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: March 31, 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
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(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
--- ---
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 May 5, 1997
BT FINANCIAL CORPORATION AND AFFILIATES
FORM 10-Q
March 31, 1997
Part I. Financial Information Page No.
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Item 1.
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Consolidated Balance Sheet - March 31, 1997
and December 31, 1996 3
Consolidated Statement of Income
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 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 5.
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Other Information 12
Item 6.
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Exhibits and Reports 12
Signatures 13
ITEM 1
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FINANCIAL STATEMENTS
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BT FINANCIAL CORPORATION AND AFFILIATES
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CONSOLIDATED BALANCE SHEET
--------------------------
(In thousands, except share data)
March 31 December 31
1997 1996
(Unaudited)
---------------------------------
ASSETS
Cash and Cash equivalents $ 50,827 $ 65,305
Money market investments:
Interest-bearing deposits with banks 127 334
Federal funds sold --- 10,100
---------------------------------
Total money market investments 127 10,434
---------------------------------
Securities available-for-sale 181,696 204,707
Securities held-to-maturity (market value
of $135,152 at March 31, 1997 and
$98,238 at December 31, 1996) 136,400 97,685
---------------------------------
Total securities 318,096 302,392
---------------------------------
Loans 1,111,888 1,082,674
Less: Unearned interest 59,436 56,909
Reserve for loan losses 9,698 9,681
---------------------------------
Net loans 1,042,754 1,016,084
Premises and equipment 31,177 31,634
Accrued interest receivable 9,881 8,706
Other assets 31,798 31,753
---------------------------------
Total assets $ 1,484,660 $ 1,466,308
=================================
LIABILITIES
Deposits:
Non-interest-bearing $ 160,609 $ 161,981
Interest-bearing 1,104,808 1,101,747
---------------------------------
Total deposits 1,265,417 1,263,728
Federal funds purchased and securities sold
under agreements to repurchase 49,675 36,678
Short-term borrowings 4,841 4,010
Accrued interest payable 6,649 5,098
Other liabilities 4,125 3,097
Long-term debt 16,492 17,210
---------------------------------
Total liabilities 1,347,199 1,329,821
---------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value
2,000,000 shares authorized,
None outstanding --- ---
Common stock, par value $5 per share,
10,000,000 shares authorized,
shares issued: 5,682,215 28,411 28,411
Surplus 55,729 55,729
Retained earnings 53,784 51,577
Net unrealized holding gains (losses) on
securities available-for-sale (463) 770
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Total shareholders' equity 137,461 136,487
------------------------------
Total liabilities and
shareholders' equity $ 1,484,660 $ 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
March 31
1997 1996
----------------------
INTEREST INCOME
Loans, including fees $ 21,833 $ 21,807
Investment securities:
Taxable 4,780 4,388
Tax-exempt 131 148
Deposits with banks 6 22
Federal funds sold 161 309
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TOTAL INTEREST INCOME 26,911 26,674
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INTEREST EXPENSE
Deposits 10,315 10,554
Federal funds purchased
and securities sold under
agreements to repurchase 267 339
Short-term borrowings 39 33
Long-term debt 285 330
-----------------------
TOTAL INTEREST EXPENSE 10,906 11,256
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NET INTEREST INCOME 16,005 15,418
Provision for loan losses 1,045 412
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 14,960 15,006
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OTHER INCOME
Trust income 746 643
Fees for other services 1,806 1,551
Net security gains (losses) 95 (15)
Other income 268 437
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TOTAL OTHER INCOME 2,915 2,616
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OTHER EXPENSES
Salaries and wages 4,972 5,184
Pension and other
employee benefits 894 1,069
Net occupancy expense 1,063 1,224
Equipment expense 1,086 889
F.D.I.C. insurance 66 134
Amortization of intangible
assets 467 467
Reorganization expense --- 77
Other operating expense 3,048 2,934
----------------------
TOTAL OTHER EXPENSES 11,596 11,978
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INCOME BEFORE INCOME TAXES 6,279 5,644
Provision for income taxes 2,197 1,879
----------------------
NET INCOME $ 4,082 $ 3,765
======================
EARNINGS PER SHARE
Primary:
Net Income per share $ .72 $ .70
Weighted average shares
outstanding 5,682,215 5,351,610
Fully Diluted:
Net income per share $ .72 $ .69
Weighted average shares
outstanding 5,682,215 5,449,015
DIVIDENDS PAID PER COMMON SHARE $ .33 $ .26
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)
Three months ended
March 31
1997 1996
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 4,082 $ 3,765
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses............ 1,045 412
Provision for depreciation and
amortization.................... 986 909
Amortization of intangible assets.... 467 467
Amortization of premium, net of
accretion of discount on loans and
securities..................... (37) 153
Deferred income taxes............... (162) 16
Realized securities (gains) losses.. (95) 15
Increase in interest receivable..... (1,175) (464)
Increase (decrease) in interest
payable........................ 1,551 (359)
Equity in loss of limited partnerships 38 38
Other assets and liabilities, net.. 1,418 487
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Net cash provided by operating
activities 8,118 5,439
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities...... 5,612 4,497
Repayments and maturities of securities
available-for-sale.................. 15,613 36,469
Repayments and maturities of securities
held-to-maturity.................... 2,300 ---
Purchases of securities available-for-
sale................................ --- (5,115)
Purchase of securities held-to-maturity (41,005) (15,000)
Net decrease (increase) in money market
investments......................... 10,307 (25,637)
Proceeds from sales of loans........... 2,225 2,014
Net increase in loans.................. (29,902) (4,335)
Purchases of premises and equipment
and other........................... (529) (1,580)
Investment in limited partnership........ (141) (140)
-----------------------
Net cash used in investing
activities (35,520) (8,827)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.............. 1,689 5,301
Net increase (decrease) in Federal
Funds purchased and securities sold
under agreements to repurchase...... 12,997 (11,991)
Net increase in short-term
borrowings.......................... 831 2,352
Preferred stock cash dividends paid.... --- (28)
Common stock cash dividends paid....... (1,875) (1,369)
Payment on long-term debt.............. (718) (718)
-----------------------
Net cash provided by (used in)
financing activities 12,924 (6,453)
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Decrease in cash and cash equivalents.. (14,478) (9,841)
Cash and cash equivalents at beginning
of the year......................... 65,305 59,043
-----------------------
Cash and cash equivalents at end of
period.............................. $ 50,827 $ 49,202
=======================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest on deposits and other
borrowings....................... $ 9,355 $ 11,630
Federal income taxes................ 703 21
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. The consolidated financial statements have
been restated for periods prior to June 30, 1996 to reflect the merger
with Moxham Bank Corporation, a pooling-of-interests transaction
consummated on June 25, 1996. These statements should be read in
conjunction with the financial statements and the notes thereto
included in BT's annual report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1996. The
results of operations for the three month period ended March 31, 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. Allowance for credit 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. When conducting loan
evaluations, management considers various factors such as historical
loan performance, the financial condition of the debtor and collateral
adequacy to determine when a loan is impaired. Recurring shortfalls or
delays in payments and/or extended delinquency periods may provide
evidence that a delay or shortfall is significant enough to warrant a
review of the loan for impairment. Generally, the minimum period with-
out payment that typically can occur before a loan is considered for
impairment is 90 days. The measurement of impaired loans is generally
based on the present value of expected future cash flows discounted at
the historical effective interest rate, except that all collateral-
dependent loans are 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 pro-
vision 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 $250,000. The
aggregation of these loans is based upon common risk characteristics
such as, among other factors, loan type; geographic or industry risk
concentrations; whether the loans have similar terms, such as interest
and principal repayment terms; levels and types of collateral; and
external credit ratings or internal risk ratings for the particular
loans.
The adequacy of the allowance for credit losses is periodically evaluated
by the Corporation in order to maintain the allowance at a level that is
sufficient to absorb probable credit losses. Management's evaluation of the
6
adequacy of the allowance is based on a review of the Corporation's
historical loss experience, known and inherent risks in the loan portfolio,
including adverse circumstances that may affect the ability of the borrower
to repay interest and/or principal, the estimated value of collateral, and
an analysis of the levels and trends of delinquencies, charge-offs, and the
risk ratings of the various loan categories.
At March 31, 1997, the recorded investment in loans for which impairment has
been recognized in accordance with FASB 114 totalled $3.4 million, with a
corresponding valuation allowance of $1.7 million. All of the impaired
loans at March 31, 1997, are collateral-dependent loans measured for
impairment based on the fair value of the collateral securing the loan.
The Corporation does not have any impaired loans for which there is not a
related valuation allowance.
For the quarter ended March 31, 1997, the average recorded investment in
impaired loans was $3.7 million. The allowance for loan losses related to
impaired loans increased $170,000 during the first quarter of 1997. The
increase was mainly due to a higher allowance associated with one commercial
borrower.
Income recognition on impaired and nonaccrual loans -- Commercial loans and
residential mortgages, including impaired loans, are generally classified as
nonaccrual if they are past due as to maturity or payment of principal
or interest for a period of more than 90 days. Consumer loans are generally
placed on nonaccrual status when they become 120 days past due. Loans may
also be classified as impaired or nonaccrual if repayment in full of prin-
cipal and/or interest is in doubt at any time, regardless of payment status.
Impaired loans are generally nonaccrual loans, however, the ultimate
determination of an impaired loan is based on the aforementioned
factors without regard solely to nonaccrual classification.
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.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal
are generally recorded as a reduction to principal outstanding. When the
future collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis. BT recognized approximately $5,000
of interest revenue on impaired loans during the first quarter of 1997, all
of which was recognized using the cash basis method of income recognition.
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 consis-
tent 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.
In December of 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
7
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 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.
5. Pending Branch Acquisitions
---------------------------
On January 30, 1997, Bank and Trust, BT's largest banking affiliate, entered
into an agreement in principle to purchase 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 will include the deposits, loans and fixed assets
of all three branches which will be merged into Bank and Trust. The combined
deposit, loan and fixed asset totals for the three offices were approximately
$71 million, $6 million and $380,000, respectively, at March 31, 1997.
The agreement is subject to completion of due diligence and regulatory
approvals. The sale is expected to be completed during June of 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.
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 coun-
sel. 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.
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 March 31, 1997, and the
material changes in results of operations comparing the three month period
ending March 31, 1997 with the respective results for the comparable period 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.
All financial data as of March 31, 1996, except market value per share, has
been restated giving effect to the merger between BT Financial Corporation
(BT) and Moxham Bank Corporation (Moxham) which occurred on June 25, 1996
and was accounted for as a pooling-of-interests.
Certain information contained in this report may be considered "forward-
looking" information. Refer to BT's Annual Report on Form 10-K for the year
ended December 31, 1996 for a discussion of factors that may affect such
forward-looking information.
FINANCIAL REVIEW
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CHANGES IN FINANCIAL POSITION
Total assets at March 31, 1997 increased $18.4 million, or 1.3%, and $46.0
million, or 3.2%, compared to year-end 1996 and March 31, 1996, respectively.
The balance sheet increase over year-end 1996 reflects organic growth primarily
due to higher loan levels. The year-over-year increase is mainly attributable
to the purchase acquisition of The Armstrong County Trust Company (Armstrong)
in which assets totalling approximately $50 million were acquired at the
June 13, 1996 acquisition date.
Period end total loans outstanding, net of unearned interest, increased $26.7
million, or 2.6%, and $39.6 million, or 3.9%, compared to year-end 1996 and
March 31, 1996, respectively. The increase in loans over both periods is
primarily due to internal growth in both commercial and consumer loans.
Competitive loan rates translated into higher demand for BT's loan products in
1997. BT's indirect automobile portfolio experienced significant increases in
the first quarter with the trend likely to continue in the second quarter of
1997. Various loans acquired in the acquisition of Armstrong in June, 1996
totalled approximately $12 million at the acquisition date and contributed to
the increase in loans comparing March 31, 1997 to March 31, 1996.
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. At March 31, 1997,
nonperforming loans decreased $1.3 million, or 10.2%, while increasing $2.2
million, or 23.8%, compared to year-end 1996 and March 31, 1996, respectively.
The year-over-year increase in nonperforming loans is primarily attributable
to higher levels of nonperforming commercial and consumer mortgage loans. The
decrease in nonperforming loans from year-end levels resulted from management's
implementation of several strategies in 1996 and 1997 including increased
collection efforts, debt rewriting, and credit counseling activities.
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,
specific conditions of the borrower and general economic conditions. The BT
Credit and Collection functions continuously monitor and assess credit quality
to minimize exposure to potential future credit losses. The following table
provides information with respect to the components of BT's nonperforming assets
9
and related ratios for the periods indicated.
March 31 December 31 March 31
(In thousands) 1997 1996 1996
------------------------------------------
Loans 90 days or more past-due $ 561 $ 961 $ 476
Restructured loans 317 317 318
Nonaccrual loans 10,395 11,276 8,310
------------------------------------------
Total nonperforming loans 11,273 12,554 9,104
Other real estate owned 553 1,023 886
Repossessed assets 1,176 851 1,120
------------------------------------------
Total nonperforming assets $ 13,002 $ 14,428 $ 11,110
==========================================
Nonperforming loans as a % of
loans, net of unearned interest 1.07% 1.22% .90%
Reserve for loan losses to
nonperforming loans .9x .8x 1.1x
Reserve for loan losses as a % of
loans, net of unearned interest .92% .94% .96%
Securities, consisting primarily of U.S. Treasury and other U.S. Government
agencies, increased $15.7 million, or 5.2%, compared to year-end 1996 and
$37.9 million, or 13.5%, compared to March 31, 1996. The increases were
offset by declines in money market investments of $10.3 million and $37.2
million for the same periods, respectively, primarily due to the redeployment
of these funds into higher yielding securities and to fund loan demand.
Period end deposits increased $1.7 million, or 0.1%, and $6.9 million, or .5%,
compared to year-end 1996 and March 31, 1996, respectively. The deposit levels
at March 31, 1996 included approximately $8.0 million which were subsequently
sold in the second quarter of 1996 in connection with the sale of the Salem 22
office of the former Moxham Bank. The year-over-year increase, exclusive of the
Salem 22 office deposits, was approximately $14.9 million, or 1.2%. The
increase is primarily due to deposits acquired in the Armstrong acquisition.
The pending acquisition of three bank branch locations from National City Bank
of Pennsylvania will add approximately $71 million to deposits in June of
1997.
Borrowed funds (federal funds purchased and securities sold under agreements to
repurchase) levels increased $13.0 million and $26.4 million compared to year-
end 1996 and March 31, 1996, respectively. The increases were experienced due
to the funding needs associated with BT's loan growth over the same periods and
various securities acquired in 1997 due to favorable market conditions in
anticipation of funding to be provided by the pending acquisition of three
branches from National City Bank of Pennsylvania.
RESULTS OF OPERATIONS
A ten percent stock dividend was distributed on October 22, 1996, to
shareholders of record September 20, 1996. All per share data in the following
discussions has been adjusted to reflect the stock dividend.
First Quarter 1997 vs. First Quarter 1996
For the first quarter of 1997, BT produced net income of $4.1 million, or $.72
per fully diluted share, compared to $3.8 million, or $.69 per share, for the
same period of 1996. These results reflect year-over-year net income growth of
8.4% and an earnings per share increase of 4.3%. Higher levels of net interest
income and total other income along with lower total other expenses offset
an increase in the provision for loan losses.
The annualized return on average assets for the first quarters of 1997 and 1996
was 1.12% and 1.05%, respectively. The annualized return on average
shareholders' equity was 11.90% in 1997 and 12.16% in 1996.
10
Fully taxable equivalent net interest income was $16.4 million for the first
quarter of 1997, compared to $15.8 million for the same period of 1996. The
increase was due to a $20.6 million, or 1.5% rise in average earning assets and
a 15 basis point improvement in the net interest margin to 4.91%. Growth in
commercial loans represented most of the increase in average earning assets.
Effective asset/liability management enabled BT to realize overall higher
yields earned on interest-earning assets along with lower rates paid on inter-
est-bearing liabilities resulting in the improved net interest margin. BT is
anticipating a fairly stable net interest margin level in the second quarter of
1997 based on current balance sheet composition and current market rates. The
pending acquisition of three branches from National City Bank of Pennsylvania
will garner additional net interest income, however, compression of the net
interest margin is anticipated due to the pricing traits of the acquired
asset/liability mix.
The provision for loan losses increased $633,000 for the first quarter 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 $1.0 million and $717,000 for the first quarters of
1997 and 1996, respectively. The increase in net charge-offs is primarily
related to a higher level of credit losses associated with various commercial
loans. The higher levels of nonperforming loans initially experienced in 1996
have contributed to the increased provision level and related increase in net
charge-offs in the first quarter of 1997. In the near-term, management is
currently anticipating the level of net charge-offs and the provision to be
somewhat higher than historical levels due primarily to the nontraditional
higher nonperforming loan levels.
Total other income increased $299,000, or 11.4% in the first quarter of 1997
compared to the same period of 1996. Trust income increased $103,000, or 16.0%,
commensurate with a greater volume of assets under management. Service
fees grew $255,000, or 16.4%, primarily resulting from higher levels of
deposit account fees. Securities transactions income increased $110,000 due
to the sale of various noncallable securities. Other income decreased $169,000
mainly due to gains of $270,000 realized in the first quarter of 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 an other real estate owned property in the first quarter of 1997.
Total other expenses declined $382,000, or 3.2%, in the first quarter of 1997
compared to the same period of 1996. Salaries and wages declined 4.1% reflect-
ing the year-over-year decrease of full time equivalent employees to 759 from
804. Employee benefit costs decreased 16.4% mainly due to lower hospitaliza-
tion expense. Occupancy expense declined 13.2% 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 22.2% mainly due to higher costs associated with
BT's ongoing technology investments. FDIC insurance expense declined 50.7% due
to lower deposit insurance premiums. Nonrecurring reorganization expense of
$77,000 was incurred in the first quarter of 1996 in connection with costs
associated with the Moxham merger. Other operating expense increased 3.9%
while BT's first quarter efficiency ratio, exclusive of nonrecurring expense,
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, and various operations consolidation activities resulting from the
Moxham acquisition. 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 charter
consolidation should garner future 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 its branch network.
BT's effective tax rate was 35.0% for the first quarter of 1997 compared to
33.3% for the same period in 1996. The increase is primarily due to a
lower effective tax rate applicable to Moxham in 1996 prior to the merger with
BT.
11
PART II
-----------
OTHER INFORMATION
-----------------
ITEM 5
----------
OTHER INFORMATION
-----------------
The information contained in footnote 5 to the Consolidated Balance Sheet
included in Part 1 of this report on Form 10-Q is incorporated by reference
in response to this item.
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.
12
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 May 14, 1997 /s/ John H. Anderson
------------------ ----------------------------
John H. Anderson, Chairman
and Chief Executive Officer
Date May 14, 1997 /s/ Mark L. Sollenberger
------------------ -------------------------------
Mark L. Sollenberger, Executive
Vice President, Treasurer and
Assistant Secretary
(Principal Financial Officer)
13
EXHIBIT 11
BT FINANCIAL CORPORATION AND AFFILIATES
COMPUTATION OF NET INCOME PER SHARE
Three months ended
March 31
1997 1996
------------------------
(In thousands, except
shares and per share
data)
Primary income per
share:
Net income $ 4,082 $ 3,765
Preferred
dividends 0 28
-------------------------
Net income
applicable to
common stock $ 4,082 $ 3,737
=========================
Average common
shares
outstanding
and common
stock
equivalents 5,682,215 5,351,610
=========================
Net income per
share-primary $ .72 $ .70
=========================
Fully diluted income
per share:
Net income $ 4,082 $ 3,765
=========================
Average common
shares
outstanding
and common
stock
equivalents 5,682,215 5,351,610
Additional common
shares assuming:
Conversion
of preferred
stock Series A 0 97,405
-------------------------
Average common
shares
outstanding
and common
stock
equivalents 5,682,215 5,449,015
=========================
Net income per
share-fully
diluted. $ .72 $ .69
=========================
Note: Share and per share data have been adjusted to reflect
the 10% stock dividend distributed on October 22, 1996.
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0
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