FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 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
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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
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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
5,682,215 shares common stock
($5.00 par value)
as of August 4, 1997
BT FINANCIAL CORPORATION AND AFFILIATES
FORM 10-Q
June 30, 1997
Part I. Financial Information Page No.
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Item 1.
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Consolidated Balance Sheet - June 30, 1997
and December 31, 1996 3
Consolidated Statement of Income
Three and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows
Six Months Ended June 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
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Item 4.
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Submission of Matters to a Vote of Security Holders 15
Item 6.
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Exhibits and Reports 15
Signatures 16
2
ITEM 1
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FINANCIAL STATEMENTS
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BT FINANCIAL CORPORATION AND AFFILIATES
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CONSOLIDATED BALANCE SHEET
--------------------------
June 30 December 31
1997 1996
(In thousands, except share data) (Unaudited)
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ASSETS
Cash and cash equivalents $ 55,983 $ 65,305
-----------------------
Money market investments:
Interest-bearing deposits with banks 277 334
Federal funds sold 10,700 10,100
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Total money market investments 10,977 10,434
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Securities available-for-sale 150,731 204,707
Securities held-to-maturity (market value
of $189,809 and $98,238) 189,328 97,685
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Total securities 340,059 302,392
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Loans: 1,141,052 1,082,674
Less: Unearned interest 64,987 56,909
Reserve for loan losses 9,684 9,681
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Net loans 1,066,381 1,016,084
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Premises and equipment 31,661 31,634
Accrued interest receivable 9,725 8,706
Other assets 38,103 31,753
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Total assets $ 1,552,889 $ 1,466,308
=======================
LIABILITIES
Deposits:
Non-interest-bearing $ 171,104 $ 161,981
Interest-bearing 1,177,858 1,101,747
-----------------------
Total deposits 1,348,962 1,263,728
Federal funds purchased and securities
sold under agreements to repurchase 34,581 36,678
Short-term borrowings 4,351 4,010
Accrued interest payable 5,887 5,098
Other liabilities 2,864 3,097
Long-term debt 15,773 17,210
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Total liabilities 1,412,418 1,329,821
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SHAREHOLDERS' EQUITY
Preferred stock, no par value
2,000,000 shares authorized -- --
Common stock, par value $5 per share,
25,000,000 shares authorized,
shares issued: 5,682,215 28,411 28,411
Surplus 55,729 55,729
Retained earnings 56,045 51,577
Net unrealized holding gains (losses) on
securities available-for-sale 286 770
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Total shareholders' equity 140,471 136,487
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Total liabilities and shareholders' equity $ 1,552,889 $ 1,466,308
=======================
The accompanying notes are an integral part of the consolidated
financial statements.
3
BT FINANCIAL CORPORATION AND AFFILIATES
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CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Unaudited)
----------
Three months ended Six months ended
(In thousands, except share June 30 June 30
and per share data) 1997 1996 1997 1996
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INTEREST INCOME
Loans, including fees $ 22,563 $ 21,768 $ 44,397 $ 43,575
Investment securities:
Taxable 5,354 4,568 10,135 8,956
Tax-exempt 111 145 241 293
Deposits with banks 4 6 9 28
Federal funds sold 99 337 260 646
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Total interest income 28,131 26,824 55,042 53,498
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INTEREST EXPENSE
Deposits 10,822 10,482 21,138 21,036
Federal funds purchased and securities
sold under agreements to repurchase 710 240 977 579
Short-term borrowings 47 34 85 67
Term debt 290 324 575 654
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Total interest expense 11,869 11,080 22,775 22,336
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NET INTEREST INCOME 16,262 15,744 32,267 31,162
Provision for loan losses 1,045 396 2,090 808
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Net interest income after
provision for loan losses 15,217 15,348 30,177 30,354
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OTHER INCOME
Trust income 783 749 1,529 1,392
Fees for other services 1,909 1,628 3,715 3,179
Net security gains (losses) (74) 298 21 283
Other income 186 166 454 603
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Total other income 2,804 2,841 5,719 5,457
OTHER EXPENSES
Salaries and wages 4,955 5,113 9,928 10,297
Pension and other employee benefits 822 1,103 1,716 2,172
Net occupancy expense 1,068 1,195 2,131 2,419
Equipment expense 1,119 931 2,204 1,820
F.D.I.C. insurance 67 135 133 269
Amortization of intangible assets 467 469 934 936
Reorganization expense -- 1,232 -- 1,309
Other operating expense 3,189 3,504 6,237 6,438
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Total other expenses 11,687 13,682 23,283 25,660
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INCOME BEFORE INCOME TAXES 6,334 4,507 12,613 10,151
Provision for income taxes 2,140 1,529 4,337 3,408
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NET INCOME $ 4,194 $ 2,978 $ 8,276 $ 6,743
==========================================
EARNINGS PER SHARE
Primary:
Net income per share $ .74 $ .55 $ 1.46 $ 1.24
Weighted average shares outstanding 5,682,215 5,400,527 5,682,215 5,376,068
Fully diluted:
Net income per share $ .74 $ .54 $ 1.46 $ 1.23
Weighted average shares outstanding 5,682,215 5,492,579 5,682,215 5,470,797
Dividends paid per common share $ .34 $ .23 $ 0.67 $ .49
The accompanying notes are an integral part of the consolidated
financial statements.
Note: Share and per share data have been adjusted to reflect the
10% stock dividend distributed on October 22, 1996.
4
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended
June 30
1997 1996
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,276 $6,743
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 2,090 808
Provision for depreciation and amortization 1,945 1,841
Amortization of intangible assets 934 936
Amortization of premium, net of accretion of
discount on loans and securities (67) 336
Deferred income taxes (575) (197)
Realized securities gains (21) (308)
Decrease (increase)in interest receivable (993) 148
Increase (decrease)in interest payable 484 (1,526)
Equity in loss of limited partnerships 33 105
Other assets and liabilities, net (2,089) (565)
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Net cash provided by operating activities 10,017 8,321
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 10,597 5,096
Repayments and maturities of securities available-for-
sale 45,018 56,173
Repayments and maturities of securities held-to-
maturity 7,300 2,000
Purchase of securities available-for-sale (2,505) (18,147)
Purchase of securities held-to-maturity (98,918) (35,985)
Net increase in money market investments (543) (10,194)
Proceeds from sales of loans 2,414 2,683
Net increase in loans (48,307) (7,547)
Purchases of premises and equipment and other (1,650) (3,669)
Net increase in investment in limited partnerships (141) (141)
Acquisitions, net of cash acquired 58,819 (3,336)
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Net cash used in investing activities (27,916) (13,067)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 15,577 9,298
Net decrease in Federal Funds purchased and
securities sold under agreements to repurchase (2,097) (283)
Net increase in short-term borrowings 341 2,758
Preferred stock cash dividends paid -- (54)
Common stock cash dividends paid (3,807) (2,633)
Payment on long-term debt (1,437) (1,436)
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Net cash provided by financing activities 8,577 7,650
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Increase (Decrease) in cash and cash equivalents (9,322) 2,904
Cash and cash equivalents at beginning of the year 65,305 59,043
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Cash and cash equivalents at end of period $55,983 $61,947
=======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and other borrowings $22,291 $23,562
Federal income taxes 5,303 3,711
The accompanying notes are an integral part of the consolidated
financial statements.
5
BT FINANCIAL CORPORATION AND AFFILIATES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
(Unaudited)
1. In the opinion of the management of BT Financial
Corporation (BT or the Corporation), the accompanying
consolidated financial statements include all normal recurring
adjustments necessary for a fair presentation of the financial
position and results of operations of BT for the periods
presented. All significant intercompany transactions have been
eliminated in consolidation. Certain amounts have been
reclassified for comparative purposes. The consolidated
financial statements of BT include the accounts of BT and its
wholly-owned affiliates, Johnstown Bank and Trust Company (Bank
and Trust), Laurel Bank (Laurel), Fayette Bank (Fayette), BT
Management Trust Company (Trust Company), Bedford Associates,
Inc., and the Moxham Community Development Corporation. 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
six month period ended June 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. At June 30, 1997, the recorded investment in loans for
which impairment has been recognized in accordance with FASB 114
totalled $2.5 million, with a corresponding loan loss valuation
allowance of $1.4 million. BT did not recognize any interest
revenue on impaired loans during the second quarter of 1997.
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 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.
6
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 conjuction with secured borrowings. The
Corporation is currently evaluating the effect that
implementation of 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 and 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 were
approximately $70 million and $5.8 million, respectively, at June
6, 1997.
6. Litigation
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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.
7
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, 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. Subsequent Event
----------------
On July 23, 1997, BT's Board of Directors declared a 10% stock
dividend payable September 15, 1997, to shareholders of record on
August 27, 1997. The stock dividend, representing 568,221 common
shares, will increase common shares issued to 6,250,436 from
5,682,215.
8
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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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 June 30, 1997, and the material changes in results of
operations comparing the three and six month periods ending June
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
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During the first six months of 1997, BT experienced 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 constant for the most
part during the first half 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 the first half. 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 half of 1997. Most of
this loan growth was from improved loan demand as the branch
acquisitions accounted for only 11.5% of the increase in loans
since year-end 1996. Credit quality improved as the amount of
total nonperforming loans declined to .89% as a percentage of
loans, net of unearned interest, at June 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 half of 1997. Employment
and occupancy costs decreased and the Corporation's efficiency
ratio, excluding nonrecurring costs, improved from 66% in the
first half 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 decline in operating expenses,
complemented by heightened income levels.
9
Compared with the first half of 1996, net income improved 22.7%,
fully diluted net income per share improved 18.7%, annualized
return on assets improved 19.4% and annualized return on equity
improved 11% in the first half of 1997. The improvement in net
income was accomplished even though net loan charge-offs
increased 51% in the first half. 1996 earnings, however, were
depressed due to one-time expenses of acquiring Moxham Bank
Corporation. Disregarding these costs, income before taxes
increased more than 10%.
The Corporation plans to consolidate its three bank subsidiaries,
Johnstown Bank and Trust Company, Fayette Bank and Laurel Bank
into a single bank to be named Laurel Bank. This consolidation
is planned for the fourth quarter of 1997 and 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.
CHANGES IN FINANCIAL POSITION
Total assets at June 30, 1997 increased $86.6 million, or 5.9%,
and $49.8 million, or 3.3%, compared to year-end 1996 and June
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 $50.3 million, or 4.9%, and $49.6 million, or 4.8%,
compared to year-end 1996 and June 30, 1996, respectively. The
increase in loans over both periods is primarily due to increased
demand in both commercial and consumer loans. Various loans
acquired in the branch acquisitions of National City totaled
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 June 30, 1997, nonperforming loans decreased $2.9
million, or 23.3%, and $191,000, or 1.9%, compared to year-end
1996 and June 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
loan categories (residential mortgages, commercial and consumer
loans) have experienced significant reductions in nonperforming
loans since year-end 1996. Most notably, nonperforming consumer
loans have shown the greatest improvement, declining 55% to
approximately $1.1 million at June 30, 1997 compared to $2.4
million at December 31, 1996. Based on currently known trends,
management does not anticipate any significant increase in
nonperforming loan totals in the near 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 .90%
at June 30, 1997, compared to .94% at year-end 1996 and June 30,
1996, primarily due to growth in the loan portfolio and the
charge-off of certain nonperforming loans. At the same time,
BT's coverage ratio (reserve for loan losses to nonperforming
loans) increased to 1.0 times at June 30, 1997, compared to .8
10
times at year-end 1996, due to the decline in nonperforming
loans. The following table provides information with respect to
the components of BT's nonperforming assets and related ratios
for the periods indicated.
June 30 December 31 June 30
(In thousands) 1997 1996 1996
------------------------------------
Loans 90 days or more past-due $ 477 $ 961 $ 1,280
Restructured loans 316 317 318
Nonaccrual loans 8,835 11,276 8,221
------------------------------------
Total nonperforming loans 9,628 12,554 9,819
Other real estate owned 738 1,023 799
Repossessed assets 1,028 851 1,015
------------------------------------
Total nonperforming assets $11,394 $14,428 $11,633
------------------------------------
Nonperforming loans as
a % of loans, net of
unearned interest .89% 1.22% .96%
Reserve for loan losses to
nonperforming loans 1.0x .8x 1.0x
Reserve for loan losses as
a % of loans, net of unearned
interest .90% .94% .94%
Total securities increased $37.7 million, or 12.5%, and $14.9
million, or 4.6%, compared to year-end 1996 and June 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 $85.2 million, or 6.7%, and $44.5
million, or 3.4%, compared to year-end 1996 and June 30, 1996,
respectively. The increases are mainly due to approximately $70
million in deposits acquired from the National City branches.
RESULTS OF OPERATIONS
A ten percent stock dividend was distributed on October 22, 1996,
to shareholders of record at September 20, 1996. All per share
data in the following discussions has been adjusted to reflect
the stock dividend. Please refer to Note 7 on page 8 under Item
1 of this report for a discussion on an additional ten percent
stock dividend declared on July 23, 1997.
Second Quarter 1997 vs. Second Quarter 1996
BT produced net income of $4.2 million, or $.74 per fully diluted
share, for the second quarter of 1997. These results compare
favorably to $3.9 million, or $.71 per fully diluted share,
earned in the same period of 1996 before nonrecurring
reorganization costs associated with the consummation of the
Moxham merger in June of 1996. Higher levels of net interest
11
income and an overall decline in total expenses, less
nonrecurring expenses, offset an increase in the provision for
loan losses and a slight decrease in total other income. The
inclusion of one-time costs associated with the Moxham
acquisition reduced second quarter 1996 earnings to $3.0 million,
or $.54 per fully diluted share.
The annualized return on average assets for the second quarters
of 1997 and 1996 was 1.11% and 0.82%, respectively. The
annualized return on average shareholders' equity was 12.10% in
1997 and 9.48% in 1996 for the second quarter. Excluding the
reorganization costs, the 1996 annualized return on average
assets for the second quarter was 1.07% and the second quarter
1996 annualized return on average shareholders' equity was
12.34%.
Net interest income on a fully taxable equivalent basis was $16.6
million for the second quarter of 1997 compared to $16.1 million
for the same period of 1996. The increase of $.5 million was due
essentially to a higher level of interest-earning assets
resulting from recent acquisitions. Second quarter net interest
margins for 1997 and 1996 were 4.75% and 4.80%, respectively.
The provision for loan losses increased $649,000 in the second
quarter of 1997 compared to the second quarter of 1996 based on
management's assessment of the provision necessary to maintain an
adequate reserve against potential future losses based upon the
current size and quality of the loan portfolio. Net charge-offs
were $1.1 million in the second quarter of 1997 compared to
$667,000 in 1996. The higher level of 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
increase somewhat over 1996 levels based on the current status of
the loan portfolio.
Total other income decreased slightly by $37,000, or 1.3%, in the
second quarter of 1997 compared to the same period of 1996.
Trust income, service fees and other income increased 4.5%, 17.3%
and 12.0%, respectively, while income from securities
transactions declined $372,000. The growth in fee based income
has primarily resulted from an increased account base due to
recent mergers and organic growth in trust assets under
management. Management anticipates these trends to continue
throughout the remainder of 1997.
Total other expenses declined $2.0 million, or 14.6%, in the
second quarter of 1997 compared to the same period of 1996. Most
of the decline was due to nonrecurring reorganization costs of
$1.2 million paid in the second quarter of 1996 associated with
the Moxham acquisition. Excluding these one-time charges, total
other expenses declined $763,000, or 6.1%. Ongoing cost
containment initiatives and synergies resulting from the Moxham
merger have largely been responsible for the broad-based expense
reductions experienced in 1997. Salaries decreased 3.1% while
employee benefit costs declined 25.5%, mainly due to lower
pension and hospitalization expense. Net occupancy expense
declined 10.6% primarily as a result of seven branch closings in
the third quarter of 1996 associated with the Moxham merger.
Equipment expense increased 20.2% due to higher depreciation
levels associated with BT's recent technological expenditures.
FDIC insurance expense declined 50.4% due to lower deposit
insurance premiums. Other operating expense declined 9.0% and
BT's efficiency ratio improved in the second quarter of 1997 to
slightly under 60%. BT's upcoming bank charter consolidation is
anticipated to result in various efficiencies in areas such as
data processing, accounting and other back-office functions as
the transition from three banks merging into one bank is
accomplished. Less regulatory burden and an enhanced future
capacity for growth are also expected to occur under the single
bank charger. Marketing and advertising are also likely to
benefit as the economies of scale of one bank are realized in
various media campaigns throughout previously separate,
overlapping bank market areas.
12
BT's effective tax rate of 33.8% for the second quarter of 1997
remained fairly stable compared to 33.9% for the same period of
1996.
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Net income for the first six months of 1997 was $8.3 million, or
$1.46 per share on a fully diluted basis compared to $6.7
million, or $1.23 per share for the same period of 1996 which
included nonrecurring reorganization costs associated with the
Moxham merger. These results reflect a strong net income
increase of 22.7% and an income per share boost of 18.7%. Steady
growth in net interest income and total other income along with
lower expense levels offset an increase in the provision for loan
losses.
For the first six months of 1997, the annualized return on
average assets was 1.11%, compared to .93% in 1996. The
annualized return on average shareholders' equity for the first
six months of 1997 and 1996 was 12.00% and 10.81%, respectively.
Fully taxable equivalent net interest income was $33.0 million
for the first six months of 1997, compared to $31.9 million for
the same period of 1996. The increase of $1.1 million was due
primarily to a higher level of interest-earning assets resulting
from recent acquisitions as well as internal loan growth. The
net interest margin, on a fully taxable equivalent basis,
improved 4 basis points to 4.82% in 1997, compared to 4.78% in
the first six months of 1996. Management expects some compression of
the net interest margin in the third quarter of 1997 based on
current market rates and current balance sheet composition.
The provision for loan losses increased $1,282,000 in the first
six 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 $2,087,000 in 1997 compared to $1,384,000 in the first six
months of 1996. Net loans charged-off to average loans, net of
unearned interest, increased to .40% from .27% on an annualized
basis for the first six months of 1997 and 1996, respectively.
The higher level of net charge-offs in 1997 is primarily related
to a higher level of credit losses associated with various
commercial loans. Consumer loan charge-offs in 1997 were
consistent with 1996 levels.
Total other income increased $262,000, or 4.8%, in the first six
months of 1997 compared to 1996. Trust income increased
$137,000, or 9.8%, commensurate with a greater volume of assets
under management. Service fees grew $536,000, or 16.9%,
primarily resulting from higher levels of deposit account fees.
Securities transactions income and other income decreased
$262,000 and $149,000, respectively. Other income was lower in
1997 mainly due to gains totaling $270,000 realized in 1996
related to the sale of real estate at Laurel and the sale of the
Salem 22 office of the former Moxham Bank. The decrease was
mitigated by a gain of $121,000 related to the sale of another
real estate property in the first quarter of 1997.
Total other expenses declined $2.4 million, or 9.3%, in the first
six months of 1997 compared to the same period of 1996. The
majority of the decrease was due to $1.3 million of nonrecurring
reorganization costs associated with the Moxham merger paid in
1996. Salaries and wages declined 3.6% while full-time
equivalent employees rose to 773 from 756 primarily due to the
inclusion of 16 employees from the branch acquisitions of
National City on June 6, 1997. Employee benefit costs decreased
21.0% mainly due to lower hospitalization expense. Occupancy
expense declined 11.9% commensurate with the closure of seven
branch offices in the third quarter of 1996. These branches were
closed due to duplicate service areas created as a result of the
Moxham merger. Equipment expense increased 21.1% mainly due to
13
higher costs associated with BT's ongoing technology investments.
FDIC insurance expense declined 50.6% due to lower deposit
insurance premiums. Other operating expense increased 3.1% while
BT's efficiency ratio, exclusive of nonrecurring costs, improved
to 60% in the first six months of 1997 from 66% in 1996. The
improvement in the efficiency ratio reflects various cost savings
related to branch closings, reduced staffing, and various
operations consolidation activities resulting from the Moxham
acquisition. BT's pending bank charter consolidation, scheduled
for adoption in the fourth quarter of 1997, is should provide
future additional efficiencies by allowing BT to leverage
its technology investments while streamlining BT's product
mix as a means to curtail unit costs and allow for
standardization throughout the branch network.
BT's effective tax rate was 34.4% for the first six 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 4
------
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of BT Financial Corporation was held on
Tuesday, May 13, 1997, at the Holiday Inn-Downtown Johnstown, 250
Market Street, Johnstown, Pennsylvania. The following directors
were elected:
Name Votes For Votes Witheld Term Expires
- ---- -------------- ---------------- ------------
G. Scott Baton, II 4,469,560.4657 267,535.1487 1998
Thomas A. Young 4,442,013.3274 295,082.2870 1999
John C. Cwik 4,425,881.2349 311,214.3795 2000
William B. Kania 4,479,537.5814 257,558.0330 2001
Robert G. Salathe, Jr. 4,477,096.5814 259,999.0330 2001
William R. Snoddy 4,480,615.1374 256,480.4770 2001
W. A. Thomas 4,431,519.6152 305,575.9992 2001
At the same meeting, the proposal to amend the Amended and
Restated Articles of Incorporation to increase the authorized
common stock of the Corporation from 10,000,000 shares to a total
of 25,000,000 shares was voted as follows:
Shares voted FOR the proposal 4,071,844.6834
Shares voted AGAINST the proposal 496,739.5717
Shares ABSTAINED 169,511.3593
Accordingly, on June 4, 1997, BT filed the appropriate Articles
of Amendment with the Department of State (Pennsylvania) to
increase the authorized common stock of the Corporation to
25,000,000 shares.
ITEM 6
------
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 3.3 1997 Amendment to the Amended and Restated
Articles of Incorporation of BT Financial
Corporation
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 August 14, 1997 /s/ John H. Anderson
--------------- --------------------------
John H. Anderson,
Chairman and Chief Executive
Officer
Date August 14, 1997
--------------- /s/ Mark L. Sollenberger
----------------------------
Mark L. Sollenberger,
Executive Vice President,
Treasurer,
and Assistant Secretary
(Principal Financial Officer)
16
EXHIBIT 3.3
BT FINANCIAL CORPORATION
Amendment to the Articles of
Incorporation Adopted by the Shareholders
The nature of the amendment is:
"5. The amount of authorized capital stock of the
corporation is twenty-seven million (27,000,000) shares
divided into classes as follows:
(a) Two million (2,000,000) shares of Preferred
Stock without par value. The Board of Directors shall
have authority to create and authorize the issuance of
one or more series of Preferred Stock, not to exceed an
aggregate of two million (2,000,000) shares, without
par value, with full, limited, multiple or fractional,
or no voting rights, and to fix by resolution the
designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights,
redemption rights and other special rights, if any,
applicable to any such series.
(b) Twenty-five million (25,000,000) shares of
Common Stock of the par value of $5.00 per share."
EXHIBIT 11
BT FINANCIAL CORPORATION AND AFFILIATES
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
Three months ended Six months ended
June 30 June 30
1997 1996 1997 1996
--------------------------------------------
(In thousands, except shares
and per share data)
Primary income per share:
Net income $ 4,194 $ 2,978 $ 8,276 $ 6,743
Preferred dividends 0 26 0 54
--------------------------------------------
Net income applicable to
common stock $ 4,194 $ 2,952 $ 8,276 $ 6,689
--------------------------------------------
Average common shares
outstanding and common stock
equivalents 5,682,215 5,400,527 5,682,215 5,376,068
============================================
Net income per share-primary $ .74 $ .55 $ 1.46 $ 1.24
Fully diluted income per share:
Net income $ 4,194 $ 2,978 $ 8,276 $ 6,743
=============================================
Average common shares
outstanding and common stock
equivalents 5,682,215 5,400,527 5,682,215 5,376,068
Additional common shares
assuming:
Conversion of preferred
stock Series A 0 92,052 0 94,729
----------------------------------------------
Average common shares
outstanding and common stock
equivalents 5,682,215 5,492,579 5,682,215 5,470,797
==============================================
Net income per share-fully
diluted $ .74 $ .54 $ 1.46 $ 1.23
==============================================
Note: Share and per share data have been adjusted to reflect the 10%
stock dividend distributed on October 22, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 55,983
<INT-BEARING-DEPOSITS> 277
<FED-FUNDS-SOLD> 10,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 150,731
<INVESTMENTS-CARRYING> 189,328
<INVESTMENTS-MARKET> 189,809
<LOANS> 1,141,052
<ALLOWANCE> 9,684
<TOTAL-ASSETS> 1,552,889
<DEPOSITS> 1,348,962
<SHORT-TERM> 38,932
<LIABILITIES-OTHER> 8,751
<LONG-TERM> 15,773
0
0
<COMMON> 28,411
<OTHER-SE> 112,060
<TOTAL-LIABILITIES-AND-EQUITY> 1,552,889
<INTEREST-LOAN> 44,397
<INTEREST-INVEST> 10,376
<INTEREST-OTHER> 269
<INTEREST-TOTAL> 55,042
<INTEREST-DEPOSIT> 21,138
<INTEREST-EXPENSE> 22,775
<INTEREST-INCOME-NET> 32,267
<LOAN-LOSSES> 2,090
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 23,283
<INCOME-PRETAX> 12,613
<INCOME-PRE-EXTRAORDINARY> 12,613
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,276
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 4.82
<LOANS-NON> 8,835
<LOANS-PAST> 477
<LOANS-TROUBLED> 316
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,681
<CHARGE-OFFS> 2,279
<RECOVERIES> 192
<ALLOWANCE-CLOSE> 9,684
<ALLOWANCE-DOMESTIC> 9,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
