SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 0-12377
----------------- -------
BT FINANCIAL CORPORATION
-----------------------------------------------------
(Exact Name of registrant as specified in its charter)
Pennsylvania 25-1441348
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
551 Main Street, Johnstown, Pennsylvania 15901
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 814-532-3801
------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $5.00 per share Preferred Share Purchase Rights
- --------------------------------------- --------------------
(Title of class) (Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The Registrant estimates that as of March 17, 1998, the aggregate
market value of shares of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $310,961,335
computed on the basis of $53.00 per share, the closing sales price on
the NASDAQ Stock Market on March 17, 1998. The number of shares
owned by "non-affiliates" has been determined, solely for
purposes of the foregoing estimate, by subtracting all shares
known by the Registrant to be beneficially owned by its directors
or executive officers (383,241 shares in total) from the number
of shares outstanding (6,250,436).
As of March 17, 1998, the registrant had outstanding 6,250,436
shares of its Common Stock.
Documents incorporated by reference: Incorporated into:
- ------------------------------------ ------------------
1997 Annual Report to Shareholders Part I and II
(the "1997 Annual Report")
Definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders (the "1998 Proxy Statement") Part III
BT FINANCIAL CORPORATION
FORM 10-K
Fiscal year ended December 31, 1997
-----------------------------------
INDEX
PART I Page
- ------ ----
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
Executive Officers of the Registrant 7
PART II
- -------
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
Part III
- --------
Item 10. Directors and Executive Officers of the
Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 11
Item 13. Certain Relationships and Related
Transactions 11
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 16
2
Part I
Item 1 Business
- ------ --------
Description of Business
- -----------------------
BT Financial Corporation ("BT" or the "Registrant") is a
bank holding company located in Johnstown, Pennsylvania,
which was incorporated under the laws of the Commonwealth of
Pennsylvania on December 16, 1982.
At the close of business, October 10, 1997, BT adopted a
single bank charter for its three affiliate banks. Laurel Bank
and Fayette Bank ("Fayette") merged with and into Johnstown Bank
and Trust Company ("Bank and Trust"). At the same time, the
corporate title of Bank and Trust was changed to Laurel Bank.
Additionally, 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.
BT's single banking subsidiary, Laurel Bank ("Laurel"), is
headquartered in Johnstown, Pennsylvania. BT has three non-bank
subsidiaries, Bedford Associates, Inc., which holds and leases
property used by Laurel in its banking operations, Laurel Trust
Company, a trust company which provides trust and investment
services, and Laurel Community Development Corporation, a
corporation which conducts community development activities. At
December 31, 1997 the Registrant had total assets of $1.6
billion.
On June 25, 1996, BT completed a merger with Moxham Bank
Corporation (Moxham) whereby Moxham was merged directly into BT.
In connection with the merger, each share of Moxham common stock
(other than shares held by BT) was converted into 1.15 shares
of BT common stock, resulting in the issuance of 1,038,519
shares of BT Common Stock. In addition, 88,550 shares of BT
common stock were exchanged for all 14,000 outstanding shares of
Moxham Series A $8.00 cumulative convertible non-voting preferred
stock. The merger has been accounted for as a pooling-of-
interests and accordingly BT's consolidated financial statements
have been restated retroactively to include the accounts and
operations of Moxham for all periods prior to the merger.
Moxham's banking subsidiaries included the Moxham National Bank
and The First National Bank of Garrett. Moxham also held
the Moxham Community Development Corporation. Upon
consummation of the merger, Moxham's banking subsidiaries
were merged into Bank and Trust on June 25, 1996.
At the time of the merger, Moxham had assets of approximately
$235 million and operated 12 branches in Cambria, Somerset, and
Westmoreland counties.
3
Laurel Bank conducts business through a network of 72 full-
service offices located throughout southwestern Pennsylvania.
Laurel operates under the management of its own officers and
directors, although certain financial and administrative
functions, including auditing, marketing, human resources,
investment, accounting, data processing and credit review, are
coordinated through the Registrant. In addition, Laurel operates
53 automated teller machines located on bank premises and off-
premise sites.
Laurel Bank is engaged in the business of commercial and
retail banking. Laurel provides a full range of financial
services to individuals, businesses and governmental bodies,
including accepting demand, savings and time deposits, safe
deposit facilities, electronic banking services, debit cards,
money transfer services, and other banking services. Laurel also
offers lending services, including consumer, real estate,
commercial and industrial loans. Laurel Trust Company offers a
wide range of corporate and personal trust services as well as
pension and fiduciary services.
Laurel Bank's predecessor, Bank and Trust, was formed in
1934 through the consolidation of five banks. It is a
Pennsylvania bank and trust company and member of the
Federal Reserve System with offices in Allegheny, Armstrong,
Bedford, Blair, Butler, Cambria, Fayette, Greene, Indiana,
Somerset, Washington, and Westmoreland Counties. At December 31,
1997, its assets totaled $1.5 billion.
Laurel Trust Company, formerly known as BT Management Trust
Company, is located in Johnstown, Pennsylvania. It is a
Pennsylvania-chartered trust company formed on April 30, 1990.
Laurel Trust Company resulted from the consolidation of the trust
business of Bank and Trust, the former Laurel Bank and Fayette.
Laurel Community Development Corporation, formerly known as
Moxham Community Development Corporation, was organized in 1992
to conduct community development activities. It is a for-profit
Pennsylvania corporation conducting activities consisting of
equity investments as a limited partner in various housing
developments.
Competition
- -----------
The business of commercial and retail banking and banking-
related services is highly competitive. The Registrant, Laurel
Bank and Laurel Trust Company are subject to competition in all
aspects of their businesses from banks as well as other financial
institutions, including savings and loan associations, savings
banks, finance companies, credit unions, money market mutual
funds, brokerage firms, investment companies, credit companies
and insurance companies. They also compete with nonfinancial
institutions, including retail stores that maintain their own
credit programs, and with governmental agencies that make loans
4
available to certain borrowers. Some of the Registrant's
competitors are larger and have greater financial resources and
facilities than the Registrant. The management of BT and its
subsidiaries regularly reviews its product mix, services, fee
structure, and locations in the evaluation of its competitive
position. Additionally, acquisition prospects are considered
periodically to maintain and strengthen BT's competitive
position.
Employees
- ---------
As of December 31, 1997, the Registrant, Laurel, Laurel
Trust Company and the Registrant's other subsidiaries had a total
of 787 full time equivalent banking and administrative employees.
Management considers its relationship with its employees to be
satisfactory. The Registrant's executive offices are located at
551 Main Street, P.O. Box 1146, Johnstown, Pennsylvania 15907-
1146. The telephone number is (814) 532-3801.
Supervision and Regulation
- --------------------------
BT is a bank holding company as defined in the Bank Holding
Company Act of 1956, as amended ("BHCA"). As such, BT is subject
to supervision and examination by the Board of Governors of the
Federal Reserve System ("FRB") and is required to file reports
with the FRB and provide such additional information as required
by the FRB. BT may not, without prior approval of the FRB,
acquire 5% or more of the voting shares of another bank. The
BHCA and the Federal Reserve Act place restrictions on
transactions between BT and its affiliates, including certain
restrictions relevant to intercompany loans, dividends, and
investments. BT, subject to approval of the FRB, may acquire (1)
banks throughout the United States, and (2) branches of
established banks throughout the United States, except in Texas
and Montana, which have opted out of interstate banking.
Satisfactory Community Reinvestment Act and capital ratios
ratings are generally required to obtain FRB approval of
acquisitions.
Laurel, as a state chartered bank, is subject to supervision,
periodic examination and regulations of the Pennsylvania
Department of Banking. Laurel, as an insured bank, is also
subject to regulation by the Federal Deposit Insurance
Corporation ("FDIC"). Laurel's deposits are insured by the FDIC
to the maximum amount legally permitted, currently $100,000.
Laurel is also a member of the Federal Reserve System and is
subject to regulations of the Board of Governors of the Federal
Reserve System.
BT and its subsidiaries are subject to examination at the
discretion of supervisory authorities. BT is under the
jurisdiction of the Securities and Exchange Commission ("SEC")
with respect to engaging in the offering and public sale and
distribution of its securities. BT is also subject to SEC rules
5
regarding insider trading, proxy statements and periodic
reporting to shareholders.
Recent and Pending Acquisitions
- -------------------------------
Merger and acquisition activities of the registrant are
detailed in "Note 3-Acquisitions" of the "Notes to Consolidated
Financial Statements" included on pages 20 and 21 of the 1997
Annual Report, which is incorporated herein by reference.
Item 2 Properties
- ------ ----------
The executive offices of the Registrant are located at 551
Main Street, Johnstown, Pennsylvania, in an office building owned
by Bedford Associates, Inc. The building is occupied by the
Registrant, Laurel Trust Company, and other unrelated business
concerns.
Laurel operates 72 full-service banking offices located
throughout southwestern Pennsylvania, 54 of which are owned by
Laurel free of liens and encumbrances. All properties and
buildings are in good condition and are continually maintained
against normal wear and tear. The remaining 18 offices are
operated under leases which, including renewal options, expire at
various times between 1998 and 2025. Bedford Associates,
Inc. owns 4 of the 18 leased properties, which are leased
to Laurel as community banking offices. On June 6, 1997, three
banking offices were purchased from National City Bank of
Pennsylvania.
Item 3 Legal Proceedings
- ------ -----------------
Information required to be furnished pursuant to this Item
is set forth on page 26 of the 1997 Annual Report in Note 11 of
the "Notes to Consolidated Financial Statements" under the
caption "Litigation" which is incorporated herein by reference.
Item 4 Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None.
6
Executive Officers of the Registrant
- ------------------------------------
Set forth below are the names of and certain information
with respect to the executive officers of the Registrant.
Pursuant to the Registrant's By-Laws, officers serve at the
pleasure of the Board. There are no family relationships
between any such persons.
Name Age Positions and Offices Held
---- --- --------------------------
John H. Anderson 47 Chairman, Chief Executive Officer
and Director of the Registrant and
of Laurel.
Steven C. Ackmann 46 President and Chief Operating Officer
of the Registrant.
Eric F. Rummel 45 Vice Chairman of the Registrant,
President of Laurel.
J. William Smith 50 Vice Chairman of the Registrant.
Mark L. Sollenberger 44 Executive Vice President,
Treasurer and Assistant Secretary
of the Registrant. Executive Vice
President and Treasurer of Laurel.
Treasurer and Assistant Secretary of
Laurel Trust Company.
Laura L. Roth 35 Corporate Secretary and Assistant
Treasurer of the Registrant,
Laurel and Laurel Trust Company.
Brian H. Lehman 43 Vice President and Controller ofthe
Registrant.
7
John H. Anderson has served as Chairman and Chief Executive Officer
----------------
of the Registrant since 1995. He served as Chairman, President and
Chief Executive Officer of the Registrant from 1993 to 1995. He
served as President and Chief Operating Officer of the Registrant
from 1992 to 1993 and as Vice Chairman from 1991 to 1992. He
served as President of Bank and Trust from 1990 to 1991. He
served as Executive Vice President of the Registrant during 1989.
From 1986 to 1989 he served as Executive Vice President of Bank
and Trust.
Steven C. Ackmann has served as President and Chief Operating
-------------------
Officer of the Registrant since 1995. He served as a Vice Chairman
of the Registrant from 1992 to 1995. He served as Executive Vice
President of the Registrant from 1990 to 1992. He served as
Senior Vice President of Fayette from 1988 to 1990.
Eric F. Rummel has served as Vice Chairman of the Registrant since
--------------
1996 and President of Laurel since 1997. He served as President of
Bank and Trust from 1995 to 1997. He served as President of the
former Laurel Bank from 1991 to 1995. He served as Executive
Vice President of the Registrant in 1991 and of Bank and Trust
from 1989 to 1991. He served as Senior Vice President of Bank
and Trust from 1988 to 1989.
J. William Smith has served as Vice Chairman of the Registrant
------------------
since 1996. He served as President and Chief Executive Officer of the
former Moxham Bank Corporation from 1986 to 1996.
Mark L. Sollenberger has served as Executive Vice President,
----------------------
Treasurer and Assistant Secretary of the Registrant since 1995
and Executive Vice President and Treasurer of Laurel since 1997. He
served as Executive Vice President and Treasurer of the
Registrant from 1992 to 1995 and of Bank and Trust from 1992 to
1997. He served as Senior Vice President and Comptroller of the
Registrant from 1991 to 1992. He has served as Treasurer and
Assistant Secretary of Laurel Trust Company since 1992.
Laura L. Roth has served as Corporate Secretary and Assistant
---------------
Treasurer of the Registrant and Laurel Trust Company since 1995 and of
Laurel since 1997. She served as Secretary and Assistant Treasurer of
Bank and Trust from 1995 to 1997. She served as Assistant Secretary and
Assistant Treasurer of the Registrant from 1991 to 1995. She served as
Assistant Secretary of the Registrant and of Bank and Trust from
1986 to 1991.
Brian H. Lehman has served as Vice President and Controller of the
---------------
Registrant and Laurel since 1997. Prior to that time he was a Special
Projects Director for Zamias Services, Inc. from 1996 to 1997 and
a Vice President for L. Robert Kimball and Associates, Inc. from
1989 to 1996. He has been a Certified Public Accountant since
1979.
8
Part II
Information required to be furnished pursuant to Part II of
this report is set forth in the 1997 Annual Report under the
captions and on the pages indicated below, and is incorporated
herein by reference.
Certain statements contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
constitute "forward-looking" statements with respect to the
Registrant 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 the Registrant and its subsidiaries to be materially different
from any future financial condition or results of operations
suggested or implied by such forward-looking statements. The
Registrant undertakes no obligation to update any forward-looking
statements made herein. The factors that may cause actual
results to differ materially from the forward-looking statements
include: interest rate, market and monetary fluctuations,
monetary and fiscal policies, changes in laws and regulations,
inflation, general economic conditions, competition and economic
conditions in the geographic region an industries in which the
Registrant conducts its operations, introduction and acceptance
of new products and enhancements, mergers and acquisitions and
their integration into the Registrant, and management's ability
to manage these and other risks.
Page in 1997
Caption in 1997 Annual Report Annual Report
----------------------------- -------------
Item 5 Market for the Registrant's Common
- ------ Equity and Related Stockholder Matters
--------------------------------------
Market Price and Cash Dividends 33
Dividend Restrictions 27
Two-for-One Stock Split
- -----------------------
On March 25, 1998, BT's Board of Directors declared a two-
for-one stock split in the form of a stock dividend to be
distributed on May 1, 1998 to shareholders of record as of April
8, 1998. The stock split will increase common shares outstanding
to 12,500,872 from 6,250,436. BT's earnings per share amounts
for the years ended December 31, 1997, 1996 and 1995, restated
for the two-for-one stock split, are presented below.
Years ended December 31, 1997 1996 1995
------------------------ ---- ---- ----
Basic earnings per share $1.37 $1.13 $1.10
Diluted earnings per share 1.37 1.12 1.09
Note: Data has been adjusted to reflect the 10% stock
dividends distributed on October 22, 1996 and September 15, 1997
and the two-for-one stock split to be distributed on May 1, 1998.
9
Page in 1997
Caption in 1997 Annual Report Annual Report
----------------------------- -------------
Item 6 Selected Financial Data
- ------ -----------------------
Selected Consolidated Financial Data 32
Item 7 Management's Discussion and Analysis
- ------ of Financial Condition and Results of
Operations
-------------------------------------
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 33-44
Item 8 Financial Statements and Supplementary Data
- ------ -------------------------------------------
Report of Independent Accountants 13
Consolidated Balance Sheet 14
Consolidated Statement of Income 15
Consolidated Statement of Cash Flows 16
Consolidated Statement of Changes
in Shareholders' Equity 17
Notes to Consolidated Financial Statements 18-30
Supplemental Financial Data 31
Item 9 Changes in and Disagreements with Accountants on
- ------ Accounting and Financial Disclosure
-----------------------------------
None
10
Part III
Item 10 Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
Information required to be furnished pursuant to
this Item regarding directors of the Registrant is set
forth in the 1998 Proxy Statement under the caption
"Election of Directors," and is incorporated herein by
reference. Information required to be furnished
pursuant to this Item regarding delinquent filers is
set forth in the 1998 Proxy Statement under the caption
"Compliance with Section 16 (a) of the Securities
Exchange Act of 1934," and is incorporated herein by
reference. Information required to be furnished
pursuant to this Item regarding executive officers of
the Registrant is set forth in Part I of this Report
and is incorporated herein by reference.
Item 11 Executive Compensation
- ------- ----------------------
Information required to be furnished pursuant to
this Item is set forth in the 1998 Proxy Statement
under the captions "Executive Compensation" and
"Election of Directors -- Directors' Compensation," and
is incorporated herein by reference. The "Executive
Committee Report on Compensation" set forth in the 1998
Proxy Statement is specifically not incorporated herein
by reference.
Item 12 Security Ownership of Certain
- ------- Beneficial Owners and Management
--------------------------------
Information required to be furnished pursuant to
this Item is set forth in the 1998 Proxy Statement
under the captions "Election of Directors," "Executive
Compensation" and "Stock Ownership" and is incorporated
herein by reference.
Item 13 Certain Relationships and Related Transactions
- ------- ----------------------------------------------
Information required to be furnished pursuant to
this Item is set forth in the 1998 Proxy Statement
under the caption "Certain Relationships and
Transactions" and is incorporated herein by reference.
11
Part IV
Item 14 Exhibits, Financial Statement
- ------- Schedules and Reports on Form 8-K
---------------------------------
(a) (1) Financial Statements
--------------------
The consolidated financial statements of BT
Financial Corporation and affiliates together with the
report of Coopers & Lybrand LLP dated January 28, 1998,
are described herein in Part II, Item 8 - Financial
Statements and Supplementary Data and appear on pages
14 through 31 of the 1997 Annual Report and are
incorporated herein by reference.
(2) Financial Statement Schedules
-----------------------------
All financial statement schedules are omitted
because they are not required, are not applicable or
the required information is given in the consolidated
financial statements or notes thereto.
(3) Exhibits:
--------
The index to exhibits is on page 16.
(b) Reports on Form 8-K:
-------------------
No reports on Form 8-K have been filed by the
Registrant during the quarter for which this report is
filed.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BT FINANCIAL CORPORATION
-------------------------
(Registrant)
By: /s/ John H. Anderson Date: March 25, 1998
----------------------------- ----------------
John H. Anderson
Chairman, and Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Principal Executive Officer:
/s/ John H. Anderson Date: March 25, 1998
----------------------------- ----------------
John H. Anderson
Chairman, and Chief Executive
Officer and Director
Principal Financial Officer:
/s/ Mark L. Sollenberger Date: March 25, 1998
----------------------------- ----------------
Mark L. Sollenberger
Executive Vice President,
Treasurer, and Assistant
Secretary
Principal Accounting Officer:
/s/ Brian H. Lehman Date: March 25, 1998
---------------------------- ----------------
Brian H. Lehman
Vice President and Controller
13
Directors:
/s/ G. Scott Baton II Date: March 25, 1998
- ------------------------------ ----------------
G. Scott Baton II
/s/ Martin L. Bearer Date: March 25, 1998
- ------------------------------ ----------------
Martin L. Bearer
Date: March 25, 1998
- ------------------------------ ----------------
John C. Cwik, M.D.
/s/ Louis G. Galliker Date: March 25, 1998
- ------------------------------ ----------------
Louis G. Galliker
/s/ William B. Kania Date: March 25, 1998
- ------------------------------ ----------------
William B. Kania
/s/ Edward L. Mears Date: March 25, 1998
- ------------------------------ ----------------
Edward L. Mears
/s/ Roger S. Nave Date: March 25, 1998
- ------------------------------ ----------------
Roger S. Nave
/s/ Ethel J. Otrosina Date: March 25, 1998
- ------------------------------ ----------------
Ethel J. Otrosina
Date: March 25, 1998
- ------------------------------ ----------------
Robert G. Salathe, Jr.
Date: March 25, 1998
- ------------------------------ ----------------
William R. Snoddy
/s/ Gerald W. Swatsworth Date: March 25, 1998
- ------------------------------ ----------------
Gerald W. Swatsworth
/s/ W. A. Thomas Date: March 25, 1998
- ------------------------------ ----------------
W. A. Thomas
14
/s/ Rowland H. Tibbott, Jr. Date: March 25, 1998
- ------------------------------ ----------------
Rowland H. Tibbott, Jr.
/s/ Thomas A. Young Date: March 25, 1998
- ------------------------------ ----------------
Thomas A. Young
15
EXHIBIT
INDEX
-----
The following Exhibits are filed as a part of this Report.
Documents other than those designated as being filed herewith are
incorporated herein by reference. Documents incorporated by
reference to an Annual Report on Form 10-K or a Quarterly Report
on Form 10-Q are at Securities and Exchange Commission File No. 0-
12377.
Prior Filing or
Exhibit Sequential Page
Number Description No. Herein
- ------- ----------- ---------------
2.1 Agreement and Plan of Incorporated by reference
Reorganization dated as to Exhibit 2.1 to BT
of October 24, 1995 by and Financial Corporation
among BT Financial Registration Statement on
Corporation, Johnstown Bank Form S-4 (No. 333-01797).
and Trust Company and The
Armstrong County Trust Company.
2.2 Agreement and Plan of Incorporated by reference
Reorganization by and to Exhibit 2 to current
between BT Financial Report on Form 8-K dated
Corporation and Moxham January 12, 1996.
Bank Corporation.
3.1 Amended and Restated Incorporated by reference
Articles of Incorporation to BT Financial Corporation
of BT Financial Registration Statement on
Corporation. Form S-4 (No. 33-69112).
3.2 By-Laws of BT Financial Incorporated by reference
Corporation. to BT Financial Corporation
Registration Statement on
Form S-4 (No. 33-69112).
4.1 Loan Agreement dated Not filed. In accordance
December 14, 1995, between with paragraph (b)(4)(iii)(A)
Mellon Bank, N.A. and BT of Item 601 of Regulation S-K,
Financial Corporation. BT Financial Corporation hereby
agrees to furnish a copy of this
instrument to the Commission upon
request.
10.1 BT Financial Corporation Filed herewith.
Supplemental Executive
Benefit Plan dated
July 23, 1997.*
16
Prior Filing or
Exhibit Sequential Page
Number Description No. Herein
- ------ ----------- ---------------
10.2 Key Employee Incentive Incorporated by reference to
Compensation Plan to BT Exhibit 10.2 to BT Financial
Financial Corporation Corporation's Annual Report
dated July 24, 1996.* on Form 10-K for the year
ended December 31, 1996.
10.3 Moxham Bank Corporation Incorporated by reference to
Executive Retirement Plan Exhibit 10.3 to BT Financial
dated January 1, 1987, as Corporation's Annual Report
amended and restated.* on Form 10-K for the year
ended December 31, 1996.
13.1 All portions of the BT Filed herewith.
Financial Corporation
1997 Annual Report to
Shareholders that are
incorporated herein by
reference.
21.1 Subsidiaries of the Filed herewith.
Registrant.
23.1 Consent of Coopers & Filed herewith.
Lybrand LLP,independent
accountants for the Registrant.
23.2 Consent of Barnes, Saly & Filed herewith.
Company, independent
Accountants for the former
Moxham Bank Corporation.
27.1 Financial Data Schedule Filed herewith.
99.1 Report of Barnes, Saly & Filed herewith.
Company on Moxham Bank
Corporation's Financial
Statements as of December 31,
1995 and for the year
ended December 31, 1995.
* Indicates exhibit is a management contract or compensation
plan or arrangement.
The Registrant will furnish to requesting shareholders a
copy of any exhibit(s) listed above upon payment of $5.00 plus
$0.10 per page to cover Registrant's expenses in furnishing such
exhibit(s). Requests should be directed in writing to Laura L.
Roth, Corporate Secretary, BT Financial Corporation, 551 Main
Street, P. O. Box 1146, Johnstown, Pennsylvania 15907-1146.
17
BT FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE BENEFIT PLAN
ARTICLE I
1.01 PURPOSE AND EFFECTIVE DATE. The purposes of the BT
Financial Corporation Supplemental Executive Benefit Plan
("Plan") are to promote the growth and profitability of BT
Financial Corporation, to attract and retain key executives of
outstanding competence and to provide key executives with certain
benefits under the terms and conditions hereof. The Plan is
intended to be an unfunded plan maintained primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees of the Corporation and
its subsidiaries as described in Sections 201(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). This Plan is effective July 23, 1997 (the
"Effective Date").
1.02 PRIOR PLAN. This Plan supersedes the BT Financial
Corporation Supplemental Executive Benefit Plan adopted by the
Board of Directors on July 24, 1996, which is terminated as of
the Effective Date.
ARTICLE II
2.01 DEFINITIONS. The terms defined in this Section 2.01
shall have the meanings herein described, unless the context
clearly requires otherwise.
"Annual Base Salary" means a Participating Employee's base
salary as of February 1 immediately preceding such Participating
Employees' Retirement or Early Retirement, or any Change of
Control, as the case may be.
"Board" means the Corporation's Board of Directors.
"Change of Control" means the date upon which any of the
following events occurs:
(i) The Corporation acquires actual knowledge
that any Person (other than the Corporation or any employee
benefit plan sponsored by the Corporation) has acquired
beneficial ownership, directly or indirectly, of securities of
the Corporation entitling such Person to 25% or more of the
voting power of the Corporation;
(ii) (a) A tender offer is made to acquire
securities of the Corporation entitling the holders thereof to
50% or more of the voting power of the Corporation; or (b) voting
securities of the Corporation are first purchased pursuant to any
other tender offer;
(iii) At any time less than 51% of the members of
the Board shall be individuals who were either: (a) directors of
the Corporation on the Effective Date; or (b) individuals whose
election, or nomination for election, was approved by a vote of a
majority of the directors then still in office who were directors
on the Effective Date or who were so approved;
(iv) The shareholders of the Corporation shall
approve an agreement providing for the Corporation to be merged,
consolidated or otherwise combined with, or for all or
substantially all its assets or stock to be acquired by, another
Person, as a consequence of which the former shareholders of the
Corporation will own, immediately after such merger,
consolidation, combination or acquisition, less than a majority
of the voting power of such surviving or acquiring Person or the
parent thereof, or
(v) The shareholders of the Corporation shall
approve any liquidation of all or substantially all of the assets
of the Corporation or any distribution to security holders of
assets of the Corporation having a value equal to 30% or more of
the total value of all the assets of the Corporation.
A Change of Control Date is defined in Section 5.01.
"Corporation" means BT Financial Corporation.
1
"Defined Benefit Plan" means the Employees' Retirement Plan
of the Corporation, as the same may be amended from time to time.
"Disability" means that a Participating Employee has applied
and remains qualified for disability benefits under the Social
Security Act.
"Early Retirement" means termination of employment at any
time prior to age sixty-five (65) after a Participating Employee
attains age fifty-five (55) and has completed ten years of
employment with the Corporation and its subsidiaries.
"Effective Date" is defined in Section 1.01.
"Executive" means any employee of the Corporation or any of
its subsidiaries designated on Schedule "A" or hereafter
designated as such by resolution of the Executive Committee.
"Executive Committee" means the Executive Committee of the
Corporation.
"Leave of Absence" means any absence from employment
authorized by the Corporation or any of its subsidiaries for
illness, education, family sickness, military purposes or similar
reasons.
"Moxham ERP" means the Amended and Restated Moxham Bank
Corporation Executive Retirement Plan as last amended on December
12-14, 1995.
"Participating Employee" means any Executive and any
employee of the Corporation or any of its subsidiaries designated
on Schedule "B" or hereafter designated as such by resolution of
the Board.
"Person" means a person within the meaning of Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended.
"Plan" means the Plan as described in this instrument.
"Primary Social Security Benefit" means the monthly amount
payable for the benefit of a Participating Employee in the month
following his or her retirement, excluding amounts available for
spouses and dependents, as an old-age insurance benefit under the
provisions of Title II of the Social Security Act (or under the
provisions of any similar federal act or acts now in existence,
or as hereafter created or amended) in effect at the time of the
Participating Employee's Retirement or Early Retirement, as the
case may be, whether or not the payment of such amount is
delayed, suspended or forfeited because of failure to apply,
acceptance of other work or any other similar reason within the
control of the Participating Employee. The amount of a
Participating Employee's Primary Social Security Benefit shall be
computed by assuming he or she received no wages prior to or
coincident with his or her employment by the Corporation. If a
Participating Employee retires before he or she would be entitled
to receive a Primary Social Security Benefit, the amount of his
or her Primary Social Security Benefit shall be computed by
reference to the Primary Social Security Benefit that would be
payable to the Participating Employee in the first month
following the month in which the Participating Employee could
retire and become entitled to old-age insurance benefits under
the Social Security Act, assuming he or she receives no wages
after his or her retirement.
"Retirement" means termination of employment at any time
after a Participating Employee attains age sixty-five (65).
ARTICLE III
DEATH BENEFITS
3.01 PARTICIPATING EMPLOYEES. If the death of a
Participating Employee occurs while he or she is an active
employee of the Corporation or any of its subsidiaries, the
Corporation will pay to such Participating Employee's designated
beneficiary compensation in respect of past services in an amount
equal to 60% of the Participating Employee's Annual Base Salary,
2
payable in twelve equal monthly installments commencing in the
first month following the date of Participating Employee's death,
and thereafter continuing to and including the month in which the
Participating Employee would have attained the age of sixty-five
(65), an annual sum equal to 30% of the Participating Employee's
Annual Base Salary payable in equal monthly installments
commencing with the month following Participating Employee's
death.
3.02 EXECUTIVES. If the death of an Executive occurs after
he or she has attained age fifty-five (55) while he or she is an
active employee of the Corporation or any of its subsidiaries, in
lieu of the benefit payable under Section 3.01 the Corporation
will pay to such Executive's designated beneficiary compensation
in respect of past services in an amount equal to 60% of the
Annual Base Salary of such Executive, payable in twelve equal
monthly installments commencing in the first month following the
Executive's death, and thereafter continuing for nine (9) years,
an annual sum equal to 30% of Executive's Annual Base Salary,
payable in equal monthly installments commencing with the month
following Executive's death.
3.03 TERMINATION.
(a) Except as otherwise provided in Section 5.02(a) and
(b), all rights of a Participating Employee or an Executive under
this Article III shall terminate on the date such Participating
Employee or Executive ceases to be an active employee of the
Corporation or any of its subsidiaries, (except by reason of
death). A Participating Employee or Executive shall not be
considered as having ceased active employment with the
Corporation or any of its subsidiaries: (i) during a Leave of
Absence of less than two years: and (ii) for the duration of any
period of Disability of less than fifteen years. All rights of a
disabled Participating Employee or Executive under this Article
III shall terminate if his or her Disability ceases.
(b) The Corporation may terminate its obligations under
this Article III at any time upon 30 days written notice to a
Participating Employee prior to the first to occur of the
following: (i) the death of the Participating Employee; (ii) the
date on which the Participating Employee becomes subject to a
Disability; or (iii) twelve months prior to a Change of Control.
ARTICLE IV
SUPPLEMENTAL RETIREMENT BENEFITS
4.01 NORMAL RETIREMENT. If an Executive remains
continuously employed by the Corporation or any of its
subsidiaries from the date he or she becomes an Executive until
age 65, he or she may retire from active daily employment on his
or her sixty-fifth birthday or upon such later date as may be
mutually agreed upon by the Executive and the Corporation.
Commencing upon the date of such Retirement, the Corporation will
pay the Executive or his or her designated beneficiary a monthly
supplemental retirement benefit equal to (i) one-twelfth of 70%
of the Executive's Annual Base Salary, minus; (ii) the monthly
benefit payment to the Executive under the Defined Benefit Plan
as measured by the Straight Life Annuity option, minus; (iii) 50%
of the amount of Executive's Primary Social Security Benefit
minus (iv) any monthly benefit payment to the Executive under the
Moxham ERP. If the Executive shall have received any lump sum
payment under the Moxham ERP, the Executive shall not be entitled
to receive any payments under the foregoing sentence until the
aggregate amount of the payments that would have been paid under
the foregoing sentence exceed the aggregate amount of any such
lump sum payment.
4.02 EARLY RETIREMENT. If an Executive elects Early
Retirement under the Defined Benefit Plan, commencing upon the
date of such Early Retirement, the Corporation will pay the
Executive or his or her designated beneficiary a monthly
supplemental retirement benefit equal to the benefit payable
under Section 4.01 multiplied by the subtrahend of 100% minus 5%
for each year or any part thereof between the Executive's age at
Early Retirement and age 65.
4.03 DEATH. If an Executive dies after he or she is
eligible for Early Retirement or Retirement hereunder his or her
beneficiary may elect to receive benefits under either Article
III or under this Article IV considering the Executive's death as
Early Retirement or, if the Executive was eligible for Retirement
hereunder. as Retirement hereunder, as the case may be.
3
4.04 PAYMENT OPTIONS. The benefits payable under Sections
4.01 and 4.02 shall be payable in equal monthly installments for
the lifetime of the Executive or ten (10) years, whichever is
longer, unless the Executive chooses one of the four alternative
payment options described in clauses (a) through (d) below. Any
benefit payment under Section 4.03 shall be payable in equal
monthly installments to the Executive's beneficiary or such
beneficiary's heirs and assigns for ten (10) years unless the
beneficiary chooses the alternative payment option described in
clause (d) below:
(a) 50% Joint and Survivor Annuity Option - The
Executive shall receive an actuarially adjusted benefit (which
takes into account the amount his or her spouse will subsequently
receive) for his or her lifetime. At his or her death, his or
her spouse will receive one-half of that amount until his or her
subsequent death.
(b) 75% Joint and Survivor Annuity Option - The
Executive shall receive an actuarially adjusted benefit (which
takes into account the amount his or her spouse will subsequently
receive) for his or her lifetime. At his or her death, his or
her spouse will receive three-fourths of that amount until his or
her subsequent death.
(c) 100% Joint and Survivor Annuity Option - The
Executive shall receive an actuarially adjusted benefit (which
takes into account the amount his or her spouse will subsequently
receive) for his or her lifetime. At his or her death, his or
her spouse shall receive the same amount until his or her
subsequent death; or
(d) Lump Sum Option - An Executive, or if applicable
the beneficiary, may elect to receive a lump sum cash payment of
actuarial equivalent value to the benefit determined under this
Article IV in lieu and in place of the form of benefit otherwise
payable. If a lump sum is so elected, such lump sum shall be
paid no later than sixty (60) days after benefits would otherwise
be commenced under this Plan.
4.05 ACTUARIAL ADJUSTMENTS. All actuarial assumptions under
this Agreement shall be determined using the Executive's or, if
applicable, his or her beneficiary's life expectancy, or their
joint life expectancies, under mortality tables adopted by the
Corporation under its Defined Benefit Plan and using the interest
rate assumptions published by the Pension Benefit Guaranty
Corporation and then in effect to determine the present value of
immediate annuities in the event of termination of a single
employer plan.
4.06 TERMINATION. The Corporation may terminate its
obligation under this Article IV at any time upon 30 days written
notice to any Executive prior to the first to occur of the
following: (i) the death of the Executive, (ii) the date on which
Executive is eligible for Early Retirement or Retirement; (iii)
the date on which the Executive becomes subject to a Disability;
or (iv) twelve months prior to a Change of Control.
ARTICLE V
PAYMENTS UPON A CHANGE OF CONTROL
5.01 CHANGE OF CONTROL PAYMENTS TO EXECUTIVE. Not later
than 30 days after any Change of Control (the "Change of Control
Date"), the Corporation shall make a lump sum payment to each
Executive in an amount equal to three times the Executive's
Annual Base Salary.
5.02 OTHER BENEFITS. In addition to the compensation set
forth in Section 5.01 hereof, upon any Change of Control, an
Executive shall be entitled to the following benefits from the
Corporation:
(a) If the Change of Control Date occurs after the
Executive has become eligible for Early Retirement or
Retirement at the election of the Executive either: (i) the
supplemental retirement benefits to which the Executive is
entitled under Article IV; or (ii) a supplemental benefit in
a lump sum cash payment equal to the discounted present
value of the payments the Executive's beneficiary would have
been entitled to receive under Article III if the Executive
had died on the Change of Control Date using the actuarial
and interest rate assumptions referred to in Section 4.05,
payable to the Executive not later than 30 days after the
Change of Control Date;
(b) If the Change of Control Date occurs before the
Executive becomes eligible for Early Retirement
4
or Retirement hereunder, a supplemental benefit in a lump sum
cash payment equal to the discounted present value of the
payments, the Executive's beneficiary would have been
entitled to receive under Article III if the Executive had
died on the Change of Control Date using the actuarial and
interest rate assumptions referred to in Section 4.05,
payable to the Executive not later than 30 days after the
Change of Control Date; and
(c) All group, life, disability, accident and health
insurance coverage (of substantially similar coverage) from
qualified and other non-qualified plans in effect at the
time of Executive's termination until the earlier of (i) the
Executive's death; (ii) the date the Executive attains age
sixty-five (65); (iii) the date Executive commences full-
time subsequent employment; or (iv) five years following the
Change of Control Date.
5.03 TAX EFFECT. Anything contained herein to the contrary
notwithstanding if it shall be determined that any payment by the
Corporation to or for the benefit of any Executive, whether paid
or payable pursuant to the terms of this Agreement or otherwise
(a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, or
any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all
taxes including, without limitation, any income taxes,
withholding taxes and Excise Tax imposed upon the Gross-Up
Payment, and any interest or penalties imposed with respect to
such taxes, the Executive receives cash in an amount equal to the
Excise Tax imposed upon the Payments.
ARTICLE VI
FUNDING
6.01 NON-QUALIFIED PLAN. This Plan is intended to be an
unfunded, non-qualified deferred compensation arrangement
maintained for the purpose of providing benefits to one of a
select group of management or highly compensated individuals
pursuant to sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
This Plan is not intended to comply with the requirements of
section 401(a) of the Internal Revenue Code or to be subject to
Parts 2, 3 or 4 of Title I of ERISA. This Plan shall be
administered and construed so as to effectuate this intent.
6.02 FUNDING. The Corporation's obligations under this Plan
shall be an unfunded and unsecured promise to make the payments
specified herein, and the Corporation shall not be obligated
under any circumstances to fund any of its obligations hereunder.
The Corporation may, however. at its sole and exclusive option,
elect to purchase or set aside assets to make provision for
payment of such obligations in whole or in part. In all events,
any such assets shall be subject to the claims of the general
creditors of the Corporation. If the Corporation shall make such
an election, the manner and the continuance or discontinuance
thereof shall be the sole and exclusive decision of the
Corporation.
6.03 INVESTMENT. The Corporation shall have the discretion
to invest, or not invest, all or any portion of any funds it may
set aside to fund its obligations under this Plan. However,
nothing herein shall be construed as requiring such investment.
If the Corporation invests all or any portion of such funds, it
may invest and reinvest in such bonds, domestic or foreign,
common or preferred stocks of any corporation organized under the
laws of any State in the United States or any foreign government,
diversified investment companies and mutual funds, notes secured
by mortgage or deed of trust on real estate, domestic or foreign,
certificates or other evidence of right, tide, interest,
debentures and any other class or classes of property, domestic
or foreign, whether real or personal, or life insurance policies
issued on the life of a Participating Employee. If the
Corporation desires to invest all or any portion of such funds in
a life insurance policy or policies issued upon the life of a
Participating Employee, then he or she shall assist the
Corporation by submitting to a physical examination and supplying
any additional information necessary or helpful to the
Corporation to obtain such insurance.
ARTICLE VII
ADMINISTRATION
7.01 ADMINISTRATION. This Plan shall be administered by the
Executive Committee in a manner not inconsistent with the
provisions of the Plan and in so doing the Executive Committee
shall have the authority, subject to
5
review by the Board, from time to time, to:
(a) designate a person as a Participating Employee or
an Executive by resolution of the Committee;
(b) except for determinations under Article V,
determine whether an event giving rise to the payment of
benefits hereunder has occurred;
(c) except for determinations under Article V,
determine whether a Participating Employee or a
Participating Employee's Beneficiary is entitled to receive
benefits under the Plan;
(d) except for determinations under Article V,
determine the amount of any benefit payment hereunder;
(e) interpret the Plan and make all other
determinations and take all other actions necessary or
advisable for the implementation and administration of the
Plan, except modification, amendment or termination of the
Plan under Article VIII, which actions are reserved to the
Board;
(f) appoint or employ agents and to delegate thereto
such responsibilities and duties necessary or appropriate to
the effective administration of the Plan; and
(g) direct the payment of any benefits payable
hereunder from the general assets of the Corporation.
All actions, determinations and decisions of the Board shall
be final, conclusive and binding upon the Corporation,
Participating Employees and their beneficiaries. Members of the
Executive Committee and Board shall not be liable for any action
taken or decision made in good faith relating to the Plan.
ARTICLE VIII
MISCELLANEOUS
8.01 GOVERNING LAWS. This Plan shall be governed and
construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania and, where the context so requires,
under applicable federal law.
8.02 JURISDICTION. The courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction over any or all
actions arising under this Plan.
8.03 OTHER BENEFITS AND AGREEMENTS. The benefits provided
for the Participating Employees herein are in addition to any
other benefits any Participating Employee may have under any
other plan or program of the Corporation or its subsidiaries, and
shall supplement and shall not supersede any other agreement
between the Corporation or its subsidiaries and the Participating
Employees or any provision contained therein.
8.04 EMPLOYEE CONTRIBUTIONS. Participating Employees are
not required to make any monetary investment in the Corporation
or give any consideration, other than employment, to the
Corporation and its subsidiaries in return for the benefits
provided hereunder.
8.05 SPENDTHRIFT PROVISION. The interest of a Participating
Employee or any beneficiary receiving payments hereunder shall
not be subject to anticipation, nor to voluntary or involuntary
alienation until distribution is actually made.
8.06 BENEFICIARY DESIGNATION. A Participating Employee
shall have the right to designate the person or persons who shall
have the right to receive any payments which may be required to
be paid by the Corporation pursuant to this Plan, to any person
other than the Participating Employee. Such designation shall be
in a form acceptable to the Corporation and shall be valid upon
receipt by the Corporation. Attached hereto as Exhibit "A" is a
form of beneficiary designation acceptable to the Corporation.
Any beneficiary designation made under this Plan shall be
revocable at any time unless expressly made irrevocable. In the
event that at the time of a Participating Employee's death there
is no beneficiary designated for purposes of receiving any
payments which may be due from the Corporation hereunder or if
6
such designated beneficiary fails to survive the Participating
Employee, such payments shall be paid to the Participating
Employee's estate.
8.07 ASSIGNMENT. No Participating Employee, beneficiary or
heir shall have the right to commute, sell, transfer, assign or
otherwise convey the right to receive any payments under the
terms of this Plan. Any such attempted assignment or transfer
shall terminate the Corporation's obligation under this Plan.
8.08 CONSTRUCTION. All words herein shall be construed to
be of such number and gender as the text requires.
8.09 HEADINGS. All headings preceding the text of the
several paragraphs hereof are inserted solely for reference and
shall not constitute a part of this Plan, nor affect its meaning,
construction or effect.
8.10 COUNTERPARTS. This Plan may be executed in one or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same instrument.
8.11 AMENDMENTS. Except as otherwise provided in Sections
3.03(b) and 4.06, this Plan may be amended, modified or
terminated by the Corporation at any time prior to twelve months
before a Change of Control and may not be amended, modified or
terminated thereafter as to any Participating Employee without
the consent of such Participating Employees.
ATTEST: BT FINANCIAL CORPORATION
/S/ Laura L. Roth BY: /s/ John H. Anderson
- ---------------------------- ------------------------------
Laura L. Roth, Secretary and John H. Anderson, Chairman and
Assistant Treasurer Chief Executive Officer
Date of Adoption by the Board of Directors of BT Financial
Corporation:
July 23, 1997
- -------------
7
BT FINANCIAL CORPORATION
SCHEDULE "A"
The following employees have been specifically designated by the
Board as Executives:
John H. Anderson
Steven C. Ackmann
Carl J. Motter, Jr.
J. William Smith
Eric F. Rummel
Kim Craig
SCHEDULE "B"
The following employees have been specifically designated by the
Board as Participating Employees:
Foster C. Garrison, III
George J. Kondor, Jr.
Mary Ann Kucenski
David J. Moorhead
Mark L. Sollenberger
Harold Trevenen
8
EXHIBIT A
BT FINANCIAL CORPORATION
DESIGNATION OF BENEFICIARY
(SCHEDULE A EXECUTIVE)
SUPPLEMENTAL RETIREMENT BENEFITS
I, ,the undersigned, hereby designate the following
----------------------
following to receive any payments which may be required to be paid by BT
Financial Corporation under the Supplemental Executive Benefit
Plan, dated July 23, 1997, as a result of my right to receive supplemental
retirement income pursuant to a ten (10) year certain and continuous annuity
option.
PRIMARY BENEFICIARY:
-------------------------------------------------------
CONTINGENT BENEFICIARY:
-----------------------------------------------------
Alternatively, I elect the following annuity option:
50% Joint and Survivor Annuity
- ----------
75% Joint and Survivor Annuity
- ----------
100% Joint and Survivor Annuity
- ----------
Lump Sum
- ----------
DEATH BENEFIT
I, , hereby designate the following to receive any
------------------
payments which may be required to be paid by BT Financial
Corporation under the Supplemental Executive Benefit Plan, dated
July 23, 1997, as a result of my death.
- -------------
PRIMARY BENEFICIARY:
---------------------------------------------------------
CONTINGENT BENEFICIARY:
------------------------------------------------------
This beneficiary designation supersedes and replaces all
designations made by me at a prior time with respect to said
benefits.
THIS IS A DESIGNATION OF BENEFICIARY FORM ONLY AND IS NOT
EVIDENCE OF MY RIGHT TO BENEFITS.
PARTICIPATING EMPLOYEE
------------------------------------
Name:
Received and recorded this day of , 19 .
------ ----------------- ----
------------------------------------
Laura L. Roth, Secretary and
Assistant Treasurer
9
EXHIBIT A (CONTINUED)
BT FINANCIAL CORPORATION
DESIGNATION OF BENEFICIARY
(SCHEDULE B PARTICIPATING EMPLOYEE)
DEATH BENEFIT
I, , hereby designate the following to receive any
---------------------
payments which may be required to be paid by BT Financial
Corporation under the Supplemental Benefit Executive Plan, dated
July 23, 1997 , as a result of my death.
PRIMARY BENEFICIARY:
--------------------------------------------------------
CONTINGENT BENEFICIARY:
-----------------------------------------------------
This beneficiary designation supersedes and replaces all
designations made by me at a prior time with respect to said
benefits.
THIS IS A DESIGNATION OF BENEFICIARY FORM ONLY AND IS NOT
EVIDENCE OF MY RIGHT TO BENEFITS.
EXECUTIVE
------------------------------------
Name:
Received and recorded this day of 19 .
------- ----
------------------------------------
Laura L. Roth, Secretary and
Assistant Treasurer
10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of BT Financial Corporation
We have audited the accompanying consolidated balance sheet of BT
Financial Corporation and affiliates (Corporation) as of December 31,
1997 and 1996, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We did not audit the consolidated financial statements
of Moxham Bank Corporation for the period ended December 31, 1995,
which reflects net interest income of approximately $8,786,000.
Those consolidated statements were audited by other auditors whose
report has been furnished to us and, our opinion, insofar as it relates
to amounts included for Moxham Bank Corporation, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the aforementioned
report of other auditors, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of BT Financial Corporation and
affiliates as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
COOPERS
& LYBRAND
Pittsburgh, Pennsylvania
January 28, 1998
13
<PAGE>
BT Financial Corporation and Affiliates
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, 1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 52,028 $ 65,305
Money market investments:
Interest-bearing deposits with banks 424 334
Federal funds sold -- 10,100
Total money market investments 424 10,434
Securities available-for-sale, at market value 194,852 204,707
Securities held-to-maturity (market values of $172,305 at
December 31, 1997 and $98,238 at December 31, 1996) 171,081 97,685
Total securities (Note 4) 365,933 302,392
Loans (Note 5) 1,125,387 1,082,674
Less:
Unearned interest 58,326 56,909
Reserve for loan losses (Note 6) 9,766 9,681
Net loans 1,057,295 1,016,084
Premises and equipment (Note 7) 30,424 31,634
Accrued interest receivable 10,958 8,706
Other assets 35,859 31,753
TOTAL ASSETS $1,552,921 $1,466,308
LIABILITIES
Deposits (Note 8):
Non-interest-bearing $ 177,756 $ 161,981
Interest-bearing 1,168,620 1,101,747
Total deposits 1,346,376 1,263,728
Federal funds purchased and securities sold under agreements to repurchase 36,313 36,678
Short-term borrowings 1,871 4,010
Accrued interest payable 5,820 5,098
Other liabilities 2,497 3,097
Long-term debt (Note 16) 14,335 17,210
Total liabilities 1,407,212 1,329,821
Commitments and contingencies (Notes 11 and 17)
SHAREHOLDERS EQUITY
Preferred stock:
No par value; Authorized shares, 2,000,000 -- --
Common stock:
Par value, $5.00; Authorized shares, 25,000,000; Shares issued;
6,250,436 at December 31, 1997
and 5,682,215 at December 31, 1996 31,252 28,411
Capital surplus 76,467 55,729
Retained earnings 37,283 51,577
Net unrealized holding gains on securities available-for-sale 707 770
Total shareholders' equity 145,709 136,487
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $1,552,921 $1,466,308
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
14
<PAGE>
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except shares and per share data)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 90,915 $ 87,749 $ 79,342
Securities:
Taxable 21,579 18,793 19,162
Tax-exempt 450 592 693
Deposits with banks 16 34 325
Federal funds sold 606 1,188 306
Total interest income 113,566 108,356 99,828
INTEREST EXPENSE
Deposits 45,168 42,208 40,099
Federal funds purchased and securities
sold under agreements to repurchase 1,731 1,098 1,597
Short-term borrowings 174 158 269
Long-term debt 1,112 1,268 714
Total interest expense 48,185 44,732 42,679
NET INTEREST INCOME 65,381 63,624 57,149
Provision for loan losses (Note 6) 4,230 2,441 1,566
Net interest income after provision for loan losses 61,151 61,183 55,583
OTHER INCOME
Trust income 3,187 2,919 2,398
Fees for other services 7,632 6,585 5,589
Net securities gains 195 406 108
Other income 1,476 1,362 619
Total other income 12,490 11,272 8,714
OTHER EXPENSES
Salaries and wages 20,086 20,517 19,707
Pension and other employee benefits 3,382 3,854 4,116
Net occupancy expense 4,369 4,637 4,175
Equipment expense 4,824 4,254 3,545
F.D.I.C. insurance (Note 14) 265 1,784 1,594
Amortization of intangible assets 2,020 1,991 1,161
Reorganization expense (Note 3) -- 1,309 --
Other operating expense 12,563 13,335 11,261
Total other expenses 47,509 51,681 45,559
INCOME BEFORE INCOME TAXES 26,132 20,774 18,738
Provision for income taxes (Note 9) 8,980 7,000 5,689
NET INCOME $ 17,152 $ 13,774 $ 13,049
EARNINGS PER SHARE (Note 19)
Basic:
Earnings per share $ 2.74 $ 2.26 $ 2.20
Weighted average shares outstanding 6,250,436 6,082,976 5,876,669
Diluted:
Earnings per share $ 2.74 $ 2.25 $ 2.18
Weighted average shares outstanding 6,250,436 6,134,792 5,987,641
Dividends paid per common share $ 1.26 $ 1.02 $ .89
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
15
<PAGE>
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,152 $ 13,774 $ 13,049
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,230 2,441 1,566
Provision for depreciation and amortization 4,164 3,966 3,462
Amortization of intangible assets 2,020 1,991 1,161
Amortization of premium, net of accretion
of discount on loans and investments 48 (428) 787
Deferred income taxes 34 (1,073) (348)
Realized net securities gains (195) (406) (108)
(Increase) decrease in interest receivable (2,226) 1,413 605
Increase (decrease) in interest payable 417 (2,018) 1,054
Equity in loss of limited partnerships 117 182 172
Other assets and liabilities, net (1,685) 3,306 790
Net cash provided by operating activities 24,076 23,148 22,190
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities 10,926 5,378 46,146
Repayments and maturities of securities available-for-sale 77,182 107,150 60,472
Repayments and maturities of securities held-to-maturity 44,800 11,987 21,000
Purchase of securities available-for-sale (78,289) (20,652) (27,084)
Purchase of securities held-to-maturity (118,112) (72,466) (33,219)
Net decrease (increase) in money market investments 10,010 1,814 (2,874)
Proceeds from sales of loans 11,845 7,965 7,157
Net increase in loans (51,466) (13,352) (57,696)
Purchases of premises and equipment and other (2,632) (3,654) (4,125)
Net increase in investment in limited partnership (181) (131) (144)
Purchase of Banks and branches, net of cash acquired 58,819 (3,407) (23,674)
Net cash (used in) provided by investing
activities (37,098) 20,632 (14,041)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 12,991 (31,391) 30,009
Net (decrease) increase in federal funds purchased
and securities sold under agreements to repurchase (365) 1,365 (30,523)
Net (decrease) increase in short-term borrowings (2,139) 1,644 (9,515)
Proceeds from sale of common stock -- -- 200
Preferred dividends paid -- (54) (116)
Common dividends paid (7,864) (6,212) (5,242)
Proceeds from long-term debt -- -- 12,520
Payment on long-term debt (2,875) (2,873) (2,458)
Other (3) 3 --
Net cash used in financing activities (255) (37,518) (5,125)
(Decrease) increase in cash and cash equivalents (13,277) 6,262 3,024
Cash and cash equivalents at beginning of year 65,305 59,043 56,019
CASH & CASH EQUIVALENTS AT END OF YEAR $ 52,028 $ 65,305 $ 59,043
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings $ 47,768 $ 46,422 $ 39,573
Federal income taxes, net of refunds 10,105 6,761 7,761
Non-cash financing activities:
Issuance of common stock; Armstrong acquisition $ -- $ 7,712 $ --
Conversion of preferred stock to common stock -- 1,378 98
Details of the acquisitions of Huntington during 1995 and
Armstrong County Trust Company during 1996, follows:
Fair value of assets acquired $ -- $ 54,285 $ 111,200
Fair value of liabilities assumed -- 42,307 85,700
Net assets acquired $ -- $ 11,978 $ 25,500
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
16
<PAGE>
BT Financial Corporation and Affiliates
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995
(in thousands, except shares and per share data)
<TABLE>
<CAPTION>
Net
Common Stock Unrealized
------------ Holding
Number of Preferred Common Capital Retained Gains
Shares Stock Stock Surplus Earnings (Losses) Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 4,847,768 $1,476 $24,239 $33,464 $53,425 $(8,336) $104,268
Net income, 1995 13,049 13,049
Common dividends paid
($ .89 per share) (5,242) (5,242)
Preferred dividends paid Moxham,
($8.00 per share) (116) (116)
Common stock issued: Moxham,
Dividend Reinvestment Plan and
Employee Stock Ownership Plan 11,007 55 145 200
Conversion of Moxham preferred
stock into common stock 6,325 (98) 32 66 --
Change in unrealized market value
adjustment on securities available-
for-sale, net of tax 9,940 9,940
BALANCE, December 31, 1995 4,865,100 1,378 24,326 33,675 61,116 1,604 122,099
Net income, 1996 13,774 13,774
Common dividends paid
($1.02 per share) (6,212) (6,212)
Preferred dividends paid-Moxham,
($8.00 per share) (54) (54)
Acquisition of Armstrong County
Trust Company 212,000 1,060 6,652 7,712
Conversion of Moxham preferred
stock into common stock 88,550 (1,378) 442 936 --
Stock dividend 516,565 2,583 14,464 (17,047) --
Other 2 2
Change in unrealized market value
adjustment on securities
available-for-sale, net of tax (834) (834)
BALANCE, December 31, 1996 5,682,215 -- 28,411 55,729 51,577 770 136,487
Net income, 1997 17,152 17,152
Common dividends paid
($1.26 per share) (7,864) (7,864)
Stock dividend 568,221 2,841 20,740 (23,581) --
Other (2) (1) (3)
Change in unrealized market value
adjustment on securities
available-for-sale, net of tax (63) (63)
BALANCE, December 31, 1997 6,250,436 $ -- $31,252 $76,467 $37,283 $ 707 $145,709
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
17
<PAGE>
BT Financial Corporation and Affiliates
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. BANK CHARTER CONSOLIDATION AND NAME CHANGES
At the close of business, October 10, 1997, BT Financial Corporation
adopted a single bank charter for its three affiliate banks. Laurel Bank
and Fayette Bank merged with and into Johnstown Bank and Trust Company. At
the same time, the corporate title of Johnstown Bank and Trust Company was
changed to Laurel Bank. Additionally, 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.
2. ACCOUNTING AND FINANCIAL REPORTING POLICIES
The following is a summary of the significant accounting and financial
reporting policies of BT Financial Corporation (BT or the Corporation) and
its affiliates.
Basis of Presentation
The consolidated financial statements of BT, a bank holding company
incorporated under the laws of the Commonwealth of Pennsylvania, include
the accounts of BT and its wholly owned affiliates, Laurel Bank (Laurel),
Laurel Trust Company (the Trust Company), Bedford Associates, Inc., and
Laurel Community Development Corporation. Prior to BT's adoption of a
single bank charter (see Note 1 above), the consolidated financial
statements of BT included the banking affiliates' accounts of Johnstown
Bank and Trust Company (Bank and Trust), the former Laurel Bank, and
Fayette Bank (Fayette). All significant intercompany transactions have been
eliminated in consolidation.
Bedford Associates, Inc., was organized by BT primarily to hold and
operate real property and equipment used by Laurel in its operations.
Laurel Community Development Corporation was organized to conduct community
development activities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
BT's financial statements have been restated for periods prior to June
30, 1996, giving effect to the merger between BT and Moxham Bank
Corporation which occurred on June 25, 1996 and was accounted for as a
pooling-of-interests. Results of operations from business combinations
accounted for as purchases are included in the consolidated financial
statements from their respective acquisition dates.
Cash Equivalents
BT considers all non-interest-bearing amounts due from banks to be cash
equivalents. At December 31, 1997 and 1996, the Corporation maintained cash
balances of approximately $24 million and $34 million respectively, with
one large financial institution located in southwestern Pennsylvania.
Securities
The securities portfolio consists of securities and short-term
investments, which are purchased by the Corporation to enhance the overall
yield on earning assets and to contribute to the management of interest
rate risk and liquidity. BT follows Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This statement requires classification of securities
into three categories: held-to-maturity, trading securities, and
available-for-sale. The Corporation may classify securities as
held-to-maturity when it has both the ability and positive intent to hold
the securities to maturity. Securities designated as available-for-sale
may be sold in response to changes in market interest rates and in
prepayment risk, income tax considerations, and liquidity needs. Pursuant
to SFAS No. 115, securities available-for-sale are recorded at market
value, with aggregate unrealized holding gains and losses reported net of
income tax as a separate component of shareholders' equity. Securities
held-to-maturity are stated at cost adjusted for amortization of premium
and accretion of discount, computed primarily under the interest method.
The Corporation's investment policy specifically prohibits the existence of
a trading account portfolio. The former Moxham Bank Corporation maintained
a trading portfolio prior to the merger with BT. The volume of transactions
within the portfolio and the related impact on BT's financial statements
were not significant.
Gains and losses are computed principally under the specific
identification method. On a periodic basis, management evaluates each
security where amortized cost exceeds market value. If the decline is
judged to be other than temporary, the cost basis of the security is
written down to its estimated net realizable value with the write down
included in net securities gains (losses).
Interest Income
Interest income is recognized in a manner that results in a level yield
on principal amounts outstanding. The accrual of interest is discontinued
when, in management's judgment, it is determined that the collectibility of
interest, but not necessarily principal, is doubtful. Payments on
nonaccrual loans are generally applied to both principal and interest,
depending upon management's evaluation of collectibility. Loan origination
fees, net of certain direct origination costs, are deferred and recognized
over the life of the related loan as a yield adjustment.
Unearned Interest
Unearned interest represents interest deducted from the proceeds of
consumer loans and direct finance leases. Income is recognized over the
life of the loan or lease as payments become due.
18
<PAGE>
Reserve for Loan Losses
The reserve for loan losses is based on management's evaluation of
probable losses in the current loan portfolio, which includes an assessment
of current economic conditions, changes in the nature of the loan
portfolio, loan loss experience, and other relevant factors. The
Corporation adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures," on January 1, 1995. Under these
guidelines, a loan is considered impaired, based on current information and
events, if it is probable that the Corporation will be unable to collect
the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. When conducting loan evaluations,
management considers various factors such as historical loan performance,
the financial condition of the debtor and collateral adequacy to determine
when a loan is impaired. Recurring shortfalls or delays in payments and/or
extended delinquency periods may provide evidence that a delay or shortfall
is significant enough to warrant a review of the loan for impairment.
Generally, the minimum period without payment that typically can occur
before a loan is considered for impairment is 90 days. The measurement of
impaired loans is generally based on the present value of expected future
cash flows discounted at the historical effective interest rate, except
that collateral-dependent loans are generally measured for impairment based
on the fair value of the collateral. All of the loans identified as
impaired loans for BT at December 31, 1997, are collateral-dependent loans.
When the measured amount of an impaired loan is less than the recorded
investment in the loan, the impairment is recorded in a specific valuation
reserve through a charge to provision for loan losses. The specific
valuation reserve is periodically adjusted for significant changes in the
amount or timing of expected future cash flows, observable market price or
fair value of the collateral. The valuation reserve, or reserve for
impaired loan losses, is part of the total reserve for loan losses. Upon
disposition of an impaired loan, any related reserve is reversed through a
charge to the impaired reserve for loan losses. Individual smaller balance
loans are collectively evaluated for impairment. In addition, the
Corporation collectively reviews for impairment commercial real estate and
commercial loans under $250. The aggregation of these loans is based upon
common risk characteristics such as, among other factors: loan type;
geographic or industry risk concentrations; whether the loans have similar
terms, such as interest and principal repayment terms; levels and types of
collateral; and external credit ratings or internal risk ratings for the
particular loans.
Premises and Equipment
Premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation and amortization. Depreciation is
computed by both straight-line and accelerated methods over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
terms of leases or estimated useful lives of improvements, whichever is
shorter.
Maintenance, repairs, and minor renewals are charged to expense as
incurred. Expenditures for betterments and major renewals are capitalized
and depreciated over their estimated useful lives.
When premises and equipment are removed or otherwise disposed of, the
cost and related accumulated depreciation or amortization are removed from
the accounts and any resulting gain or loss is credited or charged to
income.
Intangible Assets
The purchase method of accounting for business combinations results in
the adjustment of net assets to their estimated fair value at the
acquisition date. The excess of purchase price over such fair value is
recorded in other assets and amortized on a straight-line basis over
periods ranging from 10 to 15 years. Premiums paid by Laurel for branch
offices are allocated to core deposit and going concern intangibles and are
recorded in other assets and amortized on a straight-line basis over their
estimated lives, generally ranging from 5 to 15 years. Core deposit
premiums amounted to $4,452 and $0 and goodwill and other intangibles
amounted to $18,685 and $20,440 at December 31, 1997 and 1996,
respectively. Management evaluates annually the carrying value and
remaining amortization periods of intangible assets for possible
impairment. Adjustments are recorded when the benefit of the intangible
asset decreases due to asset dispositions or reduced earnings from
acquisitions with anticipated earning levels projected below the cost to
recover such intangibles.
Other Real Estate
Other real estate is carried at the lower of estimated market value,
less selling costs, or the value of the outstanding loan balance. Costs to
maintain the assets and subsequent gains and losses attributable to their
disposal are included in other expense.
Income Taxes
The Corporation follows SFAS No. 109, "Accounting for Income Taxes."
This statement requires a liability approach for measuring deferred taxes
based on temporary differences between the financial statement and tax
basis of assets and liabilities existing at each balance sheet date using
enacted tax rates.
Per Share Data
In February of 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings Per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. Effective
December 31, 1997, BT adopted SFAS No. 128. The statement requires a change
in methods used to compute earnings per share (EPS) and requires
restatement of all prior periods. SFAS No. 128 replaces the 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 did not have any material impact on
BT's EPS computation for the current or prior periods.
Cash dividends per share are based on the number of shares outstanding
at the respective declaration dates, after giving retroactive effect to the
stock dividends.
19
<PAGE>
Recent Accounting Pronouncements
In June of 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 125 provides accounting and reporting standards based on a control-
oriented "financial-components" approach. Under this approach, after
a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. The statement provides consistent standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement supersedes FASB No.
122, "Accounting for Mortgage Servicing Rights." This statement is
effective for transfers and servicing of financial assets transactions
occurring after December 31, 1996. 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. BT
adopted SFAS No. 127 on January 1, 1998, and the effect of the adoption is
not expected to have a material impact on the Corporation's financial
position or results of operations.
In June of 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 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. BT will adopt SFAS No. 130 for fiscal
year 1998 reporting, and it is anticipated the adoption of this statement
will not have a material impact on the Corporation's financial position or
results of operations.
3. ACQUISITIONS
On December 14, 1995, BT acquired Huntington National Bank of
Pennsylvania, (Huntington), Uniontown, Pennsylvania, and merged it into
Fayette Bank. Huntington had total assets of approximately $102 million and
operated five branches in Fayette and Greene Counties. Huntington was
merged into Fayette effective December 14, 1995, and the 1995 Consolidated
Statement of Income reflects the operations of Huntington from the date of
acquisition. On January 8, 1996, Huntington's former Uniontown branch was
closed and merged into Fayette Bank's Uniontown office. The acquisition was
accounted for as a purchase, with a purchase price of $25.5 million in
cash. Goodwill and other intangibles of approximately $10.2 million were
recorded in connection with the transaction. Goodwill is being amortized
over a 15 year period.
On June 13, 1996, BT acquired The Armstrong County Trust Company
(Armstrong) of Kittanning, Pennsylvania by merging Armstrong into Bank and
Trust. The acquisition was accounted for as a purchase. Armstrong had
assets of approximately $50 million and operated one office in Armstrong
County. Each Armstrong common share was exchanged for 26.50 shares of BT
common stock and $533.21 in cash. A total of 212,000 BT common shares were
issued in the merger. The total consideration for the Armstrong acquisition
was approximately $12 million in the aggregate for all 8,000 Armstrong
shares outstanding. The cash portion of approximately $4.3 million was
financed through short-term borrowing from a commercial bank. In connection
with the acquisition, goodwill and other intangibles of approximately $5.2
million were recorded. Goodwill is being amortized over 15 years.
Armstrong's results of operations after June 13, 1996 are included in BT's
1996 Consolidated Statement of Income. Unaudited pro forma results of
operations for the years ended December 31, 1996 and 1995 are presented
below. The pro forma results include the impact of purchase adjustments as
though the acquisitions of Huntington and Armstrong had been effective
January 1, 1995. The pro forma results are not necessarily indicative of
what actually would have occurred if the acquisitions had been in effect
for the entire periods presented. In addition, they are not intended to be
a projection of future results and do not reflect any synergies that might
be achieved from the combined operations of the companies.
PRO FORMA RESULTS
(unaudited)
Years Ended December 31, 1996 1995
Net interest income $64,629 $62,236
Net income 13,585 13,543
Earnings per share:*
Basic 2.18 2.19
Diluted 2.17 2.17
* Data reflects the issuance of 26.5 shares of BT
common stock (212,000 shares in total) for each
share of Armstrong common stock.
20
<PAGE>
On June 25, 1996, BT completed a merger with Moxham Bank Corporation
(Moxham) whereby Moxham was merged directly into BT. In connection with the
merger, each share of Moxham common stock (other than shares held by the
Corporation) was converted into 1.15 shares of BT common stock, resulting
in the issuance of 1,038,519 BT common shares. In addition, 88,550 shares
of BT common stock were exchanged for all 14,000 outstanding shares of
Moxham Series A $8.00 cumulative convertible non-voting preferred stock.
The merger has been accounted for as a pooling-of-interests and,
accordingly, BT's accompanying consolidated financial statements have been
restated retroactively to include the accounts and operations of Moxham for
all periods presented prior to the merger. Moxham's banking subsidiaries
included the Moxham National Bank and The First National Bank of Garrett.
Moxham also held a non-bank subsidiary known as the Moxham Community
Development Corporation. Upon consummation of the merger, Moxham's banking
subsidiaries were merged into Bank and Trust on June 25, 1996. At the time
of the merger, Moxham had assets of approximately $235 million and operated
12 branches in Cambria, Somerset, and Westmoreland Counties. In conjunction
with the merger, four of these branches closed during the third quarter of
1996, along with two branches of Bank and Trust and one branch of the
former Laurel Bank, as a result of duplicate service areas.
Separate results of the combining entities are presented for the
periods shown below. All significant intercompany transactions have been
eliminated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
BT Moxham Combined
<S> <C> <C> <C>
Net interest income $26,470 $4,692 $31,162
Net income 5,960 783 6,743
Earnings per share:
Basic -- -- 1.13
Diluted -- -- 1.12
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
BT Moxham Combined
<S> <C> <C> <C>
Net interest income $48,364 $8,785 $57,149
Net income 11,574 1,475 13,049
Earnings per share:
Basic 2.50 -- 2.20
Diluted 2.50 -- 2.18
</TABLE>
Certain reclassifications have been made to Moxham's financial
information to conform to BT's classification.
In connection with the Moxham merger, $1.3 million of reorganization
costs ($959 after-tax or $.16 per diluted share) were incurred and
charged to expense in 1996. The reorganization costs consisted primarily
of severance pay to furloughed employees and various legal, accounting
and investment banking fees associated with the transaction.
On June 6, 1997, Bank and Trust purchased three branch offices of
National City Bank of Pennsylvania (National City), a subsidiary of
National City Corporation of Cleveland, Ohio. The acquisition of the three
branches was accounted for as a purchase. 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 15-year
period. The combined deposit and loan totals for the three offices was
approximately $69.7 million and $5.8 million, respectively, at June 6,
1997. Due to the nature of the branch acquisitions, pro forma information
is not presented.
21
<PAGE>
4. SECURITIES
The amortized cost and estimated market values of securities at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Amortized Holding Holding Market Amortized Holding Holding Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
US Treasury and
obligations of US
Government agencies
and corporations $ 179,482 $1,092 $(267) $180,307 $186,172 $ 984 $(170) $186,986
Obligations of states and
political subdivisions 6,868 204 (3) 7,069 9,656 214 (7) 9,863
Debt securities issued
by foreign governments 924 27 (1) 950 590 -- (2) 588
Corporate securities 6,490 37 (1) 6,526 7,105 181 (16) 7,270
TOTAL $ 193,764 $1,360 $(272) $194,852 $203,523 $1,379 $(195) $204,707
SECURITIES HELD-TO-MATURITY
US Treasury and
obligations of US
Government agencies
and corporations $171,081 $1,287 $ (63) $172,305 $ 97,685 $ 712 $(159) $ 98,238
</TABLE>
The market value of securities was based on quoted market prices or bid
quotations received from securities dealers.
The amortized cost and estimated market value of securities at December
31, 1997 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-For-Sale Held-To-Maturity
1997 1997
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 32,165 $ 32,163 $1,986 $1,996
Due after one year through five years 61,691 62,164 153,895 155,064
Due after five years through ten years 90,133 90,641 15,200 15,245
Due after ten years 9,775 9,884 -- --
TOTAL $193,764 $194,852 $171,081 $172,305
</TABLE>
Proceeds from sales of securities during 1997 were $10,926. Gross gains
of $270 and gross losses of $62 were realized on those sales. In addition,
various securities were called during 1997, which resulted in gross gains
of $37. BT realized gross losses of $50 in 1997 and 1996 in connection with
a valuation adjustment on an equity security. During 1996, proceeds from
sales of securities were $5,378, with gross gains of $445 and gross losses
of $8 realized on those sales. In addition, various securities were called
during 1996, which resulted in gross gains of $19. In 1995, proceeds from
sales of securities were $46,146, with gross gains of $246 and gross losses
of $157 realized on those sales. Also, various securities were called in
1995 resulting in gross gains of $19. At December 31, 1997, securities
carried at $135,388 were pledged as collateral for public and trust
deposits and securities sold under agreements to repurchase. At December
31, 1997 and 1996, BT held available-for-sale investments in government
agency step-up securities of approximately $8.5 million and $18.2 million,
respectively, with call options that allow the issuer to redeem the
investment prior to maturity.
22
<PAGE>
5. LOANS
The composition of the loan portfolio at December 31, 1997 and 1996 was
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Commercial, financial, and agricultural $ 166,113 $ 170,107
Real estate:
Residential 334,739 317,459
Commercial 252,040 217,861
Consumer 372,495 377,247
TOTAL $1,125,387 $1,082,674
</TABLE>
Commercial real estate, residential real estate and other loans held by
the Corporation are primarily located in western and central Pennsylvania.
The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. Collateral held includes mortgages on residential and
income-producing properties. Included in consumer loans are education loans
held-for-sale which totaled $12,300 and $13,364 at December 31, 1997 and
1996, respectively. Such loans are carried at cost and historically have
been sold at carrying amount.
A summary of loans to executive officers and directors, including
associates of such persons, is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Loans at beginning of year $23,518 $25,285
New loans 16,567 9,792
Loan payments (14,828) (11,037)
Other (953) (522)
LOANS AT END OF YEAR $24,304 $23,518
</TABLE>
Other represents the net change in loan balances resulting from changes
in related parties during the year.
See Note 17 "Financial Instruments with Off-Balance Sheet Risk" for
credit risk disclosures.
6. RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Total Total Total
Reserve for Reserve Reserve for Reserve Reserve for Reserve
General Impaired for Loan General Impaired for Loan General Impaired for Loan
Reserve Loan Losses Losses Reserve Loan Losses Losses Reserve Loan Losses Losses
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 8,170 $ 1,511 $ 9,681 $ 9,102 $ 931 $ 10,033 $ 9,053 $ -- $ 9,053
Transfer upon adoption
of SFAS No. 114 -- -- -- -- -- -- (285) 285 --
Reserve of acquisitions -- -- -- 159 -- 159 849 -- 849
Additions:
Provisions for
loan losses 3,524 706 4,230 1,111 1,330 2,441 740 826 1,566
Recoveries of loans
charged off 407 -- 407 566 -- 566 347 -- 347
Deductions:
Loans charged off (3,205) (1,347) (4,552) (2,768) (750) (3,518) (1,602) (180) (1,782)
BALANCE AT END OF YEAR $ 8,896 $ 870 $ 9,766 $ 8,170 $ 1,511 $ 9,681 $ 9,102 $ 931 $ 10,033
</TABLE>
The recorded investment in loans for which impairment has been
recognized in accordance with SFAS No. 114 totaled $1,895 and $3,865 at
December 31, 1997 and 1996, respectively. A corresponding valuation
allowance of $870 and $1,511 was established at December 31, 1997 and 1996,
respectively. The year-over-year decreases are primarily due to charge-offs
in 1997 of various impaired commercial loans associated with two borrowers.
The average recorded investment in impaired loans during 1997 was
approximately $2,653. The average recorded investment in impaired loans for
1996 did not differ materially from the amount outstanding at December 31,
1996. In 1997, BT recognized approximately $5 of interest revenue on
impaired loans, all of which was recorded using the cash basis of income
recognition. In 1996, BT recognized approximately $93 of interest revenue
on impaired loans, of which approximately $63 and $30 was recognized using
the accrual and cash basis methods of income recognition, respectively.
23
<PAGE>
7. PREMISES AND EQUIPMENT
Major classes of premises and equipment at December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 4,436 $ 4,538
Buildings 28,791 28,603
Leasehold improvements 1,798 1,326
Equipment 25,127 26,200
Total 60,152 60,667
Less accumulated depreciation
and amortization 29,728 29,033
PREMISES AND EQUIPMENT, NET $30,424 $31,634
</TABLE>
8. DEPOSITS
The composition of deposits at December 31, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Non-interest-bearing demand $ 177,756 $ 161,981
Interest-bearing demand 194,702 181,606
Savings 227,046 252,408
Time deposits 746,872 667,733
TOTAL $1,346,376 $1,263,728
</TABLE>
The aggregate amount of all time deposits over $100 amounted to
$133,300 and $106,819 at December 31, 1997 and 1996, respectively.
9. FEDERAL INCOME TAXES
The components of the provision (benefit) for income taxes from
operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current $8,946 $8,073 $6,037
Deferred 34 (1,073) (348)
TOTAL $8,980 $7,000 $5,689
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax
rate applicable to income before income taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct) the tax
effect of:
Tax-exempt interest (3.4) (4.7) (5.1)
Interest expense limitation .5 .8 .7
Other, net 2.3 2.6 (.2)
EFFECTIVE TAX RATE 34.4% 33.7% 30.4%
</TABLE>
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Reserve for possible loan losses $3,290 $ -- $3,225 $ --
Net unrealized holding gains
on securities -- 381 -- 415
Depreciation 759 -- 742 --
Deferred loan fees, net 131 -- 123 --
Adjustment due to acquisition 202 623 275 815
Deferred compensation 491 -- 541 --
Low-income housing credits -- -- 17 --
Other 1,441 518 1,588 489
TOTAL $6,314 $1,522 $6,511 $1,719
</TABLE>
No valuation allowance was established at December 31, 1997 and 1996 in
view of the Corporation's ability to carry back net deferred tax assets to
taxes paid in previous years.
24
<PAGE>
10. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
BT maintains noncontributory defined benefit pension plans covering
substantially all employees meeting minimum age and service requirements.
The plans generally provide benefits based on years of credited service and
final average earnings. BT's current funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Pension plan assets are primarily US Government obligations,
corporate obligations, and equity securities whose values are subject to
fluctuations of the securities market. Plan assets include common stock of
BT with values of $2,001 and $1,412 at December 31, 1997 and 1996,
respectively. Changes in plan asset values attributable to differences
between actual and expected returns on plan assets are deferred as
unrecognized gains or losses and included in the determination of net
pension cost over time.
Net pension expense for 1997, 1996, and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 740 $ 654 $ 597
Interest accrued on projected benefit
obligation 1,314 1,236 1,254
Actual return on plan assets (3,441) (3,010) (2,699)
Net amortization and deferral 1,492 1,238 1,097
NET PENSION EXPENSE $ 105 $ 118 $ 249
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in BT's consolidated balance sheet at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits (based upon retirement date)
of $16,755 and $15,589 for 1997 and 1996,
respectively $(16,954) $(15,761)
Projected benefit obligation $(21,216) $(19,179)
Plan assets at fair value 26,158 23,268
-----------------------
Plan assets in excess of projected benefit
obligation 4,942 4,089
Unrecognized actuarial gain (2,311) (1,454)
Unrecognized prior service costs (309) (337)
Unrecognized transition credit (1,487) (1,576)
-----------------------
PREPAID PENSION COST INCLUDED
IN THE CONSOLIDATED BALANCE SHEET $ 835 $ 722
</TABLE>
Pension expense is determined at the beginning of the year using the
funded status assumptions for the previous year end. The funded status is
determined using assumptions as of the end of the year, which for 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rate 7% 7% 7%
Long-term rate of return 8% 8% 8%
Compensation rate 3% 3% 3%
</TABLE>
The Corporation follows SFAS No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions." This statement requires that
the expected cost of providing post-retirement benefits be recognized in
the financial statements during the employee's active period of employment.
Expense under the provisions of SFAS No. 106 for 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Interest cost $104 $122
Amortization of transition obligation and other 94 92
NET POST-RETIREMENT EXPENSE $198 $214
</TABLE>
During 1997, retirees maintaining health care coverage were transferred
to the Corporation's medical plan in which retirees are responsible for
payment of premiums. As a result, the Corporation does not have an SFAS No.
106 liability at year-end 1997.
The Corporation used a discount rate of 7% for 1996 and 1995.
<TABLE>
<CAPTION>
1996
<S> <C>
Accumulated post-retirement benefit obligation $(1,509)
Plan assets at fair value 0
-------
Excess of benefit obligation over plan assets (1,509)
Transition obligation 1,611
Unrecognized net gain (248)
-------
ACCRUED BENEFIT OBLIGATION $ (146)
</TABLE>
25
<PAGE>
The Corporation adopted a defined contribution plan with 401(k)
features during 1995. The plan permits each employee to contribute a
portion of their salary to the plan on a pre-tax basis with employer
matching up to stipulated amounts as determined by the Corporation. Total
expense was $157 for 1997, $143 for 1996, and $60 for 1995.
Moxham Bank Corporation maintained a noncontributory target benefit
pension plan (target plan) covering all employees who met the eligibility
requirements. Prior to BT's acquisition of Moxham, a resolution was passed
to terminate the target plan subject to IRS approval. These employees were
admitted to the BT 401(k) plan upon acquisition and will vest 100% in the
plan upon completion of six years of service with either BT or previously
with Moxham. To be eligible for the target benefit pension plan prior to
the merger, an employee must have been 21 years of age and have completed
one year of continuous service. Contributions to the target plan were
determined by a formula based on the participant's annual compensation and
years of service. Contributions to the target plan included in the
consolidated statement of income were $107 for 1996 and $200 for 1995.
Moxham also maintained a non-qualified deferred compensation plan
(plan) for certain employees. This plan was frozen upon the acquisition of
Moxham by BT. To participate in this plan, selected employees must have
completed at least twelve consecutive months of service with Moxham. The
plan provides payments from a participant's account payable at age
sixty-two, or upon the participant's retirement from the Corporation,
whichever is later, or upon the participant's death or disablement.
Payments are made from the participant's account in equal quarterly
installments over a period of ten years, or the participant may elect to
receive the payment in a lump sum. Contributions to this plan included in
the consolidated statement of income were $445 in 1996 and $62 in 1995.
11. LITIGATION
A purported class action was instituted in the Court of Common Pleas of
Cambria County, Pennsylvania against Bank & Trust and Security of America
Life Insurance Company (Security) in November, 1996, alleging various
calculation irregularities in connection with a residential mortgage loan
to the plaintiff in the principal amount of approximately thirteen thousand
dollars resulting in, among other things, overcharges on credit life and
disability insurance coverage and other items. The plaintiff purports to
represent a class of persons who made a mortgage payment to Bank and Trust
or any of its subsidiaries within six years before November 21, 1996 and/or
had credit life or disability insurance coverage with Security within six
years before November 21, 1996. The complaint seeks unspecified damages.
The Corporation has filed an answer denying that its actions breached its
agreements with plaintiffs. The class potentially includes the borrowers on
approximately 2,800 accounts, the number of residential mortgages held by
Bank and Trust during the relevant period. Management intends to 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 cannot be fully assessed at this early stage of the proceedings.
On November 19, 1997, Laurel Capital Group, Inc., and its wholly-owned
subsidiary, Laurel Savings Bank, filed a suit in the United States District
Court in the Western District of Pennsylvania claiming that Laurel Bank
infringed on its common law trademark and servicemark rights by using the
name "Laurel" and a related logo in an undefined market segment referred to
as the "Pittsburgh area." The suit seeks to enjoin Laurel from using its
name and related logo in the "Pittsburgh area" and seeks unspecified
damages. Laurel Savings Bank is a thrift institution with five branch
locations in the North Hills of Pittsburgh and one branch in Butler County.
Pending a hearing on plaintiff's motion for preliminary injunction, Laurel
agreed to refrain from using the "Laurel" name or any related logo on any
bank documents, advertisements, or promotional materials in the Pittsburgh
vicinity. While BT denies the use of the name "Laurel" and related logo
infringes on plaintiff's trademark and servicemark rights and believes that
its rights to the name "Laurel" and related logo are senior to that of the
plaintiff's, there is a risk that Laurel might be prevented from using the
"Laurel" name and related logo in the Pittsburgh vicinity. The impact of
this litigation on BT cannot be fully assessed at this early stage of the
proceedings.
Due to the nature of their activities, BT and its subsidiaries are at
all times engaged in other various legal proceedings which arise in the
normal course of their businesses. While it is difficult to predict the
outcome of these proceedings, management believes the ultimate liability,
if any, will not materially affect BT's consolidated financial position or
results of operations.
12. CAPITAL STOCK
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 $23,581 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 August 28, 1996, BT's Board of Directors declared a 10% stock dividend.
The dividend was distributed on October 22, 1996 to shareholders of record
as of September 20, 1996. The dividend was charged to retained earnings in
the aggregate amount of $17,047 which was based on a market price of $33
per share. Weighted average shares outstanding and all per share amounts
included in the accompanying consolidated financial statements and notes
are based on the increased number of shares giving retroactive effect to
the aforementioned stock dividends.
In July 1992, the former Moxham Bank Corporation issued 15,000 shares
of Series A $8.00 cumulative convertible non-voting preferred stock (Series
A Preferred Stock). An annual dividend of $8.00 per share, payable
quarterly on the last day of March, June, September and December, commenced
September 30, 1992. Cash dividends on the Series A preferred stock was
cumulative from date of issue. At December 31, 1995, 14,000 preferred
shares were outstanding. These shares were exchanged for 88,550 shares of
BT common stock in connection with the merger on June 25, 1996.
Approximately $54 and $116 in preferred stock dividends were paid in 1996
and 1995, respectively.
In 1991, the Board of Directors of BT declared and paid a dividend
distribution of one right for each outstanding share of BT common stock.
Each right entitles the holder to purchase from the Corporation units of
Series A Preferred Stock at a set price, exercisable on the distribution
date as defined in the agreement. At December 31, 1997 no rights have been
exercised.
26
<PAGE>
BT is subject to various regulatory capital requirements administered
by the Federal Reserve Bank. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct material
effect on BT's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, BT and Laurel must
meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require BT and Laurel to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets, and of Tier I capital to average
assets. As of December 31, 1997, the Corporation meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Reserve Bank categorized BT and Laurel as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized," each entity must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification which management
believes have changed each institution's categorization.
BT's consolidated and subsidiary banks actual capital amounts and
ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS)
BT (Consolidated) $131,652 11.70% =>$90,053 =>8.00% N/A
Laurel 138,158 12.34 => 89,597 =>8.00 =>$111,997 =>10.00%
TIER I CAPITAL (TO RISK
WEIGHTED ASSETS)
BT (Consolidated) $121,886 10.83% =>$45,027 =>4.00% N/A
Laurel 128,392 11.46 => 44,799 =>4.00 =>$67,198 =>6.00%
TIER I CAPITAL (TO AVERAGE ASSETS)
BT (Consolidated) $121,886 7.94% =>$61,387 =>4.00% N/A
Laurel 128,392 8.40 => 61,174 =>4.00 =>$76,468 =>5.00%
As of December 31, 1996:
TOTAL CAPITAL (TO RISK
WEIGHTED ASSETS)
BT (Consolidated) $124,992 11.76% =>$84,994 =>8.00% N/A
Bank and Trust 80,157 12.89 => 49,762 =>8.00 =>$62,203 =>10.00%
Fayette 29,708 11.35 => 20,932 =>8.00 => 26,164 =>10.00
The former Laurel Bank 25,132 14.59 => 13,784 =>8.00 => 17,230 =>10.00
TIER I CAPITAL (TO RISK
WEIGHTED ASSETS)
BT (Consolidated) $115,311 10.85% =>$42,497 =>4.00% N/A
Bank and Trust 74,655 12.00 => 24,881 =>4.00 =>$37,322 =>6.00%
Fayette 27,286 10.43 => 10,466 =>4.00 => 15,699 =>6.00
The former Laurel Bank 23,375 13.57 => 6,892 =>4.00 => 10,338 =>6.00
TIER I CAPITAL (TO AVERAGE ASSETS)
BT (Consolidated) $115,311 7.99% =>$57,719 =>4.00% N/A
Bank and Trust 74,655 8.68 => 34,400 =>4.00 =>$43,000 =>5.00%
Fayette 27,286 7.84 => 13,929 =>4.00 => 17,411 =>5.00
The former Laurel Bank 23,375 10.22 => 9,152 =>4.00 => 11,440 =>5.00
</TABLE>
13. REGULATORY REQUIREMENTS
Reserve balances of $17,241 were required to be maintained at the
Federal Reserve Bank of Philadelphia by Laurel at December 31, 1997.
Dividends and loans to BT from Laurel are subject to regulatory
limitations. Dividends are limited to the retained earnings of Laurel.
Loans must be collateralized and loans to a single non-bank affiliate
cannot exceed 10% of Laurel's capital and surplus, and the aggregate to all
non-bank affiliates cannot exceed 20%. The maximum amount available to BT
at December 31, 1997 from Laurel in the form of dividends and loans was
$86,811 and $5,561, respectively.
14. SAIF ASSESSMENT
On September 30, 1996, President Clinton signed legislation which
required financial institutions with Savings Association Insurance Fund
(SAIF) deposits to pay a one-time special assessment to facilitate the
recapitalization of the SAIF. The assessment was based on 65.7 cents per
one hundred dollars of deposits at March 31, 1995. This assessment resulted
in a charge of approximately $1.4 million ($899 net of tax or $.15 per
diluted share) to other expense during the year ended 1996. The legislation
also included provisions whereby at such time as the SAIF is adequately
recapitalized, future SAIF deposit premiums will decrease from the 23 cents
per one hundred dollars of deposits paid in 1996 to approximately 6.5 cents
through the year 2000 and approximately 2.5 cents through the year 2017. BT
paid 6.4 cents per one hundred dollars of SAIF deposits during 1997.
27
<PAGE>
15. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The condensed balance sheets and statements of income and cash flows of
BT as of December 31, 1997, 1996, and 1995 and for the years then ended are
presented below.
BT FINANCIAL CORPORATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
1997 1996 1995
BALANCE SHEET
<S> <C> <C> <C>
Assets:
Cash $ 1,299 $ 1,208 $ 372
Investment in bank affiliates 152,308 146,519 137,370
Investment in non-bank affiliates 2,486 1,907 1,465
Other 6,069 6,137 5,955
TOTAL ASSETS $162,162 $155,771 $145,162
Liabilities and shareholders equity:
Long-term debt $ 14,286 $ 17,143 $ 20,715
Other liabilities 2,167 2,141 2,348
Shareholders equity 145,709 136,487 122,099
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $162,162 $155,771 $145,162
STATEMENT OF INCOME
Cash dividends from bank affiliates $ 11,464 $ 16,037 $ 9,438
Cash dividends from non-bank affiliates 200 100 100
Management fees from affiliates 15,467 14,030 10,552
Other income 127 418 33
Interest expense (1,107) (1,257) (773)
Operating expense (16,762) (15,077) (12,170)
---------------------------
Income before income taxes and equity in undistributed
income of affiliates 9,389 14,251 7,180
Income tax benefit 447 394 692
Income before equity in undistributed income of affiliates 9,836 14,645 7,872
Equity in undistributed income of affiliates:
Banks 6,671 (1,247) 5,021
Non-banks 645 376 156
NET INCOME $ 17,152 $ 13,774 $ 13,049
STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income $ 17,152 $ 13,774 $ 13,049
Equity in undistributed income of affiliates (7,316) 871 (5,177)
Amortization 1,163 1,184 1,112
Other assets and liabilities, net (477) (1,640) (1,411)
Net cash provided by operating activities 10,522 14,189 7,573
Cash flows from investing activities:
Investment in affiliate -- (4,266) (12,500)
Sale of investment securities 293 726 --
Other -- 22 176
Net cash provided by (used in) investing activities 293 (3,518) (12,324)
Cash flows from financing activities:
Preferred dividends paid -- (54) (116)
Common dividends paid (7,864) (6,212) (5,242)
Payment on long-term debt (2,857) (3,572) (2,570)
Proceeds from long-term debt -- -- 12,520
Other (3) 3 201
Net cash (used in) provided by financing activities (10,724) (9,835) 4,793
Increase in cash 91 836 42
Cash at beginning of year 1,208 372 330
CASH AT END OF YEAR $ 1,299 $ 1,208 $ 372
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on capital notes $ 1,150 $ 1,122 $ 764
Federal income taxes, net of refunds 10,105 6,761 7,761
Non-cash financing activities:
Issuance of common stock; Armstrong acquisition $ -- $ 7,712 $ --
Conversion of preferred stock to common stock $ -- $ 1,378 $ 98
</TABLE>
28
<PAGE>
16. LONG-TERM DEBT
Long-term debt outstanding amounted to $14.3 million and $17.2 million
at December 31, 1997 and 1996, respectively. The Corporation incurred a
note on December 14, 1995 for $20.0 million. The note contains a variable
interest rate option as defined in the agreement, and the interest rate at
December 31, 1997 was 6.81%. The note agreement has certain restrictive
covenants relative to dividends, nonperforming assets, and equity
requirements. As of December 31, 1997 the Corporation was in compliance
with these covenants. Principal payments began in March of 1996 and are due
in 28 equal quarterly installments of $714.
A mortgage note is included in long-term debt and amounted to $50 and
$67 at December 31, 1997 and 1996, respectively. The mortgage note has a
fixed rate of 9.5% and matures in the year 2000.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments consist of
loan commitments and standby letters of credit.
The Corporation's exposure to loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and
standby letters of credit is represented by the contractual amount of these
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The face amounts of financial instruments with off-balance-sheet risk
at December 31, 1997 were as follows:
Loan commitments $236,692
Standby letters of credit 12,207
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements or loss exposures. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit,
is based on management's credit evaluation of the customer. Standby letters
of credit are unconditional commitments issued by the Corporation to
support the financial obligations of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans. The collateral
varies but may include accounts receivable, inventory and property, plant
and equipment for those commitments for which collateral is deemed
necessary.
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Short-Term Investments
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities
For securities, estimated fair values are based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans
Fair values were estimated for loan portfolios with similar financial
characteristics by discounting estimated future contractual cash flows
using the current rates at which similar loans would be made to borrowers
with the same remaining maturities.
Deposits
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Short-Term Liabilities
The carrying value of short-term borrowings and securities sold under
agreements to repurchase approximates fair value.
Long-Term Debt
The estimated fair value of fixed rate debt was established based on
rates currently available to the Corporation for debt with similar terms
and remaining maturities. The carrying value of variable rate debt
approximates fair value.
Commitments to Extend Credit, Standby Letters of Credit, and Financial
Guarantees Written
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of guarantees and letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties
at the reporting date.
29
<PAGE>
The fair value of commitments, guarantees and letters of credit are
insignificant after considering the aforementioned factors.
The estimated fair values of BT's financial instruments at December 31
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<C> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 52,452 $ 52,452 $ 75,739 $ 75,739
Securities 365,933 367,157 302,392 302,945
Loans 1,067,061 1,073,822 1,025,765 1,026,685
Less: Reserve for loan losses (9,766) -- (9,681) --
TOTAL FINANCIAL ASSETS $1,475,680 $1,493,431 $1,394,215 $1,405,369
Financial liabilities:
Deposits $1,346,376 $1,351,408 $1,263,728 $1,269,372
Federal funds purchased and securities
sold under agreements to repurchase 36,313 36,313 36,678 36,678
Short-term borrowings 1,871 1,871 4,010 4,010
Long-term debt 14,335 14,335 17,210 17,210
TOTAL FINANCIAL LIABILITIES $1,398,895 $1,403,927 $1,321,626 $1,327,270
</TABLE>
19. EARNINGS PER SHARE
BT computes "basic" EPS by dividing net income, after deducting
preferred stock dividends, if any, by the weighted average number of shares
of common stock outstanding during each year, after giving retroactive
effect to the 10% stock dividends distributed by BT on October 22, 1996 and
September 15, 1997. "Diluted" EPS amounts are calculated assuming all
outstanding preferred stock was converted into common stock at the
beginning of each year and that no preferred dividends were paid. The
calculation of earnings per share follows:
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Basic Earnings Per Share:
Net income $ 17,152 $ 13,774 $ 13,049
Preferred dividends -- (54) (116)
----------------------------------------------
Net income applicable to common stock $ 17,152 $ 13,720 $ 12,933
Weighted average shares outstanding Basic 6,250,436 6,082,976 5,876,669
BASIC EARNINGS PER SHARE $ 2.74 $ 2.26 $ 2.20
Diluted Earnings Per Share:
Net income $ 17,152 $ 13,774 $ 13,049
Weighted average shares outstanding-Basic 6,250,436 6,082,976 5,876,669
Additional common shares assuming:
Conversion of preferred stock Series A -- 51,816 110,972
----------------------------------------------
Weighted average shares outstanding-Diluted 6,250,436 6,134,792 5,987,641
DILUTED EARNINGS PER SHARE $ 2.74 $ 2.25 $ 2.18
</TABLE>
Note: Share and per share data have been adjusted to reflect the 10%
stock dividends distributed on October 22, 1996 and September 15,
1997.
30
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL DATA*
(unaudited)
A summary of financial data for the four quarters for the years 1997
and 1996 is presented below.
<TABLE>
<CAPTION>
1997 1996
Quarter Ended Quarter Ended
Mar. 31 Jun. 30 Sept. 30 Dec. 31 Mar. 31 Jun. 30 Sept. 30 Dec. 31
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $16,005 $16,262 $16,576 $16,538 $15,418 $15,744 $16,293 $16,169
Provision for
loan losses (1,045) (1,045) (1,065) (1,075) (412) (396) (618) (1,015)
Other income 2,915 2,804 3,359 3,412 2,616 2,841 2,703 3,113
Other expenses (1) (11,596) (11,687) (12,179) (12,047) (11,978) (13,682) (13,682) (12,340)
Provision for
income taxes (2,197) (2,140) (2,303) (2,340) (1,879) (1,529) (1,581) (2,011)
NET INCOME $ 4,082 $ 4,194 $ 4,388 $ 4,488 $ 3,765 $ 2,978 $ 3,115 $ 3,916
Common dividends $ 1,875 $ 1,932 $ 1,932 $ 2,125 $ 1,369 $ 1,263 $ 1,705 $ 1,875
Earnings per share: (2)
Basic $ .65 $ .67 $ .70 $ .72 $ .63 $ .50 $ .50 $ .63
Diluted .65 .67 .70 .72 .63 .49 .50 .63
</TABLE>
* Data for March 31, 1996 has been restated due to the Moxham
pooling-of-interests acquisition on June 25, 1996. Quarterly
figures may not total to the full-year amount due to rounding.
(1) The quarters ended March 31, 1996 and June 30, 1996 included expenses
of $77 and $1,232, respectively, associated with nonrecurring
reorganization costs in connection with the Moxham merger. The
quarter ended September 30, 1996 included a special one-time SAIF
deposit insurance assessment of $1,383 related to deposits
acquired from savings and loan institutions.
(2) Per share data has been adjusted to reflect the 10% stock
dividends distributed on October 22, 1996 and September 15, 1997.
Earnings per share data for periods prior to December 31, 1997 has
been restated to reflect the adoption of SFAS No. 128 on December
31, 1997.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA*
<TABLE>
<CAPTION>
Years Ended December 31, 1997(8) 1996(7) 1995(6) 1994 1993(5)
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $ 113,566 $ 108,356 $ 99,828 $ 89,029 $ 81,012
Interest expense 48,185 44,732 42,679 33,129 29,134
Net interest income 65,381 63,624 57,149 55,900 51,878
Provision for loan losses 4,230 2,441 1,566 1,168 2,168
Net interest income
after provision for loan losses 61,151 61,183 55,583 54,732 49,710
Other income 12,490 11,272 8,714 8,407 8,205
Other expense 47,509 51,681 45,559 45,597 41,562
Income before income taxes 26,132 20,774 18,738 17,542 16,353
Provision for income taxes 8,980 7,000 5,689 4,883 5,081
Income before cumulative effect of
accounting principle changes 17,152 13,774 13,049 12,659 11,272
Cumulative effect of change in
accounting for income taxes -- -- -- -- 86
NET INCOME $ 17,152 $ 13,774 $ 13,049 $ 12,659 $ 11,358
BALANCE SHEET DATA (PERIOD END)
Total assets $1,552,921 $1,466,308 $1,442,560 $1,338,074 $1,306,406
Loans, net of unearned interest 1,067,061 1,025,765 1,011,240 892,010 832,421
Total securities 365,933 302,392 303,355 333,199 295,641
Total deposits 1,346,376 1,263,728 1,253,252 1,147,993 1,156,650
Total long-term debt 14,335 17,210 20,083 10,021 12,482
Total shareholders' equity 145,709 136,487 122,099 104,268 109,356
PER SHARE DATA (1)
Basic earnings per share $ 2.74 $ 2.26 $ 2.20 $ 2.14 $ 2.07
Diluted earnings per share 2.74 2.25 2.18 2.12 2.05
Common dividends declared per share 1.26 1.02 .89 .81 .72
Period end book value 23.31 21.84 20.51 17.52 18.43
Average shares outstanding-Basic 6,250,436 6,082,976 5,876,669 5,861,177 5,427,956
Average shares outstanding-Diluted 6,250,436 6,134,792 5,987,641 5,975,976 5,542,755
FINANCIAL RATIOS
Return on average assets 1.13% .94% .97% .98% 1.03%
Return on average shareholders' equity 12.19 10.66 11.43 11.90 12.48
Net yield on earning assets (2) 4.74 4.82 4.67 4.74 5.22
Common stock dividend payout 45.85 45.10 40.17 37.34 34.65
Average shareholders' equity to average assets 9.24 8.85 8.49 8.20 8.23
Primary capital ratio at period end (3) 9.95 9.90 9.10 8.41 8.98
Net charge-offs to average loans,
net of unearned interest .39 .29 .16 .11 .24
Nonperforming loans to total loans,
net of unearned interest (4) .86 1.22 .73 .72 .65
Reserve for loan losses to period end loans,
net of unearned interest .92 .94 .99 1.01 1.06
</TABLE>
* Data for periods prior to 1996 has been restated due to the Moxham
pooling-of-interests acquisition on June 25, 1996.
(1) Per share data has been adjusted to reflect the 5% stock dividends
distributed by BT on July 26, 1993 and October 14, 1994 and the 10%
stock dividends distributed on October 22, 1996 and September 15,
1997. Additionally, per share data has been adjusted to reflect the
10% stock dividend paid on December 30, 1994 and the two-for-one stock
split paid in February 1993 by the former Moxham Bank Corporation.
Earnings per share data for periods prior to 1997 has been restated to
reflect the adoption of SFAS No. 128 on December 31, 1997.
(2) Net interest income stated on a fully taxable equivalent basis divided
by average earning assets.
(3) The sum of shareholders equity and the reserve for loan losses divided
by the sum of total assets and the reserve for loan losses.
(4) Nonperforming loans include nonaccrual, restructured and loans 90 days
or more past-due.
(5) Reflects the purchase acquisition of FirstSouth Bancorp, Inc. on
December 10, 1993.
(6) Reflects the purchase acquisition of Huntington on December 14, 1995.
(7) Reflects the purchase acquisition of Armstrong on June 13, 1996.
(8) Reflects the purchase acquisition of three branch offices of National
City on June 6, 1997.
32
<PAGE>
MARKET PRICE AND CASH DIVIDENDS
BT's common stock is traded in the NASDAQ Stock Market under the NASDAQ
symbol "BTFC."
The following table sets forth cash dividends declared and the range of
high and low sale prices, as reported on the NASDAQ Stock Market for the
Common Stock for the quarters indicated.
<TABLE>
<CAPTION>
1997 1996
Quarter High Low Dividend High Low Dividend
<S> <C> <C> <C> <C> <C> <C>
1st $39.77 $36.14 $ .300 $29.96 $27.69 $ .233
2nd 39.77 35.46 .309 31.20 26.55 .213
3rd 46.25 38.64 .309 31.14 26.24 .273
4th 51.50 43.31 .340 36.25 30.46 .300
TOTAL $1.258 $1.019
</TABLE>
Note: Data has been adjusted to reflect the 10% stock dividends
distributed on October 22, 1996 and September 15, 1997.
On January 28, 1998, there were 4,451 record holders of BT common stock.
BT offers an Automatic Dividend Reinvestment Plan to provide a prompt,
simple and expense-free way for shareholders to invest cash dividends into
additional shares of BT common stock. Laurel Trust Company performs certain
bookkeeping and administrative functions in connection with the Plan. As
participants, the shareholders may add to their investment in BT common
stock through voluntary additional cash deposits with the Administrator.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. OVERVIEW
Fiscal year 1997 was a record year for BT Financial Corporation (BT or
the Corporation) in both earnings and asset size. For the first time, total
assets exceeded $1.5 billion. Net income increased 24.5% and diluted
earnings per share increased 21.8% in 1997 over 1996. 1997 saw the
completion of operational consolidations and the consolidation of BT's
three subsidiary banks, Johnstown Bank and Trust Company, Laurel Bank, and
Fayette Bank, into one bank named Laurel Bank (Laurel). Three branch
banking offices were acquired from National City Bank of Pennsylvania
(National City), which resulted in Laurel gaining further market share in
Bedford County and attaining the number one market share in Somerset
County. Operational efficiencies and the closing or consolidation of seven
branch offices from the Moxham merger in 1996 resulted in an improved
efficiency ratio, which stood at 60% in 1997 compared to 64% in 1996. The
telebanking center has grown tremendously, receiving over 9,000 calls each
month. Personal computer banking, PC Banc, was introduced in 1997 and
complemented our successful commercial personal computer banking program,
Execubanc.
BT's management team is committed to continuing the efforts to improve
the performance of the Corporation. In 1998, the management team will
continue to examine the delivery system of branch offices, ATMs, ACH
transactions and computer banking to develop greater efficiencies while
maintaining and improving customer service. BT will also consider emerging
technologies such as smart cards, electronic commerce and banking on the
Internet in an effort to enhance customer service and find new sources of
fee income. Other lines of business closely associated with banking that
fit with BT's competencies, risk tolerance, and resources will also be
investigated.
During 1997, BT made particular improvement with respect to
nonperforming loans. At December 31, 1997, nonperforming loans decreased
$3.4 million, or 27.1%, compared to year-end 1996. Concentrated efforts by
BT's Collection Department successfully reduced the level of nonperforming
loans by allocating additional resources and completing an automated,
centralized collection function. At the same time, a Special Assets
Department was created to concentrate on past-due commercial loans. See a
more in-depth discussion under the title "Nonperforming Assets and Risk
Elements."
BT's net interest margin of 4.74% in 1997 compared favorably with other
peer financial institutions. With a relatively strong net interest margin
and growth in assets, net interest income increased $1.8 million, or 2.8%,
in 1997 over 1996. Most of BT's growth in assets was from the National City
branch acquisitions, which provided approximately $69.7 million in deposit
balances. At the same time, an additional $13 million of internal growth in
deposits funded loan expansion which contributed to the increased net
interest income. During 1998, BT will continue to concentrate on increasing
assets through increased sales, marketing, and service efforts to current
markets while continuing to evaluate strategic bank and branch acquisition
opportunities.
Other income continued to have positive growth. Trust income grew 9.2%
while fees for other services increased 15.9%. Other expenses declined $4.2
million, or 8.1% in 1997 compared to 1996. Approximately 65% of the
decrease in expenses was due to the nonrecurring reorganization costs
incurred in 1996 related to the Moxham merger and the one-time SAIF deposit
insurance assessment in 1996. Excluding the Moxham and deposit insurance
costs of 1996, expenses still declined even despite adding the costs
associated with acquiring three branch offices and the continued upgrading
of the Corporation's technology.
In 1996, BT began analyzing any Year 2000 issues pertaining to BT's
business and operations. Year 2000 issues refer to uncertainties regarding
the ability of various software systems to interpret dates correctly after
the beginning of the Year 2000. BT is in the process of 1) analyzing its
information systems and vendor supplied applications systems to address any
Year 2000 issues, and 2) evaluating the potential effects of Year 2000
issues on customers of Laurel.
33
<PAGE>
The ongoing process of analyzing BT's information systems involves
internal testing of computer hardware and software and the modification
and/or replacement of such systems if necessary. While BT is taking all
appropriate steps to assure Year 2000 compliance, it is dependent on vendor
compliance to a large extent. BT is requiring systems and software vendors
to represent that the services and products provided are, or will be, Year
2000 compliant and are tested for such compliance. Management expects to
have all or substantially all systems and applications compliant or near
completion of any necessary remedial actions by the end of 1998.
BT estimates that the total cumulative cost of this process will
approximate $520,000, which includes costs associated with modifying the
systems as well as the cost of purchasing or leasing certain hardware and
software. Purchased hardware and software will be capitalized in accordance
with policy. Personnel and all other costs related to this process are
being expensed as incurred. The cost of this process and the expected
completion dates are based on management's best estimates and are believed
to be reasonably accurate. The expenditure is not expected to be material
to the Corporation's business, operations or financial condition and should
have no material impact on the Corporation's results of operations,
liquidity or capital resources.
BT's process of evaluating potential effects of Year 2000 issues on
customers of Laurel is in its early stages, and it is therefore impossible
to quantify the potential adverse effects of Year 2000 problems on Laurel's
loan customers. The failure of a commercial bank customer to prepare
adequately for Year 2000 compatibility could have a significant adverse
effect on such customer's operations and profitability, in turn inhibiting
its ability to repay loans in accordance with their terms. Until sufficient
information is accumulated from customers of Laurel to enable BT to assess
the degree to which customers' operations are susceptible to potential
problems, BT will be unable to quantify the potential, if any, losses from
loans to commercial customers.
On June 25, 1996, BT completed the merger with Moxham whereby Moxham
was merged directly into BT. Approximately 1.1 million shares of BT common
stock were exchanged for all of the outstanding preferred and common stock
of Moxham. The merger has been accounted for as pooling-of-interests and
accordingly, BT's consolidated financial statements have been restated to
include the accounts and operations of Moxham for all periods prior to the
merger. Additionally, 10% stock dividends were distributed on October 22,
1996 and September 15, 1997 and all per share data in the following
discussion has been restated to reflect the stock dividends.
Net income for 1997 was $17.2 million, a 24.5% increase over 1996's
$13.8 million which was a 5.6% increase over 1995. Earnings per diluted
share were $2.74 in 1997, a 21.8% increase over $2.25 earned in 1996, which
reflected a 3.2% increase over $2.18 earned in 1995. BT would have earned
$2.55 per diluted share in 1996 exclusive of the nonrecurring expenses
associated with the Moxham acquisition and the SAIF deposit insurance
assessment.
Return on average assets was 1.13% in 1997, .94% in 1996 and .97% in
1995. Return on average shareholder's equity was 12.19%, 10.66%, and 11.43%
in 1997, 1996, and 1995, respectively. Excluding the nonrecurring
acquisition and deposit insurance expenses, the return on average assets
would have been 1.07% and the return on average shareholders' equity would
have been 12.10% in 1996. Return on average tangible shareholders' equity,
which excludes intangible amortization expense from net income and
intangibles from average shareholders' equity, was 16.17% in 1997, 14.32%
in 1996 and 13.38% in 1995.
The following is a more detailed discussion of certain significant
factors that affected the Corporation's consolidated operating results,
financial position, capital resources, liquidity, and interest rate
sensitivity for the years ended December 31, 1997, 1996, and 1995.
Reference should be made to the consolidated financial statements and notes
thereto as well as the selected financial data presented herein for a
complete understanding of the following discussion and analysis.
Certain 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. BT undertakes no obligation to update any forward-looking
statements made herein. The factors that may cause actual results to differ
materially from the forward-looking statements include: interest rate,
market and monetary fluctuations, monetary and fiscal policies, changes in
laws and regulations, inflation, general economic conditions, competition
and economic conditions in the geographic region and industries in which
the Corporation conducts its operations, introduction and acceptance of new
products and enhancements, mergers and acquisitions and their integration
into BT, and management's ability to manage these and other risks.
2. RESULTS OF OPERATIONS
Net Interest Income
Net interest income is BT's primary source of revenue. In 1997, fully
taxable equivalent net interest income was $66.8 million, representing a
2.5%, or $1.6 million, increase compared to 1996. The higher level of net
interest income in 1997 was mainly due to a greater volume of average
interest earning assets resulting from increased loan levels which were
funded primarily by deposits acquired from National City. Average interest
earning assets rose $56.8 million, or 4.2%, to $1.41 billion in 1997
compared to $1.35 billion in 1996. The net interest margin, on a fully
taxable equivalent basis, declined 8 basis points to 4.74% in 1997 compared
to 4.82% in 1996. The decrease was essentially due to higher overall rates
paid on interest-bearing liabilities as a result of competition in the
marketplace and some shifting of existing funds into higher priced
products. Rates paid on deposits acquired from National City also
contributed to the relatively higher cost of funds in 1997.
Throughout 1997, BT maintained a higher net interest margin relative to
peer levels despite the compression experienced in 1997. BT continues to
focus its efforts on generating quality loan growth through acquisitions
and internal growth. BT's Asset/Liability Committee (ALCO) strives to
minimize the impact of interest rate fluctuations through effective
management of its interest rate sensitivity position.
Fully taxable equivalent net interest income rose $6.5 million, or
11.1%, while average interest-earning assets increased $95.7 million, or
7.6%, in 1996 compared to 1995. Most of the earning asset increase was due
to assets acquired in the Huntington and Armstrong acquisitions. The net
interest margin, on a fully taxable equivalent basis, improved 15 basis
points in 1996 from the 1995 level of 4.67%. The net interest margin
increase was primarily due to a higher yielding asset mix along with lower
overall rates paid on interest-bearing liabilities. BT's loan portfolio
represents the largest component of average interest-earning assets.
Average loans were 75.5% of average interest-earning assets in 1997,
compared to 75.9% in 1996 and 73.3% in 1995.
34
<PAGE>
The following table presents the major categories of assets,
liabilities and shareholders' equity with their corresponding average
balances, related interest income earned on interest-earning assets or
interest expense paid on interest-bearing liabilities, and resulting yields
and rates on a fully taxable equivalent basis for the years indicated.
<TABLE>
<CAPTION>
1997 1996 1995
Interest Rate Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense(1) Paid(1) Balance Expense(1) Paid(1) Balance Expense(1) Paid(1)
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest (2) $1,062,873 $ 92,054 8.66% $1,026,536 $ 88,936 8.66% $ 920,586 $ 80,458 8.74%
Taxable securities 326,513 21,580 6.61 292,141 18,792 6.43 313,469 19,162 6.11
Non-taxable securities 7,789 691 8.87 10,212 910 8.91 12,083 1,052 8.71
Trading account assets -- -- -- -- -- -- 5 -- 6.14
Federal funds sold 11,066 606 5.48 22,172 1,188 5.36 5,177 306 5.91
Time deposits in other banks 291 16 5.50 692 34 4.91 4,773 325 6.81
Total interest-earning
assets 1,408,532 114,947 8.16 1,351,753 109,860 8.13 1,256,093 101,303 8.06
Non-interest-earning assets:
Cash and cash equivalents 47,598 46,388 43,587
Premises and equipment, net 31,175 32,527 30,481
Other assets 45,183 39,012 23,501
Less: Reserve for loan
losses (9,653) (9,665) (9,175)
TOTAL ASSETS $1,522,835 $1,460,015 $1,344,487
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand & savings deposits $ 428,694 5,855 1.37 $ 445,931 6,388 1.43 $ 447,931 8,238 1.84
Other time deposits 720,840 39,313 5.45 664,742 35,820 5.39 589,586 31,862 5.40
Federal funds purchased
and securities sold under
agreements to repurchase 35,805 1,731 4.83 28,638 1,098 3.83 30,985 1,597 5.15
Short-term borrowings 2,540 174 6.85 2,845 158 5.55 4,625 269 5.82
Long-term debt 16,028 1,112 6.94 19,020 1,268 6.67 9,344 714 7.64
Total interest-bearing
liabilities 1,203,907 48,185 4.00 1,161,176 44,732 3.85 1,082,471 42,680 3.94
Non-interest-bearing liabilities:
Demand deposits 168,521 159,074 138,868
Other liabilities 9,703 10,542 9,003
Total liabilities 1,382,131 1,330,792 1,230,342
Shareholders' equity 140,704 129,223 114,145
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,522,835 $1,460,015 $1,344,487
Net interest income $ 66,762 $ 65,128 $58,623
Net interest spread (3) 4.16% 4.28% 4.12%
NET YIELD ON EARNING ASSETS (4) 4.74% 4.82% 4.67%
</TABLE>
(1) Tax-exempt income on loans and investments and related yields are
shown on a fully taxable equivalent basis computed using the federal
statutory tax rate of 35%.
(2) For purposes of calculating loan yields, average loan balances include
nonaccrual loans.
(3) The difference between rate earned on total interest-earning assets
and rate paid on total interest bearing liabilities.
(4) Net interest income stated on a fully taxable equivalent basis divided
by average earning assets.
35
<PAGE>
The following table provides an analysis of the changes in interest income and
expense attributable to changes in volume and rate.
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
Net Net
Increase Due to changes in Increase Due to changes in
(Decrease) Volume Rate (Decrease) Volume Rate
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, net of unearned
interest (1) (2) $3,118 $3,148 $(30) $8,478 $9,260 $(782)
Taxable securities 2,788 2,211 577 (370) (1,304) 934
Nontaxable securities(1) (219) (216) (3) (142) (163) 21
Federal funds sold (582) (595) 13 882 1,005 (123)
Time deposits in other banks (18) (20) 2 (291) (278) (13)
Total interest income 5,087 4,528 559 8,557 8,520 37
INTEREST EXPENSE
Interest-bearing demand
and savings deposits (533) (247) (286) (1,850) (37) (1,813)
Other time deposits 3,493 3,022 471 3,958 4,063 (105)
Federal funds purchased and securities
sold under agreements to repurchase 633 275 358 (499) (121) (378)
Short-term borrowings 16 (17) 33 (111) (104) (7)
Long-term debt (156) (199) 43 554 739 (185)
Total interest expense 3,453 2,834 619 2,052 4,540 (2,488)
CHANGE IN NET INTEREST INCOME(1) $1,634 $1,694 $(60) $6,505 $3,980 $2,525
</TABLE>
(1) Tax-exempt income on loans and investments and related yield are shown
on a fully taxable equivalent basis computed using the federal
statutory tax rate of 35%.
(2) Nonaccrual loans are included in the average outstanding balances.
Other Income
Total other income, excluding security gains, increased 13.2%, or $1.4
million, in 1997 compared to 1996. Trust income increased 9.2%, or
$268,000, largely due to internal growth in assets under management. At
year-end 1997, the market value of trust assets totaled $601 million
compared to $556 million at year-end 1996. Higher levels of deposit account
fees led service fees to a 15.9%, or $1.0 million, increase over the prior
year level. A key revenue enhancement for BT in 1997 was the implementation
of its check card product, a point-of-sale debit card. This product
resulted in fees of approximately $153,000 in 1997. In 1998, BT will focus
on increasing customer usage of the check card to generate additional fee
revenue. In 1997, BT sold its credit card portfolio to a large servicer and
realized a gain of approximately $304,000 on the sale of these loans. In
connection with the sale, BT also sold its merchant credit card
relationships, realizing a profit of $250,000. BT will continue to issue
credit cards under the BT Financial Corporation 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. On an ongoing basis,
BT will generate fee income while eliminating the risks and expenses
related to the maintenance of a credit card portfolio.
Total other income, excluding security gains, increased 26.3%, or $2.3
million, in 1996 over 1995. Trust income increased 21.7%, or $521,000, due
to increased market penetration and a greater volume of assets under
management. Fees for other services increased 17.8%, or $1.0 million,
primarily due to the addition of deposit accounts from the Huntington and
Armstrong acquisitions. Growth in other income was impacted by some
one-time additions from the elimination of an acquired liability for
certain state taxes and funds received in a new contractual agreement with
a loan servicing company, which contributed $222,000 and $200,000,
respectively. Additionally, the sale of real estate at the former Laurel
Bank and the sale of the Salem 22 office of the former Moxham National Bank
added approximately $270,000 to other income.
Net securities gains declined $211,000 in 1997 over 1996 while net
securities gains in 1996 exceeded the 1995 amount by $298,000. In 1996, BT
sold various stocks of other financial institutions acquired through merger
and acquisition activity over the past few years. Generally, securities are
acquired to provide interest income and to contribute to the management of
interest rate risk and liquidity and are not bought and sold for profit
taking. Sales occur periodically when funding is required for loan or
deposit outflows.
Other Expenses
On September 30, 1996, President Clinton signed legislation which
required financial institutions with Savings Association Insurance Fund
(SAIF) deposits to pay a one-time special assessment to facilitate the
recapitalization of the SAIF. The assessment was based on 65.7 cents per
$100 of deposits at March 31, 1995. This assessment resulted in a charge of
approximately $1.4 million ($899,000 net of tax or $.15 per diluted share)
to other expense during the year ended 1996. The legislation also included
provisions to substantially reduce deposit insurance premiums in the
future. At such time as the SAIF is adequately recapitalized, future SAIF
deposit premiums will decrease from the 23 cents per $100 of deposits paid
in 1996 to approximately 6.5 cents through the year 2000 and approximately
2.5 cents through the year 2017. BT paid 6.4 cents per $100 of SAIF
deposits during 1997.
36
<PAGE>
Total other expenses declined 8.1%, or $4.2 million, in 1997 compared
to 1996. Approximately 65% of the decrease was due to nonrecurring
reorganization costs paid in 1996 related to the Moxham merger ($959,000
after tax or $.16 per diluted share) and the one-time SAIF deposit
insurance assessment paid in 1996. Excluding one-time charges, total other
expenses declined 3.0%, or $1.5 million. Cost savings and improved
efficiencies from the Moxham acquisition associated with branch closings,
reduced staffing levels and consolidation of various support activities
were realized in 1997. BT's efficiency ratio, exclusive of nonrecurring
costs, improved to 60% in 1997 from 64% in 1996. The efficiency ratio
measures the ability to generate revenue in relation to expenditures. The
lower ratio in 1997 reflected BT's ongoing initiatives to have the
company's resources produce revenue more efficiently. Salaries and wages
declined 2.1% in 1997 while employee benefit costs decreased 12.2%,
primarily due to lower hospitalization expense. The implementation of
managed health care in 1997 proved to be a key factor in the decreased
hospitalization costs for the year. In 1998, BT will initiate a managed
dental care program as a means to control dental costs. Full time
equivalent employees increased to 787 at year-end 1997 compared to 764 at
year-end 1996 primarily due to employees hired in connection with the
National City branch acquisitions. Occupancy expense declined 5.8%
reflecting the closure of seven branch offices in the third quarter of 1996
in connection with the Moxham merger. Equipment expense increased 13.4%
reflecting higher levels of ongoing technology-based expenditures. FDIC
insurance expense declined 85.1% due to the one-time SAIF deposit
assessment in 1996 and lower deposit insurance premiums in effect for 1997.
Other operating costs declined 5.8% despite additional expenses related to
the bank charter consolidation. The single bank charter is intended to
provide various efficiencies in back-office operational areas as well as
enhancing future capacity for growth while easing some regulatory burden.
Marketing and advertising are likely to benefit from reduced media costs by
focusing on the promotion of a single bank. 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.
Total other expenses increased $6.1 million, or 13.4%, in 1996 compared
to 1995. Approximately 44% of the increase was due to the nonrecurring
reorganization costs associated with the Moxham merger and the one-time
SAIF deposit insurance assessment paid in 1996. Most of the remaining
increase was due to a full year of expenses related to the Huntington
acquisition and the second quarter 1996 acquisition of Armstrong, along
with conversion and marketing expenses related to all three acquisitions.
Salaries increased 4.1% due to periodic merit increases while full time
equivalent employees declined to 764 at year-end 1996 from 828 at year-end
1995. Employee benefit costs declined 6.4% due to a change in BT's health
care provider in 1994 and the lowering of reserves associated with the
previous provider. Deposit insurance expense increased 11.9% mainly due to
the one-time SAIF deposit assessment. The increase was mitigated by reduced
deposit insurance premiums in effect for 1996. BT's efficiency ratio,
exclusive of nonrecurring charges, improved to 64% in 1996 from 68% in
1995.
Provision for Income Taxes
Income before taxes increased $5.4 million or 25.8% in 1997 to $26.1
million, after a $2.0 million or 10.9% increase in 1996 over 1995. The
effective tax rate was 34.4% in 1997 compared to 33.7% in 1996 and 30.4% in
1995.
A decline in tax-exempt interest income contributed to the slight rise
in the effective tax rate in 1997 over 1996. The increase in the effective
tax rate in 1996 compared to 1995 was primarily due to an increase in
nondeductible amortization of acquisition goodwill and organization costs,
as well as a decline in tax-exempt interest income.
3. FINANCIAL CONDITION
Loan Portfolio
BT's loan portfolio is comprised of a balanced composition of
commercial loans to small- to mid-sized businesses, consumer loans and
residential mortgage loans. In 1997, average total loans, net of unearned
interest, grew $36.3 million or 3.5% over 1996 to an average of $1.06
billion. Total loans outstanding, net of unearned interest, increased 4.0%
or $41.3 million at year-end 1997 compared to year-end 1996. Loans acquired
in the National City branch acquisitions totaled approximately $5.8
million. Most of the acquired loans were consumer installment loans. BT's
loan growth in 1997, was aided by a strong local economy which translated
into increased demand for both commercial and consumer loans. Throughout
1997, BT experienced higher commercial loan levels mainly due to increased
lending activity to existing commercial accounts. Consumer loan growth was
also evident in 1997 with automobile loan demand particularly strong in the
first half of the year. Conventional residential mortgage loans were lower
in 1997 because BT sold most new longer term fixed-rate mortgages in the
secondary marketplace. The sale of these mortgages enables BT to reduce the
interest rate risk associated with long-term fixed-rate instruments while
generating additional income related to the sale and subsequent servicing
of these loans. BT expects to remain active in the secondary loan market in
1998 and will sell loans when deemed appropriate by management.
At year-end 1996, total loans outstanding, net of unearned interest,
increased $14.5 million or 1.4% compared to year-end 1995. Most of the
growth was due to the acquisition of Armstrong in June of 1996 and the
inclusion of $12 million of Armstrong loans outstanding at the merger date.
During 1996, BT experienced growth in both consumer and commercial loans;
however, commercial loan growth was mitigated by the pay-off of
approximately $26 million in loans during late 1996. In 1996, average total
loans, net of unearned interest, grew 11.5% over 1995 to an average of
$1.03 billion. Approximately $70.1 million in loans were acquired in the
Huntington acquisition in December 1995.
At December 31, 1997, BT's entire loan portfolio consisted of loans
made to individuals and businesses located within BT's marketing region,
with the vast majority of these loans located in the Commonwealth of
Pennsylvania. BT does not have any foreign loans. At December 31, 1997, BT
did not have any loan concentrations in any category exceeding 10% of total
loans.
37
<PAGE>
The following table summarizes the composition of BT's loan portfolio
by types of loans at December 31 for each of the years indicated.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $166,113 $170,107 $167,144 $142,188 $146,467
Real estate 586,779 535,320 518,078 469,724 446,112
Consumer 372,495 377,247 375,649 321,006 274,501
Lease financing -- -- -- -- 190
TOTAL $1,125,387 $1,082,674 $1,060,871 $932,918 $867,270
</TABLE>
The following table shows BT's loan maturities by types of loans
indicated, exclusive of residential and commercial real estate, consumer
and lease financing loans, as of December 31, 1997.
<TABLE>
<CAPTION>
Maturing
--------
After One
Within But Within After
One Year Five Years Five Years Total
(in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $107,613 $41,042 $17,458 $166,113
Real estate construction 2,467 -- -- 2,467
TOTAL $110,080 $41,042 $17,458 $168,580
</TABLE>
Commercial, financial, and agricultural loans due after one year and
having floating or adjustable rates approximated $20 million.
BT's highly leveraged financings were not significant at December 31,
1997. Highly leveraged financings are defined as those credits that are
extended for the acquisition or restructuring of an organization and are
characterized by unusually high debt-to-total-asset ratios. While it is
recognized that these transactions carry a higher level of risk in some
cases, Laurel may originate or participate in this type of financing from
time to time.
Nonperforming Assets and Risk Elements
BT's nonperforming assets constitute nonperforming loans (loans 90 days
or more past due, restructured loans and nonaccrual loans), other real
estate owned, and repossessed assets (primarily automobiles). Total
nonperforming assets declined $3.3 million, or 22.6%, to $11.2 million at
year-end 1997 compared to $14.4 million at year-end 1996. During 1996,
total nonperforming assets increased due to the addition of various
merger-related loans and an industry-wide deterioration in consumer credit
quality. During 1997, the utilization of an automated, centralized
collection function along with other strategies including enhanced
collection efforts and credit counseling activities reduced the level of
nonperforming loans. As a result, BT's asset quality ratios have steadily
improved throughout 1997. Nonperforming loans as a percentage of total
loans, net of unearned interest, declined to .86% in 1997 compared to 1.22%
in 1996 and .73% in 1995. Throughout 1997, BT's nonperforming asset ratios
have been consistent with peer levels. Collection of past-due loans and
improvement in nonperforming ratios is given high priority by BT's
management team. In 1997, a Special Assets department was created to
concentrate on nonperforming commercial loans.
Other real estate owned decreased $313,000 in 1997 compared to 1996
primarily due to the sale of a commercial property in the first quarter of
1997. Repossessed assets increased $461,000 in 1997 mainly due to a higher
level of repossessed automobile inventory.
The following table provides information with respect to BT's past-due
loans and the components of its nonperforming assets at December 31 of each
of the years indicated.
38
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past-due $ 1,208 $ 961 $2,077 $1,323 $1,722
Restructured loans 266 317 318 675 107
Nonaccrual loans 7,678 11,276 5,013 4,445 3,579
Total nonperforming loans 9,152 12,554 7,408 6,443 5,408
Other real estate owned 710 1,023 912 116 631
Repossessed assets 1,312 851 318 177 167
TOTAL NONPERFORMING ASSETS $11,174 $14,428 $8,638 $6,736 $6,206
Nonperforming loans as a percent of
total loans, net of unearned interest .86% 1.22% .73% .72% .65%
</TABLE>
Reviews of the commercial loan and commercial mortgage portfolios are
conducted by Credit Department personnel to systematically evaluate the
quality of the portfolio, to detect problems, and to provide an early
warning system for loan deterioration. The accrual of interest on loans is
discontinued when, in management's judgment, it is determined that the
collectibility of interest, but not necessarily principal, is doubtful.
Generally, commercial loans and residential mortgages are placed on a
nonaccrual status when they become 90 days past-due as to principal or
interest. In previous years, no specific period of delinquency triggered
nonaccrual status for consumer loans; however, in 1996 management
instituted a policy of generally placing consumer loans on nonaccrual
status when they become 120 days past-due. Consumer loans normally are
charged off within 150 days of delinquency, when they are determined to be
uncollectible and all collateral securing the loans has been liquidated.
Interest income of $891,000, $1,470,000 and $567,000 would have been
recorded in 1997, 1996 and 1995, respectively, if nonaccrual and
restructured loans were on a current basis in accordance with their
original terms. Interest income of $323,000, $562,000 and $281,000 on
nonaccrual and restructured loans was recorded in each of the years of
1997, 1996 and 1995, respectively.
A loan generally remains on nonaccrual status until it becomes current
as to principal and interest, except for consumer loans, which are returned
to accrual status when they become less than 120 days past-due. Loans
determined to be uncollectible are charged off against the reserve for loan
losses. A loan is classified as restructured when the terms have been
modified because of deterioration in the financial position of the
borrowers to provide for a reduction of either interest or principal.
The Corporation's Credit Department analyzes the financial stability of
all large borrowers and pays particular attention to resolving certain
problem or classified loans. A loan is generally considered classified due
to a deterioration in the financial performance of the borrower. The
Corporation had internally classified loans (other than nonperforming
loans) totaling $11.8 million at December 31, 1997 compared to $11.2
million at December 31, 1996. However, these loans are currently performing
and based on a loan-by-loan review, historical performance, and current
economic conditions, management does not expect any significant amount of
classified loans to deteriorate to nonaccrual status. Classified loans are
reviewed monthly by BT's and Laurel's Board of Directors.
Reserve for Loan Losses
The reserve for loan losses totaled $9.8 million at December 31, 1997
compared to $9.7 million and $10.0 million at December 31, 1996 and 1995,
respectively. The Huntington acquisition added $849,000 to the reserve in
December of 1995 and the Armstrong acquisition added $159,000 in June of
1996. The reserve for loan losses, as a percent of loans, net of unearned
interest was .92% at December 31, 1997, compared to .94% and .99% at
year-end 1996 and 1995, respectively. Net charge-offs increased to $4.1
million in 1997 compared to $3.0 million in 1996. 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 and real estate loan
charge-offs in 1997 were consistent with 1996 levels. Net charge-offs
increased $1.5 million in 1996 over 1995 mainly due to higher consumer loan
charge-offs during 1996. Approximately $1.0 million of net charge-offs in
1996 was from the Huntington loan portfolio. The provision for loan losses
increased to $4.2 million in 1997 compared to $2.4 million in 1996 and $1.6
million in 1995 due to increased charge-offs. The coverage ratio (reserve
for loan losses to nonperforming loans) improved to 1.1x in 1997 from .8x
in 1996 due to a lower level of nonperforming loans in 1997. Based on
current analysis, management anticipates an increase in the coverage ratio
in future periods due to a strengthening reserve and continued reduction in
nonperforming loan levels. Management believes the reserve is adequate to
cover losses inherent in the current loan portfolio. However, there can be
no assurance that the Corporation will not incur losses in future periods
which could be substantial in relation to the size of the reserve or in
relation to the estimates set forth herein.
Based on management's loan-by-loan review, the past performance of the
borrowers and current economic conditions, management does not anticipate
any current losses related to nonaccrual, nonperforming or classified loans
above what has already been considered in its overall judgment of the
adequacy of the reserve. In determining the amount to be provided in the
reserve for loan losses, management considers the volume of loans by type
and prevailing economic conditions. As previously mentioned, BT's Credit
Department employs a loan-by-loan review of a substantial portion of the
banks' business loan portfolios. In addition, BT's historical experience
with respect to charge-offs, delinquencies, and the level of the reserve
are considered. BT's Credit Department utilizes a quantitative model to
formally ascertain reserve levels at quarterly intervals. The model employs
a disciplined methodology approach factoring in the various loan types and
credit ratings within the commercial portfolio. Management's final
assessment of the adequacy of the reserve involves considerations which are
essentially judgmental and are not subject to mathematical formulation.
39
<PAGE>
The following table summarizes the activity in BT's reserve for loan
losses for each of the years indicated.
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
TOTAL LOANS OUTSTANDING
AT PERIOD END
(net of unearned interest) $1,067,061 $1,025,765 $1,011,240 $892,010 $832,421
Reserve for loan losses
at beginning of year $ 9,681 $ 10,033 $ 9,053 $ 8,815 $ 7,585
Reserve of acquired banks -- 159 849 -- 784
Loans charged off:
Commercial, financial
and agricultural (1,639) (663) (523) (284) (1,116)
Real estate (333) (261) (170) (248) (193)
Consumer (2,580) (2,594) (1,089) (798) (753)
Total loans charged off (4,552) (3,518) (1,782) (1,330) (2,062)
Recoveries of loans previously charged off:
Commercial, financial
and agricultural 71 143 29 170 96
Real estate 7 57 80 36 13
Consumer 329 366 238 194 231
Total recoveries 407 566 347 400 340
Net loans charged off (4,145) (2,952) (1,435) (930) (1,722)
Additions to reserve charged
to operations 4,230 2,441 1,566 1,168 2,168
RESERVE FOR LOAN LOSSES
AT END OF YEAR $ 9,766 $ 9,681 $ 10,033 $ 9,053 $ 8,815
Ratio of net charge-offs during year
to average loans, net of
unearned interest .39% .29% .16% .11% .24%
Reserve for loan losses as a
percent of loans, net of
unearned interest .92% .94% .99% 1.01% 1.06%
Reserve for loan losses
to nonperforming loans 1.1x .8x 1.4x 1.4x 1.6x
</TABLE>
The following table summarizes the allocation of the reserve for loan losses at
December 31 for the years indicated.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
% of % of % of % of % of
Loans Loans Loans Loans Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $2,102 14.8% $2,449 15.7% $2,936 15.8% $3,492 15.2% $3,293 16.9%
Real estate 3,236 52.1 3,176 49.5 2,705 48.8 2,298 50.4 2,398 51.4
Consumer 2,480 33.1 1,831 34.8 1,687 35.4 2,147 34.4 2,005 31.7
Unallocated 1,948 -- 2,225 -- 2,705 -- 1,116 -- 1,119 --
TOTAL RESERVE $9,766 100.0% $9,681 100.0% $10,033 100.0% $9,053 100.0% $8,815 100.0%
</TABLE>
Notwithstanding the foregoing allocations, the entire reserve for loan
losses is available to absorb charge-offs in any category of loans.
40
<PAGE>
Securities Portfolio
BT's securities portfolio consists primarily of debt securities used to
provide interest income and liquidity to the Corporation and to contribute
to the management of interest rate risk. At December 31, 1997, securities
totaled $365.9 million compared to $302.4 million at December 31, 1996. The
higher level in 1997 was mainly due to the purchase of various securities
in connection with funding provided by $69.7 million in deposits acquired
from the National City branches. Net unrealized holding gains on securities
available-for-sale totaled $707,000 at year-end 1997 compared to $770,000
at year-end 1996. Securities decreased $1 million at December 31, 1996
from $303.4 million at December 31, 1995. In June of 1996, various
securities totaling approximately $36 million were acquired in the Arm-
strong acquisition. Exclusive of the Armstrong securities, the aggregate
year-over-year decrease in securities was approximately $33 million. The
decrease in 1996 was primarily due to use of proceeds from maturing
securities to fund anticipated acquisition-related deposit run-off. The
yield on the securities portfolio was 6.66% in 1997 compared to 6.52% in
1996 and 6.21% in 1995.
The following table summarizes the carrying value of BT's securities
portfolio at December 31 for each of the years indicated.
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
US Treasury and other US Government agencies:
Available-for-sale $180,307 $186,986 $250,246
Held-to-maturity 171,081 97,685 35,161
States and political subdivisions
available-for-sale 7,069 9,863 10,597
Other securities available-for-sale 7,476 7,858 7,351
TOTAL $365,933 $302,392 $303,355
</TABLE>
The following table summarizes the amortized cost and weighted average
yields of BT's securities portfolio at December 31, 1997 by maturities of
investments.
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1)
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Securities held-to-maturity:
US Treasury and other
US Government agencies $ 1,986 6.94% $153,895 6.90% $ 15,200 6.77% $ -- --%
Securities available-for-sale:
US Treasury and other
US Government agencies 31,946 5.69 59,741 6.74 87,295 6.92 500 7.75
States and political
subdivisions (2) 165 8.09 1,527 7.31 2,062 9.70 3,114 9.05
Other securities 54 9.03 423 5.03 776 7.28 6,161 6.12
TOTAL $34,151 5.78% $215,586 6.85% $105,333 6.95% $9,775 7.14%
</TABLE>
(1) Weighted average yield is based on yield to maturity, which is the
discount or premium rate that makes the present value of a bond's cash
flow to maturity equal to the bond's market price.
(2) Yields on tax-exempt securities were computed on a fully taxable
equivalent basis using the federal statutory tax rate of 35%.
Deposits
At December 31, 1997, total deposits were $1.35 billion compared to
$1.26 billion at December 31, 1996, an increase of $82.6 million, or 6.5%.
Deposits acquired from National City totaled approximately $69.7 million at
the June 6, 1997 branch acquisition date. Deposit run-off from this
acquisition has been minimal. Excluding the National City branch
acquisitions, BT was successful in increasing non-interest-bearing demand
deposits by $12.5 million or 7.7% in 1997. Total deposits increased $10.5
million at year-end 1996 from $1.25 billion at year-end 1995. Deposits
acquired in the Armstrong acquisition totaled approximately $42 million at
the June 13, 1996 merger date. BT experienced some deposit run-off in 1996
following the in-market acquisitions of Huntington in December 1995 and
Moxham in June 1996. Average total deposits were $1.32 billion, $1.27
billion and $1.18 billion in 1997, 1996, and 1995, respectively. Financial
institutions continue to experience the shifting of lower cost funds to
higher rate certificates of deposit, and BT is no exception. In 1998,
management will concentrate efforts on continued growth in both
interest-bearing and non-interest-bearing checking accounts. The 1998
Business Plan anticipates a marketing promotion designed to target these
accounts in an effort to maintain the current level of the net interest
margin. BT competes with banks, savings and loans, credit unions, and other
financial companies for deposit accounts.
41
<PAGE>
The daily average amount of BT's deposits and the average rate paid
on such deposits are summarized in the following table.
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
Amount Rate Amount Rate Amount Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand deposits $168,521 --% $159,074 --% $138,868 --%
Interest-bearing demand deposits 188,834 1.5 187,534 1.5 169,731 1.7
Savings deposits 239,860 1.2 258,397 1.4 278,200 2.0
Time deposits 720,840 5.5 664,742 5.4 589,586 5.4
TOTAL $1,318,055 $1,269,747 $1,176,385
</TABLE>
The maturity schedule of BT's time certificates of deposit of $100,000
or more at December 31, 1997 is summarized below.
TIME CERTIFICATES OF DEPOSIT
(dollars in thousands)
3 months or less $50,026
Over 3 through 6 months 25,678
Over 6 through 12 months 25,088
Over 12 months 26,465
TOTAL $127,257
Short-Term Borrowings
The following table summarizes the distribution of BT's short-term
borrowings, which are comprised of federal funds purchased, securities sold
under agreements to repurchase, and other short-term borrowings. Repurchase
agreements consist of retail repurchase agreements with terms of overnight
to 29 days and repurchase agreements with the Federal Home Loan Bank
(FHLB). Also shown are the maximum amount of borrowings, the average amount
of borrowings, and the weighted average interest rates paid on such
borrowings for the last three years.
<TABLE>
<CAPTION>
1997 1996 1995
(dollars in thousands)
<S> <C> <C> <C>
Amount outstanding at year-end $38,184 $40,688 $37,679
Weighted average interest rate at year-end 5.15% 3.27% 4.58%
Maximum amount outstanding at any month end 82,720 42,526 57,500
Average amount outstanding during the year 38,345 31,483 35,610
Weighted average interest rate during the year 4.97% 3.99% 5.24%
</TABLE>
Capital Resources
BT's primary source of capital has historically been retained earnings.
Other sources are the sale of common stock, long-term debt, and issuances
of stock in connection with acquisitions. BT has developed a capital
planning policy to ensure current capital adequacy and to plan for future
needs. The general objective of the policy is to manage the capital
position, not only to ensure compliance with regulations, but also to
ensure capital adequacy for future expansion.
The Corporation and its predecessor, Bank and Trust, have increased
dividends for 30 consecutive years. Common dividends paid per share were
$1.26 in 1997 and $1.02 in 1996. A common dividend of $.34 was declared for
the first quarter of 1998.
BT common stock attained a 220% total cumulative return during the
five-year period from December 31, 1992 to December 31, 1997, assuming
reinvestment of all dividends. This compares favorably to a 148% total
return for the overall NASDAQ stock market over the same time period. BT's
historical stock price performance is not necessarily indicative of future
price performance. The market price of BT common stock at December 31, 1997
was $51.00, compared to $36.02 (adjusted for the 1997 10% stock dividend)
at December 31, 1996.
Liquidity and Market Risk Management
Liquidity
Liquidity focuses on the availability and price of funds in the market.
Liquidity can be provided by either assets or liabilities. For BT, the
primary sources of asset liquidity are cash, cash equivalents and maturing
investments. Liability sources of liquidity include short-term borrowings
and the acquisition and growth of deposits. At December 31, 1997, cash and
due from banks totaled $52.0 million, compared to $65.3 million in 1996.
Securities due to mature within one year were $34.1 million at December 31,
1997, compared to $46.3 million in 1996. Short-term borrowings at year-end
1997 totaled $38.2 million, compared to $40.7 million in 1996.
Laurel is a member of the FHLB. The FHLB provides an additional source
of both short- and long-term funding, special funding for low-income
housing lending, and various other correspondent bank services. The
Corporation believes it has sufficient funding sources available from
financial institutions and the financial markets should the need for
additional funding develop.
Liquidity can be further analyzed by utilizing the Consolidated
Statement of Cash Flows. During 1997, net cash used in financing activities
was $255,000. This was primarily due to a net increase in deposits of $13.0
million being offset by decreases in short-term borrowings of $2.5 million
and payments for dividends and long-term debt of $10.7 million. Net cash
used in investing activities was $37.1 million, consisting primarily of a
$51.5 million increase in loans and $63.5 million resulting from securities
transactions partially offset by $58.8 million provided by the National
City branch acquisitions. Net cash provided by operating activities was
$24.1 million. Overall, cash and cash equivalents decreased $13.3 million
at year-end 1997 compared to year-end 1996.
42
<PAGE>
Market Risk Management
Market risk is the risk of losses resulting from adverse changes in
market pricing and rates. BT's market risk is primarily its interest rate
risk associated with its lending, deposit and borrowing functions as well
as its investments in securities. Interest rate risk arises when interest
rates on assets change in a different time period or in a different
proportion from that of liabilities. Management actively monitors its
interest rate sensitivity position with the primary objective to prudently
structure the balance sheet so that movements of interest rates on assets
and liabilities are highly correlated and produce a relatively constant net
interest margin even in periods of volatile interest rates. Interest rate
risk is considered by management to be BT's most significant market risk
that could materially impact the Corporation's financial position or
results of operations. In its normal course of business, BT is not exposed
to other types of market risks such as risk associated with commodity
prices or foreign currencies.
The following table sets forth, in summary form, BT's repricing
analysis at December 31, 1997.
<TABLE>
<CAPTION>
Non-rate
sensitive
0-90 91-365 Over 1-5 and over
(in thousands) days days years 5 years Total
<S> <C> <C> <C> <C> <C>
Loans $266,143 $182,174 $435,117 183,627 1,067,061
Securities 4,381 31,129 216,644 113,779 365,933
Other interest-earning assets 424 -- -- -- 424
Total interest-earning assets 270,948 213,303 651,761 297,406 1,433,418
Other assets -- -- -- 119,503 119,503
TOTAL ASSETS $270,948 $213,303 $651,761 $416,909 $1,552,921
Demand deposits $38,619 $ -- $ -- $333,839 $372,458
Savings deposits 10,612 1,082 -- 215,352 227,046
Interest-bearing time deposits 184,797 286,705 269,970 5,400 746,872
Borrowed funds 38,184 -- -- -- 38,184
Long-term debt 719 13,586 30 -- 14,335
Other liabilities -- -- -- 8,317 8,317
Shareholders' equity -- -- -- 145,709 145,709
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $272,931 $301,373 $270,000 $708,617 $1,552,921
Net interest sensitivity gap $ (1,983) $(88,070) $381,761 $(291,708) $ --
Net cumulative interest gap $ (1,983) $(90,053) $291,708 $ -- $ --
</TABLE>
The information on the above table indicates the potential for interest
rate adjustment on only a one-day position at year-end 1997. Loans and
securities are based upon contractual repayments and maturities. Included
in demand deposits are non-interest-bearing checking accounts,
interest-bearing checking accounts, and money market investment accounts.
Based on historical experience, it is assumed that demand deposits and
savings deposits are stable core deposits.
While this static evaluation of interest rate sensitivity is useful,
the repricing of various categories of assets and liabilities is subject to
competitive and other pressures in each category of asset or liability.
Accordingly, both the timing and the magnitude of repricing may vary
significantly, depending on the asset or liability as interest rates
change. Therefore, the static gap is not necessarily indicative of changes
in net interest income that would actually occur due to changing market
interest rates. As a result of these gap limitations, BT complements this
analysis with and puts considerable emphasis on computer simulations that
incorporate a range of possible changes in the balance sheet, product
pricing, and yield-curve movements to project the impact of changing
interest rates on earnings.
One way to analyze interest-rate risk is to calculate the volume
difference between interest rate sensitive assets and interest rate
sensitive liabilities and then measure the effect a one-time, parallel
yield curve shift of 200 basis points would have on net interest income.
Except for accounts that are contractually variable rate products at
specified intervals, demand deposits and savings deposits are considered
non-rate sensitive given a 200 basis point yield curve shift.
At December 31, 1997, BT's simulation analysis indicated that a 200
basis point increase in interest rates would have virtually no impact on
projected net interest income. Conversely, the simulation analysis
indicated that a 200 basis point decrease in rates would reduce projected
net interest income by approximately $1.9 million over the same period. The
simulation analyses assume that the mix of interest-earning asset and
interest-paying liability levels at year-end 1997 remain constant. The
results reflect the impact of rate floors and rate ceilings on loan
products and rate floors on certain deposit accounts under changing rate
scenarios. In contrast to the rising rate scenario, the decreasing rate
scenario limits BT's ability to reduce rates paid on certain deposit
liabilities lower than current levels and reflects the likelihood that
callable investment securities would be called given a 200 basis point
decrease in interest rates.
43
<PAGE>
Inflation
Assets and liabilities of a financial institution are monetary in
nature. Accordingly, interest rates, which generally move with the rate of
inflation, have potentially the most significant effect on BT's net
interest income. BT attempts to limit inflation's impact on net interest
spread through effective asset/liability management.
Recent Developments
Accounting Pronouncements
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 No. 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. BT
adopted SFAS No. 127 on January 1, 1998, and the effect of the adoption is
not expected to have a material impact on the Corporation's financial
position or results of operations.
In June of 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 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. BT will adopt SFAS No. 130 for fiscal year 1998 reporting,
and it is anticipated the adoption of this statement will not have a
material impact on the Corporation's financial position or results of
operations.
MANAGEMENTS' REPORT ON INTERNAL CONTROL
Management has assessed its internal control structure over financial
reporting as of December 31, 1997. The assessment was based on criteria for
effective internal control over financial reporting described in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management believes that the
Corporation maintained an effective internal control structure over
financial reporting as of December 31, 1997.
/s/ John H. Anderson
Chairman and Chief Executive Officer
/s/ Mark L. Sollenberger
Executive Vice President,
Treasurer and Assistant Secretary
44
EXHIBIT 21.1
SUBSIDIARIES OF BT FINANCIAL CORPORATION
PERCENTAGE STATE
NAME OWNERSHIP OF INCORPORATION
---- ---------- ----------------
Laurel Bank 100% Pennsylvania
Bedford Associates, Inc. 100% Pennsylvania
Laurel Trust Company 100% Pennsylvania
Laurel Community
Development Corporation 100% Pennsylvania
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-93454), dated June 14, 1995,
with regard to BT Financial Corporation 401(K) Plan for Banking
Employees, of our report dated January 28, 1998, on our audits of
the consolidated financial statements of BT Financial Corporation
and affiliates as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996, and 1995, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand LLP
Pittsburgh, PA
March 25, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Moxham Bank Corporation
Johnstown, Pennsylvania
We consent to the incorporation by reference in the registration
statement on Form S-8 (file number 33-93454), dated June 14, 1995,
with regard to BT Financial Corporation 401(k) Plan for Banking
Employees, of our report dated February 15, 1996, on our audit of
the consolidated financial statements of Moxham Bank Corporation
as of December 31, 1995, and for the year ended December 31, 1995,
which report is included in this Form 10-K dated March 31, 1998.
/s/ Barnes, Saly & Company, LLP
Johnstown, Pennsylvania
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 52,028
<INT-BEARING-DEPOSITS> 424
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 194,852
<INVESTMENTS-CARRYING> 171,081
<INVESTMENTS-MARKET> 172,305
<LOANS> 1,125,387
<ALLOWANCE> 9,766
<TOTAL-ASSETS> 1,552,921
<DEPOSITS> 1,346,376
<SHORT-TERM> 38,184
<LIABILITIES-OTHER> 8,317
<LONG-TERM> 14,335
0
0
<COMMON> 31,252
<OTHER-SE> 114,457
<TOTAL-LIABILITIES-AND-EQUITY> 1,552,921
<INTEREST-LOAN> 90,915
<INTEREST-INVEST> 22,029
<INTEREST-OTHER> 622
<INTEREST-TOTAL> 113,566
<INTEREST-DEPOSIT> 45,168
<INTEREST-EXPENSE> 48,185
<INTEREST-INCOME-NET> 65,381
<LOAN-LOSSES> 4,230
<SECURITIES-GAINS> 195
<EXPENSE-OTHER> 47,509
<INCOME-PRETAX> 26,132
<INCOME-PRE-EXTRAORDINARY> 26,132
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,152
<EPS-PRIMARY> 2.74
<EPS-DILUTED> 2.74
<YIELD-ACTUAL> 4.74
<LOANS-NON> 7,678
<LOANS-PAST> 1,208
<LOANS-TROUBLED> 266
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,681
<CHARGE-OFFS> 4,552
<RECOVERIES> 407
<ALLOWANCE-CLOSE> 9,766
<ALLOWANCE-DOMESTIC> 9,766
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Moxham Bank Corporation
Johnstown, Pennsylvania
We have audited the accompanying consolidated balance sheet of Moxham
Bank Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 1995. These financial state-
ments are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signifi-
cant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Moxham Bank Corporation and subsidiaries as of December 31, 1995, and
the consolidated results of their operations and their cash flows for the
year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Barnes, Saly & Company, LLP
February 15, 1996
