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, 1996
-----------------
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
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BT FINANCIAL CORPORATION
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(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. [ ]
The registrant estimates that as of March 13, 1997, the aggregate market value
of shares of the registrant's Common Stock held by non-affiliates of the
registrant was approximately $221,301,303. 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, 1997. 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 (381,585 shares in total) from
the number of shares outstanding (5,682,215).
As of March 13, 1997, the registrant had outstanding 5,682,215 shares of its
Common Stock.
The Index to Exhibits is on page 16.
--
Documents incorporated by reference:
- -----------------------------------
Parts of Form 10-K
into which Document
Document is Incorporated
- -------- --------------------
1996 Annual Report to Shareholders
(the "1996 Annual Report") I, II,
Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders
(the "1997 Proxy Statement") III
BT FINANCIAL CORPORATION
FORM 10-K
Fiscal year ended December 31, 1996
-----------------------------------
INDEX
Part I Page
- ------ ----
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 5
Executive Officers of the Registrant 6
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 16
2
Part I
Item 1 Business
- ------ --------
Description of Business
- -----------------------
BT Financial Corporation ("BT" or 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, 1996
the Registrant had total assets of $1.5 billion. The Registrant also has
three nonbank subsidiaries, Bedford Associates, Inc., which holds and leases
property used by the Banks in their banking operations, BT Management Trust
Company, a trust company which provides trust and investment services, and
Moxham Community Development Corporation, a corporation which conducts
community development activities.
On June 25, 1996, BT completed a merger with Moxham Bank Corporation
("Moxham") whereby Moxham was merged directly into BT. In connection with the
merger, each share of Moxham common stock (other than shares held by the
Registrant) was converted into 1.15 shares of BT Common Stock, resulting in
the issuance of 1,038,519 shares of BT Common Stock. In addition, 88,550
shares of BT Common Stock were exchanged for all 14,000 outstanding shares of
Moxham Series A $8.00 cumulative convertible non-voting preferred stock. The
merger has been accounted for as a pooling-of-interests and accordingly BT's
consolidated financial statements have been restated retroactively to include
the accounts and operations of Moxham for all periods prior to the merger.
Moxham's banking subsidiaries included the Moxham National Bank and The First
National Bank of Garrett, and Moxham also held the Moxham Community
Development Corporation. Upon consummation of the merger, Moxham's banking
subsidiaries were merged into Bank and Trust on June 25, 1996. At the time
of the merger, Moxham had assets of approximately $235 million and
operated 12 branches in Cambria, Somerset, and Westmoreland counties.
The Banks conduct business through a network of 69 full-service 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 54 automated teller
machines ("ATM's") at 53 locations which are part of the "Cirrus " and
"MAC " systems. "Cirrus " and "MAC " provide links to national and regional
ATM networks.
3
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 46 offices in Cambria, Somerset, Bedford, Indiana,
Armstrong, Butler, Allegheny, and Westmoreland Counties. At December 31,
1996, its assets totaled $866 million.
Laurel is a Pennsylvania bank and trust company and a member of
the Federal Reserve System, with total assets of $230 million at December 31,
1996. Laurel operates 11 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 $355 million at
December 31, 1996.
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.
Moxham Community Development Corporation was organized in 1992 to conduct
community development activities. It is a for-profit Pennsylvania corporation
conducting activities consisting of equity investments as a limited partner
in various housing developments.
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.
4
As of December 31, 1996, the Registrant, the Banks, BT Management
Trust Company and the Registrant's other subsidiaries had a total of 764 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
- -------------------------------
Merger and acquisition activities of the Registrant are detailed in
"Note 2-Acquisitions" of the "Notes to Consolidated Financial Statements"
included on pages 19 and 20 of the 1996 Annual Report to Shareholders, which
is incorporated herein by reference.
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 addition, Bank and Trust owns a
seven-story building located on Clinton Street in Johnstown and is using the
building as a storage facility.
The Banks operate 69 full-service banking offices, 51 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 1997 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 June 1996, Bank and Trust acquired one banking office in The
Armstrong County Trust Company acquisition. Additionally, 12 banking offices
were acquired by BT in connection with the Moxham merger in June 1996. In
conjunction with the merger, four of these branches closed during the third
quarter of 1996 along with two branches of Bank and Trust and one branch of
Laurel as a result of duplicate service areas.
Item 3 Legal Proceedings
- ------ -----------------
Information required to be furnished pursuant to this Item is set
forth on page 25 of the 1996 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.
5
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 46 Chairman, Chief Executive Officer
and Director of the Registrant and
of Bank and Trust.
Steven C. Ackmann 45 President and Chief Operating Officer
of the Registrant
Eric F. Rummel 44 Vice Chairman of the Registrant,
President of Bank and Trust.
Carl J. Motter, Jr. 59 Vice Chairman of the Registrant.
J. William Smith 49 Vice Chairman of the Registrant.
Mark L. Sollenberger 43 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 34 Secretary and Assistant Treasurer of the
Registrant, Bank and Trust and BT Management
Trust Company.
William E. Ritenour 34 Vice President of the Registrant
6
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.
Eric F. Rummel has served as Vice Chairman of the Registrant since 1996
--------------
and President of Bank and Trust since 1995. He served as President of Laurel
from 1991 to 1995. He served as Executive Vice President of the Registrant in
1991 and of Bank and Trust from 1989 to 1991. He served as Senior Vice
President of Bank and Trust from 1988 to 1989.
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.
J. William Smith has served as Vice Chairman of the Registrant since
----------------
1996. He served as President and Chief Executive Officer of the former Moxham
Bank Corporation from 1986 to 1996.
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.
7
William E. Ritenour has served as Vice President of the Registrant since
-------------------
1996. He served as Controller of Fayette from 1987 to 1996.
8
Part II
Information required to be furnished pursuant to Part II of this report
is set forth in the 1996 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
1996
Caption in 1996 Annual Report Annual Report
----------------------------- -------------
Item 5 Market for the Registrant's Common
- ------ Equity and Related Stockholder Matters
--------------------------------------
Market Price and Cash Dividends 31
Dividend Restrictions 26
Item 6 Selected Financial Data
- ------ -----------------------
Selected Consolidated Financial Data 30
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 31-41
9
Item 8 Financial Statements and Supplementary Data
- ------ -------------------------------------------
Report of Independent Accountants 12
Consolidated Balance Sheet 13
Consolidated Statement of Income 14
Consolidated Statement of Cash Flows 15
Consolidated Statement of Changes
in Shareholders' Equity 16
Notes to Consolidated Financial Statements 17-29
Supplemental Financial Data 29
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 1997
Proxy Statement under the caption "Election of Directors," and is
incorporated herein by reference. Information required to be
furnished pursuant to this Item regarding delinquent filers is
set forth in the 1997 Proxy Statement under the caption "Compliance
with Section 16 (a) of the Securities Exchange Act of 1934" 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 1997 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 1997
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 1997 Proxy Statement under the captions "Election of
Directors," "Executive Compensation" and "Stock Ownership"
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 1997 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 L.L.P.
dated January 21, 1997, are described herein in Part II, Item 8 -
Financial Statements and Supplementary Data appear on pages 13
through 29 of the 1996 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 16.
(b) Reports on Form 8-K:
-------------------
No reports on Form 8-K have been filed by the Registrant during
the quarter for which this report is filed.
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 26, 1997
----------------------------- ----------------
Chairman, and 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 26, 1997
----------------------------- ----------------
John H. Anderson
Chairman, and Chief Executive
Officer and Director
Principal Financial Officer:
/s/ Mark L. Sollenberger Date: March 26, 1997
----------------------------- ----------------
Mark L. Sollenberger
Executive Vice President,
Treasurer, and Assistant
Secretary
Principal Accounting Officer:
/s/ William E. Ritenour Date: March 26, 1997
---------------------------- ----------------
William E. Ritenour
Vice President
13
Directors:
Date: March 26, 1997
- ------------------------------ ----------------
G. Scott Baton II
/s/ Martin L. Bearer Date: March 26, 1997
- ------------------------------ ----------------
Martin L. Bearer
/s/ John C. Cwik, M.D. Date: March 26, 1997
- ------------------------------ ----------------
John C. Cwik, M.D.
Date: March 26, 1997
- ------------------------------ ----------------
Bruno DeGol
/s/ Louis G. Galliker Date: March 26, 1997
- ------------------------------ ----------------
Louis G. Galliker
/s/ William B. Kania Date: March 26, 1997
- ------------------------------ ----------------
William B. Kania
Date: March 26, 1997
- ------------------------------ ----------------
L. Robert Kimball
/s/ Edward L. Mears Date: March 26, 1997
- ------------------------------ ----------------
Edward L. Mears
/s/ Roger S. Nave Date: March 26, 1997
- ------------------------------ ----------------
Roger S. Nave
/s/ Ethel J. Otrosina Date: March 26, 1997
- ------------------------------ ----------------
Ethel J. Otrosina
Date: March 26, 1997
- ------------------------------ ----------------
Robert G. Salathe, Jr.
/s/ William R. Snoddy Date: March 26, 1997
- ------------------------------ ----------------
William R. Snoddy
14
/s/ Gerald W. Swatsworth Date: March 26, 1997
- ------------------------------ ----------------
Gerald W. Swatsworth
/s/ W. A. Thomas Date: March 26, 1997
- ------------------------------ ----------------
W. A. Thomas
/s/ Rowland H. Tibbott, Jr. Date: March 26, 1997
- ------------------------------ ----------------
Rowland H. Tibbott, Jr.
/s/ Nelson G. Wheeler Date: March 26, 1997
- ------------------------------ ----------------
Nelson G. Wheeler
/s/ Thomas A. Young Date: March 26, 1997
- ------------------------------ ----------------
Thomas A. Young
15
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.
Exhibit Prior Filing or Sequential
Number Description Page 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 and Financial Corporation
among BT Financial Registration Statement on
Corporation Johnstown Bank Form S-4 (No. 333-01797).
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 Incorporation to BT Financial Corporation
of BT Financial Registration Statement on
Corporation. Form S-4 (No. 33-69112).
3.2 By-Laws of BT Financial Incorporated by reference
Corporation. to BT Financial Corporation
Registration Statement on
Form S-4 (No. 33-69112).
4.1 Loan Agreement dated Not filed. In accordance
December 14, 1995, between with paragraph (b)(4)(iii)(A)
Mellon Bank, N.A. and BT of Item 601 of Regulation S-K,
Financial Corporation. BT Financial Corporation hereby
agrees to furnish a copy of this
instrument to the Commission upon
request.
10.1 Supplemental Benefit Plan Incorporated by
of BT Financial Corporation reference to Exhibit
dated June 22, 1994.* 10.1 to BT Financial
Corporation's Annual
Report on Form 10-K
for the year ended
December 31, 1994.
16
Exhibit Prior Filing or Sequential
Number Description Page No. Herein
- ------- ----------- --------------------------
10.2 Key Employee Incentive Filed herewith.
Compensation Plan of BT
Financial Corporation
dated July 24, 1996.*
10.3 Moxham Bank Corporation Filed herewith.
Executive Retirement Plan
dated January 1, 1987, as
amended and restated.
11 Computation of Net Income Filed herewith.
Per Share
13.1 All portions of the BT Filed herewith.
Financial Corporation
1996 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,independent
accountants for the Registrant.
23.2 Consent of Barnes, Saly & Filed herewith.
Company, independent
accountants for the former
Moxham Bank Corporation
27.1 Financial Data Schedule Filed herewith.
27.2 Restated Financial Data Filed herewith.
Schedule
99.1 Report of Barnes, Saly & Filed herewith.
Company on Moxham Bank Corporation's
Financial Statements as of December 31,
1995 and for each of the years in the
two year period ended December 31, 1995.
* Indicates exhibit is a management contract or compensation
plan or arrangement.
17
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.
18
BT FINANCIAL CORPORATION
KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I.
PURPOSE.
The purposes of this BT Financial Corporation Executive
Incentive Compensation Plan (the "Key Management Incentive Plan")
are to enhance shareholder value and to contribute to the growth
and earnings of BT Financial Corporation, its subsidiaries and
affiliates (collectively, the "Corporation") by directing key
employees of the Corporation to attain corporate and individual
performance goals set from year to year by the Executive
Committee. Direction is provided to key employees in the form of
incentive awards contingent upon the level of actual achievement
of both Corporation and individual goals.
ARTICLE II.
DEFINITIONS.
2.1 "Administrative Committee" shall mean the CEO and such
other officers of the Corporation as the Executive Committee may
designate from time to time. Members of the Administrative
Committee (other than the CEO) shall serve at the pleasure of the
Executive Committee.
2.2 "Attained Bonus Pool" shall mean the amount to be
awarded as Incentive Awards under the Plan for a particular Plan
Year after determination of the actual achievement and relative
weight of the respective Targets comprising the Corporate
Objectives for that Plan Year.
2.3 "Beneficiary" shall mean a person or persons a
Participant has designated, by filing an election with the
Administrative Committee, substantially in the form of Schedule A
attached hereto, to receive his or her Incentive Award, to the
extent payable, in the event of his or her death. If no
Beneficiary has been designated, or if a Participant's
Beneficiary has predeceased the Participant, the Participant's
spouse or, if none, the Participant's children or, if none, the
Participant's estate, shall be deemed to be the Participant's
Beneficiary.
2.4 "Board" shall mean the Board of Directors of the
Corporation.
2.5 "Bonus Pool" shall mean the aggregate amount,
denominated in cash, shares of Common Stock or a combination of
cash and shares of Common Stock as described in Article V,
available to pay Incentive Awards if all Corporate Objectives are
achieved for a particular Plan Year as determined by the
Executive Committee, in its discretion, at or near the
commencement of that Plan Year, or, for the initial Plan year,
the portion of the Plan Year following adoption of this Plan.
2.6 "Chief Executive Officer" or "CEO" shall mean the Chief
Executive Officer of the Corporation.
2.7 "Common Stock" shall mean a share of common stock, par
value $5.00 per share, of the Corporation.
2.8 "Corporation" shall mean BT Financial Corporation, its
subsidiaries, affiliates, successors and assigns.
2.9 "Corporation Objectives" shall mean, for Plan Year,
collectively the Targets for ROE, EPS, Efficiency Ratios and such
other criteria as the Executive Committee shall determine
appropriate for a particular Plan Year.
2.10 "Current Salary" shall mean, with respect to any
Participant, the annual rate of base salary the Participant is
receiving from the Corporation on the last day of the relevant
PlanYear.
2.11 "Earnings Per Share" or "EPS" shall mean the earnings
of the Company, as determined under applicable accounting
principles and announced to the shareholders for a particular
Plan Year divided by the number of issued and outstanding shares
of Common Stock.
2.12 "Efficiency Ratios" shall mean noninterest expense of
the Bank (without regard to loan losses or nonrecurring items)
divided by tax equivalent net interest income plus noninterest
income (without regard to gains on securities).
2.13 "Eligible Participant" shall mean a Key Employee who
has been designated as a Participant for a particular Plan Year
and, for such Plan Year has received an Individual Rating of at
least Very Capable.
2.14 "Executive Committee" shall mean the Executive
Committee of the Board of Directors of the Corporation. As of
the date of the adoption of this Plan, the Executive Committee
and the Compensation Committee of the Board of Directors is
comprised of the same persons.
2.15 "Fiscal Year" shall mean the calendar year; provided,
however, the term "Fiscal Year" shall only refer to such periods
for which incentive compensation may be paid under this Plan.
2.16 "Key Employees" shall mean those employees of the
Corporation who, with respect to a particular Plan Year, are
deemed to hold positions which may substantially influence the
attainment of Corporate Objectives.
2.17 "Incentive Award" shall mean the payment a Participant
would be entitled to receive from the Corporation under the terms
of this Plan with respect to a Fiscal Year.
2.18 "Individual Rating" shall mean the rating received by a
Participant with respect to a particular Plan Year under the
Corporation's Management Performance Appraisal System (or
successor thereto as then in effect).
2.19 "Participant" shall mean a Key Employee who has been
granted the right to receive an Incentive Award under this Plan
for the relevant Fiscal Year.
2.20 "Plan" or "Key Management Plan" shall mean this BT
Financial Corporation Key Employee Incentive Compensation Plan,
as amended from time to time.
2.21 "Plan Year" shall mean the Fiscal Year.
2.22 "Return on Equity" or "ROE" shall mean the ratio of
consolidated net income of the Corporation for the Fiscal Year to
the average of the total equity of the Corporation. The
methodology for calculating Net Return Equity shall be prescribed
by the Executive Committee and as consistent with the method used
by the Corporation for reporting to shareholders. The Executive
Committee shall determine the level of Return on Equity in
consultation with the Corporation's officers and advisers.
2.23 "Targets" shall mean the level of EPS, ROE and
Efficiency Ratios, respectively, to be attained in a particular
Plan Year as a precondition to making some or all of the Bonus
Pool available for the payment of bonuses to Qualified
Participants.
2.24 "Termination for Cause" shall mean the termination of
employment of a Participant by the Corporation as a result of (I)
the continued failure, after notice, of the Participant to render
services to the Corporation (or any of its Subsidiaries) in
accordance with the terms of his employment, which failure
amounts to gross neglect of his duties to the Corporation (or any
of its Subsidiaries), or (ii) the commission by the Participant
of an act of fraud or embezzlement against the Corporation (or
any of its Subsidiaries) or of an act which he knew to be in
gross violation of his duties to the Corporation (or any of its
Subsidiaries), or (iii) an indictment for a felony provided the
Participant is subsequently convicted of or enters a plea of nolo
contendere to such felony or any lesser included or related
offense.
ARTICLE III.
ADMINISTRATION AND OPERATION OF THE PLAN.
3.1 Executive Committee. The Executive Committee shall
have the authority to adopt, amend and rescind rules and
regulations relating to the Plan and its operation and shall have
all authority and discretion to take any and all actions the
Executive Committee deems necessary or appropriate for the
administration of the Plan. All determinations of the Executive
Committee shall be final and binding upon the Corporation and
each employee of the Corporation, whether or not then a
Participant. At or near the commencement of each Fiscal Year (or
for the Fiscal Year in which the Plan is adopted, at or near the
date the Plan is adopted), the Executive Committee shall
determine whether a Bonus Pool will be formed for the following
Fiscal Year. If the Executive Committee determines that a Bonus
Pool will be formed for a Fiscal Year, the Executive Committee
will promptly provide notice to the CEO and, in connection with
the Corporation's budgeting process for a particular Plan Year,
the Executive Committee shall:
(a) determine those Key Employees of the Corporation who
will be Participants in the Plan eligible to be considered for an
Incentive Award for that Plan Year as further described in
Article IV;
(b) determine the amount of the Bonus Pool for that Plan
Year and the portion, if any, of that Bonus Pool which shall be
paid in shares of Common Stock as further described in Article V;
(c ) determine the Corporation Objectives upon which
Incentive Awards will be made with respect to the Plan Year as
further described in Section 6.1;
(d) determine the level of Individual Performance which
will entitle a Participant for an Incentive Award under the
Plan, provided, however, the minimum level of Individual
Performance which may be set by the Executive Committee shall be
an Individual Rating of "Very Capable" under the Corporation's
Management Performance Appraisal System (or its equivalent in the
event of change in rating systems) as further described in
Section 6.2; and
(e) prescribe such limitations, restrictions and
conditions (in addition to those set forth in Article IX of the
Plan) upon Incentive Awards as the Executive Committee shall deem
appropriate.
The foregoing factors shall be announced to each Participant at
or near the beginning of the Fiscal Year in a form substantially
similar to the form attached hereto as Schedule B, provided,
however, for the Fiscal Year in which the Plan is initially
adopted, the Executive Committee may defer the determination of
the amount of the Bonus Pool for such year and notification to
the Participants until such time as the Executive Committee
determines appropriate, in its discretion.
At the time set forth in Article VII, the Executive
Committee shall review the Individual Ratings of Participants and
the financial performance of the Corporation as compared to the
Targets comprising the Corporate Objectives for the Plan Year
and:
(I) determine which, if any, of the Targets have been
achieved and the amount of the Attained Bonus Pool, as further
described in Section 7.1;
(II) determine which, if any, Participants are Eligible
Participants as further described in Section 7.2;
(III) calculate the Incentive Awards, if any, due to one
or more Participants as further described in Section 7.3;
(IV) determine the time of payment of Incentive Awards
hereunder; and
(V) determine whether any Special Awards are appropriate as
further described at
Article XII.
It is the intent of the Board of Directors of the
Corporation that the processes used by the Executive Committee
under this Plan shall be consistent with the Corporation's budget
and base salary processes as then in effect, that the Individual
and Corporation Objectives, as well as each individual Target
forming a part thereof, shall be consistent with the
Corporation's plans and goals for the particular Fiscal Year and,
accordingly, that the Incentive Awards paid under the Plan for a
Plan Year shall reflect the actual attainment of Corporation and
Individual Objectives for the Fiscal Year. To promote
consistency in process and result, the Executive Committee shall
give great weight to the recommendations of the CEO.
3.2 The "CEO". In connection with each Plan Year for which
a Bonus Pool is formed, the CEO shall make recommendations to the
Executive Committee as to each of the matters set forth in
Section 3.1 and shall assist the Executive Committee in the
administration of the Plan to the extent determined appropriate
by the Executive Committee. The CEO shall make neither a
recommendation nor determination affecting the CEO's Incentive
Award or any of the factors upon which the CEO's Incentive Award
may be based, provided, however, use of factors and
considerations developed in the Corporation's budgeting and
compensation planning processes as they relate to the CEO shall
not be deemed a recommendation of determination by the CEO
notwithstanding the CEO's involvement in or review of those
processes.
ARTICLE IV.
ELIGIBILITY.
4.1 Annual Eligibility Determination. Promptly after
receiving notice that a Bonus Pool will be formed for a
particular Plan Year, the CEO shall recommend to the Executive
Committee those employees of the Corporation the CEO then regards
as Key Employees. The Executive Committee shall select some or
all of such recommended Key Employees as Participants eligible to
receive an Incentive Award for a Plan Year, if both Corporate and
Individual Objectives are met.
4.2 Newly Hired Employees. Any person hired by the
Corporation as an executive employee during the course of a
Fiscal Year may be designated by the Executive Committee as a
Participant for the Fiscal Year for purposes of this Plan upon
recommendation of the CEO. In the event the Executive Committee
makes a newly hired Key Employee a Participant for a Plan Year,
the Executive Committee shall determine that amount of Base
Salary of that newly eligible Participant which shall be taken
into account for the Plan Year and the Executive Committee may,
but shall not be required to, adjust the Bonus Pool for that Year
to reflect the addition of a Participant.
ARTICLE V.
FORMATION OF A BONUS POOL.
The Executive Committee shall promptly review the
recommendation of the CEO and the Executive Committee shall set
the amount of the Bonus Pool available for Incentive Awards
should Corporate and Individual Objectives be met for the Fiscal
Year. The Executive Committee may determine the portion, if any,
of the Bonus Pool which shall be paid in the form of shares of
Common Stock. If the Executive Committee does not designate a
portion to be paid in the form of shares of Common Stock, the
Bonus Pool shall be paid entirely in the form of cash. If some
or all of the Bonus Pool is to be paid in the form of shares of
Common Stock, the value assigned to each share shall be the
closing trading price on the day the Bonus Pool is formed (or if
not traded on that day, the closing price on the trading day next
preceding the formation of the Bonus Pool).
ARTICLE VI.
ESTABLISHMENT OF CORPORATE AND INDIVIDUAL OBJECTIVES.
6.1 Corporate Objectives. The Executive Committee shall
promptly review the recommendations of the CEO with respect to
Targets for EPS, ROE, Efficiency Ratios and each other factor
determined appropriate by the Executive Committee as well as the
relative weighting to be given to each particular Target. The
Executive Committee shall set the Corporate Objectives to be
attained for that Plan Year and the relative weight to be
assigned to each component Target thereof.
6.2 Individual Objectives. The Executive Committee shall
adopt the system, process and goals of rating the performance of
executive employees then in effect for the Corporation as applied
to the respective Participants as the Individual Objectives for
each such Participant.
ARTICLE VII.
DETERMINATION OF INCENTIVE AWARDS.
7.1 Attainment of Corporate Objectives. At or after, but
in no event later than seventy-five (75) days after, the end of
the Plan Year for which performance is measured, the Executive
Committee shall determine whether any or all of the Targets
comprising the Corporate Objectives have been achieved for the
Plan Year. If all Targets have been achieved, the Attained Bonus
Pool shall be equal to the Bonus Pool set for the Plan Year. If
fewer than all Targets shall have been met, the Executive
Committee shall multiply the amount of the Bonus Pool set for the
Plan Year by the sum of the weighted percentage(s) of all Targets
which have been achieved for the Plan Year to determine the
Attained Bonus Pool.
7.2 Attainment of Individual Objectives.
(a) For Participants Other Than The CEO. At or after,
but in no event later than seventy-five (75) days after, the end
of the Plan Year for which performance is measured, the Executive
Committee shall review the report of the CEO as to the Individual
Ratings for all Participants other than the CEO and determine
which, if any, such Participants are Eligible Participants.
(b) For the CEO. At the time of the review in Section
7.2(a), the Executive Committee shall rate the performance of the
CEO and, should that rating equal or exceed Very Capable (or its
equivalent), the CEO shall be deemed an Eligible Participant.
If any Participant does not achieve the specified minimum
Individual Rating for a Plan Year, that Participant shall not be
entitled to receive an Incentive Award for that Plan Year
notwithstanding that all Corporate Objectives for the Plan Year
have been met.
7.3 Amount and Form of Payment of Incentive Award. The
amount payable as an Incentive Award to an Eligible Participant
shall be determined by multiplying the Attained Bonus Pool for
the Plan Year by a fraction, the numerator of which is the
Current Salary of the Eligible Participant and the denominator of
which is the sum of the Current Salaries of all Eligible
Participants. If the Bonus Pool has been designated under
Article V to include shares of Common Stock the form of payment
of the Incentive Award shall be in cash and a certificate
representing shares of Common Stock in the respective portions
determined by separately multiplying the above fraction
applicable to each Eligible Participant by the cash and Common
Stock portions of the Attained Bonus Pool.
ARTICLE VIII.
SPECIAL AWARDS.
In addition to any amounts set aside in the Bonus Pool for a
particular Plan Year, the Executive Committee, in its sole
discretion on its own action or following recommendation of the
CEO, may grant an additional Incentive Award for a Plan Year to
any one or more Eligible Participants who, in the sole discretion
of the Executive Committee, have achieved exemplary performance.
ARTICLE IX.
CONDITIONS FOR FUNDING.
In addition to any other limitation under this Plan or as
may be imposed from time to time by the Executive Committee, no
Incentive Awards shall be paid under this Plan for any Fiscal
Year unless each of the following conditions has been satisfied
during that Fiscal Year:
(a) The Corporation shall not have violated any
significant debt covenant, or any other covenant the Executive
Committee determines to be "significant", included in any credit
or loan agreement to which the Corporation or any Subsidiary is a
party, unless such violation has been waived or cured by the end
of the Fiscal Year, and will not violate any such covenant by
payment of the aggregate Incentive Awards earned by participants
during the Fiscal Year.
(b) The Corporation shall have had positive after-tax
earnings for the Fiscal Year, as determined in financial
statements audited by the Corporation's accountants; and
(c ) If the total amount of the Incentive Awards earned by
Participants with respect to any Fiscal Year must be reduced in
order to satisfy either of the foregoing limitations, then each
Participant's Incentive Award for the Fiscal Year shall be
proportionately reduced. This reduction shall be accomplished by
multiplying the Incentive Award payment earned by the Participant
under Article VI by a fraction, the numerator of which is the
maximum aggregate amount which may be paid by the Corporation as
Incentive Awards under this Article IX and the denominator of
which is the sum of all of the Incentive Award payments earned
under this Plan by all Participants for the Fiscal Year.
ARTICLE X.
PAYMENT OF AWARD.
Subject to the provisions of Article XI below, all of the
Incentive Awards earned by Participants under this Plan with
respect to any Fiscal Year shall be paid to the respective
Participants in a single distribution no later than seventy-five
(75) days after the end of the Plan Year for which performance is
measured, provided however, Incentive Awards for a Plan Year may
be made prior to such time (including during the Plan Year) if
the Executive Committee determines all applicable Targets,
Individual Ratings and any other performance measures in effect
for such Plan Year have been met or exceeded.
ARTICLE XI.
TERMINATION OF EMPLOYMENT.
11.1 Except as provided in this Article XI, a Participant
must be employed by the Corporation on the date the Incentive
Award payments for that Fiscal Year are distributed in order to
receive an Incentive Award.
11.2 If a Participant should retire under the terms of the
Corporation's retirement plan, or terminate his or her employment
by reason of a serious illness or disability, during a Fiscal
Year or prior to the date Incentive Award payments for that
Fiscal Year are distributed, the Executive Committee may, in its
discretion, permit the Participant to receive a pro rata portion
of the Incentive Award such Participant would otherwise have
earned with respect to that Fiscal Year.
11.3 If a Participant should die during the course of a
Fiscal Year, or prior to the date the Incentive Award payments
for that Fiscal Year are distributed, the Executive Committee
may, in its discretion, permit the Participant's Beneficiary to
receive a pro rata portion of the Incentive Award which the
Participant would otherwise have earned with respect to the
Fiscal Year.
11.4 If a Participant terminates his or her employment with
the Corporation (or any Subsidiary) for any reason other than
death, serious illness, disability or retirement, during a Fiscal
Year (or prior to the date on which the Incentive Awards for a
Fiscal Year are distributed) the Participant shall forfeit any
right to receive an Incentive Award for such Fiscal Year.
11.5 Notwithstanding Section 11.4, in the event that control
of the Corporation is transferred, whether by sale of outstanding
shares of the Corporation's common stock, merger, consolidation,
or a sale of the Corporation's assets, all Individual and
Corporate Objectives for the Plan Year shall be deemed achieved
and all Incentive Awards of each Participant shall be paid within
180 days of the transfer of control unless, prior to such
payment, the Participant has a Termination for Cause.
11.6 In the event the Executive Committee determines that a
Participant has committed a material violation of any work rule,
confidentiality policy or similar policy or rule of the
Corporation during a Fiscal Year, the Executive Committee may, in
its discretion, declare that the Participant has forfeited the
right to receive any Incentive Award under this Plan for the
Fiscal Year, without regard to whether or not the Participant's
employment has been terminated.
ARTICLE XII.
MISCELLANEOUS.
12.1 Non-Assignability. No right to Incentive Award
granted under this Plan shall be assignable or transferable by
the Participant. During the life of the Participant, any
payments made with respect to a Participant's Incentive Award
shall be made only to such Participant.
12.2 Withholding Taxes. The Corporation shall have the
right to withhold from any payments to be made to a Participant
under the terms of the Plan an amount sufficient to satisfy the
Corporation's obligations under any federal, state and local
withholding tax requirements applicable to such payments. In the
event an Incentive Award is paid in the form of a combination of
cash and shares of Common Stock, the withholding obligation shall
be satisfied by first withholding from the cash portion and, to
the extent then necessary, withholding against the portion
otherwise payable in the form of shares of Common Stock.
12.3 No Right to Employment. Nothing in this Plan or in any
agreement entered into pursuant to it shall confer upon any
Participant the right to continue in the employment of the
Corporation or any Subsidiary or affect any right which the
Corporation or any Subsidiary may have to terminate the
employment of such Participant.
12.4 Non-Uniform Determinations. Since it is the intent of
this Plan to reward extraordinary performance by the
Participants, any determinations made by the Executive Committee
and the Administrative Committee under this Plan (including
without limitation determinations of the persons eligible to
receive Incentive Awards, the amount of such awards, and the
terms and provisions of such awards) need not be uniform and may
be made by the Executive Committee selectively among persons who
receive, or are eligible to receive, Incentive Awards under this
Plan, whether or not such persons are similarly situated.
12.5 No-Continuing Right to Participate. A Participant
shall not have any right to receive an Incentive Award for a
Fiscal Year merely because he or she was granted an Incentive
Award for a prior Fiscal Year. The right to participate in the
Plan shall be subject to a new determination by the Executive
Committee each Fiscal Year, and participation in the Plan during
any one Fiscal Year shall not confer any rights with respect to
any subsequent Fiscal Year.
12.6 Unfunded Plan. The Plan shall at all times be entirely
unfunded and no provision shall at any time be made with respect
to segregating assets of the Corporation for payment of any
Incentive Awards hereunder. No Participant or other person shall
have any interest in any particular assets of the Corporation by
reason of the Incentive Awards granted under the Plan or any
right to receive any related payment under the Plan and any such
Participant or other person shall have only the rights of a
general unsecured creditor of the Corporation with respect to the
Incentive Awards payable under the Plan. If the Executive
Committee determines it appropriate, cash and/or certificates
representing shares to be distributed as Incentive Awards may be
deposited in a grantor trust within the meaning of Section 671 of
the Internal Revenue Code of 1986, as amended, and amounts
distributed by the trustee thereof when and as instructed by the
Executive Committee.
12.7 Effect on Other Compensation Plans. Any amounts paid
to a Participant as an Incentive Award under this Plan shall be
included in the Participant's compensation for purposes of
determining his or her level of benefits under any retirement
plan or other employee benefit plan of the Corporation.
12.8 Merger, Consolidation or Acquisition. The Plan shall
be binding upon the Corporation, its assigns, and any successor
Corporation which shall succeed to substantially all of its
assets and business through merger, acquisition or consolidation,
and upon a Participant, his or her Beneficiary, assigns, heirs,
executors and administrators. In the event that ownership of the
Corporation is to be transferred, whether by a sale of the
Corporation's capital stock, by merger or consolidation, or by
means of a sale of the Corporation's principal assets (including
the stock of its Subsidiaries), and the successor corporation
does not agree to assume this Plan and honor all Incentive Awards
granted with respect to the Fiscal Year in which the transfer is
to occur, as well as all Incentive Awards for any previous Fiscal
Year which have been earned but not yet paid out to Participants
pursuant to Section 10.1, the Executive Committee may provide
that each participant shall, prior to the effective date of the
change in ownership, be paid an amount equal to the sum of the
Incentive Awards which would have been payable to the Participant
for each such full Fiscal Year, if all Targets comprising the
Corporate Objectives and each Individual Objective had been
achieved.
12.9 Applicable Law. This Plan shall be governed by the
laws of the Commonwealth of Pennsylvania, without regard to its
principles of conflicts of laws and to the extent not preempted
by federal laws. Any provision of this Plan prohibited by the
law of any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition without
invalidating the remaining provisions hereof.
12.10 Captions. The captions of Articles and Sections of
this Plan are for the convenience of reference only and shall not
control or affect the meaning or construction of any of its
provisions.
12.11 Amendment or Termination of the Plan. The Executive
Committee may, with the approval of the Board of Directors, at
any time terminate this Plan or any part thereof and may from
time to time amend this Plan as it may deem advisable. The
termination or amendment of this Plan shall not, without the
consent of any Participant, affect such Participant's rights
under a Bonus Pool previously formed. In the event the Executive
Committee terminates the Plan, it may, with the approval of the
Board of Directors, direct that each Participant receive a
payment equal to a prorated portion of the Incentive Award which
would have been earned for the Fiscal Year had the Plan not been
terminated. The determination of the amount of such payments
shall be made by the Executive Committee in its sole discretion.
12.12 Compliance with Securities Laws. The Executive
Committee may hold certificates representing distributions,
attach legends to certificates, require representations from
Participants and take such other actions as the Executive
Committee determines necessary and advisable to ensure or enhance
compliance of the Plan, the Corporation or any Participant with
applicable federal and state securities laws.
ATTEST: BT FINANCIAL CORPORATION
/s/ Laura L. Roth By: /s/ John H. Anderson
- -------------------------------- -----------------------------
Laura L. Roth , Secretary and John H. Anderson, Chairman and
Assistant Treasurer Chief Executive Officer
Date of Adoption by the Board of Directors of BT Financial
Corporation:
July 24, 1996
SCHEDULE A
BENEFICIARY DESIGNATION FORM
BT Financial Corporation
Key Management Incentive Compensation Plan
Employee Name:
Social Security No.:
BENEFICIARY DESIGNATION
Under the provisions of the Plan, I designate the following
person(s) as my primary beneficiary or beneficiaries, who shall
receive any amounts payable in the event of my death, by reason
of Incentive Awards I may have been granted under the Plan. If I
designate more than one primary beneficiary and if any such
primary beneficiary does not survive me, then the share of the
deceased beneficiary shall be distributed pro rata to the
remaining primary beneficiary or beneficiaries.
Primary Beneficiary
Name: Relationship: % Share:
Address:
NOTE: You may change the person(s) designated as your
beneficiary or beneficiaries at any time by filing a new
Beneficiary Designation Form with the Administrative Committee.
In the event said primary beneficiary or beneficiaries does (do)
not survive me, my interest shall be paid to the following named
secondary beneficiary:
Secondary Beneficiary
Name: Relationship: % Share:
Address:
In the event that there is no primary or secondary beneficiary
alive prior to full distribution of my benefits, the remaining
benefits will be distributed in the manner provided for in the
Plan.
Any previous beneficiary designation election made by me, whether
or not received by the Committee, is hereby revoked.
Date:
Signature of Employee
Print Name
Received by the Committee:
Date:
SCHEDULE B
KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
BONUS POOL AND TARGETS FOR FISCAL YEAR 1996
Dear Participant:
You have been designated as a Participant in the Key
Employee Incentive Compensation Plan for Fiscal Year 1996 (the
Fiscal and Plan Years are the same). The maximum Bonus Pool
available to all Participants has been designated by the
Executive Committee as , payable 50%
in cash and 50% in Common Stock. All payments are contingent
upon the attainment of Corporate and Individual Objectives.
For 1996, the Individual Objectives are to attain a rating
of Very Capable or greater under the Corporation's Management
Performance Appraisal System. If you do not receive a Very
Capable rating, you will not be eligible to share in the Bonus
Pool.
For 1996, the Corporate Objectives are:
a. Earnings per Share of $ . ;
b. Return on Equity of %; and
c. Efficiency Ratios of .
Each of the above is a Target and achievement of each Target is
weighted as one-third of the Bonus Pool.
An illustration of the Plan is as follows assuming all
Targets and Individual Objectives are met:
Bonus Pool ($400,000) multiplied by a
fraction of your salary over the salary of
all other Participants. If your salary is
$80,000 and all salaries total $1,600,000,
your potential Incentive Award is $20,000,
payable as $10,000 in cash and $10,000 worth
of BT Common Stock. Any required withholding
for federal, state or local income tax will
be made from the cash portion of the
distribution.
We hope you recognize the opportunities afforded by the Plan and
join with us in achieving the Corporate Objectives, as well as
your Individual Objective, for the coming year.
AMENDED AND RESTATED
MOXHAM NATIONAL BANK OF JOHNSTOWN
EXECUTIVE RETIREMENT PLAN
BACKGROUND
This Deferred Compensation Plan ("Plan") is an unfunded
deferred compensation arrangement for a select group of
management personnel of Moxham National Bank of Johnstown, a
Pennsylvania state-chartered banking corporation (the "Bank"),
each of whom has carried out his duties as an employee of the
Bank with such skill, efficiency and good judgment that the Bank
desires to provide itself with some additional assurance that it
will have the benefit of his judgment and experience for some
time to come; and, so believing, desires that some inducement be
held out to him in order that he might deem it advisable to
continue in the employment of the Bank. The effective date of
this Amended & Restated Plan is January 1, 1987.
ARTICLE I
DEFINITIONS
Section 1.01
(a) "Account" means the record established by the Bank on
behalf of a Participant, which shall be credited each calendar
year with (i) the amount for that year set forth on the
Participant's Signature Page and (ii) his allocated share of Plan
earnings and forfeitures, and which shall be charged each
calendar year with his allocated share of Plan expenses
Notwithstanding the foregoing, the Account of any employee who
participated in the Plan in 1987 or 1988 shall be credited with
the greater of the amount set forth on the Participant's
Signature Page for those years or the Actuarial Equivalent of his
Accrued Retirement Benefit determined in accordance with the
provision of the Plan in effect immediately prior to the adoption
of this Amendment and Restatement.
(b) "Allocation Date" means the last day of each calendar
year.
( c) "Board" means the board of directors of the Bank.
(d) "Committee" means the administrative committee of the
Board (consisting of not less than two (2) Board members) from
time to time appointed by the Board to administer the Plan.
(e) "Contingent Deferred Obligation" means the aggregate
amount of the Bank's contingent liabilities attributable to
amounts credited to the Participant's Accounts.
(f) "Designated Beneficiary" means the person designated by
a Participant as his designated beneficiary hereunder.
(g) "Net Earnings" means the aggregate earnings on and
appreciation of any amount invested by the Committee pursuant to
Section 3.02(a), less any allocable expenses of the Plan.
(h) "Participant" means an employee of the Company who
elects to participate in the Plan by executing a "Signature Page"
with respect to this Plan, or a person who was a Participant at
the time of his retirement or death, and who retains, or whose
Designated Beneficiary (or estate) retains, benefits under the
Plan in accordance with its terms. It is expressly agreed that
participant in the Plan shall be restricted to the president and
the vice presidents of the Bank. It is further expressly agreed
that it shall be a precondition to participation in the Plan that
an employee have completed at least twelve (12) consecutive
months of service with the Bank. (By way of example, a vice
president joining the Bank in June of 1986 will be eligible for
participation in the Plan commencing January 1, 1988.)
(i) "Year of Service" means each twelve-month period,
beginning with the date employment commences, during which a
Participant is continuously employed by the Bank.
ARTICLE II
AGREEMENT ON THE PART OF THE PARTICIPANT
Section 2.01
Each Participant hereby agrees that he will at all times,
faithfully and to the best of his ability, perform all of the
duties incident to his employment which may from time to time be
reasonably and lawfully required of him by the Bank, and that he
will devote his full time, energy, skill and attention to the
affairs and the promotion of the best interests of the Bank.
ARTICLE III
CREDITS TO ACCOUNTS
Section 3.01
(a) As of each Allocation Date the Committee shall credit
each Participant's Account with the annual amount set forth on
his Signature Page for the year ending on said Allocation Date;
provided the Board determines that credits should be made for
that year. In the event credits are not made for any particular
year, there shall be no adjustment to the credits for any prior
or subsequent years unless the Board shall so determine. A
Participant who terminates employment on account of retirement,
death or disability (as defined in Section 4.01) shall, if he is
otherwise entitled to receive a credit, for the year in which his
termination occurs, be credited with his annual amount for such
year only if he has six months of employment with the Bank during
that year. In the case of all other terminations, no credit
shall be made.
(b) As of each Allocation Date the Committee shall credit
each Participant's Account with any forfeitures which occurred
during the calendar year ending on the Allocation Date.
Forfeitures shall be credited to each Account pro rata in the
same manner as Net Earnings are allocated pursuant to Section
3.02.
Section 3.02
The Net Earnings on any amounts invested in accordance with
Section 5.01(a) shall be credited to the Participants Accounts as
of each Allocation Date. Net Earnings shall be credited to each
Account pro rata based on the Account balance of each Participant
as of the immediately preceding Allocation Date, but reduced by
any distributions from the Account after the immediately
preceding Allocation Date but on or before the immediate
Allocation Date. No interim allocation of Net Earnings shall be
made in any case.
ARTICLE IV
PAYMENT OF ACCOUNT
Section 4.01
(a) Upon his retirement, death or disability (as defined
below) at or following age sixty-two (62), the Bank shall pay to
each Participant (or to his Designated Beneficiary, in the event
that such Participant dies during the payment period) his Account
in equal quarterly installments over a period of ten years;
provided that the last installment (or installments if necessary)
shall be adjusted to reflect the allocation of Net Earnings to
his Account during the payment period. Payments shall commence
on the first (1st) day of the calendar quarter immediately
following the Participant's retirement (at or after the age 62),
death, or disability (as defined below).
(b) In the event that as a result of the Change in Control
(as defined in Section 4.02(c)), any portion of the payments due
pursuant to this Section 4.01 shall be deemed to be an "excess
parachute payment," as defined by Section 280G(b)(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), payment
of such portion shall be deferred to the earliest year in which
payment of such portion will not be considered an excess
parachute payment. In no event, shall any payment be accelerated
on account of preceding sentence.
(c ) "Disability" means total and permanent disability which
shall be determined according to the standard definition of such
term used by the American United Life Insurance Co.
Section 4.02
(a) In the event that a Participant terminates employment
for any reason other than retirement at or after age 62, death or
disability, he shall receive a percentage (the "Termination
Percentage") of his Account determined in accordance with the
schedule set forth below, commencing on the first day of the
calendar quarter immediately following the calendar quarter in
which he terminates employment. The Termination Percentage shall
be determined as follows:
If the number of Years of
Service completed as of the
date the Participant termi- His Termination Percentage
nates employment is: shall be:
- ----------------------------- ---------------------------
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 or more 100%
The percentage of the Participant's Account in excess of the
Termination Percentage shall be forfeited and shall be credited
to the Accounts of the other Participants in accordance with
Section 3.01(b).
(b) The foregoing notwithstanding, in the event there is a
Change in Control, as defined in Section 4.02(c), the Termination
Percentage shall be 100%.
(c ) For purposes of this Plan, a Change in Control occurs
when any of the following takes place:
(i) Any person (other than the Bank or any employee
benefit plan sponsored by the Bank) or group of persons acting in
concert acquires, within any 12-month period, in excess of 30% of
the then outstanding shares of the Bank's common stock; or
(ii) the failure of the Board as it is constituted on
January 1, 1989, to constitute the majority of the Board of
Directors, unless such failure results from an election of
directors in which a majority of the outstanding shares of the
Bank's common stock (excluding all common stock beneficially
owned by a person who beneficially owns 35% or more of the
outstanding shares) are voted in favor of the successor
directors. In determining a person's stock ownership the
attribution rules of Section 318(a) of the Code shall apply.
Section 4.03
In the event that no Designated Beneficiary is selected by a
Participant, the benefit payable pursuant to Section 4.02 shall
be paid to his spouse, if married on the date of his death;
otherwise to his estate.
Section 4.04
Notwithstanding anything herein contained to the contrary,
upon application by the Participant (or his beneficiary in the
event of his death) the Committee shall have the right in its
sole discretion to accelerate the payment of any benefit payable
hereunder, and may make such distributions in lump sums or over
shorter period of time than the term described in this Article IV
hereof, as it may deem appropriate.
ARTICLE V
MISCELLANEOUS
Section 5.01
(a) It is expressly agreed that the Bank may, should the
Committee so desire, at any time, fund the Contingent Deferred
Obligation through any means that the Committee may establish.
If the Bank should voluntarily elect to fund such obligations by
means of any investment, contract or policy, however, no
Participant shall have any preferential rights in any manner to
any investment, contract or policy so held by the Bank, and,
specifically, any such investment, contract or policy shall not
be held in trust for any Participant. Nothing contained in the
Plan, and no action taken pursuant to the provisions of the Plan,
shall create or be construed to create a fiduciary relationship
between or among the Bank and any Participant, any Designated
Beneficiary and/or any other person. Any assets which may be
invested under the provisions of the Plan (and the earnings
thereon) shall continue for all purposes to be a part of the
general assets of the Company and be subject to the claims of the
Bank's creditors. No person other than the Bank shall, by virtue
of the provisions of the Plan, have any interest in such assets.
To the extend that any person acquires a right to receive
payments from the Bank under the Plan, such right shall be no
greater than the right of any unsecured general creditor of the
Bank.
(b) The Committee may engage investment counsel and, if it
so desires, may delegate to such counsel full or limited
authority to select the assets in which any funds set aside for
the Contingent Deferred Obligation are to be invested.
Section 5.02
It is expressly agreed that the Bank has voluntarily offered
the inducements herein provided to the Participants for the
purposes above indicated, including the purpose of their better
protection. Accordingly, it is understood and agreed that no
Participant shall have the right to alienate, anticipate,
commute, pledge, encumber or assign any part or all of the
benefits provided for under the Plan. None of said benefits or
payments shall be subject to the claim of any creditor of any
Participant, and, in particular, none of said benefits or
payments shall be subject to attachment or garnishment or other
legal process by any creditor of any Participant.
Section 5.03
If the Committee shall find that any person to whom any
benefit is payable under the Plan is unable to care for his
affairs because of illness or accident, or is a minor, any
payment due (unless a prior claim therefor shall have been made
by a duly appointed guardian, committee or other legal
representative) may be paid to the spouse, a child, a parent, or
a brother or sister, or to any person deemed by the Committee to
have incurred expense for such person otherwise entitled to
payment, in such manner and proportions as the Committee may
determine. Any such payment shall be a complete discharge of the
liabilities of the Bank under the Plan.
Section 5.04
Nothing contained herein shall be construed as conferring
upon any Participant the right to continue in the employ of the
Bank as an executive or in any other capacity.
Section 5.05
No amount payable under the Plan shall be deemed salary or
other compensation to any Participant for the purpose of
computing benefits to which he may be entitled under any pension
plan or other arrangement of the Bank for the benefit of its
employees.
Section 5.06
The Committee shall have full power and authority to
interpret, construe and administer the Plan, and the Committee's
interpretations and construction thereof, and actions thereunder,
including any valuation of the Accounts, or the amount or
recipient of any payment to be made therefrom, shall be binding
and conclusive on any persons for all purposes. No member of the
Committee or the Board shall be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of the Plan unless attributable to his own willful
misconduct or lack of good faith.
Section 5.07
The Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania. Pronouns used
herein shall be deemed to be masculine, feminine or neuter,
singular or plural, as their context may require.
ARTICLE VI
PARTICIPANT DEFERRALS
In addition to any other benefit provided under the Plan, a
Participant may elect to defer a portion of his compensation for
any calendar year (the "Deferrals"), provided that the election
is made prior to the first day of such calendar year and in the
manner prescribed by the Committee. A Participant's Deferrals
shall be treated as an additional Retirement Benefit under the
Plan and shall be subject to all provisions of the Plan, except
that his Termination Percentage with respect to the Deferrals
shall always be one hundred percent (100%), and Section 3.01 and
3.02 shall not apply.
ARTICLE VII
SUCCESSOR LIABILITY; AMENDMENTS AND TERMINATION
Section 7.01
This agreement shall be binding upon the Bank, its
successors or assigns, including, without limitation, any person,
partnership, company or corporation which may acquire
substantially all of the Bank's assets or business or with or
into which Bank maybe liquidated, consolidated, merged or
otherwise combined, and upon each Participant, his heirs,
executors, administrators, and legal representatives.
Section 7.02
Except as otherwise provided in Section 7.03, the Plan may
be amended by the Board from time to time as it may deem
advisable. Written notice of any such amendment shall be given
to each Participant as soon as administratively practicable
thereafter.
Section 7.03
Notwithstanding any contrary provision in the Plan, in the
event of a Change of Control, as defined in Section 4.02(c), the
following provisions shall apply:
(a) The Bank shall be required to credit the Account of
each Participant with an aggregate amount (the "Lump-Sum Required
Credit") which is not less than the present value (using a
discount rate of 8%) of the annual amounts set forth on his
Signature Page for the Post-Change Period. The Post-Change
Period is the period of ten calendar years beginning with the
first calendar year ending after a Change in Control occurs and
for which a credit was not made pursuant to Section 3.01(a) prior
to the Change in Control.
(b) In lieu of the Lump-Sum Required Credit, the Bank may
elect to continue the Plan and shall credit each Participant
annually (the "Required Annual Credits") with the annual amounts
set forth on his Signature Page for the Post-Change Period.
(c ) The Plan may not be amended or terminated so as to
deprive any Participant of the credits to his Account as of the
date of the Change in Control, or either the Lump-Sum Required
Credit or Required Annual Credits as elected by the Bank.
IN WITNESS WHEREOF, that Bank, intending to be legally bound
hereby, has hereunto set its hand this 12th day of December,
1989.
MOXHAM NATIONAL BANK OF JOHNSTOWN
By: /s/ J. William Smith
------------------------------
Attest: /s/ P. James Hayes
------------------------------
- -----------------------------------------------------------------
MOXHAM NATIONAL BANK OF JOHNSTOWN
DEFERRED COMPENSATION PLAN
SIGNATURE PAGE
The undersigned has executed this signature page, as of the
date below set forth, in witness of his election to participate
in the Plan and his agreement to be bound by all the terms and
conditions of the Deferred Compensation Plan of Moxham National
Bank of Johnstown to which this signature page is attached.
PARTICIPANT:
Date: ______________ ______________________________
______________________________
[NAME]
______________________________
Witness
AMENDMENT NO. 1
TO THE AMENDED AND RESTATED
MOXHAM NATIONAL BANK OF JOHNSTOWN
EXECUTIVE RETIREMENT PLAN
The Amended and Restated Moxham National Bank of Johnstown
Executive Retirement Plan, originally effective January 1, 1987,
is hereby further amended as follows:
1. Section 1.01 of the Plan is amended by adding the
following subsection (j) thereto:
(j) "Compensation" means the total annual compensation
paid to a Participant, including, wages, salaries, fees for
professional service or other amounts received for personal
services actually rendered in the course of employment
(including, but not limited to, commissions, compensation for
services on the basis of a percentage of profits, and bonuses).
Compensation, shall not include any of the following:
(i) Contributions made by the Bank to any plan of
deferred compensation or any retirement plan, nor shall any
distributions from any such plan be included, regardless of
whether such amounts are includible in the gross income of the
Participant when distributed;
(ii) Any amount received from the exercise of any
stock option issued by the Bank to the Participant;
(iii) Any amount realized from the sale, exchange
or other disposition of stock acquired under any stock option
issued by the Bank; or
(iv) Other amounts which receive special tax
benefits, such as premiums for group term life insurance (but
only to the extent that the premiums are not includible in the
gross income of the Participant).
2. Section 3.01(a) of the Plan is deleted in its entirety,
and the following is substituted in lieu thereof:
(a) The Board shall determine for each calendar year
whether Participants' Accounts shall receive credits pursuant to
this Section 3.01(a). All credits shall be made as of the
Allocation Date within the calendar year for which a credit is
being determined. If the Board determines that credits shall be
made, the amount to be credited to each Participant's Account
shall be equal to 15% of the Participant's Compensation paid
during the calendar year for which the credit is being
determined, reduced by the contribution made on behalf of the
Participant to the Moxham Bank Corporation Target Benefit Plan;
provided that in no event shall the credit be less than the
amount credited to the Participant's Account pursuant to this
Section 3.01(a) for the 1989 calendar year. In the event credits
are not made for any particular calendar year, there shall be no
adjustment to the credits for any prior or subsequent years
unless the Board shall so determine.
A Participant who terminates employment on account of
retirement, death or disability (is defined in Section 4.01)
shall, if he is otherwise entitled to receive credit for the year
in which his termination occurs receive such credit only if he
has six months of employment with the Bank during that year.
Such credit shall be determined using the Participant's actual
compensation paid during the year of termination. If employment
is terminated for any reason other than retirement, death or
disability, no credit shall be made.
3. In all other respects, the Plan shall remain in full
force and effect.
4. The effective date of this Amendment No. 1 is January
1, 1990.
IN WITNESS WHEREOF, the Bank, intending to be legally bound
hereby, has hereunto set its hand and seal this 11th day of
December, 1990.
MOXHAM NATIONAL BANK OF JOHNSTOWN
By: /s/ J. William Smith
------------------------------
Attest: /s/ Richard G. Case
------------------------------
AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
MOXHAM NATIONAL BANK OF JOHNSTOWN
EXECUTIVE RETIREMENT PLAN
The Amended and Restated Moxham National Bank of Johnstown
Executive Retirement Plan, originally effective January 1, 1987
is hereby further amended as follows:
1. The name of the Plan is hereby changed to the "Moxham
Bank Corporation Executive Retirement Plan".
2. All reference in the Plan, as amended, to "Bank" or
"Company" shall refer to Moxham Bank Corporation or any of its
subsidiaries which adopts the Plan, including Moxham National
Bank of Johnstown and First National Bank of Garrett.
3. Section 3.01(a) is amended to read in its entirety as
follows:
"(a) The Board shall determine for each calendar year
whether Participants' Accounts shall receive credits pursuant to
this Section 3.01(a). All credits shall be made as of the
Allocation Date within the calendar year for which a credit is
being determined. If the Board determines a credit shall be
made, the amount to be credited to each Participant's Account
shall be equal to 15% of the Participant's Compensation paid
during the calendar year for which the credit is being
determined, reduced by the contribution made on behalf of the
Participant to the Moxham National Bank of Johnstown Employees'
Pension Plan ("Target Plan"); provided that the credit shall not
be less than the sum of the amounts allocated to the Participant
in this Plan and the Target Plan for the immediately preceding
calendar year. The preceding sentence notwithstanding, in the
event the Board determines that contributions to the Bank's
employee benefit plans should be limited in any manner, the
credits which would otherwise be made to any Participant in this
Plan may be reduced or eliminated as determined by the Board in
its sole discretion. In the event credits are not made for any
particular calendar year, there shall be no adjustment of the
credits for any prior or subsequent year unless that Board shall
so determine.
A participant who terminates employment on account of
retirement, death or disability (as defined in Section 4.01)
shall, if he is otherwise entitled to receive credit for the year
in which his termination occurs, receive such credit only if he
has six months of employment with the Bank during that year.
Such credit shall be determined using the Participant's actual
Compensation paid during the year of termination. If employment
is terminated for any reason other than retirement, death or
disability, no credit shall be made."
4. Section 4.02(b) of the Plan is amended to read in its
entirety, as follows:
"(b) The foregoing notwithstanding, in the event there
is a Change in Control, as defined in Section 4.02(c), and in the
case of any employee who became a Participant before January 1,
1992, the Termination Percentage shall be one hundred percent
(100%)."
5. Section 4.02(c) is hereby amended to read in its
entirety as follows:
"(c) For purpose of this Plan, a Change in Control
occurs when any of the following takes place:
(i) Any person (other than any Bank or any
employee benefit plan sponsored by any Bank) or group of persons
acting in concert acquires, within any 12-month period, in excess
of 20% of the then outstanding shares of the common stock of any
Bank;
(ii) the failure of the Board of Directors of
Moxham Bank Corporation as it is constituted on January 1, 1989,
to constitute the majority of the Board of Directors, unless such
failure results from an election of directors in which a majority
of the outstanding shares of the common stock of Moxham Bank
Corporation (excluding all common stock beneficially owned by a
person who beneficially owns 35% or more of the outstanding
shares) are voted in favor of the successor directors. In
determining a person's stock ownership the attribution rules of
Section 318(a) of the Code shall apply."
6. Section 4.04 of the Plan is hereby amended to read in
its entirety as follows:
"Notwithstanding anything to the contrary in this
Article IV (except for the restriction set forth in Section
4.01(b)), upon application by the Participant (or his beneficiary
in the event of his death) no later than 90 days prior to the
date Plan benefits would otherwise become payable (the 90-day
period shall not apply in the event of the Participant's death or
Disability) or the Committee shall have the right in its sole
discretion to authorize payment of the Participant's Account in a
single lump sum. In the event the Participant's lump sum
election is approved by the Committee, the Participant shall
receive his Account balance determined as of the Allocation Date
immediately preceding the date of the lump sum distribution. If
the Participant seeking the lump sum distribution is a member of
the Committee, he shall abstain from voting and the Board shall
appoint another member of the Committee for the purpose of
determining whether the lump sum distribution should be made."
7. In all other respects, the Plan shall remain in full
force and effect and effect.
8. This Amendment No. 2 shall be effective on the date
adopted by the Board, except as otherwise provided herein.
IN WITNESS WHEREOF, the Bank, intending to be legally bound,
has hereunto set its hand and seal this 20th day of December,
1991.
MOXHAM BANK CORPORATION
By: /s/ J. William Smith
-----------------------------
Attest: /s/ P. James Hayes
-----------------------------
MOXHAM NATIONAL BANK OF JOHNSTOWN
By: /s/ J. William Smith
-------------------------------
Attest: /s/ P. James Hayes
-------------------------------
FIRST NATIONAL BANK OF GARRETT
By: /s/ Robert W. Brant
-------------------------------
Attest: /s/ Stanley C. Witt
-------------------------------
CERTIFICATION OF ADOPTION OF AMENDMENT
The undersigned hereby certify that at a duly-convened
meeting of the Boards of Directors of Moxham Bank Corporation,
Moxham National Bank of Johnstown and First National Bank of
Garrett, held on September 10, 1991 and October 10, 1991,
respectively, Amendment No. 2 to the Amended and Restated Moxham
National Bank of Johnstown Executive Retirement Plan, in the form
attached hereto and made a part hereof, was duly adopted. The
undersigned further certify that the Executive Retirement Plan,
as amended by Amendment No. 2, is still in effect.
Executed this 20th day of December, 1991.
MOXHAM BANK CORPORATION
By: /s/ J. William Smith
-----------------------------
Attest: /s/ P. James Hayes
-----------------------------
MOXHAM NATIONAL BANK OF JOHNSTOWN
By: /s/ J. William Smith
-------------------------------
Attest: /s/ P. James Hayes
-------------------------------
FIRST NATIONAL BANK OF GARRETT
By: /s/ Robert W. Brant
-------------------------------
Attest: /s/ Stanley C. Witt
-------------------------------
MOXHAM NATIONAL BANK OF JOHNSTOWN
MEETING OF THE BOARD OF DIRECTORS
A meeting of the Directors of Moxham National Bank of
Johnstown, a National Banking Association (the "Bank") was held
on the 10th day of September, 1991, pursuant to notice duly
given. Present were the following Directors, constituting a
quorum thereof:
Upon motion duly made and seconded the following resolution
was adopted:
"RESOLVED, that Amendment No. 2 to the Amended and
Restated Moxham National Bank of Johnstown Executive Retirement
Plan, in the form attached hereto and hereby made a part hereof,
is adopted by the Bank."
There being no further business, the meeting was, upon
motion duly made and seconded, adjourned.
Date: December 20, 1991 /s/ P. James Hayes
---------------------- ------------------------
[CORPORATE SEAL]
AMENDMENT NO. 3
TO THE
AMENDED AND RESTATED
MOXHAM BANK CORPORATION
EXECUTIVE RETIREMENT PLAN
BACKGROUND
The Amended and Restated Moxham Bank Corporation Executive
Retirement Plan (formerly known as the Moxham National Bank of
Johnstown Executive Retirement Plan and referred to herein as the
"Plan") and was originally effective January 1, 1987. Amendments
Nos. 1 and 2 to the Plan were adopted on September 11, 1990, and
September 20, 1991. Capitalized terms not defined in this
Amendment shall have the meaning set forth in the Plan as
previously amended.
Pursuant to the authority contained in Section 7.02 of the
Plan, the Plan is hereby amended as follows:
1. Section 4.01(a) of the Plan is amended to read in its
entirety as follows:
(a) Upon his death, Disability (as defined in Section
4.01( c) or attaining his Retirement Age (as defined below), the
Bank shall pay to each Participant (or to his Designated
Beneficiary in the event that such Participant dies during the
payment period) his Account balance in equal quarterly
installments over a period of 10 years; provided that the last
installment (or installments if necessary) shall be adjusted to
reflect the allocation of net earnings to his Account during the
payment period. Payment shall commence on the first day of the
calendar quarter immediately following the Participant's death,
Disability or attainment of his Retirement Age. A Participant's
Retirement Age shall be the earlier of (I) age sixty-two (62), or
(ii) the later of age fifty-five (55) or the date on which the
Participant completes fifteen (15) Years of Service.
2. Section 4.02 of the Plan is hereby amended by revising
the first sentence of subsection (a) and adding a new subsection
(e) to read as follows:
(a) In the event a Participant terminates employment
for any reason other than on account of attaining his Retirement
Age, Death or Disability, he shall receive a percentage (the
"Termination Percentage") of his Account determined in accordance
with the schedule set forth below, commencing on the first day of
the calendar quarter immediately following the calendar quarter
in which he terminates employment.
* * *
(e) As soon as the Committee is aware that a Change in
Control has occurred or will occur and the date thereof, it shall
notify all Participants in writing of the date of the Change in
Control.
3. Section 4.04 of the Plan is hereby amended to read in
its entirety as follows:
Section 4.04
Notwithstanding anything to the contrary in this
Article IV (except for the restrictions set forth in Section
4.01(b)), the following distributions rules shall apply:
(a) Upon application of the Participant (or his
beneficiary in the event of his death) no later than 90 days
prior to the date Plan benefits would otherwise become payable,
the Committee shall have the right in its sole discretion to
authorize payment of the Participant's Account in a single lump
sum or in installments over a period of up to ten years, as
requested by the Participant or his Designated Beneficiary. (The
90-day period shall not apply in the event of the Participant's
Death or Disability. In the event of a termination of employment
other than on account of attaining Retirement Age, Death or
Disability, the application period shall be ten days after such
termination.) The amount distributable in a single lump sum
shall be the Participant's Account Balance determined as of the
Allocation Date immediately preceding the date of the lump sum
distribution. If the distribution is to be made in installments,
the last installment (or installments if necessary) shall be
adjusted to reflect the allocation of net earnings to his Account
during the payment period. If the Participant requesting the
election pursuant to this paragraph is a member of the Committee,
he shall abstain from voting and the Board shall appoint another
member of the Committee for the purpose of determining whether
the application should be approved.
(b) At least one year prior to his retirement or other
termination of employment a Participant shall have the right to
elect to receive the balance of his Account either in a single
lump sum or in installments payable over a period of less than 10
years. (There shall be no advance election period required if
the Participant's termination of employment occurs within one
year of a Change in Control.) If such an election is made, the
Participant shall receive his Account balance determined as of
the Allocation Date immediately preceding the date the
distribution (or the first distribution in the event of
installments) is to be made. The Participant shall not be
entitled to have any further net earnings credited to his
Account.
(c ) In the event a Change in Control occurs, a
Participant who is receiving installment payments under the Plan
shall have the right to elect (within 90 days of the Change in
Control) to receive the balance of his Account in a single lump
sum or to accelerate the receipt of his installment payments. If
the distribution is to be made in installments, the last
installment (or installments if necessary) shall be adjusted to
reflect the allocation of net earnings to his Account during the
new payment period.
(d) In the event more than one Change in Control
occurs after December 1, 1995, upon the occurrence of the second
Change in Control, a Participant shall have the right to receive
his Account balance in the same manner as set forth in Subsection
(b) hereof, whether or not his employment has been terminated,
provided the Participant so elects by giving written notice to
the Committee at least one year prior to the proposed
distribution date.
2. Section 7.03 of the Plan is amended to read in its
entirety as follows:
Section 7.03
Notwithstanding any contrary provision in the Plan, in
the event of a Change of Control, as defined in Section 4.02(c )
the following provision shall apply:
(a) The Bank shall be required to credit the Account
of each Participant with an amount (the "Lump Sum Required
Credit") which is not less than the sum of (i) the present value
(using a discount rate of 8%) of the Required Annual Credit for
each year in the Post-Change Period, and (ii) the "Final Pre-
Change Credit." The Required Annual Credit equals the amount
credited to each Participant's Account pursuant to Section
3.01(a) of the Plan for the calendar year immediately preceding
the year in which a Change in Control occurs. The Post-Change
Period is the period of ten years beginning with the date a
Change in Control occurs. The Final Pre-Change Credit for each
Participant equals the Required Annual Credit prorated for the
portion of the calendar year ending on the date of a Change in
Control.
(b) Notwithstanding the first sentence of Section
5.01, in the event of a Change in Control, any assets theretofore
set aside by the Bank to satisfy its obligations under the Plan
(including the earnings on such assets), plus an amount equal to
the total Lump-Sum Required Credits for all Participants, shall
be set such aside and invested in a segregated account, in
accordance with the Bank Agency Agreement, dated December 24,
1986, or any successor agreement, and shall remain in said
account, subject to the remaining provisions of Section 5.01,
until distributed to the Participants.
(c ) The Plan may not be amended or terminated so as to
deprive any Participant of the Credits to his Account as of the
date a Change in Control occurs or to deprive any Participant of
the Lump-Sum Required Credit required to be allocated to him. In
addition, Article IV, and Sections 5.01, 7.01 and 7.03 may not be
amended without the written consent of all affected Participants.
4. In all other respects, the Plan shall remain in full
force and effect.
5. This Amendment No. 3 shall be effective on the date
adopted by the Board of Directors of Moxham Bank Corporation,
provided that it is also adopted by the Boards of Directors of
each of the other Companies.
IN WITNESS WHEREOF, each Company, intending to be legally
bound, has caused this Amendment No. 3 to be executed this 12th
and 14th day of December, 1995, by its duly authorized officers.
Dated: 12-12-95 MOXHAM BANK CORPORATION
By: /s/ J. William Smith
-----------------------------
Attest: /s/ P. James Hayes
-----------------------------
Dated: 12-12-95 MOXHAM NATIONAL BANK OF JOHNSTOWN
By: /s/ J. William Smith
-------------------------------
Attest: /s/ P. James Hayes
-------------------------------
Dated: 12-14-95 FIRST NATIONAL BANK OF GARRETT
By: /s/ Robert W. Brant
-------------------------------
Attest: /s/ Stanley C. Witt
-------------------------------
EXHIBIT 11
BT FINANCIAL CORPORATION AND AFFILIATES
COMPUTATION OF NET INCOME PER SHARE
Years ended December 31,
1996 1995 1994
------------------------------------
(In thousands, except
shares and per share data)
Primary income per
share:
Net income $ 13,774 $ 13,049 $ 12,659
Preferred
dividends 54 116 120
-------------------------------------
Net income
applicable to
common stock $ 13,720 $ 12,933 $ 12,539
=====================================
Average common
shares
outstanding
and common
stock
equivalents 5,529,978 5,342,426 5,328,343
=====================================
Net income per
share-primary $ 2.48 $ 2.42 $ 2.35
=====================================
Fully diluted income
per share:
Net income $ 13,774 $ 13,049 $ 12,659
=====================================
Average common
shares
outstanding
and common
stock
equivalents 5,529,978 5,342,426 5,328,343
Additional common
shares assuming:
Conversion
of preferred
stock Series A 47,106 100,884 104,362
-------------------------------------
Average common
shares
outstanding
and common
stock
equivalents 5,577,084 5,443,310 5,432,705
=====================================
Net income per
share-fully
diluted. $ 2.47 $ 2.40 $ 2.33
=====================================
Note: Share and per share data have been adjusted to reflect
the 5% stock dividend distributed by BT on October 14,
1994 and the 10% stock dividend distributed on October
22, 1996. Additionally, share data has been adjusted for
the 10% stock dividend paid on December 30, 1994 by the
former Moxham Bank Corporation.
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 (Corporation) as of December 31,
1996 and 1995 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, 1996. 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 did not audit the consolidated financial statements
of Moxham Bank Corporation for periods prior to 1996 which reflect
total assets of approximately $240,895,000 as of December 31, 1995,
and net interest income of approximately $8,786,000 and $8,873,000
for each of the two years in the period ended December 31, 1995.
Those consolidated statements were audited by other auditors whose
report has been furnished to us and, our opinion, insofar as it relates
to amounts included for Moxham Bank Corporation, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the 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, based on our audits and the aforementioned
reports of other auditors, 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, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 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.
- ------------------------------------------------
/s/ Coopers & Lybrand LLP
COOPERS
& LYBRAND
Pittsburgh, Pennsylvania
January 21, 1997
12
BT Financial Corporation and Affiliates
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31,
1996 1995
-----------------------------
ASSETS
Cash and cash equivalents (Note 1) $ 65,305 $ 59,043
-----------------------------
Money market investments:
Interest-bearing deposits with
banks 334 1,484
Federal funds sold 10,100 10,165
-----------------------------
Total money market invest-
ments 10,434 11,649
-----------------------------
Securities available-for-sale,
at market value 204,707 268,194
Securities held-to-maturity
(market value of $98,238 at
December 31, 1996, and $35,924 at
December 31, 1995) 97,685 35,161
-----------------------------
Total securities (Note 3) 302,392 303,355
-----------------------------
Loans (Note 4) 1,082,674 1,060,871
Less:
Unearned interest 56,909 49,631
Reserve for loan losses (Note 5) 9,681 10,033
-----------------------------
Net loans 1,016,084 1,001,207
-----------------------------
Premises and equipment (Note 6) 31,634 31,724
Accrued interest receivable 8,706 9,555
Other assets 31,753 26,027
-----------------------------
Total assets $1,466,308 $1,442,560
=============================
LIABILITIES
Deposits:
Non-interest-bearing $ 161,981 $ 161,355
Interest-bearing 1,101,747 1,091,897
-----------------------------
Total deposits 1,263,728 1,253,252
Federal funds purchased and
securities sold under
agreements to repurchase 36,678 35,313
Short-term borrowings 4,010 2,366
Accrued interest payable 5,098 6,788
Other liabilities 3,097 2,659
Long-Term debt (Note 14) 17,210 20,083
-----------------------------
Total liabilities 1,329,821 1,320,461
SHAREHOLDERS' EQUITY
Preferred stock:
No par value; Authorized shares,
2,000,000; Shares issued; 14,000
at December 31, 1995 -- 1,378
Common stock:
Par value, $5.00; Authorized
shares, 10,000,000; Shares
issued: 5,682,215 at December 31,
1996 and 4,865,100 at December 31,
1995 28,411 24,326
Capital surplus 55,729 33,675
Retained earnings 51,577 61,116
Net unrealized holding gains on
securities available-for-sale 770 1,604
-----------------------------
Total shareholders' equity 136,487 122,099
-----------------------------
Total liabilities and share-
holders' equity $1,466,308 $1,442,560
=============================
The accompanying notes are an integral part of the
consolidated financial statements.
13
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except shares and per share data)
Years Ended December 31,
1996 1995 1994
-------------------------------
INTEREST INCOME
Loans, including fees $87,749 $79,342 $68,292
Securities:
Taxable 18,793 19,162 18,457
Tax-exempt 592 693 934
Deposits with banks 34 325 782
Federal funds sold 1,188 306 564
-------------------------------
Total interest income 108,356 99,828 89,029
-------------------------------
INTEREST EXPENSE
Deposits 42,208 40,099 31,506
Federal funds purchased and
securities sold under agreements
to repurchase 1,098 1,597 740
Short-term borrowings 158 269 254
Long-term debt 1,268 714 629
-------------------------------
Total interest expense 44,732 42,679 33,129
-------------------------------
NET INTEREST INCOME 63,624 57,149 55,900
Provision for loan losses (Note 5) 2,441 1,566 1,168
-------------------------------
Net interest income after
provision for loan losses 61,183 55,583 54,732
-------------------------------
OTHER INCOME
Trust income 2,919 2,398 2,313
Fees for other services 6,585 5,589 5,161
Net securities gains 406 108 347
Other income 1,362 619 586
-------------------------------
Total other income 11,272 8,714 8,407
-------------------------------
OTHER EXPENSES
Salaries and wages 20,517 19,707 18,818
Pension and other employee benefits 3,854 4,116 4,125
Net occupancy expense 4,637 4,175 4,035
Equipment expense 4,254 3,545 3,198
F.D.I.C. insurance 1,784 1,594 2,478
Amortization of intangible assets 1,991 1,161 1,291
Reorganization expense (Note 2) 1,309 --- ---
Other operating expense 13,335 11,261 11,652
-------------------------------
Total other expense 51,681 45,559 45,597
-------------------------------
INCOME BEFORE INCOME TAXES 20,774 18,738 17,542
Provision for income taxes (Note 7) 7,000 5,689 4,883
-------------------------------
NET INCOME $13,774 $13,049 $12,659
===============================
EARNINGS PER SHARE
Primary:
Net income per share $ 2.48 $ 2.42 $ 2.35
Weighted average shares
outstanding 5,529,978 5,342,426 5,328,343
Fully diluted:
Net income per share $ 2.47 $ 2.40 $ 2.33
Weighted average shares
outstanding 5,577,084 5,443,310 5,432,705
DIVIDENDS PAID PER COMMON SHARE $ 1.12 $ .98 $ .89
The accompanying notes are an integral part of the
consolidated financial statements.
14
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Years Ended December 31,
1996 1995 1994
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,774 $ 13,049 $ 12,659
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 2,441 1,566 1,168
Provision for depreciation and
amortization 3,966 3,462 3,098
Amortization of intangible
assets 1,991 1,161 1,291
Amortization of premium, net
of accretion of discount on
loans and investments (428) 787 1,294
Deferred income taxes (1,073) (348) (963)
Realized securities gains (406) (108) (347)
Decrease (increase) in interest
receivable 1,413 605 (725)
Increase (decrease) in interest
payable (2,018) 1,054 759
Equity in loss of limited partnerships 182 172 99
Other assets and liabilities, net 3,306 790 (524)
-----------------------------
Net cash provided by
operating activities 23,148 22,190 17,809
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 5,378 46,146 16,571
Repayments and maturities of
securities available-for-sale 107,150 60,472 54,524
Repayments and maturities of
securities held-to-maturity 11,987 21,000 --
Purchase of securities available-
for-sale (20,652) (27,084)(106,781)
Purchase of securities held-to-
maturity (72,466) (33,219) (22,905)
Net decrease (increase) in money
market investments 1,814 (2,874) 76,236
Proceeds from sales of loans 7,965 7,157 6,828
Net increase in loans (13,352) (57,696) (67,540)
Purchases of premises and
equipment and other (3,654) (4,125) (3,719)
Investment in limited partnership (131) (144) (163)
Purchase of Bank, net of cash
acquired (3,407) (23,674) --
-----------------------------
Net cash provided by (used in)
investing activities 20,632 (14,041) (46,949)
-----------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase (decrease) in
deposits (31,391) 30,009 (8,657)
Net increase (decrease) in federal
funds purchased and securities
sold under agreements to
repurchase 1,365 (30,523) 45,844
Net increase (decrease) in
short-term borrowings 1,644 (9,515) 5,762
Proceeds from sale of common stock -- 200 185
Preferred dividends paid (54) (116) (120)
Common dividends paid (6,212) (5,242) (4,727)
Proceeds from long-term debt -- 12,520 --
Payment on long-term debt (2,873) (2,458) (2,440)
Other 3 -- --
-----------------------------
Net cash provided by (used in)
financing activities (37,518) (5,125) 35,847
-----------------------------
Increase (decrease) in cash and
cash equivalents 6,262 3,024 6,707
Cash and cash equivalents at
beginning of year 59,043 56,019 49,312
-----------------------------
Cash and cash equivalents
at end of year $ 65,305 $ 59,043 $ 56,019
=============================
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest on deposits and
other borrowings $ 46,422 $ 39,573 $ 32,437
Federal income taxes, net of
refunds 6,761 7,761 8,013
Non-cash financing activities:
Issuance of common stock;
Armstrong acquisition $ 7,712 $ -- $ --
Conversion of preferred stock to
common stock 1,378 98 --
Details of the acquisitions of
Huntington during 1995 and
Armstrong County Trust Company
during 1996, follows:
Fair value of assets acquired $ 54,285 $111,200 $ --
Fair value of liabilities
assumed 42,307 85,700 --
-----------------------------
Net assets acquired $ 11,978 $ 25,500 $ --
=============================
The accompanying notes are an integral part of the
consolidated financial statements.
15
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1996, 1995, and 1994
(In thousands, except shares and per share data)
NET
COMMON UNREAL-
STOCK IZED
-------- PRE- HOLDING
NUMBER OF FERRED COMMON CAPITAL RETAINED GAINS
SHARES STOCK STOCK SURPLUS EARNINGS LOSSES TOTAL
--------- ---------------------------------------------------
Balance, December 31,
1993 4,563,850 $1,476 $22,819 $27,538 $52,774 $4,749 $109,356
Net income, 1994 12,659 12,659
Common dividends paid
($.89 per share) (4,727) (4,727)
Preferred dividends
paid Moxham
($8.00 per share) (120) (120)
Stock dividends 274,931 1,375 5,786 (7,161) --
Common stock issued:
Moxham,Dividend
Reinvestment Plan
and Employee Stock
Ownership Plan 8,987 45 140 185
Change in unrealized
market value adjustment
on securities available-
for-sale, net of tax (13,085) (13,085)
--------- --------------------------------------------------
Balance, December 31,
1994 4,847,768 1,476 24,239 33,464 53,425 (8,336) 104,268
Net income, 1995 13,049 13,049
Common dividends paid
($.98 per share) (5,242) (5,242)
Preferred dividends
paid-Moxham,
($8.00 per share) (116) (116)
Common stock issued:
Moxham, Dividend
Reinvestment Plan
and Employee Stock
Ownership Plan 11,007 55 145 200
Conversion of Moxham
preferred stock into
common stock 6,325 (98) 32 66 --
Change in unrealized
market value adjustment
on securities available
-for-sale, net of tax 9,940 9,940
--------- --------------------------------------------------
Balance, December 31,
1995 4,865,100 1,378 24,326 33,675 61,116 1,604 122,099
Net income, 1996 13,774 13,774
Common dividends paid
($1.12 per share) (6,212) (6,212)
Preferred dividends
paid-Moxham,
($8.00 per share) (54) (54)
Acquisition of
Armstrong County
Trust Company 212,000 1,060 6,652 7,712
Conversion of Moxham
preferred stock into
common stock 88,550 (1,378) 442 936 --
Stock dividend 516,565 2,583 14,464 (17,047) --
Other 2 2
Change in unrealized
market value adjustment
on securities available-
for-sale, net of tax (834) (834)
--------- --------------------------------------------------
BALANCE, December 31,
1996 5,682,215 --- $28,411 $55,729 $51,577 $770 $136,487
========= ================================================
16
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) Bedford Associates, Inc., and Moxham
Community Development Corporation. 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. Moxham Community Development
Corporation was organized in 1992 to conduct community
development activities.
The preparation of financial statements in conformity with
generally accepted 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. BT's
financial statements have been restated for periods prior to June
30, 1996, giving effect to the merger between BT and Moxham Bank
Corporation which occurred on June 25, 1996 and was accounted for
as a pooling-of-interests. Results of operations from business
combinations accounted for as purchases are included in the
consolidated financial statements from their respective
acquisition dates.
CASH EQUIVALENTS
BT considers all non-interest-bearing amounts due from banks
to be cash equivalents. At December 31, 1996 and 1995, the
Corporation maintained cash balances of approximately $34 million
and $26 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. The
former Moxham Bank Corporation maintained a trading portfolio
prior to the merger with BT. The volume of transactions within
the portfolio and the related impact on BT's financial statements
were not significant. No trading securities were held at
December 31, 1995.
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).
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. The Corporation adopted
FASB Statement No. 114, "Accounting by Creditors for Impairment
of a Loan", and FASB Statement No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures," on
January 1, 1995. Under these guidelines, a loan is considered
impaired, based on current information and events, if it is
probable that the Corporation will be unable to collect the
scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. When conducting
loan
17
evaluations, management considers various factors such as
historical loan performance, the financial condition of the
debtor and collateral adequacy to determine when a loan is
impaired. Recurring shortfalls or delays in payments and/or
extended delinquency periods may provide evidence that a delay or
shortfall is significant enough to warrant a review of the loan
for impairment. Generally, the minimum period without payment
that typically can occur before a loan is considered for
impairment is 90 days. The measurement of impaired loans is
generally based on the present value of expected future cash
flows discounted at the historical effective interest rate,
except that collateral-dependent loans are generally 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 total 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. FASB
114 does not apply the provisions of FAS 114 on individual
smaller balance loans but 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 aggregation of these
loans is based upon common risk characteristics such as, among
other factors, loan type; geographic or industry risk
concentrations; whether the loans have similar terms, such as
interest and principal repayment terms; levels and types of
collateral; and external credit ratings or internal risk ratings
for the particular loans.
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 10 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 5 to 15 years. Core
deposit premiums amounted to $0 and $260 and going concern and
goodwill intangibles amounted to $20,440 and $16,874 at December
31, 1996 and 1995, 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.
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
The Corporation follows 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.
PER SHARE DATA
Net income per share amounts are computed by dividing net
income, after deducting preferred stock dividends, by the
weighted average number of shares of common stock outstanding
during each year, after giving retroactive effect to the 5% stock
dividend distributed by BT on October 14, 1994 and the 10% stock
dividend distributed on October 22, 1996. Additionally, per
share data has been adjusted for the 10% stock dividend paid on
December 30, 1994 by the former Moxham Bank Corporation. Fully
diluted earnings per share amounts are calculated assuming all
outstanding preferred stock was converted into common stock at
the beginning of each year and that no preferred dividends were
paid.
Cash dividends per share are based on the number of shares
outstanding at the respective declaration dates, after giving
retroactive effect to the stock dividends.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of." This
standard requires long-lived assets and certain identifiable
intangible assets, such as goodwill, be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. BT adopted
this statement on January 1, 1996, and the effect on BT's
financial statements as a result of the adoption was not
material.
In May 1995, FASB issued Statement No. 122, "Accounting for
Mortgage Servicing Rights." On January 1, 1996, BT adopted
Statement 122. The new standard requires capitalization of
mortgage servicing rights on mortgage loans originated for sale
and measurement of impairment of all capitalized mortgage
servicing rights based on their fair values. Adoption of
Statement No. 122 did not have any material impact on BT's
financial condition or results of operations.
18
In June of 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS No. 125 provides accounting and reporting
standards based on a control-oriented "financial-components"
approach. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets
it controls and liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. The statement
provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. This statement supersedes FASB No. 122 "Accounting
for Mortgage Servicing Rights." This statement is effective for
transfers and servicing of financial assets transactions
occurring after December 31, 1996.
In December of 1996, the FASB issued SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No.
125." This statement defers the effective date of FAS 125 by one
year to January 1, 1998, for certain transfer transactions
including repurchase agreements, dollar rolls, securities lending
and similar arrangements. SFAS No. 127 also delays by one year
the provisions of SFAS No. 125 for recognition of collateral by
secured parties in conjunction with secured borrowings.
The Corporation is currently evaluating the effect that
implementation of SFAS No. 125 and SFAS No. 127 will have on its
results of operations and financial position.
2. ACQUISITIONS
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.
On June 13, 1996, BT acquired The Armstrong County Trust
Company (Armstrong) of Kittanning, Pennsylvania by merging
Armstrong into Bank and Trust. The acquisition was accounted for
as a purchase. Armstrong had assets of approximately $50 million
and operated one office in Armstrong County. Each Armstrong
common share was exchanged for 26.50 shares of BT common stock
and $533.21 in cash. A total of 212,000 BT common shares were
issued in the merger. The total consideration for the Armstrong
acquisition was approximately $12 million in the aggregate for
all 8,000 Armstrong shares outstanding. The cash portion of
approximately $4.3 million was financed through short-term
borrowing from a commercial bank. In connection with the
acquisition, goodwill and other intangibles of approximately $5.2
million were recorded. Goodwill is being amortized over 15
years. Armstrong's results of operations after June 13, 1996 are
included in BT's 1996 Consolidated Statement of Income.
Unaudited pro forma results of operations for the years ended
December 31, 1996, 1995 and 1994 are presented below. The pro
forma results include the impact of purchase adjustments as
though the acquisitions of Huntington and Armstrong had been
effective January 1, 1994 and January 1, 1995, respectively. The
pro forma results are not necessarily indicative of what actually
would have occurred if the acquisitions had been in effect for
the entire periods presented. In addition, they are not intended
to be a projection of future results and do not reflect any
synergies that might be achieved from the combined operations of
the companies.
Pro Forma Results
(Unaudited)
Years Ended December 31,
1995 1994 1993
-------- -------- -------
NET INTEREST INCOME $ 64,629 $62,236 $59,507
NET INCOME 13,585 13,543 12,730
EARNINGS PER SHARE:*
Primary 2.40 2.41 2.37
Fully diluted 2.39 2.39 2.34
*1996 and 1995 data reflects the issuance of 26.5 shares of
BT common stock (212,000 shares in total ) for each share of
Armstrong common stock.
On June 25, 1996, BT completed a merger with Moxham Bank
Corporation (Moxham) whereby Moxham was merged directly into BT.
In connection with the merger, each share of Moxham common stock
(other than shares held by the Corporation) was converted into
1.15 shares of BT common stock, resulting in the issuance of
1,038,519 BT common shares. In addition, 88,550 shares of BT
common stock were exchanged for all 14,000 outstanding shares of
Moxham Series A $8.00 cumulative convertible non-voting preferred
stock. The merger has been accounted for as a pooling-of-
interests and accordingly BT's accompanying consolidated
financial statements have been restated retroactively to include
the accounts and operations of Moxham for all periods prior to
the merger. Moxham's banking subsidiaries included the Moxham
National Bank and The First National Bank of Garrett. Moxham
also held a nonbank subsidiary known as the Moxham Community
Development Corporation. Upon consummation of the merger,
Moxham's banking subsidiaries were merged into Bank and Trust on
June 25, 1996. At the time of the merger, Moxham had assets of
approximately $235 million and operated 12 branches in Cambria,
Somerset, and Westmoreland counties. In conjunction with the
merger, four of these branches closed during the third quarter of
1996 along with two branches of Bank and Trust and one branch of
Laurel as a result of duplicate service areas.
19
Separate results of the combining entities are presented for
the periods shown below. All significant intercompany
transactions have been eliminated.
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
BT Moxham Combined
---- ------ --------
NET INTEREST INCOME $26,470 $ 4,692 $31,162
NET INCOME 5,960 783 6,743
EARNINGS PER SHARE:
Primary - - 1.24
Fully Diluted - - 1.23
YEAR ENDED DECEMBER 31, 1995
BT Moxham Combined
---- ------ --------
NET INTEREST INCOME $48,364 $ 8,785 $57,149
NET INCOME 11,574 1,475 13,049
EARNINGS PER SHARE:
Primary 2.75 - 2.42
Fully Diluted 2.75 - 2.40
YEAR ENDED DECEMBER 31, 1994
BT Moxham Combined
---- ------ --------
NET INTEREST INCOME $47,027 $ 8,873 $55,900
NET INCOME 10,906 1,753 12,659
EARNINGS PER SHARE:
Primary 2.59 - 2.35
Fully Diluted 2.59 - 2.33
Certain reclassifications have been made to Moxham's
financial information to conform to BT's classification.
In connection with the Moxham merger, $1.3 million of
reorganization costs ($959,000 after-tax or $.17 per fully
diluted share) were incurred and charged to expense in 1996. The
reorganization costs consisted primarily of severance pay to
furloughed employees and various legal, accounting and investment
banking fees associated with the transaction.
On January 30, 1997, Bank and Trust, BT's largest banking
affiliate, entered into an agreement in principle to acquire
three branch offices of National City Bank of Pennsylvania a
subsidiary of National City Corporation of Cleveland, Ohio. The
locations of the three branches are Meyersdale and Salisbury in
Somerset County, Pennsylvania and Everett in Bedford County,
Pennsylvania. The sale will include the deposits, loans and
fixed assets of all three branches which will be merged into Bank
and Trust. The combined deposit total for the three offices is
approximately $69 million. The acquisition price of the
deposits, loans and offices is anticipated to be approximately
$4.8 million. The agreement is subject to completion of due
diligence and regulatory approvals. The sale is expected to be
completed during the second quarter of 1997.
20
3. SECURITIES
The amortized cost and estimated market values of securities
at December 31, 1996 and 1995 were as follows:
1996
--------------------------------------------
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 $186,172 $ 984 $(170) $186,986
Obligations of states and
political subdivisions 9,656 214 (7) 9,863
Debt securities issued
by foreign governments 590 -- (2) 588
Corporate securities 7,105 181 (16) 7,270
--------------------------------------------
Totals $203,523 $1,379 $(195) $204,707
============================================
Securities held-to-maturity:
US Treasury
and obligations of
US government agencies
and corporations $97,685 $ 712 $(159) $98,238
============================================
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 $248,605 $2,365 $(724) $250,246
Obligations of state and
political subdivisions 10,291 321 (15) 10,597
Debt securities issued
by foreign governments 300 --- (2) 298
Corporate securities 6,524 557 (28) 7,053
-------------------------------------------
Totals $265,720 $3,243 $(769) $268,194
===========================================
Securities held-to-maturity:
US Treasury
and obligations of
US government agencies
and corporations $ 35,161 $763 $-- $35,924
===========================================
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, 1996 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
1996
-----------------------
Amortized Market
Cost Value
-----------------------
Due in one year or less $ 46,090 $46,344
Due after one year through
five years 117,331 117,602
Due after five years through
ten years 27,096 27,474
Due after ten years 13,006 13,287
-------- --------
Total $203,523 $204,707
======== ========
Held-To-Maturity
1996
---------------------
Amortized Market
Cost Value
---------------------
Due in one year or less $ --- $ ---
Due after one year through
five years 84,185 84,751
Due after five years through
ten years 13,500 13,487
Due after ten years --- ---
---------------------
Total $97,685 $98,238
=====================
Proceeds from sales of securities during 1996 were $5,378.
Gross gains of $445 and gross losses of $8 were realized on those
sales. In addition, various securities were called during 1996,
which resulted in gross gains of $19. In 1996, BT realized a
gross loss of $50 in connection with a valuation adjustment on an
equity security. During 1995, proceeds from sales of securities
were $46,146, with gross gains of $246 and gross losses of $157
realized on those sales. In addition, various securities were
called during 1995, which resulted in gross gains of $19. In
1994, proceeds from sales of securities were $16,571, with gross
gains of $370 and gross losses of $39 realized on those sales.
Also, various securities were called in 1994 resulting in gross
gains of $38 and gross losses of $22. At December 31, 1996,
securities carried at $120,659 were pledged as collateral for
public and trust deposits and securities sold under agreements to
repurchase. In addition, at December 31, 1996, BT held
available-for-sale investments in government agency step-up
securities of approximately $18.2 million with call options that
allow the issuer to redeem the investment prior to maturity.
21
4. LOANS
The composition of the loan portfolio at December 31, 1996
and 1995 was as follows:
1996 1995
--------------------
Commercial, financial and agricultural $170,107 $167,144
Real estate:
Residential 317,459 324,210
Commercial 217,861 193,868
Consumer 377,247 375,649
--------------------
Total $1,082,674 $1,060,871
====================
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 $13,364 and $14,881 at December 31, 1996,
and 1995, 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:
1996 1995
-------------------------------
Loans at beginning of year $25,285 $21,436
New loans 9,792 10,972
Loan payments (11,037) (8,084)
Other (522) 961
-------------------------------
Loans at end of year $23,518 $25,285
===============================
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:
1996
-----------------------------------
Total
Reserve for Reserve
General Impaired for Loan
Reserve Loan Losses Losses
-----------------------------------
Balance at beginning of
year $9,102 $ 931 $10,033
Transfer upon adoption
of FASB 114 --- --- ---
Reserve of acquisitions 159 --- 159
Additions:
Provisions for loan losses 1,111 1,330 2,441
Recoveries of loans
charged off 566 --- 566
Deductions:
Loans charged off (2,768) (750) (3,518)
-----------------------------------
Balance at end of year $ 8,170 $ 1,511 $ 9,681
===================================
1995 1994
----------------------------------- -----------
Total
Reserve for Reserve
General Impaired for Loan General
Reserve Loan Losses Losses Reserve
----------------------------------- -----------
Balance at beginning of
year $9,053 $ --- $ 9,053 $ 8,815
Transfer upon adoption
of FASB 114 (285) 285 --- ---
Reserve of acquisitions 849 --- 849 ---
Additions:
Provisions for loan losses 740 826 1,566 1,168
Recoveries of loans
charged off 347 --- 347 400
Deductions:
Loans charged off (1,602) (180) (1,782) (1,330)
----------------------------------- -----------
Balance at end of year $ 9,102 $ 931 $ 10,033 $9,053
=================================== ===========
The recorded investment in loans for which impairment has
been recognized in accordance with FASB 114 totalled $3,865 and
1,965 at December 31, 1996 and 1995, respectively. A corre-
sponding valuation allowance of $1,511 and $931 was established
for the years ended 1996 and 1995, respectively. The year-over-
year increases are primarily due to the addition of various
impaired commercial loans associated with two borrowers. The
average recorded investment in impaired loans for 1996 and 1995
did not differ materially from the amounts outstanding at
December 31, 1996 and December 31, 1995. BT recognized
approximately $93 of interest revenue on impaired loans during
1996, of which approximately $63 and $30 was recognized using the
accrual and cash basis methods of income recognition,
respectively.
22
6. PREMISES AND EQUIPMENT
Major classes of premises and equipment at December 31, 1996
and 1995 were as follows:
1996 1995
-------------------------
Land $ 4,538 $ 4,526
Buildings 28,603 28,792
Leasehold improvements 1,326 1,295
Equipment 26,200 22,631
-------------------------
60,667 57,244
Less accumulated depreciation
and amortization 29,033 25,520
-------------------------
Premises and equipment, net $31,634 $31,724
=========================
7. FEDERAL INCOME TAXES
The components of the provision (benefit) for income taxes
from operations are as follows:
1996 1995 1994
------------------------------------
Current $8,073 $6,037 $5,846
Deferred (1,073) (348) (963)
------------------------------------
TOTAL $7,000 $5,689 $4,883
====================================
A reconciliation of the federal statutory tax rate to the
effective tax rate applicable to income before income taxes
follows:
1996 1995 1994
-----------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct) the tax effect of:
Tax-exempt interest (4.7) (5.1) (5.5)
Interest expense limitation .8 .7 .7
Other, net 2.6 (.2) (2.4)
-----------------------------
Effective tax rate 33.7% 30.4% 27.8%
=============================
The deferred tax assets and deferred tax liabilities
recorded on the balance sheet are as follows:
December 31, 1996
Deferred Tax Deferred Tax
Assets Liabilities
------------------------------
Provision for loan losses $3,225 $ ---
Net unrealized holding gains
(losses) on securities --- 415
Depreciation 742 ---
Deferred loan fees, net 123 ---
Adjustment due to acquisition 275 815
Deferred compensation 541 ---
Low-income housing credits 17 ---
Other 1,588 489
------------------------------
Total $6,511 $1,719
==============================
December 31, 1995
Deferred Tax Deferred Tax
Assets Liabilities
------------------------------
Provision for loan losses $3,373 $ ---
Net unrealized holding gains
(losses) on securities --- 875
Depreciation 11 ---
Deferred loan fees, net 119 ---
Adjustment due to acquisition --- 1,003
Deferred compensation 122 ---
Low-income housing credits 103 ---
Other 1,636 429
------------------------------
Total $5,364 $2,307
==============================
No valuation allowance was established at December 31, 1996
and 1995 in view of the Corporation's ability to carry back net
deferred tax assets to taxes paid in previous years.
8. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
BT maintains noncontributory 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 $1,412 and $1,126 at
December 31, 1996 and 1995 respectively. Changes in plan asset
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.
23
Net pension expense for 1996, 1995, and 1994 consisted of
the following:
1996 1995 1994
-------------------------
Service cost-benefits earned
during the year $ 654 $ 597 $ 571
Interest accrued on projected
benefit obligation 1,236 1,254 1,066
Actual return on plan assets (3,010) (2,699) (287)
Net amortization and deferral 1,238 1,097 (1,192)
-------------------------
Net pension expense $ 118 $ 249 $ 158
=========================
The following table sets forth the plans' funded status and
amounts recognized in BT's consolidated balance sheet at December
31, 1996 and 1995:
1996 1995
--------------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation, including
vested benefits (based upon retirement
date) of $15,589 and $13,759 for 1996
and 1995, respectively $(15,761) $(13,888)
=====================
Projected benefit obligation $(19,179) $(18,374)
Plan assets at fair value 23,268 20,139
---------------------
Plan assets in excess of projected benefit
obligation 4,089 1,765
Unrecognized actuarial gain (1,454) 213
Unrecognized prior service costs (337) (365)
Unrecognized transition credit (1,576) (1,667)
---------------------
Prepaid (accrued) pension cost included in the
consolidated balance sheet $ 722 $ (54)
=====================
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 1996, 1995, and 1994 are as follows:
1996 1995 1994
----------------------------
Discount Rate 7% 7% 8%
Long-Term Rate of Return 8% 8% 8%
Compensation Rate 3% 3% 4%
The change in assumptions in 1995 resulted in an increase of
approximately $1,298 for the projected benefit obligation.
The Corporation follows Statement of Financial Accounting
Standard No. 106 "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions". 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
1996, 1995 and 1994 consisted of the following:
1996 1995 1994
---------------------
Interest cost $104 $122 $133
Amortization of transition
obligation and other 94 92 89
---------------------
Net post-retirement expense $198 $214 $222
=====================
The Corporation used a discount rate of 7% for 1996 and 1995
and 8% for 1994.
1996 1995
--------------------
Accumulated post-retirement benefit
obligation $(1,509) $(1,585)
Plan assets at fair value 0 0
--------------------
Excess of benefit obligation over plan
assets (1,509) (1,585)
Transition obligation 1,611 1,712
Unrecognized net gain (loss) (248) (255)
--------------------
Accrued benefit obligation $ (146) $ (128)
====================
An annual rate of health care cost increase was assumed to
be 10% in 1996 decreasing to 5% by the year 2010. Increasing the
assumed health care trend rate by 1% in each year would increase
the obligation by $112 at December 31, 1996 and annual expense by
$15.
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 was $143 and $60
for 1996 and 1995, respectively.
24
Moxham Bank Corporation maintained a noncontributory target
benefit pension plan (target plan) covering all employees who met
the eligibility requirements. Prior to BT's acquisition of
Moxham, a resolution was passed to terminate the target plan
subject to IRS approval. These employees were admitted to the BT
401(k) plan upon acquisition and will vest 100% in the plan upon
completion of six years of service with either BT or previously
with Moxham. To be eligible for the target benefit pension plan
prior to the merger, an employee must have been 21 years of age
and have completed one year of continuous service. Contributions
to the target plan were determined by a formula based on the
participant's annual compensation and years of service.
Contributions to the target plan included in the consolidated
statement of income were $107 for 1996, $200 for 1995 and $177
for 1994.
Moxham also maintained a non-qualified deferred compensation
plan (plan) for certain employees. This plan was frozen upon the
acquisition of Moxham by BT. To participate in this plan,
selected employees must have completed at least twelve
consecutive months of service with Moxham. The plan provides
payments from a participant's "account" payable at age sixty-two,
or upon the participant's retirement from the Corporation,
whichever is later, or upon the participant's death or
disablement. Payments are made from the participant's account in
equal quarterly installments over a period of ten years, or the
participant may elect to receive the payment in a lump sum.
Contributions to this plan included in the consolidated statement
of income were $445 in 1996 and $62 in 1995 and 1994.
9. LITIGATION
In late January, 1997 a purported class action complaint was
served on Bank and Trust and Security of America Life Insurance
Company (Security) alleging various irregularities in connection
with a residential mortgage loan to the plaintiff in the
principal amount of approximately thirteen thousand dollars
including, among other things, overcharges on credit life and
disability insurance coverage and on other items. Security is
not affiliated with BT or any of its subsidiaries.
The plaintiff purports to represent a class of persons who
made a mortgage payment to Bank and Trust within six years before
November 21, 1996 and/or had credit life and/or disability
insurance coverage with Security within six years before November
21, 1996. The complaint was filed in the Court of Common Pleas
of Cambria County, Pennsylvania and seeks unspecified damages.
Management is currently evaluating the complaint with legal
counsel. Management intends to deny the material allegation in
the complaint, oppose certification of the case as a class
action, pursue its affirmative defenses and vigorously defend the
lawsuit. The impact of this litigation on BT Financial, however,
cannot be fully assessed at this early stage of the proceedings.
Due to the nature of its activities, BT is at all times
engaged in other 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 or results
of operations.
10. CAPITAL STOCK
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. On December 30, 1994, the former Moxham
Bank Corporation paid a 10% stock dividend. The dividend was
charged to retained earnings in the aggregate amount of $2,058.
On August 28, 1996, BT's Board of Directors declared a 10% stock
dividend. The dividend was distributed on October 22, 1996 to
shareholders of record as of September 20, 1996. The dividend
was charged to retained earnings in the aggregate amount of
$17,047 which is based on the closing price of $33 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 number of shares
giving retroactive effect to the aforementioned stock dividends.
In July 1992, the former Moxham Bank Corporation issued
15,000 shares of Series A $8.00 cumulative convertible non-voting
preferred stock (Series A Preferred Stock). An annual dividend
of $8.00 per share, payable quarterly on the last day of March,
June, September and December, commenced September 30, 1992. Cash
dividends on the Series A preferred stock were cumulative from
date of issue. At December 31, 1995, 14,000 preferred shares
were outstanding. These shares were exchanged for 88,550 shares
of BT common stock in connection with the merger on June 25,
1996. Approximately $54, $116 and $120 in preferred stock
dividends were paid in 1996, 1995 and 1994, respectively.
In 1991, the Board of Directors of BT declared and paid a
dividend distribution of 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, 1996 no rights have been exercised.
BT is subject to various regulatory capital requirements
administered by the Federal Reserve Bank. Failure to meet
minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on BT's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, BT and its subsidiary
banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require BT and its subsidiary banks to maintain
minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-
weighted assets, and of Tier I capital to average assets. As of
December 31, 1996, the Corporation meets all capital adequacy
requirements to which it is subject.
25
As of December 31, 1996, the most recent notification from
the Federal Reserve Bank categorized BT and its subsidiary banks
as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized", each
entity must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management
believes have changed each institution's categorization.
BT's consolidated and subsidiary banks actual capital
amounts and ratios are also presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
(Dollars in thousands Amount Ratio Amount Ratio Amount Ratio
---------------- ----------------- -----------------
As of December 31, 1996:
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS):
BT (Consolidated) $124,992 11.76% >$84,994 >8.00% N/A
- -
Bank and Trust 80,157 12.89 > 49,672 >8.00 >$62,203 >10.00%
- - - -
Fayette 29,708 11.35 > 20,932 >8.00 > 26,164 >10.00
- - - -
Laurel 25,132 14.59 > 13,784 >8.00 > 17,230 >10.00
- - - -
TIER 1 CAPITAL (TO RISK
WEIGHTED ASSETS):
BT (Consolidated) $115,311 10.85% >$42,497 >4.00% N/A
- -
Bank and Trust 74,655 12.00 > 24,881 >4.00 >$37,322 >6.00%
- - - -
Fayette 27,286 10.43 > 10,466 >4.00 > 15,699 >6.00
- - - -
Laurel 23,375 13.57 > 6,892 >4.00 > 10,338 >6.00
- - - -
TIER 1 CAPITAL
(TO AVERAGE ASSETS):
BT (Consolidated) $115,311 7.99% >$57,719 >4.00% N/A
- -
Bank and Trust 74,655 8.68 > 34,400 >4.00 >$43,000 >5.00%
- - - -
Fayette 27,286 7.84 > 13,929 >4.00 > 17,411 >5.00
- - - -
Laurel 23,375 10.22 > 9,152 >4.00 > 11,440 >5.00
- - - -
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------- -----------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
---------------- ------------------- -----------------
As of December 31, 1995:
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS):
BT (Consolidated) $113,732 11.00% >$82,678 >8.00% N/A
- -
Bank and Trust 75,364 12.62 > 47,780 >8.00 >$59,725 >10.00%
- - - -
Fayette 28,820 11.05 > 20,868 >8.00 > 26,085 >10.00
- - - -
Laurel 24,288 14.24 > 13,647 >8.00 > 17,058 >10.00
- - - -
TIER 1 CAPITAL (TO RISK
WEIGHTED ASSETS):
BT (Consolidated) $102,321 9.90% >$41,339 >4.00% N/A
- -
Bank and Trust 69,589 11.65 > 23,890 >4.00 >$35,835 >6.00%
- - - -
Fayette 26,356 10.10 > 10,434 >4.00 > 15,651 >6.00
- - - -
Laurel 22,494 13.19 > 6,824 >4.00 > 10,235 >6.00
- - - -
TIER 1 CAPITAL
(TO AVERAGE ASSETS):
BT (Consolidated) $102,321 7.60% >$53,838 >4.00% N/A
- -
Bank and Trust 69,589 8.37 > 33,245 >4.00 >$41,556 >5.00%
- - - -
Fayette 26,356 9.29 > 11,354 >4.00 > 14,192 >5.00
- - - -
Laurel 22,494 9.86 > 9,122 >4.00 > 11,402 >5.00
- - - -
11. REGULATORY REQUIREMENTS
Reserve balances of $13,056 were required to be maintained
at the Federal Reserve Bank by affiliate banks at December 31,
1996.
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, 1996 from affiliate banks in the
form of dividends and loans was $80,140 and $5,561 respectively.
12. SAIF ASSESSMENT
On September 30, 1996, President Clinton signed legislation
which required financial institutions with Savings Association
Insurance Fund (SAIF) deposits to pay a one-time special
assessment to facilitate the recapitalization of the SAIF. The
assessment was based on 65.7 cents per $100 of deposits at March
31, 1995. This assessment resulted in a charge of approximately
$1.4 million ($899,000 net of tax or $.16 per share) to other
expense during the year ended 1996. The legislation also
included provisions whereby at such time as the SAIF is
adequately recapitalized, BT's future SAIF deposit premiums will
decrease from the $.23 per $100 of deposits paid in 1996 to
approximately $.065 through the year 2000 and approximately $.025
through the year 2017.
26
13. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The condensed balance sheets and statements of income and
cash flows of BT as of December 31, 1996, 1995, and 1994 and for
the years then ended are presented below.
BT Financial Corporation (Parent Company Only)
Balance Sheet
1996 1995 1994
--------------------------------
Assets:
Cash $ 1,208 $ 372 $ 330
Investment in bank affiliates 146,519 137,370 110,931
Investment in nonbank affiliates 1,907 1,465 1,309
Other 6,137 5,955 4,524
--------------------------------
Total Assets $155,771 $145,162 $117,094
================================
Liabilities and Shareholders' Equity:
Long-term debt $ 17,143 $ 20,715 $10,765
Other liabilities 2,141 2,348 2,061
Shareholders' equity 136,487 122,099 104,268
--------------------------------
Total liabilities and share-
holders' equity $155,771 $145,162 $117,094
================================
Statement of Income
Cash dividends from bank
affiliates $ 16,037 $ 9,438 $ 8,313
Cash dividends from nonbank
affiliates 100 100 ---
Management fees from affiliates 14,030 10,552 8,409
Other income 418 33 57
Interest expense 1,257 773 683
Operating expense 15,077 12,170 9,932
--------------------------------
Income before income taxes
and equity in undistributed
income of affiliates 14,251 7,180 6,164
Income tax benefit 394 692 525
--------------------------------
14,645 7,872 6,689
Equity in undistributed income
of affiliates:
Banks (1,247) 5,021 5,612
Nonbanks 376 156 358
--------------------------------
Net income $ 13,774 $ 13,049 $ 12,659
================================
Statement of Cash Flows
Cash Flows from operating activities:
Net income $ 13,774 $ 13,049 $ 12,659
Equity in undistributed income
of affiliates 871 (5,177) (5,970)
Amortization 1,184 1,112 1,078
Other assets and liabilities, net (1,640) (1,411) (762)
--------------------------------
Net cash provided by operating
activities 14,189 7,573 7,005
--------------------------------
Cash Flows from Investing Activities:
Investment in affiliate (4,266) (12,500) ---
Sale of investment securities 726 --- ---
Other 22 176 34
--------------------------------
Net cash used in investing
activities (3,518) (12,324) 34
--------------------------------
Cash Flows from Financing Activities:
Preferred dividends paid (54) (116) (120)
Common dividends paid (6,212) (5,242) (4,727)
Payment on long-term debt (3,572) (2,570) (2,570)
Proceeds from long-term debt --- 12,520 ---
Other 3 201 184
--------------------------------
Net cash provided by (used in)
financing activities (9,835) 4,793 (7,233)
--------------------------------
Increase (decrease) in cash 836 42 (194)
Cash at beginning of year 372 330 524
--------------------------------
Cash at end of year $ 1,208 $ 372 $ 330
================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on capital notes $ 1,122 $ 764 $ 666
Federal income taxes,
net of refunds 6,761 7,761 8,013
Non-cash financing activities:
Issuance of common stock;
Armstrong acquisition 7,712 --- ---
Conversion of preferred stock
to common stock 1,378 98 ---
27
14. LONG-TERM DEBT
Long-term debt outstanding amounted to $17.2 million and
$20.1 million at December 31, 1996 and 1995, 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 and the proceeds were applied
to repay the $7.5 million in outstanding debt and 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, 1996 was 6.625%. The note
agreement has certain restrictive covenants relative to
dividends, nonperforming assets, and equity requirements. As of
December 31, 1996 the Corporation was in compliance with these
covenants. Principal payments began in March of 1996 and are due
in 28 equal quarterly installments of $714. The balance of the
note was $17.1 million at year-end 1996.
A mortgage note is included in long-term debt and amounted
to $67 and $83 at December 31, 1996 and 1995, respectively. The
mortgage note has a fixed rate of 9.5% and matures in the year
2000.
15. RECLASSIFICATIONS
For comparative purposes, reclassifications have been made
to certain amounts previously reported in the consolidated
financial statements.
16. 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, 1996 were as follows:
Loan commitments $199,239
Standby letters of credit 9,123
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 credit worthiness 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.
17. 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 estimated future
contractual cash flows using the current rates at which similar
loans would be made to borrowers with the same remaining
maturities.
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 and securities
sold under agreements to repurchase 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.
28
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 BT's financial instruments at
December 31, 1996 and 1995 are as follows:
1996
Carrying Fair
Amount Value
-------------------------
Financial assets:
Cash and short-term investments $ 75,739 $ 75,739
Securities 302,392 302,945
Loans 1,025,765 1,026,685
Less: Reserve for
loan losses (9,681) ---
-------------------------
Total Financial Assets $1,394,215 $1,405,369
=========================
Financial liabilities:
Deposits $1,263,728 $1,269,372
Federal funds purchased and
securities sold under
agreements to repurchase 36,678 36,678
Short-term borrowings 4,010 4,010
Long-term debt 17,210 17,210
-------------------------
Total Financial Liabilities $1,321,626 $1,327,270
=========================
1995
Carrying Fair
Amount Value
-------------------------
Financial assets:
Cash and short-term
investments $ 70,692 $ 70,692
Securities 303,355 304,118
Loans 1,011,240 1,025,993
Less: Reserve for
loan losses (10,033) ---
-------------------------
Total Financial Assets $1,375,254 $1,400,803
=========================
Financial liabilities:
Deposits $1,253,252 $1,251,497
Federal funds purchased and
securities sold under
agreements to repurchase 35,313 35,313
Short-term borrowings 2,366 2,366
Long-term debt 20,083 20,083
-------------------------
Total Financial Liabilities $1,311,014 $1,309,259
=========================
SUPPLEMENTAL FINANCIAL DATA
Quarterly Financial Data*
(Unaudited)
A summary of financial data for the four quarters of the years
1996 and 1995 is presented below.
1996
Quarter Ended
-------------------------------------------
March 31 Jun. 30 Sept. 30 Dec. 31
-------------------------------------------
(In thousands, except per share data)
Net interest income $15,418 $15,744 $16,293 $16,169
Provision for loan
losses 412 396 618 1,015
Other income 2,616 2,841 2,703 3,113
Other expenses(1) 11,978 13,682 13,682 12,340
Provision for income
taxes 1,879 1,529 1,581 2,011
-------------------------------------------
Net income $ 3,765 $ 2,978 $ 3,115 $ 3,916
===========================================
Common dividends $ 1,369 $ 1,263 $ 1,705 $ 1,875
Earnings per share:(2)
Primary .70 .55 .55 .69
Fully diluted .69 .54 .55 .69
1995
Quarter Ended
-------------------------------------------
March 31 Jun. 30 Sept. 30 Dec. 31
-------------------------------------------
(In thousands, except per share data)
Net interest income $13,678 $14,086 $14,617 $14,768
Provision for loan
losses 246 377 767 177
Other income 2,053 2,257 2,253 2,152
Other expenses(1) 11,345 11,426 11,024 11,764
Provision for income
taxes 1,160 1,369 1,614 1,548
-------------------------------------------
Net income $ 2,980 $ 3,171 $ 3,465 $ 3,431
===========================================
Common dividends $ 1,290 $ 1,291 $ 1,292 $1,369
Earnings per share:(2)
Primary .55 .59 .64 .64
Fully diluted .55 .58 .64 .63
*Data for periods prior to June 30, 1996 has been restated due to
the Moxham pooling-of-interests acquisition on June 25, 1996.
Quarterly figures may not total to the full-year amount due to
rounding.
(1) The quarter ended September 30, 1995 includes a $590 refund
of F.D.I.C. deposit insurance premiums. The quarters ended March
31, 1996 and June 30, 1996 included $77 and $1,232, respectively,
associated with nonrecurring reorganization costs in connection
with the Moxham merger. The quarter ended September 30, 1996
included a special one-time SAIF deposit insurance assessment of
$1,383 related to deposits acquired from savings and loan
institutions.
(2) Per share data has been adjusted to reflect the 10% stock
dividend distributed on October 22, 1996.
29
SELECTED CONSOLIDATED FINANCIAL DATA*
Years Ended December 31, 1996(9) 1995(8) 1994 1993(7) 1992(6)
- -------------------------- -------------------------------------------------
(Dollar in thousands, except per share data)
RESULTS OF OPERATIONS
Interest income $ 108,356 $ 99,828 $ 89,029 $ 81,012 $ 85,293
Interest expense 44,732 42,679 33,129 29,134 36,308
--------------------------------------------------
Net interest income 63,624 57,149 55,900 51,878 48,985
Provision for loan
losses 2,441 1,566 1,168 2,168 3,179
--------------------------------------------------
Net interest income after
provision for loan losses 61,183 55,583 54,732 49,710 45,806
Other income 11,272 8,714 8,407 8,205 7,026
Other expense 51,681 45,559 45,597 41,562 38,492
--------------------------------------------------
Income before income
taxes 20,774 18,738 17,542 16,353 14,340
Provision for income
taxes 7,000 5,689 4,883 5,081 3,988
--------------------------------------------------
Income before cumu-
lative effect of
accounting principle
changes 13,774 13,049 12,659 11,272 10,352
Cumulative effect of
change in accounting
for income taxes --- --- --- 86 ---
--------------------------------------------------
Net income $ 13,774 $ 13,049 $ 12,659 $11,358 $10,352
==================================================
BALANCE SHEET DATA (Period end)
Total assets $1,466,308 $1,442,560 $1,338,074 $1,306,406 $1,102,187
Loans, net of unearned
interest 1,025,765 1,011,240 892,010 832,421 684,209
Investment securities --- --- --- 64,155 50,921
Securities available-
for-sale 204,707 268,194 310,288 231,486 219,790
Securities held-to-
maturity 97,685 35,161 22,911 --- ---
Total deposits 1,263,728 1,253,252 1,147,993 1,156,650 985,894
Total long-term debt 17,210 20,083 10,021 12,482 8,147
Total shareholders'equity 136,487 122,099 104,268 109,356 86,584
PER SHARE DATA (1)
Net income per fully
diluted share $ 2.47 $ 2.40 $ 2.33 $ 2.25 $ 2.09
Common dividends
declared per share 1.12 .98 .89 .80 .70
Period end book value(2) 24.02 22.56 19.28 20.27 17.36
Average shares outstanding
fully diluted 5,577,084 5,443,310 5,432,705 5,038,868 4,942,460
FINANCIAL RATIOS
Return on average assets .94% .97% .98% 1.03% .96%
Return on average
shareholders' equity 10.66 11.43 11.90 12.48 12.63
Net yield on earning
assets (3) 4.82 4.67 4.74 5.22 5.14
Common stock dividend
payout 45.10 40.17 37.34 34.65 32.90
Average shareholders'
equity to average assets 8.85 8.49 8.20 8.23 7.60
Primary capital ratio
at period end (4) 9.90 9.10 8.41 8.98 8.49
Net charge-offs to average
loans, net of unearned
interest .29 .16 .11 .24 .32
Nonperforming loans to
total loans, net of
unearned interest (5) 1.22 .73 .72 .65 .90
Reserve for loan losses
to period end loans, net
of unearned interest .94 .99 1.01 1.06 1.11
*Data for periods prior to 1996 has been restated due to the
Moxham pooling-of-interests acquisition on June 25, 1996.
(1) Per share data has been adjusted to reflect the 5%
stock dividends distributed by BT on September 11,
1992, July 26, 1993 and October 14, 1994 and the 10%
stock dividend distributed on October 22, 1996.
Additionally, per share data has been adjusted to
reflect the 10% stock dividend paid on December 30,
1994 and the two-for-one stock split paid in February
1993 by the former Moxham Bank Corporation.
(2) Book value per share excluding the effect of net
unrealized holding gains (losses) on securities
available-for-sale was 23.88, 22.52, 21.12 and 19.66 at
December 31, 1996, 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, restructured
and loans 90 days or more past-due.
(6) Reflects the purchase acquisition of Bank One on August
14, 1992.
(7) Reflects the purchase acquisition of FirstSouth on
December 10, 1993.
(8) Reflects the purchase acquisition of Huntington on
December 14, 1995.
(9) Reflects the purchase acquisition of Armstrong on June
13, 1996.
30
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.
1996
- --------------------------------------------
Quarter High Low Dividend
- ------- ----------------------------------
1st $32.95 $30.45 $ .256
2nd 34.32 29.20 .234
3rd 34.25 28.86 .300
4th 39.88 33.50 .330
--------
$1.120
========
1995
- --------------------------------------------
Quarter High Low Dividend
- ------- ----------------------------------
1st $27.05 $23.64 $ .242
2nd 28.64 26.36 .242
3rd 33.86 27.50 .242
4th 34.09 30.45 .256
--------
$ .982
========
Note: Data has been adjusted to reflect the 10%
stock dividend distributed on October 22,
1996.
On February 7, 1997, there were 4,525 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
1996 was a record breaking year for BT Financial
Corporation. The assimilation of three mergers, one closing in
December, 1995 and two closing in June of 1996, was the largest
number of acquisitions for BT in one year. Moxham Bank
Corporation was the largest single institution acquired in BT
history. During 1996, BT achieved record earnings and asset
totals despite significant nonrecurring expenses associated with
restructuring from the Moxham merger ($959,000 after tax or $.17
per share) and a one-time assessment from the Savings Association
Insurance Fund (SAIF) on deposits BT acquired in savings and loan
acquisitions ($899,000 after tax or $.16 per share). Please see
a more in-depth discussion of the one-time SAIF assessment on
page thirt-four under the title "Other Expenses". The reorganization
costs associated with the Moxham merger consisted primarily of
severance pay to furloughed employees and various legal,
accounting and investment banking fees. Excluding the one-time
reorganization charges, the acquisitions had a positive effect on
BT's 1996 financial results. The implementation of synergies as
a result of combined operations should have a favorable impact on
future periods.
The acquisitions created opportunities to consolidate
various functions, both administratively and operational. This
resulted in the closing of seven branch offices with overlapping
market areas. At the same time, BT continued to consolidate
various internal functions, resulting in lower full-time
equivalent employees and the expectation of improved efficiency
in future periods. Full-time equivalent employees declined to
764 at December 31, 1996 compared to 828 at December 31, 1995.
On February 26, 1997, BT's Board of Directors approved a
plan to adopt a single bank charter for the Corporation's three
affiliate banks. Pending regulatory approval, all banking
branches of BT will take on the designation of Laurel Bank under
the single charter in the third quarter of 1997. The
consolidation of the bank charters will enhance BT's ability to
provide customers with added convenience, products and services.
The costs associated with the adoption of the single bank charter
will not have any material impact on BT's 1997 results of
operations.
Equipment expense increased 20% in 1996 over 1995 primarily
due to additional depreciation associated with BT's continued
investment in technology. The automation of branch offices
continued in 1996 and all branches acquired as a result of
acquisitions were converted to our automated systems. The
implementation of various technologies throughout consolidated
back-office functions was clearly an important aspect of BT's
internal restructuring to improve effectiveness and efficiency.
Other technologies, such as automated telephone systems and a
call center were implemented to enhance customer service and
provide additional marketing capabilities. During 1997, BT
expects to implement a personal computer-based home banking
service which will complement our current corporate PC-based
service. In 1996, BT formed a special task force to assess the
impact of the year 2000 issue as it relates to the Corporation's
information systems and vendor supplied application software.
Management does not currently anticipate any significant or
material impact on the Corporation as a result of implications
associated with this issue.
During 1996, consumer loan delinquencies increased
throughout the industry. BT was not immune to this increase.
The increase at BT was due primarily to loans acquired from the
mergers, the centralization of the collection function,
restructuring, and the loss of various senior loan collection
officers. As a result, BT's nonperforming and past-due loans
were at higher levels during 1996. While BT's ratio of
nonperforming assets to total assets was similar to peer levels
throughout 1996, it increased over historical BT ratios.
Management has put high priority on efforts to reduce this ratio
to historical levels and has implemented several strategies to
address higher nonperforming totals. Please see a more in-depth
discussion on page thirty-six under the title "Nonperforming Assets and
Risk Elements".
31
A strong net interest margin and growth in assets produced
greater net interest income in 1996. Effective asset/liability
management provided a net interest margin of 4.82% in 1996, which
compared very favorably with other financial institutions. Most
of BT's growth in assets during 1996 was due to the acquisitions.
There was run-off of approximately 9% in the core deposit bases
of the acquired banks, while traditional markets produced minimal
growth. During 1997, BT will concentrate on increasing assets
through increased sales, marketing, and service efforts to
current markets while continuing bank and branch acquisition
activities. The pending acquisition of three branch offices from
National City Bank of Pennsylvania will add approximately $69
million to deposits in 1997.
Other income growth was also quite positive in 1996. Trust
income increased by 22% due to increased market penetration and
growth in assets under management. Service fee income increased
18% primarily due to increased volumes of deposit accounts. BT
recognizes the importance of fee-based income as competition for
commercial bank deposits increases and net interest margins
compress. In 1996, BT management created an "Emerging Products
Task Force" to investigate and develop nontraditional banking
products and services. As banking regulations change, BT will
also continue to pursue other lines of business not previously
available to bank holding companies and banks.
On June 25, 1996, BT completed the merger with Moxham
whereby Moxham was merged directly into BT. Approximately 1.1
million shares of BT common stock were exchanged for all of the
outstanding preferred and common stock of Moxham. The merger has
been accounted for as a pooling-of-interests and accordingly,
BT's consolidated financial statements have been restated to
include the accounts and operations of Moxham for all periods
prior to the merger. Additionally, a ten percent stock dividend
was distributed on October 22, 1996 and all per-share data in the
following discussion has been restated to reflect the stock
dividend.
Net income for 1996 was $13.8 million, a 5.6% increase over
1995's $13.0 million which was a 3.1% increase over 1994. Income
per fully diluted share was $2.47 in 1996, a 2.9% increase over
$2.40 earned in 1995, which reflected a 3.0% increase over $2.33
earned in 1994. BT would have earned $2.80 per share in 1996 if
the nonrecurring expenses discussed earlier were excluded.
Return on average assets was .94% in 1996, .97% in 1995, and
.98% in 1994. Return on average shareholders' equity was 10.66%,
11.43%, and 11.90% in 1996, 1995, and 1994, respectively.
Excluding the nonrecurring expenses, the return on average assets
would have been 1.07% and the return on average shareholders'
equity would have been 12.10% in 1996.
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, 1996, 1995, and 1994. 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.
Certain information in this discussion 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 BT's market area of competitors with
greater financial resources than BT; or other unanticipated
external developments materially impacting BT's operational and
financial performance.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is BT's primary source of revenue. In
1996, fully taxable equivalent net interest income increased $6.5
million, or 11.1%, compared to 1995. Average interest earning
assets rose $95.6 million, or 7.6%, in 1996 compared to 1995.
The increase in earning assets was primarily due to the full-year
impact of assets acquired in the Huntington acquisition in
December 1995 and the Armstrong acquisition in June 1996. The
net interest margin, on a fully taxable equivalent basis,
improved 15 basis points to 4.82% in 1996 compared to 4.67% in
1995. The net interest margin increase was due to a higher
yielding asset mix along with lower overall rates paid on
interest bearing liabilities. Fully taxable equivalent net
interest income rose $1.2 million, or 2.2%, while average
interest earning assets increased $46.7 million, or 3.9%, in 1995
compared to 1994. The net interest margin, on a fully taxable
equivalent basis, declined 7 basis points in 1995 from the 1994
level of 4.74% primarily due to funding costs of liabilities
increasing more rapidly than income on earning assets. Internal
modeling suggests a gradual upward movement in BT's net interest
margin level in 1997 based on current market rates and the
repricing characteristics of BT's current balance sheet
composition. BT's Asset/Liability Committee (ALCO) strives to
minimize the impact of interest rate fluctuations through
effective management of its interest rate sensitivity position.
In 1996, utilization of technological enhancements afforded
ALCO more sophisticated modeling techniques enabling the
committee to achieve its goal of 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 75.9% of average
interest earning assets in 1996 from 73.3% in 1995 and 70.4% in
1994.
32
The following table presents the major categories of assets
and 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.
1996
-------------------------------------
INTEREST RATE
AVERAGE INCOME/ EARNED/
BALANCE EXPENSE(1) PAID(1)
------------------------------------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned
interest (2) $1,026,536 $88,936 8.66%
Taxable securities 292,141 18,792 6.43
Nontaxable securities 10,212 910 8.91
Trading account assets --- --- ---
Federal funds sold 22,172 1,188 5.36
Time deposits in other banks 692 34 4.91
-----------------------------------
Total interest-earning
assets 1,351,753 109,860 8.13
Non-interest-earning assets:
Cash and cash equivalents 46,388
Premises and equipment, net 32,527
Other assets 39,012
Less: Reserve for
loan losses (9,665)
---------
Total assets $1,460,015
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand and savings deposits 445,931 6,388 1.43
Other time deposits 664,742 35,820 5.39
Federal funds purchased and
securities sold under
agreements to repurchase 28,638 1,098 3.83
Short-term borrowings 2,845 158 5.55
Long-term debt 19,020 1,268 6.67
-----------------------------------
Total interest-bearing
liabilities 1,161,176 44,732 3.85
------
Noninterest-bearing liabilities:
Demand deposits 159,074
Other liabilities 10,542
----------
Total liabilities 1,330,792
Shareholders' equity 129,223
----------
Total liabilities and
shareholders' equity $1,460,015
==========
Net interest income $65,128
=======
Net interest spread(3) 4.28%
=====
Net yield on earning assets(4) 4.82%
=====
1995
-------------------------------------
Interest rate
Average Income/ Earned/
Balance Expense(1) Paid(1)
-------------------------------------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned
interest (2) $ 920,586 $80,458 8.74%
Taxable securities 313,469 19,162 6.11
Nontaxable securities 12,083 1,052 8.71
Trading account assets 5 --- 6.14
Federal funds sold 5,177 306 5.91
Time deposits in other banks 4,773 325 6.81
-----------------------------------
Total interest-earning
assets 1,256,093 101,303 8.06
Non-interest-earning assets:
Cash and cash equivalents 43,587
Premises and equipment, net 30,481
Other assets 23,501
Less: Reserve for
loan losses (9,175)
---------
Total assets $1,344,487
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand and savings deposits 447,93 8,238 1.84
Other time deposits 589,586 31,862 5.40
Federal funds purchased and
securities sold under
agreements to repurchase 30,985 1,597 5.15
Short-term borrowings 4,625 269 5.82
Long-term debt 9,344 714 7.64
-----------------------------------
Total interest-bearing
liabilities 1,082,471 42,680 3.94
------
Noninterest-bearing liabilities:
Demand deposits 138,868
Other liabilities 9,003
----------
Total liabilities 1,230,342
Shareholders' equity 114,145
----------
Total liabilities and
shareholders' equity $1,344,487
==========
Net interest income $58,623
=======
Net interest spread(3) 4.12%
=====
Net yield on earning assets(4) 4.67%
=====
1994
-------------------------------------
Interest rate
Average Income/ Earned/
Balance Expense(1) Paid(1)
-------------------------------------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned
interest (2) $ 851,590 $69,291 8.14%
Taxable securities 314,382 18,457 5.87
Nontaxable securities 17,442 1,419 8.14
Trading account assets 5 --- 4.05
Federal funds sold 14,009 564 4.03
Time deposits in other banks 11,954 782 6.54
-----------------------------------
Total interest-earning
assets 1,209,382 90,513 7.48
Non-interest-earning assets:
Cash and cash equivalents 46,588
Premises and equipment, net 28,897
Other assets 22,251
Less: Reserve for
loan losses (8,919)
---------
Total assets $1,298,199
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand and savings deposits 492,022 8,971 1.82
Other time deposits 520,092 22,536 4.33
Federal funds purchased and
securities sold under
agreements to repurchase 19,803 740 3.74
Short-term borrowings 5,928 255 4.30
Long-term debt 10,911 629 5.76
-----------------------------------
Total interest-bearing
liabilities 1,048,756 33,131 3.16
------
Noninterest-bearing liabilities:
Demand deposits 133,356
Other liabilities 9,667
----------
Total liabilities 1,191,779
Shareholders' equity 106,420
----------
Total liabilities and
shareholders' equity $1,298,199
==========
Net interest income $57,382
=======
Net interest spread(3) 4.32%
=====
Net yield on earning assets(4) 4.74%
=====
(1) 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%.
(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.
33
The following table provides an analysis of the changes in
interest income and expense attributable to changes in volume and
rate.
1996 vs 1995
------------------------------------
Net
Increase Due to changes in
(Decrease) Volume Rate
------------------------------------
(In thousands)
Interest income:
Loans, net of unearned
interest(1)(2) $8,478 $9,260 $(782)
Taxable securities (370) (1,304) 934
Nontaxable securities(1) (142) (163) 21
Federal funds sold 882 1,005 (123)
Time deposits in other
banks (291) (278) (13)
------------------------------------
Total interest income 8,557 8,520 37
------------------------------------
Interest expense:
Inteest-bearing demand and
savings deposits (1,850) (37) (1,813)
Other time deposits 3,958 4,063 (105)
Federal funds purchased
and securities sold under
agreements to repurchase (499) (121) (378)
Short-term borrowings (111) (104) (7)
Long-term debt 554 739 (185)
------------------------------------
Total interest expense 2,052 4,540 (2,488)
------------------------------------
Change in net interest
income(1) $6,505 $3,980 $2,525
====================================
1995 vs 1994
-------------------------------------
Net
Increase Due to changes in
(Decrease) Volume Rate
-------------------------------------
(In thousands)
Interest income:
Loans, net of unearned
interest(1)(2) $11,167 $5,615 $5,552
Taxable securities 705 (54) 759
Nontaxable securities(1) (367) (436) 69
Federal funds sold (258) (356) 98
Time deposits in other
banks (457) (470) 13
-------------------------------------
Total interest income 10,790 4,299 6,491
-------------------------------------
Interest expense:
Interest-bearing demand and
savings deposits (733) (804) 71
Other time deposits 9,326 3,011 6,315
Federal funds purchased
and securities sold under
agreements to repurchase 857 418 439
Short-term borrowings 14 (56) 70
Long-term debt 85 (90) 175
-------------------------------------
Total interest expense 9,549 2,479 7,070
-------------------------------------
Change in net interest
income(1) $1,241 $1,820 $(579)
=====================================
(1) 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%.
(2) Nonaccrual loans are included in the average
outstanding balances.
OTHER INCOME
Total other income, excluding security gains, increased 26%
in 1996, compared to 1995. Strong growth in trust income and
fees for other services provided improved core fee income.
Increased market penetration and an 8.7 percent growth in assets
under management to $556 million were important factors in the
growth associated with trust fees. Particularly due to the
addition of deposit accounts from the Huntington National Bank of
Pennsylvania (Huntington) and Armstrong County Trust Company
(Armstrong) mergers, fees for other services increased 18%.
Other income experienced some one-time additions from the
elimination of an acquired liability for certain state taxes and
funds received in a new contractual agreement with a loan
servicing company, which contributed $222,000 and $200,000,
respectively. Additionally, the sale of real estate at Laurel
and the sale of the Salem 22 office of the former Moxham Bank
Corporation added approximately $270,000 to other income.
Total other income, excluding security gains, increased 6.8%
in 1995 over 1994. Trust income increased 1.3% due to a greater
volume of managed assets. Trust assets under management did not
grow until later in the year during 1995, and trust income was
somewhat below expectations. Fees for other bank services
increased 8% in 1995, due to somewhat higher fee schedules and
some growth in deposit accounts. Other income increased 6% in
1995 over 1994 due to a higher level of gains on loans sold in
the secondary marketplace.
Security gains increased $298,000 in 1996 over 1995,
primarily due to the sale of certain stocks of other financial
institutions. These stocks were acquired through BT's mergers
and acquisitions of the past few years. Management decided to
sell these stocks due to their minimal contribution to recurring
income and some favorable market values. Security gains had
declined in 1995 compared to 1994 due to market prices even
though the level of security sales and calls increased in 1995.
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 loans or
deposits outflows.
OTHER EXPENSES
On September 30, 1996, President Clinton signed legislation
which required financial institutions with Savings Association
Insurance Fund (SAIF) deposits to pay a one time special
assessment to facilitate the recapitalization of the SAIF. The
assessment was based on 65.7 cents per $100 of deposits at March
31, 1995. This assessment resulted in a charge of approximately
$1.4 million ($899,000 net of tax or $.16 per share) to other
expense during the year ended 1996. The legislation also
included provisions whereby at such time as the SAIF is
adequately recapitalized, BT's future SAIF deposit premiums will
decrease from the $.23 per $100 of deposits paid in 1996 to
approximately $.065 through the year 2000 and approximately $.025
through the year 2017.
34
Total other expenses increased $6.1 million or 13% in 1996
compared to 1995, with approximately 44% of the increase due to
the recording of nonrecurring costs associated with the Moxham
merger and the one-time deposit insurance assessment from SAIF.
The majority of the remaining increase is due to a full year of
expenses related to the Huntington acquisition and the second
quarter 1996 acquisition of Armstrong, along with conversion and
marketing expenses from all the acquisitions. While salaries
increased 4% due to periodic merit increases, full-time
equivalent employees fell to 764 from 828 at December 31, 1996
and 1995, respectively. Employee benefit costs declined
primarily due to a change in BT's health care insurance provider
in the fourth quarter of 1994 and the lowering of reserves
associated with the previous provider. The recent implementation
of managed health care is currently expected to reduce ongoing
expenses by approximately $200,000 in 1997. Deposit insurance
premiums increased 12% due to the one-time charge from the SAIF
fund, however, the increase was mitigated by reduced deposit
premiums in effect for 1996. Based upon deposit levels at
December 31, 1996 and rates currently in effect, Federal Deposit
Insurance Corporation (FDIC) insurance expense in 1997 is
expected to decline approximately 85% compared to 1996. BT
continues to invest in technology, as evidenced by increasing
equipment expenses. These investments and related internal
restructurings, the centralization of various operational
functions, and the closing of seven branch offices as a result of
the Moxham merger are a means to curtail unit costs, increase
efficiency and ultimately increase profitability. BT's
efficiency ratio, excluding nonrecurring costs, improved to 64.46%
in 1996 from 67.77% in 1995 and 69.68% in 1994.
Total other expenses decreased 0.1% in 1995 compared to 1994.
Salaries and wages increased 5% due to merit increases. Employee
benefit costs decreased by 0.2% due to a change in BT's health
care insurance provider and reduced health insurance premiums.
The number of full-time equivalent employees at December 31, 1995
and 1994 was 828 and 805, respectively. The Huntington
acquisition added 39 full-time equivalent employees at year-end
1995 of which 19 were furloughed in January of 1996. Occupancy
and equipment expense increased 3% and 11%, respectively. During
1995, BT committed significant resources to technological
expenditures, including teller platform automation and corporate-
wide microcomputer network enhancements. FDIC insurance expense
decreased 36%, comparing 1995 to 1994, due to lower premiums and
a retroactive deposit insurance rate adjustment which resulted in
the receipt of a refund for $590,000. Other operating expenses
declined 3% in 1995 due to reduced advertising expense and
nonrecurring acquisition related costs that occurred during the
first quarter of 1994.
PROVISION FOR INCOME TAXES
Pre-tax income rose $2.0 million or 10.9% in 1996, to $20.8
million after a $1.2 million, or 6.8%, increase in 1995 over
1994. The effective tax rate was 33.7% in 1996, 30.4% in 1995,
and 27.8% in 1994.
The rise in the effective tax rate in 1996 is mainly due to
an increase in nondeductible amortization of acquisition goodwill
and organization costs as well as a decline in tax-exempt
interest. 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 was primarily responsible for the lower effective tax
rate in 1994.
FINANCIAL CONDITION
LOAN PORTFOLIO
Total loans outstanding, net of unearned interest, increased
$14.5 million or 1.4% at December 31, 1996 compared to December
31, 1995. The growth was due to the acquisition of Armstrong in
June of 1996 and the inclusion of $12 million Armstrong loans
outstanding at the merger date. BT experienced growth in both
consumer and commercial loans during 1996, however commercial
loan growth was mitigated by the pay-off of various commercial
loans approximating $26 million. In 1996, average total loans,
net of unearned interest grew 11.5% over 1995 to an average of
$1.03 billion. Prior to the mergers, BT was approaching an 85%
loan to deposit ratio; whereas, at December 31, 1996 the loan to
deposit ratio was 81% due to much lower ratios at both Armstrong
and Moxham. Management sees this as an opportunity to increase
lending and ultimately improve the yield on interest-earning
assets as effort is placed on restoring the loan to deposit ratio
to pre-merger levels. Average loans, net of unearned interest,
grew $69.0 million in 1995 compared to 1994, with much of the
growth occurring in the commercial and indirect auto portfolios.
A moderately expanding economy and low rates helped to fuel loan
growth in 1995. Approximately $70.1 million in loans was
acquired in the Huntington acquisition in December 1995.
Aggressive loan pricing policies and a healthy automotive
market helped propel increases in the consumer indirect lending
area in both 1996 and 1995. Management continues 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 permits 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 residential mortgage loans. During
1996, many aspects of mortgage origination were centralized, and
a dealer center was created to process the indirect auto loans
more efficiently and effectively. Management expects these
centers to not only provide efficiency, but also provide improved
service to both dealers and customers.
At December 31, 1996, BT's entire loan portfolio consisted
of loans made to individuals and businesses located within BT's
marketing region with the vast majority of these loans located in
the Commonwealth of Pennsylvania. BT does not have any foreign
loans. At December 31, 1996, the most significant industry
concentrations were the real estate and educational services
sectors, which were 7.4% and 1.0% of the total loan portfolio,
respectively.
Real estate industry loans were primarily loans to operators
of nonresidential buildings and apartment buildings. Educational
service loans were mainly loans to school districts.
35
The following table summarizes the composition of BT's loan
portfolio by types of loans at December 31, for each of the years
indicated.
1996 1995 1994 1993 1992
-----------------------------------------------
(In thousands)
Commercial, financial
and agricultural $170,107 $167,144 $142,188 $146,467 $143,390
Real estate 535,320 518,078 469,724 446,112 357,832
Consumer 377,247 375,649 321,006 274,501 211,156
Lease financing -- -- -- 190 1,069
-----------------------------------------------
Total $1,082,674 $1,060,871 $932,918 $867,270 $713,447
===============================================
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,
1996.
Maturing
----------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
----------------------------------------------
(In thousands)
Commercial, financial
and agricultural $69,083 $81,184 $19,840 $170,107
Real estate construction 10,583 -- -- 10,583
----------------------------------------------
Total $79,666 $81,184 $19,840 $180,690
==============================================
Commercial, financial, and agricultural loans due after one year
and having floating or adjustable rates approximated $61 million.
BT's highly leveraged financings were not significant at
December 31, 1996. 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.
NONPERFORMING ASSETS AND RISK ELEMENTS
BT's nonperforming assets increased during 1996 due to the
inclusion of three mergers, some temporary interruption in
collection processes during the restructuring and centralization
of the collection function, and a general industry-wide
deterioration in consumer credit quality. Nonperforming loans as
a percent of outstanding loans, net of unearned interest,
increased to 1.22% in 1996, compared to 0.73% in 1995 and 0.72%
in 1994. While the 1996 ratio is similar to peer levels
throughout 1996, it is higher than BT historical levels.
BT management has implemented several strategies to address
the increased levels of nonperforming assets. Increased
collection efforts, debt rewriting where appropriate, and credit
counseling activities are among the measures currently in place.
In addition, an outside collection agency has been retained to
supplement BT's activities in regard to recovery of charged-off
loans. Collection of past due loans and improvement in
nonperforming ratios will continue to be of the highest priority
to BT management, in an effort to gradually restore asset quality
ratios to historically strong levels.
Various loans acquired in the Huntington acquisition
accounted for approximately $3.4 million of total nonperforming
loans at year-end 1996. Commercial loans accounted for 52% and
56% of total nonperforming loans at December 31, 1996, and 1995,
respectively. Residential mortgages accounted for 27% and 23%
for the same respective time periods while consumer loans
accounted for 21% of total nonperforming loans for both periods.
Repossessed assets consist primarily of automobiles. Huntington
loans represent 18% of the repossessed assets total at year-end
1996. Other real estate owned increased 12% in 1996 over 1995;
however, $550,000 of the 1996 total was sold in the first quarter
of 1997 with a gain on the sale of the property of approximately
$121,000.
36
The following table provides information with respect to the
BT's past due loans and the components of its nonperforming
assets at December 31 of each of the years indicated.
1996 1995 1994 1993 1992
-------------------------------------------
(Dollars in thousands)
Loans 90-days or
more past due $ 961 $ 2,077 $ 1,323 $ 1,722 $1,771
Restructured loans 317 318 675 107 320
Nonaccrual loans 11,276 5,013 4,445 3,579 4,076
-------------------------------------------
Total non-
performing loans 12,554 7,408 6,443 5,408 6,167
Other real estate
owned 1,023 912 116 631 678
Repossessed assets 851 318 177 167 248
-------------------------------------------
Total nonperform-
ing assets $ 14,428 $ 8,638 $ 6,736 $ 6,206 $ 7,093
===========================================
Non-performing
loans as a percent
of total loans,
net of unearned
interest 1.22% 0.73% 0.72% 0.65% 0.90%
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. In previous years, no specific
period of delinquency triggered nonaccrual status for consumer
loans, however; in 1996 management instituted a policy of placing
consumer loans on nonaccrual status when they become 120-days
past due. Consumer loans normally are charged-off within 150
days of delinquency, when they are determined to be uncollectible
and all collateral securing the loans has been liquidated.
Interest income of $1,470,000 and $567,000 would have been
recorded in 1996 and 1995, respectively, if nonaccrual and
restructured loans were on a current basis in accordance with
their original terms. Interest income of $562,000 and $281,000
on nonaccrual and restructed loans was recorded in each of the
years of 1996 and 1995, respectively.
A loan generally remains on nonaccrual status until it
becomes current as to principal and interest, except for consumer
loans, which are returned to accrual status when they become less
than 120 days past due. Loans determined to be uncollectible are
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 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 $11.2 million at December 31, 1996 compared to $19.3
million at December 31, 1995. 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.
RESERVE FOR LOAN LOSSES
The reserve for loan losses totaled $9.7 million at December
31, 1996 compared to $10.0 million and $9.1 million at December
31, 1995 and 1994, respectively. The Huntington acquisition
added $849,000 to the reserve in December of 1995 and the
Armstrong acquisition added $159,000 in June of 1996. The
reserve for loan losses, as a percent of loans, net of unearned
interest was 0.94% at December 31, 1996, compared to 0.99% and
1.01% at year-end 1995 and 1994, respectively. Net charge-offs
increased to $3.0 million in 1996 compared to $1.4 million in
1995. Of the $1.6 million increase, approximately $1.0 million
in net charge-offs was from the Huntington loan portfolio. Net
charge-offs increased 54.3% in 1995 over 1994 primarily due to
higher levels of consumer and commercial loan charge-offs. The
provision for loan losses increased to $2.4 million in 1996
compared to $1.6 million in 1995 and $1.2 million in 1994 due to
increased charge-offs. Due to the current level of nonperforming
loans, the coverage ratio (reserve for loan losses to
nonperforming loans) has declined to .8x in 1996 compared to 1.4x
in 1995 and 1994; however, management believes the reserve is
adequate to cover losses inherent in the portfolio as of such
date. 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.
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. 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 the banks' 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.
37
The following table summarizes the activity in BT's reserve
for loan losses for each of the years indicated.
Years ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------
(Dollars in thousands)
Total loans outstanding
at period end (net of
unearned interest) $1,025,765 $1,011,240 $892,010 $832,421 $684,209
====================================================
Reserve for loan losses at
beginning of year $ 10,033 $ 9,053 $ 8,815 $ 7,585 $ 6,420
Reserve of acquired banks 159 849 --- 784 69
Loans charged off:
Commercial, financial, and
agricultural (663) (523) (284) (1,116) (1,293)
Real estate (261) (170) (248) (193) (108)
Consumer (2,594) (1,089) (798) (753) (1,031)
----------------------------------------------------
Total loans charged off (3,518) (1,782) (1,330) (2,062) (2,432)
----------------------------------------------------
Recoveries of loans previously
charged off:
Commercial, Financial, and
agricultural 143 29 170 96 132
Real estate 57 80 36 13 19
Consumer 366 238 194 231 198
----------------------------------------------------
Total recoveries 566 347 400 340 349
----------------------------------------------------
Net loans charged off (2,952) (1,435) (930) (1,722) (2,083)
Additions to reserve charged
to operations 2,441 1,566 1,168 2,168 3,179
----------------------------------------------------
Reserve for loan losses at
year end $ 9,681 $ 10,033 $ 9,053 $ 8,815 $ 7,585
====================================================
Ratio of net charge-offs during
year to average loans, net of
unearned interest 0.29% 0.16% 0.11% 0.24% 0.32%
Reserve for loan losses as a
percent of loans, net of
unearned interest 0.94% 0.99% 1.01% 1.06% 1.11%
Reserve for loan losses to non-
performing loans 0.8x 1.4x 1.4x 1.6x 1.2x
The following table summarizes the allocation of the reserve
for loan losses at December 31 for the years indicated.
1996 1995 1994
-----------------------------------------------------
% 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 $2,449 15.7% $2,936 15.8% $3,492 15.2%
Real estate 3,176 49.5 2,705 48.8 2,298 50.4
Consumer 1,831 34.8 1,687 35.4 2,147 34.4
Lease financing --- --- --- --- --- ---
Unallocated 2,225 --- 2,705 --- 1,116 ---
-----------------------------------------------------
Total Reserve $9,681 100.0% $10,033 100.0% $9,053 100.0%
=====================================================
1993 1992
------------------------------------
% of % of
Loans Loans
to Total to Total
Amount Loans Amount Loans
------------------------------------
(Dollars in thousands)
Commercial,
financial, and
agricultural $3,293 16.9% $3,351 20.1%
Real estate 2,398 51.4 1,749 50.2
Consumer 2,005 31.7 1,413 29.6
Lease financing --- --- --- 0.1
Unallocated 1,119 --- 1,072 ---
------------------------------------
Total Reserve $8,815 100.0% $7,585 100.0%
====================================
Not withstanding the foregoing allocations, the entire
reserve for loan losses is available to absorb charge-offs in any
category of loans.
38
SECURITIES PORTFOLIO
At December 31, 1996, securities totaled $302.4 million
compared to $303.4 million at year-end 1995. Various securities
totalling approximately $36 million were acquired in the
Armstrong acquisition in June of 1996. Exclusive of the acquired
Armstrong securities, the aggregate year-over-year decrease in
securities was approximately $33 million. The decrease was
primarily due to proceeds from maturing securities being used to
fund anticipated acquisition-related deposit run-off. Net
unrealized holding gains on securities available-for-sale totaled
$770,000 at year-end 1996 compared to $1.6 million at year-end
1995. Securities decreased $29.8 million, or 9.0%, at December
31, 1995 compared to December 31, 1994. The decrease in the
securities portfolio was due essentially to the maturing and
sales of various securities throughout 1995 and the use of these
funds to support loan growth. 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 carrying value of BT's
securities portfolio at December 31 for each of the years
indicated.
1996 1995 1994
--------------------------------
(In thousands)
U.S. Treasury and other U.S.
Government agencies:
Available-for-sale $ 186,986 $ 250,246 $ 287,516
Held-to-maturity 97,685 35,161 22,911
States and political subdivisions
available-for-sale 9,863 10,597 15,449
Other securities available-for-sale 7,858 7,351 7,323
--------------------------------
Total $ 302,392 $ 303,355 $ 333,199
================================
The following table summarizes amortized cost and weighted
average yields of BT's securities portfolio at December 31, 1996
by maturities of investments.
After One But
Within One Year Within Five Years
-------------------------------------
Amount Yield(1) Amount Yield(1)
-------------------------------------
(Dollars in thousands)
SECURITIES HELD TO
MATURITY:
U.S. Treasury and
other U.S. Government
agencies $ --- ---% $ 84,185 6.88%
SECURITIES AVAILABLE
FOR SALE:
U.S. Treasury and
other U.S. Government
agencies 45,588 6.27 115,094 6.01
States and political
subdivisions(2) 325 7.96 2,029 7.68
Other securities 176 8.79 211 8.66
------------------------------------
Total $ 46,089 6.29% $ 201,519 6.39%
====================================
After Five But
Within Ten Years After Ten Years
------------------------------------
Amount Yield(1) Amount Yield(1)
------------------------------------
(Dollars in thousands)
SECURITIES HELD TO
MATURITY:
U.S. Treasury and
other U.S. Government
agencies $ 13,500 6.76% $ -- -- %
SECURITIES AVAILABLE
FOR SALE:
U.S. Treasury and
other U.S. Government
agencies 24,990 7.30 500 7.75
States and political
subdivisions(2) 1,469 9.33 5,833 9.41
Other securities 636 7.32 6,672 6.07
-------------------------------------
Total $40,595 7.20% $ 13,005 7.63%
=====================================
(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, 1996, total deposits were $1.26 billion
compared to $1.25 billion at December 31, 1995, an increase of
$10.5 million. The deposit levels at year-end 1995 included
approximately $7.9 million which were subsequently sold in 1996
in connection with the sale of the Salem 22 office of the former
Moxham Bank Corporation. The year-over-year increase in total
deposits, exclusive of the Salem 22 office deposits, was
approximately $18.4 million. Various deposits acquired in the
Armstrong acquisition totaled approximately $42 million at the
June 13, 1996 merger date. Due to two in-market acquisitions of
Huntington in December 1995 and Moxham in June 1996, run-off of
approximately 11% and 8% occurred in those core deposit bases,
respectively. Deposit run-off is a common occurrence in such in-
market acquisitions and was not unexpected by BT. Average
deposits increased $30.9 million or 2.7% in 1995 over 1994, with
much of the growth in certificates of deposits; however, BT was
also successful in increasing average demand deposits by $5.5
million or 4.1%. Financial institutions continue to experience
the shifting of lower cost funds to higher rate certificates of
deposits, and BT is no exception. BT competes with banks,
savings and loans, credit unions and other financial companies
for deposit accounts. In 1997, BT will continue concentrated
marketing efforts focusing on specific customer profiles to
facilitate deposit growth in existing markets. The pending
acquisition of three bank branch locations from National City
Bank of Pennsylvania will add approximately $69 million to
deposits in 1997.
39
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,
1996 1995 1994
-------------------- ----------------- ----------------
Amount Rate Amount Rate Amount Rate
-------------------- ----------------- ----------------
(Dollars in thousands)
Non interest-bearing
demand deposits $159,074 --% $138,868 --% $133,356 --%
Interest-bearing demand
deposits 187,534 1.5 169,731 1.7 188,125 1.7
Savings deposits 258,397 1.4 278,200 2.0 303,897 1.9
Time deposits 664,742 5.4 589,586 5.4 520,092 4.4
-------------------- ----------------- -----------------
Total $1,269,747 $1,176,385 $1,145,470
========== ========= =========
The maturity schedule of BT's time certificates of deposit
of $100,000 or more at December 31, 1996 is summarized below.
Time Certificates of Deposit (In thousands)
3 months or less $ 42,948
Over 3 through 6 months 20,402
Over 6 through 12 months 23,815
Over 12 months 14,683
-------
Total $ 101,848
=======
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 consist of
retail repurchase agreements with 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.
1996 1995 1994
--------------------------------
(Dollars in thousands)
Amount outstanding at year end $ 40,688 $ 37,679 $ 70,032
Weighted average interest rate at year end 3.27% 4.58% 5.41%
Maximum amount outstanding at any month end $ 42,526 $ 57,500 $ 70,032
Average amount outstanding during the year $ 31,483 $ 35,610 $ 25,731
Weighted average interest rate during the year 3.99% 5.24% 3.87%
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 expansion.
The Corporation and its predecessor, Bank and Trust, have
increased dividends for 29 consecutive years. Common dividends
paid per share were $1.12 in 1996 and $.98 in 1995. A common
dividend of $0.33 was declared for the first quarter of 1997.
BT common stock attained a 217% total cumulative return during
the five-year period from December 31, 1991 to December 31, 1996,
assuming reinvestment of all dividends. This compares favorably
to a 105% total return for the overall NASDAQ stock market 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, 1996 was $39.63,
compared to $31.59 (adjusted for the 1996 10% stock dividend) at
December 31, 1995.
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, bankers
acceptances, 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 $46.3 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.
40
To further enhance the liquidity position of the Corporation,
BT's affiliate banks are members of the FHLB. The FHLB
membership provides 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.
The following table sets forth, in summary form, BT's repricing
analysis at December 31, 1996.
Non-rate
sensitive
0-90 91-365 Over 1-5 and over
days days years 5 years Total
-----------------------------------------------------
(In thousands)
Loans $ 290,427 $ 180,108 $ 396,969 $ 158,261 $ 1,025,765
Securities 18,719 34,499 196,497 52,677 302,392
Other interest-earning
assets 10,434 --- --- --- 10,434
-----------------------------------------------------
Total interest-earning
assets 319,580 214,607 593,466 210,938 1,338,591
-----------------------------------------------------
Other assets --- --- --- 127,717 127,717
-----------------------------------------------------
Total assets $ 319,580 $ 214,607 $ 593,466 $ 338,655 $ 1,466,308
=====================================================
Demand deposits $ 181,606 $ --- $ --- $ 161,981 $ 343,587
Savings deposits 252,408 --- --- --- 252,408
Interest-bearing time
deposits 171,770 320,044 171,248 4,671 667,733
Borrowed funds 40,688 --- --- --- 40,688
Long-term debt 4 17,156 50 --- 17,210
Other liabilities --- --- --- 8,195 8,195
Shareholders' equity --- --- --- 136,487 136,487
------------------------------------------------------
Total liabilities and
shareholders' equity $ 646,476 $ 337,200 $ 171,298 $ 311,334 $ 1,466,308
======================================================
Net interest
sensitivity gap $(326,896) $(122,593) $ 422,168 $ 27,321 ---
------------------------------------------------------
Net cumulative
interest gap $(326,896) $(449,489) $ (27,321) --- ---
------------------------------------------------------
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 $449 million in the first
one-year gap at year-end 1996. This compares to negative
cumulative one-year interest gaps of $355 million at year-end
1995 and $330 million at year-end 1994. 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 have not repriced in changing rate environments as
rapidly 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. Management does not use
static gap measurement 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 static
gap table shown above are loans and interest-bearing deposits,
which are primarily certificates of deposit. The first category,
0-90 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 interest rate risk 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.
At December 31, 1996, simulation analysis reveals a 200
basis point increase in interest rates would increase projected
net interest income by approximately $2.3 million over the next
year. Conversely, a 200 basis point decrease would reduce
projected net interest income by approximately $4.0 million over
the same period. These results assume interest-earning asset and
interest-paying liability levels at year-end 1996 remain
constant. The results reflect the impact of rate floors imposed
on certain deposit accounts under the changing rate scenarios.
In contrast to the rising rate scenario, the decreasing rate
scenario limits BT's ability to reprice certain deposit
liabilities lower than current levels. This is the primary
reason for the greater aggregate reduction in net interest income
in the decreasing rate scenario.
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.
41
EXHIBIT 21.1
SUBSIDIARIES OF BT FINANCIAL CORPORATION
PERCENTAGE STATE
NAME OWNERSHIP OF INCORPORATION
---- ---------- ----------------
Johnstown Bank and
Trust Company 100% Pennsylvania
Laurel Bank 100% Pennsylvania
Fayette Bank 100% Pennsylvania
Bedford Associates, Inc. 100% Pennsylvania
BT Management Trust Company 100% Pennsylvania
Moxham Community
Development Corporation 100% Pennsylvania
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 21, 1997 on our audits of the consolidated
financial statements of BT Financial Corporation and affiliates
as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995, and 1994, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand LLP
600 Grant Street
Pittsburgh, PA
March 27, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Moxham Bank Corporation
Johnstown, Pennsylvania
We consent to the incorporation by reference in the registration
statement on Form S-8 (file number 33-93454), dated June 14, 1995,
with regard to BT Financial Corporation 401(k) Plan for Banking
Employees, of our report dated February 15, 1996, on our audit of
the consolidated financial statements of Moxham Bank Corporation
as of December 31, 1995 and 1994, which report is included in this
Form 10-K dated March 31, 1997.
/s/ Barnes, Saly & Company, LLP
Johnstown, Pennsylvania
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 65,305
<INT-BEARING-DEPOSITS> 334
<FED-FUNDS-SOLD> 10,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 204,707
<INVESTMENTS-CARRYING> 97,685
<INVESTMENTS-MARKET> 98,238
<LOANS> 1,082,674
<ALLOWANCE> 9,681
<TOTAL-ASSETS> 1,466,308
<DEPOSITS> 1,263,728
<SHORT-TERM> 40,688
<LIABILITIES-OTHER> 8,195
<LONG-TERM> 17,210
0
0
<COMMON> 28,411
<OTHER-SE> 108,076
<TOTAL-LIABILITIES-AND-EQUITY> 1,466,308
<INTEREST-LOAN> 87,749
<INTEREST-INVEST> 19,385
<INTEREST-OTHER> 1,222
<INTEREST-TOTAL> 108,356
<INTEREST-DEPOSIT> 42,208
<INTEREST-EXPENSE> 44,732
<INTEREST-INCOME-NET> 63,624
<LOAN-LOSSES> 2,441
<SECURITIES-GAINS> 406
<EXPENSE-OTHER> 51,681
<INCOME-PRETAX> 20,774
<INCOME-PRE-EXTRAORDINARY> 20,774
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,774
<EPS-PRIMARY> 2.48
<EPS-DILUTED> 2.47
<YIELD-ACTUAL> 4.82
<LOANS-NON> 11,276
<LOANS-PAST> 961
<LOANS-TROUBLED> 317
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,033
<CHARGE-OFFS> 3,518
<RECOVERIES> 566
<ALLOWANCE-CLOSE> 9,681
<ALLOWANCE-DOMESTIC> 9,681
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule restates previously filed financial information to give
effect to the merger between BT Financial Corporation and Moxham Bank
Corporation. The merger was completed on June 25, 1996 and was accounted
for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 49,202
<INT-BEARING-DEPOSITS> 636
<FED-FUNDS-SOLD> 36,650
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 230,002
<INVESTMENTS-CARRYING> 50,171
<INVESTMENTS-MARKET> 50,288
<LOANS> 1,061,963
<ALLOWANCE> 9,728
<TOTAL-ASSETS> 1,438,634
<DEPOSITS> 1,258,553
<SHORT-TERM> 28,040
<LIABILITIES-OTHER> 9,608
<LONG-TERM> 19,365
0
1,378
<COMMON> 24,326
<OTHER-SE> 97,364
<TOTAL-LIABILITIES-AND-EQUITY> 1,438,634
<INTEREST-LOAN> 21,807
<INTEREST-INVEST> 4,536
<INTEREST-OTHER> 331
<INTEREST-TOTAL> 26,674
<INTEREST-DEPOSIT> 10,554
<INTEREST-EXPENSE> 11,256
<INTEREST-INCOME-NET> 15,418
<LOAN-LOSSES> 412
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 11,978
<INCOME-PRETAX> 5,644
<INCOME-PRE-EXTRAORDINARY> 5,644
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,765
<EPS-PRIMARY> .70
<EPS-DILUTED> .69
<YIELD-ACTUAL> 4.76
<LOANS-NON> 8,310
<LOANS-PAST> 476
<LOANS-TROUBLED> 318
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,033
<CHARGE-OFFS> 862
<RECOVERIES> 145
<ALLOWANCE-CLOSE> 9,728
<ALLOWANCE-DOMESTIC> 9,728
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Moxham Bank Corporation
Johnstown, Pennsylvania
We have audited the accompanying consolidated balance sheet of Moxham
Bank Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1995 and 1994. These financial state-
ments are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signifi-
cant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Moxham Bank Corporation and subsidiaries as of December 31, 1995, and
the consolidated results of their operations and their cash flows for the
years ended December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
/s/ Barnes, Saly & Company, LLP
February 15, 1996
