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: June 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:
5,165,650 shares common stock
($5.00 par value)
as of August 1, 1996
- 1 -
BT FINANCIAL CORPORATION AND AFFILIATES
FORM 10-Q
June 30, 1996
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1.
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Consolidated Balance Sheet - June 30, 1996
and December 31, 1995 3
Consolidated Statement of Income
Three and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
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Item 4.
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Submission of Matters to a Vote of Security Holders 15
Item 6.
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Exhibits and Reports 15
Signatures 16
- 2 -
ITEM 1
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FINANCIAL STATEMENTS
BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
June 30 December 31
1996 1995
(Unaudited)
------------------------
ASSETS
Cash and cash equivalents $ 61,947 $ 59,043
------------------------
Money market investments:
Interest-bearing deposits with banks 512 1,484
Federal funds sold 21,930 10,165
------------------------
Total money market investments 22,442 11,649
------------------------
Securities available-for-sale 256,001 268,194
Securities held-to-maturity (market
value of $68,468 at June 30, 1996
and $35,924 at December 31, 1995) 69,167 35,161
------------------------
Total securities 325,168 303,355
------------------------
Loans: 1,079,783 1,060,871
Less: Unearned interest 53,344 49,631
Reserve for loan losses 9,616 10,033
------------------------
Net loans 1,016,823 1,001,207
------------------------
Premises and equipment 33,479 31,724
Accrued interest receivable 9,971 9,555
Other assets 33,297 26,027
-------------------------
Total assets $ 1,503,127 $ 1,442,560
=========================
LIABILITIES
Deposits:
Non-interest-bearing $ 175,912 $ 161,355
Interest-bearing 1,128,505 1,091,897
-------------------------
Total deposits 1,304,417 1,253,252
Federal funds purchased and
securities sold under agreements to
repurchase 35,030 35,313
Short-term borrowings 5,124 2,366
Accrued interest payable 5,590 6,788
Other liabilities 3,018 2,659
Long-term debt 18,647 20,083
--------------------------
Total liabilities 1,371,826 1,320,461
--------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value
2,000,000 shares authorized,
shares issued: 0 at June 30, 1996 and
14,000 at December 31, 1995 - 1,378
Common stock, par value $5 per share,
10,000,000 shares authorized,
shares issued: 5,165,650 at June 30, 1996
and 4,865,100 at December 31, 1995 25,828 24,326
Surplus 41,263 33,675
Retained earnings 65,172 61,116
Net unrealized holding gains (losses) on
securities available-for-sale (962) 1,604
--------------------------
Total shareholders' equity 131,301 122,099
--------------------------
Total liabilities and
shareholders'equity $1,503,127 $1,442,560
==========================
The accompanying notes are an integral part of the consolidated
financial statements.
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BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except shares and per share data)
Three-months-ended Six-months-ended
June 30 June 30
1996 1995 1996 1995
----------------------------------------
INTEREST INCOME
Loans, including fees $ 21,768 $19,628 $43,575 $38,518
Investment securities:
Taxable 4,568 4,779 8,956 9,471
Tax-exempt 145 185 293 389
Deposits with banks 6 124 28 248
Federal funds sold 337 110 646 177
---------------------------------------
Total interest income 26,824 24,826 53,498 48,803
---------------------------------------
INTEREST EXPENSE
Deposits 10,482 10,298 21,036 19,777
Federal funds purchased
and securities sold
under agreements to
repurchase 240 232 579 781
Short-term borrowings 34 46 67 122
Term debt 324 164 654 359
---------------------------------------
Total interest expense 11,080 10,740 22,336 21,039
---------------------------------------
NET INTEREST INCOME 15,744 14,086 31,162 27,764
Provision for loan losses 396 377 808 622
---------------------------------------
Net interest income after
provision for loan losses 15,348 13,709 30,354 27,142
---------------------------------------
OTHER INCOME
Trust income 749 629 1,392 1,249
Fees for other services 1,628 1,363 3,179 2,650
Net security gains 298 142 283 156
Other income 166 123 603 255
----------------------------------------
Total other income 2,841 2,257 5,457 4,310
----------------------------------------
OTHER EXPENSES
Salaries and wages 5,113 4,962 10,297 9,880
Pension and other employee
benefits 1,103 1,036 2,172 1,896
Net occupancy expense 1,195 1,004 2,419 2,097
Equipment expense 931 808 1,820 1,603
F.D.I.C. insurance 135 646 269 1,292
Amortization of intangible
assets 469 291 936 581
Reorganization expense 1,232 -- 1,309 --
Other operating expense 3,504 2,679 6,438 5,423
---------------------------------------
Total other expenses 13,682 11,426 25,660 22,772
---------------------------------------
INCOME BEFORE INCOME TAXES 4,507 4,540 10,151 8,680
Provision for income taxes 1,529 1,369 3,408 2,528
---------------------------------------
NET INCOME $ 2,978 $ 3,171 $ 6,743 $ 6,152
=======================================
EARNINGS PER SHARE
Primary:
Net Income per share $ .60 $ .65 $ 1.37 $ 1.26
Weighted average shares
outstanding 4,909,570 4,852,028 4,887,335 4,850,818
Fully Diluted:
Net income per share $ .60 $ .64 $ 1.36 $ 1.24
Weighted average shares
outstanding 4,993,254 4,946,903 4,973,452 4,945,693
Dividends paid per
common share $ .26 $ .27 $ .54 $ .53
The accompanying notes are an integral part of the consolidated
financial statements.
- 4 -
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended
June 30
1996 1995
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................$ 6,743 $ 6,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses................ 808 622
Provision for depreciation and amortization 1,841 1,620
Amortization of intangible assets....... 936 581
Amortization of premium, net of accretion
of discount on loans and securities.... 336 470
Deferred income taxes................... (197) (304)
Realized securities gains............... (308) (156)
Decrease in interest receivable......... 148 545
Increase (decrease) in interest payable. (1,526) 1,463
Equity in loss of limited partnerships.. 105 67
Other assets and liabilities, net....... (565) (2,948)
-------- --------
Net cash provided by
operating activities 8,321 8,112
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities.......... 5,096 16,721
Repayments and maturities of securities
available-for-sale........................ 56,173 32,954
Repayments and maturities of
securities held-to-maturity............... 2,000 7,000
Purchase of securities available-for-sale.. (18,147) (19,942)
Purchase of securities held-to-maturity.... (35,985) (26,247)
Net decrease (increase) in money
market investments........................ (10,194) 1,286
Proceeds from sales of loans............... 2,683 2,325
Net increase in loans...................... (7,547) (15,705)
Purchases of premises and
equipment and other....................... (3,669) (2,388)
Net increase in investment in
limited partnerships...................... (141) (140)
Purchase of Bank, net of cash acquired..... (3,336) --
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Net cash used in
investing activities (13,067) (4,136)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits................... 9,298 31,127
Net decrease in Federal Funds purchased and
securities sold under agreements
to repurchase............................ (283) (37,160)
Net increase in short-term borrowings...... 2,758 2,326
Proceeds from sale of common stock.......... -- 88
Preferred stock cash dividends paid......... (54) (60)
Common stock cash dividends paid............ (2,633) (2,581)
Payment on long-term debt................... (1,436) (1,760)
-------- --------
Net cash provided by (used in)
financing activities 7,650 (8,020)
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Increase (decrease) in cash and
cash equivalents........................... 2,904 (4,044)
Cash and cash equivalents at
beginning of the year...................... 59,043 56,018
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Cash and cash equivalents at end of period.. $61,947 $51,974
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and other borrowings..$ 23,562 $ 19,611
Federal income taxes....................... 3,711 2,368
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 six month period ended June 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 the new 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
evaluated by the Corporation in order to maintain the allowance at a
- 6 -
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 June 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with FASB 114
totalled $3.5 million, with a corresponding valuation
allowance of $1.8 million. All of the impaired loans at June
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 June 30, 1996, the average recorded
investment in impaired loans did not differ materially from
the amount outstanding at June 30, 1996. The allowance for
loan losses related to impaired loans increased $232,000
during the second quarter of 1996. The increase was mainly
due to the addition of an impaired commercial loan and its
associated valuation allowance.
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 applied
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 $16,000 of interest revenue on
impaired loans during the second 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." The
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 a 15 year
period.
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 the
acquisition, goodwill and other intangibles of approximately
$5.2 million were recorded. Goodwill is being amortized over
15 years. Results of operations after the acquisition date
are included in BT's Consolidated Statement of Income. The
following unaudited pro-forma information has been prepared
assuming that the 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 Six Months Ended
June 30 June 30
(In thousands,
except share data) 1996 1995 1996 1995
- ---------------------------------------- -----------------------
Net Interest Income $ 16,153 $ 14,568 $ 32,069 $ 28,720
Net Income 2,840 3,280 6,691 6,346
Earnings per share:*
Primary .55 .64 1.31 1.24
Fully Diluted .55 .64 1.30 1.23
*Reflects the issuance of 26.5 shares of BT common stock (212,000
shares in total) for each share of Armstrong common stock.
- 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. Approximately 1.0 million 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 are
scheduled to close 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.
Three Months Ended June 30
1996 1995
(In thousands,except
share data) BT Moxham Combined BT Moxham Combined
- ----------------------------------------- ----------------------
Net Interest
Income $13,365 $ 2,379 $15,744 $11,917 $ 2,169 $14,086
Net Income 2,834 144 2,978 2,800 371 3,171
Earnings per share:
Primary - - .60 .73 - .65
Fully Diluted - - .60 .73 - .64
Six Months Ended June 30
1996 1995
(In thousands,except
share data) BT Moxham Combined BT Moxham Combined
- --------------------------------------- ----------------------
Net Interest
Income $26,470 $ 4,692 $31,162 $23,462 $ 4,302 $27,764
Net Income 5,960 783 6,743 5,444 708 6,152
Earnings per share:
Primary - - 1.37 1.42 - 1.26
Fully Diluted - - 1.36 1.42 - 1.24
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The merger date of June 25, 1996 did not have any material
impact on the separate results as stated above for the periods
ended June 30, 1996. 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 $.19 per fully
diluted share) were incurred and have been charged to expense
in the six month period ended June 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. The following is a summary of BT's changes in shareholders'
equity during the first six months of 1996:
(In thousands, except
share data) Net
Unrealized
holding
gains
(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 6,743 6,743
Common Stock Dividends,
$.54 per share (2,633) (2,633)
Preferred Stock Dividends (54) (54)
Acquisition of The
Armstrong County
Trust Company 1,060 6,652 7,712
Conversion of Preferred
Stock into Common Stock (1,378) 442 936 --
Change in Net Unrealized
holding gains (losses) on
securities available for
sale (2,566)
-----------------------------------------------------
Balance June 30, 1996 $ 0 $25,828 $41,263 $65,172 $ (962) $131,301
=====================================================
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ITEM 2
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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 June 30, 1996, and the material changes in results of
operations comparing the three and six month periods ending June
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. Approximately 1.1 million 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
Changes in Financial Position
Total loans outstanding, net of unearned interest, increased
$15.2 million at June 30, 1996, compared to year-end 1995 and
$106.5 million compared to June 30, 1995. The increase in loans
over year-end 1995 is mainly due to approximately $12 million in
loans acquired in the Armstrong acquisition. The increase over
the prior year is mainly due to approximately $70 million in loans
acquired in the acquisition of The Huntington National Bank of Pennsylvania
(Huntington) in December, 1995. At June 30, 1996, the level of nonperforming
loans increased $3.2 and $5.0 million compared to December 31,
1995, and June 30, 1995, respectively. Nonperforming loans as a
percent of outstanding loans, net of unearned interest, were
1.04% at June 30, 1996 and .73% at December 31, 1995 compared to
.63% at June 30, 1995. The increase in nonperforming loans
compared to prior periods is mainly due to various loans acquired
in the Huntington acquisition and an increased level of
nonperforming commercial loans. The following table provides
information with respect to the components of BT's nonperforming
assets for the periods indicated.
June 30 December 31 June 30
(In thousands) 1996 1995 1995
-----------------------------------
Loans 90 days or more
past-due $ 1,280 $ 2,077 $ 1,208
Restructured loans 318 318 662
Nonaccrual loans 9,037 5,013 3,815
-----------------------------------
Total nonperforming loans 10,635 7,408 5,685
Other real estate owned 799 912 736
-----------------------------------
Total nonperforming assets $11,434 $ 8,320 $ 6,421
===================================
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The reserve as a percent of nonperforming loans was 90%, 135% and
158% for June 30, 1996, December 31, 1995 and June 30, 1995,
respectively. The majority of expected losses in the Huntington
consumer portfolio have been charged off against the reserve for
loan losses. The BT Credit and Collection functions continue to
address the remaining delinquencies. As a percent of total
outstanding loans, net of unearned interest, the reserve for loan
losses was .94% at June 30, 1996, compared to .99% at year-end
1995 and June 30, 1995. Based upon loan reviews and corresponding
collateral, management believes the reserve for loan losses
is adequate to cover potential losses in the current portfolio.
Total securities increased $21.8 million at June 30, 1996
compared to year-end 1995 primarily due to approximately $36
million in securities acquired in the Armstrong acquisition.
Money market investments increased $10.8 million over the same
period mainly due to a temporary increase in federal funds sold
resulting from an influx of certain transitory deposits at June
30, 1996 due to the Moxham acquisition.
Total deposits at June 30, 1996, increased $51.2 million over
year-end 1995 and $125.3 million over June 30, 1995. The
increase over year-end 1995 is mainly due to approximately $42
million in deposits acquired in the Armstrong acquisition. The
increase over the same period in the prior year is essentially due
to deposits acquired in the Huntington and Armstrong acquisitions.
Results of Operations
Second Quarter 1996 vs. Second Quarter 1995
The second quarter of 1996 produced net income before
nonrecurring reorganization costs of $3.9 million, or $.78 per
share on a fully diluted basis, an increase of $707,000 or $.14
per share over the same period of 1995. The inclusion of $900,000
in after-tax reorganization costs associated with the Moxham merger
reduced second quarter earnings to $.60 per share on a fully diluted
basis.
The annualized return on average assets for the second quarter of
1996 and 1995 was .82% and .95%, respectively. The annualized
return on average shareholders' equity was 9.48% in 1996 and
11.26% in 1995 for the second quarter. Excluding the reorganization
costs, the 1996 annualized return on average assets for
the second quarter was 1.07% and the second quarter 1996
annualized return on average shareholders' equity was 12.34%.
Net interest income on a fully taxable equivalent basis was $27.2
million for the second quarter of 1996 compared to $25.2 million
for the same period of 1995. The increase of $2.0 million was
due essentially to a higher level of interest-earning assets
resulting from the Huntington acquisition. Also contributing to
the increase in net interest income was a higher net interest
margin. Second quarter net interest margins for 1996 and 1995
were 4.80% and 4.62%, respectively.
The provision for loan losses increased $19,000 in the second
quarter of 1996 compared to the second 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 $667,000 in the second quarter of 1996 compared to $371,000
in 1995. The higher level of charge-offs was primarily due to
credit losses associated with certain loans acquired in the
Huntington acquisition.
Total other income increased $584,000 in the second quarter of
1996 compared to the same period of 1995. The increase is due to
greater volumes of trust assets under management, increased
deposit account volumes, and increased security gains.
Total other expenses increased $2.3 million in the second quarter
of 1996 compared to the second quarter of 1995. Approximately
- 12 -
55% of the increase was due to reorganization costs associated
with the Moxham merger. The Huntington acquisition was the
principal reason for the other increases in operating expenses.
Salaries increased a modest 3% due to merit increases while full-time
equivalent employees fell to 756 from 801. During 1995,
certain reserves associated with self-funded health care costs
provided additional reductions in health insurance costs when a
new insurance provider was selected. Employee benefit costs
increased in 1996 when health care costs returned to a level that
is expected to be representative of ongoing costs. The selection
of the new insurance carrier has resulted in reduced ongoing
health care costs. Occupancy expense increased
primarily due to an increase in branch locations from
the Huntington acquisition. Equipment expense increased
approximately 15% in the second quarter of 1996 compared to the
second 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
decreased 79% due to a decrease in FDIC premiums to negligible
levels. 1996 FDIC premiums are primarily for deposits acquired
in several transactions with savings and loan institutions.
Amortization of intangible assets increased $178,000 or 61% due
to the amortization of intangible assets associated with the
Huntington acquisition. Other operating expenses increased
$825,000 due to the Huntington acquisition, 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 are
scheduled to close 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 second quarter of 1996 was 33.9%
compared to 30.2% for the second quarter of 1995. The increase
is due to increased levels of nondeductible expenses from
acquisitions and higher levels of taxable income as compared to
tax-exempt income.
Six Months Ended June 30, 1996 vs. Six Months Ended June 30,
1995
In the first half of 1996, BT experienced higher levels of net
interest income and total other income offset in part by
increases in the provision for loan losses and total other
expenses when compared to the same period of 1995. Net income
for the first six months of 1996 was $7.7 million, or $1.55 per
share on a fully diluted basis, exclusive of the impact of
$959,000 in after-tax nonrecurring reorganization costs related
to the Moxham merger. Compared to the same period of 1995, these
results reflect an earnings increase of $1.6 million, or 25.2%,
as well as a $.31 increase, or 25.0% improvement in earnings per
share on a fully diluted basis. The one-time charges related to
the Moxham merger lowered BT's net income to $6.7 million or
$1.36 per share on a fully diluted basis for the first half of
1996.
For the first six months of 1996, the annualized return on
average assets was .93%, compared to .92% in 1995. The
annualized return on average shareholders' equity for the first
six months of 1996 and 1995 was 10.81% and 11.20%, respectively.
Excluding the impact of the non-recurring reorganization costs
related to the Moxham merger, the annualized return on
shareholders' equity was 12.35% and the annualized return on
average assets was 1.07% for the first six months of 1996.
Fully taxable equivalent net interest income was $31.9 million
for the first six months of 1996, compared to $28.4 million for
the same period of 1995. The increase of $3.5 million was due
primarily to a higher level of interest-earning assets resulting
from the Huntington acquisition as well as a higher-yielding
asset mix. The net interest margin, on a fully taxable
equivalent basis, improved 19 basis points to 4.78% in 1996,
compared to 4.59% in the first six months of 1995. Based on
internal analysis, management is currently anticipating a fairly
stable net interest margin level during the third quarter of
- 13 -
1996. The utilization of recent technological enhancements has
enabled management to more effectively monitor its
asset/liability position while providing the capability to
develop advanced interest rate risk strategies through
sophisticated modeling techniques.
The provision for loan losses increased $186,000 in the first six
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 $1,384,000 in 1996 compared to $678,000 in the first six
months of 1995. The higher level of net charge-offs in 1996 is
mainly due to credit losses associated with certain loans
acquired in the Huntington acquisition.
Total other income increased $1.1 million in the first six months
of 1996 compared to the same period last year. The increase is
due to greater volumes of trust assets under management,
increased deposit account volumes and somewhat higher security
gains. 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.
Total other expenses increased $2.9 million in the first six
months of 1996 compared to the same period of 1995. Approximately
45% of the increase was due to the recording of $1.3
million in nonrecurring reorganization costs
associated with the Moxham merger. Most of the other increases
are a result of the Huntington acquisition, which occurred in
December 1995. Salaries and wages increased $417,000, 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 six 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 $322,000, primarily due to the addition of four
branches from the Huntington acquisition. Equipment expense
increased $217,000 mainly due to greater depreciation expense.
F.D.I.C. insurance expense declined $1,023,000 due to lower
deposit insurance premiums. Amortization of intangible assets
increased $355,000 due to the onset of expense attributed to
intangible assets associated with the Huntington acquisition.
Other operating expenses increased $1,015,000 due to the
Huntington acquisition, conversion costs associated with
acquisitions and some increased costs related to corporate
restructurings and the centralization of various operational
functions.
BT's effective tax rate was 33.6% for the first six months of
1996, compared to 29.1% for the same period in 1995. The
increase is primarily due to a change in federal income tax rules
resulting in the retroactive deduction in 1995 of goodwill
amortization associated with acquisitions in prior years.
- 14 -
PART II
-------
OTHER INFORMATION
-----------------
ITEM 4
------
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of BT Financial Corporation was held on
Tuesday, May 14, 1996, in the Johnstown Bank and Trust Building,
Johnstown, Pennsylvania. The following directors were elected:
NAME VOTES FOR VOTES WITHHELD TERM EXPIRES
- ----------------- -------------- -------------- ------------
Martin L. Bearer 3,244,824.7238 100,196.8936 2000
L. Robert Kimball 3,239,379.9894 105,641.6280 2000
Ethel J. Otrosina 3,215,597.0598 129,424.5576 2000
A Special Meeting of BT Financial Corporation was held on Tuesday,
June 25, 1996, in the Johnstown Bank and Trust Building, Johnstown,
Pennsylvania to vote on a proposal to adopt and approve an Agreement
and Plan of Reorganization dated as of January 12, 1996, as subsequently
amended, by and between BT Financial Corporation and Moxham Bank
Corporation. The proposal was approved as follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
---------------- --------------- ------------
2,615,573.6275 42,693.5689 214,686.1007
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 June 13, 1996, was filed under items
2 and 7, to report the completion of the merger with The
Armstrong County Trust Company and BT's press release regarding
the finalization of the merger.
A Form 8-K dated as of June 25, 1996 was filed under items 2
and 7, to report the completion of the merger with Moxham Bank
Corporation, the appointment of former Moxham directors to BT's
Board of Directors (including certain affiliate board appointments)
pursuant to the merger agreement, the scheduled branch
closings as a result of the merger and BT's press release
regarding the finalization of the merger.
- 15 -
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.
BT FINANCIAL CORPORATION
Date: August 13, 1996 /s/ John H. Anderson
----------------------- -------------------------
John H. Anderson, Chairman
and Chief Executive Officer
Date: August 13, 1996 /s/ Mark L. Sollenberger
----------------------- -------------------------
Mark L. Sollenberger,
Executive Vice President,
Treasurer and
Assistant Secretary
(Principal Financial Officer)
- 16 -
EXHIBIT 11
BT Financial Corporation and Affiliates
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
(In thousands, except shares Three months ended Six months ended
and per share data) June 30 June 30
1996 1995 1996 1995
---------------------------------------
Primary income per share:
Net income........................... $2,978 $3,171 $6,743 $6,152
Preferred dividends.................. 26 30 54 60
---------------------------------------
Net income applicable to common stock $2,952 $3,141 $6,689 $6,092
=======================================
Average common shares outstanding and
common stock equivalents........... 4,909,570 4,852,028 4,887,335 4,850,818
=======================================
Net income per share-primary......... $.60 $.65 $1.37 $1.26
=======================================
Fully diluted income per share:
Net income........................... $2,978 $3,171 $6,743 $6,152
=======================================
Average common shares outstanding and
common stock equivalents........... 4,909,570 4,852,028 4,887,335 4,850,818
Additional common shares outstanding:
Conversion of preferred stock
Series A 83,684 94,875 86,117 94,875
---------------------------------------
Average common shares outstanding and
common stock equivalents........... 4,993,254 4,946,903 4,973,452 4,945,693
=======================================
Net income per share-fully diluted.. $.60 $.64 $1.36 $1.24
=======================================
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 61,947
<INT-BEARING-DEPOSITS> 512
<FED-FUNDS-SOLD> 21,930
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 256,001
<INVESTMENTS-CARRYING> 69,167
<INVESTMENTS-MARKET> 68,468
<LOANS> 1,079,783
<ALLOWANCE> 9,616
<TOTAL-ASSETS> 1,503,127
<DEPOSITS> 1,304,417
<SHORT-TERM> 40,154
<LIABILITIES-OTHER> 8,608
<LONG-TERM> 18,647
0
0
<COMMON> 25,828
<OTHER-SE> 105,473
<TOTAL-LIABILITIES-AND-EQUITY> 1,503,127
<INTEREST-LOAN> 43,575
<INTEREST-INVEST> 9,249
<INTEREST-OTHER> 674
<INTEREST-TOTAL> 53,498
<INTEREST-DEPOSIT> 21,036
<INTEREST-EXPENSE> 22,336
<INTEREST-INCOME-NET> 31,162
<LOAN-LOSSES> 808
<SECURITIES-GAINS> 283
<EXPENSE-OTHER> 25,660
<INCOME-PRETAX> 10,151
<INCOME-PRE-EXTRAORDINARY> 10,151
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,743
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 4.78
<LOANS-NON> 9,037
<LOANS-PAST> 1,280
<LOANS-TROUBLED> 318
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,033
<CHARGE-OFFS> 1,706
<RECOVERIES> 322
<ALLOWANCE-CLOSE> 9,616
<ALLOWANCE-DOMESTIC> 9,616
<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>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> JUN-30-1995 DEC-31-1995
<CASH> 51,974 59,043
<INT-BEARING-DEPOSITS> 5,991 1,484
<FED-FUNDS-SOLD> 1,500 10,165
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 291,914 268,194
<INVESTMENTS-CARRYING> 42,170 35,161
<INVESTMENTS-MARKET> 42,901 35,924
<LOANS> 949,867 1,060,871
<ALLOWANCE> 8,997 10,033
<TOTAL-ASSETS> 1,344,822 1,442,560
<DEPOSITS> 1,179,120 1,253,252
<SHORT-TERM> 35,198 37,679
<LIABILITIES-OTHER> 6,764 9,447
<LONG-TERM> 8,251 20,083
0 0
1,476 1,378
<COMMON> 24,262 24,326
<OTHER-SE> 89,751 96,395
<TOTAL-LIABILITIES-AND-EQUITY> 1,344,822 1,442,560
<INTEREST-LOAN> 38,518 79,342
<INTEREST-INVEST> 9,860 19,855
<INTEREST-OTHER> 425 631
<INTEREST-TOTAL> 48,803 99,828
<INTEREST-DEPOSIT> 19,777 40,099
<INTEREST-EXPENSE> 21,039 42,679
<INTEREST-INCOME-NET> 27,764 57,149
<LOAN-LOSSES> 622 1,566
<SECURITIES-GAINS> 156 108
<EXPENSE-OTHER> 22,772 45,559
<INCOME-PRETAX> 8,680 18,738
<INCOME-PRE-EXTRAORDINARY> 8,680 18,738
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,152 13,049
<EPS-PRIMARY> 1.26 2.66
<EPS-DILUTED> 1.24 2.64
<YIELD-ACTUAL> 4.59 4.66
<LOANS-NON> 3,815 5,013
<LOANS-PAST> 1,208 2,077
<LOANS-TROUBLED> 662 318
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 9,053 9,053
<CHARGE-OFFS> 829 1,782
<RECOVERIES> 151 347
<ALLOWANCE-CLOSE> 8,997 10,033
<ALLOWANCE-DOMESTIC> 8,997 10,033
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
