FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
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 of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 243-8003
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
Indicate the number of shares outstanding of each of issuer's classes of common
stock as of May 8, 1997.
Common Stock, $5.00 Par Value - 8,588,680 Shares
<PAGE>
INDEX
FINANCIAL TRUST CORP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -
March 31, 1997 and December 31, 1996 3
Consolidated statements of income -
Three months ended March 31, 1997 and 1996 4
Consolidated statements of cash flows -
Three months ended March 31, 1997 and 1996 5
Notes to consolidated financial statements -
March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FINANCIAL TRUST CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) March 31 December 31
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 40,862 $ 39,569
Federal funds sold 6,350 2,700
Interest bearing balances with banks 596 359
Investment securities available-for-sale (amortized
cost basis of $329,735 and $345,586 respectively) 335,009 353,714
Loans 789,629 782,808
Less: Allowance for loan losses 11,262 11,240
----------- -----------
Net Loans 778,367 771,568
Premises and equipment 23,211 23,525
Accrued interest receivable 8,488 9,245
Intangible assets 7,724 7,909
Other assets 11,827 10,722
----------- -----------
TOTAL ASSETS $ 1,212,434 $ 1,219,311
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 113,707 $ 113,605
Savings and NOW deposits 419,325 421,952
Time deposits 429,667 427,053
----------- -----------
Total Deposits 962,699 962,610
Federal funds purchased and security repurchase agreements 67,109 68,991
Other short-term borrowings 4,175 2,903
----------- -----------
Total Short-term Borrowings 71,284 71,894
FHLB borrowings 10,919 18,274
Long-term debt 401 419
Accrued interest payable 2,329 2,286
Other liabilities 10,158 10,729
----------- -----------
TOTAL LIABILITIES 1,057,790 1,066,212
SHAREHOLDERS' EQUITY (NOTE G)
Common Stock, par value $5 per share-
16,000,000 shares authorized; 8,540,595 shares issued;
and 8,529,261 shares outstanding at March 31,1997,
and 8,532,131 shares outstanding at December 31, 1996 42,703 42,703
Treasury Stock- at cost; 11,334 shares at March 31, 1997
and 8,464 shares at December 31, 1996 (353) (226)
Surplus 51,493 51,493
Net unrealized holding gain from securities
available-for-sale, net of taxes 3,446 5,283
Retained earnings 57,355 53,846
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 154,644 153,099
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,212,434 $ 1,219,311
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Three Months Ended March 31
---------------------------
1997 1996
---- ----
<S> <C> <C>
Interest Income:
Loans, including fees $17,189 $16,780
Investment securities:
Taxable 4,144 3,238
Tax-exempt 1,232 1,314
Other, primarily federal funds sold 34 105
------- -------
TOTAL INTEREST INCOME 22,599 21,437
Interest Expense:
Deposits 8,012 8,226
Short-term borrowings 955 635
FHLB borrowings 249 44
Long-term debt 6 8
------- -------
TOTAL INTEREST EXPENSE 9,222 8,913
NET INTEREST INCOME 13,377 12,524
Provision for possible loan losses 120 146
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 13,257 12,378
Other Operating Income:
Fiduciary income 708 630
Service charges on deposit accounts 639 593
Fee income 435 385
Secondary market activity 0 (17)
Reinsurance income 136 94
Other income 161 141
Net gains (losses) - equity securities 120 52
Net gains (losses) - debt securities 10 26
------- -------
TOTAL OTHER OPERATING INCOME 2,209 1,904
Other Operating Expense:
Salaries 3,194 3,006
Employee benefits 494 1,140
Occupancy expense, net 623 679
Furniture and equipment expense 521 501
Deposit insurance premiums 39 73
Other expense 2,771 2,508
------- -------
TOTAL OTHER OPERATING EXPENSES 7,642 7,907
INCOME BEFORE INCOME TAXES 7,824 6,375
Applicable income taxes 2,182 1,571
------- -------
NET INCOME $5,642 $4,804
======= =======
PER SHARE DATA
Net income $0.66 $0.56
Dividends $0.25 $0.23
Weighted average number of
shares outstanding 8,531,876 8,539,811
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months ended March 31
---------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $5,642 $4,804
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 480 470
Amortization of intangible assets 185 185
Provision for loan losses 120 146
Net amortization of investment security premiums 69 191
Deferred income tax expense (benefit) (4) (10)
Decrease (increase) in interest receivable 757 (201)
Increase in interest payable 43 1,561
Increase (decrease) in other liabilities 450 1,136
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 7,742 8,282
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
(Increase) decrease in interest bearing bank balances (237) 61
Available-for-sale securities:
Sales 11,057 5,038
Maturities 13,276 20,788
Purchases (8,551) (52,816)
Increase in loans (6,919) (7,868)
Purchase of premises and equipment (166) (425)
Increase in other assets (1,105) (4,193)
------- -------
CASH USED IN INVESTING ACTIVITIES 7,355 (39,415)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing deposits 102 (4,271)
Net decrease in savings and NOW deposits (2,627) (1,871)
Net increase in time deposits 2,614 19,014
Net increase (decrease) in short-term borrowings (610) 5,824
Proceeds from FHLB borrowings 5,000 4,700
Payments on FHLB borrowings (12,355) (2)
Payments on long-term debt (18) (16)
Cash dividends (2,133) (1,939)
Acquisition of treasury stock (127) 0
------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (10,154) 21,439
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,943 (9,694)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 42,269 49,939
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $47,212 $40,245
======= =======
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
FINANCIAL TRUST CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three
months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1996.
NOTE B - INCOME TAXES
Income tax expense is less than the amount calculated using the
statutory tax rate primarily as a result of tax exempt income earned
from state and political subdivision obligations.
NOTE C - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the company makes various commitments
and incurs certain contingent liabilities which are not reflected in
the accompanying financial statements. There were firm commitments to
extend credit in the amount of $122,338,000 at March 31, 1997.
Commitments under outstanding standby letters of credit amounted to
$10,243,000 at March 31, 1997. Management does not anticipate any
losses as a result of these customary banking transactions.
-6-
<PAGE>
NOTE D - INVESTMENT SECURITIES
The amortized cost and fair values of investment securities were as follows
at the dates indicated:
(Dollars in thousands) March 31, 1997
Amortized Cost Fair Value
-------------- ----------
U.S. Treasury Securities and obligations
of other U.S. government agencies $211,801 $210,595
Obligations of States and political
subdivisions 97,892 98,815
Corporate and mortgage backed securities 11,148 11,081
-------- --------
Total Debt Securities 320,841 320,491
Equity securities including FHLB stock 8,894 14,518
-------- --------
Total Available-for-Sale Securities $329,735 $335,009
======== ========
(Dollars in thousands) December 31, 1996
Amortized Cost Fair Value
-------------- ----------
U.S. Treasury Securities and obligations
of other U.S. government agencies $224,006 $225,142
Obligations of States and political
subdivisions 101,992 103,520
Corporate and mortgage backed securities 11,149 11,188
-------- --------
Total Debt Securities 337,147 339,850
Equity securities including FHLB stock 8,439 13,864
-------- --------
Total Available-for-Sale Securities $345,586 $353,714
======== ========
-7-
<PAGE>
NOTE E - LOANS
Loans consisted of the following at the dates indicated:
(Dollars in thousands) March 31, December 31,
1997 1996
---- ----
Commercial, financial and agricultural $87,713 $89,026
Real estate - construction 21,645 19,672
Real estate - residential 433,437 431,524
Real estate - other 168,231 164,523
Consumer 78,621 78,082
-------- --------
789,647 782,827
Less: unearned income 18 19
-------- --------
Total Loans $789,629 $782,808
======== ========
NOTE F - DEPOSITS
Deposit composition was as follows, at the dates indicated:
(Dollars in thousands) March 31, December 31,
1997 1996
---- ----
Non-interest bearing demand deposits $113,707 $113,605
Interest bearing demand deposits 238,691 243,192
Passbook/statement savings 180,634 178,760
Time deposits less than $100,000 385,535 385,080
Time deposits of $100,000 and over 44,132 41,973
-------- --------
$962,699 $962,610
======== ========
NOTE G - SHAREHOLDERS' EQUITY
On April 24, 1996, the Board of Directors of Financial Trust Corp declared a
10% stock dividend, payable on June 17, 1996 to shareholders of record on
June 3, 1996. Earnings per share, dividends per share and weighted average
shares outstanding references have been restated to reflect this 10% stock
dividend. On December 20, 1996, Financial Trust Corp announced that it had
signed a definitive agreement to be acquired by Keystone Financial, Inc. of
Harrisburg, PA. (KSTN- Nasdaq National Market). Under the terms of the
agreement, each share of Financial Trust Corp common stock will be converted
to 1.65 shares of Keystone Common stock. Financial Trust Corp shareholders
approved the transaction on May 7, 1997 and Keystone shareholders approved
the transaction on May 8, 1997. The merger is expected to be consummated by
the end of May 1997.
-8-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL TRUST CORP
RESULTS OF OPERATIONS
Summary
Financial Trust Corp recorded net income of $5,642,000 for the first quarter of
1997, a 17.4% increase over the $4,804,000 earned during the first quarter of
1996. On a per share basis, first quarter 1997 net income was $.66 compared to
$.56 for the first quarter of 1996 and $.58 for the fourth quarter of 1996.
The following statistics compare 1997's year to date performance to that of
1996:
1st Quarter 1st Quarter
1997 1996
---- ----
Return on average assets 1.87% 1.68%
Return on average equity 14.72% 13.63%
Average equity/Average assets 12.70% 12.33%
A more detailed discussion of the elements having the greatest impact on net
income follows.
Net Interest Income
Net interest income is the amount by which interest income on earning assets
exceeds interest paid on interest bearing liabilities. The amount of net
interest income is effected by changes in interest rates, account balances or
volume, and the mix of earning assets and interest bearing liabilities.
Net interest income for the first quarter of 1997 increased $853,000, or 6.8%,
over the first quarter of 1996. Net interest income increased $836,000, or 6.2%
on a full tax equivalent basis. The full tax equivalent increases were smaller
because tax exempt income decreased slightly in 1997 compared to 1996 levels.
Increases in net interest income were generated by volume increases. Net
interest margin increased by 2 basis points on a taxable equivalent basis
despite a 4 basis point decline in spread. Volume increases were highlighted by
an $18 million increase in free funds. Equity increases accounted for
approximately two thirds of this free funds increment with noninterest bearing
deposit increases and an increase in the earning asset position from 93.3% to
94.1% accounting for the remainder.
-9-
<PAGE>
The table that follows states rates on a fully taxable equivalent basis, net of
disallowed interest expense deductions, and demonstrates the aforementioned
effects:
<TABLE>
<CAPTION>
1st Quarter, 1997 1st Quarter, 1996
Avg. Balances Rates Avg. Balances Rates
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Interest earning assets $1,135,887 8.29% $1,066,460 8.38%
Interest bearing liabilities 937,952 3.99% 886,701 4.04%
-------------------- ---------------------
Free Funds $197,935 $179,759
========== ==========
Net interest income (F.T.E.) $14,365 $13,529
========== ==========
Net interest spread (F.T.E.) 4.30% 4.34%
==== ====
Free funds ratio 17.43% 16.86%
========== ==========
Net interest margin (F.T.E.) 5.00% 5.02%
==== ====
</TABLE>
Other Income and Other Expenses
Total noninterest income increased 16.0%, or $305,000, over the first quarter of
1996. Modest gains were made in most areas with a fiduciary income increase of
$78,000 and a $68,000 increase in gains on sales of equity securities leading
the way.
Total noninterest expenses decreased compared to first quarter of 1996. The
primary reason for the decrease was a steep reduction in employee benefit costs
due to discontinuance of the profit sharing and executive incentive plans given
the pending merger with Keystone Financial Inc. Financial Trust Corp employees
will be blended into Keystone's employee benefit plans between July 1, 1997 and
January 1, 1998.
Income before income taxes was up 22.7% or $1,449.00 for the first quarter of
1997. Income tax expense was up $611,000 or 38.9% for the same period. The
effective income tax rates were 27.9% for 1997's first quarter and 24.6% for
1996's first quarter. Tax exempt income was down during 1997's first quarter
versus first quarter 1996.
-10-
<PAGE>
Provision for Possible Loan Losses
The provision for loan losses decreased by $26,000 or 17.8% from the first
quarter of 1996. with the ratio of reserves to gross loans standing at 1.43% on
March 31, 1997 versus 1.51% on March 31, 1996 and 1.44% on December 31, 1996. At
March 31, 1997, 54.1% of the loan loss reserve was unallocated as loan quality
remains very high. A summary of nonperforming assets follows:
March 31 December 31,
-------- ------------
(Dollars in thousands) 1997 1996
---- ----
Loans on nonaccrual (cash) basis $135 $437
Loans past due 90 or more days and
still accruing 3,318 2,492
Nonperforming renegotiated loans 0 0
Other real estate owned (OREO) 1,276 891
------ ------
Total nonperforming assets $4,729 $3,820
====== ======
Ratio of nonperforming assets to
total loans and OREO 0.60% 0.49%
Ratio of nonperforming assets to
total assets 0.39% 0.31%
Ratio of allowance for loan losses to
nonperforming assets 238.15% 294.24%
Ratio of allowance for loan losses to
nonaccrual loans and OREO 798.16% 846.39%
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Corporation continues to follow a strategy of pricing assets and liabilities
according to prevailing market rates and matching maturities as prudently as
possible within the guidelines of sound marketing and competitive practices. The
overall liquidity is strengthened by the reliance upon core deposits as the
major source of funds.
The primary objective of Financial Trust Corp's asset/liability management is to
maximize net interest income while maintaining adequate levels of liquidity and
interest rate risk. Meeting the needs of the local communities we serve is also
quite important. Management is committed to continued investment in these local
communities and is confident that it will be able to meet credit demands while
preserving liquidity and profitability.
Rate sensitivity is measured primarily by the use of monthly gap analyses for
each of the four financial institutions as well as on a consolidated basis.
While individual institutions may become positively or negatively gapped, within
the framework of their ALCO policies, the consolidated gap position is kept
balanced and moves only minimally from a 1 to 1 relationship for rate sensitive
assets to rate sensitive liabilities. Consolidated gap analysis prepared as of
March 31, 1997 on a cumulative basis demonstrates the following rate sensitive
asset/rate sensitive liability ratios at that date:
Including Prepayments Excluding Prepayments
--------------------- ---------------------
0 - 3 months .97 to 1 .89 to 1
0 - 6 months 1.19 to 1 1.07 to 1
0 - 9 months 1.32 to 1 1.16 to 1
0 -12 months 1.47 to 1 1.28 to 1
Historically, the Corporation has operated with a very strong capital base, well
above industry averages. Total shareholders' equity represented 12.75% of assets
at March 31, 1997, versus 12.19% one year earlier and 12.56% at December 31,
1996. The consolidated risk based capital ratios at March 31, 1997 were 19.13%
for Tier 1 capital and 20.37% for total capital. The Tier 1 leverage ratio stood
at 11.96% on March 31, 1997. All banking subsidiaries individually exceeded
minimum regulatory capital requirements at March 31, 1997 by a comfortable
margin. Capital strength and asset quality have consistently been strengths of
the Corporation.
Any loans classified for regulatory purposes as loss, doubtful, substandard or
special mention that have not been disclosed under Item III of Industry Guide 3
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources.
Financial Trust Corp's management is not aware of any current recommendations by
regulatory authorities which, if implemented, would have a material effect on
the corporation's liquidity, capital resources or operations.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Neither Financial Trust Corp nor any subsidiary is a party to any
material legal proceedings other than ordinary routine litigation
incidental to their business.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1997.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL TRUST CORP
(Registrant)
Date May 15, 1997 /s/ Ray L. Wolfe
----------------------------------
Ray L. Wolfe, Chairman and CEO
(Principal Executive Officer)
Date May 15, 1997 /s/ Bradley S. Everly
----------------------------------
Bradley S. Everly
Senior Vice President and CFO
(Principal Financial Officer)
-13-
<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
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 40862
<INT-BEARING-DEPOSITS> 596
<FED-FUNDS-SOLD> 6350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 335009
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 789629
<ALLOWANCE> 11262
<TOTAL-ASSETS> 1212434
<DEPOSITS> 962699
<SHORT-TERM> 71284
<LIABILITIES-OTHER> 23406
<LONG-TERM> 401
0
0
<COMMON> 42703
<OTHER-SE> 111941
<TOTAL-LIABILITIES-AND-EQUITY> 1212434
<INTEREST-LOAN> 17189
<INTEREST-INVEST> 5376
<INTEREST-OTHER> 34
<INTEREST-TOTAL> 22599
<INTEREST-DEPOSIT> 8012
<INTEREST-EXPENSE> 9222
<INTEREST-INCOME-NET> 13377
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 130
<EXPENSE-OTHER> 7642
<INCOME-PRETAX> 7824
<INCOME-PRE-EXTRAORDINARY> 5642
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5642
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 7.96
<LOANS-NON> 135
<LOANS-PAST> 3318
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 307
<ALLOWANCE-OPEN> 11240
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<RECOVERIES> 31
<ALLOWANCE-CLOSE> 11262
<ALLOWANCE-DOMESTIC> 5165
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</TABLE>
