SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, l995 Commission File Number 0-10756
FINANCIAL TRUST CORP
-----------------------------------------------------
(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, Pennsylvania 17013
- -------------------------------------------- ------------
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 243-8003
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $5.00 Per Share
---------------------------------------
(Title of Class)
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 l934 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 4, 1996:
Common Stock, $5.00 Par Value - $206,576,033
--------------------------------------------
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of March 4, 1996:
Common Stock, $5.00 Par Value - 7,765,443
-----------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the year ended December 31,
1995 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held April 24, 1996 are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
Financial Trust Corp (often hereinafter the "Corporation") is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended. It was incorporated as "Financial Trans Corp." under the laws of
Pennsylvania on May 7, 1982, and commenced business on November 3, 1982, by
acquiring all of the issued and outstanding common stock of Farmers Trust
Company, Carlisle, Pennsylvania ("Farmers"). On July 20, 1984, it became a
multi-bank holding company with the acquisition of Chambersburg Trust Company,
Chambersburg, Pennsylvania ("Chambersburg Trust"). On May 16, 1985, the
Corporation's name was changed to Financial Trust Corp. In late 1985 Financial
Trust Life Insurance Company, the Corporation's first non-banking subsidiary,
was established. On November 2, 1987, Firstway Financial, Inc. was merged into
the Corporation and its wholly owned subsidiary, First National Bank and Trust
Co., Waynesboro, Pennsylvania ("First National") was acquired. On June 1, 1990,
First Federal Savings Bank, Hanover, Pennsylvania ("First Federal"), a federally
chartered savings association, was acquired. On September 30, 1995, the
Corporation acquired Washington County National Bank ("Washington County")
located in Williamsport, Maryland. On June 19, 1995, Farmers Trust Company's
name was changed to Financial Trust Company ("Financial Trust"). In a corporate
reorganization, on October 30, 1995, First Federal Savings Bank was converted to
a state chartered commercial bank named First Bank of Hanover, Pennsylvania and
subsequently merged into Financial Trust Company. Financial Trust Services
Company ("Financial Trust Services"), a wholly-owned subsidiary was formed and
began operations on October 2, 1995. The trust operations of the commercial bank
affiliates were transferred to the newly formed company.
Financial Trust Corp is organized as a financial holding company which
operates through its subsidiaries to deliver financial and related services to
its customers. The Corporation's primary function is to direct the policies and
coordinate the financial resources of its subsidiaries to provide various
technical and advisory services in connection with operations, accounting,
auditing, data processing, human resources management, marketing and new
business development. The Corporation employed 103 full time and 23 part time
persons at year end. All Corporate employees provide services shared by all
subsidiaries.
The Corporation has authorized capital of 16,000,000 shares of common
stock, $5.00 par value. As of December 31, 1995, the Corporation had 7,765,443
shares of common stock outstanding and approximately 3,500 shareholders of
record.
Financial Trust Company
Headquartered in Carlisle, Pennsylvania, Financial Trust Company engages in
a general commercial and retail banking business and offers a full range of
banking services to its customers, including several types of checking and
savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
As of December 31, 1995, Financial Trust operated twenty-six full-service
and drive-up banking offices, fourteen in Cumberland County, four in York
County, three in Perry County, two in Dauphin County, two in Adams County and
one in Lancaster County. Financial Trust also operates nine remote service
facilities, which are automated teller machines located on convenience store
properties, on a college campus, in a hospital lobby, in a truck plaza and in
supermarkets.
The principal office is located at 1 West High Street, Carlisle. This
building and fifteen branch offices are owned by Financial Trust Company. In
addition, ten branch offices are leased by the Bank, as more fully described in
Item 2 of this Form 10-K.
Financial Trust is not dependent upon a single customer, or a small number
of customers, the loss of which would have a materially adverse effect on
Financial Trust Corp or Financial Trust Company. Its market area is a highly
competitive one, not only with other commercial banks, but with numerous savings
and loan associations, credit unions, and other financial institutions. In
addition, major retailers compete for loans through credit cards and retail
installment contracts. Financial Trust employed 165 full-time and 63 part-time
persons at year end.
Chambersburg Trust Company
Headquartered in Chambersburg, Pennsylvania, Chambersburg Trust Company
engages in a general commercial and retail banking business and offers a full
range of banking services to its customers, including several types of checking
and savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
As of December 31, 1995, Chambersburg Trust operated eight full service
offices and four remote service facilities, all in Franklin County. The
principal office is located at 14 North Main Street, Chambersburg. This, as well
as four of the eight branch offices are owned; the remaining four branch offices
are leased and are located in a supermarket and other shopping areas.
Chambersburg Trust is not dependent upon a single customer, or a small
number of customers, the loss of which would have a materially adverse effect
upon the Bank or the Corporation. Its market area is highly competitive, not
only with other commercial banks, but with numerous savings and loan
associations, credit unions, and other financial institutions. In addition,
major retailers compete for loans through credit cards and retail installment
contracts. The Bank employed 56 full-time and 29 part-time persons at year end.
First National Bank and Trust Co.
Headquartered in Waynesboro, Pennsylvania, First National Bank and Trust
Co. engages in a general commercial and retail banking business and offers a
full range of banking services to its customers, including several types of
checking and savings accounts, certificates of deposit, and commercial,
consumer, and mortgage loans.
As of December 31, 1995, First National operated four full service offices,
all in Franklin County, and three remote service facilities. The principal
office is located at 13 West Main Street, Waynesboro. All four offices are owned
and occupied entirely by the Bank.
First National is not dependent upon a single customer, or a small number
of customers, the loss of which would have a materially adverse effect upon the
Bank or the Corporation. Its market area is highly competitive, not only with
other commercial banks, but with numerous savings and loan associations, credit
unions, and other financial institutions. In addition, major retailers compete
for loans through credit cards and retail installment contracts. The Bank
employed 48 full-time and 12 part-time persons at year end.
Washington County National Bank
Headquartered in Williamsport, Maryland, Washington County National Bank
engages in a general commercial and retail banking business and offers a full
range of banking services to its customers, including several types of checking
and savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
As of December 31, 1995, Washington County operated nine full service
offices, all in Washington County. The principal office is located at 14 West
Potomac Street, Williamsport. All nine offices are owned and occupied entirely
by the Bank.
Washington County is not dependent upon a single customer, or a small
number of customers, the loss of which would have a materially adverse effect
upon the Bank or the Corporation. Its market area is highly competitive, not
only with other commercial banks, but with numerous savings and loan
associations, credit unions, and other financial institutions. In addition,
major retailers compete for loans through credit cards and retail installment
contracts. The Bank employed 74 full-time and 10 part-time persons at year end.
Financial Trust Services Company
Headquartered in Carlisle, Pennsylvania, Financial Trust Services Company
provides personal and corporate trust and agency services to individuals,
corporations and others. These services include trust investment accounts,
investment advisory service, estate planning and the management of pension and
profit sharing plans.
Financial Trust Services began operations October 2, 1995 and employed 18
full-time and 2 part-time persons at year end.
Financial Trust Life Insurance Company
Incorporated in 1985 under the laws of the State of Arizona, Financial
Trust Life Insurance Company reinsures the credit life and disability insurance
written by the banking subsidiaries' installment loan departments. A
wholly-owned subsidiary of Financial Trust Corp, this company became active
in January, 1986.
SUPERVISION AND REGULATION
The Corporation is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("the Act"), as such it is subject to primary
regulation by the Board of Governors of the Federal Reserve System ("the Federal
Reserve"). The Act designates banking or managing and controlling banks as the
primary business of a bank holding company but authorizes the Federal Reserve to
permit such companies to engage in certain other activities which the Board has
determined to be closely related to banking.
All four banking subsidiaries are subject to regulation and supervision, of
which regular bank examinations are a part. Financial Trust Company and
Chambersburg Trust Company are state chartered banks subject to examination by
the Pennsylvania Department of Banking and the Federal Deposit Insurance
Corporation ("FDIC"), as are all insured Pennsylvania bank and trust companies
which are not members of the Federal Reserve System. First National Bank and
Trust Co. and Washington County National Bank, as federally chartered banks and
members of the Federal Reserve System, are subject to examination by the Office
of the Comptroller of the Currency, as are all national banks. All four banking
subsidiaries are members of the FDIC, which currently insures deposits to a
maximum of $100,000 per depositor. For this protection, each bank pays a
quarterly statutory assessment and is subject to the rules and regulations of
the FDIC.
Financial Trust Services Company is subject to Federal Reserve and
Pennsylvania Department of Banking regulation and supervision. Financial Trust
Life Insurance Company is subject to regulation and supervision by the Federal
Reserve and the Department of Insurance of the State of Arizona.
Financial Trust Corp and its banking subsidiaries are subject to periodic
examinations by one or more of the various regulatory agencies. During 1995, a
number of examinations were conducted at the Corporation and its banking
subsidiaries. These examinations included, but were not limited to, procedures
designed to review lending practices, credit quality, liquidity, compliance,
operations, and capital adequacy of the Corporation and its susidiaries. No
comments were received from the various regulatory bodies which, if implemented,
would have a material effect on Financial Trust Corp's liquidity, capital
resources, or operations.
The Commonwealth of Pennsylvania Department of Banking currently places no
restrictions on Pennsylvania banks as to the establishment of additional
Pennsylvania branches. Since March 4, 1990, banks and bank holding companies
located in all states have been permitted to acquire Pennsylvania banks if the
state in which the bank or bank holding company is located has a reciprocal
statute which permits Pennsylvania banks and bank holding companies to acquire
or merge with banks in most other states. It also permits banks to branch across
state lines. States must decide by June 1, 1997 whether to participate in
interstate branching. In July 1995, the Commonwealth of Pennsylvania elected
early opt-in, by enacting Act 39 of 1995 ("Act 39"). Act 39 amends the
Pennsylvania Banking Code to authorize full and immediate interstate banking and
branching pursuant to the federal Riegle-Neal Act. Predictions are that banking
industry consolidation will continue to occur and possibly accelerate as the
industry strives for greater cost efficiencies and market share. In the short
term, management believes the effect of this new legislation on the liquidity,
capital resources, and results of operations of the Corporation will be
immaterial.
EXECUTIVE OFFICERS OF THE CORPORATION
The following information is included in conformity with Instruction 3 of
Item 401(b) of SEC Regulation S-K:
Name Age Position
----- --- --------
Ray L. Wolfe 57 Chairman and CEO (since 1995),
President and CEO (1982-1995);
Chairman (since 1995), President
(1975-1995) and Vice Chairman
of the Board (1981-1995), Financial
Trust Company
Peter C. Zimmerman 49 President and Chief Operations Officer
(since 1995), Senior (1991-1995) Vice
President (1989-1995) and Secretary
(1982-1991);
President and CEO (since 1991),
Chambersburg Trust Company;
Executive (1989-1991) Vice President
(1977-1991) and Secretary (1975-
1991), Financial Trust Company.
Bradley S. Everly 44 Senior Vice President (since 1995),
Chief Financial Officer (since 1989),
Secretary (1994-1995) and Treasurer
(1989-1995).
Lynn S. Baker 45 Senior Vice President (since 1990);
Executive Vice President (since 1991)
Financial Trust Company;
President (1987-1991) First Federal
Savings Bank
Dennis C. Caverly 61 Senior Vice President (since 1991),
Vice President (1982-1991);
Chairman and CEO (since 1995),
President (1991-1995) and Executive
Vice President (1989 through 1990)
First National Bank and Trust Co.;
President (since 1995), Financial Trust
Services Company
William H. Kiick 60 Senior Vice President (since 1991);
President and CEO (since 1995),
Financial Trust Company;
President (1991-1995), First Federal
Savings Bank
M.L. Patterson, Jr. 65 Senior Vice President (since 1995);
President and CEO (since 1979) and
Vice Chairman of the Board (since
1991) Washington County National
Bank
None of the above has any family relationship with any other person so named,
and there are no arrangements or understandings between any executive officer
and any other person pursuant to which any person was selected as an officer.
Officers are elected each year at the reorganization meeting of the Board of
Directors following the Annual Meeting of Shareholders.
STATISTICAL DATA
The following tables and other information present for the reported period
statistical information for the Corporation and its subsidiaries on a
consolidated basis. This information should be read in conjunction with the
audited consolidated financial statements, Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Selected Financial Data
of the Corporation included elsewhere in this report:
A. Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
Page 29 of the 1995 Annual Report to Shareholders is incorporated
herein by reference.
B. Investment Portfolio
Pages 15, 16, 30, 31, 36 and 38 of the 1995 Annual Report to
Shareholders are incorporated herein by reference.
C. Loan Portfolio
Pages 17, 30, 33, 34, 35, 37 and 38 of the 1995 Annual Report to
Shareholders are incorporated herein by reference.
Risk Elements
Non-accrual and Restructured Loans
Information with respect to non-accrual and restructured loans at
December 31 is as follows:
1995 1994 1993
---- ---- -----
(in thousands)
Non-accrual loans $2,402 $2,298 $2,910
Restructured loans 0 0 442
Interest income which would
have been recorded under
original terms 251 242 326
Interest income recorded during
the period 52 38 74
Commitments to lend additional
funds -- -- --
Potential Problem Loans
At December 31, 1995, the Corporation had $418,000 in loans within its loan
portfolio that could be considered "potential problem loans" Such loans are
characterized as loans for which payments are current, but the borrowers are
currently experiencing severe financial difficulties.
The Corporation was not engaged in any highly leveraged transactions (HLT) as of
December 31, 1995.
Foreign Outstandings
At December 31, 1995, the Corporation did not have any loans outstanding to any
foreign entity or government.
Loan Concentrations
Management is not aware of any loan concentration in the loan portfolio to
borrowers engaged in the same or similar industries that would exceed 10% of
total loans.
Other Interest Bearing Assets
The Corporation has no interest bearing assets, apart from loans, that meet the
non-accrual, past due, restricted or potential problem loan criteria.
D. Summary of Loan Loss Experience
Pages 17, 34 and 35 of the 1995 Annual Report to Shareholders are incorporated
herein by reference.
E. Deposits
Pages 18, 29, 37 and 38 of the 1995 Annual Report to Shareholders are
incorporated herein by reference.
F. Return on Equity and Assets
Year Ended December 31
1995 1994 1993
---- ---- ----
(1) Return on assets 1.64% 1.53% 1.47%
(2) Return on equity 13.81% 13.52% 13.13%
(3) Dividend payout ratio 37.40% 37.72% 39.20%
(4) Equity to assets ratio 11.85% 11.35% 11.20%
Other Equity Ratios
December 31 Regulatory
--------------------
1995 1994 1993 Minimum
---- ---- ---- --------
(1) Tier I capital ratio 18.54% 17.51% 17.61% 4.0%
(2) Total (Tier II) capital) 19.78% 18.76% 18.86% 8.0%
(3) Leverage ratio 11.85% 10.70% 11.29% 3.0%
G. Short-Term Borrowings
Page 32 of the 1995 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 2. PROPERTIES
Financial Trust Corp
The Corporation is headquartered at 1415 Ritner Highway in Carlisle,
Pennsylvania. The corporate headquarters is owned free and clear of any
indebtedness. In addition, the Corporation owns an operations center located at
310 Allen Road in Carlisle, Pennsylvania. In 1985 the Corporation entered into
an agreement with the Cumberland County Industrial Development Authority and a
commercial bank to provide financing for a substantial portion of the operation
center. Under the agreement monthly payments are due until maturity in November,
2000.
Financial Trust Company
The principal executive office and main banking office of Financial Trust
Company is located at 1 West High Street, Carlisle, PA. This and the following
fifteen branch offices are owned by Financial Trust Company, free and clear of
any indebtedness:
(1) Noble Boulevard & South West Street, Carlisle, PA
(2) 3805 Trindle Road, Camp Hill, PA
(3) 433 S. 18th Street, Camp Hill, PA
(4) 7 Center Square, New Bloomfield, PA
(5) 216 S. Carlisle St., New Bloomfield, PA
(6) 19 East Main Street, New Kingstown, PA
(7) 631 Holly Pike, Mt. Holly Springs, PA
(8) 120 S. Union Street, Middletown, PA
(9) 1601 W. Harrisburg Pike, Middletown, PA
(10) 104 S. Market Street, Elizabethtown, PA
(11) 100 Frederick Street, Hanover, PA
(12) 1055 Baltimore Street, Hanover, PA
(13) 105 Chambersburg Street, Gettysburg, PA
(14) 14 West Hanover Street, Bonneauville, PA
(15) 401 East King Street, Shippensburg, PA
The following nine full service offices, one drive-up office and the sites
for nine remote service facilities (RSF's) are leased from various lessors under
varying terms and conditions:
(1) 1958 Spring Road, Carlisle, PA
(2) Carlisle Plaza Mall, Carlisle, PA
(3) 5303 E. Simpson Ferry Road, Mechanicsburg, PA
(4) 5 Village Square Plaza, Shermans Dale, PA
(5) 6520 Carlisle Pike, Mechanicsburg, PA
(6) 960 Walnut Bottom Road, Carlisle, PA (land leased)
(7) 4 N. U.S. Highway Route #15, Dillsburg, PA (land leased)
(8) 457 Eisenhower Drive, Hanover, PA
(9) 802 Lisburn Road, Mechanicsburg, PA
(10) 1415 Ritner Highway, Carlisle, PA (leased from Parent Corporation)
(11) 43 Forge Road, Boiling Springs, PA (RSF)
(12) Pa. Rt. 641, Plainfield, PA (RSF)
(13) Carlisle Plaza Mall, Carlisle, PA (RSF)
(14) 246 Parker Street, Carlisle Hospital, Carlisle, PA (RSF)
(15) Holland Union Building, Dickinson College, Carlisle, PA (RSF)
(16) 1201 Harrisburg Pike, Carlisle, PA (RSF)
(17) 1098 Harrisburg Pike, Carlisle, PA (RSF)
(18) 1451 S. Market Street, Mechanicsburg, PA (RSF)
(19) Baltimore & Steinwehr Streets, Gettysburg, PA (RSF)
Chambersburg Trust Company
The principal executive office and main banking office of Chambersburg
Trust Company is located at 14 North Main Street, Chambersburg, PA. This and the
following four branch offices are owned by Chambersburg Trust Company, free and
clear of any indebtedness:
(1) 278 Lincoln Way East, Chambersburg, PA
(2) 1798 Lincoln Way East, Chambersburg, PA
(3) 643 E. Baltimore Street, Greencastle, PA
(4) 3628 Scotland Main Street, Chambersburg, PA
The following four full service offices and the sites for four remote
service facilities (RSF's) are leased from various lessors under varying terms
and conditions:
(1) South Gate Mall, Chambersburg, PA
(2) 993 Wayne Avenue, Chambersburg, PA
(3) 915 Wayne Avenue, Chambersburg, PA
(4) 128 East Queen Street, Chambersburg, PA (leased from Financial Trust
Company)
(5) 1080 Lincoln Way West, Chambersburg, PA (RSF)
(6) 1175 Stouffer Avenue, Chambersburg, PA (RSF)
(7) 76 West Liberty Street, Chambersburg, PA (RSF)
(8) 112 N. Seventh Street, Chambersburg, PA (RSF)
First National Bank and Trust Co.
The principal executive office and main banking office of First National
Bank and Trust Co. is located at 13 West Main Street, Waynesboro, PA. This and
the following three branch offices are owned by First National Bank and Trust
Co., free and clear of any indebtedness:
(1) 13102 Monterey Lane, Blue Ridge Summit, PA
(2) 1501 E. Main Street, Wayne Heights Mall, Waynesboro, PA
(3) 5006 Buchanan Trail East, Zullinger, PA
The following sites for First National Bank and Trust Co.'s three remote
service facilities (RSF's) are leased from various lessors under varying terms
and conditions:
(1) Pennsylvania State University's Campus, Mont Alto, PA (RSF)
(2) 102 East Main Street, Waynesboro, PA (RSF)
(3) Wesley Drive, Quincy Village, Quincy, PA (RSF)
Washington County National Bank
The principal executive office and main banking office of Washington County
National Bank is located at 14 West Potomac Street, Williamsport, MD. This and
the following eight branch offices are owned by Washington County National Bank,
free and clear of any indebtedness:
(1) 307 East Potomac Street, Williamsport, MD
(2) 10721 Fairway Lane, Hagerstown, MD
(3) 121 South Main Street, Clear Spring, MD
(4) 19 South Main Street, Keedysville, MD
(5) 7620 Old National Pike, Boonsboro, MD
(6) 103 West Main Street, Sharpsburg, MD
(7) 17345 Virginia Avenue, Hagerstown, MD
(8) 1101 Professional Court, Hagerstown, MD
The Corporation believes that all properties and equipment are well
maintained, adequate for present needs and in good condition. The total annual
rental under all real estate leases did not exceed 5% of the Corporation's
operating expenses during the past fiscal year.
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiaries are parties to any material
legal proceedings other than ordinary routine litigation incidental to its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1995 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
"Market and Dividend Information" on page 43 and Note K - "Restrictions on
Subsidiary Dividends, Loans or Advances" on page 19 of the 1995 Annual Report to
Shareholders, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Page 42 of the 1995 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 27 through 40 of the 1995 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
are included on pages 9 through 26 of the 1995 Annual Report to Shareholders and
are incorporated herein by reference. "Quarterly Results of Operations" on page
41 of the 1995 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Form 8-K filed reporting a change of accountants, nor has
there been any disagreement on any matter of accounting principles, practices,
or financial statement disclosure with said accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
"Election of Directors" on pages 2 through 4 of the 1996 Annual Meeting
Proxy Statement is incorporated herein by reference. Also included in this Form
10-K in Item 1 is information on executive officers under the heading "Executive
Officers of the Corporation".
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" and the related notes on pages 6 through 10 of the
Corporation's 1996 Annual Meeting Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pages 1 through 4 of the Corporation's 1996 Annual Meeting Proxy Statement
contain information with respect to the beneficial ownership of Common Stock,
and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Transactions with Directors, Executive Officers and Associates" on
page 14 of the 1996 Annual Meeting Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The audited consolidated financial statements for the years ended
December 31, 1995, 1994, and 1993, together with the report thereon
of Ernst & Young LLP, independent auditors, appearing on pages 9
through 26 together with the "Selected Financial Data" appearing on
page 42 of the 1995 Annual Report to Shareholders, are attached as
Exhibit 13 to this Form 10-K Annual Report.
2. Financial Statement Schedules
None - All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable or
pertain to items as to which the required disclosures have been made
elsewhere in the financial statements and notes thereto and
therefore have been omitted.
3. Exhibits:
1-2. None
3(a). Articles of Incorporation -- Incorporated by reference are the
Corporation's Articles of Incorporation filed as Exhibit 3(a)
to Annual Report Form 10-K for the fiscal year ended December
31, 1987.
3(b). Bylaws -- Incorporated by reference are the Corporation's
bylaws filed as Exhibit 3(b) to Annual Report Form 10-K for
the fiscal year ended December 31, 1987.
4-12. None
13. Registrant's 1995 Annual Report to Shareholders which is
incorporated herein by reference.
14-21. None
22. Subsidiaries of the registrant:
<TABLE>
<CAPTION>
Name State of Incorporation Percent Owned
---- ---------------------- -------------
<S> <C> <C> <C>
Chambersburg Trust Company Pennsylvania 100%
Financial Trust Company Pennsylvania 100%
First National Bank Pennsylvania 100%
and Trust Co.
Washington County National Bank Maryland 100%
Financial Trust Life Arizona 100%
Insurance Company
Financial Trust Services Company Pennsylvania 100%
</TABLE>
23. None
24a. Consent of Independent Auditors, Ernst & Young LLP -- Attached
24b. Consent of Independent Auditors, Smith Elliott Kearns & Co.
-- Attached
25-27. None
28a. Additional exhibits -- Auditors' Report, Ernst & Young LLP --
Page 26 of the 1995 Annual Report to Shareholders is
incorporated herein by reference.
28b. Additional exhibit -- Auditors' Report, Smith Elliott Kearns
& Co. -- Attached.
(b) Reports on Form 8-K:
A Form 8-K was filed on January 20, 1995 disclosing that
Financial Trust Corp had entered into an Agreement and Plan of
Affiliation with Washington County National Bank. A Form 8-K
was filed during October 1995 announcing the completion of the
Washington County National Bank acquisition on September 30,
1995 and disclosing that the transaction was accounted for as a
pooling-of-interests. The Forms 8-K of January and October 1995
are incorporated herein by reference.
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.
FINANCIAL TRUST CORP
By /s/ Bradley S. Everly
----------------------------------------
Bradley S. Everly
Senior Vice President and Chief Financial Officer
March 20, 1996
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 and in the capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
Chairman, Chief Executive
Officer and Director
/s/ Ray L. Wolfe (Principal Executive Officer) March 18, 1996
- -------------------------
Ray L. Wolfe
/s/ Lynn S. Baker Director March 18, 1996
- -------------------------
Lynn S. Baker
/s/ Thomas E. Beck Director March 18, 1996
- -------------------------
Thomas E. Beck
/s/ Harold L. Brake Director March 18, 1996
- -------------------------
Harold L. Brake
________________________ Director _________________
Robert W. Brown
/s/ George P. Buckey Director March 18, 1996
- -------------------------
George P. Buckey
/s/ Thomas G. Burkey Director March 18, 1996
- -------------------------
Thomas G. Burkey
/s/ James E. Byron Director March 18, 1996
- -------------------------
James E. Byron
/s/ Dennis C. Caverly Director March 18, 1996
- -------------------------
Dennis C. Caverly
/s/ George F. Henneberger Director March 18, 1996
- -------------------------
George F. Henneberger
/s/ Webb S. Hersperger, M.D. Director March 18, 1996
- -------------------------
Webb S. Hersperger, M.D.
/s/ Allan W. Holman, Jr., Esq. Director March 18, 1996
- -------------------------
Allan W. Holman, Jr., Esq.
/s/ William H. Kiick Director March 18, 1996
- -------------------------
William H. Kiick
/s/ Richard G. King Director March 18, 1996
- -------------------------
Richard G. King
/s/ M.L. Patterson, Jr. Director March 18, 1996
- -------------------------
M.L. Patterson, Jr.
/s/ Thomas H. Shank Director March 18, 1996
- -------------------------
Thomas H. Shank
________________________ Director _________________
William F. Shull
/s/ Paul L. Strickler Director March 18, 1996
- -------------------------
Paul L. Strickler
/s/ Jack K. Sunday Director March 18, 1996
- -------------------------
Jack K. Sunday
/s/ Mary Ann Warrell Director March 18, 1996
- -------------------------
Mary Ann Warrell
President, Chief Operations
/s/ Peter C. Zimmerman Officer and Director March 18, 1996
- -------------------------
Peter C. Zimmerman
Senior Vice President and
Chief Financial Officer
/s/ Bradley S. Everly (Principal Financial and March 18, 1996
- ------------------------- Accounting Officer)
Bradley S. Everly
A
Year of
Consolidation,
Restructuring
and Continued
Strong Performance
<PAGE>
LOGO
CORPORATE PROFILE
Financial Trust Corp is a Carlisle, Pennsylvania based multibank holding company
that operates 4 commercial banks through 47 banking offices located in central
Pennsylvania and western Maryland. The Pennsylvania commercial banking
subsidiaries are Financial Trust Company (including the Farmers Trust Company
and Hanover Divisions), Chambersburg Trust Company and First National Bank and
Trust Co. The Maryland banking subsidiary is Washington County National Bank.
The Corporation also delivers trust services to its commercial bank markets
through Financial Trust Services Company and provides credit life and disability
insurance to its subsidiary banks' loan customers through Financial Trust Life
Insurance Company.
CONTENTS
1 Financial Highlights 27 Management's Discussion
2 Letter to Shareholders 41 Quarterly Results of Operations
4 Bank Operations 42 Selected Financial Data
9 Consolidated Financial Statements 43 Market and Dividend Information
13 Notes to Consolidated Financial 44 Directors and Officers
Statements
<PAGE>
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
For The Year 1995 1994 % Increase
- -------------------------------------------------------------------------------
Interest Income $82,855 $73,692 12.4%
----------------------------------------------------------------------------
Interest Expense 34,196 27,679 23.5%
----------------------------------------------------------------------------
Net Interest Income 48,659 46,013 5.8%
----------------------------------------------------------------------------
Net Income 18,135 16,429 10.4%
- -------------------------------------------------------------------------------
Per Share
- -------------------------------------------------------------------------------
Net Income $2.34 $2.12 10.4%
----------------------------------------------------------------------------
Historical Cash Dividends 0.94 0.87 8.0%
----------------------------------------------------------------------------
Cash Dividends Restated for Pooling 0.88 0.80 10.0%
----------------------------------------------------------------------------
Stock Price at Year-End (Nasdaq Close) 30.25 28.75 5.2%
----------------------------------------------------------------------------
Book Value at Year-End 18.17 16.21 12.1%
- -------------------------------------------------------------------------------
At Year-End
- -------------------------------------------------------------------------------
Investment Securities $316,829 $308,589 2.7%
----------------------------------------------------------------------------
Loans 731,150 707,495 3.3%
----------------------------------------------------------------------------
Deposits 931,720 898,859 3.7%
----------------------------------------------------------------------------
Assets 1,138,437 1,090,576 4.4%
----------------------------------------------------------------------------
Shareholders' Equity 141,072 125,869 12.1%
- -------------------------------------------------------------------------------
Profitability Ratios
- -------------------------------------------------------------------------------
Return on Average Assets 1.64% 1.53%
----------------------------------------------------------------------------
Return on Average Equity 13.81% 13.52%
----------------------------------------------------------------------------
The acquisition of Washington County National Bank (WCNB) 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 WCNB for all
periods presented. Cash dividends are presented both as historically paid and as
restated for the pooling.
[GRAPHIC] [GRAPHIC]
In the printed version there is a bar graph. In the printed version there is
Below are the plot points for this graphic a bar graph. Below are the plot
showing 6 years of Assets at December 31 points for this graph showing
(5 years of movement) 6 years of Net Income Per Share
TOTAL ASSETS AT DECEMBER 31 NET INCOME PER SHARE FOR YEAR
(in millions)
12/31/90 861,183 1990 $1.65
12/31/91 918,184 1991 1.74
12/31/92 964,917 1992 1.94
12/31/93 995,171 1993 1.85
12/31/94 1,090,576 1994 2.12
12/31/95 1,138,437 1995 2.34
[GRAPHIC]
In the printed version there is a bar graph.
Below are the plot points for this graph
showing 6 years of Book Value and Market Value Per Share
at December 31
(5 years of movement)
BOOK VALUE AND MARKET VALUE PER SHARE AT DECEMBER 31
Book Value
Market Value
12/31/90 $11.16 $12.95
12/31/91 12.31 15.91
12/31/92 13.60 23.18
12/31/93 14.77 32.44
12/31/94 16.21 28.75
12/31/95 18.17 30.25
1
<PAGE>
TO OUR SHAREHOLDERS:
In many ways, 1995 was a remarkable year for the banking industry, for the
financial markets, and for Financial Trust Corp.
The industry achieved record profits for the fourth consecutive year and
was thus able to fully recapitalize the Bank Insurance Fund, enabling FDIC
premiums to be reduced to record lows. The 1994 Interstate Banking and Branching
Act triggered an historic wave of mergers and acquisitions, especially among the
largest banks in the country. Computer-driven technology continues to sweep the
industry and will dramatically alter the delivery of financial services as the
twenty-first century approaches.
The spectacular stock and bond market rally will be a tough act to follow.
The Dow Jones Industrial Average surged more than 33% to over 5,000 at year-end.
The combination of slowing economic growth, low inflation, and fiscal restraint
caused long-term interest rates to fall steadily throughout the year. This
produced total returns for long-term U.S. Treasury bonds almost as high as the
stock market, resulting in the third best year ever recorded by the bond market.
Financial Trust Corp reported record earnings for each quarter of 1995, as
we achieved a return on average assets of 1.64% to continue our ranking as one
of the nation's top performing multi-bank holding companies. Total assets
exceeded $1.1 billion with the September 30 acquisition of Washington County
National Bank, headquartered in Williamsport, Maryland. With the restatement of
prior periods' financial results to reflect a pooling-of-interests, net income
in 1995 increased more than $1.7 million, or 10.4%, to exceed $18.1 million. On
a per share basis, net income totaled $2.34, also a 10.4% increase over the
restated $2.12 in 1994.
A YEAR OF ACCOMPLISHMENT
Much effort was dedicated during 1995 to accomplishing the many initiatives
begun the year before. The addition of Washington County National Bank made us a
multi-state bank holding company with a natural extension of our southcentral
Pennsylvania market into western Maryland. Indeed, Washington County's market
area has been contiguous to that of our Waynesboro banking subsidiary, First
National Bank and Trust Co., for nearly a century, yet only recently was
legislation enacted to allow either one to provide banking services across the
states' borders.
In order to realize greater economies of scale and management within our
banking subsidiaries, several steps were initiated and completed during the
year. Farmers Trust Company's name was changed to Financial Trust Company and,
in a corporate reorganization, First Federal Savings Bank was converted to a
state chartered commercial bank and subsequently combined with Financial Trust
Company. One federal regulator was thus eliminated, as well as several
duplicative staff positions. William H. Kiick, formerly President of First
Federal, became President of Financial Trust, which now operates 26 banking
offices in the eastern half of the holding company's market area.
Simultaneous with this restructuring, Chambersburg Trust Company acquired
the assets and deposits of First Federal's Chambersburg office. This provided an
immediate improvement in service to these customers who now have access to
better-equipped facilities in seven other locations within the Chambersburg
area. Greater cost efficiencies will be realized with the planned closing of
this office in the spring of 1996.
Some important gaps in the Financial Trust Company service area were filled
with the establishment of branch offices in Bonneauville, Lisburn Road, and
Shippensburg. Drive-up banking facilities were opened at our Corporate
Headquarters building in Carlisle along the heavily traveled Ritner Highway. The
Shippensburg office is somewhat unique in that it offers "interaffiliate"
banking services to a number of Chambersburg Trust Company customers who live or
operate businesses in the Shippensburg area.
Washington County completed the year's service area expansion with the
establishment of its Eastern Boulevard office. This branch facility is
strategically located in the fastest growing section of Hagerstown, the county's
principal metropolitan area.
2
<PAGE>
A significant enhancement in operating efficiency was realized with the
opening of our Corporate Headquarters building. We have now combined at one
location all of the centralized administrative services including finance,
marketing, compliance, personnel, training, audit, loan review and collection.
This is consistent with our philosophy of efficiently providing these services
at the holding company level to support the community-based banking offered by
each of our subsidiaries.
We also completed a major renovation and restructuring of our Operations
Center during 1995. Our focus continues to be to provide the most efficient
operations support possible to our banks so that they may, in turn, provide the
highest level of service to their customers. The introduction of 24-hour
availability of banking by telephone is a prime example of our commitment to
utilize technology to enhance banking services in a cost-efficient manner.
INTRODUCING OUR NEWEST SUBSIDIARY...
FINANCIAL TRUST SERVICES COMPANY
Perhaps the most significant of all the year's consolidation efforts was
that of combining the banks' trust departments into a new subsidiary of the
holding company, known as Financial Trust Services Company. In addition to the
obvious efficiencies of combined operations, data processing and tax
preparation, this structure will facilitate the delivery of trust services to
new locations within our market area. By capitalizing on the various strengths
of the trust departments that previously operated separately, we will be better
able to combine these strengths to market our services more effectively. Dennis
C. Caverly, who is Chairman & CEO of First National Bank and Trust Co. and has
an extensive trust background, has assumed the Presidency of this subsidiary to
guide it through its infancy.
In May, 1995, Mr. Caverly replaced Donald E. Bollinger, who retired as
Chairman of the Board of First National after a 36-year career with the bank.
Mr. Bollinger served the Waynesboro community in a large number of capacities
and represented the bank in an exemplary fashion. We thank him for his many
years of fine service and congratulate Robert E. Rahal, who was promoted to the
position of President. We also recognize Lee R. Hamner, who retired as a
director of First National, for his many years of service to that Board.
We welcome to the Financial Trust Corp Board of Directors, Thomas H. Shank,
M.L. Patterson, Jr. and James E. Byron. Mr. Shank serves as Chairman of the
Board of Washington County National Bank and Mr. Patterson as President and CEO.
LOOKING AHEAD
While the year 1996 presents many challenges for the banking industry, for
the national and local economies, and for Financial Trust Corp, we remain
confident of our ability to perform above the level of most of our peers. We
will continue with our philosophy of providing personal community banking within
a structure that requires strict expense control and optimization of operating
efficiencies.
Our stated goal is to provide service to our customers that is unmatched by
our competition. Our staff of officers and employees remain dedicated to doing
whatever it takes to meet that goal.
[PHOTOGRAPH]
Ray L. Wolfe
Chairman and CEO
Financial Trust Corp.
Peter C. Zimmerman
President and COO
Financial Trust Corp.
3
<PAGE>
BANK OPERATIONS
Financial Trust Corp is organized along simple and functional lines. The
holding company is comprised primarily of four community banks and a newly
formed trust subsidiary: Financial Trust Company, headquartered in Carlisle;
Chambersburg Trust Company; First National Bank and Trust Co., Waynesboro;
Washington County National Bank, Williamsport, Maryland; and Financial Trust
Services Company.
The holding company provides support services to the subsidiary banks in
the form of data processing, finance, audit, compliance, human resources,
marketing and other operations functions. The subsidiary banks are responsible
for delivering services to their respective communities.
Each subsidiary bank has a local board of directors, and all banking
decisions affecting their communities are made at the local level.
Representatives from each of the subsidiary boards serve on the board of
Financial Trust Corp, where they provide broad guidance to the subsidiaries by
establishing performance goals, generating market strategies and formulating
policy.
On September 30, 1995, Washington County National Bank became the newest
affiliate of Financial Trust Corp. One of the oldest financial institutions in
Maryland, Washington County traces its history to the period immediately
following the War of 1812 with the incorporation of The Conococheague Bank in
1814. In 1827, the bank was reorganized under the name of the Washington County
Bank. Under laws newly in effect in 1865, the bank converted to a national
charter.
In 1951, Washington County acquired The Savings Bank of Williamsport and
became the Washington County National Savings Bank. In 1985, Citizens Bank of
Keedysville was acquired by merger and the bank officially changed its name to
the prior Washington County National Bank.
4
<PAGE>
Financial Trust Company
[PHOTOGRAPH]
William H. Kiick, President & CEO
FINANCIAL TRUST COMPANY
SELECTED FINANCIAL DATA (dollars in thousands)
- -----------------------------------------------------------------
At Year End 1995 1994
- -----------------------------------------------------------------
Assets $614,579 $588,960
--------------------------------------------------------------
Loans 399,540 380,976
--------------------------------------------------------------
Deposits and Purchased Funds 536,651 519,843
--------------------------------------------------------------
Shareholder's Equity 70,006 63,023
- -----------------------------------------------------------------
Net Income $10,178 $9,425
- -----------------------------------------------------------------
Ratios
- -----------------------------------------------------------------
Return on Average Assets 1.69% 1.66%
--------------------------------------------------------------
Return on Average Equity 15.42% 15.36%
--------------------------------------------------------------
Equity/Assets 11.39% 10.70%
--------------------------------------------------------------
Chambersburg Trust Company
[PHOTOGRAPH]
Peter C. Zimmerman, President & CEO
CHAMBERSBURG TRUST COMPANY
SELECTED FINANCIAL DATA (dollars in thousands)
- -----------------------------------------------------------------
At Year End 1995 1994
- -----------------------------------------------------------------
Assets $197,516 $177,750
--------------------------------------------------------------
Loans 126,456 121,919
--------------------------------------------------------------
Deposits and Purchased Funds 174,859 157,076
--------------------------------------------------------------
Shareholder's Equity 20,916 19,372
- -----------------------------------------------------------------
Net Income $2,926 $2,606
- -----------------------------------------------------------------
Ratios
- -----------------------------------------------------------------
Return on Average Assets 1.63% 1.49%
--------------------------------------------------------------
Return on Average Equity 14.56% 13.77%
--------------------------------------------------------------
Equity/Assets 10.59% 10.90%
--------------------------------------------------------------
5
<PAGE>
First National Bank and Trust Co.
[PHOTOGRAPH]
Dennis C. Caverly, Chairman & CEO
and Robert E. Rahal, President
FIRST NATIONAL BANK AND TRUST CO.
SELECTED FINANCIAL DATA (dollars in thousands)
- -----------------------------------------------------------------
At Year End 1995 1994
- -----------------------------------------------------------------
Assets $186,102 $183,067
--------------------------------------------------------------
Loans 118,782 116,377
--------------------------------------------------------------
Deposits and Purchased Funds 157,187 156,853
--------------------------------------------------------------
Shareholder's Equity 26,424 24,474
- -----------------------------------------------------------------
Net Income $3,382 $3,158
- -----------------------------------------------------------------
Ratios
- -----------------------------------------------------------------
Return on Average Assets 1.83% 1.72%
--------------------------------------------------------------
Return on Average Equity 13.44% 13.23%
--------------------------------------------------------------
Equity/Assets 14.20% 13.37%
--------------------------------------------------------------
Washington County National Bank
[PHOTOGRAPH]
M. L. Patterson, Jr., President & CEO
WASHINGTON COUNTY NATIONAL BANK
SELECTED FINANCIAL DATA (dollars in thousands)
- -----------------------------------------------------------------
At Year End 1995 1994
- -----------------------------------------------------------------
Assets $138,598 $136,658
--------------------------------------------------------------
Loans 86,372 88,222
--------------------------------------------------------------
Deposits and Purchased Funds 125,217 125,389
--------------------------------------------------------------
Shareholder's Equity 12,169 10,328
- -----------------------------------------------------------------
Net Income $1,404 $881
- -----------------------------------------------------------------
Ratios
- -----------------------------------------------------------------
Return on Average Assets 1.03% 0.63%
--------------------------------------------------------------
Return on Average Equity 12.30% 8.19%
--------------------------------------------------------------
Equity/Assets 8.78% 7.56%
--------------------------------------------------------------
6
<PAGE>
Financial Trust Services Company
[PHOTOGRAPH]
Dennis C. Caverly, President
FINANCIAL TRUST SERVICES COMPANY
For most of this century, our banks in Carlisle, Chambersburg and
Waynesboro have operated successful, but separate, trust departments. Recently,
we decided there was a more efficient way to conduct our trust business; and so,
as of October 2, 1995, we combined the three departments into a subsidiary of
Financial Trust Corp called Financial Trust Services Company. During our first
quarter of operation we generated revenue of $561,000 and net income of $86,000
despite absorbing necessary startup costs.
We have been able to combine data processing, the preparation of tax
returns and accountings and all other operational functions at one location.
Soon, we will be establishing a separate investment department. This
consolidation of tasks will lift some of the load from our trust officers and
give them more time to serve our clients.
Financial Trust Services Company will be able to introduce trust services
into new areas. Already we are serving both Shippensburg and Hagerstown on a
part-time basis. In the future we expect to enter the Hanover and Gettysburg
markets. Also, we will increase our penetration in Camp Hill and Mechanicsburg
and begin to tap the Dauphin and Lancaster markets.
We are excited about the future of Financial Trust Services Company and are
confident it will remain the dominant trust provider where it is now superior,
and become a serious challenger in these new markets.
FINANCIAL TRUST SERVICES COMPANY
TOTAL ASSETS UNDER MANAGEMENT
- -------------------------------------------------------------
Book Value Market Value
- -------------------------------------------------------------
December 31, 1994
Three combined
departments $345,873,000 $423,224,000
- -------------------------------------------------------------
December 31, 1995
Financial Trust
Services Co. $339,582,000 $453,828,000
- -------------------------------------------------------------
7
<PAGE>
[GRAPHIC-MAP]
Illustrates the location of the various banking facilities in south-central
Pennsylvania and western Maryland.
Financial Trust Corp Headquarters, Carlisle, PA
Financial Trust Company:
6 locations, Carlisle, PA
3 locations, Mechanicsburg, PA
3 locations, Hanover, PA
2 locations, Camp Hill, PA
2 locations, New Bloomfield, PA
2 locations, Middletown, PA
1 location, New Kingstown, PA
1 location, Mt. Holly Springs, PA
1 location, Elizabethtown, PA
1 location, Shermans Dale, PA
1 location, Gettysburg, PA
1 location, Dillsburg, PA
1 location, Bonneauville, PA
1 location, Shippensburg, PA
Chambersburg Trust Company:
7 locations, Chambersburg, PA
1 location, Greencastle, PA
First National Bank and Trust Co.:
2 locations, Waynesboro, PA
1 location, Blue Ridge Summit, PA
1 location, Zullinger, PA
Washington County National Bank:
3 locations, Hagerstown, MD
2 locations, Williamsport, MD
1 location, Clear Spring, MD
1 location, Keedysville, MD
1 location, Boonsboro, MD
1 location, Sharpsburg, MD
8
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------------------------------------------------------------------------
December 31 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $46,864 $36,218
Federal funds sold 3,075 1,643
Interest bearing bank balances 570 237
Investment securities held-to-maturity
(Fair values of $0 and
$249,219 respectively) 0 256,133
Investment securities available-for-sale 316,829 52,456
Loans, net of unearned income of
$39 and $516 respectively 731,150 707,495
Less: Allowance for loan losses 11,038 11,268
- ---------------------------------------------------------------------------------------
Net Loans 720,112 696,227
Premises and equipment 23,610 20,852
Accrued interest receivable 8,676 8,115
Intangible assets 8,595 9,332
Other assets 10,106 9,363
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $1,138,437 $1,090,576
===================================================================================
Liabilities
Deposits:
Noninterest bearing $111,194 $96,955
Interest bearing 820,526 801,904
- ---------------------------------------------------------------------------------------
Total Deposits 931,720 898,859
Short-term borrowings 53,530 55,844
Long-term debt 743 811
Accrued interest payable 2,187 1,526
Other liabilities 9,185 7,667
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 997,365 964,707
Shareholders' Equity
Common stock, par value $5 per share -
authorized 16,000,000 shares;
issued 7,765,443 and 7,765,755 respectively 38,827 38,829
Surplus 33,509 33,545
Unrealized holding gain from
securities available-for-sale,
net of taxes 4,845 956
Retained earnings 63,891 52,539
- ---------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 141,072 125,869
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,138,437 $1,090,576
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans, including fees $ 64,903 $ 56,105 $ 55,070
Investment securities:
Taxable 12,495 12,166 10,352
Tax-exempt 4,703 4,517 4,710
Other 754 904 516
- ---------------------------------------------------------------------------------------------------------
82,855 73,692 70,648
----------------------------------------
Interest Expense
Deposits 31,481 25,932 25,904
Short-term borrowings and long-term debt 2,715 1,747 794
- ---------------------------------------------------------------------------------------------------------
34,196 27,679 26,698
----------------------------------------
NET INTEREST INCOME 48,659 46,013 43,950
Provision for loan losses 709 840 3,640
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 47,950 45,173 40,310
- ---------------------------------------------------------------------------------------------------------
Other Income
Fiduciary income 2,286 2,315 2,118
Service charges on deposit accounts 2,292 2,164 1,976
Investment security gains 472 144 38
Other 2,766 2,669 2,733
- ---------------------------------------------------------------------------------------------------------
7,816 7,292 6,865
----------------------------------------
Other Expenses
Salaries and employee benefits 15,522 14,635 13,487
Net occupancy 2,244 2,184 1,923
Equipment 1,889 1,611 1,313
Other 11,841 12,180 11,308
- ---------------------------------------------------------------------------------------------------------
31,496 30,610 28,031
----------------------------------------
INCOME BEFORE INCOME TAXES 24,270 21,855 19,144
Applicable income taxes 6,135 5,426 5,182
- ---------------------------------------------------------------------------------------------------------
Income before cumulative effect of an accounting change 18,135 16,429 13,962
Cumulative effect of a change in accounting principle -- -- 373
----------------------------------------
NET INCOME $ 18,135 $ 16,429 $ 14,335
================================================================================================
Per Share Data
Income before cumulative effect of an accounting change $ 2.34 $ 2.12 $ 1.80
Cumulative effect of a change in an accounting principle -- -- 0.05
----------------------------------------
Net Income $ 2.34 $ 2.12 $ 1.85
----------------------------------------
Dividends $ 0.88 $ 0.80 $ 0.72
Weighted average number of shares outstanding during 7,765,688 7,766,294 7,757,432
the year ----------------------------------------
----------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Gain From
Common Stock Securities Treasury Stock
----------------- Available- Retained --------------
Shares Par Value Surplus for-Sale Earnings Shares Amount Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 5,618,587 $28,093 $17,598 $0 $59,684 0 $0 $105,375
Net income 14,335 14,335
Cash dividends - (5,620) (5,620)
Employee stock purchases 6,116 31 189 220
Change in net unrealized loss on
marketable equity securities 208 208
Issuance of shares under
dividend reinvestment
program 7,798 39 221 260
Issuance of shares in connection
with 10% stock dividend and
cash payment for partial
shares 456,156 2,281 15,566 (17,888) (41)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) for the
year 470,070 2,351 15,976 0 (8,965) 0 0 9,362
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 6,088,657 30,444 33,574 0 50,719 0 0 114,737
Net income 16,429 16,429
Cash dividends - (6,197) (6,197)
Employee stock purchases 6 --- --- 0
Acquisition of Treasury Stock 9,417 (264) (264)
Issuance of Treasury Shares
under employee stock
purchase plan (29) (9,417) 264 235
Issuance of shares in connection
with 4-for-3 stock split effected
in the form of a 33 1/3% stock
dividend and cash payment
for partial shares 1,677,092 8,385 (8,412) (27)
Unrealized holding gain from
securities available-for-sale,
net of taxes 956 956
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) for
for the year 1,677,098 8,385 (29) 956 1,820 0 0 11,132
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 7,765,755 38,829 33,545 956 52,539 0 0 125,869
Net income 18,135 18,135
Cash dividends - (6,783) (6,783)
Acquisition of Treasury Stock 9,527 (286) (286)
Issuance of Treasury Shares
under employee stock purchase plan (29) (9,527) 286 257
Cash payment for dissenting shares
in connection with WCNB (144) (1) (3) (4)
Cash payment for partial shares in
connection with WCNB (168) (1) (4) (5)
Unrealized holding gain from
securities available-for-sale,
net of taxes 3,889 3,889
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) for the
year (312) (2) (36) 3,889 11,352 0 0 15,203
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 7,765,443 $38,827 $33,509 $4,845 $63,891 0 $0 $141,072
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Income $18,135 $16,429 $14,335
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,670 1,539 1,380
Amortization 737 706 381
Provision for loan losses 709 840 3,640
Net amortization of investment security premiums 840 834 1,350
Deferred income tax expense (benefit) 115 12 (350)
(Increase) decrease in interest receivable (561) (798) 505
Increase (decrease) in interest payable 661 120 (168)
Increase (decrease) in other liabilities (96) 559 1,708
Cumulative effect of a change in an accounting
principle 0 0 (373)
- -----------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 22,210 20,241 22,408
- -----------------------------------------------------------------------------------------------
Investing Activities:
Decrease (increase) in interest bearing bank balances (333) 129 129
Proceeds from sales and maturities of investment
securities 95,719 98,107 80,194
Purchases of investment securities (99,411) (155,651) (81,799)
Net increase in loans (23,655) (42,483) (29,079)
Net loans charged-off (939) (475) (202)
Purchase of premises and equipment (4,428) (3,901) (2,176)
Purchase of intangible assets 0 (6,381) 0
(Increase) decrease in other assets (743) (990) 1,200
- -----------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (33,790) (111,645) (31,733)
- -----------------------------------------------------------------------------------------------
Financing Activities:
Net increase in deposits 32,861 62,126 8,046
Net increase (decrease) in short-term borrowings (2,314) 20,311 11,373
Proceeds from long-term debt 0 264 0
Payments on long-term debt (68) (68) (68)
Cash dividends (6,783) (6,197) (5,620)
Sale of common stock to employees 0 0 220
Issuance of common stock under
dividend reinvestment plan 0 0 260
Acquisition of treasury stock (286) (264) 0
Issuance of treasury shares under employee stock
purchase program 257 235 0
Cash payments for dissenting and partial
shares associated with the
acquisition of Washington County National Bank (9) 0 0
Cash payments for partial shares associated with stock
dividend 0 (27) (41)
- -----------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 23,658 76,380 14,170
-----------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 12,078 (15,024) 4,845
Cash and Cash Equivalents at Beginning of Year 37,861 52,885 48,040
- -----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $49,939 $37,861 $52,885
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial Trust Corp (the Corporation and parent company) and its
wholly-owned commercial banking subsidiaries, Financial Trust Company,
Chambersburg Trust Company, First National Bank and Trust Co. and Washington
County National Bank, its wholly-owned trust company, Financial Trust Services
Company and its wholly-owned credit insurance company, Financial Trust Life
Insurance Company, provide banking and related services to domestic markets.
- --------------------------------------------------------------------------------
NOTE A - ACCOUNTING POLICIES
Basis of Financial Statements: The consolidated financial statements include the
accounts of the parent company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated. Investments in subsidiaries are
carried at the parent company's equity in the underlying net assets.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Trading Account Assets: Trading account assets are held for resale in
anticipation of short-term movements. Trading account assets are stated at fair
value. Gains and losses, both realized and unrealized, are included in net
trading account profits and commissions.
Securities Held-to-Maturity and Available-for-Sale: Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Corporation has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost.
Debt Securities not classified as held-to-maturity or trading and marketable
equity securities not classified as trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported in a separate component of
shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
Loans: Loans generally are stated at their outstanding unpaid principal balances
net of any deferred fees or costs on originated loans, or unamortized premiums
or discounts on purchased loans. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income using the
interest method. Loan origination fees net of certain direct origination costs
are deferred and recognized as an adjustment of the yield (interest income) of
the related loans.
Nonaccrual loans: Generally, a loan (including a loan impaired under
Statement 114) is classified as nonaccrual and the accrual of interest on
such loan is discontinued when the contractual payment of principal or
interest has become 90 days past due or management has serious doubts
about further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status if it
is in the process of collection and is either guaranteed or well secured.
When a loan is placed on nonaccrual status, unpaid interest credited to
income in the current year is reversed and unpaid interest accrued in
prior years is charged against the allowance for loan losses. Interest
received on nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's
judgment as to the collectibility of principal. Generally, loans are
restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable
period of time and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Allowance for loan losses: The allowance for loan losses is
established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance, and
subsequent recoveries, if any, are credited to the allowance. Beginning
in 1995, the Corporation adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Under the new standard, the 1995 allowance for credit losses related to
loans that are identified for evaluation in accordance with Statement 114
is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for credit losses related
to these loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans.
The allowance for loan losses is maintained at a level believed
adequate by management to absorb estimated probable losses. Management's
periodic evaluation of the adequacy of the allowance is based on the
Corporation's
13
<PAGE>
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect borrower's ability to repay (including
the timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic
conditions, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates including the amounts and
timing of future cash flows expected to be received on impaired loans
that may be susceptible to significant change.
Foreclosed Assets:Foreclosed assets are comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure and loans
classified as in-substance foreclosure. In accordance with Statement 114, a loan
is classified as in-substance foreclosure when the Corporation has taken
possession of the collateral regardless of whether formal foreclosure
proceedings take place.
Foreclosed assets initially are recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by managment and the real estate is carried at the lower
of (1) cost or (2) fair value minus estimated costs to sell. Revenue and
expenses from operations and changes in the valuation allowance are included in
loss on foreclosed real estate.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation and amortization. It is the policy of the Corporation
to provide for depreciation and amortization at annual rates, which are
calculated to amortize the depreciable assets over estimated useful lives of 15
to 45 years for buildings and 3 to 15 years for equipment, using accelerated and
straight-line methods.
Intangible Assets:Intangible assets are stated at cost less accumulated
amortization. Amortization is on the straight-line method over 15 years.
Income Taxes: Income taxes have been provided using the liability method,
effective January 1, 1993, in accordance with FASB Statement No. 109,
"Accounting for Income Taxes." Prior to January 1, 1993 income taxes were
provided using the deferred method, in accordance with Accounting Principles
Board Opinion No. 11. Investment tax credits realized are used to reduce the
current provision for income taxes.
Per Share Data: Net income and dividends per share are computed based upon the
weighted average number of shares outstanding during each year, adjusted
retroactively for stock splits and stock dividends.
Cash Flow Information: Cash equivalents include amounts due from banks and
federal funds sold. Generally, federal funds are purchased and sold for
one-day periods.
Fair Values of Financial Instruments: The following methods and assumptions
were used by the Corporation in estimating its fair value disclosures for
financial instruments.
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair
values.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans receivable: The fair values for loans are estimated by using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair
value.
Off-balance-sheet instruments:Fair values for the Corporation's
off-balance-sheet instruments (swaps, guarantees, and lending
commitments) are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing (guarantees, loan commitments); or,
if there are no relevant comparables, on pricing models or formulas using
current assumptions (interest rate swaps).
Deposit liabilities:The fair values disclosed for demand deposits (e.g.
interest and non-interest checking, savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate certificates of deposit approximate their fair values at
the reporting date. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-term borrowings: The fair values of the Corporation's long-term
borrowings (other than deposits) are estimated using discounted cash flow
analyses, based on the Corporation's current incremental borrowing rates
for similar types of borrowing arrangements.
14
<PAGE>
- --------------------------------------------------------------------------------
NOTE B - ACQUISITIONS, AFFILIATIONS AND REORGANIZATIONS
On September 30, 1995, the Corporation acquired Washington County National
Bank (WCNB) located in Williamsport, Maryland via the exchange of 2.25 shares of
Financial Trust Corp common stock for each share of WCNB common stock. The
transaction was accounted for under the pooling-of-interests method and,
accordingly, the accompanying consolidated financial statements have been
restated to include the accounts and operations of WCNB for all periods
presented. At September 29, 1995, WCNB had total assets, deposits and equity of
$136,181,000, $123,087,000 and $11,949,000, respectively.
Separate financial data of the combined companies for the periods preceding
acquisition are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
- -----------------------------------------------------------------------------------------------
(Unaudited)
January 1, 1995 to Year Ended Year Ended
September 29, 1995 December 31, 1994 December 31, 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Income
Financial Trust Corp $32,052 $40,294 $37,847
Washington County National Bank 4,181 5,719 6,103
-----------------------------------------------------------------------------------------
COMBINED $36,233 $46,013 $43,950
===============================================================================
Net Income
Financial Trust Corp $12,471 $15,548 $14,825
Washington County National Bank 1,086 881 (490)
-----------------------------------------------------------------------------------------
COMBINED $13,557 $16,429 $14,335
===============================================================================
</TABLE>
On April 8, 1994, the Corporation assumed the insured deposits of Homestead
Federal Savings Association of Middletown, Pennsylvania, having been the
successful bidder at an auction conducted by the Resolution Trust Corporation.
The acquisition initially increased deposits by $73,600,000. The transaction
added $6,381,000 to intangible assets.
On June 19, 1995, Farmers Trust Company's name was changed to Financial
Trust Company. In a corporate reorganization, on October 30, 1995, First Federal
Savings Bank was converted to a state chartered commercial bank named First Bank
of Hanover, Pennsylvania and subsequently merged into Financial Trust Company.
Financial Trust Services Company, a wholly-owned subsidiary was formed and
began operations on October 2, 1995. The trust operations of the commercial bank
affiliates were transferred to the newly formed company.
- --------------------------------------------------------------------------------
NOTE C - RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The banking subsidiaries are required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those balances for the year
ended December 31, 1995 approximated $13,108,000.
- --------------------------------------------------------------------------------
NOTE D - INVESTMENT SECURITIES
The amortized cost and fair values of investment securities at December 31
are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------
1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE-FOR-SALE Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $180,454 $ 1,776 $ (446) $181,784
Obligations of states and political subdivisions 106,876 1,738 (190) 108,424
Corporate securities 15,634 255 (43) 15,846
- ---------------------------------------------------------------------------------------------
Total debt securities 302,964 3,769 (679) 306,054
Equity securities 6,412 4,363 0 10,775
- ---------------------------------------------------------------------------------------------
Total investment securities $309,376 $ 8,132 $ (679) $316,829
=================================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
1994
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
HELD-TO-MATURITY Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $153,119 $143 $ (5,195) $148,067
Obligations of states and political
subdivisions 82,299 745 (1,990) 81,054
Corporate securities 20,715 11 (628) 20,098
- --------------------------------------------------------------------------------------------------------------
Total investment securities $256,133 $899 $ (7,813) $249,219
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE-FOR-SALE Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 30,017 $ 1 $ (1,259) $ 28,759
Obligations of states and political
subdivisions 12,552 68 (149) 12,471
Corporate securities 781 3 0 784
Mortgage backed securities 1,753 3 (16) 1,740
- --------------------------------------------------------------------------------------------------------------
Total debt securities 45,103 75 (1,424) 43,754
Equity securities 6,041 2,661 0 8,702
- --------------------------------------------------------------------------------------------------------------
Total investment securities $ 51,144 $ 2,736 $ (1,424) $ 52,456
=========================================================================================================
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1995,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------
Amortized Fair
AVAILABLE-FOR-SALE Cost Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $71,832 $71,967
Due after one year through five years 154,491 139,029
Due after five years through ten years 56,826 74,088
Due after ten years 19,815 20,970
- -------------------------------------------------------------------------------------------------------------
Totals $302,964 $306,054
=============================================================================================================
</TABLE>
Proceeds from sales of investments in debt securities were $2,772,068,
$1,997,594 and $5,449,820 during 1995, 1994 and 1993, respectively. All sales
were made from the available-for-sale portfolio in 1995 and 1994. Gross gains of
$13,816 and gross losses of $3,676 were realized on 1995 sales. Gross gains of
$2,000 and gross losses of $51,328 were realized on 1994 sales. Gross gains of
$113,683 and gross losses of $13,000 were realized on 1993 sales. In addition,
net gains of $462,134 and $193,000 were realized on the sale of equity
securities in 1995 and 1994, respectively. Also realized were, net losses of
$63,000 on the sale of equity securities during 1993.
The principal amount of investment securities pledged to secure public
deposits and for other purposes required or permitted by law was approximately
$115,352,000 and $124,394,000 at December 31, 1995 and 1994, respectively.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires
management to classify investments in equity securities that have readily
determinable fair values and all investments in debt securities as either
held-to-maturity and reported at amortized cost, available-for-sale and reported
at fair value with unrealized gains and losses reported in a separate component
of shareholders' equity, or trading securities and reported at fair value with
unrealized gains and losses included in earnings. Effective January 1, 1994, the
Corporation adopted SFAS No. 115 and classified all securities as
available-for-sale. Adoption of SFAS No. 115 resulted in a $9,142,000 increase
in investment securities and a $5,942,000 increase in shareholders' equity
accounted for as the cumulative effect of a change
16
<PAGE>
in acounting principle. On April 1, 1994, a significant portion of existing debt
securities w classified as held-to-maturity. At December 31, 1995, $240,490,000
of investment securities at amortized cost, with unrealized gains of $2,686,000,
were transferred from held-to-maturity to available-for-sale pursuant to the
transition provisions of the FASB staff's Special Report on SFAS No. 115. As of
December 31, 1995 all securities were classified as available-for-sale.
- -------------------------------------------------------------------------------
NOTE E - LOANS
Loans consisted of the following at December 31:
(Dollars in thousands)
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Commercial, financial and agricultural $76,795 $61,832 $64,665
Real estate - construction 13,772 11,018 10,320
Real estate - commercial 152,857 152,749 143,763
Real estate - residential 414,543 410,459 378,668
Consumer 73,183 71,437 67,596
- -------------------------------------------------------------------------------
$731,150 $707,495 $665,012
======================================
In the ordinary course of business, the banking subsidiaries have loan,
deposit and other transactions with directors, executive officers and their
business interests. Such transactions are on substantially the same terms,
including interest rates and collateral as to loans, as those prevailing at the
time for comparable transactions with others. Activity for these related party
loans for the year ended December 31, 1995 was as follows:
(Dollars in thousands)
- --------------------------------------------------------------------------------
Balance at beginning of year $12,153
New loans 9,540
Payments 10,140
- --------------------------------------------------------------------------------
Balance at end of year $11,553
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE F - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
(Dollars in thousands)
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Balance at beginning of year $11,268 $10,903 $7,465
Provision for possible loan losses 709 840 3,640
Recoveries 140 243 384
Loans charged off (1,079) (718) (586)
- -------------------------------------------------------------------------------
Balance at end of year $11,038 $11,268 $10,903
===============================================================================
At December 31, 1995, the recorded investment in loans that were considered
to be impaired under Statement 114 was $2,402,000, all of which were on a
nonaccrual basis. All impaired loans, individually, had related credit
allowances that aggregated $664,000 as of December 31, 1995. Impaired loans were
recorded at the lower of their remaining bases or the fair value of their
underlying collateral. The average recorded investment in impaired loans during
the year ended December 31, 1995 was approximately $2,355,000. For the year
ended December 31, 1995, the Corporation recognized interest income on those
impaired loans of $52,000, which included $26,000 of interest income recognized
using the cash basis method of income recognition.
At December 31, 1994, the Corporation had nonaccrual loans of $2,298,000,
including approximately $2,298,000 that would be considered impaired under
Statement 114, and no restructured loans. The Corporation recorded $38,000 of
interest income on these loans in 1994. Interest income in the amount of
$242,000 would have been recorded on these loans according to their original
terms.
17
<PAGE>
- --------------------------------------------------------------------------------
NOTE G - PREMISES AND EQUIPMENT
Details of premises and equipment at December 31 are as follows:
(Dollars in thousands)
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Land $3,088 $2,892
Buildings and improvements 22,841 20,693
Equipment and furniture 14,417 12,475
- --------------------------------------------------------------------------------
40,346 36,060
Less accumulated depreciation 16,736 15,208
- --------------------------------------------------------------------------------
$23,610 $20,852
=========================
- --------------------------------------------------------------------------------
NOTE H - DEPOSITS
The Corporation paid $33,173,000 in interest on deposits and other
borrowings during 1995, $27,560,000 in 1994 and $27,156,000 in 1993.
Time certificates of deposit of $100,000 or more at December 31, 1995 and
1994 amounted to $39,314,000 and $32,633,000, respectively.
Interest expense on time certificates of deposit of $100,000 or more
amounted to $2,036,000 in 1995, $1,287,000 in 1994 and $1,241,000 in 1993.
- --------------------------------------------------------------------------------
NOTE I - LONG-TERM DEBT
Details of long-term debt at December 31 are as follows:
(Dollars in thousands)
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Cumberland County Industrial Development Authority
Agreement (Parent Company) $487 $549
Federal Home Loan Bank of Pittsburgh -
Affordable Housing Advance Program
(Financial Trust Company) 256 262
- --------------------------------------------------------------------------------
$743 $811
======================
The Corporation financed the construction of an operations center through
an industrial development obligation with Cumberland County. Under the terms of
this agreement, annual payments of approximately $97,000 (including interest at
75% of prime) are due until maturity in November 2000. The agreement is
collateralized by a mortgage and the assignment of the lease between the
Corporation and the Cumberland County Industrial Development Authority.
Financial Trust Company is a participant in the Affordable Housing Advance
Program with the Federal Home Loan Bank of Pittsburgh. Under the terms of this
agreement annual payments of $18,040 (including interest at 4.75%) are due until
maturity in July 2014.
- --------------------------------------------------------------------------------
NOTE J - COMMON STOCK
Earnings per share, dividends per share and weighted average shares
outstanding references have been restated to reflect the effects of a 33 1/3%
stock dividend that was paid August 29, 1994 to shareholders of record August
15, 1994 and the exchange of 2.25 shares of Financial Trust Corp common stock
for each share of Washington County National Bank common stock on September 30,
1995 in an acquisition accounted for as a pooling-of-interests. Accordingly,
468,839 shares of Washington County National Bank stock were exchanged for
1,054,576 shares of Financial Trust Corp common stock, plus $9,000 in lieu of
fractional and dissenting shares. The effect of common stock equivalents is not
significant for any period presented.
18
<PAGE>
- --------------------------------------------------------------------------------
NOTE K - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of the banking
subsidiaries to transfer funds to the Corporation in the form of cash dividends,
loans or advances. At December 31, 1995, approximately $73,842,000 of
undistributed earnings of the banking subsidiaries was available for
distribution to the Corporation as dividends without prior approval of
regulatory authorities.
Additionally, under Federal Reserve regulation, the banking subsidiaries
are limited as to the amount they may loan or advance to the Corporation unless
such loans or advances are collateralized by specified obligations. At December
31, 1995, the maximum amount available for transfer from the subsidiaries to the
Corporation in the form of unsecured loans or advances approximated $13,284,000.
- --------------------------------------------------------------------------------
NOTE L - FEDERAL INCOME TAXES
In February 1992, the FASB issued SFAS No. 109 "Accounting for Income
Taxes." SFAS No. 109 required a change from the deferred method of accounting
for income taxes of APB No. 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective January 1, 1993, the Corporation adopted SFAS No. 109 and
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 consolidated statement of income.
The cumulative effect of this change in accounting for income taxes of
$373,000 was determined as of January 1, 1993, and was reported separately in
the consolidated statement of income for the year ended December 31, 1993. Prior
period financial statements were not restated to apply the provisions of SFAS
No. 109.
The provision for income taxes in the consolidated statement of income
consists of the following components:
(Dollars in thousands)
- -------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
Current Expense $6,020 $5,414 $5,532
Deferred expense (benefit) 115 12 (350)
------------------------------------
Applicable income tax expense $6,135 $5,426 $5,182
==============================================================================
Following is a reconciliation of the actual income tax provisions with
taxes computed at the Federal statutory rate of 35% for all years presented:
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
---------------------- ---------------------- ---------------------
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $ 8,495 35.0% $ 7,649 35.0% $ 6,700 35.0%
Effect of tax-exempt income (2,590) (10.7) (2,260) (10.3) (2,314) (12.1)
Effect of nondeductible
expenses 426 1.8 338 1.6 272 1.4
Low income housing and
rehabilitation tax credits (120) (0.5) (110) (.5) (124) (.6)
Surtax exemption (43) (0.2) (100) (.5) (100) (.5)
Other (33) (0.1) (91) (.5) 748 3.9
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable federal income tax
expense/rate $ 6,135 25.3% $ 5,426 24.8% $ 5,182 27.1%
===================================================================================================================================
</TABLE>
19
<PAGE>
- -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 1995, 1994 and 1993 are
presented below:
(Dollars in thousands)
- ----------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $1,850 $1,504 $1,436
Deferred loan fees 412 456 427
Deferred compensation and directors fees 311 310 281
Nonaccrual Interest 31 102 61
Capital loss carryforward 9 162 234
Supplemental employee retirement plan 55 29 0
Other real estate owned 46 0 0
- ----------------------------------------------------------------------
Gross deferred tax assets $2,714 $2,563 $2,439
- ----------------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment $1,490 $1,365 $1,321
Pension plan 133 301 188
Investment securities 2,802 641 173
Unearned premiums/deferred costs
life insurance company 193 150 166
Other 198 122 153
- ----------------------------------------------------------------------
Gross deferred tax liabilities 4,816 2,579 2,001
- ----------------------------------------------------------------------
Net deferred tax (assets) liabilities $2,102 $16 ($438)
======================================================================
The Corporation has determined that it is not required to establish a
valuation reserve for deferred tax assets since it is more likely than not that
deferred tax assets will be principally realized through carry back to taxable
income in prior years. The conclusion that it is "more likely than not" that the
deferred tax assets will be realized is based on a history of growth in earnings
and the prospects for continued growth including an analysis of potential
uncertainties that may affect future operating results. The Corporation will
continue to review the criteria related to the recognition of deferred tax
assets on a quarterly basis.
The Corporation made income tax payments of $5,933,000 during 1995,
$5,875,000 during 1994 and $5,273,000 during 1993. Income taxes attributable to
investment security gains were $165,000 in 1995, $50,000 in 1994 and $13,000
during 1993.
A capital loss carryforward of approximately $25,000 is available to the
Corporation at December 31, 1995, with an expiration date of December 31, 1996.
- --------------------------------------------------------------------------------
NOTE M - EMPLOYEE BENEFIT PLANS
Pension Plans: The Corporation and its subsidiaries have noncontributory defined
benefit pension plans covering substantially all employees. The benefits are
based on years of service and the employee's compensation during the last five
years of employment. The Corporation's funding policy is to contribute annually
the amount that would be necessary to amortized the unfunded accrued liability
over 20 years. A subsidiary bank's plan is funded annually at levels required to
amortize its unfunded accrued liability over 15 years. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.
Net periodic pension cost includes the following components:
(Dollars in thousands)
- ----------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------
Service cost - benefits earned during the
period $435 $548 $488
Interest cost on projected benefit obligation 752 748 685
Actual return on plan assets (2,193) 129 (791)
Net amortization and deferral 1,179 (1,126) (108)
- ----------------------------------------------------------------------------
Net periodic pension cost $173 $299 $274
============================================================================
20
<PAGE>
The following table sets forth the plans' funded status and amounts
recognized in the Corporation' consolidated balance sheet at December 31:
(Dollars in thousands)
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $8,942 in 1995 and $7,271 in 1994 $9,098 $7,376
===============================================================================
Projected benefit obligation for service rendered
to date $12,023 $9,988
Plan assets at fair value, primarily listed stocks and
bonds 12,631 10,600
- -------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 608 612
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 958 963
Unrecognized prior service cost (262) (278)
Unrecognized net asset at January 1, 1988 (521) (566)
- -------------------------------------------------------------------------------
Prepaid pension cost included in other assets $783 $731
===============================================================================
Rate assumptions used in actuarial calculations were as follows:
<TABLE>
<CAPTION>
In determining the actuarial present
value of the projected benefit obligation
-----------------------------------------
Increase in future Long-term rate of return
Discount Rate compensation levels on plan assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 7.0 - 7.5% 4.5 - 5.0% 7.5 - 9.0%
1994 7.5 - 8.0% 5.0% 7.5 - 9.0%
1993 7.0 - 7.5% 5.0% 7.5 - 9.0%
</TABLE>
Profit Sharing Plan: The Corporation has a noncontributory profit sharing plan
covering eligible employees. Costs of the profit sharing plan are funded as
accrued. Profit sharing expense amounted to $1,254,000 in 1995, $1,106,000 in
1994 and $1,080,000 in 1993. Contributions to the plan are discretionary and are
determined annually by the Corporation's Board of Directors.
Supplemental Employee Retirement Plans: The Corporation sponsors an unfunded
supplemental employee retirement plan, which is a nonqualified plan that
provides certain officers defined pension benefits and noncontributory profit
sharing benefits in excess of limits imposed by federal law. At December 31,
1995, the projected benefit obligation for this plan totaled $507,000, of which
$376,000 (comprised of unrecognized net loss of $130,000 and unrecognized prior
service cost of $246,000) is subject to later amortization. The remaining
$131,000 is included in other liabilities in the accompanying consolidated
balance sheet. A subsidiary bank has a supplemental retirement plan that covers
certain management personnel. The plan is funded with life insurance. Premiums
paid on the underlying life insurance policies and charged to operations were
$17,000 in 1995 and $18,000 in 1994 and 1993.
Stock Purchase Plan: Under the Employee Stock Purchase Plan of 1992, 110,000
shares of common stock have been reserved for issuance to employees over a five
year period. The number of shares which may be issued to each participant is
determined annually, based on individual earnings, and their cost is equal to
85% of the fair market value as established by the most recent public sale of
shares. A total of 92,070 shares of common stock remain reserved at December 31,
1995 for future grants under the plan. Employees purchased 9,527 shares at $27
per share in 1995, 9,423 shares at $25 per share in 1994 and 8,155 shares at $27
per share in 1993. Treasury stock was used for 9,527 of the shares purchased in
1995 and 9,417 of the shares purchased in 1994.
- --------------------------------------------------------------------------------
NOTE N - STOCK OPTION PLANS
The Corporation has elected to follow APB 25, "Accounting for Stock Issued
to Employees" and related interpretation in accounting for its employee stock
options. SFAS No. 123 will be adopted by the Corporation in its fiscal year
beginning January 1, 1996. The adoption of SFAS No. 123 is not expected to have
material impact on the Corporation's financial position or results of
operations.
21
<PAGE>
- -------------------------------------------------------------------------------
Employee Stock Option Plan: Under the Employee Stock Option Plan of 1992,
110,000 shares of common stock have been reserved for grant of options over a
seven year period. The number of options which may be granted is determined
annually by a committee of outside directors. The purchase price of shares
acquired pursuant to an option is the fair market value as of the date of the
grant of the option.
A summary of the Corporation's Employee stock option activity, and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1993 1994 1995
---------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 0 10,992 $22.85 24,321 $28.26
Granted 10,992 $22.85 13,329 $32.73 15,000 $29.00
Exercised ----- ----- -----
Forfeited ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Outstanding - end of year 10,992 $22.85 24,321 $28.26 39,321 $28.55
==========================================================================================================
Exercisable at end of
year 0 24,321 $28.26 39,321 $28.55
</TABLE>
Exercise prices for options outstanding as of December 31, 1995 ranged from
$22.85 to $32.73. The weighted-average remaining contractual life of those
options is 8.16 years. Options on 18,500 shares, at $29.88 per share were
granted on January 17, 1996.
Non-Employee Director Stock Option Plan: Under the Non-Employee Director Stock
Option Plan of 1994, 133,333 shares of common stock have been reserved for grant
of options over a ten year period. The plan provides for the automatic grant
basis of the option to purchase 666 shares of the Corporation's common stock as
of the date of the Corporation's annual purchase price of shares acquired
pursuant to an option is based upon the fair market value as of the date of the
annual meeting.
A summary of the Corporation's Non-Employee Director stock option activity,
and related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1994 1995
--------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding - beginning
of year 0 11,322 $32.82
Granted 11,322 $32.82 9,324 $27.50
Exercised ----- -----
Forfeited ----- -----
- ----------------------------------------------------------------------------------------------------------
Outstanding - end of year 11,322 $32.82 20,646 $30.42
==========================================================================================================
Exercisable at end of
year 2,264 $32.82 6,392 $31.27
</TABLE>
Exercise prices for options outstanding as of December 31, 1995 ranged from
$27.50 to $32.82. The weighted-average remaining contractual life of those
options is 3.77 years.
- --------------------------------------------------------------------------------
NOTE O - LEASES
The banking subsidiaries lease certain premises, equipment and related
services under noncancelable operating leases which expire in various years
through 2010. These leases require the banking subsidiaries to pay all
maintenance costs and for one data processing lease, provides for total rental
payments based upon actual usage.
22
<PAGE>
Future minimum rental payments, including estimated normal usage charges,
for all noncancelable operating leases with an initial or remaining term of one
year or more, by year, and in the aggregate, approximates the following at
December 31, 1995:
(Dollars in thousands)
-------------------------------------------------
1996 $1,075
1997 881
1998 845
1999 516
2000 191
Thereafter 1,642
-------------------------------------------------
Total minimum lease payments $5,150
=================================================
Rental expense incurred for all operating leases was approximately $1,940,000
in 1995, $1,510,000 in 1994, and $1,246,000 in 1993.
- --------------------------------------------------------------------------------
NOTE P - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of the
Corporation's customers. Financial instruments include commitments to extend
credit, and standby letters of credit. Standby letters of credit commit the
Corporation to make payments on behalf of customers when certain specified
future events occur.
The Corporation's exposure to credit loss is essentially the same for these
items as that involved in extended loans to customers. The Corporation uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments. Collateral is obtained based on
management's credit assessment of the particular customer. The Corporation's
maximum exposure to credit loss for loan commitments (unfunded loans and unused
lines of credit) and standby letters of credit outstanding at December 31, 1995
were as follows:
(Dollars in thousands)
- --------------------------------------------------------------------------------
Contract or
Notional Amount
- --------------------------------------------------------------------------------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Consumer credit card lines $16,721
Consumer home equity lines 18,407
Commercial real estate, construction and
land development 24,841
Other unused commitments 62,691
- --------------------------------------------------------------------------------
$122,660
Standby letters of credit $7,652
The commitments shown for both standby letters of credit and unused lines of
credit generally expire in one year or less. The commitments also carry a
variable rate of interest as opposed to a fixed rate.
Commitments to extend credit are agreements to lend to the customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
- --------------------------------------------------------------------------------
NOTE Q - CONCENTRATIONS OF CREDIT RISK
Most of the Corporation's business activity, including loans and loan
commitments, is with customers located within Cumberland, Franklin, York, Perry,
Dauphin, Adams and Lancaster counties of Pennsylvania and Washington County,
Maryland. The portfolio is well diversified with no industry comprising greater
than 10% of the total loan outstandings.
23
<PAGE>
- --------------------------------------------------------------------------------
NOTE R - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments at
December 31 were as follows:
(Dollars in thousands)
- --------------------------------------------------------------------------------
1995 1994
------------------ --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and short-term
investments $50,509 $50,509 $38,098 $38,098
Investment securities 316,829 316,829 308,589 301,675
Loans 731,150 707,495
Reserve for loan losses (11,038) (11,268)
Net loans 720,112 737,237 696,227 692,721
- --------------------------------------------------------------------------------
Total financial assets $1,087,450 $1,104,575 $1,042,914 $1,032,494
============================================================================
Financial liabilities:
Deposits $931,720 $931,315 $898,859 $851,388
Short-term borrowings 49,380 49,380 43,903 43,903
Securities sold not owned 4,150 4,150 11,941 11,941
Long-term debt 743 728 811 689
- --------------------------------------------------------------------------------
Total financial liabilities $985,993 $985,573 $955,514 $907,921
============================================================================
Off-balance sheet instruments $ 0 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------
NOTE S - PARENT COMPANY ONLY FINANCIAL INFORMATION
BALANCE SHEETS
(Dollars in thousands)
- --------------------------------------------------------------------------------
December 31 1995 1994
- --------------------------------------------------------------------------------
Assets
Cash $ 258 $ 78
Investment securities 70 45
Securities purchased under
agreement to resell 1,650 1,450
Premises and equipment 5,437 4,640
Investment in subsidiaries 132,909 118,215
Other assets 2,792 2,765
- --------------------------------------------------------------------------------
TOTAL ASSETS $143,116 $127,193
============================================================================
Liabilities
Long-term debt $ 487 $ 550
Purchased funds 435 352
Other liabilities 1122 422
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 2,044 1,324
----------------------------------------------------------------------------
Shareholders' Equity
Common stock 38,827 38,829
Surplus 33,509 33,545
Unrealized holding gain from
securities available-for-sale 4,845 956
Retained earnings 63,891 52,539
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 141,072 125,869
----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $143,116 $127,193
============================================================================
24
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Operating Activities:
Net Income $18,135 $16,429 $14,335
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 473 417 354
Deferred income taxes (196) 1 9
Decrease in interest receivable 0 13 19
Increase (decrease) in other liabilities 836 (78) 222
Equity in undistributed net income of
subsidiaries (8,613) (9,490) (8,124)
- --------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 10,635 7,292 6,815
- --------------------------------------------------------------------------------
Investing Activities:
Proceeds from maturities of investment securities 0 1,000 0
Purchases of investment securities (13) (53) (650)
Purchases of premises and equipment (1,270) (1,383) (765)
Increase in other assets (171) (839) (82)
Investment in subsidiary (2,200) 0 0
- --------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (3,654) (1,275) (1,497)
- --------------------------------------------------------------------------------
Financing Activities:
Payments on long-term debt (63) (65) (68)
Cash dividends (6,783) (6,197) (5,620)
Net increase (decrease) in short-term borrowings 83 81 (4)
Sale of stock to employees 0 0 220
Issuance of treasury shares under employee stock
purchase plan 257 235 0
Issuance of stock under dividend reinvestment plan 0 0 260
Acquisition of treasury stock (286) (264) 0
Cash payments for dissenting and partial shares
associated with the acquisition of Washington
County National Bank (9) 0 0
Cash payment for partial shares associated with stock
dividend 0 (27) (41)
- --------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (6,801) (6,237) (5,253)
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 180 (220) 65
Cash and cash equivalents at beginning of year 78 298 233
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $258 $78 $298
================================================================================
25
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME
(Dollars in thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Income:
Dividends from bank subsidiaries $9,483 $6,691 $6,121
Investment securities 1 25 77
Securities purchased under agreement to resell 51 50 11
Other, primarily management and service fees
from bank subsidiaries 2,812 2,145 1,758
- --------------------------------------------------------------------------------
12,347 8,911 7,967
Expenses:
Building occupancy and depreciation 307 215 205
Other, primarily operating expenses 2,609 1,823 1,603
- --------------------------------------------------------------------------------
2,916 2,038 1,808
Income before income taxes and equity in
undistributed net income of subsidiaries 9,431 6,873 6,159
Applicable income taxes (91) (66) (52)
- --------------------------------------------------------------------------------
9,522 6,939 6,211
Net income of subsidiaries less dividends 8,613 9,490 8,124
- --------------------------------------------------------------------------------
NET INCOME $18,135 $16,429 $14,335
===================================================================
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Financial Trust Corp
We have audited the accompanying consolidated balance sheets of Financial
Trust Corp and subsidiaries as of December 31, 1995 and 1994, and the related
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the 1994 and 1993 financial statements of Washington County National Bank, a
consolidated subsidiary acquired on September 30, 1995 as more fully described
in Note B, which statements reflect total assets constituting 13% in 1994, and
net income constituting 5% in 1994 and -3% in 1993 of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Washington County National Bank, is based solely on the report of other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1994 and 1993, the report of
other auditors the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Financial Trust Corp and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note D to the consolidated financial statements, in 1994
the Corporation changed its method of accounting for investments. As discussed
in Note L to the consolidated financial statements, in 1993 the Corporation
changed its method of accounting for income taxes.
Signature
Ernst & Young LLP
Harrisburg, Pennsylvania
March 1, 1996
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents management's discussion and analysis of the financial
condition and results of operations of Financial Trust Corp and subsidiaries
(the Corporation), including Financial Trust Company's Farmers Trust and Hanover
divisions. Commercial banking subsidiaries include Chambersburg Trust Company,
First National Bank and Trust Co. and Washington County National Bank, in
addition to Financial Trust Company. Other primary subsidiaries include
Financial Trust Services Company, a provider of trust services and Financial
Trust Life Insurance Company, a credit life and disability insurance provider.
This discussion and analysis should be read in conjunction with the financial
statements which appear elsewhere in this report.
RECENT STRATEGIC ACTIONS
Acquisitions: On September 30, 1995, the Corporation acquired all of the
outstanding stock of Washington County National Bank, of Williamsport, Maryland
(WCNB) in exchange for 1,054,576 shares of common stock, along with cash of
$9,000 in lieu of fractional and dissenting shares, consummating the merger
announced in December, 1994. At September 29, 1995, WCNB had total assets,
deposits and equity of $136,181,000, $123,087,000 and $11,949,000, respectively.
The acquisition was accounted for as a pooling-of-interests. Accordingly,
financial data presented for prior periods has been restated to reflect the
acquisition as if it had occurred at the beginning of the periods presented.
On April 8, 1994 the Corporation assumed the insured deposits of Homestead
Federal Savings Association of Middletown, Pennsylvania through a bid process at
an auction conducted by the Resolution Trust Corporation. This transaction
initially increased deposits by $73,600,000 and intangible assets by $6,381,000.
Reorganization: On June 19, 1995, commercial banking subsidiary Farmers
Trust Company's name was changed to Financial Trust Company. On October 30,
1995, thrift subsidiary First Federal Savings Bank, with assets, deposits and
equity of $93,957,000 $76,202,000 and $11,892,000, respectively, was converted
to a state chartered commercial bank and subsequently merged into Financial
Trust Company, creating a company with assets, deposits and equity of
$620,368,000, $505,839,000 and $67,554,000, respectively. Subsequently,
Financial Trust Company sold the former First Federal Savings Bank branch
located in Chambersburg, Pennsylvania to Chambersburg Trust Company. The branch
sale added $11,049,000 of assets and deposits to Chambersburg Trust Company's
balance sheet.
On October 2, 1995, a trust subsidiary, Financial Trust Services Company,
was formed with initial capitalization of $2,200,000. The existing trust
operations of all bank subsidiaries were then acquired by Financial Trust
Services Company.
The Corporation anticipates increased operating efficiencies and reduced
overhead expenses in both commercial and trust operations as a result of these
restructuring activities. In addition, the Corporation's ability to deliver
trust services will be enhanced.
OVERVIEW
For the year ended December 31, 1995, Financial Trust Corp recorded net
income of $18,135,000, an increase of 10.4% over 1994. Net earnings for 1994
were $16,429,000, an increase of 14.6% in net income and a 17.7% increase in
operating income over the prior year. The net income increase for 1994 was less
due to the effects of a change in accounting principle related to income taxes.
The aforementioned change in accounting principle resulted in a $373,000
increase in 1993 earnings.
The Corporation's earnings performance continues to be well above peer
group averages as measured by various ratio analyses. Two widely recognized
performance indicators are the return on average assets and the return on
average equity. The return on average assets was 1.64% in 1995, 1.53% in 1994
and 1.47% in 1993. The return on average equity was 13.81% in 1995, 13.52% in
1994, and 13.13% in 1993.
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 affected by changes in interest rates, account balances or
volume and the mix of earning assets and interest bearing liabilities. Net
interest income is the primary source of bank profits.
For the year ended December 31, 1995, net interest income totaled
$48,659,000, an increase of $2,646,000 or 5.8%, over 1994. The 1994 total was
$46,013,000, or 4.7%, over 1993. On a taxable equivalent basis, net interest
income increased by 5.8% in 1995 and 4.1% in 1994. Marginal tax rates used in
the taxable equivalent equation were 35% in all three years presented.
27
<PAGE>
The Corporation's taxable equivalent net interest spread was 4.72% in 1993,
4.45% in 1994 and 4.41% in 1995. The net interest margin, which factors in
noninterest bearing funds sources, has moved from 5.23% to 4.95% to 5.06%,
respectively.
The increase in net interest margin was generated through rate and volume
factors of approximately equal amounts. The steady growth of commercial lending
activity including the addition of related noninterest bearing demand deposits
has been the most material factor in this growth. Loan demand remained strong
during 1995, particularly during the last nine months of the year. This enabled
us to overcome the effects of disintermediation within our deposit portfolio as
time deposits grew via transfers from lower cost deposit categories.
The tightening of the Corporation's net interest margin in 1994 was
primarily attributable to the April 11, 1994 acquisition of the Homestead
Federal Savings Association deposit base of approximately $70 million through
the Resolution Trust Corporation. The acquisition included minimal assets so
substantial amounts of those funds were invested in relatively short-term
government securities or daily federal funds sales until loan demand increased
to provide a use for the funds. This tightened spreads considerably during 1994.
Increased loan demand has enabled the Corporation to return net interest margin
to preacquistion levels.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS (TAXABLE EQUIVALENT BASIS)
(Dollars in thousands)
- -------------------------------------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Due to: Increase (Decrease) Due to:
--------------------------- ---------------------------
Volume Rate Net Volume Rate Net
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal funds sold and
interest bearing
bank balances ($562) $412 ($150) $211 $177 $388
Taxable investment securities 54 275 329 2,698 (884) 1,814
Tax-exempt investment securities 265 21 286 349 (648) (299)
Taxable loans 3,295 5,289 8,584 2,756 (1,688) 1,068
Tax-exempt loans 293 36 329 176 (228) (52)
- -------------------------------------------------------------------------------------------
NET CHANGE IN
INTEREST INCOME 3,345 6,033 9,378 6,190 (3,271) 2,919
- -------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Interest bearing demand deposits (487) 42 (445) 417 (421) (4)
Savings deposits (510) (26) (536) 398 (501) (103)
Time deposits 2,419 4,111 6,530 903 (769) 134
Other 541 427 968 667 287 954
- -------------------------------------------------------------------------------------------
NET CHANGE IN
INTEREST EXPENSE 1,963 4,554 6,517 2,385 (1,404) 981
- -------------------------------------------------------------------------------------------
INCREASE IN NET
INTEREST INCOME $1,382 $1,479 $2,861 $3,805 ($1,867) $1,938
===========================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET INTEREST INCOME
AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS) (1)
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------ ---------------------------
Average FTE FTE Average FTE FTE Average FTE FTE
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest Earning Assets:
Federal funds sold and interest
bearing bank balances $12,805 $754 5.89% $22,354 $904 4.04% $17,129 $516 3.01%
- --------------------------------------------------------------------------------------------------------------------------------
Investment Securities: (3)
Taxable investment secururities 207,814 12,495 6.01% 206,913 12,166 5.88% 161,032 10,352 6.43%
Tax-exempt investment
securities 92,868 7,235 7.79% 89,464 6,949 7.77% 84,970 7,248 8.53%
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities 300,682 19,730 6.56% 296,377 19,115 6.45% 246,002 17,600 7.15%
- --------------------------------------------------------------------------------------------------------------------------------
Loans: (2)
Taxable loans 687,864 62,734 9.12% 651,737 54,150 8.31% 618,567 53,082 8.58%
Tax-exempt loans 32,456 3,337 10.28% 29,606 3,008 10.16% 27,877 3,060 10.98%
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 720,320 66,071 9.17% 681,343 57,158 8.39% 646,444 56,142 8.68%
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest
Earning Assets 1,033,807 86,555 8.37% 1,000,074 77,177 7.72% 909,575 74,258 8.16%
Noninterest Earning Assets:
Cash and due from banks 36,537 38,076 38,572
Other assets 48,840 43,604 35,571
Less allowance for loan losses (11,284) (11,277) (9,254)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,107,900 $1,070,477 $974,464
================================================================================================================================
Liabilities and
Shareholders' Equity:
Interest Bearing Liabilities:
Interest bearing demand deposits $233,672 $5,636 2.41% $253,890 $6,081 2.40% $236,517 $6,085 2.57%
Savings deposits 184,197 5,185 2.81% 202,360 5,721 2.83% 188,297 5,824 3.09%
Time deposits 396,196 20,660 5.21% 349,760 14,130 4.04% 327,408 13,996 4.27%
Other interest bearing
liabilities 49,762 2,715 5.46% 39,851 1,747 4.38% 24,614 793 3.22%
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest
Bearing Liabilities 863,827 34,196 3.96% 845,861 27,679 3.27% 776,836 26,698 3.44%
Noninterest Bearing Liabilities:
Demand deposits 101,874 92,732 80,673
Other 10,923 10,358 7,810
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 976,624 948,951 865,319
Shareholders' equity 131,276 121,526 109,145
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,107,900 $1,070,477 $974,464
Net interest income/
net interest spread $52,359 4.41% $49,498 4.45% $47,560 4.72%
================================================================================================================================
Net interest margin 5.06% 4.95% 5.23%
================================================================================================================================
</TABLE>
(1) Fully taxable equivalent basis (FTE). The federal statutory rate was 35%
for all years presented.
(2) Nonaccrual loans are included in loan
balances. Interest income includes related fee income.
(3) Average balances for securities include SFAS 115 adjustments to fair value.
29
<PAGE>
MANAGEMENT'S DISCUSSION (continued)
- --------------------------------------------------------------------------------
LOANS
End of year loan totals show an increase of approximately $23,655,000, or
3.3%. Average daily figures show growth of $38,977,000 or 5.7%. Commercial loans
grew by 24% in 1995. This increase was due primarily to continued strong
commercial loan demand within certain markets. This has allowed us to increase
our loan portfolio without a change in underwriting standards. The following
schedule is collateral based, therefore loans are reported as being secured by
residential real estate even though they may be for other purposes or include
additional collateral.
<TABLE>
<CAPTION>
COMPOSITION OF LOANS OUTSTANDING
(Dollars in thousands)
- --------------------------------------------------------------------------------
December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $76,795 $61,832 $64,665 $67,893 $73,495
Loans secured by real estate:
Construction 13,772 11,018 10,320 11,770 9,589
Commercial 152,857 152,749 143,763 136,861 129,537
Residential 414,543 410,459 378,668 347,524 311,191
Personal 73,183 71,437 67,596 71,886 79,677
- --------------------------------------------------------------------------------
Total $731,150 $707,495 $665,012 $635,934 $603,489
================================================================================
</TABLE>
In May, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights". Companies are required to adopt the new method of accounting for
mortgage servicing rights no later than 1996. The Corporation will adopt the new
standard during the first quarter of 1996. The effect of such adoption on the
Corporation's liquidity, capital resources and results of operations will be
immaterial.
INVESTMENT SECURITIES
The Corporation's 1995 investment securities portfolio increased $8,240,000
or 2.7% as measured by end of year figures. On an average daily basis, balances
grew by $4,305,000, or 1.5%, based upon 1994's average balances.
The substantial expansion of the investment portfolio in 1994 was largely
attributable to the assumption, in April, of the Homestead deposit base.
Approximately $70,000,000 of deposits were acquired in this transaction but
related assets were minimal. The bulk of these additional funds were invested in
U.S. government securities. Increased loan demand in late 1994 and throughout
1995 have limited the funds available for utilization in the investment
securities portfolio as funds have been allocated to higher yielding loan
categories.
30
<PAGE>
- --------------------------------------------------------------------------------
The following table shows the composition of the investment securities
portfolio as of December 31 for each of the past five years. No single issue
represented 10% or more of the entire portfolio at any of the dates presented:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES BY MAJOR CLASSIFICATION
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
December 31 1995 1994 1993 1992 1991
------------------ ---------------- ---------------- ---------------- ----------------
Carrying Value Amount % Amount % Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
government agencies $181,784 57.4% $181,878 58.9% $128,830 51.4% $123,279 49.3% $115,417 49.4%
State and municipal 108,424 34.2% 94,770 30.7% 90,817 36.3% 88,913 35.6% 83,991 35.9%
Other 26,621 8.4% 31,941 10.4% 30,835 12.3% 37,826 15.1% 34,485 14.7%
- -------------------------------------------------------------------------------------------------------------------
Total $316,829 100.0% $308,589 100.0% $250,482 100.0% $250,018 100.0% $233,893 100.0%
===================================================================================================================
Fair Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury and other
government agencies $181,784 57.4% $176,826 58.6% $131,662 50.7% $126,041 48.8% $119,094 49.2%
State and municipal 108,424 34.2% 93,525 31.0% 93,506 36.0% 91,262 35.4% 85,986 35.6%
Other 26,621 8.4% 31,324 10.4% 34,456 13.3% 40,757 15.8% 36,716 15.2%
- -------------------------------------------------------------------------------------------------------------------
Total $316,829 100.0% $301,675 100.0% $259,624 100.0% $258,060 100.0% $241,796 100.0%
===================================================================================================================
</TABLE>
Effective January 1, 1994 the Corporation adopted SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities," which required
management to classify investments in equity securities that have readily
determinable fair values and all investments in debt securities as either
held-to-maturity and reported at amortized cost, available-for-sale and reported
at fair value with unrealized gains and losses reported in a separate component
of stockholders' equity, or trading securities and reported at fair value with
unrealized gains and losses included in earnings. On January 1, 1994, the
Corporation classified all securities as available-for-sale. Adoption of SFAS
No. 115 resulted in a $9,142,000 increase in investment securities and a
$5,942,000 increase in shareholders' equity accounted for as the cumulative
effect of a change in accounting principle. On April 1, 1994, a significant
portion of existing debt securities were classified as held-to-maturity. At
December 31, 1995, $240,490,000 of investment securities at amortized cost, with
unrealized gains of $2,686,000, were transferred from held-to-maturity to
available-for-sale pursuant to the transition provisions of the FASB staff's
Special Report on SFAS No. 115. As of December 31, 1995 all securities were
classified as available-for-sale.
DEPOSITS
Deposit growth was slow but steady in 1995. End of year totals increased
$32,861,000 or 3.7%. Average daily balances grew $17,197,000 or 1.9%. All 1995
growth was internal with no deposit base purchases during the year. The robust
growth of 1994 had been fueled by the assumption of approximately $70,000,000 of
insured deposits of the former Homestead Federal Savings Association. The
Corporation continues to rely upon core deposits as its major source of funds.
Core deposits represent noninterest bearing demand deposits, interest bearing
demand deposits, savings deposits and time deposits in amounts less than
$100,000. Core deposits continue to represent over 95% of deposit totals
creating a stable deposit base. The deposit base structure shifted in 1995 as
time deposits grew at the expense of lower rate demand and savings deposits. The
bulk of these deposits were retained in the form of longer maturity certificates
of deposit.
31
<PAGE>
<TABLE>
<CAPTION>
DEPOSITS BY MAJOR CLASSIFICATION
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------ ----------------- ----------------- ---------------- ----------------
December 31 Amount % Amount % Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $111,194 11.9% $96,955 10.8% $83,840 10.0% $81,133 9.8% $76,445 9.6%
Interest bearing 232,056 24.9% 248,866 27.7% 245,918 29.4% 233,178 28.1% 212,398 26.7%
demand deposits
Savings deposits 184,193 19.8% 204,350 22.7% 194,905 23.3% 173,547 20.9% 127,983 16.1%
Time deposits
under $100,000 364,963 39.2% 316,055 35.2% 281,591 33.7% 307,763 37.2% 339,893 42.6%
Time deposits
of $100,000 or
more 39,314 4.2% 32,633 3.6% 30,479 3.6% 33,066 4.0% 40,224 5.0%
- ---------------------------------------------------------------------------------------------------------------------
$931,720 100.0% $898,859 100.0% $836,733 100.0% $828,687 100.0% $796,943 100.0%
=====================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
Short-term borrowings consist of repurchase agreements, the Treasury tax
and loan note option program and occasional purchases of federal funds or
purchases at the discount window. Repurchase agreements are typically written
for one to thirty day periods with rates tied to 91-day Treasury Bills. The
Treasury tax and loan funds carry a cost 25 basis points below the prevailing
federal funds rate and are subject to call. Short-term borrowings outstanding at
December 31, 1995, were $53,530,000 with a rate of approximately 5.43%.
The maximum amounts of borrowings outstanding at any month-end during each
year of the reporting period were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount $61,713 $62,168 $32,970 $32,819 $17,576
Date January 31 November 30 January 31 October 31 December 31
</TABLE>
Average amounts outstanding and weighted average rates thereon for each
year of the reporting period were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average outstanding $48,983 $39,154 $23,963 $17,751 $9,553
Rate 5.45% 4.37% 3.19% 3.54% 5.27%
</TABLE>
The Corporation's use of purchased funds has grown over the past five years
but such borrowings still represent a relatively minor source of funds.
Short-term borrowings represented 5.4% of our pool of deposits and other
interest bearing funds at December 31, 1995. On an average daily basis they
represented 5.1%, 4.2% 2.8%, 2.1% and 1.2% of the pool of deposits and other
interest bearing funds for 1995, 1994, 1993, 1992, and 1991, respectively.
NONINTEREST INCOME AND EXPENSES
The Banks historically have been excellent performers regarding the control
of noninterest expenses. Peer data has consistently shown the Corporation
operating with overhead expenditures well below industry averages. Noninterest
income peer comparisons are not quite as strong but have shown improvement
during 1995 and 1994. The control of net overhead remains a primary strength of
the Corporation as demonstrated by the fully taxable equivalent efficiency
ratios of 51.3%, 52.6% and 50.6% generated for 1995, 1994 and 1993,
respectively. Net overhead comparisons exceed peer levels comfortably and the
percentage of noninterest expense covered by noninterest income has remained
stable at 24.8%, 23.8% and 24.5% for 1995, 1994 and 1993, respectively.
Other income increased $524,000, or 7.2%, in 1995 due primarily to
increases of $128,000 in service charges on deposit accounts and $328,000 in
securities gains. The service charge structure is reviewed annually and
securities gains
32
<PAGE>
were taken primarily from the equity securities portfolio in response to the
existence of a capital loss carryforward that expires December 31, 1996. In
addition, fees generated by our ATM network increased by $125,000 and fees
generated by our bank card program increased by $45,000 during 1995.
Other expenses rose $886,000, or 2.9%, in 1995. The opening of four new
full service branches and one drive-up facility along with operational equipment
upgrades were the major contributors to staff, occupancy and furniture and
equipment increases during the year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANALYSES OF NONINTEREST INCOME AND EXPENSES
(Dollars in thousands)
- --------------------------------------------------------------------------------
% Change
--------------------
Year Ended December 31 1995 1994 1993 1995-1994 1994-1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other income:
Fiduciary income $2,286 $2,315 $2,118 (1.3%) 9.3%
Service charges on deposit
accounts 2,292 2,164 1,976 5.9% 9.5%
Securities gains 472 144 38 227.8% 278.9%
Other operating income 2,766 2,669 2,733 3.6% (2.3%)
- --------------------------------------------------------------------------------
$7,816 $7,292 $6,865 7.2% 6.2%
- --------------------------------------------------------------------------------
Other expenses:
Salaries $11,737 $10,951 $10,092 7.2% 8.5%
Employee benefits 3,785 3,684 3,395 2.7% 8.5%
Occupancy expenses 2,244 2,184 1,923 2.7% 13.6%
Furniture and equipment
expenses 1,889 1,611 1,313 17.3% 22.7%
Federal deposit insurance
assessment 1,238 1,977 1,822 (37.4%) 8.5%
Other operating expense 10,603 10,203 9,486 3.9% 7.6%
- --------------------------------------------------------------------------------
$31,496 $30,610 $28,031 2.9% 9.2%
- --------------------------------------------------------------------------------
Noninterest income as a
% of noninterest
expenses 24.8% 23.8% 24.5%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
The Corporation's effective federal income tax rate for 1995 was 25.3%, as
compared to 24.8% in 1994 and 27.1% in 1993. The Corporation's 1996 effective
federal income tax rate is expected to increase to approximately 28.3% since
taxable income is expected to exceed $18.3 million filling the 38% marginal
bracket.
Bad debt deductions for the commercial banks are based solely on specific
charge-offs. The Corporation elected the cut-off method of accounting for loan
loss reserves and does not currently anticipate a material impact resulting from
recapture of existing commercial bank reserves.
The Corporation adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" and changed from the deferred method of
accounting for income taxes per APB No. 11 to the asset and liability method per
SFAS No. 109, effective January 1, 1993. The cumulative effect of this change in
accounting for income taxes was a $373,000 increase in net income and was
reported separately in the consolidated statement of income for the year ended
December 31, 1993.
- --------------------------------------------------------------------------------
ASSET QUALITY/RISK ANALYSIS
The quality of the Corporation's asset structure continues to be excellent.
Management devotes a substantial amount of time to overseeing the investment of
funds in loans and securities and the formulation of policies directed toward
the minimization of risk associated with such outlays. Asset quality stands out
as the single strongest component of Financial Trust Corp's financial position
when compared to industry peers. Most asset quality ratios exceed the 90th
percentile in peer rankings.
33
<PAGE>
- --------------------------------------------------------------------------------
Loan Risk Analysis: The Banks follow generally conservative lending practices
and continue to carry high quality loan portfolios with no unusual or undue
concentrations of credit. No loans are extended to non-domestic borrowers or
governments, consistent with past practice and policy. Net charge-offs
historically have been quite low compared to industry standards. Net charge-offs
represented only .13%, .07% and .03% of average outstanding loans in 1995, 1994
and 1993, respectively. Nonperforming loans, as represented by nonaccrual and
restructured items were only .44%, .49% and .71% of outstanding loans at
December 31, 1995, 1994 and 1993, respectively. Loans 90 days or more past due
and still accruing represented .25%, .33% and .27% of outstanding loans at
December 31, 1995, 1994 and 1993, respectively. Loan delinquencies represented
.97%, .90% and .68% of outstanding loans at December 31, 1995, 1994 and 1993.
Allowance for Loan Losses: Historically, the Corporation has had an enviable
record regarding its control of loan losses, but lending is a banking service
that inherently contains elements of risk. In order to assess this risk, an
ongoing loan review process continually evaluates the current financial
condition of commercial borrowers, local and national economic conditions, and
the current level of delinquencies. Through this process, an amount deemed
adequate to meet current growth and future loss expectations is charged to
operations. The provision for loan losses amounted to $709,000, $840,000 and
$3,640,000 for 1995, 1994 and 1993, respectively. These provisions compared to
net charge-offs of $939,000 in 1995, $475,000 in 1994 and $202,000 in 1993. At
December 31, 1995 and 1994, respectively, the allowance for loan losses
represented 460% and 490% of nonaccrual loans. Unallocated reserves at December
31, 1995 were $5,431,000, representing 49.2% of the total reserve portion.
Unallocated reserves grew by $1,147,000, or 26.8%, during 1995.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount of loans outstanding
at end of period $731,150 $707,495 $665,012 $635,934 $603,489
================================================================================
Daily average loans outstanding $720,320 $681,343 $646,443 $618,094 $594,417
================================================================================
Balance of allowance for possible loan
losses at beginning of period $11,268 $10,903 $7,465 $6,294 $5,632
Loans charged off:
Real Estate - Residential (266) (224) (85) (695) (96)
Real Estate - Commercial (467) (189) 0 0 (119)
Commercial (86) (95) (167) (577) (223)
Consumer (260) (210) (334) (529) (577)
---------------------------------------------
Total Charge Offs (1,079) (718) (586) (1,801) (1,015)
Recoveries of loans previously
charged off:
Real Estate - Residential 31 80 15 1 0
Real Estate - Commercial 0 0 0 0 0
Commercial 15 34 204 36 16
Consumer 94 129 165 135 163
---------------------------------------------
Total Recoveries 140 243 384 172 179
- --------------------------------------------------------------------------------
Net loans recovered (charged off) (939) (475) (202) (1,629) (836)
Additions to allowance charged to
expense 709 840 3,640 2,800 1,498
- --------------------------------------------------------------------------------
Balance at end of period $11,038 $11,268 $10,903 $7,465 $6,294
================================================================================
Ratio of net charge-offs to average
loans outstanding 0.13% 0.07% 0.03% 0.26% 0.14%
================================================================================
Ratio of allowance to gross loans
outstanding at December 31 1.51% 1.59% 1.64% 1.17% 1.04%
================================================================================
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
The allocation of our allowance for loan losses for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------- ------------------ ------------------ ------------------- -----------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
Amount to Total Amount to Total Amount to Total Amount to Total Amount to Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $5,261 79.5% $6,168 81.2% $4,816 80.1% $4,040 78.0% $3,862 74.6%
Commercial 224 10.5% 667 8.7% 1,021 9.7% 454 10.7% 529 12.2%
Consumer 122 10.0% 148 10.1% 193 10.2% 124 11.3% 171 13.2%
Unallocated 5,431 4,285 4,873 2,847 1,732
- -----------------------------------------------------------------------------------------------------------------------
$11,038 $11,268 $10,903 $7,465 $6,294
=======================================================================================================================
</TABLE>
Risk Elements: Nonperforming assets are comprised of nonaccrual and restructured
loans and real estate owned other than bank premises (OREO). OREO represents
property acquired through foreclosure or settlements of loans and is carried at
the lower of the principal amount of the loan outstanding at the time acquired
or the estimated fair value of the property. The excess, if any, of the
principal balance at the time acquired over the carrying amount is charged
against the allowance for loan losses.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
December 31 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual (cash) basis $2,402 $2,298 $2,910 $1,173 $1,473
Loans whose terms have been renegotiated to provide a
reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower 0 0 442 138 140
OREO 793 1,158 1,408 1,442 1,591
- -------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $3,195 $3,456 $4,760 $2,753 $3,204
================================================================================================================================
Ratio of nonperforming assets to total loans
and OREO 0.44% 0.49% 0.71% 0.43% 0.53%
================================================================================================================================
Ratio of nonperforming assets to total assets 0.28% 0.32% 0.48% 0.29% 0.35%
================================================================================================================================
OTHER RISK ITEMS
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
December 31 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
Loans past due 90 or more days and still accruing $1,803 $2,318 $1,794 $1,353 $3,665
- -------------------------------------------------------------------------------------------------------------------------------
Percentage of total loans and OREO 0.25% 0.33% 0.27% 0.21% 0.61%
================================================================================================================================
Percentage of total assets 0.16% 0.21% 0.18% 0.14% 0.40%
================================================================================================================================
</TABLE>
The Corporation's loan loss history has been quite good compared to
industry standards and current risk analysis appears favorable. The reserve for
loan losses is consistent with the current composition of the loan portfolio and
adequately covers the risks management sees under present economic conditions.
As the economy continues to improve, the Corporation expects to see continued
loan growth which may require appropriate adjustment to reserves.
In May 1993, the FASB issued SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 requires that certain impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. SFAS No. 114, as subsequently amended by SFAS No. 118, was
required to be adopted by the Corporation in its fiscal year beginning January
1, 1995. The January 1, 1995 adoption had no effect on the Corporation's
financial position and results of operations.
35
<PAGE>
- --------------------------------------------------------------------------------
LIQUIDITY AND RATE SENSITIVITY
The primary function of asset/liability management is to assure adequate
liquidity and rate sensitivity. Liquidity management involves the ability to
meet the cash flow requirements of customers who may be either depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs. Interest rate sensitivity
management requires the maintenance of an appropriate balance between
interest-sensitive assets and liabilities. Interest-bearing assets and
liabilities that are maturing or repricing should be adequately balanced to
avoid fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
The Banks have consistently followed 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 goal is to maintain a predominantly matched position with very
few planned mismatches. Rate spreads will be sacrificed at times in order to
enable the overall rate sensitivity position to stay within the guidelines
called for by asset/liability management policy. Rate sensitivity is measured by
monthly gap analyses plus periodic simulation and rate shock analyses.
Investment and pricing decisions are made using both liquidity and rate
sensitivity analyses as tools. The schedules that follow reflect the degree to
which the Corporation can adjust its investment portfolios to meet interest rate
changes. Additionally, the Corporation's subsidiary banks are Federal Home Loan
Bank (FHLB) members. Standard credit arrangements available to FHLB members
provide the Corporation with increased liquidity.
<TABLE>
<CAPTION>
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
(Dollars in thousands)
- -------------------------------------------------------------------------------------------
After One After Five After
One Year But Within But Within Ten
or Less Five Years Ten Years Years Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury:
Amortized Cost $32,631 $40,224 $0 $0 $72,855
Yield 5.58% 6.14% 0.00% 0.00% 5.89%
U.S. Government agencies:
Amortized Cost 56,561 50,518 521 0 107,600
Yield 6.24% 6.33% 6.57% 0.00% 6.28%
States and political
subdivisions: (Tax Exempt)
Amortized Cost 26,810 54,949 19,843 2,136 103,738
Tax-equivalent yield
(35% bracket) 7.59% 7.61% 7.80% 8.56% 7.66%
States and political
subdivisions: (Taxable)
Amortized Cost 1,211 1,629 298 0 3,138
Yield 5.85% 5.48% 6.50% 0.00% 5.72%
Other securities:
Amortized Cost 7,439 8,194 0 0 15,633
Yield 5.98% 6.75% 0.00% 0.00% 6.38%
- -------------------------------------------------------------------------------------------
Total amortized cost of
debt securities $124,652 $155,514 $20,662 $2,136 $302,964
=============================================================================
Yield 6.34% 6.75% 7.75% 8.56% 6.66%
=============================================================================
% of Portfolio 41.1% 51.4% 6.8% 0.7% 100.0%
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF LOAN PORTFOLIO
MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
(Dollars in thousands)
- -------------------------------------------------------------------------------------------
Loans Maturing or Repricing
After One After Five After
One Year But Within But Within Ten
or Less Five Years Ten Years Years Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, Variable $94,129 $9,302 $3,522 $0 $106,953
Commercial, Fixed 20,347 22,958 20,182 21,870 85,357
Mortgage, Construction 13,772 0 0 0 13,772
Mortgage, Variable 246,423 63,542 8,492 0 318,457
Mortgage, Fixed 8,891 25,526 27,714 24,189 86,320
Revolving Home Equity
Lines 16,590 0 0 0 16,590
Consumer 38,471 46,453 18,389 388 103,701
- -------------------------------------------------------------------------------------------
Total $438,623 $167,781 $78,299 $46,447 $731,150
===========================================================================================
% of Portfolio 60.0% 22.9% 10.7% 6.4% 100.0%
</TABLE>
Outstanding loans grew $23,655,000 from December 31, 1994 to December 31,
1995. Growth in variable commercial loans, however, exceeded the growth of the
overall loan portfolio during this period. Variable lending to such an extent is
necessary to offset funds sources that continue to shorten in maturity.
Maturities of time certificates of deposit of $100,000 or more, issued by
domestic offices, outstanding at December 31, 1995, are summarized as follows:
(Dollars in thousands)
- ------------------------------------------------------------------
Matures in: Amount
- ------------------------------------------------------------------
3 months or less $18,528
Over 3 through 12 months 11,463
Over 1 through 5 years 9,323
Over 5 through 10 years 0
- ------------------------------------------------------------------
Total $39,314
==================================================================
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. Overnight federal funds on which rates
change daily and loans which are tied to prime rate differ considerably from
long term investment securities and fixed rate loans. Similarly, time deposits
over $100,000 and short term certificates are much more rate sensitive than
passbook savings accounts and long term certificates. The shorter term interest
rate sensitivities are key to measuring the interest sensitivity gap, or excess
of interest earning assets over interest bearing liabilities.
37
<PAGE>
The following table shows the interest sensitivity gaps for six different
time intervals as of December 31, 1995. For the first 3 months there is an
excess of interest bearing liabilities over interest earning assets. The
liability sensitivity all arises within the first month and is mitigated
thereafter. A balanced position is achieved, on a cumulative basis, at
approximately 6 months and a positive cumulative position, or excess of interest
earning assets over interest bearing liabilities, is maintained through the
remaining time frames but within the confines of Corporation asset/liability
management policy. Interest-sensitive categories represent ranges in which
assets and liabilities can be repriced, not necessarily their actual maturities.
After 5 year amounts include assets and liabilities with interest sensitivity of
more than 5 years or with indefinite repricing schedules. Due to the increasing
popularity of investment securities that contain call features, an abbreviated
alternate presentation is provided which reports such securities at their next
call date. This presentation demonstrates an increased asset sensitivity but
still within policy confines.
<TABLE>
<CAPTION>
RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1995
(Dollars in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Sensitivity Period
---------------------------------------------------------------------------------------------
Within After 3 Months After 6 Months After 9 Months After 1 Year After 5
3 Months Within 6 Months Within 9 Months Within 12 Months Within 5 Years Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA):
Loans $202 $102 $98 $97 $168 $57 $724
Investment securities 23 22 16 20 149 76 306
Other earning assets 8 0 0 0 0 0 8
- ----------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive Assets $233 $124 $114 $117 $317 $133 $1,038
==================================================================================================================================
Rate Sensitive Liabilities (RSL):
Interest-bearing deposits $214 $76 $44 $31 $115 $3 $483
Other interest bearing liabilties 61 0 0 0 0 0 61
- ----------------------------------------------------------------------------------------------------------------------------------
Total Rate Sensitive Liabilites $275 $76 $44 $31 $115 $3 $544
==================================================================================================================================
Rate Sensitivity Gap:
Period $(42) $48 $70 $86 $202 $130
Cumulative (42) 6 76 162 364 494
- ----------------------------------------------------------------------------------------------------------------------------------
Gap as a Percent of Total Assets:
Period (3.7)% 4.2% 6.2% 7.6% 17.8% 11.4%
Cumulative (3.7)% 0.5% 6.7% 14.2% 32.0% 43.4%
- ----------------------------------------------------------------------------------------------------------------------------------
RSA/RSL Cumulative 0.85 1.02 1.19 1.38
==================================================================================================================================
Rate Sensitivity Gap Modified for Investment Securities with Call Features:
Investment Securities with
call features $7 $20 $12 $8 $6 ($53)
Rate Sensitivity Gap Modified for Calls:
Period (35) 68 82 94 208 77
Cumulative (35) 33 115 209
- -------------------------------------------------------------------------------------------------
RSA/RSL Cumulative 0.87 1.09 1.29 1.49
==================================================================================================================================
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------------------
EFFECTS OF INFLATION
Financial Trust Corp's asset and liability structure is primarily monetary
in nature. Therefore, the Corporation's assets and liabilities are affected by
inflation. Changes in interest rates may have an impact on the financial
performance of the banking industry and interest rates do not necessarily move
in the same direction or in the same magnitude as prices of other goods and
services. Interest rates often reflect government policy initiatives or economic
factors not measured by a price index.
CAPITAL ADEQUACY
The Corporation maintains a strong capital base in order to take advantage
of business opportunities while ensuring that it has adequate resources to
absorb both normal and unusual risks inherent in the banking business. Internal
capital generation, net income retained after declaration of dividends, has been
the primary method employed to increase capital accounts. Total shareholders'
equity rose $15,203,000 during 1995 an increase of 12.1% over the previous year
end. This followed growth in shareholders' equity of 9.7% and 8.9% for 1994 and
1993 respectively. The steadily increasing earnings stream during this period
has allowed the Corporation to significantly increase cash dividends paid to
shareholders. Cash dividends rose $586,000, or 9.5% over 1994 levels. The
capital position has been consistently strong as demonstrated by the ratios that
follow:
<TABLE>
<CAPTION>
CAPITAL AND DIVIDEND RATIOS
(Dollars in thousands)
- --------------------------------------------------------------------------------
At December 31 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity/Assets 12.39% 11.54% 11.53%
For the Year
- --------------------------------------------------------------------------------
Average Equity/Average Assets 11.85% 11.35% 11.20%
Dividends paid $6,783 $6,197 $5,620
Dividend payout 37.40% 37.72% 39.20%
</TABLE>
In 1990, bank regulators began to phase-in risk-based and minimum leverage
capital ratios for assessing capital adequacy. The risk-based capital ratios,
based upon guidelines adopted by bank regulators in 1989, focus upon credit
risk. In general, the standards require banks and bank holding companies to
maintain capital based on risk-adjusted assets so that categories of assets with
potentially higher credit risk will require more capital backing than assets
with lower risk. In addition, banks and bank holding companies are required to
maintain capital to support, on a risk-adjusted basis, certain off-balance-sheet
activities such as loan commitments and interest rate swaps.
At December 31, 1992, risk-based capital requirements became fully
implemented. Capital elements are segmented into two tiers. Tier 1 capital
represents shareholders' equity reduced by intangible assets, while Tier II
capital includes certain allowable long-term debt and the portion of the
allowance for loan losses equal to 1.25% of risk-adjusted assets. The minimum
leverage ratio guideline is intended to supplement the risk-based capital ratios
and is based upon Tier I capital less intangibles as a percentage of average
assets.
The maintenance of a strong capital base at both the parent and subsidiary
levels is an integral part of Financial Trust Corp's operating philosophy. The
risk-based capital ratios of the Corporation and each banking subsidiary have
consistently exceeded regulatory requirements by a substantial amount. The
Corporation's risk-based capital ratios were as follows:
<TABLE>
<CAPTION>
Regulatory
At December 31 1995 1994 1993 Minimum
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I capital ratio 18.54% 17.51% 17.61% 4.00%
Total (Tier II) capital ratio 19.78% 18.76% 18.86% 8.00%
Leverage ratio 11.85% 10.70% 11.29% 3.00%
</TABLE>
39
<PAGE>
- --------------------------------------------------------------------------------
REGULATORY MATTERS
Financial Trust Corp and its banking subsidiaries are subject to periodic
examinations by one or more of the various regulatory agencies. During 1995,
several examinations were conducted at both the parent and subsidiary levels.
The examinations included, but were not limited to, procedures designed to
review lending practices, credit quality, liquidity, compliance, operations, and
capital adequacy of those companies. No comments were received from the various
regulatory bodies which, if implemented, would have a material effect on
Financial Trust Corp's liquidity, capital resources, or operations.
In September, 1994, President Clinton signed the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (Riegle-Neal Act) into law.
Basically, the new law, in time, will permit adequately capitalized and
adequately managed banks and bank holding companies to acquire or merge with
banks in most other states. It also permits banks to branch across state lines.
States must decide by, June 1, 1997 whether to participate in interstate
branching. In July 1995, the Commonwealth of Pennsylvania elected early opt-in,
by enacting Act 39 of 1995 (Act 39). Act 39 amends the Pennsylvania Banking Code
to authorize full and immediate interstate banking and branching pursuant to the
federal Riegle-Neal Act. Predictions are that banking industry consolidation
will continue to occur and possibly accelerate as the industry strives for
greater cost efficiencies and market share. In the short term, management
believes the effect of this new legislation on the liquidity, capital resources,
and results of operations of the Corporation will be immaterial.
The recapitalization of the Savings Association Insurance Fund (SAIF) is
still being debated as we release this report. Financial Trust Corp has two
former thrift institution deposit bases, approximating $134,000,000, that
continue to be SAIF insured. Recent proposals for SAIF recapitalization would
create a settlement liability of approximately $988,000 for the Corporation.
This would reduce net income in the year of settlement by approximately
$642,000.
40
<PAGE>
FINANCIAL TRUST CORP
QUARTERLY RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Interest income $19,707 $20,569 $21,111 $21,468
Interest expense 7,853 8,465 8,836 9,042
Net interest income 11,854 12,104 12,275 12,426
Provision for loan losses 76 121 126 386
Securities gains (losses) 19 125 74 254
Other income 1,780 1,833 1,910 1,821
Other expenses 7,924 7,888 7,693 7,991
Income before income taxes 5,653 6,053 6,440 6,124
Applicable income taxes 1,325 1,558 1,706 1,546
Net income 4,328 4,495 4,734 4,578
Net income per share 0.56 0.58 0.61 0.59
Historical cash dividends per share 0.23 0.23 0.23 0.25
Cash dividends per share restated for
pooling 0.21 0.21 0.21 0.25
Return on average assets 1.60 % 1.64 % 1.69 % 1.63 %
Return on average equity 13.68 % 13.86 % 14.25 % 13.49 %
(Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------
1994
Interest income $17,093 $18,229 $18,904 $19,466
Interest expense 6,135 6,882 7,138 7,524
Net interest income 10,958 11,347 11,766 11,942
Provision for loan losses 210 175 155 300
Securities gains (losses) 47 146 0 (49)
Other income 1,669 1,799 1,843 1,837
Other expenses 7,049 7,856 7,693 8,012
Income before income taxes 5,415 5,261 5,761 5,418
Applicable income taxes 1,320 1,197 1,493 1,416
Net income 4,095 4,064 4,268 4,002
Net income per share 0.53 0.52 0.55 0.52
Historical cash dividends per share 0.21 0.21 0.22 0.23
Cash dividends per share restated for
pooling 0.19 0.19 0.20 0.22
Return on average assets 1.64% 1.50% 1.56% 1.46%
Return on average equity 13.63% 13.59% 13.98% 12.89%
</TABLE>
The acquisition of Washington County National Bank (WCNB) 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 WCNB for all
periods presented. Cash dividends are presented both as historically paid and
as restated for the pooling.
41
<PAGE>
FINANCIAL TRUST CORP
SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $ 82,855 $ 73,692 $ 70,648 $ 76,486 $ 80,529
Interest expense 34,196 27,679 26,698 34,214 43,462
Net interest income 48,659 46,013 43,950 42,272 37,067
Provision for loan losses 709 840 3,640 2,800 1,498
Net interest income after provision
for loan losses 47,950 45,173 40,310 39,472 35,569
Securities gains 472 144 38 192 156
Other income 7,344 7,148 6,827 6,127 5,647
Other expenses 31,496 30,610 28,031 25,991 24,063
Income before income taxes 24,270 21,855 19,144 19,800 17,309
Applicable income taxes 6,135 5,426 5,182 4,780 3,857
Income before cumulative effect
of an accounting change -
operating income 18,135 16,429 13,962 15,020 13,452
Cumulative effect of a change
in an accounting principle -- -- 373 -- --
Net Income $ 18,135 $ 16,429 $ 14,335 $ 15,020 $ 13,452
Per Common Share Data (1)
Income before cumulative effect
of an accounting change -
operating income $ 2.34 $ 2.12 $ 1.80 $ 1.94 $ 1.74
Net income 2.34 2.12 1.85 1.94 1.74
Historical cash dividends 0.94 0.87 0.78 0.72 0.68
Cash dividends as restated 0.88 0.80 0.72 0.67 0.63
Book value at year-end 18.17 16.21 14.77 13.60 12.31
Stock Price Statistics
Stock price:
Close $ 30.25 $ 28.75 $ 32.44 $ 23.18 $ 15.91
High 31.50 34.88 33.00 24.64 15.98
Low 26.75 27.00 21.18 15.08 11.70
Stock close/book value at year-end
(Book multiple) 1.66 1.77 2.19 1.70 1.29
Stock close/net income per share (PE ratio) 12.93 13.56 17.54 11.95 9.14
Year-End Balance Sheet Data
Assets $1,138,437 $1,090,576 $995,171 $964,917 $918,184
Loans 731,150 707,495 656,012 635,934 603,489
Deposits 931,720 898,859 836,733 828,687 796,943
Shareholders' equity 141,072 125,869 114,737 105,375 95,171
Performance Statistics
Return on average assets 1.64% 1.53% 1.47% 1.60% 1.54%
Return on average equity 13.81% 13.52% 13.13% 15.10% 14.96%
Average equity/average assets 11.85% 11.35% 11.20% 10.57% 10.29%
Equity/assets at year-end 12.39% 11.54% 11.53% 10.92% 10.37%
</TABLE>
(1) The acquisition of Washington County National Bank (WCNB) 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 WCNB for all periods presented. Cash dividends are presented both as
historically paid and as restated for the pooling.
42
<PAGE>
MARKET AND DIVIDEND INFORMATION
The common stock of Financial Trust Corp is traded on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol FITC. At the close of
business on December 31, 1995, there were approximately 3,500 shareholders of
record, with a total of 7,765,433 shares outstanding. The table below sets forth
the range of high and low quarterly sales prices and dividends declared per
common share. Washington County National Bank (WCNB) was acquired on September
30, 1995 via the issuance of 1,054,576 shares of FITC common stock plus $9,000
in lieu of fractional and dissenting shares. The transaction was accounted for
as a pooling-of-interests and, accordingly, the consolidated financial
statements have been restated to include the accounts of WCNB for all periods
presented. Quarterly dividends are disclosed in the table that follows both as
originally paid on FITC shares and as restated for the aforementioned
pooling-of-interests:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- -----------------------------------------------
Quarterly Quarterly
Historical Dividend Historical Dividend
Market Price Quarterly Restated Market Price Quarterly Restated
High Low Dividend for Pooling High Low Dividend for Pooling
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $29.00 $26.75 $ .23 $ .21 $34.88 $31.50 $ .21 $ .19
Second Quarter 28.00 26.75 .23 .21 33.38 30.75 .21 .19
Third Quarter 29.50 26.75 .23 .21 32.25 30.75 .22 .20
Fourth Quarter 31.50 28.75 .25 .25 32.00 27.00 .23 .22
- ---------------------------------------------------------------------------------------------------------
$ .94 $ .88 $ .87 $ .80
</TABLE>
INVESTOR INFORMATION
Annual Meeting
The Annual Meeting of Shareholders of
Financial Trust Corp will be held on
Wednesday, April 24, 1996 at the
Corporate Headquarters, 1415
Ritner Highway, Carlisle, PA.
Form 10-K
Shareholders may obtain copies of the
Corporation's Annual Report on Form
10-K, as filed with the Securities and
Exchange Commission, without charge
upon written request to Mr. Bradley S.
Everly, Senior Vice President and CFO,
Financial Trust Corp, P.O. Box 220,
Carlisle, PA 17013.
Transfer Agent
The Transfer Agent for Financial Trust
Corp is Financial Trust
Services Company, 310 Allen Rd.,
P.O. Box 220, Carlisle, PA 17013.
Dividend Reinvestment Plan
Shareholders may acquire additional
shares of common stock with their
dividends through a Dividend
Reinvestment Plan. Voluntary cash
payments may also be made each
quarter. Further information may be
obtained by writing to the Transfer
Agent at the above address.
NASDAQ MARKET MAKERS
The Chicago Corporation
208 South LaSalle Street, Chicago, IL 60604
(312) 855-7600
Fahnestock & Co., Inc.
110 Wall Street, New York, NY 10005
(212) 422-7813
Ferris Baker Watts, Inc.
100 Light Street - 9th Floor, Baltimore, MD 21202
(800) 638-7411
Herzog, Heine, Geduld, Inc.
525 Washington Blvd., Jersey City, NJ 07310
(212) 962-0300
Legg Mason Wood Walker, Inc.
1 Battery Park Plaza, New York, NY 10005
(212) 428-4949
F.J. Morrissey & Co.
1700 Market St., Suite 1420, Philadelphia, PA 19103
(215) 563-8500
Ryan, Beck & Co.
80 Main Street, West Orange, NJ 07052
(201) 325-3000
Wheat First, Butcher, Singer
901 E. Byrd St.,
Richmond, VA 23219
(804) 649-2311
43
<PAGE>
DIRECTORS AND OFFICERS
FINANCIAL TRUST CORP
Board of Directors
Ray L. Wolfe (2,4)
Chairman & CEO
Lynn S. Baker
Executive Vice President
Financial Trust Company
Thomas E. Beck (3)
Vice President/Finance
Bitrek Corp.
Harold L. Brake (2,3,4)
Chairman
Chambersburg Trust Company
President
Charles E. Brake Co., Inc.
Robert W. Brown (1,2,4)
President
Wacco Properties, Inc.
George P. Buckey (3)
Retired President
Teledyne Landis Machine Co.
Thomas G. Burkey (1,3)
Owner
Horst Electric Company
James E. Byron (1)
International Trade Specialist
U.S. Department of Commerce
Dennis C. Caverly (2)
Chairman & CEO
First National Bank and Trust Co
President
Financial Trust Services Company
George F. Henneberger (1)
Owner
Stickell's General Store
Webb S. Hersperger, M.D.(1)
Physician
Allan W. Holman, Jr., Esq. (1)
Partner
Holman & Holman
William H. Kiick (2)
President & CEO
Financial Trust Company
Richard G. King (2,3,4)
President
Utz Quality Foods, Inc.
M.L. Patterson, Jr. (2)
President & CEO
Washington County National Bank
Thomas H. Shank (2,3,4)
Chairman
Washington County National Bank
Chairman
G.A. Miller Lumber Company
Real Estate Developer
William F. Shull
Retired Executive Director
Greater Waynesboro Chamber
of Commerce
Paul L. Strickler (1,2,4)
Retired Executive Vice President
United Telephone System-
Eastern Group
Jack K. Sunday (3)
Dairy Farmer
Mary Ann Warrell (3)
Director
Pennsylvania Dutch Co., Inc.
Peter C. Zimmerman (2)
President & COO
President & CEO
Chambersburg Trust Company
Officers
Ray L. Wolfe
Chairman & CEO
Peter C. Zimmerman
President & COO
Bradley S. Everly
Senior Vice President & CFO
Lynn S. Baker
Senior Vice President
Dennis C. Caverly
Senior Vice President
William H. Kiick
Senior Vice President
M.L. Patterson, Jr.
Senior Vice President
Deborah L. Block
Vice President - Compliance
Wade E. Bucher
Vice President - Audit
Benjamin S. Stoops
Vice President - Operations
Robert K. Wrigley
Vice President - Personnel
Ronda S. Layton
Controller
Victoria L. Robinson
Treasurer
Lauren L. Shutt
Secretary
FINANCIAL TRUST COMPANY
Board of Directors
Ray L. Wolfe
Chairman
Webb S. Hersperger, M.D.
Wayne D. Hill (1)
Allan W. Holman, Jr., Esq.
William H. Kiick
Richard G. King
Ronald M. Leitzel
Edward J. O'Donnell, III (1)
Ron L. Scott
Paul L. Strickler
Jack K. Sunday
Mary Ann Warrell
Executive Officers
Ray L. Wolfe
Chairman of the Board
William H. Kiick
President & CEO
Lynn S. Baker
Executive Vice President
John H. Bowers
Senior Vice President &
Chief Lending Officer
Mark R. Basehore
Vice President - Lending
Marilyn K. Gillern
Vice President - Branch
Administration
R. Fred Hefelfinger
Vice President - Lending
James P. Helt
Vice President - Lending
Jeffrey C. Miller
Vice President - Lending
Lauren L. Shutt
Vice President & Treasurer
John A. Strevig
Vice President - Branch
Administration
Jane F. Burke
Secretary
Hanover Division
Associates
Daniel D. Ehrhart III
Rev. Dr. Gary F. Greth
Wayne D. Hill
Jeffry L. Hoffheins
William H. Kiick
Richard G. King, Chairman
Edward J. O'Donnell, III
Dr. William F. Railing
Patrick K. Stambaugh
Ray L.Wolfe
1 Audit Committee
2 Executive Committee
3 Human Resources Committee
4 Planning Committee
44
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
CHAMBERSBURG
TRUST COMPANY
Board of Directors
Harold L. Brake
Chairman
Thomas G. Burkey
James W. Frey
George S. Glen, Esq.
George F. Henneberger
H. Duane Kinzer
Cheryl S. Plummer
Charles E. West
Ray L. Wolfe
Peter C. Zimmerman
Executive Officers
Harold L. Brake
Chairman of the Board
Peter C. Zimmerman
President & CEO
John R. Rotz
Executive Vice President
G. Edward Horn
Senior Vice President
& Chief Lending Officer
W. Lanny Haugh
Vice President
Vickie K. Howe
Vice President - Branch
Administration
Barbara E. Brobst
Vice President
Edwin P. Heckman
Vice President
Dennis L. Wilson
Treasurer
Mary Louise Klipp
Secretary
FIRST NATIONAL
BANK AND TRUST CO.
Board of Directors
Dennis C. Caverly
Chairman
Thomas E. Beck
Robert W. Brown
George P. Buckey
Paul E. Dunlap, Jr.
Preston E. Flohr
LeRoy S. Maxwell, Jr., Esq.
Robert E. Rahal
William F. Shull
William G. Weagly, Jr.
Ray L. Wolfe
Executive Officers
Dennis C. Caverly
Chairman of the Board & CEO
Robert E. Rahal
President
C. Gary Barton
Vice President, Cashier & Secretary
Joey D. Kline
Vice President & Investment Officer
WASHINGTON COUNTY
NATIONAL BANK
Board of Directors
Thomas H. Shank
Chairman
James E. Byron
M.L. Patterson, Jr.
David K. Poole, Jr.
Warren A. Resley (1)
Leo E. Riffle
James G. Thompson
Ray L. Wolfe
Executive Officers
Thomas H. Shank
Chairman of the Board
M.L. Patterson, Jr.
President & CEO
David E. Drury
Vice President - Finance Division
Edward L. Hose
Vice President - Community Officer
Division Manager
Charles E. Lumm
Vice President - Operations Division
William K. Walker III
Vice President - Loan Division
David K. Cushwa, IV
Advisor to Board of Director
FINANCIAL TRUST
SERVICES COMPANY
Board of Directors
Ray L. Wolfe
Chairman
Harold L. Brake
Dennis C. Caverly
George S. Glen
William H. Kiick
Richard G. King
LeRoy S. Maxwell, Jr.
M.L. Patterson, Jr.
William F. Shull
Paul L. Strickler
Peter C. Zimmerman
Executive Officers
Ray L. Wolfe
Chairman of the Board
Dennis C. Caverly
President
Jane F. Burke
Senior Vice President,
Trust Officer & Secretary
David C. Petrillo
Vice President, Trust Officer
& Treasurer
Barbara E. Brobst
Vice President & Trust Officer
David C. Gority
Vice President & Trust Officer
Edwin P. Heckman
Vice President & Trust Officer
FINANCIAL TRUST LIFE
INSURANCE CO.
Board of Directors
Ray L. Wolfe
Chairman
Lynn S. Baker
George P. Buckey
Dennis C. Caverly
Allan W. Holman, Jr.
William H. Kiick
Edward J. O'Donnell, III
M.L. Patterson, Jr.
Peter C. Zimmerman
Officers
Ray L. Wolfe
Chairman of the Board
Peter C. Zimmerman
President
Lynn S. Baker
Vice President
Dennis C. Caverly
Vice President
William H. Kiick
Vice President
M.L. Patterson, Jr.
Vice President
Ronda S. Layton
Secretary & Treasurer
45
<PAGE>
FINANCIAL TRUST CORP
Carlisle, PA 17013
(717) 243-8003
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Financial Trust Corp of our report dated March 1, 1996, included in the 1995
Annual Report to Shareholders of Financial Trust Corp.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-54852 and Form S-8 No. 33-57494) of our report dated March 1,
1996, with respect to the consolidated financial statements of Financial Trust
Corp incorporated by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1995.
Ernst & Young LLP
Harrisburg, Pennsylvania
March 22, 1996
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Financial Trust Corp for the year ended December 31, 1995 of our report dated
January 13, 1995 with respect to the financial statements of Washington County
National Bank for the two years ended December 31, 1994 (not presented
separately herein).
Smith Elliott Kearns & Company
Hagerstown, Maryland
March 22, 1996
<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> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 46,864
<INT-BEARING-DEPOSITS> 570
<FED-FUNDS-SOLD> 3,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 316,829
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 731,150
<ALLOWANCE> 11,038
<TOTAL-ASSETS> 1,138,437
<DEPOSITS> 931,720
<SHORT-TERM> 53,530
<LIABILITIES-OTHER> 9,185
<LONG-TERM> 743
0
0
<COMMON> 38,827
<OTHER-SE> 102,245
<TOTAL-LIABILITIES-AND-EQUITY> 1,183,437
<INTEREST-LOAN> 64,903
<INTEREST-INVEST> 17,198
<INTEREST-OTHER> 754
<INTEREST-TOTAL> 82,855
<INTEREST-DEPOSIT> 31,481
<INTEREST-EXPENSE> 34,196
<INTEREST-INCOME-NET> 48,659
<LOAN-LOSSES> 709
<SECURITIES-GAINS> 472
<EXPENSE-OTHER> 31,496
<INCOME-PRETAX> 24,270
<INCOME-PRE-EXTRAORDINARY> 18,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,135
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
<YIELD-ACTUAL> 8.37
<LOANS-NON> 2,402
<LOANS-PAST> 1,803
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 418
<ALLOWANCE-OPEN> 11,268
<CHARGE-OFFS> 1,079
<RECOVERIES> 140
<ALLOWANCE-CLOSE> 11,038
<ALLOWANCE-DOMESTIC> 5,607
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,431
</TABLE>
Independent Auditor's Report
To the Board of Directors and Shareholders
Washington County National Bank
Williamsport, Maryland
We have audited the balance sheet of Washington County National Bank as of
December 31, 1994 and the related statements of income, changes in shareholders'
equity, and cash flows for each of the two years in the period ended December
31, 1994 (not presented separately herein). These financial statements are the
responsiblity of the Bank's management. Our responsiblity is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statemnts. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Washington County National
Bank as of December 31, 1994, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank changed its
method of accounting for investments in the year ended December 31, 1994 and its
method of account for income taxes in the year ended December 31, 1993.
Smith Elliott Kearns and Company
Hagerstown, Maryland
January 13, 1995
