FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 0-10756
FINANCIAL TRUST CORP
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2229155
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1415 Ritner Highway, Carlisle, PA 17013
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (717) 243-8003
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ -----
Indicate the number of shares outstanding of each of issuer's classes of common
stock as of May 1, 1996.
Common Stock, $5.00 Par Value - 7,765,443 Shares
------------------------------------------------
<PAGE>
INDEX
FINANCIAL TRUST CORP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
- ------- --------------------- ----
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -
March 31, 1996 and December 31, 1995 3
Consolidated statements of income -
Three months ended March 31, 1996 and 1995 4
Consolidated statements of cash flows -
Three months ended March 31, 1996 and 1995 5
Notes to consolidated financial statements -
March 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
- -------- -----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 13
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<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. FINANCIAL STATEMENTS
FINANCIAL TRUST CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
<S> <C> <C>
---- ----
ASSETS
Cash and due from banks $39,695 $46,864
Federal funds sold 550 3,075
Interest bearing balances with banks 509 570
Investment securities available-for-sale
(amortized cost basis of $336,180 and $309,376 respectively) 340,567 316,829
Loans, net of unearned income of $35
and $39 respectively 739,009 731,150
Less: Reserve for loan losses 11,175 11,038
---------- ----------
Net Loans 727,834 720,112
Premises and equipment 23,565 23,610
Accrued interest receivable 8,877 8,676
Intangible assets 8,410 8,595
Other assets 14,299 10,106
---------- ----------
TOTAL ASSETS $1,164,306 $1,138,437
========== ==========
LIABILITIES
Deposits:
Noninterest bearing $106,923 $111,194
Interest bearing 837,669 820,526
---------- ----------
Total Deposits 944,592 931,720
Short-term borrowings 59,354 53,530
Long-term debt 5,425 743
Accrued interest payable 3,748 2,187
Other liabilities 9,232 9,185
---------- ----------
TOTAL LIABILITIES 1,022,351 997,365
SHAREHOLDERS' EQUITY
Common Stock, par value $5 per share -
16,000,000 shares authorized; 7,765,443 shares issued
and outstanding 38,827 38,827
Surplus 33,509 33,509
Net unrealized holding gain from securities
available-for-sale, net of income taxes 2,862 4,845
Retained earnings 66,757 63,891
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 141,955 141,072
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,164,306 $1,138,437
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
---- ----
<S> <C> <C>
Interest Income:
Loans, including fees $16,780 $15,333
Investment securities:
Taxable 3,238 3,173
Tax-exempt 1,314 1,164
Other, primarily federal funds sold 105 37
--------- ---------
TOTAL INTEREST INCOME 21,437 19,707
Interest Expense:
Deposits 8,226 7,093
Short-term borrowings and long-term debt 687 760
--------- ---------
TOTAL INTEREST EXPENSE 8,913 7,853
NET INTEREST INCOME 12,524 11,854
Provision for possible loan losses 146 76
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 12,378 11,778
Other Operating Income:
Fiduciary income 630 491
Service charges on deposit accounts 593 543
Investment security gains (losses) 78 19
Other 603 746
--------- ---------
TOTAL OTHER OPERATING INCOME 1,904 1,799
Other Operating Expense:
Salaries and employee benefits 4,146 3,917
Net occupancy 679 581
Equipment 501 401
Other 2,581 3,025
--------- ---------
TOTAL OTHER OPERATING EXPENSES 7,907 7,924
--------- ---------
INCOME BEFORE INCOME TAXES 6,375 5,653
Applicable income taxes 1,571 1,325
--------- ---------
NET INCOME $4,804 $4,328
========= =========
PER SHARE DATA
Net income $0.62 $0.56
Dividends (restated for pooling, see note A) 0.25 0.21
Dividends declared 0.25 0.23
Weighted average number of shares outstanding 7,763,465 7,765,755
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $4,804 $4,328
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 470 399
Amortization of intangible assets 185 184
Provision for loan losses 146 76
Net amortization of investment security premiums 191 271
Deferred income tax expense (10) (141)
(Increase) decrease in interest receivable (201) 1
Increase in interest payable 1,561 608
Increase (decrease) in other liabilities 1,136 (13)
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CASH FLOW FROM OPERATING ACTIVITIES 8,282 5,713
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
(Increase) decrease in interest bearing bank balances 61 (28)
Proceeds from sales and maturities of investment securities 25,826 15,915
Purchases of investment securities (52,816) (5,381)
Increase in loans (7,859) (3,432)
Net loans recovered (charged-off) (9) 3
Purchase of premises and equipment (425) (459)
Increase in other assets (4,193) (1,315)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (39,415) 5,303
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits 12,872 3,247
Net increase (decrease) in short-term borrowings 5,824 (8,651)
Proceeds of new long-term debt 4,700 0
Payments on long-term debt (18) (16)
Cash dividends (1,939) (1,613)
------- -------
CASH FLOW USED IN FINANCING ACTIVITIES 21,439 (7,033)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (9,694) 3,983
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 49,939 37,861
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $40,245 $41,844
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
March 31, 1996
--------------
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
The acquisition of Washington County National Bank on September 30,
1995 was accounted for as a pooling-of-interests and, accordingly, the
consolidated financial statements have been restated to include the
accounts of Washington County National Bank for all periods presented.
NOTE B - INCOME TAXES
- ---------------------
Income tax expense is less than the amount calculated using the
statutory tax rate primarily as a result of tax exempt income earned
from state and political subdivision obligations.
NOTE C - COMMITMENTS AND CONTINGENT LIABILITIES
- -----------------------------------------------
In the normal course of business, the company makes various
commitments and incurs certain contingent liabilities which are not
reflected in the accompanying financial statements. There were firm
commitments to extend credit in the amount of $120,159,000 at March
31, 1996. Commitments under outstanding standby letters of credit
amounted to $8,290,000 at March 31, 1996. Management does not
anticipate any losses as a result of these customary banking
transactions.
<PAGE>
NOTE D - INVESTMENT SECURITIES
- ------------------------------
The amortized cost and fair values of investment securities were as
follows at the dates indicated:
(Dollars in thousands)
March 31, 1996
--------------
Amortized Fair
Cost Value
---- -----
U.S. Treasury securities and
obligations of other U.S.
government agencies $198,869 $198,279
Obligations of States and political
subdivisions 112,117 112,681
Corporate and mortgage backed
securities 16,706 16,774
-------- --------
Total debt securities 327,692 327,734
Equity securities including FHLB stock 8,488 12,833
-------- --------
Total Available-for-Sale Securities $336,180 $340,567
======== ========
December 31, 1995
-----------------
Amortized Fair
Cost Value
---- -----
U.S. Treasury securities and
obligations of other U.S.
government agencies $180,454 $181,784
Obligations of States and political
subdivisions 106,876 108,424
Corporate and mortgage backed
securities 15,634 15,846
-------- --------
Total debt securities 302,964 306,054
Equity securities including FHLB stock 6,412 10,775
-------- --------
Total Available-for-Sale Securities $309,376 $316,829
======== ========
<PAGE>
NOTE E - LOANS
- --------------
Loans consisted of the following at the dates indicated:
(Dollars in thousands)
March 31, December 31,
1996 1995
---- ----
Commercial, financial
and agricultural $81,478 $76,795
Real estate - construction 13,075 13,772
Real estate - residential 415,771 414,543
Real estate - other 157,048 152,857
Consumer 71,672 73,222
-------- --------
739,044 731,189
Less: unearned income 35 39
-------- --------
Total Loans $739,009 $731,150
======== ========
NOTE F - DEPOSITS
- -----------------
Deposit composition was as follows, at the dates indicated:
(Dollars in thousands)
March 31, December 31,
1996 1995
---- ----
Non-interest bearing
demand deposits $106,923 $111,194
Interest bearing demand deposits 233,283 232,056
Money market deposit accounts
Passbook/statement savings 181,095 184,193
Time deposits under $100,000 380,625 364,963
Time deposits of $100,000
and over 42,666 39,314
-------- --------
$944,592 $931,720
======== ========
<PAGE>
NOTE G - SHAREHOLDERS' EQUITY
- -----------------------------
On September 30, 1995 in an acquisition accounted for as a pooling-of-interests,
Financial Trust Corp acquired Washington County National Bank through the
exchange of 2.25 shares of Financial Trust Corp common stock for each share of
Washington County National Bank common stock. Accordingly, earnings per share,
dividends per share and weighted average shares outstanding references for
1995's first quarter have been restated. The effect of common stock equivalents
is not significant for any period presented.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL TRUST CORP
RESULTS OF OPERATIONS
Summary
- -------
Financial Trust Corp recorded net income of $4,804,000 for the
first quarter of 1996, an 11.0% increase over the $4,328,000 earned during the
first quarter of 1995. On a per share basis, first quarter 1996 net income was
$.62 compared to $.56 for the first quarter of 1995 and $.59 for the fourth
quarter of 1995.
The following statistics compare 1996's year-to-date performance to that of
1995:
1st Quarter 1st Quarter
1996 1995
---- ----
Return on average assets 1.68% 1.60%
Return on average equity 13.63% 13.68%
Average equity/Average assets 12.33% 11.66%
A more detailed discussion of the elements having the greatest impact on net
income follows.
Net Interest Income
- -------------------
Net interest income is the amount by which interest income on earning assets
exceeds interest paid on interest bearing liabilities. The amount of net
interest income is effected by changes in interest rates, account balances or
volume, and the mix of earning assets and interest bearing liabilities.
Net interest income for the first quarter of 1996 increased $670,000, or 5.7%,
over the first quarter of 1995. Net interest income increased $769,000, or 6.0%
on a full tax equivalent basis. The full tax equivalent increases were greater
because tax exempt income increased slightly in 1996 compared to 1995 levels.
Increases in net interest income were generated by volume increases. Net
interest margin increased by 5 basis points on a taxable equivalent basis
despite a 4 basis point decline in spread. Volume increases were highlighted by
a $20 million increase in free funds. Equity increases accounted for
approximately two thirds of this free funds increment while noninterest bearing
deposit increases account for one-third, on an average daily basis.
<PAGE>
The table that follows states rates on a fully taxable equivalent basis, net of
disallowed interest expense deductions, and demonstrates the aforementioned
effects:
1st Quarter, 1996 1st Quarter, 1995
----------------- -----------------
Avg. Balances Rates Avg. Balances Rates
------------- ----- ------------- -----
Interest earning assets $1,066,460 8.38% $1,014,583 8.11%
Interest bearing liabilities 886,701 4.04% 854,763 3.73%
------- ---- ---------- ----
Free Funds $179,759 $159,820
======== ========
Net interest income (F.T.E.) $13,529 $12,760
======= =======
Net interest spread (F.T.E.) 4.34% 4.38%
==== ====
Free funds ratio 16.86% 15.75%
===== =====
Net interest margin (F.T.E.) 5.02% 4.97%
==== ====
Other Income and Other Expenses
- -------------------------------
Total non-interest income increased 5.8%, or $105,000, over the first quarter of
1995. Modest gains were made in most areas with fiduciary income showing the
greatest increase.
Total non-interest expenses decreased 0.2%, or $17,000 compared to first quarter
of 1995. There were increases in building maintenance, equipment maintenance and
salaries and benefits. These increases, however, were offset by lower FDIC
premiums and decreased data processing expense.
The provision for loan losses increased by $70,000 or 92% from the first quarter
of 1995 with the ratio of reserves to gross loans at 1.51% on March 31, 1996
versus 1.60% on March 31, 1995 and 1.51% on December 31, 1995. As of March 31,
1996, 50.6% of the loan loss reserve is unallocated.
Income before income taxes was up 12.8%, or $722,000, for the first quarter of
1996. Income tax expense was up $246,000 or 18.6% for the same period. The
effective income tax rates were 24.6% for 1996's first quarter and 23.4% for
1995's first quarter.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Corporation continues to follow a strategy of pricing assets and liabilities
according to prevailing market rates and matching maturities as prudently as
possible within the guidelines of sound marketing and competitive practices. The
overall liquidity is strengthened by the reliance upon core deposits as the
major source of funds.
The primary objective of Financial Trust Corp's asset/liability management is to
maximize net interest income while maintaining adequate levels of liquidity and
interest rate risk. Meeting the needs of the local communities we serve is also
quite important. Management is committed to continued investment in these local
communities and is confident that it will be able to meet credit demands while
preserving liquidity and profitability.
Rate sensitivity is measured primarily by the use of monthly gap analyses for
each of the four financial institutions as well as on a consolidated basis.
While individual institutions may become positively or negatively gapped, within
the framework of their ALCO policies, the consolidated gap position is kept
balanced and moves only minimally from a 1 to 1 relationship for rate sensitive
assets to rate sensitive liabilities. Consolidated gap analysis prepared as of
March 31, 1996 on a cumulative basis demonstrates the following rate sensitive
asset/rate sensitive liability ratios at that date:
Including Prepayments Excluding Prepayments
--------------------- ---------------------
0 - 3 months .90 to 1 .84 to 1
0 - 6 months 1.02 to 1 .93 to 1
0 - 9 months 1.23 to 1 1.11 to 1
0 - 12 months 1.36 to 1 1.21 to 1
Historically, the Corporation has operated with a very strong capital base, well
above industry averages. Total shareholders' equity represented 12.33% of assets
at March 31, 1996, versus 11.66% one year earlier. The consolidated risk based
capital ratios at March 31, 1996 were 18.36% for Tier I capital and 19.59% for
total capital. All banking subsidiaries individually exceed minimum regulatory
capital requirements at March 31, 1996 by a comfortable margin. Given the strong
equity base, no capital raising activities are planned for the near future.
Capital strength and asset quality have consistently been strengths of the
Corporation.
Any loans classified for regulatory purposes as loss, doubtful, substandard or
special mention that have not been disclosed under Item III of Industry Guide 3
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources.
Financial Trust Corp's management is not aware of any current recommendations by
regulatory authorities which, if implemented, would have a material effect on
the corporation's liquidity, capital resources or operations.
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. LEGAL PROCEEDINGS
Neither Financial Trust Corp nor any subsidiary is a party to any
material legal proceedings other than ordinary routine litigation
incidental to their business.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1996. On April 30, 1996 a Form 8-K was filed disclosing a change
in the Corporation's certifying accountant. Beard & Company, Inc.
Certified Public Accountants, One Park Plaza, Reading, Pennsylvania
have been hired to replace Ernst & Young LLP as the Corporation's
independent accountants for 1996.
S I G N A T U R E S
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.
FINANCIAL TRUST CORP
(Registrant)
Date May 14, 1996 /s/ Ray L. Wolfe
------------- -----------------
Ray L. Wolfe, Chairman and CEO
(Principal Executive Officer)
Date May 14, 1996 /s/ Bradley S. Everly
------------- -----------------
Bradley S. Everly
Senior Vice President and CFO
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 39,695
<INT-BEARING-DEPOSITS> 509
<FED-FUNDS-SOLD> 550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 340,567
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 739,009
<ALLOWANCE> 11,175
<TOTAL-ASSETS> 1,164,306
<DEPOSITS> 944,592
<SHORT-TERM> 59,354
<LIABILITIES-OTHER> 12,980
<LONG-TERM> 5,425
0
0
<COMMON> 38,827
<OTHER-SE> 103,128
<TOTAL-LIABILITIES-AND-EQUITY> 1,164,306
<INTEREST-LOAN> 16,780
<INTEREST-INVEST> 4,552
<INTEREST-OTHER> 105
<INTEREST-TOTAL> 21,437
<INTEREST-DEPOSIT> 8,226
<INTEREST-EXPENSE> 8,913
<INTEREST-INCOME-NET> 12,524
<LOAN-LOSSES> 146
<SECURITIES-GAINS> 78
<EXPENSE-OTHER> 7,907
<INCOME-PRETAX> 6,375
<INCOME-PRE-EXTRAORDINARY> 4,804
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,804
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 8.04
<LOANS-NON> 1,592
<LOANS-PAST> 2,045
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 416
<ALLOWANCE-OPEN> 11,038
<CHARGE-OFFS> 71
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 11,175
<ALLOWANCE-DOMESTIC> 5,526
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,649
</TABLE>
