FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
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Commission file no.: 0-12377
BT FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 25-1441348
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(State of Incorporation) (I.R.S. Employer Identification Number)
551 Main Street, Johnstown, Pennsylvania 15901
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(Address of Principal Executive Offices) (Zip Code)
(814) 532-3801
--------------
Registrant's Telephone Number
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
6,250,436 shares common stock
($5.00 par value)
as of November 4, 1997
BT FINANCIAL CORPORATION AND AFFILIATES
FORM 10-Q
September 30, 1997
Part I. Financial Information Page No.
------------------------------
Item 1.
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Consolidated Balance Sheet - September 30, 1997
and December 31, 1996 3
Consolidated Statement of Income
Three and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2.
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Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9
Part II. Other Information
---------------------------
Item 6.
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Exhibits and Reports 15
Signatures 16
2
ITEM 1
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FINANCIAL STATEMENTS
--------------------
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(In thousands, except share data)
September 30 December 31
1997 1996
(Unaudited)
----------------------------
ASSETS
Cash and cash equivalents $ 52,181 $ 65,305
Money market investments:
Interest-bearing deposits with banks 349 334
Federal funds sold 12,100 10,100
----------------------------
Total money market investments 12,449 10,434
----------------------------
Securities available-for-sale 151,092 204,707
Securities held-to-maturity (market values
of $196,989 and $98,238 ) 195,549 97,685
----------------------------
Total securities 346,641 302,392
----------------------------
Loans 1,137,548 1,082,674
Less: Unearned interest 66,016 56,909
Reserve for loan losses 9,748 9,681
----------------------------
Net loans 1,061,784 1,016,084
Premises and equipment 31,068 31,634
Accrued interest receivable 10,416 8,706
Other assets 37,156 31,753
----------------------------
Total assets $ 1,551,695 $ 1,466,308
============================
LIABILITIES
Deposits:
Non-interest-bearing $ 172,033 $ 161,981
Interest-bearing 1,176,574 1,101,747
----------------------------
Total deposits 1,348,607 1,263,728
Federal funds purchased and securities sold
under agreements to repurchase 28,663 36,678
Short-term borrowings 4,978 4,010
Accrued interest payable 7,837 5,098
Other liabilities 3,194 3,097
Long-term debt 15,054 17,210
----------------------------
Total liabilities $ 1,408,333 $ 1,329,821
----------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value
2,000,000 shares authorized,
None outstanding --- ---
Common stock, par value $5 per share,
25,000,000 shares authorized,
shares issued: 6,250,436 and
5,682,215 31,252 28,411
Surplus 76,470 55,729
Retained earnings 34,919 51,577
Net unrealized holding gains on
securities available-for-sale 721 770
---------------------------
Total shareholders' equity 143,362 136,487
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Total liabilities and
shareholders' equity $ 1,551,695 $ 1,466,308
===========================
The accompanying notes are an integral part of the consolidated financial
statements.
3
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Unaudited)
-----------
(In thousands, except shares and per share data)
Three months ended Nine months ended
September 30 September 30
1997 1996 1997 1996
-----------------------------------------
INTEREST INCOME
Loans, including fees $ 23,291 $ 22,216 $ 67,688 $ 65,791
Investment securities:
Taxable 5,623 5,027 15,757 13,982
Tax-exempt 107 152 348 445
Deposits with banks 3 3 13 32
Federal funds sold 169 265 429 911
-----------------------------------------
TOTAL INTEREST INCOME 29,193 27,663 84,235 81,161
-----------------------------------------
INTEREST EXPENSE
Deposits 11,870 10,722 33,008 31,757
Federal funds purchased
and securities sold under
agreements to repurchase 396 288 1,373 867
Short-term borrowings 65 48 150 115
Term debt 286 312 861 967
-----------------------------------------
TOTAL INTEREST EXPENSE 12,617 11,370 35,392 33,706
-----------------------------------------
NET INTEREST INCOME 16,576 16,293 48,843 47,455
Provision for loan losses 1,065 618 3,155 1,426
-----------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,511 15,675 45,688 46,029
-----------------------------------------
OTHER INCOME
Trust income 800 764 2,329 2,156
Fees for other services 2,078 1,665 5,793 4,844
Net security gains 3 123 24 406
Other income 478 151 932 753
-----------------------------------------
TOTAL OTHER INCOME 3,359 2,703 9,078 8,159
-----------------------------------------
OTHER EXPENSES
Salaries and wages 5,157 5,029 15,085 15,326
Pension and other
employee benefits 865 965 2,581 3,137
Net occupancy expense 1,078 1,127 3,209 3,546
Equipment expense 1,292 1,117 3,497 2,937
F.D.I.C. insurance 65 1,516 198 1,785
Amortization of intangible
assets 543 525 1,477 1,461
Reorganization expense --- --- --- 1,309
Other operating expense 3,179 3,403 9,415 9,840
-----------------------------------------
TOTAL OTHER EXPENSES 12,179 13,682 35,462 39,341
-----------------------------------------
INCOME BEFORE INCOME TAXES 6,691 4,696 19,304 14,847
Provision for income taxes 2,303 1,581 6,641 4,989
-----------------------------------------
NET INCOME $ 4,388 $ 3,115 $ 12,663 $ 9,858
=========================================
EARNINGS PER SHARE
Primary:
Net income per share $ .70 $ .50 $ 2.03 $ 1.63
Weighted average shares
outstanding 6,250,436 6,250,436 6,250,436 6,026,748
Fully Diluted:
Net income per share $ .70 $ .50 $ 2.03 $ 1.62
Weighted average shares
outstanding 6,250,436 6,250,436 6,250,436 6,095,964
DIVIDENDS PAID PER COMMON
SHARE $ .31 $ .27 $ 0.92 $ .72
The accompanying notes are an integral part of the consolidated financial
statements.
Note: Share and per share data have been adjusted to reflect the 10% stock
dividends distributed on October 22, 1996 and September 15, 1997.
4
BT Financial Corporation and Affiliates
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
(In thousands)
Nine months ended
September 30
1997 1996
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,663 $ 9,858
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 3,155 1,426
Provision for depreciation and
amortization 3,025 2,853
Amortization of intangible assets 1,477 1,461
Amortization of premium, net of accretion of
discount on loans and securities (36) 61
Deferred income taxes (339) (242)
Realized securities gains (24) (406)
Decrease (increase) in interest receivable (1,684) 10
Increase (decrease) in interest payable 2,434 (129)
Equity in loss of limited partnerships 75 144
Other assets and liabilities, net (2,270) 3,931
-------------------
Net cash provided by operating
activities 18,476 18,967
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 10,612 5,328
Repayments and maturities of securities
available-for-sale 62,612 73,475
Repayments and maturities of securities
held-to-maturity 20,300 4,000
Purchase of securities available-for-sale (19,816) (21,567)
Purchase of securities held-to-maturity (118,112) (41,961)
Net increase in money market investments (2,015) (202)
Proceeds from sales of loans 6,113 6,247
Net increase in loans (48,117) (24,361)
Purchases of premises and equipment
and other (2,137) (3,009)
Net increase in investment in limited
partnerships (139) (141)
Acquisitions, net of cash acquired 58,819 (3,336)
--------------------
Net cash used in investing
activities (31,880) (5,527)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 15,222 (11,376)
Net increase (decrease) in Federal Funds purchased
and securities sold under agreements
to repurchase (8,015) 995
Net increase in short-term borrowings 968 2,914
Preferred stock cash dividends paid --- (54)
Common stock cash dividends paid (5,739) (4,337)
Payment on long-term debt (2,156) (2,155)
---------------------
Net cash provided by (used in)
financing activities 280 (14,013)
---------------------
Increase (Decrease) in cash and cash equivalents (13,124) (573)
Cash and cash equivalents at beginning
of the year 65,305 59,043
---------------------
Cash and cash equivalents at end of period $ 52,181 $ 58,470
=====================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest on deposits and other borrowings $ 32,958 $ 33,507
Federal income taxes 7,705 4,961
The accompanying notes are an integral part of the consolidated financial
statements.
5
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. In the opinion of the management of BT Financial Corporation
(BT or the Corporation), the accompanying consolidated
financial statements include all normal recurring adjustments necessary
for a fair presentation of the financial position and results of
operations of BT for the periods presented. All significant
intercompany transactions have been eliminated in consolidation.
Certain amounts have been reclassified for comparative purposes. The
consolidated financial statements of BT include the accounts of BT and
its wholly-owned affiliates, Johnstown Bank and Trust Company (Bank and
Trust), Laurel Bank (Laurel), Fayette Bank (Fayette), BT Management
Trust Company (Trust Company), Bedford Associates, Inc., and Laurel
Community Development Corporation. Please refer to Note 8. "Subsequent
Events" on page eight of this report for a discussion of BT's recent
bank charter consolidation. BT acquired Moxham Bank Corporation
(Moxham) on June 25, 1996, and accounted for the acquisition as a
pooling-of-interests. Accordingly, the financial statements of Moxham
and BT are combined for all periods covered by this report. These
statements should be read in conjunction with the financial statements
and the notes thereto included in BT's annual report to the Securities
and Exchange Commission on Form 10-K for the year ended December 31,
1996. The results of operations for the nine month period ended
September 30, 1997 are not necessarily indicative of the results which
may be expected for the full year.
2. Tax provisions for interim financial statements are based on
the estimated effective tax rates for the full fiscal year. The
estimated effective tax rates may differ from the statutory tax rate due
primarily to tax-exempt interest income.
3. Reserve for loan losses -- The Corporation follows 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". 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. The recorded investment in loans for which
impairment has been recognized in accordance with FASB 114 totalled $2.1
million at September 30, 1997, compared to $3.9 million at December 31,
1996 and $4.8 million at September 30, 1996. The corresponding loan
loss valuation allowance was $1.0 million, $1.5 million and $2.4 million
for the same periods, respectively. BT did not recognize any interest
revenue on impaired loans during the third quarter of 1997. In the same
period of 1996, BT recognized approximately $17,000 of interest revenue
on impaired loans.
4. Recent Accounting Pronouncements
--------------------------------
In June of 1996, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (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
6
Mortgage Servicing Rights." This statement is effective for transfers
and servicing of financial assets transactions occurring after December
31, 1996. BT adopted this statement on January 1, 1997, and the effect
on BT's financial statements as a result of the adoption was not
material.
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 SFAS 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 SFAS No. 127 will have on its results of operations and
financial position.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
which is effective for financial statements issued for periods
after December 15, 1997. At that time, BT will be required to change
the methods currently used to compute earnings per share (EPS) and to
restate all prior periods. SFAS No. 128 replaces the current
presentation of "primary" EPS with "basic" EPS, with the principal
difference being that common stock equivalents are not considered in
computing "basic" EPS. The statement also requires the replacement of
current "fully diluted" EPS with "diluted" EPS. "Diluted" EPS will be
computed similarly to "fully diluted" EPS. The adoption of this
statement will not have any material impact on BT's EPS computation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purposes financial statements.
SFAS No. 130 requires that all items are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 requires that an enterprise
(a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial
position. The adoption of this statement will not have a material impact
on the Corporation's financial position or results of operations.
5. Recent Branch Acquisitions
--------------------------
On June 6, 1997, Bank and Trust, BT's largest banking affiliate,
purchased 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
purchase included the deposits, loans and fixed assets of all three
branches which were merged into Bank and Trust. The purchase price of
approximately $4.6 million has been allocated to a deposit intangible
and will be amortized over a fifteen-year period. The combined deposit
and loan totals for the three offices was approximately $70 million and
$5.8 million, respectively, at June 6, 1997.
6. 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
7
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.
7. Stock Dividends
---------------
On July 23, 1997, BT's Board of Directors declared a 10% stock dividend.
The dividend was distributed on September 15, 1997, to shareholders of
record as of August 27, 1997. The dividend was charged to retained
earnings in the aggregate amount of $23.6 million which was based on a
market price of $41.50 per share. The stock dividend, representing
568,221 common shares, increased common shares issued and outstanding to
6,250,436. On October 22, 1996, a 10% stock dividend was distributed to
shareholders of record as of September 20, 1996. All per share data in
this report has been adjusted to reflect the stock dividends.
8. Subsequent Events
-----------------
At the close of business, October 10, 1997, the Corporation adopted a
single bank charter for its three affiliate banks. Laurel and
Fayette merged with and into Bank and Trust and Bank and Trust changed
its name to Laurel Bank. All 72 banking offices of BT's three affiliates
are now branches of Laurel Bank. At the same time, the corporate names of
two other non-bank affiliates were changed from BT Management Trust Company
to Laurel Trust Company and from Moxham Community Development
Corporation to Laurel Community Development Corporation.
8
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following is Management's Discussion and Analysis of the material
changes in financial position between December 31, 1996 and September 30,
1997, and the material changes in results of operations comparing the three
and nine month periods ending September 30, 1997 with the respective
results for the comparable periods of 1996 for BT Financial Corporation.
The following should be read in conjunction with BT's Annual Report on Form
10-K for the year ended December 31, 1996.
Certain statements contained in this report constitute "forward-looking"
statements with respect to BT Financial Corporation and its subsidiaries.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the financial condition and
results of operations of BT Financial Corporation and its subsidiaries to
be materially different from any future financial condition or results of
operations suggested or implied by such forward-looking statements. Such
factors may affect BT Financial Corporation and its subsidiaries'
operations, markets, products, services and prices. Such factors include
among others, the following: political, economic and business conditions;
local political, economic and business conditions; interest rates, and
federal, state and local legislation and regulation.
FINANCIAL REVIEW
- ----------------
Overview
- --------
During the first nine months of 1997, BT experienced significant asset
growth due to branch acquisitions, loan growth reflecting continuing demand
for both consumer and commercial loans, and an improvement in expense
ratios. Since interest rates were flat for the most part during the first
nine months of 1997, changes in rates did not have a material impact on the
Corporation's operating results. Net income and annualized returns on
assets and shareholder equity improved significantly.
The acquisition of three branches from National City Corporation (National
City) of Pennsylvania was completed on June 6, 1997. The branch
acquisitions accounted for most of the Corporation's asset and deposit
growth in 1997. The Corporation completed two acquisitions in June, 1996.
The acquisition of Armstrong County Bank was accounted for as a purchase,
and the acquisition of Moxham Bank Corporation (Moxham) was accounted for
as a pooling. As a result, the financial condition and results of
operations of Moxham and the Corporation are combined for all periods
covered by this report.
Loans grew at a steady rate in the first nine months of 1997. Most of this
loan growth was from internal sources as the branch acquisitions accounted
for only 12.6% of the increase in loans since year-end 1996. Credit
quality improved as the amount of total nonperforming loans declined to
.91% as a percentage of loans, net of unearned interest, at September 30,
1997, compared to 1.22% at December 31, 1996.
Cost savings and improved efficiencies from the Moxham Bank Corporation
acquisition associated with branch closings, reduced staffing levels and
consolidation of various support activities were realized in the first nine
months of 1997. Employment and occupancy costs decreased and the
Corporation's efficiency ratio, excluding nonrecurring costs, improved from
65% in the first nine months of 1996 to 60% in 1997. The efficiency ratio
measures the ability to generate revenue in relation to expenditures. The
lower ratio in 1997 reflects a substantial decline in operating expenses,
complemented by heightened income levels.
Compared with the first nine months of 1996, net income improved 28.5%,
fully diluted net income per share improved 25.3%, annualized return on
assets improved 24.4% and annualized return on equity improved 17.3% in
9
1997. The improvement in net income was accomplished even though net loan
charge-offs increased 54% in 1997. 1996 earnings, however, were depressed
due to one-time expenses of acquiring Moxham Bank Corporation and a
nonrecurring deposit insurance assessment. Disregarding these costs, net
income increased more than 8%.
The Corporation recently consolidated its three bank subsidiaries,
Johnstown Bank and Trust Company, Fayette Bank and Laurel Bank into a
single bank named Laurel Bank. This consolidation is intended to result in
future operating efficiencies and cost effectiveness throughout the
organization in areas such as marketing, advertising, data processing,
accounting and other back office operations. Additionally, the single bank
has been divided into five regional areas created to capitalize on growth
opportunities in BT's market area. Each region will be headed by a
Community Banking Executive and will have its own Regional Board of
Directors.
CHANGES IN FINANCIAL POSITION
Total assets at September 30, 1997 increased $85.4 million, or 5.8%, and
$63.2 million, or 4.2%, compared to year-end 1996 and September 30, 1996,
respectively. The branches acquired from National City accounted for asset
growth of approximately $70 million and were primarily responsible for the
higher balance sheet levels over both periods.
Period end total loans outstanding, net of unearned interest, increased
$45.8 million, or 4.5%, and $31.7 million, or 3.0%, compared to year-end
1996 and September 30, 1996, respectively. The increase in loans over both
periods is primarily due to strong internal growth in both commercial and
consumer loans resulting from aggressive lending efforts. Various loans
acquired in the branch acquisitions of National City totalled approximately
$5.8 million at the acquisition date.
BT's nonperforming assets increased during 1996 due to several factors
including the addition of various merger related loans and a general
industry-wide deterioration in consumer credit quality. Additionally, the
restructuring of the collection function had a temporary impact on the
level of nonperforming loans. At September 30, 1997, nonperforming loans
decreased $2.8 million, or 22.6%, and $2.6 million, or 21.0%, compared to
year-end 1996 and September 30, 1996, respectively. Focused management
efforts have successfully reduced the level of nonperforming loans through
the allocation of additional resources specifically directed at enhancing
the loan collection process. All major loan categories (residential
mortgages, commercial and consumer loans) have experienced significant
reductions in nonperforming loans since year-end 1996. Based on currently
known trends, management does not anticipate any significant increase in
nonperforming loan totals in the foreseeable future. Although BT's asset
quality ratios are consistent with peer levels, management's objective is
to return to its historically stronger position.
Management's policy is to maintain an adequate loan loss reserve to cover
inherent losses in the loan portfolio. The evaluation process to determine
potential losses includes loan reviews, collateral adequacy assessments, an
analysis of specific conditions of the borrower and an assessment of
general economic conditions. The BT Credit and Collection functions
continuously monitor and assess credit quality to minimize exposure to
potential future credit losses. The ratio of the reserve for loan losses
to loans, net of unearned interest, declined to .91% at September 30, 1997,
compared to .94% at year-end 1996 and .92% at September 30, 1996,
commensurate with growth in the loan portfolio and the charge-off of
certain nonperforming loans. At the same time, BT's coverage ratio
increased to 1.0 times at September 30, 1997, compared to .8 times at year-
end 1996 and September 30, 1996, due to the decline in nonperforming loans.
10
The following table provides information with respect to the components of
BT's nonperforming assets and related ratios for the periods indicated.
September 30 December 31 September 30
(In thousands) 1997 1996 1996
----------------------------------------
Loans 90 days or more past-due $ 794 $ 961 $ 128
Restructured loans 266 317 317
Nonaccrual loans 8,651 11,276 11,853
----------------------------------------
Total nonperforming loans 9,711 12,554 12,298
Other real estate owned 659 1,023 809
Repossessed assets 961 851 1,183
---------------------------------------
Total nonperforming assets $ 11,331 $ 14,428 $ 14,290
=======================================
Nonperforming loans as a % of loans,
net of unearned interest .91% 1.22% 1.18%
Reserve for loan losses to nonperforming
loans 1.0x .8x .8x
Reserve for loan losses as a % loans,
net of unearned interest .91% .94% .92%
Total securities increased $44.2 million, or 14.6%, and $34.3 million, or
11.0%, compared to year-end 1996 and September 30, 1996, respectively. The
higher levels primarily resulted from various securities purchased in
connection with funding provided by deposits acquired in the branches
purchased from National City.
Period end deposits increased $84.9 million, or 6.7%, and $64.9 million, or
5.1%, compared to year-end 1996 and September 30, 1996, respectively. The
increases are mainly due to approximately $70 million in deposits acquired
from the National City branches.
RESULTS OF OPERATIONS
Ten percent stock dividends were distributed on October 22, 1996 and
September 15, 1997, to shareholders of record at September 20, 1996 and
August 27, 1997, respectively. All per share data in the following
discussions has been adjusted to reflect the stock dividends.
Third Quarter 1997 vs. Third Quarter 1996
For the third quarter of 1997, BT recorded net income of $4.4 million, or
$.70 per share. In the same period of 1996, net income was $4.0 million, or
$.64 per share before a one-time deposit insurance assessment related to
deposits acquired from savings and loan institutions of approximately $1.4
million ($899,000 net of tax). These results reflect strong net income
growth of 9.3% and an earnings per share increase of 9.4%. Higher levels
of net interest income and total other income and a reduction in total
other expenses offset an increase in the provision for loan losses. Third
quarter 1996 net income was reduced to $3.1 million or $.50 per share after
the deposit insurance assessment.
11
The annualized return on average assets for the third quarters of 1997 and
1996 was 1.13% and .84%, respectively. The annualized return on average
shareholders' equity was 12.36% in 1997 and 9.41% in 1996 for the third
quarter. Excluding the one-time deposit insurance assessment, the 1996
annualized return on average assets for the third quarter was 1.08% and the
third quarter 1996 annualized return on average shareholders' equity was
12.13%.
Net interest income on a fully taxable equivalent basis was $16.9 million
for the third quarter of 1997, compared to $16.7 million for the same
period of 1996. The increase was due essentially to a higher level of
interest-earning assets resulting from recent loan growth. Average loans
outstanding, net of unearned interest, grew $40.3 million, or 3.9%, to
$1.078 billion in the third quarter of 1997 compared to 1996. Third quarter
net interest margins for 1997 and 1996 were 4.68% and 4.81%, respectively.
The provision for loan losses increased $447,000 in the third quarter of
1997 compared to the third quarter of 1996 based on management's assessment
of the provision necessary to maintain an adequate reserve against
potential future losses based upon current size and quality of the loan
portfolio. Net charge-offs were approximately $1.0 million in the third
quarter of 1997 compared to $617,000 in 1996. The higher level of net
charge-offs was primarily due to a higher level of credit losses associated
with various commercial loans. Management expects the remaining 1997 level
of net charge-offs and the related provision for loan losses to be
consistent with 1996 levels based on the current status of the loan
portfolio.
Total other income increased by $656,000, or 24.3%, in the third quarter of
1997 compared to the same period of 1996. Trust income and service fees
increased 4.7% and 24.8%, respectively. The growth in fee based income has
primarily resulted from an increased account base due to recent
acquisitions, higher levels of deposit account fees and organic growth in
trust assets under management. Management anticipates these trends to
continue throughout the remainder of 1997. Other income grew $327,000
while net security gains declined $120,000 in 1997 over 1996. BT's other
income growth in the third quarter of 1997 was largely due to a profit of
$250,000 realized in connection with the sale of its merchant credit card
relationships. In the fourth quarter of 1997, BT intends to sell its
entire credit card portfolio to a large servicer. Accordingly, BT should
realize a gain on the sale of these loans in the fourth quarter. BT will
continue to issue credit cards under the Laurel Bank name. The cards will
offer enhanced features, competitive rates, and a higher level of customer
service as a result of the association with a large servicer.
Additionally, BT will garner fee income on an ongoing basis while
eliminating the risks and expenses related to the maintenance of a credit
card portfolio.
BT's management monitors the level of other expenses on an ongoing basis
for increased profitability. Total other expenses declined $1.5 million,
or 11.0%, in the third quarter of 1997 compared to the same period of 1996.
Most of the decline was due to the aforementioned one-time deposit
insurance assessment related to deposits acquired from savings and loan
institutions. Excluding the one-time assessment, total other expenses
declined $120,000, or 1.0%. Salaries increased 2.5% due to the inclusion
of 16 employees hired in connection with the National City branch
acquisitions and periodic merit increases. Employee benefit costs were
reduced by 10.4% primarily due to lower hospitalization expense. Net
occupancy expense declined 4.3% while equipment expense increased 15.7%
reflecting higher levels of ongoing technology-based expenditures. FDIC
insurance declined 95.7% due mainly to the one-time assessment paid in
1996. Other operating expenses fell 6.6% and BT's efficiency ratio
improved to 60% in the third quarter of 1997 compared to 64% in 1996,
excluding nonrecurring charges. BT's recent bank charter consolidation
will serve to streamline back-office functions in areas such as data
processing, accounting and other operational departments. Less regulatory
burden and an enhanced future capacity for growth are also expected to
occur under the single bank charter. Marketing and advertising will benefit
from reduced media costs by focusing on the promotion of a single bank.
12
Customers will gain added convenience by the ability to bank at any office
throughout Laurel Bank's 72 branch network.
BT's effective tax rate of 34.4% for the third quarter of 1997 remained
fairly stable compared to 33.7% in the same period of 1996.
Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30,
1996
The first nine months of 1997 produced net income of $12.7 million, or
$2.03 per share, compared to $9.9 million, or $1.62 per fully diluted
share, earned in the same period of 1996 which reflected the nonrecurring
deposit insurance assessment and one-time reorganization costs of $1.3
million ($959,000 net of tax) associated with the Moxham Bank Corporation
(Moxham) merger in June of 1996. These results reflect a substantial net
income increase of 28.5% and an income per share boost of 25.3%. Steady
growth in net interest income and total other income along with a reduction
in expense levels offset an increase in the provision for loan losses. The
year-over-year earnings increase, excluding nonrecurring costs, was
$947,000, or $.11 per fully diluted share.
For the first nine months of 1997, the annualized return on average assets
was 1.12%, compared to .90% in 1996. The annualized return on average
shareholders' equity for the first nine months of 1997 and 1996 was 12.12%
and 10.33%, respectively.
Fully taxable equivalent net interest income was $49.9 million for the
first nine months of 1997, compared to $48.6 million for the same period of
1996. The increase of $1.3 million was due primarily to a higher level of
interest-earning assets resulting from recent acquisitions as well as
internal loan growth. In 1997, average interest-earning assets increased
$46.0 million to $1.397 billion while average interest-bearing liabilities
grew $32.2 million to $1.195 billion compared to 1996. The net interest
margin, on a fully taxable equivalent basis, declined slightly to 4.77% in
1997, compared to 4.79% in the first nine months of 1996.
The provision for loan losses increased $1.7 million in the first nine
months of 1997, compared to the same period of 1996 due to management's
assessment of the provision necessary to maintain an adequate reserve
against potential future losses based upon current size and quality of the
loan portfolio. Net charge-offs were approximately $3.1 million in 1997
compared to $2.0 million in the first nine months of 1996. Net loans
charged-off to average loans, net of unearned interest, increased to .39%
from .26% on an annualized basis for the first nine months of 1997 and
1996, respectively. The higher level of net charge-offs in 1997 is mainly
due to a higher level of credit losses associated with various commercial
loans. Consumer loan charge-offs in 1997 remained consistent with prior
year levels.
Total other income increased $919,000, or 11.3%, in the first nine months
of 1997 compared to the same period last year. Trust income, service fees,
and other income increased 8.0%, 19.6% and 23.8%, respectively, while
income from securities transactions declined $382,000. The growth in fee
based income has primarily resulted from an increased account base due to
recent mergers, higher levels of service charges on deposit accounts, and
internal growth in trust assets under management.
Total other expenses declined $3.9 million, or 9.9%, in the first nine
months of 1997 compared to the same period of 1996. Approximately 69% of
the decrease was due to the nonrecurring reorganization costs related to
the Moxham merger and the one-time deposit insurance assessment in 1996.
Excluding one-time charges, total other expenses declined $1.2 million, or
3.2%. Ongoing cost containment initiatives and synergies resulting from
the Moxham merger have largely been responsible for the broad-based expense
13
reductions experienced in 1997. Salaries and wages declined 1.6% while
employee benefit costs decreased 17.7% primarily due to lower
hospitalization expense. Occupancy expense declined 9.5% commensurate with
the closure of seven branch offices in the third quarter of 1996 in
connection with the Moxham merger. Equipment expense increased 19.1%
reflecting higher levels of ongoing technology-based expenditures. FDIC
insurance declined 88.9% due to the one-time assessment in 1996 and lower
deposit insurance premiums in effect for 1997. Other operating expense
declined 4.3% while BT's efficiency ratio, exclusive of nonrecurring costs,
improved to 60% in 1997 from 65% in 1996. The improvement in the
efficiency ratio reflects various cost savings related to branch closings,
reduced staffing levels, and various operations consolidation activities
resulting from the Moxham acquisition. BT's bank charter consolidation
should provide future additional efficiencies by allowing BT to leverage
its technology investments while streamlining its product offerings as a
means to curtail unit costs and allow for standardization throughout the 72
branch network. BT's regionalized marketing approach under the single bank
charter was designed to ultimately increase profitability for the
Corporation. The goal is to better serve existing customers while
providing the proper framework to further penetrate existing market areas
in a more efficient, effective manner.
BT's effective tax rate was 34.4% for the first nine months of 1997
compared to 33.6% for the same period of 1996. The increase is primarily
due to a lower effective tax rate applicable to Moxham in 1996 prior to the
merger with BT.
14
PART II
-------
OTHER INFORMATION
-----------------
ITEM 6
------
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 11 Computation of Net Income Per Share
Exhibit 27 Financial Data Schedule
(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.
15
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date November 13, 1997 /s/ John H. Anderson
------------------ ----------------------------
John H. Anderson, Chairman
and Chief Executive Officer
Date November 13, 1997 /s/ Mark L. Sollenberger
------------------ -------------------------------
Mark L. Sollenberger,
Executive Vice President, Treasurer,
and Assistant Secretary
(Principal Financial Officer)
16
EXHIBIT 11
BT FINANCIAL CORPORATION AND AFFILIATES
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1997 1996 1997 1996
--------------------------------------------
(In thousands, except shares
and per share data)
Primary income per share:
Net income $ 4,388 $ 3,115 $ 12,663 $ 9,858
Preferred dividends 0 0 0 54
--------------------------------------------
Net income applicable to
common stock $ 4,388 $ 3,115 $ 12,663 $ 9,804
--------------------------------------------
Average common shares
outstanding and common
stock equivalents 6,250,436 6,250,436 6,250,436 6,026,748
============================================
Net income per share-primary $ .70 $ .50 $ 2.03 $ 1.63
Fully diluted income per share:
Net income $ 4,388 $ 3,115 $ 12,663 $ 9,858
============================================
Average common shares
outstanding and common
stock equivalents 6,250,436 6,250,436 6,250,436 6,026,748
Additional common shares
assuming:
Conversion of preferred
stock Series A 0 0 0 69,216
-------------------------------------------
Average common shares
outstanding and common
stock equivalents 6,250,436 6,250,436 6,250,436 6,095,964
===========================================
Net income per share-fully
diluted $ .70 $ .50 $ 2.03 $ 1.62
===========================================
Note: Share and per share data have been adjusted to reflect the 10%
stock dividends distributed on October 22, 1996 and September 15, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 52,181
<INT-BEARING-DEPOSITS> 349
<FED-FUNDS-SOLD> 12,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 151,092
<INVESTMENTS-CARRYING> 195,549
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0
0
<COMMON> 31,252
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<INCOME-PRETAX> 19,304
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<NET-INCOME> 12,663
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
<YIELD-ACTUAL> 4.77
<LOANS-NON> 8,651
<LOANS-PAST> 794
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<ALLOWANCE-OPEN> 9,681
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