SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
-----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _______
Commission file number 0-12377
-------
BT FINANCIAL CORPORATION
-----------------------------------------------------
(Exact Name of registrant as specified in its charter)
Pennsylvania 25-1441348
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
551 Main Street, Johnstown, Pennsylvania 15901
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 814-532-3801
------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $5.00 per share
---------------------------------------
(Title of class)
Preferred Share Purchase Rights
-------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
The registrant estimates that as of March 13, 1996, the aggregate market value
of shares of the registrant's Common Stock held by non-affiliates of the
registrant was approximately $128,626,010. The foregoing estimate is based
upon the closing price on the NASDAQ National Market System as reported in the
Wall Street Journal as of March 12, 1996. The number of shares owned by
"non-affiliates" has been determined, solely for purposes of the foregoing
estimate, by subtracting all shares known by the registrant to be beneficially
owned by its directors or executive officers (241,187 shares in total) from
the number of shares outstanding (3,826,581).
As of March 13, 1996, the registrant had outstanding 3,826,581 shares of its
Common Stock.
The Index to Exhibits is on page 15.
--
Documents incorporated by reference:
- -----------------------------------
Parts of Form 10-K
Document into which Document
- -------- is Incorporated
--------------------
1995 Annual Report to Shareholders
(the "1995 Annual Report") I, II
Definitive Proxy Statement for the
1996 Annual Meeting of Shareholders
(the "1996 Proxy Statement") III
BT FINANCIAL CORPORATION
FORM 10-K
Fiscal year ended December 31, 1995
-----------------------------------
INDEX
PART I Page
- ------ ----
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
Executive Officers of the Registrant 7
PART II
- -------
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
Part III
- --------
Item 10. Directors and Executive Officers of the
Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 11
Item 13. Certain Relationships and Related
Transactions 11
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 15
2
Part I
Item 1 Description of Business
- ---------------------------------
BT Financial Corporation (the "Registrant") is a multi-bank holding
company located in Johnstown, Pennsylvania, which was incorporated under the
laws of the Commonwealth of Pennsylvania on December 16, 1982.
The Registrant has three banking subsidiaries: Johnstown Bank and Trust
Company ("Bank and Trust"), Laurel Bank ("Laurel") and Fayette Bank
("Fayette")(each referred to as a "Bank" and collectively referred to as the
"Banks"). The Banks' principal places of business are in Johnstown, Ebensburg
and Uniontown, Pennsylvania, respectively. At December 31, 1995 the
Registrant had total assets of $1.2 billion. The Registrant also has two
non-banking subsidiaries, Bedford Associates, Inc., which holds and leases
property used by the Banks in their banking operations, and BT Management
Trust Company, a trust company which provides trust and investment services.
The Banks conduct business through a network of 65 offices located
throughout Southwestern Pennsylvania. Each Bank operates under the management
of its own officers and directors, although certain financial and
administrative functions, including auditing, marketing, human resources,
investment, accounting, data processing and credit review, are coordinated
through the Registrant. In addition, the Banks operate 42 automated teller
machines ("ATM's") at 41 locations which are part of the "Cirrus" and "MAC"
systems. "Cirrus" and "MAC" provide links to national and regional ATM
networks.
The Banks provide a full range of financial services to individuals,
businesses and governmental bodies, including accepting demand, savings and
time deposits, making secured and unsecured loans, and electronic data
processing of payrolls. The Banks also offer lending services, including
consumer, credit cards, real estate, commercial and industrial loans. BT
Management Trust Company offers a wide range of corporate pension and personal
trust and trust related services. The Banks' deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC").
Bank and Trust was formed in 1934 through the consolidation of five
banks. It is a Pennsylvania bank and trust company and member of the Federal
Reserve System with 39 offices in Cambria, Somerset, Bedford, Indiana,
Armstrong, Butler, Allegheny, and Westmoreland Counties. At December 31,
1995, its assets totaled $592 million.
3
Laurel is a Pennsylvania bank and trust company and a member of the
Federal Reserve System, with total assets of $229 million at December 31,
1995. Laurel operates 14 offices in Cambria, Blair and Indiana Counties.
Fayette is a Pennsylvania bank and trust company, and a member of the
Federal Reserve system. Fayette conducts business at 12 offices in Fayette,
Washington, Allegheny and Greene Counties. Its assets totaled $371 million
at December 31, 1995.
BT Management Trust Company, located in Johnstown, is a Pennsylvania-
chartered trust company formed on April 30, 1990. BT Management Trust Company
resulted from the consolidation of the trust business of the Banks.
The Registrant and the Banks are subject to competition in all aspects
of their businesses from banks as well as other financial institutions,
including savings and loan associations, savings banks, finance companies,
credit unions, money market mutual funds, brokerage firms, investment
companies, credit companies and insurance companies. They also compete with
nonfinancial institutions, including retail stores that maintain their own
credit programs, and with governmental agencies that make loans available to
certain borrowers. Some of the Registrant's competitors are larger and have
greater financial resources and facilities than the Registrant.
As of December 31, 1995, the Registrant, the Banks, and BT Management
Trust Company had a total of 683 full time equivalent banking and
administrative employees. The Registrant's executive offices are located at
551 Main Street, P.O. Box 1146, Johnstown, Pennsylvania 15907-1146. Its
telephone number is (814) 532-3801.
Recent and Pending Acquisitions
- -------------------------------
On October 24, 1995, the Registrant entered into an Agreement and Plan of
Merger to acquire Armstrong County Trust Company ("Armstrong") of Kittanning,
Pennsylvania. Armstrong operates one office in Kittanning, Pennsylvania and
had approximately $52 million in total assets at December 31, 1995. Armstrong
will be merged into Bank and Trust, with Bank and Trust as the surviving bank.
The value of the total consideration for the acquisition will be approximately
$12 million. The Registrant expects the merger to be completed during the
second quarter of 1996, subject to shareholder and regulatory approval.
On December 14, 1995, the Registrant acquired The Huntington National
Bank of Pennsylvania, ("Huntington"), Uniontown, Pennsylvania for $25.5 million
in cash. Huntington operated five branches in Fayette and Greene counties.
In connection with the acquisition, Huntington was merged into Fayette and
approximately $102 million in assets were acquired.
4
On January 12, 1996, The Registrant entered into an Agreement and Plan
of Reorganization with Moxham Bank Corporation ("Moxham"), Johnstown,
Pennsylvania. Pursuant to the agreement, Moxham's two banking subsidiaries,
Moxham National Bank, Johnstown, Pennsylvania, and First National Bank of
Garrett, Garrett, Pennsylvania, will be merged into Bank and Trust, with Bank
and Trust as the surviving bank. At December 31, 1995, Moxham had total assets
of approximately $241 million and operated 12 branches in Cambria, Somerset and
Westmoreland Counties. According to the merger agreement, each Moxham common
shareholder will receive 1.15 shares of BT Financial Corporation common stock,
bringing the value of the transaction to approximately $41 million. The
transaction will be accounted for as a pooling of interests and is expected to
be completed during the second quarter of 1996, subject to shareholder and
regulatory approval.
5
Item 2 Properties
- --------------------
The executive offices of the Registrant are located at 551 Main Street,
Johnstown, Pennsylvania, in an office building owned by Bedford Associates,
Inc. The building is occupied by the Registrant, BT Management Trust Company,
and other unrelated business concerns. In 1987, Bank and Trust purchased a
seven-story building located on Clinton Street in Johnstown and is using the
building as a storage facility.
The Banks operate 65 banking offices, 47 of which are owned by the Banks
free of liens and encumbrances. All properties and buildings are in good
condition and are continually maintained against normal wear and tear. The
remaining 18 offices are operated under leases which, including renewal
options, expire at various times between 1996 and 2025. Bedford Associates,
Inc. owns 4 of the 18 leased properties, which are leased to the Banks as
community banking offices. All properties of Bedford Associates, Inc. have
been recently purchased (1983 or later), and the buildings are either newly
constructed or have recently undergone major renovation. In December 1995,
Fayette Bank acquired five banking offices in The Huntington National Bank of
Pennsylvania acquisition.
Item 3 Legal Proceedings
- ---------------------------
Information required to be furnished pursuant to this Item is set forth
on page 23 of the 1995 Annual Report in Note 9 of the Notes to Consolidated
Financial Statements under the caption "Litigation."
Item 4 Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
None.
6
Executive Officers of the Registrant
- ------------------------------------
Set forth below are the names of and certain information with respect to
the executive officers of the Registrant. Pursuant to the Registrant's By-
Laws, officers serve at the pleasure of the Board. There are no family
relationships between any such persons.
Name Age Positions and Offices Held
- ---- --- --------------------------
John H. Anderson 45 Chairman, Chief Executive Officer and
Director of the Registrant and of Bank and
Trust.
Steven C. Ackmann 44 President and Chief Operating Officer of
the Registrant.
Carl J. Motter, Jr. 58 Vice Chairman of the Registrant.
Mark L. Sollenberger 42 Executive Vice President, Treasurer and
Assistant Secretary of the Registrant.
Executive Vice President and Treasurer of
Bank and Trust. Treasurer and Assistant
Secretary of BT Management Trust Company
Laura L. Roth 33 Secretary and Assistant Treasurer of
the Registrant, Bank and Trust and
BT Management Trust Company
David A. Casado 41 Vice President and Controller of the
Registrant and of Bank and Trust.
7
JOHN H. ANDERSON has served as Chairman and Chief Executive officer of
the Registrant since 1995. He served as Chairman, President and Chief
Executive Officer of the Registrant from 1993 to 1995. He served as President
and Chief Operating Officer of the Registrant from 1992 to 1993 and as Vice
Chairman from 1991 to 1992. He served as President of Bank and Trust from
1990 to 1991. He served as Executive Vice President of the Registrant during
1989. From 1986 to 1989 he served as Executive Vice President of Bank and
Trust.
STEVEN C. ACKMANN has served as President and Chief Operating Officer of
the Registrant since 1995. He served as a Vice Chairman of the Registrant
from 1992 to 1995. He served as Executive Vice President of the Registrant
from 1990 to 1992. He served as Senior Vice President of Fayette from 1988 to
1990.
CARL J. MOTTER has served as a Vice Chairman of the Registrant since
1992. He served as Executive Vice President and Treasurer of the Registrant
from 1983 to 1992 and of Bank and Trust from 1980 to 1992. He served as
Treasurer and Assistant Secretary of BT Management Trust from 1990 to 1992.
MARK L. SOLLENBERGER has served as Executive Vice President, Treasurer
and Assistant Secretary of the Registrant since 1995 and Executive Vice
President and Treasurer of Bank and Trust since 1992. He served as Executive
Vice President and Treasurer of the Registrant from 1992 to 1995. He served
as Senior Vice President and Comptroller of the Registrant from 1991 to 1992.
He served as Vice President and Comptroller of the Registrant since 1986 and
of Bank and Trust since 1985. He has served as Treasurer and Assistant
Secretary of BT Management Trust Company since 1992.
LAURA L. ROTH has served as Secretary and Assistant Treasurer of the
Registrant, Bank and Trust and BT Management Trust Company since 1995. She
served as Assistant Secretary and Assistant Treasurer of the Registrant from
1991 to 1995. She served as Assistant Secretary of the Registrant and of Bank
and Trust from 1986 to 1991.
DAVID A. CASADO has served as Vice President and Controller of the
Registrant and of Bank and Trust since 1995. He served as Comptroller of the
Registrant and of Bank and Trust from 1992 to 1995. He served as Assistant
Comptroller of the Registrant and of Bank and Trust from 1986 to 1992.
8
Part II
Information required to be furnished pursuant to Part II of this report
is set forth in the 1995 Annual Report under the captions and on the pages
indicated below, and is incorporated herein by reference.
Certain information in "Management's Discussion and Analysis" and other
statements contained in this report which are not historical facts may be
forward-looking statements that involve risks and uncertainties. Such
statements are subject to important factors that could cause actual results to
differ materially from those contemplated by such statements, including
without limitation, the effect of changing regional and national economic
conditions; changes in interest rates; credit risks of commercial, real
estate, consumer and other lending activities; changes in federal and state
regulations; the presence in the Registrant's market area of competitors with
greater financial resources than the Registrant; or other unanticipated
external developments materially impacting the Registrant's operational and
financial performance.
Page in
Caption in 1995 Annual Report 1995
Annual Report
----------------------------- -------------
Item 5 Market for the Registrant's Common
- ------ Equity and Related Stockholder Matters
-------------------------------------
Market Price and Cash Dividends 30
Dividend Restrictions 24
Item 6 Selected Financial Data
- ------ -----------------------
Selected Consolidated Financial Data 29
Item 7 Management's Discussion and Analysis
- ------ of Financial Condition and Results of
Operations
-------------------------------------
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 30-39
9
Item 8 Financial Statements and Supplementary Data
- ------ -------------------------------------------
Independent Accountants' Report 13
Consolidated Balance Sheets 14
Consolidated Statements of Income 15
Consolidated Statements of Cash Flows 16
Consolidated Statements of Changes
in Shareholders' Equity 17
Notes to Consolidated Financial Statements 17-27
Supplemental Financial Data 28
Item 9 Changes in and Disagreements with Accountants on Accounting and
- ------ Financial Disclosure
None
10
Part III
Item 10 Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
Information required to be furnished pursuant to this Item
regarding directors of the Registrant is set forth in the 1996
Proxy Statement under the caption "Election of Directors," and is
incorporated herein by reference. Information required to be
furnished pursuant to this Item regarding executive officers of
the Registrant is set forth in Part I of this Report and is
incorporated herein by reference.
Item 11 Executive Compensation
- ------- ----------------------
Information required to be furnished pursuant to this Item is set
forth in the 1996 Proxy Statement under the captions "Executive
Compensation" and "Election of Directors -- Directors'
Compensation," and is incorporated herein by reference. The
"Executive Committee Report on Compensation" set forth in the 1996
Proxy Statement is specifically not incorporated herein by
reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
Information required to be furnished pursuant to this Item is set
forth in the 1996 Proxy Statement under the captions "Election of
Directors," "Executive Compensation" and "Principal Shareholders"
and is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
- ------- ----------------------------------------------
Information required to be furnished pursuant to this Item is set
forth in the 1996 Proxy Statement under the caption "Certain
Relationships and Transactions" and is incorporated herein by
reference.
11
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ---------------------------------------------------------------
(a) (1) Financial Statements
--------------------
The consolidated financial statements of BT Financial Corporation
and affiliates together with the report of Coopers & Lybrand LLP
dated January 23, 1996, are described herein in Part II, Item 8 -
Financial Statements and Supplementary Data and appear on pages 13
through 28 of the 1995 Annual Report and are incorporated herein
by reference.
(2) Financial Statement Schedules
-----------------------------
All financial statement schedules are omitted because they are not
required, are not applicable or the required information is given
in the consolidated financial statements or notes thereto.
(3) Exhibits:
--------
The index to exhibits is on page 15.
(b) Reports on Form 8-K:
-------------------
A Form 8-K dated December 14, 1995, was filed on December 29, 1995,
pursuant to Item 5 to report the completion of the acquisition of The
Huntington National Bank of Pennsylvania.
12
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BT FINANCIAL CORPORATION
-------------------------
(Registrant)
By: /s/ John H. Anderson Date: March 27, 1996
----------------------------- ----------------
John H. Anderson
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ John H. Anderson Date: March 27, 1996
----------------------------- ----------------
John H. Anderson
Chairman, Chief Executive
Officer and Director
Principal Financial Officer:
/s/ Mark L. Sollenberger Date: March 27, 1996
----------------------------- ----------------
Mark L. Sollenberger
Executive Vice President,
Treasurer and Assistant
Secretary
Principal Accounting Officer:
/s/ David A. Casado Date: March 27, 1996
---------------------------- ----------------
David A. Casado
Vice President and Controller
13
Directors:
/s/ Martin L. Bearer Date: March 27, 1996
- ------------------------------ ----------------
Martin L. Bearer
Date: March 27, 1996
- ------------------------------ ----------------
Bruno DeGol
Date: March 27, 1996
- ------------------------------ ----------------
Louis G. Galliker
/s/ William B. Kania Date: March 27, 1996
- ------------------------------ ----------------
William B. Kania
Date: March 27, 1996
- ------------------------------ ----------------
L. Robert Kimball
/s/ Edward L. Mears Date: March 27, 1996
- ------------------------------ ----------------
Edward L. Mears
/s/ Roger S. Nave Date: March 27, 1996
- ------------------------------ ----------------
Roger S. Nave
/s/ Ethel J. Otrosina Date: March 27, 1996
- ------------------------------ ----------------
Ethel J. Otrosina
Date: March 27, 1996
- ------------------------------ ----------------
Robert G. Salathe, Jr.
/s/ William R. Snoddy Date: March 27, 1996
- ------------------------------ ----------------
William R. Snoddy
/s/ Gerald W. Swatsworth Date: March 27, 1996
- ------------------------------ ----------------
Gerald W. Swatsworth
/s/ W. A. Thomas Date: March 27, 1996
- ------------------------------ ----------------
W. A. Thomas
/s/ Rowland H. Tibbott, Jr. Date: March 27, 1996
- ------------------------------ ----------------
Rowland H. Tibbott, Jr.
14
EXHIBIT
INDEX
-----
The following Exhibits are filed as a part of this Report. Documents
other than those designated as being filed herewith are incorporated herein by
reference. Documents incorporated by reference to an Annual Report on Form
10-K or a Quarterly Report on Form 10-Q are at Securities and Exchange
Commission File No. 0-12377.
Prior Filing or
Exhibit Sequential Page
Number Description No. Herein
- ------- ----------- ---------------
2.1 Agreement and plan of Incorporated by reference
Reorganization dated as to Exhibit 2.1 to BT
of October 24, 1995 by Financial Corporation
and among BT Financial Registration Statement on
Corporation, Johnstown Form S-4 (No. 333-01797).
Bank and Trust Company
and The Armstrong
County Trust Company.
2.2 Agreement and Plan of Incorporated by reference
Reorganization by and to Exhibit 2 to current
between BT Financial Report on Form 8-K dated
Corporation and Moxham January 12, 1996.
Bank Corporation.
3.1 Amended and Restated Incorporated by reference
Articles of Incorpora- to BT Financial Corpo-
tion of BT Financial ration Registration
Corporation. Statement on Form S-4
(No. 33-69112).
3.2 By-Laws of BT Financial Incorporated by reference
Corporation. to BT Financial Corpora-
tion Registration
Statement on Form S-4
(No. 33-69112).
15
Prior Filing or
Exhibit Sequential Page
Number Description No. Herein
- ------- ----------- ---------------
4.1 Loan Agreement dated Not filed. In accordance
December 14, 1995, with paragraph
between Mellon Bank, (b)(4)(iii)(A) of Item
N.A. and BT Financial 601 of Regulation S-K,
Corporation BT Financial Corporation
hereby agrees to furnish
a copy of this instrument
to the Commission upon
request.
10.1 Supplemental Benefit Incorporated by reference
Plan of BT Financial to Exhibit 10.1 to BT
Corporation dated Financial Corporation's
June 22, 1994.* Annual Report on Form
10-K for the year ended
December 31, 1994.
13.1 All portions of the Filed herewith.
BT Financial Corpora-
tion 1995 Annual Report
to Shareholders that
are incorporated herein
by reference.
21.1 Subsidiaries of the Filed herewith.
Registrant
23.1 Consent of Coopers & Filed herewith.
Lybrand LLP, indepen-
dent accountants for
the Registrant.
27 Financial Data Filed herewith.
Schedule
*Indicates exhibit is a management contract or compensation plan
or arrangement.
The Registrant will furnish to requesting shareholders a copy of any
exhibit(s) listed above upon payment of $5.00 plus $0.10 per page to cover
Registrant's expenses in furnishing such exhibit(s). Requests should be
directed in writing to Laura L. Roth, Secretary, BT Financial Corporation, 551
Main Street, P. O. Box 1146, Johnstown, Pennsylvania 15907-1146.
16
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders
of BT Financial Corporation:
We have audited the accompanying consolidated balance sheet
of BT Financial Corporation and affiliates as of December 31,
1995 and 1994 and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of BT Financial Corporation and
affiliates as of December 31, 1995 and 1994 and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
As discussed in Notes 1 and 5 to the consolidated financial
statements, in 1995, the Corporation changed its method of
accounting for loan impairment for certain loans by adopting
Financial Accounting Standards Board (FASB) Statement No. 114
"Accounting by Creditors for Impairment of a Loan." Furthermore,
as discussed in Notes, 1, 7, and 8 to the consolidated financial
statements, in 1993 the Corporation changed its method of
accounting for investment securities by adopting FASB Statement
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," its accounting for income taxes by adopting FASB
Statement No. 109 "Accounting for Income Taxes" and its
accounting for other than pension benefits by adopting FASB
Statement No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
/s/ Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
January 23, 1996
13
BT Financial Corporation and Affiliates
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31,
1995 1994
----------------------------
ASSETS
Cash and cash equivalents (Note 1)
$ 50,108 $ 47,679
----------------------------
Money market investments:
Interest-bearing deposits with
banks 1,188 5,323
Federal funds sold 1,500 2,000
----------------------------
Total money market invest-
ments 2,688 7,323
----------------------------
Securities available-for-sale,
at market value 208,148 248,281
Securities held-to-maturity
(market value of $35,924 at
December 31, 1995, and $22,242 at
December 31, 1994) 35,161 22,911
----------------------------
Total securities (Note 3) 243,309 271,192
----------------------------
Loans (Note 4) 907,188 783,565
Less:
Unearned interest 49,631 40,908
Reserve for loan losses (Note 5) 8,071 7,227
----------------------------
Net loans 849,486 735,430
----------------------------
Premises and equipment (Note 6) 25,672 23,649
Accrued interest receivable 7,890 7,739
Other assets 23,249 14,563
----------------------------
Total assets $1,202,402 $1,107,575
============================
LIABILITIES
Deposits:
Non-interest-bearing $ 138,252 $ 123,078
Interest-bearing 897,395 825,155
----------------------------
Total deposits 1,035,647 948,233
Federal funds purchased and
securities sold under
agreements to repurchase 35,313 53,401
Short-term borrowings 2,266 4,571
Accrued interest payable 5,518 2,754
Other liabilities 1,532 1,286
Long-term debt (Note 13) 20,083 10,021
----------------------------
Total liabilities 1,100,359 1,020,266
SHAREHOLDERS' EQUITY
Preferred stock:
No par value; Authorized shares,
2,000,000 -- --
Common stock:
Par value, $5.00; Authorized
shares, 10,000,000; Shares
issued, 3,826,581 19,133 19,133
Capital surplus 33,320 33,320
Retained earnings 48,336 41,430
Net unrealized holding gains
(losses) on securities available-
for-sale 1,254 (6,574)
----------------------------
Total shareholders' equity 102,043 87,309
----------------------------
Total liabilities and share-
holders' equity $1,202,402 $1,107,575
============================
The accompanying notes are an integral part of the
consolidated financial statements.
14
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except shares and per share data)
Years Ended December 31,
1995 1994 1993
------------------------------
INTEREST INCOME
Loans, including fees $65,313 $55,984 $49,590
Securities:
Taxable 15,938 15,856 14,226
Tax-exempt 146 164 241
Deposits with banks 272 698 1,856
Federal funds sold 168 537 341
------------------------------
Total interest income 81,837 73,239 66,254
------------------------------
INTEREST EXPENSE
Deposits 31,104 24,817 22,471
Federal funds purchased and
securities sold under agreements
to repurchase 1,467 636 229
Short-term borrowings 188 130 107
Long-term debt 714 629 336
------------------------------
Total interest expense 33,473 26,212 23,143
------------------------------
NET INTEREST INCOME 48,364 47,027 43,111
Provision for loan losses (Note 5) 1,259 904 1,975
------------------------------
Net interest income after
provision for loan losses 47,105 46,123 41,136
------------------------------
OTHER INCOME
Trust income 1,834 1,810 1,733
Fees for other services 4,915 4,550 4,217
Net securities gains (losses) 46 193 (4)
Other income 456 421 948
------------------------------
Total other income 7,251 6,974 6,894
------------------------------
OTHER EXPENSES
Salaries and wages 16,305 15,623 14,002
Pension and other employee benefits 2,926 2,987 3,181
Net occupancy expense 3,508 3,433 2,840
Equipment expense 2,989 2,641 2,578
F.D.I.C. insurance 1,357 2,036 1,812
Amortization of intangible assets 1,131 1,275 1,104
Other operating expense 9,038 9,524 8,323
------------------------------
Total other expense 37,254 37,519 33,840
------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT 17,102 15,578 14,190
Provision for income taxes (Note 7) 5,528 4,672 4,846
------------------------------
Income before cumulative effect
of accounting principle changes 11,574 10,906 9,344
Cumulative effect of change in
accounting for income taxes -- --- 113
------------------------------
NET INCOME $11,574 $10,906 $ 9,457
==============================
Net income per share before
cumulative effect $ 3.02 $ 2.85 $ 2.69
Cumulative effect -- -- .03
Net income per share (Note 1) $ 3.02 $ 2.85 $ 2.72
Dividends paid per share 1.22 1.10 .99
Weighted average number of shares
outstanding 3,826,581 3,826,581 3,479,574
The accompanying notes are an integral part of the
consolidated financial statements.
15
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years-Ended December 31,
1995 1994 1993
-----------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 11,574 $10,906 $ 9,457
Cumulative effect adjustment -- -- (113)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 1,259 904 1,975
Provision for depreciation and
amortization 2,835 2,529 2,232
Amortization of intangible
assets 1,131 1,275 1,104
Amortization of premium, net
of accretion of discount on
loans and investments 722 1,208 (43)
Deferred income taxes (152) (671) (825)
Realized securities (gains)
losses (46) (193) 4
Decrease (increase) in interest
receivable 565 (829) 329
Increase (decrease) in interest
payable 646 645 (1,278)
Other assets and liabilities,
net 776 (328) (1,203)
------------------------------
Net cash provided by
operating activities 19,310 15,446 11,639
------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sales of securities 27,594 7,868 36,520
Repayments and maturities of
securities available-for-sale 50,118 38,401 54,343
Repayments and maturities of
securities held-to-maturity 21,000 -- --
Purchase of securities available-
for-sale (3,355) (81,507) (58,880)
Purchase of securities held-to-
maturity (33,219) (22,905) --
Net decrease (increase) in money
market investments 4,635 72,733 (35,369)
Proceeds from sales of loans 5,893 5,907 4,605
Net increase in loans (51,463) (51,046) (55,819)
Purchases of premises and
equipment and other (3,890) (3,697) (3,173)
Purchase of Bank, net of cash
acquired (23,674) -- 24,865
-----------------------------
Net cash used in investing
activities (6,361) (34,246) (32,908)
-----------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase (decrease) in
deposits 12,164 (8,728) 10,942
Net increase (decrease) in federal
funds purchased and securities
sold under agreements to
repurchase (25,773) 41,094 3,395
Net increase (decrease) in
short-term borrowings (2,305) (1,448) 163
Cash dividends paid (4,668) (4,209) (3,441)
Proceeds from long-term debt 12,520 -- 6,800
Payment on long-term debt (2,458) (2,440) (2,440)
-----------------------------
Net cash provided by (used in)
financing activities (10,520) 24,269 15,419
-----------------------------
Increase (decrease) in cash and
cash equivalents 2,429 5,469 (5,850)
Cash and cash equivalents at
beginning of year 47,679 42,210 48,060
-----------------------------
Cash and cash equivalents
at end of year $ 50,108 $ 47,679 $ 42,210
=============================
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest on deposits and
other borrowings $ 30,709 $ 25,567 $ 24,421
Federal income taxes, net of
refunds 7,437 7,669 5,007
Details of the acquisitions of
FirstSouth Savings Association
during 1993 and Huntington
National Bank of Pennsylvania
during 1995, follows:
Fair value of assets acquired $111,200 $ --- $161,200
Fair value of liabilities
assumed 85,700 --- 143,000
-----------------------------
Net assets acquired $ 25,500 $ --- $ 18,200
=============================
The accompanying notes are an integral part of the
consolidated financial statements.
16
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years-ended December 31, 1995, 1994, and 1993
(In thousands, except shares and per share data)
Common Net
Stock Unrealized
--------- Holding
Number of Capital Retained Gains
Shares Amount Surplus Earnings (Losses) Total
---------- --------------------------------------------
Balance, December 31,
1992 3,136,862 $15,684 $16,440 $38,526 $ --- $70,650
Net income, 1993 9,457 9,457
Cash dividends paid
($.99 per share) (3,441) (3,441)
5% stock dividend 156,843 785 3,921 (4,706) ---
Acquisition of First-
South 350,658 1,753 8,767 10,520
Net unrealized holding
gains on securities
available-for-sale,
net of tax 4,757 4,757
---------- --------------------------------------------
Balance, December 31,
1993 3,644,363 18,222 29,128 39,836 4,757 91,943
Net income, 1994 10,906 10,906
Cash dividends paid
($1.10 per share) (4,209) (4,209)
5% stock dividend 182,218 911 4,192 (5,103) ---
Change in net unrealized
holding gains (losses)
on securities
available-for-sale,
net of tax (11,331)(11,331)
--------- ---------------------------------------------
Balance, December 31,
1994 3,826,581 19,133 33,320 41,430 (6,574) 87,309
Net income, 1995 11,574 11,574
Cash dividends paid
($1.22 per share) (4,668) (4,668)
Change in net unrealized
holding gains (losses)
on securities
available-for-sale,
net of tax 7,828 7,828
--------- ---------------------------------------------
Balance, December 31,
1995 3,826,581 $19,133 $33,320 $48,336 $1,254 $102,043
========= =============================================
The accompanying notes are an integral part of the
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except shares and per share data)
1. ACCOUNTING AND FINANCIAL REPORTING POLICIES:
The following is a summary of the significant accounting and
financial reporting policies of BT Financial Corporation (BT or
the Corporation) and its affiliates.
Basis of Presentation:
The consolidated financial statements of BT, a bank holding
company incorporated under the laws of the Commonwealth of
Pennsylvania, 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 (the Trust Company) and Bedford Associates, Inc. All
significant intercompany transactions have been eliminated in
consolidation.
Bedford Associates, Inc., was organized by BT primarily to
hold and operate real property and equipment used by banking
affiliates in their operations.
The preparation of financial statements in conformity with
generally acccepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents:
BT considers all non-interest-bearing amounts due from banks
to be cash equivalents. At December 31, 1995 and 1994, the
Corporation maintained cash balances of approximately $25 million
and $24 million respectively, with one large financial
institution located in southwestern Pennsylvania.
Securities:
The securities portfolio consists of securities and short-
term investments, which are purchased by the Corporation to
enhance the overall yield on earning assets and to contribute to
the management of interest-rate risk and liquidity.
Effective December 31, 1993, BT adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." This statement
requires classification of securities into three categories:
held-to-maturity, trading securities, and available-for-sale. BT
categorized all of its securities as available-for-sale at
December 31, 1993. Beginning in the second quarter of 1994, certain
securities purchased were classified as held-to-maturity. The
Corporation may classify securities as held-to-maturity when it
has both the ability and positive intent to hold the securities
to maturity. Securities designated as available for sale, may be
sold in response to changes in market interest rates and in
prepayment risk, income tax considerations, and liquidity needs.
Pursuant to Statement 115, securities available-for-sale are
recorded at market value, with aggregate unrealized holding gains
and losses reported net of income tax as a separate component of
shareholders' equity. Securities held-to-maturity are stated at
cost adjusted for amortization of premium and accretion of
discount, computed primarily under the interest method. The
Corporation's investment policy specifically prohibits the
existence of a trading account portfolio.
Prior to December 31, 1993, securities available-for-sale
were carried at the lower of aggregate amortized cost or market
value, with write-downs below cost included in net securities
gains (losses). Gains and losses are computed principally under
the specific identification method. On a periodic basis,
management evaluates each security where amortized cost exceeds
market value. If the decline is judged to be other than
temporary, the cost basis of the security is written down to its
estimated net realizable value with the write down included in
net securities gains (losses).
17
Interest Income:
Interest income is recognized in a manner that results in a
level yield on principal amounts outstanding. The accrual of
interest is discontinued when, in management's judgement, it is
determined that the collectibility of interest, but not
necessarily principal, is doubtful. Payments on nonaccrual loans
are generally applied to both principal and interest, depending
upon management's evaluation of collectibility. Loan origination
fees, net of certain direct origination costs, are deferred and
recognized over the life of the related loan as a yield
adjustment.
Unearned Interest:
Unearned interest represents interest deducted from the
proceeds of consumer loans and direct finance leases. Income is
recognized over the life of the loan or lease as payments become
due.
Reserve for Loan Losses:
The reserve for loan losses is based on management's
evaluation of probable losses in the current loan portfolio,
which includes an assessment of current economic conditions,
changes in the nature of the loan portfolio, loan loss
experience, and other relevant factors. Effective January 1,
1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for the Impairment
of a Loan." This statement addresses the methods
used by a creditor to measure the impairment of a loan and the
proper recognition of a change in the value of an impaired loan.
Under the new standard, 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. 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. When the
measurement of an impaired loan is less than the recorded
investment in the loan, the impairment is recorded in a specific
valuation reserve through a charge to provision for loan losses.
The specific valuation reserve is periodically adjusted for
significant changes in the amount or timing of expected future
cash flows, observable market price or fair value of the
collateral. The valuation reserve, or reserve for impaired loan
losses, is part of the toal reserve for loan losses. Upon
disposition of an impaired loan, any related reserve is reversed
through a charge to the impaired reserve for loan losses. Cash
receipts on impaired loans are generally applied to both
principal and interest, depending upon management's evaluation of
collectibility. The minimum period without payment that
typically can occur before a loan is considered for impairment is
ninety days. SFAS No. 114 does not apply to large groups of
smaller balance homogeneous loans such as real estate and
consumer loans of the Corporation. 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. The adoption of SFAS 114
did not result in an additional provision for loan losses as
determined at January 1,1995.
Premises and Equipment:
Premises and equipment, including leasehold improvements,
are stated at cost less accumulated depreciation and
amortization. Depreciation is computed by both straight-line and
accelerated methods over the estimated useful lives of the
assets. Leasehold improvements are amortized over the terms of
leases or estimated useful lives of improvements, whichever is
shorter.
Maintenance, repairs, and minor renewals are charged to
expense as incurred. Expenditures for betterments and major
renewals are capitalized and depreciated over their estimated
useful lives.
When premises and equipment are removed or otherwise
disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts and any resulting gain
or loss is credited or charged to income.
Intangible Assets:
The purchase method of accounting for business combinations
results in the adjustment of net assets to their estimated fair value
at the acquisition date. The excess of purchase price over such
fair value is recorded in other assets and amortized on a
straight-line basis over periods ranging from ten to 15 years.
Premiums paid by bank affiliates for branch offices are allocated
to core deposit and going concern intangibles and are recorded in
other assets and amortized on a straight-line basis over their
estimated lives, generally ranging from five to 15 years. Core
deposit premiums amounted to $260 and $548 and going concern and
goodwill intangibles amounted to $16,733 and $7,292 at December
31, 1995 and 1994, respectively. Management evaluates annually
the carrying value and remaining amortization periods of
intangible assets for possible impairment. Adjustments are
recorded when the benefit of the intangible asset decreases due
to asset dispositions or reduced earnings from acquisitions with
anticipated earning levels projected below the cost to recover
such intangibles.
18
Other Real Estate:
Other real estate is carried at the lower of estimated
market value, less selling costs, or the value of the outstanding
loan balance. Costs to maintain the assets and subsequent gains
and losses attributable to their disposal are included in other
expense.
Income Taxes:
Deferred income taxes result from temporary differences
between the financial statement and tax basis of assets and
liabilities using enacted tax rates.
Per Share Data:
Net income per share is based on the weighted average number
of shares of common stock outstanding during each year, after
giving retroactive effect to the 5% stock dividends distributed
on July 26, 1993 and October 14, 1994.
Cash dividends per share are based on the number of shares
outstanding at the respective declaration dates, after giving
retroactive effect to the 5% stock dividends.
2. ACQUISITIONS:
On December 10, 1993, the Corporation acquired FirstSouth
Bancorp, Inc. and its wholly-owned subsidiary, FirstSouth Savings
(FirstSouth). FirstSouth was a Pennsylvania-chartered permanent
reserve fund stock savings and loan association. FirstSouth had
total assets of approximately $151.0 million and operated seven
branches in the greater Pittsburgh area. In connection with the
acquisition, .693 BT common shares and $13.50 in cash were issued
in exchange for each share of FirstSouth common stock. Approxi-
mately 351,000 BT shares were issued based on 506,000 FirstSouth
shares outstanding at March 15, 1993. The total value of the
transactions based upon the market value of BT common stock at
the date of the agreement was approximately $18 million. The
acquisition was accounted for as a purchase with goodwill and
other intangibles of approximately $6.3 million recorded in
connection with the transaction. Goodwill is being amortized over
a 15-year period. FirstSouth was merged into Fayette effective
December 10, 1993 and the 1993 Consolidated Statement of Income
reflects the operations of FirstSouth from the date of
acquisition.
On December 14, 1995, BT acquired 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. Huntington was merged
into Fayette effective December 14, 1995, and the 1995
Consolidated Statement of Income reflects the operations of
Huntington from the date of acquisition.
Unaudited pro forma results of operations for the years-ended
December 31, 1995 and 1994, including the effects of purchase
adjustments, as though the acquisition of Huntington had been
effective January 1, 1994 are presented. Furthermore, unaudited
pro forma results of operations for the year ended December 31,
1993, including the effects of purchase adjustments as though the
acquisition of FirstSouth had been effective January 1, 1993, is
presented. Because the capital and management resources of BT
were not available to Huntington during 1995 and 1994, and
FirstSouth during 1993, it is not possible to determine what the
actual results of operations would have been if either
organization had been operated as an affiliate of BT during 1995,
1994 or 1993.
On October 24, 1995, Bank and Trust, BT's largest banking
affiliate, entered into an Agreement and Plan of Merger to
acquire Armstrong County Trust Company (Armstrong) of Kittanning,
Pennsylvania. Armstrong will be merged into Bank and Trust, with
Bank and Trust as the surviving bank. BT expects the merger to
be completed during the second quarter of 1996. Armstrong had
approximately $52 million in total assets at December 31, 1995.
The Armstrong acquisiton agreement provides that if the average
price per share for BT common stock is between $34 and $27.50 for
a specified period of time before closing of the transaction, or
if BT enters into an agreement that would result in an
acquisition of BT by another organization, each share of
Armstrong common stock will be exchanged for 26.5 shares of BT
common stock and $596.25 in cash. If the average price for BT
common stock is more than $34 per share during the valuation
period, BT will have the option to adjust the exchange ratio by
reducing the number of shares of BT common stock or cash as
agreed to by Armstrong so that the total consideration does not
exceed $1,497.25 per Armstrong share, or $11,978 in the
aggregate for all 8,000 Armstrong shares outstanding. If the
average price for BT common stock is less than $27.50 per share
during the valuation period, Armstrong may terminate the
agreement if BT does not increase the number of shares and cash
to maintain a total consideration of $1,325 per Armstrong share,
or $10,600 in the aggregate. The Armstrong agreement is subject
to approval by Armstrong's shareholders as well as state and
federal authorities and to the satisfaction of certain other
conditions.
On January 12, 1996, BT signed a definitive merger agreement
with Moxham Bank Corporation (Moxham), Johnstown, Pennsylvania.
Moxham's two banks, Moxham National Bank, Johnstown,
Pennsylvania, and First National Bank of Garrett, Garrett,
Pennsylvania will be merged into Bank and Trust. The agreement
is subject to regulatory and shareholder approval. According to the
the merger agreement, each Moxham common shareholder will receive
1.15 shares of BT common stock, bringing the value of the
transaction to approximately $41.0 million. At December 31,
1995, Moxham had total assets of approximately $241 million and
operated 12 branches in Cambria, Somerset and Westmoreland
counties. The transaction will be accounted for as pooling of
interests and is expected to be completed during the second
quarter of 1996.
If the acqusitions of Armstrong and Moxham had occurred on
December 31, 1995, BT's total assets would have been
approximately $1.5 billion on a pro forma basis.
Pro Forma Statement of Income
(Unaudited)
Years-Ended December 31,
1995 1994 1993
------------------------------
Total interest income $ 89,320 $ 80,810 $76,859
Total interest expense 37,877 30,176 28,490
------------------------------
NET INTEREST INCOME 51,443 50,634 48,369
Provision for loan losses 1,694 1,043 2,075
------------------------------
Net interest income after
provision for loan losses 49,749 49,591 46,294
Total other income 7,775 7,509 7,496
Total other expense 40,217 41,118 39,449
------------------------------
INCOME BEFORE INCOME TAXES 17,307 15,982 14,341
Provision for income taxes 5,620 5,005 5,039
------------------------------
NET INCOME $11,687 $10,977 $ 9,302
==============================
Net income per share $ 3.05 $ 2.87 $ 2.43
Average number of common shares
outstanding 3,826,581 3,826,581 3,826,581
Pro forma results for 1995 and 1994 do not include projected
savings in the Huntington acquisition from the centralization of
various administrative functions and the closing of the
headquarters office. Pro forma information for 1993 does not
include projected savings from consolidated operations or costs
associated with the FirstSouth acquisition of approximately $1
million of stock option and compensation costs and $2.2 million
related to a tax accounting method change.
19
3. SECURITIES
The amortized cost and estimated market values of securities
at December 31, 1995 and 1994 were as follows:
1995
-----------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Market
Cost Gains Losses Value
-----------------------------------------
Securities available
for sale:
US Treasury
and obligations of
US government agencies
and corporations $197,455 $1,890 $(533) $198,812
Obligations of states and
political subdivisions 2,946 39 (10) 2,975
Debt securities issued
by foreign governments 190 -- (2) 188
Corporate securities 5,625 576 (28) 6,173
-----------------------------------------
Totals $206,216 $2,505 $(573) $208,148
=========================================
Securities held-to-maturity:
US Treasury
and obligations of
US government agencies
and corporations $ 35,161 $ 763 $ -- $35,924
=========================================
1994
-----------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Market
Cost Gains Losses Value
-----------------------------------------
Securities available
for sale:
US Treasury
and obligations of
US government agencies
and corporations $249,610 $165 $(10,410) $239,365
Obligations of states and
political subdivisions 2,965 29 (50) 2,944
Debt securities issued
by foreign governments 175 -- (4) 171
Corporate securities 5,645 230 (74) 5,801
----------------------------------------
Totals $258,395 $424 $(10,538) $248,281
========================================
Securities held-to-maturity:
US Treasury
and obligations of
US government agencies
and corporations $22,911 --- $(669) $22,242
========================================
The market value of securities was based on quoted market
prices or bid quotations received from securities dealers.
The amortized cost and estimated market value of securities
at December 31, 1995 by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Available-For-Sale
1995
-----------------------
Amortized Market
Cost Value
-----------------------
Due in one year or less $ 50,283 $ 50,884
Due after one year through
five years 149,824 150,580
Due after five years through
ten years 1,027 1,052
Due after ten years 5,082 5,632
-----------------------
Total $206,216 $208,148
=======================
Held-To-Maturity
1995
------------------------
Amortized Market
Cost Value
------------------------
Due in one year or less $ --- $ ---
Due after one year through
five years 35,161 35,924
Due after five years through
ten years --- ---
Due after ten years --- ---
------------------------
Total $35,161 $35,924
========================
Proceeds from sales of securities during 1995 were $27,594.
Gross gains of $101 and gross losses of $74 were realized on
those sales. In addition, various securities were called during
1995, which resulted in gross gains of $19. During 1994,
proceeds from sales of securities were $7,868 with gross gains of
$177 realized on those sales. In addition, various securities
were called during 1994, which resulted in gross gains of $38 and
gross losses of $22. No sales of securities occurred during 1993
except for disposition of approximately $37 million of securities
acquired in the FirstSouth transaction. Various securities were
called during 1993, which resulted in gross gains of $34 and
gross losses of $38. At December 31, 1995, securities available-
for-sale carried at $100,773 were pledged as collateral for
public and trust deposits and securities sold under agreements to
repurchase. In addition, at December 31, 1995, BT held
available-for-sale investments in government agency step-up
securities of approximately $48.7 million, with call options that
allow the issuer to redeem the investment prior to maturity.
20
4. LOANS:
The composition of the loan portfolio at December 31, 1995
and 1994 was as follows:
1995 1994
--------------------
Commercial, financial and agricultural $150,260 $125,851
Real estate:
Residential 273,071 248,303
Commercial 151,457 132,525
Consumer 332,400 276,886
--------------------
Total $907,188 $783,565
====================
Commercial real estate, residential real estate and other
loans held by the Corporation are primarily located in western
and central Pennsylvania. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. Collateral
held includes mortgages on residential and income-producing
properties. Included in consumer loans are education loans held-
for-sale which totaled $12,468 and $11,789 at December 31, 1995,
and 1994, respectively. Such loans are carried at cost and
historically have been sold at carrying amount.
A summary of loans to executive officers and directors,
including associates of such persons, is as follows:
1995 1994
---------------------------
Loans at beginning of year $19,387 $16,155
New loans 9,631 6,487
Loan payments (7,669) (5,454)
Other 961 2,199
---------------------------
Loans at end of year $22,310 $19,387
===========================
Other represents the net change in loan balances resulting from
changes in related parties during the year.
See Note 15 "Financial Instruments with Off-Balance Sheet
Risk" for credit risk disclosures and "Management's Discussion
and Analysis" regarding concentrations in the loan portfolio.
5. RESERVE FOR LOAN LOSSES:
Transactions in the reserve for loan losses were as follows:
1995 1994 1993
------------------------------------------------
Total
Reserve for Reserve
General Impaired for Loan General General
Reserve Loan Losses Losses Reserve Reserve
------------------------------------------------
Balance at beginning of
year $7,227 $ --- $7,227 $7,172 $6,099
Transfer upon adoption
of SFAS 114 (235) 235 --- --- ---
Reserve of acquisitions 849 --- 849 --- 784
Additions:
Provisions for loan losses 433 826 1,259 904 1,975
Recoveries of loans
charged off 310 --- 310 359 266
Deductions:
Loans charged off (1,394) (180) (1,574) (1,208) (1,952)
------------------------------------------------
Balance at end of year $7,190 $ 881 $8,071 $7,227 $7,172
================================================
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 totalled $1,868
with a corresponding valuation allowance of $881. The Corporation does not
have any impaired loans for which there is not a related valuation allowance.
For the year-ended December 31, 1995, the average recorded investment in
impaired loans did not differ materially from the amount outstanding at
December 31, 1995.
6. PREMISES AND EQUIPMENT:
Major classes of premises and equipment at December 31, 1995
and 1994 were as follows:
1995 1994
-------------------------
Land $ 3,742 $ 3,570
Buildings 23,492 22,236
Leasehold improvements 909 911
Equipment 18,828 15,660
-------------------------
46,971 42,377
Less accumulated depreciation
and amortization 21,299 18,728
-------------------------
Premises and equipment, net $25,672 $23,649
=========================
21
7. FEDERAL INCOME TAXES:
Effective January 1, 1993, the Corporation adopted Statement
of Financial Accounting Standard No. 109 "Accounting for Income
Taxes." This statement requires a liability approach for
measuring deferred taxes based on temporary differences between
the financial statement and tax basis of assets and liabilities
existing at each balance sheet date using enacted tax rates.
Financial statements for prior years have not been restated, and
the cumulative effect of the accounting change was approximately
$113. Income taxes for years prior to 1993 were accounted for
under the provisions of APB No. 11.
The components of the provision (benefit) for income taxes
from operations are as follows:
1995 1994 1993
-------------------------------
Current $5,680 $5,343 $5,671
Deferred (152) (671) (825)
-------------------------------
TOTAL $5,528 $4,672 $4,846
===============================
During August 1993, the Revenue Reconciliation Act of 1993
was signed into law. This law increased the highest corporate
rate to 35%. The Corporation recognized $68 in tax benefit due
to the increase in deferred tax assets.
A reconciliation of the federal statutory tax rate to the
effective tax rate applicable to income before income taxes
follows:
1995 1994 1993
-------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct) the tax effect of:
Tax-exempt interest (4.3) (4.3) (5.0)
Interest expense limitation .6 .6 .5
Other, net 1.0 (1.3) 3.7
-------------------------
Effective tax rate 32.3% 30.0% 34.2%
=========================
The deferred tax assets and deferred tax liabilities
recorded on the balance sheet are as follows:
December 31, 1995
Deferred Tax Deferred Tax
Assets Liabilities
------------------------------
Provision for loan losses $2,825 $ ---
Net unrealized holding gains
(losses) on securities --- 676
Depreciation 142 ---
Deferred loan fees, net 249 ---
Adjustment due to acquisition --- 1,003
Other 1,303 429
------------------------------
$4,519 $2,108
==============================
December 31, 1994
Deferred Tax Deferred Tax
Assets Liabilities
------------------------------
Provision for loan losses $2,530 $ ---
Net unrealized holding gains
(losses) on securities 3,540 ---
Depreciation 293 ---
Deferred loan fees, net 291 ---
Adjustment due to acquisition --- 2,425
Other 1,065 359
------------------------------
$7,719 $2,784
==============================
No valuation allowance was established at December 31, 1995
and 1994 in view of the Corporation's ability to carry back
deferred tax assets to taxes paid in previous years.
8. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS:
BT maintains non-contributory defined benefit pension plans
covering substantially all employees meeting minimum age and
service requirements. The plans generally provide benefits based
on years of credited service and final average earnings. BT's
current funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes.
Pension plan assets are primarily US Government obligations,
corporate obligations, and equity securities whose values are
subject to fluctuations of the securities market. Plan assets
include common stock of BT with values of $1,126 and $863 at
December 31, 1995 and 1994, respectively. Changes in plan assets
values attributable to differences between actual and expected
returns on plan assets are deferred as unrecognized gains or
losses and included in the determination of net pension cost over
time.
Net pension expense for 1995, 1994, and 1993 consisted of
the following:
1995 1994 1993
------------------------
Service-cost benefits earned
during the year $ 597 $ 571 $ 511
Interest accrued on projected
benefit obligation 1,254 1,066 1,084
Actual return on plan assets (2,699) (287) (1,757)
Net amortization and deferral 1,097 (1,192) 304
------------------------
Net pension expense $ 249 $ 158 $ 142
========================
22
The following table sets forth the plans' funded status and
amounts recognized in BT's consolidated balance sheet at December
31, 1995 and 1994:
1995 1994
--------------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation, including
vested benefits (based upon retirement
date) of $13,759 and $11,907 for 1995
and 1994, respectively $(13,888) $(11,970)
====================
Projected benefit obligation $(18,374) $(16,123)
Plan assets at fair value 20,139 18,151
--------------------
Plan assets in excess of projected benefit
obligation 1,765 2,028
Unrecognized actuarial gain 213 268
Unrecognized prior service costs (365) (393)
Unrecognized transition credit (1,667) (1,756)
--------------------
Prepaid (accrued) pension cost included in
the consolidated balance sheet $ (54) $ 147
====================
Pension expense is determined at the beginning of the year
using the funded status assumptions for the previous year end.
The funded status is determined using assumptions as of the end
of the year, which for 1995, 1994, and 1993 are as follows:
1995 1994 1993
----------------------------
Discount Rate 7% 8% 7%
Long-Term Rate of Return 8% 8% 8%
Compensation Rate 3% 4% 3%
The change in assumptions in 1995 resulted in an increase of
approximately $1,298 for the projected benefit obligation. The
change in assumptions in 1994 resulted in a decrease of
approximately $450 for the projected benefit obligation.
The Corporation adopted Statement of Financial Accounting
Standard No. 106 "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions" as of January 1, 1993. This
statement requires that the expected cost of providing post-
retirement benefits be recognized in the financial statements
during the employees active period of employment. The
Corporation presently provides health and life insurance benefits
to selected retirees. The transition obligation is being
amortized over a 20-year period.
The Corporation intends to maintain benefits for those
currently eligible retirees but restricted future participation
in 1991. Expense under the provisions of Statement No. 106 for
1995, 1994 and 1993 consisted of the following:
1995 1994 1993
---------------------
Interest cost $122 $133 $160
Amortization of transition obligation
and other 92 89 100
---------------------
Net post-retirement expense $214 $222 $260
=====================
The Corporation used a discount rate of 7% for 1995 and 8% for
prior year. The funded status of the Corporation's plan at December
31, 1995 and 1994 follows.
1994 1993
--------------------
Accumulated post-retirement benefit
obligation $(1,585) $(1,626)
Plan assets at fair value 0 0
--------------------
Excess of benefit obligation over plan
assets (1,585) (1,626)
Transition obligation 1,712 1,813
Unrecognized net (gain) loss (255) (294)
--------------------
Accrued benefit obligation $ (128) $ (107)
====================
An annual rate of health care cost increase was assumed to
be 10% in 1995, decreasing to 5% for years after 2009.
Increasing the assumed health care trend rate by 1% in each year
would increase the obligation by $118 at December 31, 1995 and
annual expense by $16.
The Corporation adopted a defined contribution plan with
401(k) features during 1995. The plan permits each employee to
contribute a portion of their salary to the plan on a pre-tax
basis with employer matching up to stipulated amounts as
determined by the Corporation. Total expense for the year
amounted to $60.
9. LITIGATION:
Due to the nature of its activities, BT is at all times
engaged in various legal proceedings which arise in the normal
course of business. While it is difficult to predict or
determine the outcome of these proceedings, it is the opinion of
management that the ultimate liability, if any, will not
materially affect BT's consolidated financial position, results
of operations and cash flows.
23
10. CAPITAL STOCK:
On June 23, 1993, BT's Board of Directors declared a 5%
stock dividend. The dividend was distributed on July 26, 1993 to
shareholders of record as of July 9, 1993. The dividend was
charged to retained earnings in the aggregate amount of $4,706
which is based on the closing price of $30 per share on the
declaration date. On August 24, 1994, BT's Board of Directors
declared a 5% stock dividend. The dividend was distributed
October 14, 1994 to shareholders of record as of September 16,
1994. The dividend was charged to retained earnings in the
aggregate amount of $5,103 which is based on the closing price of
$28 per share on the declaration date. Average shares
outstanding and all per share amounts included in the
accompanying consolidated financial statements and notes are
based on the increased numbers of shares giving retroactive
effect to the aforementioned stock dividends.
In 1991, the Board of Directors of BT declared and
distributed one right for each outstanding share of BT common
stock. Each right entitles the holder to purchase from the
Corporation, units of Series A Preferred Stock at a set price,
exercisable on the distribution date as defined in the agreement.
At December 31, 1995 no rights have been exercised.
11. REGULATORY REQUIREMENTS:
Reserve balances of $12,788 were required to be maintained
at the Federal Reserve Bank by affiliate banks at December 31,
1995.
Dividends and loans to BT from banking affiliates are
subject to regulatory limitations. Dividends are limited to the
retained earnings of banking affiliates. Loans must be collater-
alized and loans to a single nonbank affiliate cannot exceed 10%
of any banking affiliates capital and surplus, and the aggregate
to all nonbank affiliates cannot exceed 20%. The maximum amount
available to BT at December 31, 1995 from affiliate banks in the
form of dividends and loans was $61,236 and $4,847, respectively.
24
12. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:
The condensed balance sheets and statements of income and
cash flows of BT as of December 31, 1995, 1994, and 1993 and for
the years-then-ended are presented below.
BT Financial Corporation (Parent Company Only)
Balance Sheet
1995 1994 1993
------------------------------
Assets:
Cash $ 203 $ 141 $ 214
Investment in bank affiliates 117,339 93,841 101,448
Investment in nonbank affiliates 1,178 1,113 868
Other 5,672 4,188 3,710
------------------------------
Total Assets $124,392 $ 99,283 $106,240
==============================
Liabilities and shareholders'
equity:
Long-term debt $ 20,000 $ 9,920 $ 12,360
Other liabilities 2,349 2,054 1,937
Shareholders' equity 102,043 87,309 91,943
------------------------------
Total liabilities and share-
holders' equity $124,392 $ 99,283 $106,240
==============================
Statement of Income
Cash dividends from bank
affiliates $ 8,508 $ 7,449 $ 5,881
Cash dividends from nonbank
affiliates 100 --- 100
Management fees from affiliates 10,552 8,409 7,466
Interest expense 705 619 324
Operating expense 11,636 9,383 8,587
------------------------------
Income before income taxes,
cumulative effect and equity
in undistributed income of
affiliates 6,819 5,856 4,536
Income tax benefit 492 336 465
------------------------------
7,311 6,192 5,001
Cumulative effect of change in
accounting for income taxes --- --- 113
------------------------------
7,311 6,192 5,114
Equity in undistributed income
of affiliates:
Banks 4,198 4,470 4,423
Nonbanks 65 244 100
------------------------------
Net income $ 11,574 $ 10,906 $ 9,457
==============================
Statement of Cash Flows
Cash flows from operating activities:
Net income $ 11,574 $ 10,906 $ 9,457
Equity in undistributed income
of affiliates (4,263) (4,714) (4,343)
Amortization 1,112 1,078 71
Other assets and liabilities, net (1,273) (694) 851
------------------------------
Net cash provided by operating
activities 7,150 6,576 6,036
------------------------------
Cash flows from investing activities:
Investment in affiliate (12,500) --- (6,831)
Sale of stock --- --- 26
------------------------------
Net cash used in investing
activities (12,500) --- (6,805)
------------------------------
Cash flows from financing activities:
Cash dividends paid (4,668) (4,209) (3,441)
Payment on long-term debt (2,440) (2,440) (2,440)
Proceeds from long-term debt 12,520 --- 6,800
Other --- --- 1
------------------------------
Net cash provided by (used in)
financing activities 5,412 (6,649) 920
------------------------------
Increase (decrease) in cash 62 (73) 151
Cash at beginning of year 141 214 63
------------------------------
Cash at end of year $ 203 $ 141 $ 214
==============================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on capital notes $ 697 $ 602 $ 312
Federal income taxes,
net of refunds 7,437 7,669 5,007
Non-cash financing activities:
Issuance of common stock;
FirstSouth acquisition --- --- 10,520
25
13. LONG-TERM DEBT:
Long-term debt outstanding amounted to $20.1 million and $10
million at December 31, 1995 and 1994, respectively. In December
of 1995, BT had $7.5 million in notes outstanding that were used
for the cash portion of the consideration paid to former Laurel,
Fayette and FirstSouth shareholders in 1985, 1986 and 1993,
respectively. The Corporation incurred a new note on December
14, 1995 for $20.0 million. The $7.5 million in outstanding debt
was refinanced in conjunction with the new note and the remaining
proceeds were used to finance a portion of the cash purchase of
Huntington. The note contains a variable interest rate option as
defined in the agreement, and the interest rate at December 31,
1995 was 6.91%. The note agreement has certain restrictive
covenants relative to dividends, non-performing assets, and
equity requirements. As of December 31, 1995, the Corporation
was in compliance with these covenants. Principal payments are
due in 28 equal quarterly installments of $714 beginning in March
of 1996.
Mortgage notes are included in long-term debt and amounted
to $83 and $101 at December 31, 1995 and 1994, respectively. The
mortgage notes have rates ranging from 7.25% to 9.5% and
maturities extending through 2000.
14. RECLASSIFICATIONS:
For comparative purposes, reclassifications have been made
to certain amounts previously reported in the consolidated
financial statements.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Corporation is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments consist of loan commitments and standby letters of
credit.
The Corporation's exposure to loss in the event of
nonperformance by the other party to the financial instrument for
loan commitments and standby letters of credit is represented by
the contractual amount of these instruments. The Corporation
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
The face amounts of financial instruments with off-balance
sheet risk at December 31, 1995 were as follows:
Loan commitments $173,858
Standby letters of credit 12,750
Since many of the loan commitments may expire without being
drawn upon, the total commitment amount does not necessarily
represent future cash requirements or loss exposures. The
Corporation evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Corporation upon extension of credit, is based
on management's credit evaluation of the customer. Standby
letters of credit are conditional commitments issued by the
Corporation to support the financial obligations of a customer to
a third party. These guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loans. The collateral varies but may
include accounts receivable, inventory and property, plant and
equipment for those commitments for which collateral is deemed
necessary.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Cash and Short-Term Investments
For these short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities
For securities, estimated fair values are based on quoted market
prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
Loans
Fair values were estimated for loan portfolios with similar
financial characteristics by discounting contractual cash flows
without adjustment for prepayments, except fixed-rate residential
mortgages. Discount rates include a risk-free rate that was
derived from current rates on instruments with similar
maturities, a credit risk factor based on internal historical
information, an overhead factor based on internal cost accounting
information, and a prepayment factor based on industry averages
and internal estimates.
Assumptions regarding credit risk, cash flows and discount
rates were judgmentally determined using available market and
internal information which management believes to be reasonable.
However, because there are no active markets for many loan types,
the Corporation has no basis to determine whether the estimated
fair value presented would be indicative of the value negotiated
in an actual sale.
26
Deposits
The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certifi-
cates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities.
Short-Term Liabilities
The carrying value of short-term borrowings approximates
fair value.
Long-Term Debt
The estimated fair value of fixed rate debt was established
based on rates currently available to the Corporation for debt
with similar terms and remaining maturities. The carrying value
of variable rate debt approximated fair value.
Commitments to Extend Credit, Standby Letters of Credit, and
Financial Guarantees Written
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The
fair value of guarantees and letters of credit is based on fees
currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
The fair value of commitments, guarantees and letters of
credit are insignificant after considering the aforementioned
factors.
The estimated fair values of the BT's financial
instruments at December 31, 1995 and 1994 are as follows:
1995
Carrying Fair
Amount Value
-------------------------
Financial assets:
Cash and short-term investments $ 52,796 $ 52,796
Securities 243,309 244,072
Loans 857,557 871,000
Less: Reserve for
loan losses (8,071) ---
-------------------------
$1,145,591 $1,167,868
=========================
Financial liabilities:
Deposits $1,035,647 $1,037,000
Federal funds purchased and
securities sold under
agreements to repurchase 35,313 35,313
Short-term borrowings 2,266 2,266
Long-term debt 20,083 20,083
-------------------------
$1,093,309 $1,094,662
=========================
1994
Carrying Fair
Amount Value
-------------------------
Financial assets:
Cash and short-term
investments $ 55,002 $ 55,002
Securities 271,192 270,523
Loans 742,657 726,000
Less: Reserve for
loan losses (7,227) ---
-------------------------
$1,061,624 $1,051,525
=========================
Financial liabilities:
Deposits $ 948,233 $ 947,000
Federal funds purchased and
securities sold under
agreements to repurchase 53,401 53,401
Short-term borrowings 4,571 4,571
Long-term debt 10,021 10,021
-------------------------
$1,016,226 $1,014,993
=========================
27
SUPPLEMENTAL FINANCIAL DATA
Quarterly Financial Data
(Unaudited)
A summary of financial data for the four quarters of the years
1995 and 1994 is presented below.
1995
Three-Months Ended
----------------------------------------
March 31 Jun. 30 Sept. 30 Dec. 31
----------------------------------------
(In thousands, except per share data)
Net interest income $11,545 $11,917 $12,384 $12,518
Provision for loan
losses 169 300 690 100
Other income 1,702 1,864 1,896 1,789
Other expenses (1) 9,281 9,344 8,963 9,666
Provision for income
taxes 1,153 1,337 1,583 1,456
----------------------------------------
Net income $ 2,644 $ 2,800 $ 3,044 $ 3,085
========================================
Dividends(2) $ 1,148 $ 1,148 $ 1,148 $ 1,224
Net income per share
(2)(3) .69 .73 .80 .81
1994
Three-Months Ended
----------------------------------------
March 31 Jun. 30 Sept. 30 Dec. 31
----------------------------------------
(In thousands, except per share data)
Net interest income $11,598 $11,652 $11,867 $11,910
Provision for loan
losses 196 130 231 347
Other income 1,869 1,730 1,725 1,650
Other expenses 9,400 9,371 9,386 9,362
Provision for income
taxes 1,281 1,222 1,120 1,049
----------------------------------------
Net income $ 2,590 $ 2,659 $ 2,855 $ 2,802
========================================
Dividends(2) $ 1,020 $ 1,020 $ 1,020 $ 1,148
Net income per share
(2)(3) .68 .69 .75 .73
(1) The three months ended September 30, 1995 includes a $457
refund of F.D.I.C. deposit insurance premiums.
(2) Quarterly figures may not total to the full-year amount due
to rounding.
(3) Per share data has been restated to reflect the 5% stock
dividend distributed on October 14, 1994.
28
SELECTED CONSOLIDATED FINANCIAL DATA
Years-Ended December 31
1995(9) 1994 1993(8) 1992(7) 1991(6)
------------------------------------------------------
(Dollars in thousands, except per share data)
RESULTS OF OPERATIONS
Interest income $ 81,837 $ 73,239 $ 66,254 $ 69,694 $ 70,780
Interest expense 33,473 26,212 23,143 29,136 36,457
------------------------------------------------------
Net interest income 48,364 47,027 43,111 40,558 34,323
Provision for loan
losses 1,259 904 1,975 2,858 1,414
------------------------------------------------------
Net interest income
after provision for
loan losses 47,105 46,123 41,136 37,700 32,909
Other income 7,251 6,974 6,894 5,922 5,208
Other expense 37,254 37,519 33,840 31,499 28,082
-------------------------------------------------------
Income before income
taxes 17,102 15,578 14,190 12,123 10,035
Provision for income
taxes 5,528 4,672 4,846 3,532 2,507
-------------------------------------------------------
Income before cumu-
lative effect of
accounting principle
changes 11,574 10,906 9,344 8,591 7,528
Cumulative effect of
change in accounting
for income taxes --- --- 113 --- ---
-------------------------------------------------------
Net income $ 11,574 $ 10,906 $ 9,457 $ 8,591 $ 7,528
======================================================
BALANCE SHEET DATA
(Period end)
Total assets $1,202,402 $1,107,575 $1,087,559 $906,948 $891,654
Loans, net of unearned
interest 857,557 742,657 698,408 567,211 553,384
Investment securities --- --- --- --- 186,736
Securities available-
for-sale 208,148 248,281 231,508 219,800 ---
Securities held-to-
maturity 35,161 22,911 --- --- ---
Total deposits 1,035,647 948,233 956,961 809,023 781,761
Total long-term debt 20,083 10,021 12,482 8,147 10,613
Total shareholders'
equity 102,043 87,309 91,943 70,650 65,019
PER SHARE DATA (1)
Net income $ 3.02 $ 2.85 $ 2.72 $ 2.48 $ 2.18
Cash dividends
declared 1.22 1.10 .99 .86 .77
Period end book value(2) 26.67 22.82 24.03 20.43 18.80
Average shares
outstanding 3,826,581 3,826,581 3,479,574 3,458,390 3,458,390
FINANCIAL RATIOS
Return on average
assets 1.05% 1.01% 1.05% .97% .93%
Return on average
shareholders' equity 12.13 12.30 12.69 12.71 12.10
Net yield on earning
assets (3) 4.79 4.80 5.28 5.12 4.78
Common stock dividend
payout 40.33 38.60 36.39 34.51 35.32
Average shareholders'
equity to average
assets 8.63 8.25 8.24 7.64 7.64
Primary capital ratio
at period end (4) 9.10 8.48 9.05 8.41 7.82
Net charge-offs to average
loans, net of unearned
interest .16 .12 .29 .36 .25
Non-performing loans to
total loans, net of
unearned interest (5) .53 .54 .46 .60 1.02
Reserve for loan losses
to period end loans, net
of unearned interest .94 .97 1.03 1.08 .93
(1) Per share data has been restated to reflect the 5%
stock dividends distributed September 11, 1992, July
26, 1993 and October 14, 1994.
(2) Book value per share excluding the effect of net
unrealized holding gains (losses) on securities
available-for-sale was 26.34, 24.53 and 22.78 at
December 31, 1995, 1994 and 1993, respectively.
(3) Net interest income stated on a fully taxable
equivalent basis divided by average earning assets.
(4) The sum of shareholders' equity and the reserve for
loan losses divided by the sum of total assets and the
reserve for loan losses.
(5) Nonperforming loans include nonaccrual loans and
restructured loans.
(6) Reflects the acquisitions of Peoples on September 6,
1991 and Atlantic on November 15, 1991.
(7) Reflects the acquisition of Bank One on August 14, 1992.
(8) Reflects the acquisition of FirstSouth on December 10, 1993.
(9) Reflects the Acquisition of Huntington on December
14, 1995.
29
MARKET PRICE AND CASH DIVIDENDS
BT's common stock is traded in the NASDAQ stock market under
the NASDAQ symbol "BTFC."
The following table sets forth cash dividends declared and
the range of high and low sale prices, as reported on the NASDAQ
Stock Market for the Common Stock for the quarters indicated.
1995
----
Quarter High Low Dividend
- ------- ----------------------------
1st $29 3/4 $26 $ .300
2nd 31 1/2 29 .300
3rd 37 1/4 30 1/4 .300
4th 37 1/2 33 1/2 .320
------
$1.220
======
1994
----
Quarter High Low Dividend
- ------- ----------------------------
1st $31 3/4 $30 $ .267
2nd 31 28 .267
3rd 30 1/2 28 .267
4th 29 3/4 26 1/2 .300
------
$1.101
======
On February 15, 1996, there were 3,950 record holders of BT
Common Stock.
An Automatic Dividend Reinvestment Plan was established
December 1, 1987 to provide a prompt, simple and expense-free way
for shareholders to invest cash dividends from BT into additional
shares of BT common stock. BT Management Trust Company performs
certain bookkeeping and administrative functions in connection
with the Plan. As participants, the shareholders may add to
their investment in BT common stock through voluntary additional
cash deposits with the Administrator.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
In 1995, BT continued a tradition of consistent growth in
size as well as profitability. The acquisition of Huntington
National Bank of Pennsylvania in December 1995 reflects BT's
commitment to augment the expansion of the Corporation through
strategic mergers. The increased earnings performance in 1995
was fueled primarily by a higher level of net interest income.
Prudent asset/liability management enabled BT to nearly maintain
the prior year net interest margin level despite The Federal
Reserve Board's easing of monetary policy in the second half of
1995. Additional factors contributing to BT's improved earnings
included growth in fee income and control of operating expenses.
Ongoing consolidation of internal departmental areas along with
significant investments in technology continued to occur which
reflects management's long-term objectives of achieving increased
efficiency and profitability for the Corporation.
In conjunction with the Huntington acquisition,
approximately $102 million in assets were acquired and Huntington
was subsequently merged into BT's Fayette Bank affiliate. At
year-end 1995, loans and deposits increased approximately $70
million and $75 million, respectively, as a result of the
acquisition. In addition, enhanced market share in existing
areas complemented by expansion into new territories resulted
from the acquisition.
The loan growth BT experienced in 1995 was stimulated by
modest economic growth resulting in heightened commercial and
consumer lending activity. Additional factors contributing to
increases in consumer loans included an aggressive loan pricing
strategy for indirect loans and a robust automotive market in
general. In 1996, loan growth will be targeted toward increased
commercial and direct consumer lending activity. Management
believes these areas offer the most potential for increased
profitability in the forthcoming year.
The Corporation distributed 5% stock dividends on October
14, 1994 and July 26, 1993. All per share data in the following
discussion has been restated to reflect the stock dividends.
Net income for 1995 was $11.6 million versus $10.9 million
in 1994, an increase of $668,000 or 6.1%. In 1994, net income
increased $1.4 million, or 15.3% over 1993. Income per share was
$3.02 in 1995, a 6.0% increase over $2.85 earned in 1994, which
reflected a 4.8% increase over $2.72 earned in 1993.
Return on average assets was 1.05% in 1995, 1.01% in 1994,
and 1.05% in 1993. Return on average shareholders' equity was
12.13%, 12.30%, and 12.69% in 1995, 1994, and 1993, respectively.
The following is a more detailed discussion of certain
significant factors that affected the Corporation's consolidated
operating results, financial position, capital resources,
liquidity, and interest rate sensitivity for the years-ended
December 31, 1995, 1994, and 1993. Reference should be made to
the consolidated financial statements and notes thereto as well
as the selected financial data presented herein for a complete
understanding of the following discussion and analysis.
RESULTS OF OPERATION
Net Interest Income
In 1995, fully taxable equivalent net interest income
increased $1.4 million, or 3.0%, from 1994, which rose $3.9
million, or 8.8%, from 1993. The increase in 1995 is due to a
higher level of average earning assets, which increased $32.3
million. This growth was tempered slightly by a decline in the
net interest margin of one basis point to 4.79% from the prior
year period. Management will be challenged in 1996 to minimize
potential erosion of the net interest margin due to anticipated
acquisitions and changes in the interest rate environment.
Although downward margin pressure is anticipated, BT's
Asset/Liability Committee (ALCO) strives to minimize the impact
of interest rate fluctuations through effective management of its
interest rate sensitivity position.
30
The introduction of recently implemented technological
enhancements will afford ALCO more sophisticated modeling
techniques assisting the committee in maintaining the proper
balance between the repricing traits of the Corporation's
asset/liability mix. Loans generally provide higher yields than
investment securities, therefore, BT continues to focus its
efforts on generating quality loan growth to minimize any
decrease in the net interest margin. Average loans increased to
74.3% of average interest earning assets in 1995 from 71.0% in
1994 and 70.5% in 1993.
The following table presents the major categories of
assets, liabilities and shareholders' equity with
their corresponding average balances, related interest income
earned on interest-earning assets or interest expense paid on
interest-bearing liabilities, and resulting yields and rates on
a fully taxable equivalent basis for the years indicated.
1995
-----------------------------------
Interest Rate
Average Income/ Earned/
Balance Expense(1) Paid(1)
-----------------------------------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned
interest (2) $ 768,531 $ 66,380 8.64%
Taxable securities 256,353 15,938 6.22
Nontaxable securities 2,774 223 8.04
Federal funds sold 2,842 168 5.91
Time deposits in other banks 3,614 272 7.53
-----------------------------------
Total interest-earning
assets 1,034,114 82,981 8.02
Non-interest-earning assets:
Cash and cash equivalents 35,982
Premises and equipment, net 24,605
Other assets 18,408
Less reserve for possible
loan losses (7,274)
---------
Total assets $1,105,835
==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand and savings deposits 378,736 6,116 1.61
Other time deposits 466,239 24,989 5.36
Federal funds purchased and
securities sold under
agreements to repurchase 28,827 1,467 5.09
Short-term borrowings 3,293 188 5.71
Long-term debt 9,344 714 7.64
-----------------------------------
Total interest-bearing
liabilities 886,439 33,474 3.78
------
Non-interest-bearing liabilities:
Demand deposits 117,111
Other liabilities 6,855
----------
Total liabilities 1,010,405
Shareholders' equity 95,430
----------
Total liabilities and
shareholders' equity $1,105,835
==========
Net interest income $49,507
=======
Net interest spread(3) 4.24%
=====
Net yield on earning assets(4) 4.79%
=====
1994
-----------------------------------
Interest Rate
Average Income/ Earned/
Balance Expense(1) Paid(1)
-----------------------------------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned
interest (2) $ 711,316 $ 56,931 8.00%
Taxable securities 263,972 15,856 6.01
Nontaxable securities 3,105 252 8.12
Federal funds sold 13,265 537 4.05
Time deposits in other banks 10,150 698 6.88
-----------------------------------
Total interest-earning
assets 1,001,808 74,274 7.41
Non-interest-earning assets:
Cash and cash equivalents 39,444
Premises and equipment, net 22,779
Other assets 17,809
Less reserve for possible
loan losses (7,186)
---------
Total assets $1,074,654
==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand and savings deposits 425,252 7,361 1.73
Other time deposits 408,402 17,457 4.27
Federal funds purchased and
securities sold under
agreements to repurchase 17,633 636 3.61
Short-term borrowings 3,492 130 3.72
Long-term debt 10,911 629 5.76
-----------------------------------
Total interest-bearing
liabilities 865,690 26,213 3.03
------
Non-interest-bearing liabilities:
Demand deposits 112,395
Other liabilities 7,909
----------
Total liabilities 985,994
Shareholders' equity 88,660
----------
Total liabilities and
shareholders' equity $1,074,654
==========
Net interest income $48,061
=======
Net interest spread(3) 4.38%
=====
Net yield on earning assets(4) 4.80%
=====
1993
-----------------------------------
Interest Rate
Average Income/ Earned/
Balance Expense(1) Paid(1)
-----------------------------------
(Dollars in thousands)
Interest-earning assets:
Loans, net of unearned
interest (2) $ 590,486 $ 50,540 8.56%
Taxable securities 212,492 14,226 6.69
Nontaxable securities 4,157 363 8.74
Federal funds sold 8,618 341 3.96
Time deposits in other banks 21,662 1,856 8.57
-----------------------------------
Total interest-earning
assets 837,415 67,326 8.04
Non-interest-earning assets:
Cash and cash equivalents 37,678
Premises and equipment, net 20,475
Other assets 15,327
Less reserve for possible
loan losses (6,297)
--------
Total assets $904,598
========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand and savings deposits 366,571 8,231 2.25
Other time deposits 341,766 14,241 4.17
Federal funds purchased and
securities sold under
agreements to repurchase 10,774 230 2.13
Short-term borrowings 3,934 107 2.71
Long-term debt 6,970 336 4.82
----------------------------------
Total interest-bearing
liabilities 730,015 23,145 3.17
------
Non-interest-bearing liabilities:
Demand deposits 94,542
Other liabilities 5,860
----------
Total liabilities 830,417
Shareholders' equity 74,181
----------
Total liabilities and
shareholders' equity $904,598
==========
Net interest income $44,181
=======
Net interest spread(3) 4.87%
=====
Net yield on earning assets(4) 5.28%
=====
(1) Tax-exempt income on loans and investments and related yields
are shown on a fully taxable equivalent basis computed using
the federal statutory tax rate of 35%.
(2) For purposes of calculating loan yields, average loan
balances include nonaccrual loans.
(3) The difference between rate earned on total interest-earning
assets and rate paid on total interest-bearing liabilities.
(4) Net interest income stated on a fully taxable equivalent
basis divided by average earning assets.
31
The following table provides an analysis of the changes in
interest income and expense attributable to changes in volume and
rate.
1995 vs 1994
--------------------------------
Net
Increase Due to changes in
(Decrease) Volume(1) Rate (1)
--------------------------------
(In thousands)
Interest income:
Loans, net of unearned
interest(2)(3) $9,449 $4,737 $4,712
Taxable securities 82 (464) 546
Nontaxable investment
securities(2) (29) (27) (2)
Federal funds sold (369) (544) 175
Time deposits in other
banks (426) (487) 61
-------
Total interest income 8,707 2,451 6,256
-------
Interest expense:
Interest-bearing demand and
savings deposits (1,245) (762) (483)
Other time deposits 7,532 2,688 4,844
Federal funds purchased
and securities sold under
agreements to repurchase 831 505 326
Short-term borrowings 58 (7) 65
Long-term debt 85 (99) 184
------
Total interest expense 7,261 641 6,620
------
Change in net interest
income(2) $1,446 $1,810 $ (364)
===============================
1994 vs 1993
--------------------------------
Net
Increase Due to changes in
(Decrease) Volume(1) Rate (1)
--------------------------------
(In thousands)
Interest income:
Loans, net of unearned
interest(2)(3) $6,391 $9,854 $(3,463)
Taxable securities 1,630 3,184 (1,554)
Nontaxable investment
securities(2) (111) (87) (24)
Federal funds sold 196 188 8
Time deposits in other
banks (1,158) (845) (313)
-------
Total interest income 6,948 12,507 (5,559)
-------
Interest expense:
Interest-bearing demand and
savings deposits (870) 1,204 (2,074)
Other time deposits 3,216 2,864 352
Federal funds purchased
and securities sold under
agreements to repurchase 406 194 212
Short-term borrowings 23 (13) 36
Long-term debt 293 217 76
-------
Total interest expense 3,068 4,131 (1,063)
-------
Change in net interest
income(2) $3,880 $8,376 $(4,496)
================================
(1) The amount of change not solely due to rate or volume
change was allocated between the change due to rate and
the change due to volume based on the relative size of
the rate and volume changes.
(2) Tax-exempt income on loans and investments and related
yield are shown on a fully taxable equivalent basis
computed using the federal statutory tax rate of 35%.
(3) Nonaccrual loans are included in the average
outstanding balances.
Provision for Loan Losses
The provision for loan losses is a function of management's
overall assessment of the adequacy of the reserve for loan
losses. The provision was $1.3 million in 1995, compared to $904,000
in 1994 and $2.0 million in 1993. The increased loan loss
provision for 1995 compared to 1994 was due to a higher level of
net charge-offs. The decreased loan loss provision for 1994
compared to 1993 was due to improved credit quality and decreased
net charge-offs. Non performing loans as a percent of
outstanding loans, net of unearned interest, decreased slightly
to 0.53% at December 31, 1995 compared to 0.54% at December 31,
1994. Net charge-offs were $1.3 million during 1995, or 0.16% of
average loans outstanding, net of unearned interest, compared to
$849,000, or 0.12%, in 1994. BT's loan loss reserve at December
31, 1995 was $8.1 million, or 0.94% of loans, net of unearned
interest, compared to $7.2 million, or 0.97%, at December 31,
1994. This reserve provides more than adequate coverage with a
ratio of 179% of non-performing loans at December 31, 1995,
compared to 181% at December 31, 1994. For additional
information, see "Non-performing Assets and Risk Elements and
Reserve for Loan Losses."
Other Income
Total other income increased $277,000, or 4.0%, in 1995 over
1994. Trust income increased $24,000, or 1.3%, primarily due to
a greater volume of managed assets. Management views trust
services as a primary source of non-interest income and
recognizes that the 1995 level of trust income growth was
somewhat below expectations. However, 1996 fees should increase
due to the full-year impact of an increased level of assets under
management. Additionally, aggressive pursuit of mutual fund
sales, management of corporate employee benefit plans, and the
effect of completed mergers should serve to bolster trust income
in the year ahead. Bank service fees increased $365,000, or
8.0%, mainly due to higher levels of checking account related
fees. Security gains decreased $147,000, or 76.2% due to market
prices even though the level of security sales and calls
increased in 1995 compared to 1994. Generally, securities are
acquired to provide interest income to the Corporation and are
not bought and sold for taking profits. Sales do occur
periodically when funding is required for loan or deposit
outflows. Other income increased $35,000, or 8.3%, primarily due
to a higher level of gains on loans sold in the secondary
marketplace, a trend management expects to continue in 1996.
In 1994, total other income increased $80,000, or 1.2% over
1993 levels primarily due to increased service fees. Total other
income in 1993 included $615,000 received in a favorable
settlement related to a prior year Pennsylvania Shares Tax
assessment. Excluding the effect of this one-time gain, total
other income increased 11.1% in 1994, compared to 1993.
32
Other Expenses
Total other expenses decreased $265,000, or 0.7%, in 1995
over 1994. Salaries and wages increased $682,000 due to periodic
merit increases. Employee benefit costs decreased $61,000
primarily as a result of reduced hospitalization expense due to a
change in BT's health care insurance provider in the fourth
quarter of 1994. The number of full-time equivalent employees at
December 31, 1995 and 1994 was 683 and 662, respectively. The
Huntington acquisition added 39 full-time equivalent employees at
year-end 1995 of which 19 were furloughed in January of 1996.
The costs associated with these furloughs did not have a
significant impact on the Corporation. During 1995, management
made notable progress in utilizing BT's workforce more
efficiently by reducing the number of full-time employees while
increasing the number of part-time employees. Management views
this restructuring trend as a fundamental element in achieving
increased efficiencies and cost reductions within the
Corporation.
Occupancy expense and equipment expense increased $75,000 and
$348,000 respectively, primarily due to greater depreciation
expense. During 1995, BT committed significant resources to
technological expenditures, including a teller platform
automation system and corporate-wide microcomputer network
enhancements. Management views these outlays as necessary
investments for the future viability of the Corporation.
F.D.I.C. insurance expense decreased $679,000 due to lower
premiums and a retroactive deposit insurance rate adjustment
resulting in a refund of $457,000, received in the third quarter
of 1995. Based on recently proposed legislation, management is
anticipating a one-time deposit insurance assessment of
approximately $1.5 million in 1996 relating to deposits acquired
from savings and loan institutions. Amortization of intangible
assets decreased $144,000 due to the completed amortization of
certain intangible assets in the third quarter of 1994. Other
operating expenses declined $486,000 mainly due to reduced
advertising expense and one-time acquisition related costs that
occurred during the first quarter of 1994. Management seeks to
capitalize on operational efficiencies while pursuing growth
opportunities to achieve the desired results of increased size
and maximum profitability.
In 1994, total other expenses increased $3.7 million compared
to 1993, primarily due to costs associated with the FirstSouth
acquisition.
Provision for Income Taxes
Pre-tax income rose $1.5 million or 9.8% in 1995, to $17.1
million after a $1.4 million, or 9.8%, increase in 1994. The
effective tax rate was 32.3% in 1995, 30.0% in 1994 and 34.2% in
1993.
The increase in the effective tax rate in 1995 was primarily
due to a relatively lower rate in 1994 resulting from the
retroactive deduction of goodwill amortization associated with
acquisitions in prior years. Prior to 1994, certain amortization
associated with these acquisitions was previously nondeductible
for federal income tax purposes. As a result of changes in the
federal income tax laws, BT elected to amortize certain goodwill
over a 15-year period for federal income tax purposes in 1994,
thereby allowing deductibility for both financial statement and
federal income tax purposes. This election in 1994 was primarily
responsible for the lower effective tax rate in 1994 compared to
1993.
Statement of Financial Accounting Standard (SFAS) No. 109,
"Accounting for Income Taxes," was adopted in the first quarter
of 1993. The material changes from existing accounting
principles are that deferred taxes are calculated under the
liability method and adjusted when provisions of the tax law are
changed and the tax effects of business acquisitions and mergers
are reported at gross cost. The adoption of this standard
resulted in an increase in income of $113,000 for the year-ended
1993.
FINANCIAL CONDITION
Loan Portfolio
Total loans outstanding, net of unearned interest, were
$857.6 million at year-end 1995, an increase of $114.9 million, or
15.5% compared to year-end 1994. The growth was primarily due to
$70.1 million in loans acquired in the Huntington acquisition in
December 1995. In 1995, average total loans, net of unearned
interest, grew by $57.2 million, or 8.0%, mainly due to increased
commercial and consumer loan growth. A moderately expanding
economy and relatively low interest rates helped to fuel loan
growth in 1995. During 1995, BT's indirect auto loan portfolio
increased $22.8 million, or 20.4%, over 1994. Aggressive loan
pricing policies and a healthy automotive market helped propel
increases in the indirect lending area making it the fastest
growing sector of BT's loan portfolio in 1995. In 1996,
management plans to focus loan growth in the commercial and
direct consumer areas while selling most longer term fixed-rate
residential mortgage loans to the secondary market. This will
permit BT to meet the needs of its communities and reduce the
interest rate risk associated with long-term fixed-rate
instruments while garnering additional income related to the sale
of these loans. Management is anticipating increases in
residential mortgage refinancing activities in 1996 due to the
expected continuation of the historically low mortgage interest-
rate environment. The consummation of previously announced
merger activity should provide some funding of loan growth during
1996.
In 1994, average total loans increased by $120.8 million, or
20.5%, over 1993, due primarily to the FirstSouth acquisition and
substantial increases in consumer loan growth.
At December 31, 1995, BT's entire loan portfolio consisted of
loans made to individuals and businesses located within BT's
marketing region with 99.0% of these loans located in the
Commonwealth of Pennsylvania. BT does not have any foreign
loans. At December 31, 1995, the most significant industry
concentrations were the real estate and educational services
sectors, which were 6.5% and 1.6% of the total loan portfolio,
respectively.
Real estate industry loans were primarily loans to operators
of nonresidential buildings. Educational service loans were
mainly loans to school districts.
33
The following table summarizes the composition of BT's loan
portfolio by types of loans at December 31, for each of the years
indicated.
1995 1994 1993 1992 1991
-----------------------------------------------------
(In thousands)
Commercial, financial
and agricultural $150,260 $125,851 $130,118 $126,144 $130,910
Real estate 424,528 380,828 369,848 $290,619 $288,497
Consumer 332,400 276,886 233,101 $178,617 $158,237
Lease financing -- -- 190 1,069 2,310
-----------------------------------------------------
Total $907,188 $783,565 $733,257 $596,449 $579,954
=====================================================
The following table shows BT's loan maturities by types of
loans indicated, exclusive of residential and commercial real
estate, consumer and lease financing loans, as of December 31,
1995.
Maturing
---------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
----------------------------------------
(In thousands)
Commercial, financial
and agricultural $60,153 $61,353 $28,754 $150,260
Real estate construction 8,955 -- -- 8,955
----------------------------------------
Total $69,108 $61,353 $28,754 $159,215
========================================
Commercial, financial, and agricultural loans due after one year
and having floating or adjustable rates approximated $68 million.
BT's highly leveraged financings were not significant at
December 31, 1995. Highly leveraged financings are defined as
those credits that are extended for the acquisition or
restructuring of an organization and are characterized by
unusually high debt to total asset ratios. While it is
recognized that these transactions carry a higher level of risk
in some cases, affiliate banks may originate or participate in
this type of financing from time to time.
Non-performing Assets and Risk Elements
Reviews of the commercial loan and commercial mortgage
portfolios are conducted by Credit Department personnel to
systematically evaluate the quality of the portfolio, to detect
problems, and to provide an early warning system for loan
deterioration. Commercial loans and residential mortgages are
placed on a nonaccrual status when they become 90-days past due
as to principal or interest. Delinquent consumer loans of each
bank are reviewed monthly by senior management of the bank. From
these reviews, determinations are made on a case-by-case basis as
to the collectibility of each consumer loan as to principal and
interest. While no specific period of delinquency triggers
nonaccrual status for consumer loans, they are charged off when
they are determined to be uncollectible and all collateral
securing the loans has been liquidated, which normally occurs
within 150 days after delinquency.
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. A loan is classified as restructured when the terms have
been modified, because of deterioration in the financial position
of the borrowers to provide for a reduction of either interest or
principal.
The following table provides information with respect to the
BT's past due loans and the components of its non-performing
assets at December 31 of each of the years indicated.
1995 1994 1993 1992 1991
---------------------------------------------
(Dollars in thousands)
Loans 90-days or
more past due $1,685 $ 652 $ 730 $1,422 $ 972
=============================================
Restructured loans $ 318 $ 675 $ 107 $ 320 $1,702
Nonaccrual loans 4,202 3,313 3,118 3,092 3,950
---------------------------------------------
Total non-
performing loans 4,520 3,988 3,225 3,412 5,652
Other real estate
owned 793 90 573 441 280
---------------------------------------------
Total non-
performing assets $5,313 $4,078 $3,798 $3,853 $5,932
=============================================
Non-performing
loans as a percent
of total loans,
net of unearned
interest 0.53% 0.54% 0.46% 0.60% 1.02%
34
The Corporation's Credit Department analyzes the financial
stability of all large borrowers and pays particular attention to
resolving certain problem or classified loans. A loan is
generally considered classified due to a deterioration in the
financial performance of the borrower. The Corporation had
internally classified loans (other than non-performing loans)
totaling $19.2 million at December 31, 1995 compared to $15.3
million at December 31, 1994. However, these loans are currently
performing and based on a loan-by-loan review, historical
performance, and current economic conditions, management does not
expect any significant amount of classified loans to deteriorate to
nonaccrual status. Classified loans are reviewed monthly by BT's and
the affiliate banks' Board of Directors.
Loans past due 90 days or more increased $1.0 million at
December 31, 1995, primarily due to consumer automobile loans
acquired in the Huntington acquisition. Restructured loans
decreased $357,000, and nonaccrual loans increased $889,000 at
December 31, 1995, compared to the prior year-end. Various
commercial loans acquired from Huntington accounted for the most
of the increase in nonaccrual loans. Other real estate owned
increased $703,000 mainly due to one commercial real estate
property. This loan is well-collateralized and no significant
loss is anticipated upon disposition of the property. Interest
income of $498,000 and $347,000 would have been recorded in 1995
and 1994, respectively, if nonaccrual and restructured loans were
on a current basis in accordance with their original terms.
Interest income of $241,000 and $72,000 on nonaccrual and
restructured loans was recorded in each of the years of 1995 and
1994, respectively.
Reserve for Loan Losses
The reserve for loan losses totaled $8.1 million at year-end
1995 and $7.2 million at years-ended 1994 and 1993. The
Huntington acquisition added $849,000 to the reserve in December
1995. The reserve for loan losses, as a percent of loans, net of
unearned interest was 0.94% at December 31, 1995 compared to
0.97% and 1.03% at year-end 1994 and 1993, respectively. Based
on management's loan-by-loan review, the past performance of the
borrowers and current economic conditions, management does not
anticipate any current losses related to nonaccrual,
nonperforming or classified loans above what has already been
considered in its overall judgment of the adequacy of the
reserve. Management believes that the reserve at December 31,
1995 is adequate to cover losses inherent in the portfolio as of
such date; however, there can be no assurance that the
Corporation will not incur losses in future periods which could
be substantial in relation to the size of the reserve or in
relation to the estimates set forth herein.
In determining the amount to be provided in the reserve for
loan losses, management considers the volume of loans by type and
prevailing economic conditions. BT's Credit Department also
employs a loan-by-loan review of a substantial portion of their
respective business loan portfolios. In addition, BT's
historical experience with respect to charge-offs, delinquencies,
and the level of the reserve are considered. BT's Credit Department
utilizes a quantitative model to formally ascertain reserve levels at
quarterly intervals. The model employs a disciplined methodology approach
factoring in the various loan types and credit ratings within the
commercial portfolio. Management's final assessment of the adequacy
of the reserve involves considerations which are essentially judgmental
and are not subject to mathematical formulation.
The following table summarizes the activity in BT's reserve
for loan losses for each of the years indicated.
Years ended December 31,
--------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------
(Dollars in thousands)
Total loans outstanding at period
end (net of unearned interest) $857,557 $742,657 $698,408 $567,211 $553,384
============================================
Reserve for loan losses at
beginning of year 7,227 7,172 6,099 5,131 5,027
Reserve of acquired banks 849 -- 784 69 --
Loans charged off:
Commercial, financial, and
agricultural (471) (268) (1,102) (1,228) (277)
Real estate (147) (245) (193) (97) (170)
Consumer (956) (695) (657) (927) (1,098)
-------------------------------------------
Total loans charged off (1,574) (1,208) (1,952) (2,252) (1,545)
-------------------------------------------
Recoveries of loans previously
charged off:
Commercial, financial, and
agricultural 29 162 62 117 115
Real estate 78 32 10 8 1
Consumer 203 165 194 168 119
-------------------------------------------
Total recoveries 310 359 266 293 235
-------------------------------------------
Net loans charged off (1,264) (849) (1,686) (1,959) (1,310)
Additions to reserve charged
to operations 1,259 904 1,975 2,858 1,414
-------------------------------------------
Reserve for loan losses at
year end $ 8,071 $ 7,227 $ 7,172 $ 6,099 $ 5,131
===========================================
Ratio of net charge-offs during
year to average loans, net of
unearned interest 0.16% 0.12% 0.29% 0.36% 0.25%
Reserve for loan losses as a
percent of loans, net of
unearned interest 0.94 0.97 1.03 1.08 0.93
Reserve for loan losses to non-
performing loans 1.8x 1.8x 2.2x 1.8x 0.9x
Reserve for loan losses to non-
performing loans plus loans 90
days or more past due 1.3x 1.6x 1.8x 1.3x 0.8x
35
The following table summarizes the allocation of the reserve
for loan losses at December 31 for the years indicated.
1995 1994 1993
-----------------------------------------------
% of % of % of
Loans Loans Loans
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
-----------------------------------------------
(Dollars in thousands)
Commercial,
financial, and
agricultural $2,596 16.6% $2,925 16.1% $3,025 17.8%
Real estate 2,137 46.8 1,850 48.6 1,950 50.4
Consumer 1,254 36.6 1,750 35.3 1,650 31.8
Lease financing --- --- --- --- --- ---
Unallocated 2,084 --- 702 --- 547 ---
-----------------------------------------------
Total reserve $8,071 100.0% $7,227 100.0% $7,172 100.0%
===============================================
(continued...)
1992 1991
-----------------------------------
% of % of
Loans Loans
to Total to Total
Amount Loans Amount Loans
-----------------------------------
Commercial, (Dollars in thousands)
financial, and
agricultural $2,950 21.2% $2,850 22.6%
Real estate 1,350 48.7 1,150 49.7
Consumer 1,300 29.9 1,000 27.3
Lease financing --- 0.2 --- 0.4
Unallocated 499 --- 131 ---
-----------------------------------
Total reserve $6,099 100.0% $5,131 100.0%
===================================
Not withstanding the foregoing allocations, the entire
reserve for loan losses is available to absorb charge-offs in any
category of loans.
Securities Portfolio
Securities totaled $243.3 million at December 31, 1995, a
decrease of $27.9 million, or 10.3%, over December 31, 1994. Net
unrealized holding gains on securities available-for-sale totaled
$1.9 million at year-end 1995. The decrease in the securities
portfolio was due essentially to the maturing and sales of
various securities throughout the year and the use of these funds
to support recent loan growth. Money market investments were at
lower levels during 1995 reflecting the transfer of funding to
support loan growth. Securities totaled $271.2 million at year-
end 1994, representing an increase of $39.7 million, or 17.1%
over December 31, 1993. At year-end 1994, net unrealized holding
losses on securities available-for-sale totaled $10.1 million due
to the relatively lower yield of the portfolio as compared to
current market rates. It has been BT's policy to buy securities
with a maturity of five years or less in order to provide
liquidity and the ability to take advantage of a changing rate
environment. Banking affiliates' securities portfolios have
relatively similar portfolio characteristics, with short-term
U.S. Treasury instruments providing strong primary liquidity.
The following table summarizes the book value of BT's
securities portfolio at December 31 for each of the years
indicated.
1995 1994 1993
------------------------------
(In thousands)
US Treasury and other US
Government agencies:
Available-for-sale $198,812 $239,365 $223,308
Held-to-maturity 35,161 22,911 --
States and political subdivisions
available-for-sale 2,975 2,944 3,548
Other securities available-for-sale 6,361 5,972 4,652
------------------------------
Total $243,309 $271,192 $231,508
==============================
36
The following table summarizes amortized cost and weighted
average yields of BT's securities portfolio at December 31, 1995
by maturities of investments.
After One But
Within One Year Within Five Years
----------------------------------------
Amount Yield(1) Amount Yield(1)
----------------------------------------
(Dollars in thousands)
US Treasury and
other US Government
agencies $48,753 7.07% $183,664 6.05%
States and political
subdivisions(2) 1,420 8.28 984 7.94
Other securities 110 8.81 337 9.17
----------------------------------------
Total $50,283 7.11% $184,985 6.07%
========================================
(continued...)
After Five But
Within Ten Years After Ten Years
----------------------------------------
Amount Yield(1) Amount Yield(1)
----------------------------------------
(Dollars in thousands)
US Treasury and
other US Government
agencies $ 199 8.00% $ -- --%
States and political
subdivisions(2) 342 8.97 200 8.26
Other securities 486 7.53 4,882 6.11
----------------------------------------
Total $ 1,027 8.10% $ 5,082 6.19%
========================================
(1) Weighted average yield is based on yield to maturity, which
is the discount or premium rate that makes the present value
of a bond's cash flow to maturity equal to the bond's market
price.
(2) Yields on tax-exempt securities were computed on a fully
taxable equivalent basis using the federal statutory tax
rate of 35%.
Deposits
At December 31, 1995, total deposits were $1 billion, an
increase of $87.4 million, or 9.2% compared to December 31, 1994.
Non-interest-bearing deposits increased $15.2 million while
interest-bearing deposits rose $72.2 million. Deposits acquired
in the Huntington acquisition accounted for approximately $75
million of the increase in total deposits over year-end 1994.
Exclusive of the Huntington acquisition, the aggregate deposit
increase of approximately $12 million reflects a substantial
increase in certificates of deposit resulting from new deposits
as well as some shifting of funds from lower yielding savings and
money market investment accounts. In 1996, concentrated
marketing efforts focusing on specific customer profiles will be
utilized to facilitate deposit growth in existing markets. At
year-end 1994, total deposits decreased $8.7 million, or 1%
compared to year-end 1993. The slight decrease was primarily
attributable to anticipated runoff in deposits in early 1994 due
to the FirstSouth acquisition in December 1993.
The daily average amount of BT's deposits and the average
rate paid on such deposits are summarized in the following table.
Years Ended December 31,
-----------------------------------------------------
1995 1994 1993
-----------------------------------------------------
Amount Rate Amount Rate Amount Rate
-----------------------------------------------------
(Dollars in thousands)
Non-interest-bearing
demand deposits $117,111 $112,395 $ 94,542
Interest-bearing demand
deposits 152,857 1.5% 171,363 1.6% 158,593 2.0%
Savings deposits 225,879 1.7 253,889 1.8 207,978 2.4
Time deposits 466,239 5.4 408,402 4.3 341,766 4.2
-------- -------- --------
Total $962,086 $946,049 $802,879
======== ======== ========
The maturity schedule of BT's time certificates of deposit
of $100,000 or more at December 31, 1995 is summarized below.
Time Certificates of Deposit (In thousands)
3 months or less $28,004
Over 3 through 6 months 15,532
Over 6 through 12 months 14,295
Over 12 months 10,967
-------
Total $68,798
=======
37
Short-Term Borrowings
The following table summarizes the distribution of BT's
short-term borrowings, which are comprised of federal funds
purchased, securities sold under agreements to repurchase, and
other short-term borrowings. Repurchase agreements are retail
repurchase agreements and have terms of overnight to 29 days and
repurchase agreements with the Federal Home Loan Bank (FHLB).
Also shown are the maximum amount of borrowings, the average
amounts of borrowings, and the weighted average interest rates
paid on such borrowings for the last three years.
1995 1994 1993
--------------------------
(Dollars in thousands)
Amount outstanding at year end $37,579 $57,972 $18,326
Weighted average interest rate
at year end 4.58% 5.14% 2.32%
Maximum amount outstanding at
any month end $51,930 $57,972 $37,490
Average amount outstanding during
the year 32,120 21,125 14,708
Weighted average interest rate
during the year 5.15% 3.63% 2.29%
Capital Resources
BT's primary source of capital has historically been retained
earnings. Other sources are the sale of common stock, long-term
debt and issuances of stock in connection with acquisitions. BT
has developed a capital planning policy to ensure current capital
adequacy and to plan for future needs. The general objective of
the policy is to manage the capital position, not only to ensure
compliance with regulations, but also to ensure capital adequacy
for future company expansion.
At year-end 1995, BT's capital ratios were lower compared to
year-end 1994 due to management's intentional leveraging of
capital utilized in the Huntington acquisition.
The following table summarizes significant risk-based
capital components and ratios at December 31, 1995 and 1994.
1995 1994
--------------------
COMPONENTS: (Dollars in thousands)
Core capital (Tier 1) $ 84,134 $ 86,730
Risk adjusted capital 92,205 93,957
Risk adjusted assets 872,696 765,424
CAPITAL RATIOS:
Tier 1 ratio 9.64% 11.33%
Risk adjusted ratio 10.57 12.28%
Leverage ratio 7.70 8.11%
At year-end 1995, the minimum ratio for qualifying total
capital to risk-weighted assets was 8.00% with a Tier 1 ratio of
4.00%. Institutions need to meet a minimum leverage capital
ratio of 3.0% plus an additional 1% to 2% cushion. BT's
affiliate banks exceed capital adequacy requirements.
The Corporation and its predecessor, Bank and Trust, have
increased dividends for 28 consecutive years. Dividends of $0.30
in the first, second and third quarters and $0.32 in the fourth
quarter were paid in 1995. A dividend of $0.32 was declared for
the first quarter of 1996.
BT common stock attained a 264% total cumulative return
during the five-year period from December 31, 1990 to December
31, 1995, assuming reinvestment of all dividends. This compares
to a 112% total return for the overall NASDAQ Stock Market and a
199% total return for BT's peer group banks (Middle Atlantic
Region) over the same time period. BT's historical stock price
performance is not necessarily indicative of future price
performance. The market price of BT common stock at December 31,
1995 was $34.75, compared to $26.63 at December 31, 1994.
Approximately $3.9 million was used to acquire premises and
equipment in 1995. The capital budget for 1996 is $4.6 million,
for an upgraded mainframe computer system, branch automation,
general renovations of properties, and equipment additions and
replacements.
Liquidity and Interest Rate Sensitivity Management
BT's liquid assets consist of cash and due from banks,
federal funds sold, interest-bearing deposits with banks,
and marketable securities. In addition, BT's core deposits
and shareholders' equity supplement the liquid position
of BT by supporting a significant portion of the loan and
securities portfolio. The monetary nature of BT's assets and
liabilities ensures that sufficient funds are available to meet
the operational cash needs of the Corporation. Operating
activities have traditionally been a significant source of cash.
The securities portfolio is a readily available source of
liquidity, and BT currently has $50.9 million of securities due
to mature within one year. Financing activities can be a source
of cash, primarily from low cost short-term borrowings and through the
acquisition and growth of deposits. The Corporation expects to
have sufficient funding sources available from financial
institutions and the financial markets should the need for
additional funding develop.
To further enhance the liquidity position of the
Corporation, Bank and Trust and Fayette became members of the
FHLB and Laurel is in the process of applying for membership.
The FHLB membership will provide affiliate banks with an
additional source of both short- and long-term funding, special
funding for low-income housing lending, and various other
correspondent bank services.
38
The following table sets forth, in summary form, BT's
repricing analysis at December 31, 1995 prepared in accordance
with regulatory requirements.
Non-rate
sensitive
0-90 91-365 Over 1-5 and over
days days years 5 years Total
---------------------------------------------------
(In thousands)
Loans $ 218,991 $ 153,109 $ 322,536 $ 162,921 $ 857,557
Securities 4,102 48,374 184,326 6,507 243,309
Other interest-earning
assets 2,506 --- --- 182 2,688
---------------------------------------------------
Total interest-earning
assets 225,599 201,483 506,862 169,610 1,103,554
---------------------------------------------------
Other assets --- --- --- 98,848 98,848
---------------------------------------------------
Total assets $ 225,599 $ 201,483 $ 506,862 $ 268,458 $ 1,202,402
===================================================
Demand deposits $ 164,005 $ --- $ --- $ 138,252 $ 302,257
Savings deposits 224,979 --- --- --- 224,979
Interest-bearing time
deposits 123,107 221,391 146,005 17,908 508,411
Borrowed funds 37,579 --- --- --- 37,579
Long-term debt 20,004 12 67 --- 20,083
Other liabilities --- --- --- 7,050 7,050
Shareholders' equity --- --- --- 102,043 102,043
---------------------------------------------------
Total liabilities and
shareholders' equity $ 569,674 $ 221,403 $ 146,072 $ 265,253 $ 1,202,402
===================================================
Net interest sensitivity
gap $(344,075)$ (19,920)$ 360,790 $3,205
---------------------------------------------------
Net cumulative interest
gap $(344,075)$(363,995)$ (3,205)
---------------------------------------------------
The previous table has been prepared in accordance with
regulatory requirements, presenting interest-bearing demand
deposits and savings deposits as repricing within the earliest
period presented. As a result, the table reflects a negative
cumulative interest gap position of $364 million in the first
one-year gap at year-end 1995. This compares to negative
cumulative one-year interest gaps of $325 million at year-end
1994 and $253 million at year-end 1993. While important, the
information presented in the table represents only a static view
of BT. Management believes, however, that this is not reflective
of anticipated results, based on the fact that BT has
historically not experienced the kind of earnings volatility
indicated from the negative cumulative gap. Certain core
deposits, such as interest-bearing demand deposits and savings
deposits may not reprice to the same degree as other liabilities
despite similar repricing characteristics, therefore the gap is
not necessarily indicative of the change in net interest income
that would occur due to changing market interest rates. As such,
management does not use the table to manage interest rate
sensitivity but rather uses simulation models and other
historical data which they believe are more reflective of
anticipated results.
The two major interest sensitive components of the table
shown above are loans and interest-bearing deposits, which are
primarily certificates of deposit. The first category, 0- to 90-
days maturity, is of great significance due to the ability of
market-rate loans to reprice immediately while certificates of
deposit will reprice at maturity throughout the period. During
periods of rising rates, management would seek to lengthen the
maturities of interest-bearing deposits to delay the increase in
interest expense while market-rate loans would provide increased
income. Likewise, during periods of falling rates, management
would seek to shorten the maturities of certificates to help
compensate for the lower rates on market-rate loans. BT's gap-
management objectives are to minimize risks associated with
interest rate changes due to the maturity imbalance of various
assets and liability categories, to maintain a profitable
interest rate differential between the overall cost of funds and
rate of return on loans, and to assure adequate liquidity.
Inflation
Assets and liabilities of a financial institution are
monetary in nature. Accordingly, interest rates, which generally
move with the rate of inflation, have potentially the most
significant effect on BT's net interest income. BT attempts to
limit inflation's impact on net interest spread through effective
asset/liability management.
39
Subsidiaries of BT Financial Corporation
----------------------------------------
1. Johnstown Bank and Trust Company
2. Laurel Bank
3. Fayette Bank
4. Bedford Associates, Inc.
5. BT Management Trust Company
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement on Form S-8, dated June 14, 1995, with regard to BT
Financial Corporation 401(K) Plan for Banking Employees, of our
report dated January 23, 1996, on our audits of the consolidated
financial statements of BT Financial Corporation and affiliates
as of December 31, 1995 and 1994, and for the years ended
December 31, 1995, 1994, and 1993, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
600 Grant Street
Pittsburgh, PA
March 27, 1996
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 50,108
<INT-BEARING-DEPOSITS> 1,188
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<INVESTMENTS-HELD-FOR-SALE> 208,148
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