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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period from _____________ to _________________
Commission file number 0-12724
BELMONT BANCORP.
(Name of issuer in its charter)
Ohio (State of Incorporation)
I.R.S. Employer ID No. 34-1376776
325 MAIN STREET
BRIDGEPORT, OHIO 43912
(Address of principal executive offices)
Telephone (740)-695-3323
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of each class: Name of each exchange on
which registered:
Common stock, $0.25 par value NASDAQ SmallCap Market
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
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of the
Registrant's knowledge. In definitive proxy or information
statements incorporated by reference to Part III of this Form 10-
K or any amendment to this Form 10-K.X
Aggregate market value of voting stock held by nonaffiliates as
of March 5, 1999 - $95,304,000.
There were 5,222,152 shares of $0.25 par value, common stock
outstanding as of March 5, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant dated March 19,
1999 are incorporated in Items 10, 11, 12, and 13. The Annual
Report of the Registrant is incorporated by reference in Items 5,
6, 7, and 8.
PART I
Forward-looking Statements
This report includes forward-looking statements
within the meaning of Section 27A of the Securities Act
of 1933, as amended, that involve inherent risks and
uncertainties. A number of important factors could
cause actual results to differ materially from those in
the forward-looking statements. These factors include
the economic environment, competition, products and
pricing in geographic and business areas in which the
Corporation operates, prevailing interest rates,
changes in government regulations and policies
affecting financial services companies, credit quality
and credit risk management, changes in the banking
industry including the effects of consolidation
resulting from possible mergers of financial
institutions, acquisitions and integration of acquired
businesses. The Corporation undertakes no obligation
to release revisions to these forward-looking
statements or reflect events or circumstances after the
date of this report.
The data presented herein should be read in
conjunction with the audited Consolidated Financial
Statements incorporated by reference.
ITEM 1-BUSINESS
BELMONT BANCORP.
Belmont Bancorp. is a bank holding company which
was organized under the laws of the State of Ohio in
1982. On April 4, 1984, Belmont Bancorp. acquired all
of the outstanding capital stock of Belmont National
Bank (formerly Belmont County National Bank), a banking
corporation organized as a national banking association.
Belmont National Bank provides a variety of financial services.
In addition to Belmont National Bank, the Corporation owns
Belmont Financial Network, Inc., a non-bank subsidiary.
BELMONT NATIONAL BANK
Belmont National Bank resulted from the merger on
January 2, 1959, of the First National Bank of St.
Clairsville, and the First National Bank of Bridgeport.
Both banks were organized as national associations
prior to the turn of the century. Belmont National
Bank operates through a network of thirteen branches
located in Belmont, Harrison and Tuscarawas Counties in
Ohio and Ohio County in West Virginia. The main office
is located in the Woodsdale section of Wheeling, West
Virginia. In addition to its main office in West
Virginia, the Bank operates a branch in the Elm Grove
section of Wheeling. Branch locations in Belmont
County, Ohio include St. Clairsville, Bridgeport,
Lansing, Shadyside, Ohio Valley Mall, Bellaire and
Plaza West, St. Clairsville. The Harrison County
branch is located in Cadiz, Ohio. Branches in
Tuscarawas County are located in New Philadelphia,
Ohio. The three New Philadelphia offices were acquired
on October 2, 1992, when Belmont National Bank acquired
the deposits and loans of these offices from Diamond
Savings and Loan.
Belmont National Bank provides a wide range of
retail banking services to individuals and small to
medium-sized businesses. These services include
various deposit products, business and personal loans,
credit cards, residential mortgage loans, home equity
loans, and other consumer oriented financial services
including IRA and Keogh accounts, safe deposit and
night depository facilities. Belmont National Bank
also owns automatic teller machines located at branches
in Bellaire, Bridgeport, Woodsdale, Elm Grove, Cadiz,
the Ohio Valley Mall, Plaza West and New Philadelphia
providing 24 hour banking service to our customers.
Belmont National Bank belongs to MAC, a nationwide ATM
network with thousands of locations nationwide.
Belmont National Bank offers a wide variety of
fiduciary services. The trust department of the Bank
administers pension, profit-sharing, employee benefit
plans, personal trusts and estates.
BELMONT FINANCIAL NETWORK
On July 1, 1985, Belmont Bancorp. formed a
subsidiary corporation, Belmont Financial Network,
Inc.(BFN). BFN serves as a community development
corporation by investing in low income housing projects
that provide low income and historic tax credits.
BELMONT INVESTMENT AND FINANCIAL SERVICES, INC.
During 1988, Belmont National Bank began the
operations of Belmont Investment and Financial
Services, Inc., a wholly-owned subsidiary of the Bank.
Belmont Investment and Financial Services, Inc. was
organized so that the Bank's customers would have
available to them a wider array of financial products
as well as sound investment and financial planning.
Through Belmont Investment and Financial Services,
Inc., customers can purchase government or corporate
bonds, and mutual fund products. In 1990, the services
provided by the Corporation, other than advisory
services, were reorganized into a department of the
Bank.
SUPERVISION AND REGULATION
Belmont Bancorp. is supervised and examined by the
Board of Governors of the Federal Reserve system under
the Bank Holding Company Act of 1956 (BHCA). The BHCA
requires Federal Reserve approval for bank acquisitions
and regulates non-banking activities of bank holding
companies. Deposits of Belmont Bancorp. are insured by
the Federal Deposit Insurance Corporation (FDIC). As a
national bank, Belmont National Bank is supervised and
examined by the Office of the Comptroller of the
Currency (OCC).
Since September 1995, the BHCA has permitted bank
holding companies from any state to acquire banks and
bank holding companies located in any other state,
subject to certain conditions, including nationwide and
state imposed concentration limits. Banks have been
able to branch across state lines by acquisition,
merger or new bank charter, since June 1, 1997, if
state law expressly permits interstate branching.
A fundamental principle underlying the Federal
Reserve's supervision and regulation of bank holding
companies is that bank holding companies should be a
source of managerial and financial strength to their
subsidiary banks. Subsidiary banks in turn are to be
operated in a manner that protects the overall
soundness of the institution and the safety of
deposits. Bank regulators can take various remedial
measures to deal with banks and bank holding companies
that fail to meet legal and regulatory standards.
The 1989 Financial Reform, Recovery and
Enforcement Act (FIRREA) expanded federal regulatory
enforcement powers. The Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA) created
five capital-based supervisory levels for banks and
requires bank holding companies to guarantee compliance
with capital restoration plans of undercapitalized
insured depository affiliates. Belmont Bancorp. was
considered "well capitalized" under regulatory
definitions in effect at December 31, 1998. This is
the highest rating presently available.
The monetary policies of regulatory authorities,
including the Federal Reserve Board, have a significant
effect on the operating results of banks and bank
holding companies. The nature and future monetary
policies and the effect of such policies on the future
business and earnings of Belmont Bancorp. and its
subsidiary bank cannot be predicted.
FOREIGN OPERATIONS
Belmont Bancorp. has no foreign operations.
EXECUTIVE OFFICERS
For information concerning executive officers of
Belmont Bancorp. and Belmont National Bank, see Item 10
of Form 10-K.
ITEM 2-PROPERTIES
DESCRIPTION ON PROPERTIES
In January 1996, the Bank relocated its corporate
headquarters to Wheeling, WV. The office is located at
980 National Road and consists of a 14,000 square foot,
combination one and two story masonry block building.
Approximately half of the space is leased to a tenant.
In addition, the Bank transacts business in the
following branch locations:
St. Clairsville Office-This office consists of a
two story brick building owned by the Bank with
attached drive-in facilities. The building
consists of 9,216 square feet which houses the
commercial bank operations and the executive and
human resources offices.
Mall Office-This office is located at the Ohio
Valley Mall, a major shopping mall located two
miles east of St. Clairsville, Ohio. The office
consists of a 1,400 square foot office located
along the perimeter of the Mall at the main
entrance. An automatic teller machine is located
at the drive-in facility.
Lansing Office-This 1,352 square foot office is
located in Lansing, Ohio, a small community
approximately six miles east of St. Clairsville on
US. Route 40. The facility is a masonry building
with adjoining drive-in facilities.
Bridgeport Office-This office is located in
Bridgeport, Ohio, a community located on the
Ohio/West Virginia border, approximately 10 miles
east of St. Clairsville. This 5,096 square foot
facility is a recently remodeled masonry building
with adjoining drive-in facilities and an ATM.
Shadyside Office-This 1,792 square foot office is
located in Shadyside, a village located on Ohio
State Route 7. The facility is a masonry building
with accompanying drive-in facilities.
Cadiz Office-This office is located in Cadiz, Ohio
in Harrison County, approximately seventeen miles
north of St. Clairsville at the intersection of
State Routes 9 and 22. The brick and tile
building contains 1,800 square feet with an
accompanying drive-in facility.
New Philadelphia Office-This office, located at
152 North Broadway Avenue, is a 33,792 square
foot site improved with two inter-connected, two
story brick office buildings with a total building
area of 13,234 square feet. Part of the office
space is leased to other businesses. This
location also has a drive-in facility and an
automatic teller machine.
New Philadelphia Office-This office, located at
2300 East High Avenue, is comprised of a one
story, 1,605 square foot brick structure with a
783 square foot drive-thru canopy.
New Philadelphia Office-This office, located at
525 Wabash Avenue, is comprised of a 14,250 square
foot site with a 246 square foot drive-thru
banking facility.
Elm Grove Office-This office is located at 2066
National Road in Wheeling, WV, and includes a
drive-thru facility and an ATM.
Bellaire Office - This leased office, located in
the Imperial Shopping Center, is comprised of
approximately 1,750 square feet with an adjoining
drive-thru facility and ATM.
Plaza West Solution Center - This office is
located at the west end of St. Clairsville and
features a different concept in retail banking.
It includes a drive-thru facility and an ATM.
All offices are owned by the Bank except for the
Mall and Bellaire offices. All leased offices contain
renewal options. The land for the Elm Grove office is
also leased.
ITEM 3-LEGAL PROCEEDINGS
None.
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security
holders during the fourth quarter of the fiscal year
covered by this report.
PART II
ITEM 5-MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SHAREHOLDERS' MATTERS
The number of shareholders of record for the
Corporation's stock as of February 26, 1999 was 619.
The closing price of Belmont Bancorp. stock on March 5,
1999 was $18.25 per share.
Belmont Bancorp.'s common stock has a par value of
$0.25 and, since October 1994, has been traded on the
Nasdaq SmallCap market.
1998
Dividend
Quarter High Low per Share
1st $26.00 $20.00 $0.085
2nd 28.44 22.25 0.100
3rd 27.25 19.75 0.100
4th 23.50 18.00 0.100
Total $0.385
1997
Dividend
Quarter High Low per Share
1st $11.20 $10.20 $0.068
2nd 12.60 10.40 0.068
3rd 15.00 12.56 0.085
4th 20.75 14.50 0.085
Total $0.306
The tables above show its high and low market
prices and dividend information for the past two years.
Market prices and cash dividends paid per share have
been restated to reflect the effect of a 5-for 4 common
stock split effected in the form of a 25% common stock
dividend paid July 1, 1997 and a 2-for-1 common stock
split effected in the form of a 100% common stock
dividend paid May 22, 1998.
Information regarding the limitations on dividends
available to be paid can be located in Footnote 16 of
the Notes to the Consolidated Financial Statements in
the Corporation's Annual Report (Exhibit B).
Treasury stock is accounted for using the cost
method. There were 66,174 shares and 13,330 shares
held in treasury on December 31, 1998 and 1997,
respectively.
ITEM 6.-SELECTED FINANCIAL DATA
The Summarized Quarterly Financial Information and
the Consolidated Five Year Summary of Operations
contained in the Corporation's annual report (Exhibit
B) are hereby incorporated by reference.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The data presented in this discussion should be
read in conjunction with the audited consolidated
financial statements.
RESULTS OF OPERATIONS
SUMMARY
For 1998, net income increased 3.4% from the
previous year; net income for the year ended 1997
increased 18.9% compared to 1996. Net income per
common share for 1998 was $1.17 compared to $1.13 per
common share in 1997 and $0.94 in 1996. Return on
average common shareholders' equity was 18.45% for
1998, compare to from 20.21% in 1997 and 19.55% in 1996. The
Corporation's net income to average assets, referred to
as return on assets, was 1.49% for the year ended 1998
compared to 1.62% last year and 1.49% during 1996.
Operating income consists of earnings before income
taxes, minus net investment gains and gains on sale of
real estate, or plus net investment losses. Operating
income decreased by $172,000 or 2.6% from 1997 to 1998.
The table below summarizes earnings performance for the
past three years.
($000s) except per share 1998 1997 1996
data
Operating income $6,395 $6,567 $6,382
Net income 6,147 5,945 5,002
Net income per share $ 1.17 $ 1.13 $ 0.94
Return on average assets 1.49% 1.62% 1.49%
Return on average common
equity 18.45% 20.21% 19.55%
Return on average total
equity 18.45% 20.21% 19.05%
NET INTEREST REVENUE
A major share of the Corporation's income results
from the spread between income on interest earning
assets and interest expense on the liabilities used to
fund those assets, known as net interest income. Net
interest income is affected by changes in interest
rates and amounts and distributions of interest earning
assets and interest bearing liabilities outstanding.
Net interest margin is net interest income divided by
the average earning assets outstanding. A third
frequently used measure is net interest rate spread
which is the difference between the average rate earned
on assets and the average rate incurred on liabilities
without regard to the amounts outstanding in either
category.
The Consolidated Average Balance Sheets and
Analysis of Net Interest Income Changes included in the
Corporation's annual report (Exhibit B), compare
interest revenue and interest earning assets
outstanding with interest cost and liabilities
outstanding for the years ended December 31, 1998,
1997, and 1996, and computes net interest income, net
interest margin and net interest rate spread for each
period. All three of these measures are reported on a
taxable equivalent basis.
The Corporation's net interest income declined by
0.2%, or $34,000, on a taxable equivalent basis during
1998 compared to the same period last year. During
1998, the Corporation's average interest-earning assets
grew by approximately $41.9 million, up 12.1% from
1997.
The yield on interest earning assets was down 28
basis points from 8.43% in 1997 to 8.15% in 1998. The
cost of interest bearing liabilities rose 15 basis
points from 1997 to 1998. Consequently, the net
interest rate spread decreased from 3.84% during 1997
to 3.42% during 1998. The taxable equivalent net
interest margin was 3.89% during 1998 compared to 4.37%
for 1997 and 4.45% during 1996.
The Analysis of Net Interest Income Changes,
separates the dollar change in the Corporation's net
interest income into three components: changes caused
by (1) an increase or decrease in the average assets
and liability balances outstanding (volume); (2) the
changes in average yields on interest earning assets
and average rates for interest bearing liabilities
(yield/rate); and (3) combined volume and yield/rate
effects (mix).
This table shows that the decrease in the
Corporation's net interest income during the year-to-
date periods presented from 1997 to 1998 was generated
by a decline in yields on earning assets and higher
funding costs.
OTHER OPERATING INCOME
Other operating income excluding securities gains
and a gain on sale of real estate, increased 11.7% and
totaled $2,245,000 in 1998, compared to $2,010,000 in
1997 and $1,861,000 in 1996. The table below shows the
dollar amounts and growth rates of the components of
other operating income.
1998 1997 1996
($000s) Total Change Total Change Total
Trust income $ 463 -0.64% $ 466 -7.17% $ 502
Service charges on deposits 752 6.36% 707 7.12% 660
Gain on sale of loans 144 58.24% 91 26.39% 72
Trading profits (losses) 62 na - na -
Recovery on class action
lawsuit - na - -100.00% 27
Other income 824 10.46% 746 24.33% 600
Subtotal 2,245 11.69% 2,010 8.01% 1,861
Investment securities gains
(losses) - 100.00% (3) -200.00% (1)
Gains (losses) on securities
available for sale 1,338 66.83% 802 102.02% 397
Gain on sale of real estate 383 na - na -
Total $3,966 41.19% $2,809 24.46% $2,257
Gains on sale of loans contributed $144,000 to
noninterest income during 1998, up from $91,000 in
1997. The Corporation utilizes the secondary mortgage
market to divest itself of fixed rate mortgage loans
with rates below a target rate for purposes of managing
the interest rate risk associated with these loans.
Servicing rights were retained on the loans sold. The
Corporation continues to utilize the secondary market
as a means of offering competitively priced mortgage
loan products without retaining the interest rate risk
associated with long term, fixed rate product. At
December 31, 1998 mortgage loans serviced for others
totaled approximately $38.2 million.
Losses on investments held in the maturity
portfolio during 1997 and 1996 occurred as a result of
calls on municipal bonds in the portfolio. These
losses totaled $3,000 during 1997 and $1,000 during
1996. Net gains were realized on securities available
for sale during 1998 totaling $1,338,000 compared to
gains of $802,000 during 1997 and $397,000 during 1996.
The related income taxes on securities transactions,
including trading and securities available for sale,
were $337,000, $174,000, and $104,000 for the years
ended 1998, 1997 and 1996, respectively.
OPERATING EXPENSES
Successful expense control is an essential element
in maintaining the Corporation's profitability. The
table below details the percentage changes in various
categories of expense for the three years ended 1998,
1997, and 1996.
($000s) 1998 % Change 1997 % Change 1996
Salaries and wages $3,533 16.45% $3,034 14.66% $2,646
Employee benefits 1,100 20.35% 914 15.70% 790
Net occupancy expense 824 5.24% 783 14.14% 686
Equipment expense 933 -1.48% 947 15.91% 817
FDIC insurance 65 1.56% 64 -87.74% 522
Other operating
expenses 3,041 1.71% 2,990 2.15% 2,927
Total $9,496 8.75% $8,732 4.10% $8,388
Management strives to maintain the Corporation's
efficiency ratio at or below 50%. (The efficiency
ratio is computed by dividing the sum of fully taxable
equivalent net interest margin plus non-interest income
by non-interest expenses.) For the year ended 1998,
the efficiency ratio was 50.0% compared to 48.8% in
1997 and 51.4% in 1996.
Salaries and wages included incentive performance
bonuses tied to earnings performance totalling $323,000
in 1998, $299,000 during 1997 and $243,000 during 1996.
Salaries and wages were higher in the areas of trust
and asset management services, credit administration
and data processing due to increased strategic focus on
asset management services, loan portfolio expansion,
and fulfillment of vacant positions.
Other non-interest operating expense includes FDIC
insurance assessments. FDIC insurance expense included
in other operating expenses was $65,000, $64,000, and
$522,000 in 1998, 1997 and 1996, respectively,
including a one time, pre-tax assessment on deposits
insured through the Savings Association Insurance Fund
during the third quarter of 1996 totaling $397,000.
Taxes, other than payroll and real estate taxes,
included in noninterest expense totaled $493,000 during
1998, up from $426,000 in 1997. This includes the
Ohio state corporate franchise tax based on the equity
of the subsidiary bank.
Other noninterest expense also includes expense
associated with other real estate owned. During 1998
there was no expense associated with other real estate
owned. During 1997 this expense was $20,000 compared
to $143,000 in 1996. Expenses associated with one
property which was disposed of during the fourth
quarter of 1996 totaled $140,000.
In the fourth quarter of 1997, federal income
taxes were reduced by $482,000 in historic tax credits
associated with a low income housing project that the
subsidiary, Belmont Financial Network, invested in as a
limited partner. The project contributed $74,000 in
low income housing credits (LIHC) during 1998 and is
expected to generate approximately $1.6 million in LIHC
over the next ten years.
FINANCIAL CONDITION
SECURITIES
The book values of investments as of December 31,
1998 and 1997 are detailed in Footnote 3 of the Notes
to the Consolidated Financial Statements in the
Corporation's annual report (Exhibit B).
The investment portfolio consists largely of fixed
and floating rate mortgage related securities,
predominantly underwritten to the standards of and
guaranteed by the government agency GNMA and by the
government-sponsored agencies of FHLMC and FNMA. These
securities differ from traditional debt securities
primarily in that they have uncertain maturity dates
and are priced based on estimated prepayment rates on
the underlying mortgages.
The maturities and yields of securities held to maturity and available
for sale (excluding equity securities) are detailed in the following tables.
Securities Held to Maturity
December 31, 1998 Over 10 Year
Maturity 1-5 Year 6-10 Year Maturity Total
< 1 year Maturity Maturity
($000s) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U.S. Government
agencies
and
corporations $ - $2,255 4.81% $ $ $ 2,255 4.81%
States and
political
subdivisions (a) 533 5.48% 1,228 8.15% 557 10.00% 1,506 9.57% 3,824 8.61%
Agency mortgage-
backed
securities (b) 87 -2.25% 5,033 6.87% 827 7.98% 490 8.33% 6,437 7.00%
Total $620 4.41% $8,516 6.51% $1,384 8.79% $1,996 9.26% $12,516 7.10%
Securities Available for Sale (excluding Equity Securities)
December 31, 1998
Over 10
Year
Maturity < 1-5 Year 6-10 Year Maturity Total
1 year Maturity Maturity
($000s) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U. S. Treasury
securities $ 101 6.32% $ - $ - $ - $ 101 6.32%
U.S. Government
agencies
and
corporations (b) - - 10,455 6.43% - 10,455 6.43%
States and
political
subdivisions (a) - - 102 7.58% 28,955 7.13% 29,057 7.13%
Corporate debt - - - 7,340 6.39% 7,340 6.39%
Agency mortgage-
backed
securities (b) 1,307 3.01% 79,263 5.76% 7,654 6.98% 5,478 8.41% 93,702 5.98%
Mortgage
derivative
securities 3,198 9.07% 14,278 5.79% 910 10.10% 20,253 6.77% 38,639 6.68%
Total fair
value $4,606 7.31% $93,541 5.76% $19,121 6.82% $62,026 7.02% $179,294 6.35%
Amortized cost $4,605 $94,555 $19,206 $62,746 $181,112
(a) Taxable equivalent yields
(b) Maturities of mortgage-backed securities and agency loan pools are based on
estimated average life.
At December 31, 1998, there were no securities of
a single issuer, other than U.S. Treasury or other U.S.
government agency securities, which exceeded 10% of
shareholders' equity.
The state and political subdivision portfolio
includes approximately $7.0 million zero coupon revenue
bonds. These bonds are purchased at a significant
discount to par value and the income recognized on the
bonds is derived from the accretion of the discount
using a method that approximates a level yield.
MARKETABLE EQUITY SECURITIES
The Corporation held marketable equity securities
in its investment portfolio as of December 31, 1998.
In accordance with regulatory requirements, all equity
securities were transferred to Securities Available for
Sale on January 1, 1994 because these securities do not
have a stated maturity. Current accounting principles
require that marketable equity securities be recorded
at the lower of cost or market value with a
corresponding adjustment to reduce shareholders' equity
if market value is lower than cost. At December 31,
1998 and 1997, estimated market values approximated
original cost.
Taxable
Equivalent
December 31, 1998 ($000s) Cost Market Yield
Value
Federal Home Loan Bank
stock $5,001 $5,001 7.00%
Corporate Stock 512 513 0.93%
Federal Reserve Bank
Stock 187 187 6.00%
$5,700 $5,701
Taxable
Equivalent
December 31, 1997 ($000s) Cost Market Yield
Value
Federal Home Loan Bank
stock $4,450 $4,450 7.19%
Corporate Stock 66 66 5.17%
Federal Reserve Bank
Stock 187 187 6.00%
$4,703 $4,703
LOANS AND LEASES
The following table shows the history of
commercial and consumer loans and leases, including
loans held for sale, by major category at December 31.
($000s) 1998 1997 1996 1995 1994
Commercial loans:
Real estate construction $ 135 $ 1,418 $ 1,327 $ 1,530 $ 1,801
Acceptances of other
banks 0 0 0 0 0
Real estate mortgage 14,719 19,984 25,954 28,744 23,701
Commercial, financial
and agricultural 119,730 109,618 80,554 50,532 38,983
Direct financing leases 0 0 0 3 5
Total commercial loans $134,584 $131,020 $107,835 $ 80,809 $ 64,490
Consumer loans:
Residential mortgage $ 58,099 $ 77,995 $ 71,715 $ 69,999 $ 76,094
Installment loans 25,710 14,435 7,626 6,959 5,116
Credit card and other
consumer 1,020 1,450 1,607 2,190 1,396
Total consumer loans $ 84,829 $ 93,880 $ 80,948 $ 79,148 $ 82,606
Total loans and leases $219,413 $224,900 $188,783 $159,957 $147,096
An analysis of maturity and interest rate sensitivity
of business loans at the end of 1998 follows:
Under 1 to 5 Over 5
($000s) 1 Year Years Years Total
Domestic loans:
Real estate construction $ 10 $ 15 $ 110 $ 135
Real estate mortgage 8,655 2,717 3,347 14,719
Commercial, financial
and agricultural 59,682 46,693 12,885 119,260
Direct financing leases 0
Total business loans (a) $68,347 $49,425 $16,342 $134,114
Rate sensitivity:
Predetermined rate $ 4,087 $22,547 $15,443 $ 42,077
Floating or adjustable rate 64,260 26,878 899 92,037
Total domestic business loans $68,347 $49,425 $16,342 $134,114
Foreign loans 0 0 0 0
(a) does not include nonaccrual loans
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation, as part of its philosophy of risk
management, has established various credit policies and
procedures intended to minimize the Corporation's
exposure to undue credit risk. Credit evaluations of
borrowers are performed to ensure that loans are
granted on a sound basis. In addition, care is taken
to minimize risk by diversifying specific industry.
Credit risk is continuously monitored by Management
through the periodic review of individual credits to
ensure compliance with policies and procedures.
Adequate collateralization, contractual guarantees, and
compensating balances are also utilized by Management
to mitigate risk.
Management determines the appropriate level of the
allowance for possible loan losses by continually
evaluating the quality of the loan portfolio. The
reserve is allocated to specific loans that exhibit
above average credit loss potential based upon their
payment history and the borrowers' financial
conditions. The adequacy of the allowance for possible
loan losses is evaluated based on an assessment of the
losses inherent in the loan portfolio. This assessment
results in an allowance consisting of two components,
allocated and unallocated. The allocations are made
for analytical purposes. The total allowance is
available to absorb losses from any segment of the
portfolio. Management maintains a watch list of
substandard loans for monthly review. Although these
loans may not be delinquent and may be adequately
secured, Management believes that due to location,
size, or past payment history, it is necessary to
monitor these loans monthly.
The allowance for possible loan losses totaled
$4,529,000, or 2.06% of total loans and leases at
December 31, 1998. At the end of the previous year,
the allowance for possible loan losses was $4,134,000,
or 1.84% of total loans and leases. The provision
charged to expense during 1998 was $710,000 compared to
$1,055,000 in the year ago period.
Management's allocation of the allowance for
possible loan losses for the past five years based on
estimates of potential future loan loss is set forth in
the table below:
($000s) 1998 1997 1996 1995 1994
Specific reserves:
Commercial $ 268 $ 560 $ 330 $ 310 $ 10
Mortgage 0 0 10 10 5
Consumer 60 161 176 5 7
Criticized loans without
specific allocation 616 470 296 414 315
Provision for loan
categories based on
historical loss
experience:
Commercial 1,577 1,534 1,197 799 664
Commercial real estate 324 313 269 152 103
Residential mortgage 272 358 328 325 298
Consumer 322 209 137 143 112
Unallocated 1,090 529 410 545 23
Total $4,529 $4,134 $3,153 $2,703 $1,537
Reserves as a % of
total loans
($000s) 1998 1997 1996 1995 1994
Specific reserves:
Commercial 0.12% 0.25% 0.17% 0.19% 0.01%
Mortgage 0.00% 0.00% 0.01% 0.01% 0.00%
Consumer 0.03% 0.07% 0.09% 0.00% 0.00%
Criticized loans without
specific allocation 0.28% 0.21% 0.16% 0.26% 0.21%
Provision for loan
categories based on
historical loss
experience:
Commercial 0.72% 0.68% 0.63% 0.50% 0.45%
Commercial real estate 0.15% 0.14% 0.14% 0.10% 0.07%
Residential mortgage 0.12% 0.16% 0.17% 0.20% 0.20%
Consumer 0.15% 0.09% 0.07% 0.09% 0.08%
Unallocated 0.49% 0.24% 0.23% 0.34% 0.02%
Total 2.06% 1.84% 1.67% 1.69% 1.04%
Total loans and leases
outstanding $219,413 $224,899 $188,783 $159,957 $147,096
The following table sets forth the five year
historical information on the reserve for loan losses:
($000s) 1998 1997 1996 1995 1994
Balance as of January 1 $4,134 $3,153 $2,703 $1,537 $1,617
Provision of loan losses 710 1,055 465 1,150 805
Adjustment incident to
acquisition 0 0 0 0 0
Loans charged off:
Real estate 133 24 30 25 49
Commercial 178 23 0 0 806
Consumer 19 43 32 26 85
Direct financing leases 0 0 0 0 0
Total loans charged-off 330 90 62 51 940
Recoveries of loans
previously
charged-off:
Real estate 11 2 2 3 18
Commercial 1 1 0 1 29
Consumer 3 13 45 18 7
Direct financing leases 0 0 0 45 1
Total recoveries 15 16 47 67 55
Net charge-offs
(recoveries) 315 74 15 (16) 885
Balance at December 31 $4,529 $4,134 $3,153 $2,703 $1,537
($000s) 1998 1997 1996 1995 1994
Loans and leases
outstanding
at December 31 $219,413 $224,899 $188,783 $159,957 $147,096
Allowance as a percent of
loans and leases
outstanding 2.06% 1.84% 1.67% 1.69% 1.04%
Average loans and leases $222,961 $208,265 $174,445 $152,502 $134,952
Net charge-offs as a
percent of average loans
and leases 0.14% 0.04% 0.01% -0.01% 0.66%
The following schedule shows the amount of under-
performing assets and loans 90 days or more past due
but accruing interest.
UNDER-PERFORMING ASSETS
($000s) 1998 1997 1996 1995 1994
Nonaccrual loans and
leases $562 $1,515 $143 $162 $ 478
Loans 90 days or more past
due but accruing interest 4 44 74 14 11
Other real estate owned - 20 66 579 586
Total $566 $1,579 $283 $755 $1,075
In addition to the above schedule of non-performing
assets, Management prepares a watch list consisting of
loans which Management has determined require closer
monitoring to further protect the Corporation against
loss. The balance of loans classified by Management as
substandard due to delinquency and a change in financial
position at the end of 1998 and not included in the table
above was $4,746,000. There are no other loans classified
for regulatory purposes that would materially impact future
operating results, liquidity or capital resources or which
management doubts the ability of the borrower to comply
with loan repayment terms.
DEPOSITS
Primarily core deposits are used to fund interest-
earning assets. The Corporation has a lower volume of
interest-free checking accounts than its peer group
which is typical for its market area. This results in
an overall higher cost of funds than peer average. The
accompanying tables show the relative composition of
the Corporation's average deposits and the change in
average deposit sources during the last three years.
BORROWINGS
Other sources of funds for the Corporation include
short-term repurchase agreements and Federal Home Loan
Bank borrowings. Borrowings at the Federal Home Loan
Bank are utilized to match the maturities of selected
loans and to leverage the capital of the Corporation to
enhance profitability for shareholders.
CAPITAL RESOURCES
At December 31, 1998, shareholders' equity was
$33,430,000 compared to $31,899,000 at December 31,
1997, an increase of $1,531,000 or 4.8%. The increase
in capital during 1998 was due primarily to the
retention of earnings.
The Federal Reserve Board has adopted risk-
based capital guidelines that assign risk weightings
to assets and off-balance sheet items. The
guidelines also define and set minimum capital
requirements (risk-based capital ratios). Bank
holding companies are required to have core capital
(Tier 1) of at least 4.0% of risk-weighted assets
and total capital of 8.0% of risk-weighted assets.
Tier 1 capital consists principally of shareholders'
equity less goodwill, while total capital consists
of core capital, certain debt instruments and a
portion of the reserve for loan losses. At December
31, 1998, the Corporation had a Tier 1 capital ratio
of 11.6% and a total capital ratio of 12.9%, well
above the regulatory minimum requirements.
The following table shows several capital and
liquidity ratios for the Corporation for the last
two years:
December 31 1998 1997
Average shareholders' equity
to :
Average assets 8.06% 8.02%
Average deposits 11.39% 11.01%
Average loans and leases 14.94% 14.13%
Primary capital 8.50% 9.10%
Risk-based capital ratio:
Tier 1 11.60% 11.81%
Total 12.85% 13.06%
Leverage ratio 7.64% 8.00%
National banks must maintain a total assets
leverage ratio of at least 3.0%. The total assets
leverage ratio is calculated by dividing capital
less intangibles into assets, net of intangibles.
In many cases, regulators require an additional
cushion of at least 1.0% to 2.0%. At December 31,
1998, the Corporation's Tier One leverage ratio was
7.64%.
The following table presents dividend payout
ratios for the past three years.
1998 1997 1996
Total dividends declared
as a percentage of net income 32.89% 27.17% 26.59%
Common dividends declared
as a percentage of earnings
per common share 32.91% 27.20% 25.64%
Currently there are no known trends, events or
uncertainties that would have a material effect on
the Corporation's liquidity, capital resources or
results of operations.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation meets its liability based needs
through the operation of Belmont National Bank's branch
banking network that gathers demand and retail time
deposits. The Bank also acquires funds through
repurchase agreements and overnight federal funds that
provide additional sources of liquidity. Total
deposits increased by $40.4 million, or 15.3%, from the
end of 1997 to 1998. Average deposits increased $25.2
million, or 9.4%, during 1998 compared to 1997.
The Bank has utilized alternative funding sources
to leverage shareholders' equity and improve overall
profitability. Sources include the Federal Home Loan
Bank of Cincinnati and various correspondent bank
relationships.
The Bank also has lines of credit with various
correspondent banks totaling $6,500,000 which may be
used as an alternative funding source; the unused
portion of these lines at December 31, 1998 was
$4,550,000. In addition, the Bank has a line of credit
with the Federal Home Loan Bank of Cincinnati for $30
million; at December 31, 1998, the line was not drawn
upon. All borrowings at the Federal Home Loan Bank are
subject to eligible collateral requirements.
INTEREST RATE SENSITIVITY
The Corporation's net interest revenue can be
vulnerable to wide fluctuations arising from a change
in the general level of interest rates to the degree
that the average yield on assets responds differently
to such a change than does the average cost of funds.
To maintain a consistent earnings performance, the
Corporation actively manages the repricing
characteristics of its assets and liabilities to
control net interest income rate sensitivity.
The mismatching of asset and liability repricing
characteristics in specific time frames is referred to
as interest rate sensitivity gaps. Mismatching or
"gapping" can be profitable when the term structure of
interest rates (the yield curve) is positive, i.e.
short term yields are lower than long term yields, but
gapping entails an element of risk, particularly in
volatile markets. An institution is said to have a
negative gap when its liabilities reprice in a shorter
time period than its assets. A positive gap exists
when assets reprice more quickly than liabilities. A
negative gap in a period when the general level of
interest rates is declining will produce a larger net
interest income spread than would be the case if all
assets and liabilities were perfectly matched.
Conversely, net interest income will be adversely
affected by a negative gap position in a period when
the general level of interest rates is rising. Gaps,
therefore, must be prudently managed.
The Corporation examines its interest rate
sensitivity position by categorizing the balance sheet
into respective repricing time periods similar to those
shown on the accompanying table. Repricing of certain
assets, such as installment loans, mortgage loans and
leases, is based upon contractual amortization or
repricing, although experience indicates that they
reprice more quickly due to early payoffs. Mortgage-
backed securities are included in maturity/repricing
categories based upon historical prepayment speeds.
Based upon historical deposit rate relationships,
savings and interest bearing checking are partially
included in the non-rate sensitive category since rate
changes on these products are not completely sensitive
to fluctuations in the interest rate environment.
Asset/liability management encompasses both
interest rate risk and liquidity management. The
resulting net cumulative gap positions reflect the
Corporation's sensitivity to interest rate changes over
time. The calculation is a static indicator and is not
a net interest income predictor of a dynamic business
in a volatile environment. As a static indicator, the
gap methodology does capture major trends.
Rate Sensitivity Analysis
December 31, 1998
Maturing or repricing
Non-rate
Total Sensitive
1-30 31-90 91-180 181-356 1 Year 1-5 & Over
days days days days & Over Years 5 years Total
Interest earning
assets:
Loans and leases $58,406 $14,171 $ 7,968 $21,826 $102,371 $60,114 $ 56,928 $219,413
Trading securities $ 955 955 $ 967 $ 359 2,281
Investment securities 0 2,491 648 576 3,715 5,531 3,270 12,516
Securities available
for sale 14,937 6,816 5,655 28,377 55,785 68,690 60,520 184,995
Total interest
earning assets 74,298 23,478 14,271 50,779 162,826 135,302 121,077 419,205
Interest bearing
liabilities:
Interest checking 5,580 5,580 36,857 42,437
Savings 17,077 17,077 71,188 88,265
Certificates-$100,000
and over 1,190 2,497 5,482 10,392 19,561 3,987 3,697 27,245
Other time 7,845 14,991 23,398 23,887 70,121 31,405 14,659 116,185
Repurchase agreements 6,239 6,239 6,239
Short term borrowings 3,950 3,950 3,950
Long term debt 5,000 5,000 11,401 75,000 91,401
Total interest
bearing liabilities 35,642 17,488 28,880 45,518 127,528 46,793 201,401 375,722
Rate sensitivity gap 38,656 5,990 -14,609 5,261 35,298 88,509 -80,324 43,483
Cumulative gap $38,656 $44,646 $30,037 $35,298 $123,807 $ 43,483
Cumulative gap as a
percentage of
interest earning
assets 9.22% 10.65% 7.17% 8.42% 29.53% 10.37%
Interest bearing checking and savings deposits
that have no contractual maturity are scheduled in the
table above according to Management's best estimate of
their repricing sensitivity to changes in market rates.
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. Our regulatory agency, 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.
Quarterly update reports have been presented to
the Board of Directors of the Corporation. In
addition, an internal audit is completed each month.
The audit report is presented to the board monthly.
ITEM 8 - FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The annual report of Belmont Bancorp. is hereby
incorporated by reference and appears as Exhibit B.
Management's report on their responsibility for
financial reporting is included in the Corporation's
annual report.
ITEM 9 - DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in Belmont Bancorp.'s
definitive proxy statement dated March 19, 1999
(Exhibit C) is incorporated by reference in response to
this item.
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JANUARY 1, 1999:
Name Age Position
J. Vincent Ciroli, Jr. 53 President and
Chief Executive Officer,
Belmont Bancorp. &
Belmont National Bank
William Wallace 43 Vice President, Belmont Bancorp.;
Executive Vice President & Chief
Operating Officer, Belmont
National Bank
Jane R. Marsh 37 Secretary, Belmont Bancorp.;
Senior Vice President, Controller &
Cashier, Belmont National Bank
Each of the officers listed above has been an
executive officer of the Corporation or one of its
subsidiaries during the past five years.
ITEM 11 - EXECUTIVE COMPENSATION
The information appearing in Belmont Bancorp.'s
definitive proxy statement dated March 19, 1999
(Exhibit C) is incorporated by reference in response to
this item.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in Belmont Bancorp.'s
definitive proxy statement dated March 19, 1999
(Exhibit C) is incorporated by reference in response to
this item.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in Belmont Bancorp.'s
definitive proxy statement dated March 19, 1999
(Exhibit C) is incorporated by reference in response to
this item.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 15, 1999.
By W. Quay Mull II ________________ BELMONT BANCORP
W. Quay Mull II, Chairman (Registrant)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the
date indicated.
John A. Belot
Director
J. Vincent Ciroli, Jr.
Director, President & CEO. Belmont Bancorp.,
Belmont National Bank
Mary L. Holloway Haning
Director
Charles J. Kaiser, Jr.
Director
John H. Goodman, II
Director
Dana Lewis
Director
Jane R. Marsh
Secretary, Belmont Bancorp. and
Sr. Vice President, Controller
& Cashier, Belmont National Bank
James Miller
Director
Terrence Lee
Director
Tom Olszowy
Director
Keith Sommer
Director
William Wallace
Director & Vice President,
Belmont Bancorp.; Executive Vice
President & COO, Belmont National Bank
Charles A. Wilson, Jr.
Vice Chairman
W. Quay Mull II
Chairman of the Board
W. Quay Mull II
March 15, 1999