FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
---------- ------------
Commission file no.: 0-12377
BT FINANCIAL CORPORATION
------------------------
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 25-1441348
------------ ----------
(State of Incorporation) (I.R.S. Employer Identification Number)
551 Main Street, Johnstown, Pennsylvania 15901
-----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(814) 532-3801
--------------
Registrant's Telephone Number
Indicate by checkmark 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 the
issuer's classes of common stock, as of the latest practicable
date:
5,682,215 shares common stock
($5.00 par value)
as of November 1, 1996
BT FINANCIAL CORPORATION AND AFFILIATES
FORM 10-Q
September 30, 1996
Part I. Financial Information Page No.
------------------------------ -------
Item 1.
-------
Consolidated Balance Sheet - September 30, 1996
and December 31, 1995 3
Consolidated Statement of Income
Three and Nine Months Ended
September 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1996
and 1995 5
Notes to Consolidated Financial Statements 6
Item 2.
-------
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 11
Part II. Other Information
---------------------------
Item 6.
-------
Exhibits and Reports 16
Signatures 17
ITEM 1
------
FINANCIAL STATEMENTS
--------------------
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
-----------
(In thousands, except share data)
September 30 December 31
1996 1995
------------------------------
ASSETS
Cash and Cash equivalents $58,470 59,043
Money market investments:
Interest-bearing deposits with banks 450 1,484
Federal funds sold 12,000 10,165
------------------------------
Total money market investments 12,450 11,649
------------------------------
Securities available-for-sale 237,176 268,194
Securities held-to-maturity (market value
of $75,048 at September 30, 1996 and
$35,924 at December 31, 1995) 75,155 35,161
------------------------------
Total securities 312,331 303,355
------------------------------
Loans: 1,096,272 1,060,871
Less: Unearned interest 56,438 49,631
Reserve for loan losses 9,617 10,033
------------------------------
Net loans 1,030,217 1,001,207
Premises and equipment 32,102 31,724
Accrued interest receivable 10,109 9,555
Other assets 32,795 26,027
------------------------------
Total assets $1,488,474 $ 1,442,560
==============================
LIABILITIES
Deposits:
Non-interest-bearing 167,118 161,355
Interest-bearing 1,116,625 1,091,897
------------------------------
Total deposits 1,283,743 1,253,252
Federal funds purchased and securities
sold under agreements to repurchase 36,308 35,313
Short-term borrowings 5,280 2,366
Accrued interest payable 6,987 6,788
Other liabilities 4,644 2,659
Long-term debt 17,928 20,083
-----------------------------
Total liabilities $1,354,890 $1,320,461
-----------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value
2,000,000 shares authorized,
shares issued: 14,000 at
December 14, 1995 - 1,378
Common stock, par value $5 per share,
10,000,000 shares authorized,
shares issued: 5,165,650 at
September 30, 1996
and 4,865,100 at December 31, 1995 25,828 24,326
Surplus 58,309 33,675
Retained earnings 49,535 61,116
Net unrealized holding gains (losses) on
securities available-for-sale (88) 1,604
------------------------------
Total shareholders' equity 133,584 122,099
------------------------------
Total liabilities and
shareholders' equity $1,488,474 $1,442,560
==============================
The accompanying notes are an integral part of the consolidated
financial statements.
3
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Unaudited)
-----------
(In thousands, except shares and per share data)
Three-months-ended Nine-months-ended
September 30 September 30
1996 1995 1996 1995
------------------ -----------------
INTEREST INCOME
Loans, including
fees $22,216 $20,170 $65,791 $58,687
Investment securities:
Taxable 5,027 4,929 13,982 14,401
Tax-exempt 152 153 445 543
Deposits with banks 3 47 32 294
Federal funds sold 265 42 911 220
------------------- -----------------
TOTAL INTEREST
INCOME 27,663 25,341 81,161 74,145
------------------- -----------------
INTEREST EXPENSE
Deposits 10,722 10,118 31,757 29,895
Federal funds
purchased and
securities sold
under agreements
to repurchase 288 354 867 1,136
Short-term borrowings 48 104 115 226
Term debt 312 148 967 507
------------------- ------------------
TOTAL INTEREST
EXPENSE 11,370 10,724 33,706 31,764
------------------- ------------------
NET INTEREST INCOME 16,293 14,617 47,455 42,381
Provision for loan
losses 618 767 1,426 1,389
------------------- ------------------
NET INTEREST
INCOME AFTER
PROVISION FOR
LOAN LOSSES 15,675 13,850 46,029 40,992
------------------- ------------------
OTHER INCOME
Trust income 764 629 2,156 1,879
Fees for other
services 1,665 1,466 4,844 4,115
Net security gains (losses) 123 (42) 406 115
Other income 151 200 753 453
------------------- ------------------
Total other
income 2,703 2,253 8,159 6,562
------------------- ------------------
OTHER EXPENSES
Salaries and wages 5,029 4,868 15,326 14,746
Pension and other
employee benefits 965 1,118 3,137 3,015
Net occupancy expense 1,127 999 3,546 3,096
Equipment expense 1,117 932 2,937 2,535
F.D.I.C. insurance 1,516 77 1,785 1,370
Amortization of
intangible assets 525 291 1,461 872
Reorganization expense -- -- 1,309 --
Other operating expense 3,403 2,739 9,840 8,161
------------------- ------------------
Total other
expenses 13,682 11,024 39,341 33,795
------------------- ------------------
INCOME BEFORE
INCOME TAXES 4,696 5,079 14,847 13,759
Provision for income
taxes 1,581 1,614 4,989 4,142
------------------- ------------------
NET INCOME $ 3,115 $ 3,465 $9,858 $9,617
=================== ==================
EARNINGS PER SHARE
Primary:
Net Income per share $ .55 $ .64 $ 1.79 $ 1.78
Weighted average
shares outstanding 5,682,215 5,346,953 5,478,862 5,339,584
Fully Diluted:
Net Income per share $ .55 $ .64 $ 1.78 $ 1.77
Weighted average
shares outstanding 5,682,215 5,444,358 5,541,785 5,441,627
DIVIDENDS PAID PER
COMMON SHARE $ .30 $ .24 $ .79 $ .73
The accompanying notes are an integral part of the consolidated
financial statements.
Note: Share and per share data have been adjusted to reflect
the 10% stock dividend distributed on October 22, 1996.
4
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Nine months ended
September 30
1996 1995
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 9,858 $ 9,617
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses............ 1,426 1,389
Provision for depreciation and
amortization.................... 2,853 2,466
Amortization of intangible assets 1,461 872
Amortization of premium, net of
accretion of discount on loans and
securities....................... 61 625
Deferred income taxes............... (242) (10)
Realized securities gains........... (406) (115)
Decrease (increase) in interest receivable 10 (317)
Increase (decrease) in interest
payable.......................... (129) 2,791
Equity in loss of limited partnerships 144 128
Other assets and liabilities, net... 3,931 (4,364)
-------------------
Net cash provided by operating
activities 18,967 13,082
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities...... 5,328 26,145
Repayments and maturities of securities
available-for-sale.................. 73,475 44,794
Repayments and maturities of securities
held-to-maturity.................... 4,000 11,000
Purchases of securities available-for-
sale................................ (21,567) (26,013)
Purchase of securities held-to-maturity (41,961) (31,219)
Net decrease (increase) in money market
investments......................... (202) 4,869
Proceeds from sales of loans........... 6,247 5,567
Net increase in loans.................. (24,361) (44,370)
Purchases of premises and equipment
and other........................... (3,009) (3,515)
Net increase in investment in limited
partnerships........................ (141) (115)
Purchase of Bank, net of cash acquired. (3,336) --
-------------------
Net cash used in investing
activities (5,527) (12,857)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits.... (11,376) 24,582
Net increase (decrease) in Federal
Funds purchased and securities sold
under agreements to repurchase...... 995 (18,762)
Net increase (decrease) in short-term
borrowings.......................... 2,914 (6,421)
Proceeds from sale of common stock..... 0 135
Preferred stock cash dividends paid.... (54) (88)
Common stock cash dividends paid....... (4,337) (3,873)
Payment on long-term debt.............. (2,155) (2,440)
-------------------
Net cash provided by (used in)
financing activities (14,013) (6,867)
-------------------
Decrease in cash and cash equivalents.. (573) (6,642)
Cash and cash equivalents at beginning
of the year......................... 59,043 56,018
-------------------
Cash and cash equivalents at end of
period.............................. $58,470 $49,376
===================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest on deposits and other
borrowings....................... $ 33,507 $ 29,025
Federal income taxes................ 4,961 5,963
Details of the acquisition of The
Armstrong County Trust Company
on June 13, 1996 follow:
Fair value of assets acquired.... $ 54,285 $ --
Fair value of liabilities assumed 42,307 --
------------------
Net assets acquired.............. $ 11,978 $ --
==================
The accompanying notes are an integral part of the consolidated
financial statements.
5
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. In the opinion of the management of BT Financial Corporation
(BT or the Corporation), the accompanying consolidated
financial statements include all normal recurring
adjustments necessary for a fair presentation of the
financial position and results of operations of BT for the
periods presented. All significant intercompany
transactions have been eliminated in consolidation. Certain
amounts have been reclassified for comparative purposes.
The consolidated financial statements of BT include the
accounts of BT and its wholly-owned affiliates, Johnstown
Bank and Trust Company (Bank and Trust), Laurel Bank
(Laurel), Fayette Bank (Fayette), BT Management Trust
Company (Trust Company), Bedford Associates, Inc., and the
Moxham Community Development Corporation. The consolidated
financial statements have been restated for periods prior to
June 30, 1996 to reflect the merger with Moxham Bank
Corporation, a pooling-of-interests transaction consummated
on June 25, 1996. These statements should be read in
conjunction with the financial statements and the notes
thereto included in BT's annual report to the Securities and
Exchange Commission on Form 10-K for the year ended December
31, 1995. The results of operations for the nine month
period ended September 30, 1996 are not necessarily
indicative of the results which may be expected for the full
year.
2. Tax provisions for interim financial statements are based on
the estimated effective tax rates for the full fiscal year.
The estimated effective tax rates differ from the statutory
tax rate principally due to tax-exempt interest income.
3. Allowance for credit losses -- The Corporation adopted FASB
Statement No. 114, "Accounting by Creditors for Impairment of
a Loan", and FASB Statement No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures,"
on January 1, 1995. Under these guidelines, a loan is
considered impaired, based on current information and events,
if it is probable that the Corporation will be unable to
collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement.
When conducting loan evaluations, management considers various
factors such as historical loan performance, the financial
condition of the debtor and collateral adequacy to determine
when a loan is impaired. Recurring shortfalls or delays in
payments and/or extended delinquency periods may provide
evidence that a delay or shortfall is significant to warrant a
review of the loan for impairment. Generally, the minimum
period without payment that typically can occur before a loan
is considered for impairment is 90 days. The measurement of
impaired loans is generally based on the present value of
expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of
the collateral. FASB 114 does not apply to large groups of
smaller balance homogeneous loans such as residential mortgage
and consumer loans due to the similarity of the attributes and
risks associated with these loan types. The Corporation
collectively evaluates these types of loans for impairment.
In addition, the Corporation collectively reviews for
impairment, commercial real estate and commercial loans under
$250,000. The aggregation of these loans is based upon
common risk characteristics such as, among other factors, loan
type; geographic or industry risk concentrations; whether the
loans have similar terms, such as interest and principal
repayment terms; levels and types of collateral; and external
credit ratings or internal risk ratings for the particular
loans.
The adequacy of the allowance for credit losses is periodically
6
evaluated by the Corporation in order to maintain
the allowance at a level that is sufficient to absorb probable
credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Corporation's historical
loss experience, known and inherent risks in the loan
portfolio, including adverse circumstances that may affect the
ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the
levels and trends of delinquencies, charge-offs, and the risk
ratings of the various loan categories.
At September 30, 1996, the recorded investment in loans for
which impairment has been recognized in accordance with FASB
114 totalled $4.8 million, with a corresponding valuation
allowance of $2.4 million. All of the impaired loans at
September 30, 1996, are collateral-dependent loans measured
for impairment based on the fair value of the collateral
securing the loan. The Corporation does not have any impaired
loans for which there is not a related valuation allowance.
For the quarter ended September 30, 1996, the average recorded
investment in impaired loans did not differ materially from
the amount outstanding at September 30, 1996. The allowance
for loan losses related to impaired loans increased $577,000
during the third quarter of 1996. The increase was mainly due
to the addition of two impaired commercial loans and their
associated valuation allowances.
Income recognition on impaired and nonaccrual loans -- Loans,
including impaired loans, are generally classified as
nonaccrual if they are past due as to maturity or payment of
principal or interest for a period of more than 90 days,
unless such loans are well-secured and in the process of
collection. Loans that are on a current payment status or
past due less than 90 days may also be classified as impaired
or nonaccrual if repayment in full of principal and/or
interest is in doubt. Impaired loans are generally nonaccrual
loans, however, the ultimate determination of an impaired loan
is based on the aforementioned factors without regard solely
to nonaccrual classification. The adoption of FASB 114 did
not have any material impact on the comparability of BT's
nonperforming asset tables.
A loan remains on nonaccrual status until it becomes current
as to principal and interest or it is determined to be
uncollectible and is charged off against the reserve for loan
losses. Impaired loans are charged off when the loans are
determined to be uncollectible.
While a loan is classified as nonaccrual and the future
collectibility of the recorded loan balance is doubtful,
collections of interest and principal are generally recorded
as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected,
interest income may be recognized on a cash basis. BT
recognized approximately $17,000 of interest revenue on
impaired loans during the third quarter of 1996, all of which
was recognized using the accrual basis method of income
recognition.
4. In March 1995, FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of." This
standard requires long-lived assets and certain identifiable
intangible assets, such as goodwill, be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. BT adopted this statement on January 1, 1996,
and the effect on BT's financial statements as a result of the
adoption was not material.
5. In May 1995, FASB issued Statement No. 122, "Accounting for
Mortgage Servicing Rights." On January 1, 1996, BT adopted
Statement 122. The new standard requires capitalization of
mortgage servicing rights on mortgage loans originated for
7
sale and measurement of impairment of all capitalized mortgage
servicing rights based on their fair values. Adoption of
Statement No. 122 did not have any material impact on BT's
financial condition or results of operations.
6. In October 1995, FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation," which requires adoption no
later than fiscal years beginning after December 15, 1995.
The new standard defines a fair value method of accounting for
stock options and similar equity instrument compensation
plans. BT Financial has no stock-based compensation plans.
Therefore, Statement No. 123 will have no effect on BT's
financial condition or results of operations.
7. Recent Mergers and Acquisitions:
-------------------------------
On December 14, 1995, BT acquired The Huntington National Bank
of Pennsylvania, (Huntington), Uniontown, Pennsylvania, and
merged it into Fayette Bank. Huntington had total assets of
approximately $102 million and operated five branches in
Fayette and Greene counties. On January 8, 1996, Huntington's
former Uniontown branch was closed and merged into Fayette
Bank's Uniontown office. The acquisition was accounted for as
a purchase, with a purchase price of $25.5 million in cash.
Goodwill and other intangibles of approximately $10.2 million
were recorded in connection with the transaction. Goodwill is
being amortized over 15 years.
On June 13, 1996, BT acquired and accounted for as a purchase
The Armstrong County Trust Company (Armstrong) of Kittanning,
Pennsylvania. Subsequent to the acquisition, BT merged
Armstrong into Bank and Trust. Armstrong had assets of
approximately $50 million and operated one office in Armstrong
County. Each Armstrong common share was exchanged for 26.50
shares of BT common stock and $533.21 in cash. The total
consideration for the Armstrong acquisition was approximately
$12 million in the aggregate for all 8,000 Armstrong shares
outstanding. The cash portion of approximately $4.3 million
was financed through short-term borrowing from a commercial
bank. In connection with this acquisition, goodwill and other
intangibles of approximately $5.2 million were recorded.
Goodwill is being amortized over 15 years. Armstrong's
results of operations after June 13, 1996 are included in BT's
Consolidated Statement of Income. The following unaudited
pro-forma information has been prepared assuming that the
Armstrong acquisition had taken place at the beginning of the
respective periods, after including the impact of certain
adjustments relevant to the transaction, such as the
amortization of goodwill and other intangibles, and the
amortization of certain assets acquired based on their
respective fair values.
PRO-FORMA RESULTS (UNAUDITED)
Three Months Ended Nine Months Ended
(In thousands, September 30 September 30
except share data) 1995 1996 1995
--------------------- -----------------
Net Interest
Income $15,095 $48,362 $43,815
Net Income 3,619 9,806 9,965
Earnings per
share:*
Primary .64 1.74 1.77
Fully Diluted .64 1.73 1.76
*Reflects the issuance of 26.5 shares of BT common stock
(212,000 shares in total) for each share of Armstrong common
stock.
Note: Per share data has been adjusted to reflect the 10%
stock dividend distributed on October 22, 1996.
8
The pro-forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been in
effect for the entire periods presented. In addition, they
are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from the
combined operations of Armstrong and Bank and Trust.
On June 25, 1996, BT completed a merger with Moxham Bank
Corporation (Moxham) whereby Moxham was merged directly into
BT. Exactly 1,038,519 shares of BT common stock were
exchanged for all of the outstanding common stock of Moxham.
In addition, all of the outstanding Moxham preferred stock was
exchanged for 88,550 shares of BT common stock. The merger
has been accounted for as a pooling of interests and
accordingly BT's accompanying consolidated financial
statements have been restated to include the accounts and
operations of Moxham for all periods prior to the merger.
Moxham's banking subsidiaries included The Moxham National
Bank and The First National Bank of Garrett. Moxham also held
a non-bank subsidiary known as the Moxham Community
Development Corporation. In connection with the merger,
Moxham's banking subsidiaries were merged into Bank and Trust
on June 25, 1996. At the time of the merger, Moxham had
assets of approximately $235 million and operated 12 branches
in Cambria, Somerset, and Westmoreland counties. In
conjunction with the merger, four of these branches closed
during the third quarter of 1996 along with two branches of
Bank and Trust and one branch of Laurel Bank as a result of
duplicate service areas.
Separate results of the combining entities are presented for
the interim periods shown below. All significant
intercompany transactions have been eliminated. BT's results
include the effect of the Armstrong transaction after the
acquisition date of June 13, 1996.
(In thousands, THREE MONTHS ENDED SEPTEMBER 30
except share data) 1995
BT Moxham Combined
-- ------ --------
Net Interest
Income $12,384 $ 2,233 $14,617
Net Income 3,044 421 3,465
Earnings per
share:
Primary .72 - .64
Fully Diluted .72 - .64
(In thousands, NINE MONTHS ENDED SEPTEMBER 30
except share data) 1996 1995
BT Moxham Combined BT Moxham Combined
-- ------ -------- -- ------ --------
Net Interest
Income $42,763 $ 4,692 $47,455 $35,846 $6,535 $42,381
Net Income 9,075 783 9,858 8,488 1,129 9,617
Earnings per
share:
Primary - - 1.79 2.02 - 1.78
Fully Diluted - - 1.78 2.02 - 1.77
Note: Per share data has been adjusted to reflect the 10%
stock dividend distributed on October 22, 1996.
9
Certain reclassifications have been made to Moxham's financial
information to conform to BT's classification.
In connection with the Moxham merger, $1.3 million of merger
costs and expenses ($959,000 after-tax or $.17 per fully
diluted share) were incurred and have been charged to expense
in the nine month period ended September 30, 1996. The merger
costs and expenses consisted primarily of severance pay to
furloughed employees and various legal, accounting, and
investment banking fees associated with the transaction.
8. On August 28, 1996, the Board of Directors declared a 10%
stock dividend payable October 22, 1996, to shareholders of
record September 20, 1996. BT transferred $17,046,645,
representing 516,565 common shares at a market value of $33.00
from retained earnings to surplus on a declaration date. On
October 22, 1996, $2,582,825 was transferred from surplus to
common stock, representing the $5.00 par value of the common
shares issued.
9. The following is a summary of BT's changes in shareholders'
equity during the first nine months of 1996:
Net
Unrealized
(In thousands, holding
except share gains
data) (losses)
on
securities
Preferred Common Retained available
Stock Stock Surplus Earnings for sale Total
-----------------------------------------------------
Balance December 31,
1995 as restated $ 1,378 $24,326 $33,675 $61,116 $ 1,604 $122,099
Net Income 9,858 9,858
Common Stock
Dividends, $.79
per share (4,337) (4,337)
Preferred Stock
Dividends (54) (54)
Acquisition of
The Armstrong
County Trust
Company and Other 1,060 6,652 (2) 7,710
Conversion of
Preferred Stock
into Common Stock (1,378) 442 936 --
10% Stock
Dividend 17,046 (17,046) --
Change in Net
Unrealized
holding gains
(losses) on
securities
available for
sale (1,692) (1,692)
-----------------------------------------------------
BALANCE SEPTEMBER 30,
1996 $0 $25,828 $58,309 $49,535 $ (88) $133,584
======================================================
Note: Per share data has been adjusted to reflect the 10%
stock dividend distributed on October 22, 1996.
10
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following is Management's Discussion and Analysis of the
material changes in financial position between December 31, 1995
and September 30, 1996, and the material changes in results of
operations comparing the three and nine month periods ending
September 30, 1996 with the respective results for the comparable
periods of 1995 for BT Financial Corporation. The following
should be read in conjunction with BT's Annual Report on Form 10-K
for the year ended December 31, 1995.
On June 25, 1996, BT Financial Corporation (BT) completed a
merger with Moxham Bank Corporation (Moxham) whereby Moxham was
merged directly into BT. Exactly 1,127,069 shares of BT common
stock were exchanged for all of the outstanding preferred and
common stock of Moxham. The merger has been accounted for as a
pooling of interests and accordingly, BT's consolidated financial
statements have been restated to include the accounts and
operations of Moxham for all periods prior to the merger.
Additionally, BT acquired and accounted for as a purchase The
Armstrong County Trust Company (Armstrong) on June 13, 1996.
Each Armstrong common share was exchanged for 26.50 shares of BT
common stock and $533.21 in cash. The total consideration for
the Armstrong acquisition was approximately $12 million.
Certain information contained in this report may be considered
"forward-looking" information. Refer to BT's Annual Report on
Form 10-K for the year ended December 31, 1995 for a discussion
of factors that may affect such forward-looking information.
FINANCIAL REVIEW
- ----------------
OVERVIEW
- --------
A key element in BT's growth strategy is expansion of the
Corporation through mergers and acquisition activity. Recent
merger activity has served to enlarge BT's total assets to
approximately $1.5 billion at September 30, 1996. This
represents a sizeable 34% increase in assets over September 30,
1995, on a historical non-pooled basis. BT's financial position
and results of operations have been largely impacted due to the
recent merger with Moxham and the acquisitions of Armstrong and
The Huntington National Bank of Pennsylvania (Huntington) which
occurred in December 1995. Most of the significant changes in
the financial statements presented are a direct result of such
merger activity. The Moxham merger resulted in one-time
reorganization costs of approximately $1.3 million ($959,000 net
of tax). Most of these costs were expensed in the second quarter
of 1996. Additionally, BT's third quarter 1996 earnings were
affected by a nonrecurring deposit insurance assessment of $1.4
million ($899,000 net of tax). The one-time charge was related
to deposits acquired from savings and loan institutions in past
acquisitions. Despite these significant nonrecurring expenses,
BT achieved increased earnings for the nine months ended
September 30, 1996, compared to the same period of 1995.
CHANGES IN FINANCIAL POSITION
Total loans outstanding, net of unearned interest, increased
$28.6 million at September 30, 1996, compared to year-end 1995
and $110.3 million compared to September 30, 1995. The increase
in loans over year-end 1995 is due to approximately $12 million
in loans acquired in the Armstrong acquisition and growth in
commercial loans. The increase over the prior year is
principally due to loans acquired in the acquisition of
Huntington. At September 30, 1996, the level of nonperforming
loans increased $5.9 and $8.4 million compared to December 31,
1995, and September 30, 1995, respectively. Nonperforming loans
11
as a percent of outstanding loans, net of unearned interest, were
1.28% at September 30, 1996 and .73% at December 31, 1995
compared to .53% at September 30, 1995. At September 30, 1996,
various loans acquired in the Huntington acquisition accounted
for approximately $3.0 million of the increase in nonperforming
loans compared to September 30, 1995 and $1.3 million of the
increase compared to year-end 1995. Roughly $2.2 million of the
increase over both periods was due to a higher level of
nonperforming consumer loans. Increased nonperforming commercial
loans accounted for approxmately $2.0 million and $1.4 million of
the increases over September 30, 1995 and year-end 1995,
respectively. The following table provides information with
respect to the components of BT's nonperforming assets for the
periods indicated.
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
(In thousands) 1996 1995 1995
-------------------------------------
Loans 90 days or more
past-due $ 128 $ 2,077 $ 1,019
Restructured loans 317 318 319
Nonaccrual loans 12,870 5,013 3,576
--------------------------------------
Total non-performing
loans 13,315 7,408 4,914
Other real estate owned 809 912 1,073
--------------------------------------
Total non-performing
assets $14,124 $ 8,320 $ 5,987
======================================
The reserve as a percent of nonperforming loans was 72%, 135% and
192% for September 30, 1996, December 31, 1995 and September 30,
1995, respectively. The BT Credit and Collection functions
continuously monitor and assess credit quality to minimize
exposure to potential future credit losses. As a percent of
total outstanding loans, net of unearned interest, the reserve
for loan losses was .92% at September 30, 1996, compared to .99%
at year-end 1995 and 1.02% at September 30, 1995. Based upon
loan reviews and corresponding collateral, management believes
the reserve for loan losses is adequate to cover foreseeable
potential losses in the current portfolio.
Total securities increased $9.0 million at September 30, 1996
compared to year-end 1995 mainly due to securities acquired in
the Armstrong acquisition. Money market investments increased
$801,000 compared to year-end 1995 while increasing $8.5 million
compared to September 30, 1995. Management intends to redeploy
excess money market investments to fund anticipated loan growth
and acquire additional securities.
Total deposits at September 30, 1996, increased $30.5 million
over year-end 1995 and $111.2 million over September 30, 1995.
The increase over year-end 1995 is primarily due to approximately
$42 million in deposits acquired in the Armstrong acquisition.
The increase over the prior year is essentially due to deposits
acquired in the Huntington and Armstrong acquisitions.
RESULTS OF OPERATIONS
A ten percent stock dividend was distributed on October 22, 1996,
to shareholders of record September 20, 1996. All per share data
in the following discussions has been adjusted to reflect the
stock dividend.
Third Quarter 1996 vs. Third Quarter 1995
Third quarter results for 1996 were adversely impacted by a
recently enacted one-time deposit insurance assessment of
approximately $1.4 million ($899,000 net of tax) related to
deposits acquired from savings and loan institutions. Net income
for the third quarter of 1996, before the nonrecurring
assessment, was $4.0 million, or $0.71 per fully diluted share,
compared to $3.5 million, or $.64 per share for the same period
of 1995. Higher levels of net interest income and total other
income offset increases in total other expenses and the provision
for income taxes. The inclusion of the nonrecurring deposit
insurance assessment reduced third quarter 1996 earnings to $3.1
million or $.55 per fully diluted share.
12
Excluding the one-time deposit insurance assessment, the 1996
annualized return on average assets for the third quarter was
1.08% and the third quarter 1996 annualized return on average
shareholders' equity was 12.13%. Including the nonrecurring
assessment, the annualized return on average assets for the third
quarters of 1996 and 1995 was .84% and 1.03%, respectively, and
the annualized return on average shareholders' equity was 9.41%
in 1996 and 11.84% in 1995 for the third quarter.
Net interest income on a fully taxable equivalent basis was $16.7
million for the third quarter of 1996 compared to $15.0 million
for the same period of 1995. The increase of $1.7 million was
due essentially to a higher level of interest-earning assets
resulting from the Huntington and Armstrong acquisitions. Also
contributing to the increase in net interest income was a higher
net interest margin. Third quarter net interest margins for 1996
and 1995 were 4.81% and 4.74%, respectively.
The provision for loan losses decreased $149,000 in the third
quarter of 1996 compared to the third quarter of 1995 due to
management's assessment of the provision necessary to maintain an
adequate reserve against potential future losses based upon the
current size and quality of the loan portfolio. Net charge-offs
were $617,000 in the third quarter of 1996 compared to $314,000
in 1995. The increase over 1995 was mainly due to a higher level
of consumer loan charge-offs.
Total other income increased $450,000 in the third quarter of
1996 compared to the same period of 1995. Trust income increased
$135,000 due to greater volumes of trust assets under management
as a result of the Moxham merger and additional growth through
increased market penetration. Also contributing to the increase
in total other income was higher fee income associated with an
enlarged deposit account base and increased security gains.
Total other expenses increased $2.7 million in the third quarter
of 1996 compared to the third quarter of 1995. Approximately 52%
of the increase was due to the one-time deposit insurance
assessment of approximately $1.4 million. The Huntington and
Armstrong acquisitions were largely responsible for the other
increases in operating expenses. Salaries increased a modest 3%
due to merit increases while full-time equivalent employees fell
to 771 from 784. Employee benefits expense fell approximately
14% mainly due to lower pension expense. Occupancy expense
increased primarily due to an increase in branch locations from
the recent acquisitions. Equipment expense increased
approximately 20% in the third quarter of 1996 compared to the
third quarter of 1995 due to increased depreciation expense
associated with the automation of various branch banking offices
as well as other technology investments. FDIC insurance expense
increased approximately $1.4 million primarily due to the
nonrecurring assessment. In the third quarter of 1995, FDIC
insurance expense was reduced $590,000 due to a retroactive
deposit insurance rate adjustment. Amortization of intangible
assets increased $234,000 or 80% due to the amortization of
intangible assets associated with the recent acquisitions. Other
operating expenses increased $664,000 due to the Huntington and
Armstrong acquisitions, conversion costs associated with recent
acquisitions and some increased costs related to corporate
restructurings and the centralization of various operational
functions. Seven branch bank offices closed as a result of the
Moxham merger in the third quarter of 1996. These closings and
the installation of various technologies and corporate
restructurings are expected to provide additional operating
efficiencies in future periods.
BT's effective tax rate for the third quarter of 1996 was 33.7%
compared to 31.8% for the third quarter of 1995. The Moxham
merger contributed to the lower effective tax rate in 1995 due to
increased investment tax credits resulting from community
development activities.
13
Nine Months Ended September 30, 1996 vs. Nine Months Ended
September 30, 1995
The financial results of BT for the first nine months of 1996
were negatively impacted by two significant nonrecurring items
consisting of reorganization costs associated with the Moxham
merger and the special insurance assessment related to deposits
acquired from savings and loan institutions. Approximately $1.3
million of merger costs and expenses related to the Moxham merger
($959,000 after-tax or .17 per fully diluted share) were incurred
and charged to expense in 1996. The merger charges consisted
primarily of severance pay to furloughed employees and various
legal, accounting, and investment banking fees associated with
the transaction. In 1996, BT also incurred a one-time deposit
insurance assessment of approximately $1.4 million ($899,000
after-tax or .16 per fully diluted share) related to deposits
acquired from savings and loan institutions. Exclusive of
nonrecurring items, BT produced $11.7 million in net income for
the first nine months of 1996, a $2.1 million increase, or 21.8%
improvement over the same period in 1995. On a fully diluted
per-share basis, earnings were $2.11 in 1996 compared to $1.77 in
1995, an increase of $.34, or 19.2%, before the nonrecurring
items. Higher levels of net interest income and total other
income offset increases in total other expenses and the provision
for income taxes. The inclusion of the one-time deposit
insurance assessment and costs related to the Moxham merger
reduced net income to $9.9 million, or $1.78 per fully diluted
share for the first nine months of 1996.
For the first nine months of 1996, the annualized return on
average assets was .90%, compared to .96% in 1995. The
annualized return on average shareholders' equity for the first
nine months of 1996 and 1995 was 10.33% and 11.42%, respectively.
Excluding the nonrecurring deposit insurance assessment and the
Moxham reorganization costs, the annualized return on average
assets was 1.07% and the annualized return on average
shareholders' equity was 12.27% for the nine months ended
September 30, 1996.
Fully taxable equivalent net interest income was $48.6 million
for the first nine months of 1996, compared to $43.4 million for
the same period of 1995. The increase of $5.2 million was due
primarily to a higher level of interest-earning assets resulting
from the Huntington and Armstrong acquisitions along with a
higher-yielding asset mix. The net interest margin, on a fully
taxable equivalent basis, improved 15 basis points to 4.79% in
1996, compared to 4.64% in the first nine months of 1995. The
current interest rate environment continues to have a favorable
impact on BT's net interest margin level.
The provision for loan losses increased $37,000 in the first nine
months of 1996, compared to the same period of 1995 due to
management's assessment of the provision necessary to maintain an
adequate reserve against potential future losses based upon
current size and quality of the loan portfolio. Net charge-offs
were approximately $2.0 million in 1996 compared to $992,000 in
the first nine months of 1995. The increased level of net
charge-offs in 1996 is substantially higher due to credit losses
associated with certain loans acquired in the Huntington
acquisition.
Total other income increased $1.6 million in the first nine
months of 1996 compared to the same period last year. Trust
income increased $277,000 due to greater volumes of trust assets
under management as a result of the Moxham merger and additional
growth through increased market penetration. The sale of real
estate at Laurel and the sale of the Salem 22 office of the
former Moxham Bank contributed approximately $270,000 to other
income. Increased service fees resulted from an enlarged deposit
account base and higher security gains also contributed to the
increase in total other income.
Total other expenses increased $5.5 million in the first nine
months of 1996 compared to the same period of 1995. Roughly 49%
of the increase was due to the recording of approximately $1.3
million in nonrecurring reorganization costs associated with the
14
Moxham merger and the one-time deposit insurance assessment of
$1.4 million. Most of the other increases are a result of the
Huntington acquisition, which occurred in December 1995.
Salaries and wages increased $580,000, primarily due to periodic
merit increases. In 1995, certain reserves associated with
self-funded health care costs provided additional reductions in those
costs when a new health care insurance provider was selected.
Employee benefit costs increased in the first nine months of 1996
when health care costs returned to a level which is expected to
be representative of ongoing costs. The transition to the new
carrier has resulted in reduced ongoing hospitalization expense
due to lower premiums. Occupancy expense increased $450,000,
primarily due to the addition of four branches from the
Huntington acquisition. Equipment expense increased $402,000
mainly due to greater depreciation expense. F.D.I.C. insurance
increased $415,000 primarily due to the one-time assessment. The
increase was mitigated by reduced deposit insurance premiums in
effect for 1996. Excluding the special assessment, FDIC
insurance expense decreased $968,000 reflecting the lower
premiums. Amortization of intangible assets increased $589,000
due to the onset of expense attributed to intangible assets
associated with recent acquisitions. Other operating expenses
increased $1,679,000 due to the Huntington and Armstrong
acquisitions, conversion costs associated with these acquisitions
and some increased costs related to corporate restructurings and
the centralization of various operational functions. The Moxham
merger has resulted in the elimination of redundant activities
and improved operating efficiencies.
BT's effective tax rate was 33.6% for the first nine months of
1996, compared to 30.1% for the same period in 1995.
Contributing to the increase was a change in federal income tax
rules resulting in the retroactive deduction in 1995 of goodwill
amortization associated with acquisitions in prior years and an
increased application of investment tax credits in 1995 relating
to community development activities due to the Moxham merger.
15
PART II
-------
OTHER INFORMATION
-----------------
ITEM 6
------
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 11 Computation of Net Income Per Share.
Exhibit 27.1 Financial Data Schedule.
Exhibit 27.2 Restated Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
A Form 8-K dated as of July 31, 1996, was filed under item 5
to report BT's consolidated financial results for the one month
and seven month periods ended July 31, 1996.
16
SIGNATURES
----------
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.
Date November 14, 1996 /s/ John H. Anderson
----------------- --------------------
John H. Anderson,
Chairman and Chief Executive Officer
Date November 14, 1996 /s/ Mark L. Sollenberger
----------------- ------------------------
Mark L. Sollenberger,
Executive Vice President, Treasurer and
Assistant Secretary
(Principal Financial Officer)
17
EXHIBIT 11
BT FINANCIAL CORPORATION AND AFFILIATES
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
------------------- -----------------
(In thousands, except
shares and per share
data)
Primary income per
share:
Net income $ 3,115 $ 3,465 $ 9,858 $ 9,617
Preferred
dividends 0 28 54 88
-------------------- ----------------------
Net income
applicable to
common stock $ 3,115 $ 3,437 $ 9,804 $ 9,529
===================== ======================
Average common
shares
outstanding
and common
stock
equivalents 5,682,215 5,346,953 5,478,862 5,339,584
===================== =======================
Net income per
share-primary $ .55 $ .64 $ 1.79 $ 1.78
===================== =======================
Fully diluted income
per share:
Net income $ 3,115 $ 3,465 $ 9,858 $ 9,617
==================== ======================
Average common
shares
outstanding
and common
stock
equivalents 5,682,215 5,346,953 5,478,862 5,339,584
Additional common
shares assuming:
Conversion
of preferred
stock Series A 0 97,405 62,923 102,043
-------------------- ---------------------
Average common
shares
outstanding
and common
stock
equivalents 5,682,215 5,444,358 5,541,785 5,441,627
==================== =====================
Net income per
share-fully
diluted. $ .55 $ .64 $ 1.78 $ 1.77
============================================
Note: Share and per share data have been adjusted to reflect
the 10% stock dividend distributed on October 22, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 58,470
<INT-BEARING-DEPOSITS> 450
<FED-FUNDS-SOLD> 12,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 237,176
<INVESTMENTS-CARRYING> 75,155
<INVESTMENTS-MARKET> 75,048
<LOANS> 1,096,272
<ALLOWANCE> 9,617
<TOTAL-ASSETS> 1,488,474
<DEPOSITS> 1,283,743
<SHORT-TERM> 41,588
<LIABILITIES-OTHER> 11,631
<LONG-TERM> 17,928
0
0
<COMMON> 25,828
<OTHER-SE> 107,756
<TOTAL-LIABILITIES-AND-EQUITY> 1,488,474
<INTEREST-LOAN> 65,791
<INTEREST-INVEST> 14,427
<INTEREST-OTHER> 943
<INTEREST-TOTAL> 81,161
<INTEREST-DEPOSIT> 31,757
<INTEREST-EXPENSE> 33,706
<INTEREST-INCOME-NET> 47,455
<LOAN-LOSSES> 1,426
<SECURITIES-GAINS> 406
<EXPENSE-OTHER> 39,341
<INCOME-PRETAX> 14,847
<INCOME-PRE-EXTRAORDINARY> 14,847
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,858
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 4.79
<LOANS-NON> 12,870
<LOANS-PAST> 128
<LOANS-TROUBLED> 317
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,033
<CHARGE-OFFS> 2,471
<RECOVERIES> 470
<ALLOWANCE-CLOSE> 9,617
<ALLOWANCE-DOMESTIC> 9,617
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule restates previously filed financial information to give
effect to the merger between BT Financial Corporation and Moxham Bank
Corporation. The merger was completed on June 25, 1996 and was accounted
for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 49,376
<INT-BEARING-DEPOSITS> 2,921
<FED-FUNDS-SOLD> 985
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 277,092
<INVESTMENTS-CARRYING> 43,151
<INVESTMENTS-MARKET> 43,584
<LOANS> 978,296
<ALLOWANCE> 9,450
<TOTAL-ASSETS> 1,351,394
<DEPOSITS> 1,172,575
<SHORT-TERM> 44,849
<LIABILITIES-OTHER> 8,337
<LONG-TERM> 7,567
0
1,378
<COMMON> 24,307
<OTHER-SE> 92,381
<TOTAL-LIABILITIES-AND-EQUITY> 1,351,394
<INTEREST-LOAN> 58,687
<INTEREST-INVEST> 14,944
<INTEREST-OTHER> 514
<INTEREST-TOTAL> 74,145
<INTEREST-DEPOSIT> 29,895
<INTEREST-EXPENSE> 31,764
<INTEREST-INCOME-NET> 42,381
<LOAN-LOSSES> 1,389
<SECURITIES-GAINS> 115
<EXPENSE-OTHER> 33,795
<INCOME-PRETAX> 13,759
<INCOME-PRE-EXTRAORDINARY> 13,759
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,617
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 4.64
<LOANS-NON> 3,576
<LOANS-PAST> 1,019
<LOANS-TROUBLED> 319
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,053
<CHARGE-OFFS> 1,285
<RECOVERIES> 293
<ALLOWANCE-CLOSE> 9,450
<ALLOWANCE-DOMESTIC> 9,450
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>