 1999, these loans total
$6,672,000 and a reserve in the allowance for loan losses in
the amount of $2,147,000 has been allocated to these consumer
loans. The current remaining balance on the commercial loan
relationship with the Borrower is $3,618,000; these loans are
also on non-accrual status and a reserve in the allowance for
loan losses in the amount of $1,118,000 has been allocated to
the commercial credits.
The estimates of loss for the first quarter of 1999 and
the restatement of earnings for the fourth quarter of 1998
are based on the best information available to management at
the present time. Future results of operations may continue
to be affected by this situation. The Bank is pursuing a
claim with its fidelity bond carrier seeking restitution; the
maximum claim permitted by the policy is $4.7 million however
there can be no assurance at the present time that the claim
will be paid.
Performance ratios for the first quarter of 1999 and
1998 are presented below:
Three Months Ended
March 31
($000s) 1999 1998
Return on average assets -2.44% 1.60%
Return on shareholders' equity -46.79% 18.97%
Average assets $427,510 $393,756
Average shareholders' equity $22,304 $33,279
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.
Table 1, 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 three months ended March
31, 1999, 1998 and 1997. The table contains 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 8.50% during the first quarter of 1998 to
7.81% in 1999, a decrease of 69 basis points. (A basis point
(bp) is equivalent to .01%.) The cost of interest bearing
liabilities fell 8 basis points from 4.69% during the first
quarter of 1998 to 4.61% in 1999. The net interest margin
decreased from 4.28% to 3.49% during the comparative
quarters. The net interest margin for the first quarter of
1997 was 4.65%.
Table 2, 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>
Three Months Ended March 31,
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 $203,226 $4,962 9.90% $225,239 $5,313 9.57% $193,184 $4,484 9.41%
Securities
Taxable 154,650 2,065 5.42% 116,728 1,908 6.63% 99,570 1,757 7.16%
Exempt from
income tax 33,508 560 6.78% 21,619 424 7.95% 21,211 400 7.65%
Trading
account assets 4,191 52 5.03% 76 1 5.34% 0 0 0.00%
Federal funds
sold 3,124 37 4.80% 2,915 39 5.43% 4,001 52 5.27%
Total interest
earning assets 398,699 7,676 7.81% 366,577 7,685 8.50% 317,966 6,693 8.54%
Cash and due
from banks 10,410 10,839 10,024
Other assets 27,169 20,270 15,095
Valuation
allowance-
available for
sale
securities (1,974) 217 (577)
Allowance for
possible loan
loss (6,794) (4,147) (3,192)
Total assets 427,510 393,756 339,316
Liabilities
Interest
bearing
liabilities
Interest
checking 46,998 364 3.14% 44,210 373 3.42% 46,197 392 3.44%
Savings 86,969 677 3.16% 81,638 658 3.27% 79,435 597 3.05%
Other time
deposits 137,682 1,851 5.45% 121,811 1,629 5.42% 111,871 1,455 5.27%
Other
Borrowings 102,087 1,355 5.38% 82,315 1,160 5.72% 43,310 607 5.68%
Total interest
bearing
liabilities 373,736 4,247 4.61% 329,974 3,820 4.69% 280,813 3,051 4.41%
Demand deposits 29,928 29,239 28,540
Other
liabilities 1,542 1,264 2,132
Total
liabilities 405,206 360,477 311,485
Shareholders'
equity 22,304 33,279 27,831
Liabilities
& shareholders'
equity 427,510 393,756 339,316
Net interest
income
Margin on a
taxable
equivalent basis 3,429 3.49% 3,865 4.28% 3,642 4.65%
Net interest
rate spread 3.20% 3.81% 4.13%
Interest
bearing
liabilities
to interest
earning assets 93.74% 90.01% 88.32%
</TABLE>
<TABLE>
TABLE 2. - ANALYSIS OF NET INTEREST INCOME CHANGES
(Taxable Equivalent Basis) ($000's)
<CAPTION>
Three Months Ended March 31
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 ($519) $186 ($17) ($350) $ 744 $ 73 $ 12 $829
Securities
Taxable 620 (349) (114) 157 303 (129) (23) 151
Exempt from
Income Taxes 233 (63) (34) 136 8 16 0 24
Trading Account
Assets 54 0 (3) 51 0 0 1 1
Federal Funds Sold 3 (4) (1) (2) (14) 2 (1) (13)
Total Interest
Income Change 391 (230) (169) (8) 1,041 (38) (11) 992
Increase (Decrease)
in Interest Expense
Interest Checking 24 (31) (2) (9) (17) (2) 0 (19)
Savings 43 (22) (2) 19 17 43 1 61
Other Time
Deposits 212 9 1 222 129 41 4 174
Short Term
Borrowings 279 (67) (17) 195 547 3 3 553
Total Interest 558 (111) (20) 427 676 85 8 769
Expense Change
Increase (Decrease)
in Net Interest
Income on a Taxable
Equivalent Basis ($167) ($119) ($149) ($435) $365 ($123) ($19) $223
(Increase) Decrease
in Taxable
Equivalent
Adjustment (45) 1
Net Interest Income
Change ($480) $224
</TABLE>
OTHER OPERATING INCOME
Other operating income, excluding securities gains and
losses, decreased 8.4%, or $44,000, and totaled $480,000 for
the first three months of 1999, compared to $524,000 for the
respective period last year. The decline in other operating
income is attributable to trading losses which totaled
$60,000 for the first quarter of 1999 compared to gains of
$14,000 for the same period last year. Gains on sales of
securities held in the available for sale portfolio generated
$41,000 during the first quarter of 1998, down from $320,000.
Changes in various categories of other income are depicted in
the table below.
Three months ended March 31,
($000s) 1999 1998 % Change
Trust fees $128 $109 17.4%
Service charges on
deposits 187 171 9.4%
Gain on sale of
loans 22 41 -46.3%
Trading gains
(losses) (60) 14 -528.6%
Other income 203 189 7.4%
Subtotal 480 524 -8.4%
Security gains
(losses) (1) 0 na
Gains (losses)
securities held
for sale 41 320 -87.2%
Total $520 $844 -38.4%
INVESTMENT SECURITIES
The amortized cost and estimated market values of
securities held to maturity at March 31, 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 $ 2,254 $ 0 $22 $ 2,232
Obligations of states and
political subdivisions 3,766 218 4 3,980
Mortgage-backed securities 5,843 65 33 5,875
Total $11,863 $283 $59 $12,087
The amortized cost and estimated market values of
securities available for sale at March 31, 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 $ 9,321 $ 10 $ 65 $ 9,266
Obligations of states and
political subdivisions 41,280 6 794 40,492
Mortgage-backed securities 81,626 217 1,113 80,730
Mortgage derivatives 28,766 110 316 28,560
Corporate trust preferred
securities 6,529 2 148 6,383
Marketable equity
securities 5,700 118 128 5,690
Total $173,222 $463 $2,564 $171,121
Corporate trust preferred securities consist of six
separate issues, none with a par value in excess of $2
million. No single privately issued bond exceeded 10% of
shareholders equity at March 31, 1999. 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
to the Corporation's profitability. Occupancy
expense was higher during 1999 due to costs associated with
vacating a leased branch office inside the Ohio Valley Mall.
The Bank expanded its drive-thru facility on the outside
perimeter of the Ohio Valley Mall to a full service branch.
The following table shows the dollar amounts and growth in
various components of operating expenses.
Three months ended March 31,
($000s) 1999 1998 % Change
Salaries and
wages $ 791 $ 774 2.2%
Employee
benefits 291 292 -0.3%
Net occupancy
expense 251 199 26.1%
Equipment
expense 229 221 3.6%
Other operating
expenses 710 740 -4.1%
Total $2,272 $2,226 2.1%
Historically, when comparing the Corporation to various peer
groups, the overhead costs of the Corporation have been
significantly lower than peer. However, during 1999 the
Corporation anticipates expenses associated with the under-performing
loans discussed above to have a negative impact on
operating expenses. An estimate of these expenses is unknown
at the present time.
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 of previously charged-off assets, becomes
net charge-offs.
For the first three months of 1999, $5,735,000 was added
to the allowance and charged to expense compared to $150,000
in 1998 with the increase attributable to the under-performing
loans described above.
At March 31, 1999, the allowance for possible loan
losses to total loans and leases was 3.29% compared to 1.87%
last year. The ratio of the under-performing assets to the
Allowance for Possible Loan Losses was 166.8% at March 31, 1999
compared to 20.2% last year. 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 March 31,
($000s) 1999 1998
Balance as originally
reported, December 31 $4,529 $ 4,134
Prior period adjustment 945 0
Balance as restated, December 31 5,474 4,134
Provision for possible loan
losses 5,735 150
Loans charged-off 4,529 109
Recoveries on loans
previously charged-off 1 11
Net charge offs 4,528 98
Balance, end of period $6,681 $ 4,186
Loans and leases outstanding
at period $203,370 $224,130
Average loans and leases $203,226 $225,239
Annualized net charge offs
as a percent of:
Average loans and leases 8.91% 0.17%
Total loans at end of
period 8.91% 0.17%
Reserve for possible loan
losses 271.10% 9.36%
Reserve for possible loan
losses to:
Average loans and leases 3.29% 1.86%
Total loans at end of
period 3.29% 1.87%
Under-performing assets 59.97% 495.38%
Charge-offs associated with the indirect consumer loans
for customers of the Borrower as previously described totaled
$2,460,000 during the first quarter of 1999. Charge-offs
associated with the commercial loan relationship of the
Borrower totaled $1,955,000 during the first quarter of 1999.
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 March 31 follows:
Under-performing assets March 31,
($000s) 1999 1998
Non-accrual loans and
leases $10,962 $837
Ninety days past due loans
and leases still accruing
interest 19 8
Other real estate owned 160 0
Total $11,141 $845
Loans restructured and in compliance with modified terms
are not included in total under-performing assets. Total under-
performing assets were $11.1 million or 2.63% of total assets
at March 31, 1999 compared to $845,000 or 0.21% of total
assets at March 31, 1998. Included in under-performing
assets are $6.7 million in consumer homebuilder loans related
to the cessation of business of the manufactured housing
retailer discussed previously. 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 $3.4 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
$3,265,000. The commercial loans are secured by real estate,
equipment and inventory.
LONG TERM DEBT
Long term debt consists of advances from the Federal
Home Loan Bank as follows:
Amount Current
Type ($000s) Rate Maturity
Fixed rate, non-
amortizing advance 5,000 6.10% 9/17/99
Fixed rate, non-
amortizing advance 5,000 6.20% 9/15/00
Fitxed rate, non-
amortizing advance 10,000 6.56% 10/1/07
Fixed rate, non-
amortizing advance 30,000 5.09% 12/10/07
Fixed rate, non-
amortizing advance 7,000 5.60% 4/30/08
Fixed rate, non-
amortizing advance 8,000 5.42% 6/19/08
Fixed rate, non-
amortizing advance 10,000 4.78% 9/25/08
Fixed rate, non-
amortizing advance 10,000 4.53% 10/2/08
Fixed rate, amortizing
advance 1,409 6.05% 11/18/01
Fixed rate, amortizing
advance 88 5.80% 12/1/05
Fixed rate, amortizing
advance 1,079 6.85% 6/6/11
Fixed rate, amortizing
advance 100 6.75% 6/6/11
Fixed rate, amortizing
advance 625 6.85% 6/12/11
Fixed rate, amortizing
advance 243 6.95% 8/31/15
Fixed rate, amortizing
advance 2,151 6.70% 8/1/12
Fixed rate, amortizing
advance 502 6.25% 11/1/17
Total 91,197
CAPITAL RESOURCES
At March 31, 1999, shareholders' equity was $22.2
million compared to $25.4 at December 31, 1998 and $32.4 at
March 31, 1998. The decline in capital is primarily the
result the loss reported for the year 1998 through the
restatement of 1998 results of operations and the first
quarter 1999 loss. The loss for the year ended 1998 as
restated was $1.9 million. The following table presents
various capital ratios as of March 31:
Requirement Belmont
For Capital Bancorp.
March 31, Adequacy 1999 1998
Purposes
Average shareholder's
equity to :
Average assets 5.2% 8.5%
Average deposits 7.4% 12.0%
Average loans and 11.0% 14.8%
leases
Primary capital 6.8% 9.3%
Risk-based capital
ratio:
Tier 1 4.0% 8.2% 11.8%
Total 8.0% 9.5% 13.1%
Leverage ratio 4.0% 5.5% 8.1%
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% or risk-weighted assets and total capital of 8.0% or
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 March
31, 1999, the Corporation had a Tier 1 capital ratio of 8.2%
and a total capital ratio of 9.5% placing the Corporation in
the adequately capitalized category based on regulatory
guidelines. National banks are required to maintain Tier 1
capital in an amount equal to at least 4.0% of adjusted total
assets (referred to as a total assets leverage ratio) to be
considered adequately capitalized in addition to the risk-
based ratios described above. At March 31, 1999, the
Corporation's leverage ratio was 5.5%.
DIVIDENDS
The subsidiary Bank is the primary source of funds to
pay dividends to the shareholders of Belmont Bancorp. The
approval of the Comptroller of the Currency will be required
for future dividends from the Bank to Belmont Bancorp.
because previously paid dividends have exceeded the total of
the Bank's retained net profits for the preceding two years.
The Board of Governors of the Federal Reserve Bank has
issued a policy statement stating that a bank holding
company generally should not maintain its existing rate of
cash dividends on common stock unless (1) the organization's
net income available to common shareholders over the past
year has been sufficient to fully fund the dividends and (2)
the prospective rate of earnings retention appears
consistent with the organization's capital needs, asset
quality, and overall financial condition. The Corporation is
re-evaluating its current dividend policy.
STOCK REPURCHASE
In accordance with a plan approved by the Board of
Directors and previously announced in March 1996 and in
September 1998, the Company repurchased 18,000 shares of its
common stock during the first quarter of 1998 for a total
cost of $409,000. No shares were repurchased during the
first quarter of 1999. The plan approved by the Board of
Directors permits the Company to repurchase up to $2,000,000
of Belmont Bancorp. common stock on the open market or in
separately negotiated transactions. Through March 31, 1999,
the Corporation has purchased a total of $1,432,000 of its
common stock since the plan's inception.
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 Bank's
primary regulator, 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 or will be 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
our customer base. We provided a project update in June 1998
and issued a new update in February 1999. Both Y2K status
reports were available through our 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 $150,000.00. 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 $250,000.00.
Senior Management reviewed these surveys and took appropriate
action based on a low to high risk rating system.
A Year 2000 Contingency Plan was completed during the
4th quarter 1998. This plan is being updated to include a
Business Resumption section and will be completed by June 30,
1999. The plans include a contingency or back up plan for
loss of the main processing system, network, as well as
utility outages. The plan also addresses software packages
that are used by individual departments throughout the
organization. Utility outages encompass loss of electricity,
loss of communication through the phone system and village
water and sewer outages.
Expenses associated with Year 2000 compliance for 1999 are
estimated at $19,000.
FORWARD LOOKING STATEMENTS
Certain sections of this report 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.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
There is presently pending in the Court of Common Pleas
of Belmont County, Ohio a complaint filed April 27, 1999
seeking compensatory damages in excess of $1,000,000 and
punitive damages against Belmont National Bank, present and
former officers of Belmont National Bank, and present and
former legal counsel of Belmont National Bank. The claim is
based upon a breach of fiduciary duty by said officers with
respect to a loan transaction and a conflict of interest of
the attorneys based upon the same transaction. A
preliminary review of the facts by the Bank's legal counsel
indicates that the exposure of the Bank to liability in this
claim is minimal.
There is presently pending in the Circuit Court of Ohio
County, West Virginia a complaint which centers around a
loan transaction for the purchase of a manufactured home
from another named defendant for which interim financing was
provided by the Bank. The original complaint demanded
compensatory and punitive damages of $500,000. The defense
attorney to whom the matter has been assigned by the carrier
has valued the case for settlement purposes at nuisance
value and has estimated a verdict range of $5,000 at the
maximum.
Item 2. Changes in securities and use of proceeds
At the 1999 Annual Meeting of Shareholders held on
April 20, 1999, shareholders approved an amendment to the
Corporation's Articles of Incorporation to reduce the
required minimum number of directors from fourteen (14) to
twelve (12).
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security
shareholders
The annual meeting of Belmont Bancorp. was held April
20, 1999. The following items were submitted to a vote of
the shareholders:
Proposal Number 1; Proposed amendment to the Articles of
Incorporation to reduce the number of permitted directors
For: 3,628,477
Against: 226,463
Abstain: 24,745
Proposal Number 2: Election of Directors
The following individuals were elected to serve on the Board
of Directors Election of Directors for a three-year term
expiring at the annual shareholders' meeting in 2002:
Mary L. Holloway Haning, Teacher, Mount De Chantal School
For: 3,652,313
Withheld: 69,275
Against: 158,098
Charles J. Kaiser, Jr., Attorney, Partner, Phillips, Gardill,
Kaiser & Altmeyer
For: 3,678,681
Withheld: 42,906
Against: 158,098
Thomas Olszowy, Independent Insurance Agent, Tom Olszowy
Insurance Agency
For: 3,683,081
Withheld: 38,506
Against: 158,098
Charles A. Wilson, Jr., Ohio State Representative; President,
Wilson Funeral & Furniture Co.
For: 3,674,796
Withheld: 46,792
Against: 158,098
Other members of the Board of Directors are listed in the
Corporation's proxy statement dated March 19, 1999 and which
is hereby incorporated by reference.
Proposal Number 3: To ratify the appointment of S. R.
Snodgrass A.C. as independent auditors for the year ending
December 31, 1999.
This proposal was approved as follows:
For 3,658,817
Against 3,284
Abstain 59,487
Proposal Number 4: To transact other such business as may
come before the meeting.
This proposal was approved as follows:
For 3,602,374
Against 89,432
Abstain 29,781
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)
May 17, 1999
s/J. Vincent Ciroli, Jr.
J. Vincent Ciroli, Jr.
President & CEO
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