SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12377
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BT FINANCIAL CORPORATION
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(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1441348
------------------------ --------------------------------
(State of incorporation) (IRS Employer Identification No.)
551 Main Street, Johnstown, Pennsylvania 15901
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(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 1, 2000, the aggregate
market value of the voting and non-voting common shares of the
Registrant's Common Stock held by non-affiliates of the
Registrant was approximately $263,960,700 computed on the basis
of $17.00 per share, the closing price on the NASDAQ Stock Market
on March 1, 2000. 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
(1,156,194 shares in total) from the number of shares outstanding
(16,683,294).
As of March 1, 2000, the Registrant had outstanding 16,683,294
shares of its Common Stock.
Documents incorporated by reference: Incorporated into:
- ------------------------------------ ------------------
1999 Annual Report to Shareholders Part I and II
(the "1999 Annual Report")
Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders (the "2000 Proxy Statement") Part III
BT FINANCIAL CORPORATION
FORM 10-K
Fiscal year ended December 31, 1999
-----------------------------------
INDEX
PART I Page
- ------ ----
Item 1. Business 3
Executive Officers of the Registrant 7
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
PART II
- -------
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk 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.
BT is a reporting company under Section 12(g) of the
Securities and Exchange Act of 1934. BT files periodic and
annual reports with the Securities and Exchange Commission
("SEC") on Form 10-K, 10-Q and 8-K. The public may read the
materials filed by BT with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains BT's reports, BT's proxy
and information statements and other information regarding BT at
http://www.sec.gov. BT maintains its own website at
http://www.btfinancial.com.
BT's single wholly-owned banking subsidiary, Laurel Bank
("Laurel"), is headquartered in Johnstown, Pennsylvania. BT has
six wholly-owned non-bank subsidiaries, Bedford Associates, Inc.,
which holds and leases property, Laurel Trust Company, a trust
company which provides trust and investment services, Laurel
Community Development Corporation, a corporation which conducts
community development activities, Flex Financial Consumer
Discount Company which provides consumer finance loans, Bedford
Associates of Delaware, Inc., an investment holding company, and
Laurel Investment Advisors, Inc., a registered investment
advisor. At December 31, 1999 the Registrant had total assets of
$2.06 billion.
On July 14, 1999, BT completed a merger with First
Philson Financial Corporation ("Philson") whereby Philson was
merged directly into BT. In conjunction with the merger, each
share of Philson Common Stock was converted into 1.667 shares of
BT Common Stock, resulting in the issuance of 2,904,580 shares of
BT Common Stock. The value of the transaction was approximately
$71 million based on the closing market price of $24.50 per BT
Common Stock share on July 14, 1999. Philson's assets totaled
approximately $221 million on the merger date. Post-merger, BT's
assets totaled approximately $2.0 billion. This merger enhanced
BT's lead position in market share for Somerset County,
Pennsylvania where BT now represents over one-third of the total
bank and thrift deposits. The merger has been accounted for as a
pooling-of-interests. Accordingly, BT's accompanying consolidated
financial statements have been restated retroactively to include
the accounts and operations of Philson for all periods prior to
the merger. Philson's banking subsidiary, First Philson Bank,
N.A., was merged into Laurel upon consummation of the merger of
the corporations. At the time of the merger, First Philson Bank,
N.A., operated nine branches in Somerset and Fayette counties.
Two of these branches closed during the fourth quarter of 1999
along with one branch of Laurel as a result of duplicate service
areas. Philson also owned Flex Financial Consumer Discount
Company ("Flex"), a finance company subsidiary. Flex has two
branch offices and continues to operate as a non-bank subsidiary
of BT.
BT's business consists primarily of the operations of
Laurel, its subsidiary bank. Laurel conducts business through a
network of 73 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
3
coordinated through BT. In addition, Laurel operates 58
automated teller machines located on both 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 has a fairly stable
deposit base with no major seasonal depositor or group of
depositors. Laurel's commercial customers are primarily small-
to mid-sized businesses located in southwestern Pennsylvania.
Laurel's predecessor, Johnstown Bank and Trust Company
("Bank and Trust"), was formed in 1934 through the consolidation
of five banks. During 1997, BT adopted a single bank charter for
its three affiliate banks (Bank and Trust, Laurel Bank and
Fayette Bank). The single bank was named Laurel Bank. Laurel 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,
1999, its assets totaled $2.05 billion, or approximately 99% of
BT's consolidated assets.
Bedford Associates, Inc. is a Pennsylvania corporation which
was formed in 1983. It holds and leases properties primarily
used by BT's subsidiaries. Most of its properties are leased to
Laurel Bank for use as community banking offices.
Laurel Trust Company, formerly known as BT Management Trust
Company, is located in Johnstown, Pennsylvania and offers a wide
range of corporate and personal trust services as well as pension
and fiduciary services. It is a Pennsylvania-chartered trust
company formed in 1990. Laurel Trust Company resulted from the
consolidation of the trust business of Bank and Trust, the former
Laurel Bank and Fayette. At year-end 1999, the market value of
trust assets under management at Laurel Trust Company totaled
$775 million compared to $792 million at year-end 1998.
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 for low income individuals.
Flex Financial Consumer Discount Company was formed in 1997.
It is a Pennsylvania corporation conducting business as a
consumer discount company providing consumer finance loans to
individuals.
Bedford Associates of Delaware, Inc., a Delaware
Corporation, was formed in 1998 for the purpose of holding and
managing certain investments of the Registrant.
Laurel Investment Advisors, Inc., was formed in 1999. It is
a Pennsylvania corporation and operates as a registered
investment advisor providing investment advisory services.
4
Forward-looking Statements
- --------------------------
Except for historical information contained herein, the
matters discussed in this report or incorporated by reference in
this report may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that
involve substantial risks and uncertainties. When used in this
report, or in the documents incorporated by reference in this
report, the words "anticipate," "believe," "estimate," "may,"
"intend," "expect" and similar expressions identify certain of
such forward-looking statements. Actual results, performance or
achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained
herein. Factors that could cause future results to vary from
current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and
more specifically in the markets in which BT operates); changes
in interest rates, deposit flows, loan demand, real estate values
and competition; changes in accounting principles, policies or
guidelines and in government legislation and regulation (which
change from time to time and over which BT has no control); other
factors affecting BT's operations, markets, products and
services, including but not limited to, year 2000 compliance
issues; and other risks detailed in this Form 10-K and in BT's
other Securities and Exchange Commission filings. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
Competition
- -----------
The business of commercial and retail banking and bank-
related services is highly competitive. The Registrant and its
subsidiaries are subject to competition in all aspects of
their businesses from banks as well as other financial
institutions, including savings and loan associations, savings
banks, finance companies, credit unions, money market mutual
funds, brokerage firms, investment companies, credit companies
and insurance companies. They also compete with nonfinancial
institutions, including retail stores that maintain their own
credit programs, and with governmental agencies that make loans
available to certain borrowers. Some of the Registrant's
competitors are larger and have greater financial resources
and facilities than the Registrant. 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, 1999, the Registrant and its subsidiaries
had a total of 840 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.
5
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, under the BHCA and subject to approval of the
FRB, may acquire (1) banks and bank holding companies throughout
the United States, subject to certain conditions, and (2)
branches of established banks outside of Pennsylvania, subject to
certain restrictions, including state opt-out provisions.
Satisfactory Community Reinvestment Act and capital ratios
ratings are generally required to obtain FRB approval of
acquisitions.
The enactment of the Graham-Leach-Bliley Act of 1999 (the
"GLB Act") overhauls the financial services industry regulatory
framework that had its origins in the Depression Era of the
1930s. Effective March 11, 2000, new opportunities are available
for banks, other depository institutions, insurance companies and
securities firms to enter into combinations that permit a single
financial services organization to offer customers a more
complete array of financial products and services. The GLB Act
provides a new regulatory framework for regulation through the
financial holding company, which will have as its umbrella
regulator the Federal Reserve Board. Functional regulation of
the financial holding company's separately regulated subsidiaries
will be conducted by their primary functional regulator. The GLB
Act makes satisfactory or above Community Reinvestment Act
compliance for insured depository institutions and their
financial holding companies necessary in order for them to engage
in new financial activities. The GLB Act provides a federal
right to privacy of non-public personal information of individual
customers.
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
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 2-Acquisitions" of the "Notes to the
Consolidated Financial Statements" included on pages 24 and 25 of
the 1999 Annual Report, which is incorporated herein by
reference.
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
discretion of the Board. There are no family relationships
between any such persons.
Name Age Positions and Offices Held
---- --- --------------------------
John H. Anderson 49 Chairman, Chief Executive
Officer and Director of the
Registrant and Laurel.
Steven C. Ackmann 48 President and Chief Operating
Officer of the Registrant.
Eric F. Rummel 47 Vice Chairman of the Registrant,
President and Director of
Laurel.
J. William Smith 52 Vice Chairman and Treasurer of the
Registrant. Treasurer and Assistant
Secretary of Laurel and Laurel Trust
Company.
Kim Craig 44 Vice Chairman of the Registrant.
President and Director of Laurel
Trust Company.
George W. Hay 58 Vice Chairman of the Registrant,
Executive Vice President of Laurel.
Mark L. Sollenberger 46 Executive Vice President of the
Registrant.
Brian H. Lehman 45 Senior Vice President and Chief
Financial Officer of the 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.
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.
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.
J. William Smith has served as Vice Chairman and Treasurer of the
----------------
Registrant and Treasurer and Assistant Secretary of Laurel and
Laurel Trust Company since 1998. He served as Vice Chairman of
the Registrant from 1996 to 1998. He served as President and
Chief Executive Officer of the former Moxham Bank Corporation
from 1986 to 1996.
Kim Craig has served as Vice Chairman of the Registrant since 1998 and
---------
President of Laurel Trust Company since 1990.
George W. Hay has served as Vice Chairman of the Registrant and
-------------
Executive Vice President of Laurel since 1999. He served as
President and Chief Executive Officer of the former First Philson
Financial Corporation from 1991 to 1999.
Mark L. Sollenberger has served as Executive Vice President, Corporate
--------------------
Strategy, since 1999. He served as Executive Vice President and
Chief Financial Officer of the Registrant from 1998 to 1999. He
served as Executive Vice President, Treasurer and Assistant
Secretary of the Registrant from 1995 to 1998 and Executive Vice
President and Treasurer of Laurel from 1997 to 1998. He served
as Executive Vice President and Treasurer of the Registrant from
1992 to 1995 and of Bank and Trust from 1992 to 1997.
Brian H. Lehman has served as Senior Vice President and Chief
---------------
Financial Officer of the Registrant since 1999. He served as Vice
President and Controller of the Registrant from 1997 to 1999.
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
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 73 full-service banking offices located
throughout southwestern Pennsylvania, 57 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 16 offices are
operated under leases which, including renewal options, expire at
various times between 2000 and 2025. Bedford Associates,
Inc. owns 4 of the 16 leased properties, which are leased
to Laurel as community banking offices.
Item 3 Legal Proceedings
- ------ -----------------
Information required to be furnished pursuant to this Item
is set forth in the 1999 Annual Report in Note 16 of the "Notes
to Consolidated Financial Statements" on page 34 under the
caption "Litigation" which is incorporated herein by reference.
Item 4 Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None.
9
Part II
Information required to be furnished pursuant to Part II of
this report is set forth in the 1999 Annual Report under the
captions and on the pages indicated below, and is incorporated
herein by reference.
Page in
1999
Annual
Caption in 1999 Annual Report Report
----------------------------- -----------
Item 5 Market for the Registrant's Common
Equity and Related Stockholder Matters
--------------------------------------
Market Price and Cash Dividends 39
Regulatory Requirements 31
Item 6 Selected Financial Data
-----------------------
Selected Consolidated Financial Data 38
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 39-52
Item 7A Quantitative and Qualitative Disclosures
About Market Risk
----------------------------------------
Liquidity and Market Risk Management 50-51
Item 8 Financial Statements and Supplementary Data
-------------------------------------------
Independent Accountants Report 17
Consolidated Balance Sheet 18
Consolidated Statements of Income 19
Consolidated Statements of Cash Flows 20
Consolidated Statements of Changes
in Shareholders' Equity 21
Consolidated Statement of Comprehensive
Income 21
Notes to Consolidated Financial Statements 22-37
Supplemental Financial Data 37
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 2000 Proxy Statement under the caption
"Board 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 2000 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 2000 Proxy Statement
under the captions "Executive Compensation" and "Board
of Directors -- Directors' Compensation," and is
incorporated herein by reference. The "Executive
Committee Report on Compensation" set forth in the 2000
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 2000 Proxy Statement
under the captions "Board 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 2000 Proxy Statement
under the caption "Transactions with Directors'
Companies" 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 PricewaterhouseCoopers LLP dated January 25,
2000 are described herein in Part II, Item 8 -
Financial Statements and Supplementary Data and appear
on pages 17 through 37 of the 1999 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
-------------------
A Form 8-K dated as of December 6, 1999 was filed
under Item 5 to report BT's press release dated
December 6, 1999 regarding the announcement of two
promotions.
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 22, 2000
----------------------------- ----------------
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 22, 2000
----------------------------- ----------------
John H. Anderson
Chairman, and Chief Executive
Officer and Director
Principal Financial Officer:
/s/ Brian H. Lehman Date: March 22, 2000
----------------------------- ----------------
Brian H. Lehman
Senior Vice President
and Chief Financial Officer
Principal Accounting Officer:
/s/ David A. Casado Date: March 22, 2000
---------------------------- ----------------
David A. Casado
Vice President and Controller
13
Directors:
/s/ G. Scott Baton II Date: March 22, 2000
- ------------------------------ ----------------
G. Scott Baton II
Date: March 22, 2000
- ------------------------------ ----------------
James E. Croner
/s/ Louis G. Galliker Date: March 22, 2000
- ------------------------------ ----------------
Louis G. Galliker
/s/ William B. Kania Date: March 22, 2000
- ------------------------------ ----------------
William B. Kania
/s/ Edward L. Mears Date: March 22, 2000
- ------------------------------ ----------------
Edward L. Mears
/s/ Roger S. Nave Date: March 22, 2000
- ------------------------------ ----------------
Roger S. Nave
/s/ Ethel J. Otrosina Date: March 22, 2000
- ------------------------------ ----------------
Ethel J. Otrosina
/s/ Harry F. Radcliffe Date: March 22, 2000
- ------------------------------ ----------------
Harry F. Radcliffe
/s/ Robert G. Salathe, Jr. Date: March 22, 2000
- ------------------------------ ----------------
Robert G. Salathe, Jr.
Date: March 22, 2000
- ------------------------------ ----------------
William R. Snoddy
/s/ Gerald W. Swatsworth Date: March 22, 2000
- ------------------------------ ----------------
Gerald W. Swatsworth
/s/ W. A. Thomas Date: March 22, 2000
- ------------------------------ ----------------
W. A. Thomas
14
/s/ Rowland H. Tibbott, Jr. Date: March 22, 2000
- ------------------------------ ----------------
Rowland H. Tibbott, Jr.
/s/ James A. Ulmer Date: March 22, 2000
- ------------------------------ ----------------
James A. Ulmer
/s/ Earl K. Wahl, Jr. Date: March 22, 2000
- ------------------------------ ----------------
Earl K. Wahl, Jr.
/s/ Thomas A. Young Date: March 22, 2000
- ------------------------------ ----------------
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
Number Description Page No. Herein
------- ----------- ---------------------
2.1 Amended Agreement and Plan of Incorporated by reference
Reorganization dated August 26, to Registration Statement on
1998 by and among BT Financial Form S-4 (No. 333-61683)
Corporation, Laurel Bank and filed on September 3, 1998.
The Peoples National Bank of
Rural Valley.
2.2 Agreement and Plan of Incorporated by reference
Reorganization by and between to Amendment No. 1 of
BT and Philson dated Registration Statement on
February 23, 1999 Form S-4 (No. 333-76295)
filed on June 2, 1999.
3.1 Articles of Incorporation of Incorporated by reference
BT as amended to to Registration Statement
August 16, 1991 on Form S-4 (No. 33-69112)
filed on October 15, 1993.
3.2 Amendment to Articles of Incorporated by reference
Incorporation of BT dated to Registration Statement
June 4, 1997 on Form S-4 (No. 333-61683)
filed on September 3, 1998.
3.3 By-laws of BT as amended to Incorporated by reference
September 23, 1992 Registration Statement on
Form S-4 (No. 33-69112)
filed on October 15, 1993.
10.1 BT Financial Corporation Incorporated by reference to
Supplemental Executive Benefit Exhibit 10.1 to BT Financial
Plan dated July 23, 1997.* Corporation's Annual Report on
Form 10-K for the year ended
December 31, 1997.
10.2 Key Employee Incentive Incorporated by reference to
Compensation Plan of 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.
10.4 BT Financial Corporation Incorporated by reference to
1998 Equity Incentive Plan Exhibit 10.4 to BT Financial
dated May 12, 1998.* Corporation's Quarterly Report
on Form 10-Q for the quarter
ended June 30, 1998.
16
10.5 Employment Agreement by and Filed herewith.
between BT Financial Corporation
and Laurel Bank and George W. Hay.*
13.1 All portions of the BT Filed herewith.
Financial Corporation
1999 Annual Report to
Shareholders that are
incorporated herein by
reference.
21.1 Subsidiaries of the Registrant Filed herewith.
23.1 Consent of Filed herewith.
PricewaterhouseCoopers LLP,
independent accountants
for the Registrant.
23.2 Consent of S.R. Snodgrass, A.C., Filed herewith.
independent accountants for
the former First Philson
Financial Corporation.
27.1 Financial Data Schedule Filed herewith.
27.2 Restated Financial Data Filed herewith.
Schedule
27.3 Restated Financial Data Filed herewith.
Schedule
* 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
George W. Hay
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of July 15, 1999,
although actually entered into on the date entered on the
signature page, by and between BT Financial Corporation (the
"Company"), a Pennsylvania corporation, and Laurel Bank, a
Pennsylvania bank and trust company,
and
George W. Hay, an individual currently residing in Rockwood,
Pennsylvania (hereinafter called the "Executive").
WITNESSETH THAT:
WHEREAS the Company entered into an agreement and plan of
reorganization with First Philson Financial Corporation ("First
Philson") providing, among other things, for the merger of First
Philson into the Company, with the Company being the surviving
company (the "Merger"); and
WHEREAS, as a result of the Merger, First Philson Bank,
National Association ("First Philson Bank"), became a wholly-
owned subsidiary of the Company and thereupon merged into Laurel
Bank, the Company's wholly-owned banking subsidiary; and
WHEREAS the Executive was the President and Chief Executive
Officer of First Philson and First Philson Bank, under an
Agreement dated May 16, 1995 (the "Employment Agreement"); and
WHEREAS under the terms of the Employment Agreement, the
Executive would be entitled to substantial economic benefits upon
the Merger, even if he voluntarily terminates his employment with
the Company or Laurel Bank as successor to the First Philson
entities; and
WHEREAS First Philson Bank and the Executive were parties to
a Salary Continuation Agreement dated August 20, 1991 (the
"Salary Continuation Agreement") providing for the payment of
certain benefits to the Executive upon his retirement; and
WHEREAS the Company believes that the Executive will be a
valuable addition to its corporate staff, and wishes to induce
the Executive to remain in the employment of the Company after
July 15, 1999 by amending the terms of his employment and
retirement benefits under the Employment Agreement and Salary
Continuation Agreement, respectively as herein provided.
NOW, THEREFORE, the Company and the Executive, each
intending to be legally bound hereby, mutually covenant and agree
as follows:
1. TERMINATION OF EMPLOYMENT AGREEMENT. The Employment
Agreement and the Salary Continuation Agreement shall be
terminated as of July 15, 1999 and neither party thereto nor
their successors shall have any further liability thereunder. In
consideration of the execution and delivery of this Agreement by
the Company and Laurel Bank and the benefits conferred on the
Executive's behalf, and intending to be legally bound, Executive
on behalf of himself and his dependents, heirs, executors,
administrators and assigns, past and present, and each of them
(hereinafter collectively referred to as "Executive Releasors"),
agrees that his receipt of the benefits of this Agreement is in
full settlement of any and all claims which Executive and
Executive Releasors have or may have had as a result of
Executive's employment with and departure from employment with
First Philson and First Philson Bank, and each of them, under the
Employment Agreement, the Salary Continuation Agreement or
otherwise, and hereby absolutely and irrevocably and
unconditionally releases and forever discharges First Philson
Corp., First Philson Bank, BT Financial Corporation and Laurel
Bank, and each of them, and their respective successors and
assigns, past or present, and each of them (hereinafter
collectively referred to as the "Bank Released Parties"), from
any and all rights, claims, demands, compensation, obligations
and liabilities whatsoever under the Employment Agreement.
2. EMPLOYMENT AND TERM.
(a) Employment. Effective as of July 15, 1999, the Company
----------
employs the Executive on the terms and conditions set forth in
this Agreement, and the Executive hereby accepts such employment.
The Executive will be employed as the Vice Chairman of the
Company and Community Banking Executive of Laurel Bank.
(b) Term. The term of the Executive's employment under this
----
Agreement shall commence on July 15, 1999 and end on July 15,
2004, subject to earlier termination pursuant to Section 7. The
term of this Agreement shall be extended automatically for one
additional year as of July 15, 2004 and each anniversary date
thereof unless, no later than sixty (60) days prior to any such
renewal date, either the Board of Directors of the Company (the
"Board"), on behalf of the Company, or the Executive gives
written notice to the other, in accordance with Section 16, that
the term of this Agreement shall not be so extended.
3. DUTIES. The Executive shall have all powers and duties
consistent with the office of Vice Chairman of the Company and
Community Banking Executive of Laurel Bank as set forth in the
Bylaws and written policy statements of the Company and Laurel
Bank, subject to the direction of their Boards. The Executive
shall devote substantially his entire time during reasonable
business hours (reasonable sick leave and vacations excepted) and
best efforts to fulfill faithfully, responsibly and to the best
of his ability his duties hereunder.
4. EXECUTIVE COVENANTS. In order to induce the Company to
enter into this Agreement, the Executive hereby agrees as
follows:
(a) Confidentiality. Except when acting for and on behalf of
---------------
the Company and its subsidiaries with the consent of or as
directed by their Boards, the Executive shall keep confidential
and shall not divulge to any other person or entity, during the
term of employment or thereafter, any of the business secrets of
the Company and its subsidiaries, the identity of their customers
or any other confidential information regarding the Company and
its subsidiaries which has not otherwise become public knowledge;
provided, however, that nothing in this Agreement shall preclude
the Executive from disclosing information (i) to parties retained
to perform services for the Company or its subsidiaries, or (ii)
under any other circumstances to the extent such disclosure is,
in the reasonable judgment of the Executive, appropriate or
necessary to further the best interests of the Company or its
subsidiaries, or (iii) as may be required by law.
2
(b) Records. All papers, books and records of every kind and
-------
description relating to the business and affairs of the Company
and its subsidiaries, whether or not prepared by the Executive,
other than personal notes prepared by or at the direction of the
Executive, shall be the sole and exclusive property of the
Company, and the Executive shall surrender them to the Company at
any time upon request by the Board.
5. COMPENSATION
(a) Stay on Bonus. On the date hereof, BT Financial will pay
-------------
Executive a bonus of $210,000 in cash. Executive will repay a
portion of this bonus in accordance with the following schedule
if he voluntarily terminates his employment with the Company
before July 15, 2001 without Good Reason:
If termination
without Good Reason Amount
occurs before Repayable
-------------------- ---------
December 31, 1999 $ 110,000
December 31, 2000 $ 75,000
July 15, 2001 $ 25,000
For such purposes, a voluntary termination with Good
Reason means any voluntary termination within sixty days after
(i) a reduction in the importance of Executive's job
responsibilities or title without his consent, or (ii) Executive
is required to change his workplace to a location beyond a fifty
(50) mile radius of Somerset, Pennsylvania without his consent,
or (iii) a Change of Control. "Change of Control" means the date
upon which any of the following events occurs:
(A) The Company acquires actual knowledge that
any Person (other than the Company or any employee benefit plan
sponsored by the Company) has acquired beneficial ownership,
directly or indirectly, of securities of the Company entitling
such Person to 25% or more of the voting power of the Company;
(B) At any time less than 51% of the members of
the Company's Board of Directors shall be individuals who were
either: (a) directors of the Company on July 15, 1999; 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 July 15, 1999, or who were so
approved;
(C) The shareholders of the Company shall approve
an agreement providing for the Company to be merged, consolidated
or otherwise combined with, or for all or substantially all of
its assets or stock to be acquired by another Person, as a
consequence of which the former shareholders of the Company 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.
3
(b) Base Salary. For services performed by the Executive for
-----------
the Company under this Agreement during the term of employment as
provided in Section 2(b) hereof, the Company shall pay the
Executive a Base Salary at the rate of at least $200,000 per
year, payable in substantially equal installments in accordance
with the Company's regular payroll practices. Any compensation
which may be paid to the Executive under any additional bonus,
compensation or incentive plan of the Company, or which may be
otherwise authorized from time to time by the Board (or an
appropriate committee thereof), shall be in addition to the Base
Salary to which the Executive is entitled under this Agreement.
(c) Salary Increases. The Base Salary of the Executive shall be
----------------
reviewed annually by the Executive Committee of the Board to
determine whether or not the same should be increased in light of
the duties and responsibilities of the Executive and the
performance thereof, and, if it is determined that an increase is
merited, such increase shall be promptly put into effect, and the
Base Salary of the Executive as so increased shall constitute the
Base Salary of the Executive for purposes of this Agreement.
(d) Bonus. The Executive shall be entitled to participate in
-----
the Company's Key Employee Compensation Plan and will be entitled
to such bonus in addition to his Base Salary only as may be
approved by the Board of Directors (or Committee thereof) in its
sole discretion or as may be provided for in the Key Employee
Compensation Plan.
(e) Stock Option Plan. Executive will be entitled to participate in
-----------------
the Company's Stock Option Plan. Before October 28, 1999, he
will be granted non-qualified stock options to purchase 30,000
shares of the Company's Common Stock at an Exercise Price equal
to the fair market value of the Company's Common Stock on the
date of grant and otherwise on such terms as the Executive
Committee and the Company may approve consistent with the terms
of the Stock Option Plan.
6. OTHER BENEFITS. In addition to the Base Salary to be
paid to the Executive pursuant to Section 5 and any bonus paid to
the Executive pursuant to Section 5, the Executive shall also be
entitled to the following additional benefits:
(a) Participation in Benefit Plans. The Executive shall be
------------------------------
entitled to participate in the various retirement, welfare,
fringe benefit and executive perquisite plans, programs and
arrangements of the Company and Laurel Bank to the extent the
Executive is eligible for participation under the terms of such
plans, programs and arrangements.
(b) Expense Reimbursement. The Company shall reimburse the
---------------------
Executive, upon proper accounting, for reasonable business
expenses and disbursements incurred by him in the course of the
performance of his duties under this Agreement.
(c) Vacation and Holidays. The Executive shall be entitled to
---------------------
at least four (4) weeks of vacation during each year of this
Agreement, plus additional vacation time at the Executive's
discretion with approval by the Chairman of the Board of
Directors. The Executive will also be entitled to paid holidays
given by the Company to its employees generally, without
reduction in salary or other benefits.
7. TERMINATION.
(a) The Board may discharge the Executive from his
employment hereunder and the Executive may resign from his
employment hereunder, in either case for any reason or for no
reason whatsoever. Upon any termination of Executive's
employment for any reason, whether by reason of discharge,
resignation, retirement, death, disability or any other reason
whatsoever, Executive shall be entitled to (i) a lump sum
4
severance payment of $1.2 million or, at his option, a monthly
severance benefit payable over a period of up to ten (10) years
or any shorter term selected by Executive having a discounted
present value equal to $1.2 million utilizing a discount rate
equal to the Applicable Treasury Rate, and (ii) such benefits
applicable to former employees of the Company under the terms of
any welfare, pension benefit, medical insurance and similar
plans, programs and arrangements. The Applicable Treasury Rate
shall be the most recent Treasury Rate for constant maturities of
the number of years equal to the term selected by the Executive
as published by the Federal Reserve Board in Statistical Release
H.15 as the "Yields on U.S. Government Securities ? Treasury
constant maturities."
(b) Notice of Termination. Any discharge of the Executive shall
---------------------
be communicated by a Notice of Termination to the Executive (in
the case of discharge) or to the Board (in the case of
resignation) given in accordance with Section 16 of this
Agreement, specifying the termination date (which date shall in
all events be within thirty (30) days after the giving of such
notice).
8. SUPPLEMENTAL RETIREMENT BENEFIT.
(a) Benefit Amount. In addition to the severance compensation
--------------
under Section 7(a), upon the date of termination of employment
for any reason, or if the Executive dies before termination of
employment, the Company will pay the Executive or his designated
beneficiary a monthly supplemental retirement benefit of $6,000
per month, payable in equal monthly installments for the
lifetime of the Executive or fifteen (15) years, whichever is
longer, unless the Executive or his designated beneficiary
chooses one of the four alternative payment options described in
Section 8(b) (i) through (iv). The monthly amount is subject to
increase depending on the date of termination as indicated in the
following table:
IF EMPLOYMENT
------------- MONTHLY AMOUNT
TERMINATES BEFORE --------------
-----------------
OCTOBER 30,
------------
1999 $ 6,000
2000 $ 6,500
2001 $ 7,000
provided that following any Change of Control (as defined in
Section 5(a)) the monthly amount shall be $7,000.
(b) Payment Options. In lieu of the payments under Section
---------------
8(a), the Executive or his designated beneficiary may choose one
of the four alternative payment options described in clauses (i)
through (iv) below.
(i) 50% Joint and Survivor Annuity Option - The
Executive shall receive an actuarially adjusted benefit (which
takes into account the amount his spouse will subsequently
receive) for his lifetime. At his death, his spouse will receive
one-half of that amount until her death.
(ii) 75% Joint and Survivor Annuity Option - The
Executive shall receive an actuarially adjusted benefit (which
takes into account the amount his spouse will subsequently
receive) for his lifetime. At his death, his spouse will receive
three-fourths of that amount until her death.
5
(iii) 100% Joint and Survivor Annuity Option -
The Executive shall receive an actuarially adjusted benefit
(which takes into account the amount his spouse will subsequently
receive) for his lifetime. At his death, his spouse shall
receive the same amount until her death; or
(iv) Lump Sum Option - The Executive, or if
applicable the beneficiary, may elect to receive a lump sum cash
payment of actuarial equivalent value to the benefit determined
under Section 8(a) 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.
(c) Actuarial Adjustments. All actuarial assumptions under this
---------------------
Agreement shall be determined using the Executive's or, if
applicable, his designated beneficiary's life expectancy, or
their joint life expectancies, under mortality tables adopted by
the Company under its Defined Benefit Plan and using the interest
rate assumptions published by the Pension Benefit Guaranty
Company and then in effect to determine the present value of
immediate annuities in the event of termination of a single
employer plan.
(d) Non-Qualified Plan Arrangement. This Agreement 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 Agreement 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
Agreement shall be administered and construed so as to effectuate
this intent.
9. FUNDING. The Company's obligations under this
Agreement shall be an unfunded and unsecured promise to make the
payments specified herein, and the Company shall not be obligated
under any circumstances to fund any of its obligations hereunder.
The Company 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 Company. If the Company shall make such an election, the
manner and the continuance or discontinuance thereof shall be the
sole and exclusive decision of the Company.
10. INVESTMENT. The Company 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 Agreement. However,
nothing herein shall be construed as requiring such investment.
If the Company 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 Company 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 the Executive. If the Company desires to
invest all or any portion of such funds in a life insurance
policy or policies issued upon the life of the Executive, then he
or she shall assist the Company by submitting to a physical
examination and supplying any additional information necessary or
helpful to the Company to obtain such insurance.
11. OTHER BENEFITS AND AGREEMENTS. The benefits provided
for the Executive herein are in addition to any other benefits
the Executive may have under any other Agreement or program of
the Company or its subsidiaries, and shall supplement and shall
not supersede any other agreement between the Company or its
subsidiaries and the Executive or any provision contained
therein.
6
12. BENEFICIARY DESIGNATION. The Executive 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
Company pursuant to this Agreement to any person other than the
Executive. Such designation shall be in a form acceptable to the
Company and shall be valid upon receipt by the Company. Attached
hereto as Exhibit "A" is a form of beneficiary designation
acceptable to the Company. Any beneficiary designation made
under this Agreement shall be revocable at any time unless
expressly made irrevocable. If at the time of the Executive's
death there is no beneficiary designated for purposes of
receiving any payments which may be due from the Company
hereunder or if such designated beneficiary fails to survive the
Executive, such payments shall be paid to the Executive's estate.
13. COMPETITION.
(a) During the term of this Agreement and for a period
of two years after the termination or expiration hereof, the
Executive will not, within Somerset County, Pennsylvania,
directly or indirectly:
(i) as an individual proprietor, partner,
stockholder, officer, employee, director, joint venturer,
investor, lender, or in any other capacity whatsoever (other than
as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly-held company), engage in the
business of banking, making loans or providing trust services;
(ii) recruit, solicit or induce, or attempt to
induce, any employee or employees of the Company or any of its
affiliates to terminate their employment with, or otherwise cease
their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt
to divert or to take away, the business or patronage of any of
the clients, customers, or accounts, or prospective clients,
customers or accounts, of the Company or any of its affiliates
which were contacted, solicited or served by the Employee while
employed by the Company or any of its affiliates.
(b) If any restriction set forth in this Section 13 is
found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it
shall be interpreted to extend only over the maximum period of
time, range of activities or geographic area as to which it may
be enforceable.
(c) The restrictions contained in this Section 13
hereof are necessary for the protection of the business and
goodwill of the Company and are considered by the Executive to be
reasonable for such purpose. The Executive agrees that any
breach of this Section 13 hereof will cause the Company and its
affiliates substantial and irreparable harm and, therefore, in
the event of any such breach, in addition to such other remedies
that may be available, the Company or any of its affiliates shall
have the right to seek specific performance and injunctive
relief.
14. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the heirs and representatives of the
Executive and the successors and assigns of the Company and
Laurel Bank. The Company shall require any successor (whether
direct or indirect, by purchase, merger, reorganization,
consolidation, acquisition of property or stock, liquidation, or
otherwise) to all or a significant portion of its assets, by
agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform this Agreement if no such succession had
taken place. Regardless whether such agreement is executed, this
7
Agreement shall be binding upon any successor of the Company in
accordance with the operation of law and such successor shall be
deemed the "Company" for purposes of this Agreement.
15. DISPUTE RESOLUTION.
(a) Arbitration. Any controversy or claim arising out of or
------------
relating to this Agreement or the breach thereof (including the
arbitrability of any controversy or claim), shall be settled by
arbitration in the City of Pittsburgh in accordance with the
internal laws of the Commonwealth of Pennsylvania by three
arbitrators, one of whom shall be appointed by the Board, one by
the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree
on the appointment of a third arbitrator, then the third
arbitrator shall be appointed by the American Arbitration
Association. The arbitration shall be conducted in accordance
with the rules of the American Arbitration Association, except
with respect to the selection of arbitrators which shall be as
provided in this Section 15(a). Except as otherwise provided in
Section 15(b), the cost of any arbitration proceeding hereunder
shall be borne equally by the Company and the Executive. The
award of the arbitrators shall be binding upon the parties.
Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
(b) Legal Expenses. If it shall be necessary or desirable for
--------------
the Executive to retain legal counsel and/or incur other costs
and expenses in connection with the enforcement of any or all of
his rights under this Agreement, and if the Executive
substantially prevails in the enforcement of such rights, the
Company shall pay (or the Executive shall be entitled to recover
from the Company, as the case may be) the Executive's reasonable
attorneys' fees and costs and expenses in connection with the
enforcement of the Executive's rights including the enforcement
of any arbitration award.
16. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given if delivered by hand or mailed within the
continental United States by first class certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) if to the Board or the Company, to:
BT Financial Corporation
BT Financial Plaza
551 Main Street
Johnstown, PA 15901
Attention: Board of Directors
c/o Corporate Secretary
(b) to the Executive, to:
George W. Hay
629 Harvest Drive
Rockwood, PA 15557
Such addresses may be changed by written notice sent to the
other party at the last recorded address of that party.
8
17. NO ASSIGNMENT. Except as otherwise expressly provided
herein, this Agreement is not assignable by any party and no
payment to be made hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
other charge.
18. EXECUTION IN COUNTERPARTS. This Agreement may be
executed by the parties hereto in two or more counterparts, each
of which shall be deemed to be an original, but all such
counterparts shall constitute one and the same instrument, and
all signatures need not appear on any one counterpart.
19. JURISDICTION AND GOVERNING LAW. Jurisdiction over
disputes with regard to this Agreement shall be exclusively in
the courts of the Commonwealth of Pennsylvania, and this
Agreement shall be construed and interpreted in accordance with
and governed by the laws of the Commonwealth of Pennsylvania,
other than the conflict of laws provisions of such laws.
20. NO MITIGATION REQUIRED. The Executive shall not be
required to mitigate damages or the amount of any payment
provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer or
otherwise after the Date of Termination.
21. SEVERABILITY. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be invalid
or unenforceable for any reason, such judgment shall not affect,
impair or invalidate the remainder of this Agreement.
22. PRIOR UNDERSTANDINGS. This Agreement embodies the
entire understanding of the parties hereof, and supersedes all
other oral or written agreements or understandings between them
regarding the subject matter hereof. No change, alternation or
modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are
for convenience and reference only and shall not be construed as
part of this Agreement or to limit or otherwise affect the
meaning hereof.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
9
22. JOINT AND SEVERAL LIABILITY. The Company and Laurel
Bank shall be jointly and severally liable for their respective
obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the 15th day of July , 1999.
------ -----------
Attest: BT FINANCIAL CORPORATION
/s/ Laura L. Roth /s/ John H. Anderson
- --------------------------------- -------------------------
Secretary John H. Anderson
Chairman of the Board
Attest: LAUREL BANK
/s/ Laura L. Roth /s/ Eric F. Rummel
- --------------------------------- --------------------
Secretary Eric F. Rummel
President
Witness: EXECUTIVE
/s/ Janet E. Gillen /s/ George W. Hay
- --------------------------------- --------------------
George W. Hay
10
EXHIBIT A
BT FINANCIAL CORPORATION
DESIGNATION OF BENEFICIARY
DEATH BENEFIT
I, GEORGE W. HAY, hereby designate the following to receive
any payments which may be required to be paid by BT Financial
Company under the Employment Agreement, dated July 15, 1999, as a
result of my death.
PRIMARY BENEFICIARY: Judy E. Hay
---------------------------------------------
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
/s/ George W. Hay
---------------------------------
George W. Hay
Received and recorded this 15th day of July 1999.
---- ----
/s/ Laura L. Roth
--------------------------------
Laura L. Roth,
Secretary and Assistant
Treasurer
11
[PRICEWATERHOUSECOOPERS LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BT FINANCIAL CORPORATION:
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statement
of income, cash flows, changes in shareholders' equity, and comprehensive income
present fairly, in all material respects, the financial position of BT Financial
Corporation and affiliates at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. The consolidated financial
statements give retroactive effect to the merger of First Philson Financial
Corporation on July 14, 1999 in a transaction accounted for as a pooling of
interests, as described in Note 2 to the consolidated financial statements. We
did not audit the financial statements of First Philson Financial Corporation,
which statements reflect total assets of $213,607,000 as of December 31, 1998
and net interest income of $9,131,000 and $8,702,000 for each of the two years
in the period ended December 31, 1998. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for First
Philson Financial Corporation, is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
January 25, 2000
FINANCIAL REPORT TO SHAREHOLDERS 17
<PAGE>
BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
DECEMBER 31 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 65,812 $ 67,823
Interest-bearing deposits with banks 136 57
Federal funds sold 49,000 19,700
Securities available-for-sale, at market value 359,883 316,954
Securities held-to-maturity (market values of $1,983 at
December 31, 1999, and $119,697 at December 31, 1998) 1,999 118,861
---------------------------------------------------------------------------------------------
Total securities 361,882 435,815
-----------------------------
Loans 1,529,696 1,355,818
Less:
Unearned interest 14,872 30,077
Reserve for loan losses 15,654 13,702
---------------------------------------------------------------------------------------------
Net loans 1,499,170 1,312,039
-----------------------------
Premises and equipment 29,265 32,177
Accrued interest receivable 12,660 13,174
Other assets 42,747 35,123
---------------------------------------------------------------------------------------------
Total assets $2,060,672 $1,915,908
=============================
- ---------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------
Deposits:
Non-interest-bearing $ 241,293 $ 234,790
Interest-bearing 1,353,826 1,343,360
---------------------------------------------------------------------------------------------
Total deposits 1,595,119 1,578,150
Federal funds purchased and securities sold
under agreements to repurchase 37,607 36,880
Short-term borrowings 78,750 2,319
Accrued interest payable 7,840 6,300
Other liabilities 6,319 3,083
Long-term borrowings 150,010 100,031
---------------------------------------------------------------------------------------------
Total liabilities 1,875,645 1,726,763
-----------------------------
Commitments and contingencies -- --
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; 16,683,294 at December 31, 1999,
and 16,684,294 at December 31, 1998 83,416 79,449
Capital surplus 58,956 45,470
Retained earnings 53,666 62,220
Treasury stock at cost, 1,000 shares at December 31, 1998 -- (24)
Accumulated other comprehensive (loss) income (11,011) 2,030
---------------------------------------------------------------------------------------------
Total shareholders' equity 185,027 189,145
-----------------------------
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,060,672 $1,915,908
=============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except shares and per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $116,038 $106,593 $101,413
Securities:
Taxable 17,752 27,918 26,484
Tax-exempt 5,328 3,327 1,304
Deposits with banks 8 29 32
Federal funds sold 1,039 1,059 1,280
-------------------------------------------------------------------------------------------------------
Total interest income 140,165 138,926 130,513
-----------------------------------------
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 48,731 52,924 51,872
Federal funds purchased and securities
sold under agreements to repurchase 1,351 1,986 1,793
Short-term borrowings 2,272 1,001 210
Long-term borrowings 7,130 4,510 1,112
-------------------------------------------------------------------------------------------------------
Total interest expense 59,484 60,421 54,987
-----------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 80,681 78,505 75,526
Provision for loan losses 6,099 5,984 4,250
-------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 74,582 72,521 71,276
-----------------------------------------
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust income 4,032 3,651 3,187
Fees for other services 10,402 9,627 8,685
Net securities gains 86 460 195
Other income 1,712 1,023 1,507
-------------------------------------------------------------------------------------------------------
Total other income 16,232 14,761 13,574
-----------------------------------------
- -------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and wages 23,792 23,515 22,847
Pension and other employee benefits 5,148 4,939 4,120
Net occupancy expense 4,889 4,638 4,773
Equipment expense 5,908 5,808 5,386
F.D.I.C. insurance 279 292 289
Amortization of intangible assets 2,095 2,095 2,020
Reorganization expense 4,204 290 --
Other operating expense 14,999 15,671 14,714
-------------------------------------------------------------------------------------------------------
Total other expenses 61,314 57,248 54,149
-----------------------------------------
- -------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 29,500 30,034 30,701
Provision for income taxes 8,686 8,975 10,223
- -------------------------------------------------------------------------------------------------------------
NET INCOME $20,814 $21,059 $20,478
=========================================
- -------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic:
Earnings per share $ 1.25 $ 1.26 $ 1.23
Weighted average shares outstanding 16,683,294 16,683,924 16,684,344
Diluted:
Earnings per share $ 1.25 $ 1.26 $ 1.23
Weighted average shares outstanding 16,683,682 16,683,924 16,684,344
Dividends paid per common share $ .71 $ .61 $ .53
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FINANCIAL REPORT TO SHAREHOLDERS 19
<PAGE>
BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $20,814 $21,059 $20,478
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 6,099 5,984 4,250
Provision for depreciation and amortization 4,508 4,811 4,403
Amortization of intangible assets 2,095 2,095 2,020
Amortization of premium, net of accretion
of discount on loans and investments (192) 459 37
Deferred income taxes (1,219) (636) 94
Gain from sale of branches (609) -- --
Realized net securities gains (86) (460) (195)
Proceeds from sales of loans 14,491 8,096 11,845
Decrease (increase) in interest receivable 514 (63) (2,377)
Increase (decrease) in interest payable 1,540 (188) 438
Equity in loss of limited partnerships 73 115 117
Other assets and liabilities, net 1,979 1,401 (1,258)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 50,007 42,673 39,852
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities 15,057 45,340 10,926
Repayments and maturities of securities available-for-sale 42,086 99,703 78,788
Repayments and maturities of securities held-to-maturity 79,193 131,332 72,268
Purchase of securities available-for-sale (75,819) (224,675) (99,205)
Purchase of securities held-to-maturity (6,726) (22,478) (125,044)
Net (increase) decrease in interest-bearing deposits
with banks (79) 878 (601)
Net (increase) decrease in federal funds sold (29,300) (9,000) 7,100
Net increase in loans (207,364) (152,403) (56,758)
Purchases of premises and equipment and other (987) (3,483) (3,551)
Net increase in investment in limited partnership (295) (1,434) (181)
Purchase of branches, net of cash acquired -- -- 58,819
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (184,234) (136,220) (57,439)
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 16,969 28,630 14,762
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 727 (1,107) 141
Net increase (decrease) in short-term borrowings 76,431 (1,226) (1,310)
Common dividends paid (11,890) (10,196) (8,850)
Purchase of treasury stock -- (24) --
Proceeds from long-term borrowings 50,000 100,000 --
Payments on long-term borrowings (21) (14,304) (2,875)
Other -- -- (3)
-----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 132,216 101,773 1,865
--------------------------------------
(Decrease) increase in cash and cash equivalents (2,011) 8,226 (15,722)
Cash and cash equivalents at beginning of year 67,823 59,597 75,319
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $65,812 $67,823 $59,597
======================================
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings $57,944 $60,609 $54,549
Federal income taxes, net of refunds 9,524 8,751 11,329
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1999, 1998, and 1997
(in thousands, except shares and per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED
------------ OTHER
NUMBER OF COMMON CAPITAL RETAINED TREASURY COMPREHENSIVE
SHARES STOCK SURPLUS EARNINGS STOCK INCOME (LOSS) TOTAL
- ----------------------------------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 7,222,660 $36,113 $55,937 $72,601 $-- $781 $165,432
Net income, 1997 20,478 20,478
Common dividends paid
($.53 per share) (8,850) (8,850)
Stock dividend 722,266 3,612 19,969 (23,581) --
Transfer 9,290 (9,290) --
Other (2) 7 5
Change in accumulated other
comprehensive income, net of tax 168 168
- ----------------------------------------------- ------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 7,944,926 39,725 85,194 51,365 -- 949 177,233
Net income, 1998 21,059 21,059
Common dividends paid
($.61 per share) (10,196) (10,196)
2-for-1 stock split in the form
of a stock dividend 7,944,926 39,724 (39,724) --
Shares reacquired (24) (24)
Other (8) (8)
Change in accumulated other
comprehensive income, net of tax 1,081 1,081
- ----------------------------------------------- ------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 15,889,852 79,449 45,470 62,220 (24) 2,030 189,145
Net income, 1999 20,814 20,814
Common dividends paid
($.71 per share) (11,890) (11,890)
Shares retired (1,000) (5) (19) 24 --
Stock dividend 794,442 3,972 13,506 (17,478) --
Other (1) (1)
Change in accumulated other
comprehensive income (loss),
net of tax (13,041) (13,041)
- ----------------------------------------------- ------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 16,683,294 $83,416 $58,956 $53,666 $-- $(11,011) $185,027
============= ==============================================================================
</TABLE>
BT FINANCIAL CORPORATION AND AFFILIATES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $20,814 $21,059 $20,478
Other comprehensive income, net of tax:
Unrealized holding (losses) gains on
securities arising during period (12,985) 1,380 295
Less: Reclassification adjustment for
gains included in net income 56 299 127
--------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (13,041) 1,081 168
--------------------------------------------------------------------------------------------------------
Comprehensive income $ 7,773 $22,140 $20,646
=================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FINANCIAL REPORT TO SHAREHOLDERS 21
<PAGE>
BT FINANCIAL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. ACCOUNTING AND FINANCIAL REPORTING POLICIES
The following is a summary of the significant accounting and financial reporting
policies of BT Financial Corporation (BT or the Corporation) and its affiliates.
BASIS OF PRESENTATION
The consolidated financial statements of BT, a bank holding company incorporated
under the laws of the Commonwealth of Pennsylvania, include the accounts of BT
and its wholly owned affiliates, Laurel Bank (Laurel), Laurel Trust Company (the
Trust Company), Bedford Associates, Inc., Laurel Community Development
Corporation, Bedford Associates of Delaware, Inc., Laurel Investment Advisors,
Inc., and Flex Financial Consumer Discount Company (Flex). All significant
intercompany transactions have been eliminated in consolidation. During 1997, BT
adopted a single bank charter for its three affiliate banks (Johnstown Bank and
Trust Company [Bank and Trust], Laurel Bank, and Fayette Bank). The single bank
was named Laurel Bank.
Bedford Associates, Inc., was organized by BT primarily to hold and operate
real property and equipment used by banking affiliates in their operations.
Laurel Community Development Corporation was organized to conduct community
development activities. Flex was established in 1997 to provide consumer finance
loans. Bedford Associates of Delaware, Inc., a Delaware Corporation, was formed
in 1998 to hold and manage certain investments of BT. Laurel Investment
Advisors, Inc., was formed in 1999 as a registered investment advisor providing
investment advisory services.
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.
Prior period financial statements have been restated to include the
accounts and operations of companies that were acquired and accounted for as
poolings-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.
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
part of other comprehensive income. 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.
Gains and losses are computed principally under the specific identification
method. On a periodic basis, management evaluates each security where amortized
cost exceeds market value. If the decline is judged to be other than temporary,
the cost basis of the security is written down to its estimated net realizable
value with the write down included in net securities gains (losses).
INTEREST INCOME
Interest income is recognized in a manner that results in a level yield on
principal amounts outstanding. The accrual of interest is discontinued when, in
management's judgement, it is determined that the collectibility of interest,
but not necessarily principal, is doubtful. Payments on nonaccrual loans are
generally applied to either principal or interest or both, 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.
22 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
UNEARNED INTEREST
Unearned interest represents interest deducted from the proceeds of consumer
loans and direct finance leases. Income is recognized over the life of the loan
or lease as payments become due.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is based on management's evaluation of probable
losses in the current loan portfolio, which includes an assessment of current
economic conditions, changes in the nature of the loan portfolio, loan loss
experience, and other relevant factors. 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. Loans are
considered for impairment if payments are delinquent for 90 days or earlier
based on management's judgement. 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, 1999, 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 and any excess or deficiency
of such reserve is netted against the general reserve. 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, building improvements 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.
Estimated useful lives are generally 10 to 50 years for premises and building
improvements, 3 to 10 years for equipment, and 5 to 15 years for leasehold
improvements.
Maintenance, repairs, and minor renewals are charged to expense as
incurred. Expenditures for improvements and major renovations are capitalized
and depreciated over their estimated useful lives. When capitalized items 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 5 to 15 years.
Premiums paid for branch offices are allocated to core deposit 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 $3,838 and $4,145 and goodwill and other intangibles amounted to
$15,119 and $16,903 at December 31, 1999 and 1998, respectively. Management
periodically evaluates 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 the 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
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.
FINANCIAL REPORT TO SHAREHOLDERS 23
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires, among other things, that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial condition and
measures those instruments at fair value. In June of 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133," which postponed the adoption
date of SFAS No. 133. As such, the Corporation is not required to adopt SFAS No.
133 until fiscal year 2001. Since BT does not currently use derivative financial
instruments, the adoption of the standard would not have any material impact on
BT's financial position or results of operations.
2. ACQUISITIONS
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. A deposit intangible of $4.6 million was
recorded in connection with the purchase and is being amortized over a
fifteen-year period. The combined deposit and loan totals for the three offices
were 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.
On October 23, 1998, BT completed a merger with The Peoples National Bank
of Rural Valley (Peoples), Rural Valley, Pennsylvania whereby Peoples merged
into Laurel Bank. At the time of the merger, Peoples operated one branch with
unaudited assets totaling approximately $37 million. In conjunction with the
merger, each share of Peoples Common Stock was converted into 12.11 shares of BT
Common Stock, resulting in the issuance of 484,400 shares of BT Common Stock.
The value of the transaction was approximately $12.6 million based on an average
market price of approximately $26 per BT Common Stock share. In connection with
the Peoples merger, $290 of reorganization costs ($260 after-tax or $.02 per
diluted share) were recognized in 1998. These costs consisted principally of
legal, accounting, and other fees related to the merger. 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 Peoples for all periods presented prior to the
merger.
On July 14, 1999, BT completed a merger with First Philson Financial
Corporation (Philson) whereby Philson was merged directly into BT. In
conjunction with the merger, each share of Philson Common Stock was converted
into 1.667 shares of BT Common Stock, resulting in the issuance of 2,904,580
shares of BT Common Stock. The value of the transaction was approximately $71
million based on the closing market price of $24.50 per BT Common Stock share on
July 14, 1999. Philson's assets totaled approximately $221 million on the merger
date. Post-merger, BT's assets totaled approximately $2.0 billion. This merger
enhanced BT's lead position in market share for Somerset County, Pennsylvania,
where BT now represents over one-third of the total bank and thrift deposits.
The merger has been accounted for as a pooling-of-interests. Accordingly, BT's
accompanying consolidated financial statements have been restated retroactively
to include the accounts and operations of Philson for all periods prior to the
merger. Philson's banking subsidiary, First Philson Bank, N.A., was merged into
Laurel Bank upon consummation of the merger of the corporations. At the time of
the merger, First Philson Bank, N.A., operated nine branches in Somerset and
Fayette counties. Two of these branches closed during the fourth quarter of 1999
along with one branch of Laurel as a result of duplicate service areas. Philson
also owned Flex Financial Consumer Discount Company (Flex), a finance company
subsidiary. Flex has two branch offices and continues to operate as a non-bank
subsidiary of BT. In connection with the Philson merger, $4.2 million of merger
costs and expense ($3.0 million after-tax or $.18 per diluted share) were
incurred and charged to expense in 1999. The merger costs and expenses consisted
primarily of severance pay and other employee benefits to employees and various
legal, accounting, and investment banking fees associated with the transaction.
24 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
The following tables present separate financial results pertaining to the
mergers of BT with Peoples and Philson for the periods shown below. Earnings per
share amounts in the tables for Philson have not been restated for the BT shares
issued in the merger.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
BT (AS REPORTED) PHILSON COMBINED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income before the provision for loan losses $35,331 $4,584 $39,915
Net income 9,943 1,376 11,319
Earnings per share:
Basic and Diluted .73 .79 .68
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------------------
BT (AS REPORTED) PEOPLES* PHILSON COMBINED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income before the provision for loan losses $68,263 $1,111 $9,131 $78,505
Net income 17,813 465 2,781 21,059
Earnings per share:
Basic and Diluted 1.36 -- 1.60 1.26
* Peoples data reflects results for the nine month period ended September 30, 1998.
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
BT (AS REPORTED) PEOPLES PHILSON COMBINED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income before the provision for loan losses $65,381 $1,443 $8,702 $75,526
Net income 17,152 595 2,731 20,478
Earnings per share:
Basic and Diluted 1.31 -- 1.57 1.23
</TABLE>
3. SECURITIES
In accordance with SFAS No. 115, BT classified Philson's entire securities
portfolio as available-for-sale on the July 14, 1999 merger date between BT and
Philson.
The amortized cost and estimated market values of securities at December
31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- -----------------------------------------------
1999 1998
- --------------------------------------------------------------------------------- -----------------------------------------------
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 $197,853 $ 11 $(10,204) $187,660 $168,559 $1,553 $ (15) $170,097
Obligations of states and
political subdivisions 111,706 61 (6,001) 105,766 96,656 1,124 (80) 97,700
Mortgage-backed securities 5,189 6 (219) 4,976 -- -- -- --
Debt securities issued
by foreign governments 1,444 2 (24) 1,422 982 38 -- 1,020
Corporate securities 60,631 104 (676) 60,059 47,641 555 (59) 48,137
- --------------------------------------------------------------------------------- -----------------------------------------------
Totals $376,823 $184 $(17,124) $359,883 $313,838 $3,270 $(154) $316,954
============================================== ===============================================
- --------------------------------------------------------------------------------- -----------------------------------------------
SECURITIES HELD-TO-MATURITY
US Treasury and obligations of
US Government agencies
and corporations $1,999 $-- $(16) $1,983 $ 99,515 $596 $(23) $100,088
Obligations of states and
political subdivisions -- -- -- -- 9,100 223 -- 9,323
Mortgage-backed securities -- -- -- -- 6,041 27 (47) 6,021
Corporate securities -- -- -- -- 4,205 60 -- 4,265
- --------------------------------------------------------------------------------- -----------------------------------------------
Totals $1,999 $-- $(16) $1,983 $118,861 $906 $(70) $119,697
============================================== ===============================================
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 25
<PAGE>
The market value of securities was based on quoted market prices or bid
quotations received from securities dealers. BT owned capital stock of the
Federal Home Loan Bank and the Federal Reserve Bank of Philadelphia in the
aggregate amounts of $30,846 and $18,706 at December 31, 1999 and 1998,
respectively. These stock investments are carried at cost and are included in
BT's corporate securities total.
The amortized cost and estimated market value of securities at December 31,
1999, 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
1999 1999
- ----------------------------------------------------------------------- ----------------------------------
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
- ----------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 19,366 $ 19,277 $ -- $ --
Due after one year through five years 52,011 51,016 1,999 1,983
Due after five years through ten years 197,397 186,290 -- --
Due after ten years 108,049 103,300 -- --
- ----------------------------------------------------------------------- ----------------------------------
Total $376,823 $359,883 $1,999 $1,983
============================ ==================================
</TABLE>
Proceeds from sales of securities during 1999 were $15,057. Gross gains of
$30 and gross losses of $30 were realized on those sales. In addition, various
securities were called during 1999 which resulted in gross gains of $90 and
gross losses of $4. BT realized gross losses of $50 in 1998 and 1997 in
connection with a valuation adjustment on an equity security. During 1998,
proceeds from sales of securities were $45,340, with gross gains of $367
realized on those sales. In addition, various securities were called during 1998
which resulted in gross gains of $163 and gross losses of $20. In 1997, proceeds
from sales of securities were $10,926, with gross gains of $270 and gross losses
of $62 realized on those sales. Also, various securities were called in 1997
resulting in gross gains of $37. At December 31, 1999, securities carried at
$208,532 were pledged as collateral for public and trust deposits and securities
sold under agreements to repurchase.
4. LOANS
The composition of the loan portfolio at December 31, 1999 and 1998, was as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $223,995 $208,805
Real estate:
Residential 545,570 436,792
Commercial 323,159 279,659
Consumer 436,972 430,562
----------------------------------------------------------------------------------
Total $1,529,696 $1,355,818
===============================
</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 credit worthiness on a case-by-case basis.
Collateral held includes mortgages on residential and income-producing
properties. Included in consumer loans are education loans held-for-sale which
totaled $4,907 and $12,122 at December 31, 1999, and 1998, 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>
---------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans at beginning of year $22,818 $25,103 $24,302
New loans 33,589 24,870 17,170
Loan payments (26,039) (23,305) (15,416)
Other (1,466) (3,850) (953)
---------------------------------------------------------------------------------------------------
Loans at end of year $28,902 $22,818 $25,103
==============================================
</TABLE>
Other represents the net change in loan balances resulting from changes in
related parties during the year. See Note 18 "Financial Instruments with
Off-Balance Sheet Risk" for credit risk disclosures.
26 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
5. RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ----------------------------------- ----------------------------------
1999 1998 1997
- ----------------------------------------------------------- ----------------------------------- ----------------------------------
RESERVE FOR TOTAL RESERVE FOR TOTAL RESERVE FOR TOTAL
IMPAIRED RESERVE IMPAIRED RESERVE IMPAIRED RESERVE
GENERAL LOAN FOR LOAN GENERAL LOAN FOR LOAN GENERAL LOAN FOR LOAN
RESERVE LOSSES LOSSES RESERVE LOSSES LOSSES RESERVE LOSSES LOSSES
- ----------------------------------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $13,554 $148 $13,702 $11,741 $870 $12,611 $11,311 $1,511 $12,822
Additions:
Provisions for
loan losses 4,851 1,248 6,099 4,443 1,541 5,984 3,544 706 4,250
Recoveries of loans
charged off 1,013 -- 1,013 949 -- 949 698 -- 698
Deductions:
Loans charged off (4,830) (330) (5,160) (3,579) (2,263) (5,842) (3,812) (1,347) (5,159)
- ----------------------------------------------------------- ----------------------------------- ----------------------------------
Balance at end of year $14,588 $1,066 $15,654 $13,554 $148 $13,702 $11,741 $870 $12,611
================================== =================================== ==================================
</TABLE>
The recorded investment in loans for which impairment has been recognized
in accordance with SFAS No. 114 totaled $5,422 and $674 at December 31, 1999 and
1998, respectively. A corresponding valuation allowance of $1,066 and $148 was
established at December 31, 1999 and 1998, respectively. The year-over-year
increases were principally due to the addition of various secured impaired
commercial mortgage loans associated with two borrowers. The average recorded
investment in impaired loans during 1999 and 1998 was approximately $2,337 and
$1,479, respectively. The interest revenue recognized on impaired loans during
1999 and 1998 was insignificant.
6. PREMISES AND EQUIPMENT
Major classes of premises and equipment at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 4,841 $ 4,962
Premises and building improvements 32,511 32,387
Leasehold improvements 1,669 1,789
Equipment 30,704 30,807
-------------------------------------------------------------------------------------
Total 69,725 69,945
Less accumulated depreciation and amortization (40,460) (37,768)
-------------------------------------------------------------------------------------
Premises and equipment, net $29,265 $32,177
=============================
</TABLE>
7. DEPOSITS
The composition of deposits at December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C>
Non-interest-bearing demand $ 241,293 $ 234,790
Interest-bearing demand 256,993 267,563
Savings 230,619 260,098
Time deposits 866,214 815,699
-------------------------------------------------------------------------------------
Total $1,595,119 $1,578,150
================================
</TABLE>
The aggregate amount of all time deposits over $100 amounted to $187,407
and $133,557 at December 31, 1999 and 1998, respectively.
The following table presents the maturity schedule of BT's total time
deposits at December 31, 1999.
<TABLE>
<S> <C> <C>
------------------------------------------------------------------
Time Deposits:
1 year or less $566,346
Over 1 year through 2 years 169,443
Over 2 years through 3 years 84,137
Over 3 years through 4 years 12,289
Over 4 years through 5 years 30,097
Over 5 years 3,902
------------------------------------------------------------------
Total $866,214
===========
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 27
<PAGE>
8. FEDERAL INCOME TAXES
The components of the provision (benefit) for income taxes from operations are
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $9,905 $9,611 $10,129
Deferred (1,219) (636) 94
------------------------------------------------------------------------------------
Total $8,686 $8,975 $10,223
============================================
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax
rate applicable to income before income taxes follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct) the tax effect of:
Tax-exempt interest (9.5) (6.4) (4.1)
Interest expense limitation 1.3 .2 .4
Other, net 2.6 1.1 2.0
------------------------------------------------------------------------------------
Effective tax rate 29.4% 29.9% 33.3%
===========================================
</TABLE>
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------------------------------------------------------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserve for possible loan losses $5,261 $ -- $4,456 $ --
Net unrealized holding losses and gains
on securities 5,929 -- -- 1,085
Depreciation 847 -- 755 --
Deferred loan fees, net 73 -- 90 --
Adjustment due to acquisition -- 287 47 430
Deferred compensation 1,108 -- 418 --
Other 1,328 844 1,479 548
------------------------------------------------------------------------- -----------------------------
Total $14,546 $1,131 $7,245 $ 2,063
========================== =============================
</TABLE>
No valuation allowance was established at December 31, 1999 and 1998, in
view of the Corporation's ability to carry back net deferred tax assets to taxes
paid in previous years.
9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
BT maintains noncontributory defined benefit pension plans covering
substantially all employees meeting minimum age and service requirements. The
plans generally provide benefits based on years of credited service and final
average earnings. BT's current funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax purposes. Pension
plan assets are primarily US Government obligations, corporate obligations, and
equity securities whose values are subject to fluctuations of the securities
market. Plan assets include common stock of BT with values of $1,812 and $2,148
at December 31, 1999 and 1998, 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 are included in the
determination of net pension cost over time. Other benefits consist of BT's
supplemental executive retirement plan for certain key employees.
Prior to 1998, BT maintained separate pension plans for its banking and
non-banking employees. During 1998, BT's non-banking employees were terminated
and subsequently rehired by an outside contractor. Accordingly, the non-banking
plan assets and liabilities were assumed by the contractor.
28 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
The following table sets forth the change in the projected benefit obligation
for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------ -------------------------
PENSION BENEFITS OTHER BENEFITS
------------------------------------------------------------------------------ -------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at
beginning of year $24,994 $21,815 $812 $763
Service cost 993 917 109 82
Interest cost 1,668 1,541 78 57
Actuarial gain (loss) 143 791 230 (55)
Termination of plan -- (234) -- --
Change in assumptions (5,938) 873 (114) --
Benefits paid (868) (709) (56) (35)
------------------------------------------------------------------------------ -------------------------
Projected benefit obligation at end of year $20,992 $24,994 $1,059 $812
======================== =========================
</TABLE>
The following table sets forth the change in the fair value of the plan
assets for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------ -------------------------
PENSION BENEFITS OTHER BENEFITS
------------------------------------------------------------------------------ -------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year $28,857 $26,841 $-- $--
Employer contributions 618 548 56 35
Actual return on plan assets 2,543 2,444 -- --
Termination of plan -- (267) -- --
Benefits paid (868) (709) (56) (35)
------------------------------------------------------------------------------ -------------------------
Fair value of plan assets at end of year $31,150 $28,857 $ -- $ --
======================== =========================
</TABLE>
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------ -------------------------
PENSION BENEFITS OTHER BENEFITS
------------------------------------------------------------------------------ -------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C>
Funded status:
Funded status $10,158 $3,863 $(1,059) $(812)
Unrecognized actuarial gain (loss) (6,849) (853) 275 --
Unrecognized prior service costs (254) (282) 49 98
Unrecognized transition credit (1,344) (1,437) -- --
------------------------------------------------------------------------------ -------------------------
Prepaid (accrued) pension costs $ 1,711 $1,291 $(735) $(714)
======================== =========================
</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 are as follows.
<TABLE>
<CAPTION>
------------------------------------------------------------------------- ----------------------------------
PENSION BENEFITS OTHER BENEFITS
------------------------------------------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 8.00% 6.75% 7.00% 8.00% 7.50% 7.50%
Long-term rate of return 8.25 8.25 8.00 -- -- --
Compensation rate 3.00 3.00 3.00 4.00 4.50 4.50
</TABLE>
The following table sets forth the pension expense for the years ended
December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
PENSION BENEFITS
-----------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service costs benefits earned during the year $ 993 $ 917 $ 814
Interest accrued on projected benefit obligation 1,668 1,541 1,352
Actual return on plan assets (2,543) (2,444) (3,484)
Net amortization and deferral 79 167 1,492
-----------------------------------------------------------------------------------------------
Net pension expense $ 197 $ 181 $ 174
====================================
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 29
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
OTHER BENEFITS
----------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service costs benefits earned during the year $109 $ 82 $141
Interest accrued on projected benefit obligation 78 57 53
----------------------------------------------------------------------------------------------
Net pension expense $187 $139 $194
=================================
</TABLE>
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 $236 for 1999, $245
for 1998, and $231 for 1997.
10. SHORT-TERM AND LONG-TERM BORROWINGS
BT's short-term borrowings consist of federal funds purchased, securities sold
under agreements to repurchase, and other short-term borrowings. Outstanding
short-term borrowings were $116,357 and $39,199 at December 31, 1999 and 1998,
respectively. The weighted average interest rates on these borrowings at
year-end 1999 and 1998 were 4.85% and 3.14%, respectively. Laurel is a member of
the Federal Home Loan Bank (FHLB). Accordingly, Laurel has availability of
short- and long-term borrowings in the form of collateralized advances from the
FHLB. The advances are secured primarily by Laurel's residential mortgage loans
and FHLB stock. The available line of credit for short- and long-term borrowings
from the FHLB at December 31, 1999 was approximately $177 million. At December
31, 1999, Laurel had $75,150 in short-term borrowings consisting of FHLB
advances compared to no borrowings at year-end 1998.
Long-term borrowings outstanding amounted to $150,010 and $100,031 at
December 31, 1999 and 1998, respectively. During 1999 and 1998, the Corporation
incurred $50,000 and $100,000, respectively, in long-term borrowings provided by
the FHLB. The FHLB borrowings are scheduled to mature in 10 years from the
funding dates. After an initial lockout period ranging from one to five years
and then quarterly thereafter, the FHLB has the option to convert the fixed-rate
advances to adjustable rates which reset quarterly. Payments on the advances
consist of interest due only until maturity when, at that time, principal
payments are also due. The weighted average interest rates on the FHLB advances
were 5.31% at year-end 1999 and 5.16% at year-end 1998. During 1998, the
Corporation paid off $14,285 in a long-term borrowing related to a note incurred
on December 14, 1995. The interest rate paid on this note was 6.75% during 1998.
A mortgage note is included in long-term borrowings and amounted to $10 and
$31 at December 31, 1999 and 1998, respectively. The mortgage note has a fixed
rate of 9.5% and matures in the year 2000.
11. CAPITAL STOCK
On December 22, 1999, BT's Board of Directors declared a 5% stock dividend. The
dividend was distributed on February 1, 2000 to shareholders of record as of
January 4, 2000. The dividend was charged to retained earnings in the aggregate
amount of $17.5 million which was based on a market price of $22.00 per share.
The stock dividend, representing 794,442 shares, increased common shares issued
and outstanding to 16,683,294. On March 25, 1998, BT's Board of Directors
declared a 2-for-1 stock split effected in the form of a stock dividend. The
dividend was distributed on May 1, 1998 to shareholders of record as of April 8,
1998. The stock dividend, representing 7,944,926 shares, increased common shares
issued and outstanding to 15,889,852. Accordingly, a transfer of $39.7 million,
representing the par value of additional shares issued, was made from surplus to
common 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 $23.6 million based on a market price of $19.02 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.
BT has authorized, at no par value, 2,000,000 shares of nonredeemable
cumulative Series A Preferred Stock. At December 31, 1999, no shares have been
issued. Upon issuance, the Series A Preferred Stock would have certain voting
and liquidation rights. 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. All currently outstanding shares of BT Common Stock
have these rights. At December 31, 1999, no rights have been exercised.
30 BT FINANCIAL CORPORATION AND AFFILIATES
<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, 1999, the Corporation meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, 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 bank's actual capital amounts and ratios
are presented in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
- ------------------------------------------------------------- ----------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------- ----------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
BT (Consolidated) $192,735 12.83% >$120,155 >8.00% N/A N/A
- -
Laurel 171,383 11.44 > 119,879 >8.00 >$149,849 >10.00%
- - - -
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
BT (Consolidated) $177,081 11.79% > $60,078 >4.00% N/A N/A
- - - -
Laurel 155,841 10.40 > 59,940 >4.00 >$ 89,910 > 6.00%
- - - -
TIER 1 CAPITAL (TO AVERAGE ASSETS):
BT (Consolidated) $177,081 8.56% > $82,711 >4.00% N/A N/A
- -
Laurel 155,841 7.56 > 82,441 >4.00 >$103,051 > 5.00%
- - - -
- ------------------------------------------------------------- ----------------- ----------------------
As of December 31, 1998:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
BT (Consolidated) $179,780 12.94% >$111,109 >8.00% N/A N/A
- -
Laurel 167,079 12.09 > 110,573 >8.00 >$138,216 >10.00%
- - - -
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
BT (Consolidated) $166,078 11.96% >$ 55,555 >4.00% N/A N/A
- -
Laurel 153,441 11.10 > 55,287 >4.00 >$ 82,930 > 6.00%
- - - -
TIER 1 CAPITAL (TO AVERAGE ASSETS):
BT (Consolidated) $166,078 8.78% >$ 75,670 >4.00% N/A N/A
- -
Laurel 153,441 8.15 > 75,264 >4.00 >$ 94,080 > 5.00%
- - - -
</TABLE>
12. REGULATORY REQUIREMENTS
Reserve balances of $21,561 were required to be maintained at the Federal
Reserve Bank of Philadelphia by Laurel at December 31, 1999.
Dividends and loans to BT from Laurel are subject to regulatory
limitations. In 2000, under regulatory guidelines and without prior approval of
bank regulators, Laurel can declare dividends to BT totaling $3,694 plus
additional amounts equal to the net earnings of Laurel for the period January 1,
2000, through the date of declaration less dividends previously paid in 2000.
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,
1999, from Laurel in the form of loans was $7,281.
FINANCIAL REPORT TO SHAREHOLDERS 31
<PAGE>
13. STOCK BASED COMPENSATION PLAN
On May 12, 1998, BT's shareholders approved the 1998 Equity Incentive Plan (the
"1998 Plan"). Under the 1998 Plan, BT may grant stock options to its employees
and directors for up to 1,260,000 shares of BT Common Stock. Incentive stock
options, non-qualified stock options, and other performance-based incentive
awards may be granted pursuant to the 1998 Plan. BT granted non-qualified stock
options under the 1998 Plan in 1999 and 1998. The stock options vested
immediately and are exercisable at the market price of BT Common Stock on the
date the options were granted. The stock option data presented has been adjusted
to reflect the 5% stock dividend distributed by BT on February 1, 2000.
Stock option transactions for the 1998 Plan are summarized below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------- ----------------------------------
1999 1998
---------------------------------------------------------------------- ----------------------------------
SHARES WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE UNDER OPTION EXERCISE PRICE
---------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 401,100 $ 26.43 -- $ --
Granted 147,000 24.58 401,100 26.43
Exercised -- -- -- --
Forfeited -- -- -- --
---------------------------------------------------------------------- ----------------------------------
Outstanding at end of year 548,100 $ 25.93 401,100 $ 26.43
========== =========
---------------------------------------------------------------------- ----------------------------------
Options exercisable at end of year 548,100 401,100
---------------------------------------------------------------------- ----------------------------------
Weighted average estimated fair value
of options granted during year $ 5.61 $ 6.87
</TABLE>
The following table summarizes information about BT's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------ -------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------ -------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------------------------------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
$22.98-26.43 548,100 7.8 $25.93 548,100 $25.93
</TABLE>
BT applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for the 1998 Plan. Accordingly, no
compensation expense has been recognized for the 1998 Plan. Had compensation
cost for the 1998 Plan been determined based on the fair value at the grant date
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," BT's
net income and earnings per share would have been reduced to the pro forma
amounts indicated in the table below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- -----------------------------------
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------- -----------------------------------
<S> <C> <C>
Net income As reported $ 20,814 As reported $ 21,059
Pro forma 20,278 Pro forma 19,268
Basic and Diluted earnings per share As reported $ 1.25 As reported $ 1.26
Pro forma 1.22 Pro forma 1.15
</TABLE>
Since all of the outstanding stock options vested immediately, the pro
forma amounts above reflect the recognition of the entire associated
compensation cost in the year the options were granted.
The fair value for the options granted used in the pro forma disclosures
above was estimated at the date of grant using a Black-Scholes option pricing
model. The model was developed for use in estimating the fair value of traded
options which have different characteristics from BT's stock options.
Additionally, the model requires the input of subjective assumptions, which can
materially affect the fair value estimate. In management's opinion, the model
may not necessarily provide a reliable single measure of the fair value of BT's
stock options. The following weighted average assumptions were used in the
option pricing model for 1999 and 1998, respectively: a risk free interest rate
of 5.08% and 5.62%; a stock price volatility factor of 23.1% and 23.9%; and a
dividend yield of 3.0% and 2.6%. Additionally, a 6 year expected life of the
options was used for 1999 and 1998.
32 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
14. COMPREHENSIVE INCOME
BT adopted SFAS No. 130, "Reporting Comprehensive Income," effective January 1,
1998. SFAS No. 130 establishes standards for the reporting and the display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purposes financial statements.
The following table sets forth the components of accumulated other
comprehensive income, net-of-tax:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------- --------------------------- ----------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
UNREALIZED OTHER UNREALIZED OTHER UNREALIZED OTHER
GAINS (LOSSES) COMPREHENSIVE GAINS ON COMPREHENSIVE GAINS ON COMPREHENSIVE
ON SECURITIES INCOME (LOSS) SECURITIES INCOME SECURITIES INCOME
--------------------------------------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 2,030 $ 2,030 $ 949 $ 949 $ 781 $ 781
Current-period change (13,041) (13,041) 1,081 1,081 168 168
--------------------------------------------------------- --------------------------- ----------------------------
Ending balance $(11,011) $(11,011) $2,030 $2,030 $ 949 $ 949
=============================== =========================== ============================
</TABLE>
The following table sets forth the tax effect allocated to components of
other comprehensive income:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------- ------------------------------ -----------------------------
TAX
PRE-TAX EXPENSE NET-OF-TAX PRE-TAX TAX NET-OF-TAX PRE-TAX TAX NET-OF-TAX
AMOUNT (BENEFIT) AMOUNT AMOUNT EXPENSE AMOUNT AMOUNT EXPENSE AMOUNT
------------------------------------------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized holding gains
(losses) on securities
arising during period $(19,978) $(6,993) $(12,985) $2,123 $743 $1,380 $453 $158 $295
Less: Reclassification
adjustment for gains
included in net income 86 30 56 460 161 299 195 68 127
------------------------------------------------------------- ------------------------------ -----------------------------
Other comprehensive
income (loss) $(20,064) $(7,023) $(13,041) $1,663 $582 $1,081 $258 $ 90 $168
==================================== ============================== =============================
</TABLE>
BT's comprehensive income is disclosed in BT's consolidated statement of
comprehensive income.
15. EARNINGS PER SHARE
BT computes "basic" earnings per share by dividing net income by the weighted
average number of shares of common stock outstanding during each year, after
giving retroactive effect to the 5% stock dividend distributed on February 1,
2000, the 2-for-1 stock split effected in the form of a stock dividend
distributed on May 1, 1998, and the 10% stock dividend distributed on September
15, 1997. "Diluted" earnings per share amounts are calculated by dividing net
income by the average possible shares outstanding during the year assuming all
options to buy stock with an exercise price less than the average market price
had actually been exercised and the cash proceeds were used to redeem shares at
an average market value. BT's stock options outstanding of 511,350 and 401,100
as of December 31, 1999 and 1998, respectively, were not included in the diluted
earnings per share calculations since they would have had an antidilutive effect
for the periods presented. The calculation of earnings per share follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 20,814 $ 21,059 $ 20,478
===================================================================================================================
Weighted average shares outstanding-Basic 16,683,294 16,683,924 16,684,344
Basic earnings per share $ 1.25 $ 1.26 $ 1.23
===================================================================================================================
Diluted earnings per share:
Net income $ 20,814 $ 21,059 $ 20,478
===================================================================================================================
Weighted average shares outstanding-Basic 16,683,294 16,683,924 16,684,344
Effect of dilutive stock options 388 -- --
- -------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding-Diluted 16,683,682 16,683,924 16,684,344
===================================================================================================================
Diluted earnings per share $ 1.25 $ 1.26 $ 1.23
===================================================================================================================
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 33
<PAGE>
16. LITIGATION
A purported class action was instituted in the Court of Common Pleas of Cambria
County, Pennsylvania, against the former Johnstown Bank & Trust Company (Bank
and Trust), now Laurel Bank, 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 the former 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. All parties have come
to an agreement to settle the action. Laurel Bank and Security will contribute
$200,000 and $25,000, respectively, to the settlement fund. The parties have
agreed to a settlement class of 432 accounts, the number of residential
mortgages which the bank converted from one method of accounting to another, and
the settlement agreement has been sent to the Court for preliminary approval.
Taking into account the scheduling of a preliminary hearing on the settlement,
sending notices to the settlement class and allowing the class members time to
respond, Laurel Bank expects to pay out its contribution to the settlement
during the second quarter of 2000. If the settlement is not approved, the
Corporation will continue to vigorously contest the case. In that event, the
impact of this litigation on the Corporation cannot be fully assessed.
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 area referred to as the
"Pittsburgh area". The suit seeks to enjoin Laurel Bank 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 injection, Laurel Bank agreed to refrain from
using the "Laurel" name or any related logo on any bank documents,
advertisements, or promotional materials in the "Pittsburgh area." In April
1999, the Court granted plaintiff's partial motion for summary judgment,
concluding that plaintiff has the exclusive right to use the word "Laurel" in
its name within a geographic area around its offices in the Pittsburgh area, but
the court did not define the area of exclusive use. While the plaintiff contends
that the zone of exclusive use encompasses the metropolitan "Pittsburgh area,"
Laurel Bank contends that this zone is substantially smaller. The issue of the
scope of the "Pittsburgh area" remains to be decided. The impact of this
litigation on the Corporation cannot be fully assessed at this 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.
34 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
17. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The condensed balance sheets and statements of income and cash flows of BT
Financial Corporation (parent company only) as of December 31, 1999, 1998, and
1997, and for the years then ended are presented below.
<TABLE>
<CAPTION>
BT FINANCIAL CORPORATION (Parent Company Only) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance Sheet
Assets:
Cash $ 127 $ 178 $ 1,428
Investment in bank affiliates 163,881 176,581 182,355
Investment in non-bank affiliates 22,878 11,382 2,953
Other 1,551 2,121 7,029
- -------------------------------------------------------------------------------------------------------------------
Total assets $188,437 $190,262 $193,765
===================================================================================================================
Liabilities and shareholders' equity:
Long-term borrowings $ -- $ -- $ 14,285
Other liabilities 3,410 1,117 2,247
Shareholders' equity 185,027 189,145 177,233
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $188,437 $190,262 $193,765
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME
Cash dividends from bank affiliates $21,670 $27,090 $12,849
Cash dividends from non-bank affiliates 600 400 200
Management fees from affiliates 14,973 17,007 15,467
Other income 90 19 181
Interest expense -- (718) (1,107)
Operating expense (19,349) (18,181) (16,844)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity
in undistributed income of affiliates 17,984 25,617 10,746
Income tax benefit 917 262 447
- -------------------------------------------------------------------------------------------------------------------
Income before undistributed income of affiliates 18,901 25,879 11,193
- -------------------------------------------------------------------------------------------------------------------
Equity in undistributed income of affiliates:
Banks 1,200 (5,859) 8,673
Non-banks 713 1,039 612
- -------------------------------------------------------------------------------------------------------------------
Net income $20,814 $21,059 $20,478
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income $20,814 $21,059 $20,478
Equity in undistributed income of affiliates (1,913) 4,820 (9,285)
Amortization 1,134 825 1,163
Other assets and liabilities, net 2,604 4,506 (477)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,639 31,210 11,879
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in affiliates (10,800) (7,389) (500)
Sale of investment securities available-for-sale -- -- 293
Proceeds from maturity of investment securities
available-for-sale -- 91 --
Purchase of investment securities available-for-sale -- (657) (378)
Other -- -- 310
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,800) (7,955) (275)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common dividends paid (11,890) (10,196) (8,530)
Payment on long-term borrowings -- (14,285) (2,857)
Purchase of treasury stock -- (24) --
Other -- -- (3)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (11,890) (24,505) (11,390)
- -------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash (51) (1,250) 214
Cash at beginning of year 178 1,428 1,214
- -------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 127 $ 178 $1,428
===================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on long-term borrowings $ -- $ 718 $1,150
Federal income taxes, net of refunds 9,524 8,530 11,109
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 35
<PAGE>
18. 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, 1999, were as follows:
Loan commitments $203,325
Standby letters of credit 10,380
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements or loss exposures. The Corporation evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Corporation upon extension of credit, is based on management's
credit evaluation of the customer. Standby letters of credit are 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.
19. 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 BORROWINGS
The estimated fair value of fixed rate debt was established based on rates
currently available to the Corporation for debt with similar terms and remaining
maturities. The carrying value of variable rate debt approximated fair value.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT,
AND FINANCIAL GUARANTEES WRITTEN
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
The fair value of commitments, guarantees and letters of credit are
insignificant after considering the aforementioned factors.
36 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
The estimated fair values of BT's financial instruments at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 114,948 $ 114,948 $ 87,580 $ 87,580
Securities 361,882 361,866 435,815 436,651
Loans 1,514,824 1,514,600 1,325,741 1,341,661
Less: Reserve for loan losses (15,654) -- (13,702) --
- -------------------------------------------------------------------------------------------------------------------
Total financial assets $1,976,000 $1,991,414 $1,835,434 $1,865,892
===================================================================================================================
Financial liabilities:
Deposits $1,595,119 $1,514,415 $1,578,150 $1,588,109
Federal funds purchased and securities
sold under agreements to repurchase 37,607 37,607 36,880 36,880
Short-term borrowings 78,750 78,750 2,319 2,319
Long-term borrowings 150,010 152,698 100,031 100,545
- -------------------------------------------------------------------------------------------------------------------
Total financial liabilities $1,861,486 $1,783,470 $1,717,380 $1,727,853
===================================================================================================================
</TABLE>
SUPPLEMENTAL FINANCIAL DATA
A summary of financial data for the four quarters for the years 1999 and
1998 is presented below.
QUARTERLY FINANCIAL DATA* (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
QUARTER ENDED QUARTER ENDED
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $19,587 $20,328 $20,466 $20,300 $19,069 $20,017 $19,702 $19,717
Provision for loan losses (1,477) (1,693) (1,894) (1,035) (1,253) (1,662) (1,628) (1,441)
Other income 3,470 4,541 4,171 4,050 3,170 3,499 4,105 3,987
Other expenses (14,530) (14,319) (18,753) (13,712) (14,581) (14,119) (14,019) (14,529)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,050 8,857 3,990 9,603 6,405 7,735 8,160 7,734
Provision for income taxes (1,989) (2,599) (1,156) (2,942) (1,992) (2,297) (2,448) (2,238)
- --------------------------------------------------------------------------------------------------------------------
Net income $ 5,061 $ 6,258 $ 2,834 $ 6,661 $ 4,413 $ 5,438 $ 5,712 $ 5,496
====================================================================================================================
Common dividends $ 2,702 $ 2,832 $ 3,178 $ 3,178 $ 2,394 $ 2,559 $ 2,539 $ 2,703
Earnings per share:(1)
Basic and Diluted .30 .38 .17 .40 .26 .33 .34 .33
</TABLE>
* Financial data for prior periods has been restated to give effect to
the Philson acquisition, which was accounted for as a
pooling-of-interests. Quarterly figures may not total to the full-year
amount due to rounding.
(1) Per share data has been adjusted to reflect the 5% stock dividend
distributed on February 1, 2000, and the 2-for-1 stock split
effected in the form of a stock dividend distributed on May 1,
1998.
FINANCIAL REPORT TO SHAREHOLDERS 37
<PAGE>
BT FINANCIAL CORPORATION AND AFFILIATES
SELECTED CONSOLIDATED FINANCIAL DATA*
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1999 1998 1997(7) 1996(6) 1995(5)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $140,165 $138,926 $130,513 $124,778 $115,782
Interest expense 59,484 60,421 54,987 51,653 49,831
- -------------------------------------------------------------------------------------------------------------------
Net interest income 80,681 78,505 75,526 73,125 65,951
Provision for loan losses 6,099 5,984 4,250 2,441 1,566
- -------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 74,582 72,521 71,276 70,684 64,385
Other income 16,232 14,761 13,574 12,285 9,683
Other expense 61,314 57,248 54,149 58,113 52,041
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 29,500 30,034 30,701 24,856 22,027
Provision for income taxes 8,686 8,975 10,223 8,056 6,453
- -------------------------------------------------------------------------------------------------------------------
Net income $ 20,814 $ 21,059 $ 20,478 $ 16,800 $ 15,574
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (PERIOD END)
Total assets $2,060,672 $1,915,908 $1,792,036 $1,699,748 $1,676,733
Loans, net of unearned interest 1,514,824 1,325,741 1,186,260 1,140,591 1,117,871
Total securities 361,882 435,815 463,403 400,665 410,573
Total deposits 1,595,119 1,578,150 1,549,520 1,465,101 1,452,098
Total long-term borrowings 150,010 100,031 14,335 17,210 20,083
Total shareholders' equity 185,027 189,145 177,233 165,432 148,588
- -------------------------------------------------------------------------------------------------------------------
PER SHARE DATA(1)
Basic earnings per share $ 1.25 $ 1.26 $ 1.23 $ 1.03 $ .97
Diluted earnings per share 1.25 1.26 1.23 1.02 .97
Common dividends declared per share .71 .61 .53 .43 .37
Period end book value 11.09 11.34 10.62 9.92 9.25
Average shares outstanding-Basic 16,683,294 16,683,924 16,684,344 16,332,678 15,899,433
Average shares outstanding-Diluted 16,683,682 16,683,924 16,684,344 16,441,492 16,132,475
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets 1.04% 1.10% 1.16% .99% .99%
Return on average shareholders' equity 11.11 11.52 11.96 10.69 11.15
Net yield on earning assets(2) 4.52 4.58 4.73 4.77 4.60
Common stock dividend payout 57.13 48.42 43.22 41.64 37.46
Average shareholders' equity
to average assets 9.38 9.58 9.72 9.28 8.87
Primary capital ratio at period end(3) 9.67 10.51 10.52 10.41 9.57
Net charge-offs to average loans,
net of unearned interest .28 .39 .38 .25 .12
Nonperforming loans to total loans,
net of unearned interest(4) .64 .58 .85 1.17 .69
Reserve for loan losses to period end
loans, net of unearned interest 1.03 1.03 1.06 1.12 1.17
</TABLE>
* Financial data for prior periods has been restated to give effect to
the Philson acquisition, which was accounted for as a
pooling-of-interests.
(1) Per share data has been adjusted to reflect the 5% stock
dividend distributed by BT on February 1, 2000, the
two-for-one stock split effected in the form of a stock dividend
distributed on May 1, 1998 and the 10% stock dividends distributed on
September 15, 1997 and October 22, 1996. 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 Huntington National Bank
of Pennsylvania on December 14, 1995.
(6) Reflects the purchase acquisition of Armstrong on June 13, 1996.
(7) Reflects the purchase acquisition of three branch offices of
National City on June 6, 1997.
38 BT FINANCIAL CORPORATION AND AFFILIATES
<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 BT's Common
Stock for the quarters indicated.
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- --------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st $28.10 $24.29 $.162 $26.96 $23.53 $.143
2nd 26.43 22.92 .170 29.29 23.81 .153
3rd 24.52 20.00 .190 26.90 20.95 .152
4th 24.05 20.24 .190 27.38 23.10 .162
- --------------------------------------------------------------------- ---------------------------------------
Total $.712 $.610
===================================================================== =======================================
</TABLE>
Note: Data has been adjusted to reflect the 5% stock dividend distributed
on February 1, 2000 and the 2-for-1 stock split effected in the form of a stock
dividend distributed on May 1, 1998.
On February 3, 2000, there were 5,279 record holders of BT Common
Stock.
BT offers an Automatic Dividend Reinvestment Plan (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
OVERVIEW
BT Financial Corporation achieved another consecutive year of record financial
performance in fiscal year 1999. Excluding significant nonrecurring items, net
income for 1999 was $23.7 million, an increase of 8.7% over the $21.8 million
earned in 1998 while earnings per share rose 9.2% to $1.42 in 1999 compared to
$1.30 in 1998. BT's net income, including nonrecurring transactions, was $20.8
million in 1999 compared to $21.1 million in 1998 and earnings per share was
$1.25 versus $1.26 for the same respective periods. Net income for 1998
represented a $581,000, or 2.8% increase over the $20.5 million earned in 1997.
In 1998, earnings per share increased $.03, or 2.4% compared to the $1.23 earned
in 1997. Excluding nonrecurring costs, core net income for 1998 increased 6.3%
over 1997 and earnings per share rose by 5.7%. The nonrecurring items affecting
the comparability of 1999 and 1998 are detailed later in this discussion. BT's
improved core earnings performance was primarily driven by increases in net
interest income, fueled by strong loan growth, and higher levels of fee-based
revenue. The 1999 results also were impacted favorably by the merger with First
Philson Financial Corporation (Philson), which was completed on July 14, 1999.
Philson's assets totaled approximately $221 million on the merger date. The
merger with Philson 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 Philson for all
periods presented prior to the merger. Philson's banking subsidiary, First
Philson Bank, N.A., operated nine branches in Somerset and Fayette counties and
was merged into Laurel Bank upon consummation of the merger. Philson also owned
Flex Financial Consumer Discount Company (Flex) which continues to operate as a
non-bank subsidiary of BT. The merger increased total assets to approximately
$2.0 billion and solidified BT's leading market position in Somerset County,
Pennsylvania, where BT now represents over one-third of total bank and thrift
deposits.
BT's efficiency ratio, excluding nonrecurring items, improved to 56% in
1999 compared to 59% in 1998, reflecting targeted synergies resulting from the
Philson merger and BT's ongoing focus toward a more efficient branch delivery
system and back office. BT successfully managed the Year 2000 date change
without any disruptions and will continue to monitor all related business
concerns on an ongoing basis to ensure all processes continue to function
properly. On December 22, 1999, BT declared a five percent stock dividend which
was distributed on February 1, 2000. All per share data in this report has been
adjusted to reflect the stock dividend. BT's Common Stock has provided a total
shareholder return of 136% over the last five years.
BT's nonrecurring after-tax expenses consisted of the following:
merger-related costs of $3.0 million and $260,000 for 1999 and 1998,
respectively; legal settlements and other legal costs of $130,000 and $226,000;
and severance costs related to early retirements of $114,000 and $219,000 for
the same respective periods. BT also experienced a net after-tax nonrecurring
net gain of $366,000 in 1999 in connection with the sale of two branch offices
of Laurel Bank.
FINANCIAL REPORT TO SHAREHOLDERS 39
<PAGE>
BT's total assets were $2.06 billion at year-end 1999, representing an
increase of 7.6%, or $144.8 million from the $1.92 billion at year-end 1998. The
increase was primarily due to strong loan growth, as loans, net of unearned
interest grew by 14.3% for the twelve months ended December 31, 1999. The
Philson acquisition accented BT's community banking focus by creating a sixth
marketing region. BT's assets at year-end 1998 increased $123.9 million, or
6.9%, compared to year-end 1997. The expansion resulted from solid loan growth
and a targeted balance sheet leveraging strategy. BT completed a merger with the
Peoples National Bank of Rural Valley (Peoples) on October 23, 1998. At the time
of the merger, Peoples' assets were approximately $37 million. The merger was
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 Peoples for all periods presented prior to the merger. This
acquisition increased BT's market share in Armstrong County, located north of
Pittsburgh, Pennsylvania. The Philson and Peoples mergers support BT's
fundamental strategy of enhancing shareholder value through a disciplined focus
on community banking.
During 1999, BT laid the groundwork for its strategic plan for the next
few years. The Corporation has built a strong and efficient community banking
business by broadening its markets and customer base through acquisitions and
sales efforts. Trust and investment services were expanded to support banking
operations with greater fee income. Other lines of business and non-traditional
financial products and services were developed and instituted. In addition, an
emphasis on developing and broadening BT's technology-based delivery system will
help to meet the needs of BT's customers and markets.
As the Corporation enters the 21st Century its strategic focus is to offer
a complete menu of financial services to consumer and lower middle-market
commercial clients. At the same time, BT plans to give special consideration to
fee-based services, including non-traditional business lines. The Corporation
will focus on delivering these products and services more efficiently through
technology-based delivery channels. In short, BT strives to grow and diversify
its revenues while doing business more efficiently through customer-driven
applications of technology.
A number of activities have either begun or are being initiated to support
plans to enhance fee revenue growth. BT formed a partnership with First Security
Group in the fourth quarter of 1999 in order to offer mutual funds, annuities,
and life insurance products through Laurel Bank's community banking offices. A
27% ownership was acquired in Bankers Settlement Services of Southwest
Pennsylvania, LLC, a title insurance agency formed by the Pennsylvania Bankers
Association. A private label leasing program was initiated and placed with a
prominent national bank in order to provide small-ticket leasing for office,
medical and industrial equipment. BT's affiliate, Flex Financial Consumer
Discount Company opened an additional office at Scottdale, Pennsylvania during
1999. Flex plans to open four additional offices over the next 18 months. Laurel
Trust Company continues to expand its assets under management while adding new
products and services through its seven sales offices. In 1999, Laurel Trust
Company split out its investment advisory business by establishing a separate
company in order to focus its efforts on that business line. BT also began the
process of migrating its personal computer banking products from proprietary
dial-up systems to the Internet.Internet banking is expected to be functional by
the second quarter of 2000.
BT continued its efforts to rationalize its branch banking offices and
improve efficiency. As a result of the Philson acquisition, three branch
locations were consolidated due to overlapping markets. In May of 1999, Laurel
sold two locations in Indiana County. These efforts and targeted synergies from
the Philson acquisition resulted in a record efficiency ratio of 54% during the
fourth quarter of 1999. BT's management has developed a branch analysis model
that examines deposit and loan balances, sales and over the counter transaction
levels, and the financial performance of individual branch locations. In
addition, market potential is analyzed by reviewing market data on households,
businesses, and competitors. Strategies that result from the analysis include
consolidation with nearby branch locations, exit of the market by selling the
branch, or additional investment if warranted by market and financial
considerations.
Return on average assets, excluding nonrecurring items, was 1.18% in 1999,
1.14% in 1998, and 1.16% in 1997. Return on average shareholders' equity,
excluding nonrecurring items, was 12.64%, 11.90%, and 11.96% in 1999, 1998, and
1997, respectively. Return on average tangible shareholders' equity, which
excludes nonrecurring items and intangible amortization expense from net income
and intangibles from average shareholders' equity, was 15.40% in 1999, 14.84% in
1998, and 15.09% in 1997.
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, 1999, 1998, and 1997. 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 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 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 rates, 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 BT conducts its operations,
pending litigation, 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.
40 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is BT's primary source of revenue. Net interest income
represents the amount by which interest income on interest-earning assets
exceeds interest paid on interest-bearing liabilities. In 1999, fully taxable
equivalent net interest income was a record $85.0 million, representing a 4.3%,
or $3.5 million increase over 1998. The increase was primarily due to a $101.6
million, or 5.7% increase in average earning assets in 1999. This increase
outpaced the rise in average interest-bearing liabilities of $63.1 million, or
4.2% to $1.56 billion in 1999. The loan volume growth achieved in 1999 was the
main factor contributing to the higher level of net interest income over 1998.
Total average interest-earning assets were $1.88 billion in 1999 versus $1.78
billion in 1998. Average loans increased $202.0 million, or 16.0%, in 1999
compared to 1998 while average securities declined $100.9 million, or 20.4%,
over the same period. Funding for the loan growth was mainly provided by
proceeds received from maturing and called securities and increased FHLB
borrowings. Additional information regarding FHLB borrowings is contained in
Note 10 to the consolidated financial statements. BT's loans, net of unearned
interest, as a percentage of total deposits were 95.0% at year-end 1999 and
84.0% at year-end 1998. These ratios reflect BT's strategy of maintaining a loan
to deposit proportion of less than 100% in order not to become dependent on
higher cost funding sources. Funding strategies are actively managed by BT's
Asset/Liability Committee to ensure adequate liquidity and to control interest
rate risk exposure.
Net interest margin is calculated by dividing fully taxable equivalent net
interest income by average interest-earning assets. The net interest margin, on
a fully taxable equivalent basis, declined to 4.52% in 1999 from 4.58% in 1998
due to lower yields earned on loans and securities. The decrease in the margin
was mitigated by lower rates paid for interest-bearing deposits in 1999. BT's
net interest margin in 1999 and 1998 has been impacted by balance sheet
leveraging through the utilization of wholesale funding from the FHLB used to
support higher earning asset levels. The leveraging position enables BT to
enhance marginal net interest income while sacrificing some net interest spread
differential. While the current period net interest margin has been higher than
peer levels, BT is anticipating some net interest margin compression in the
near-term due to the expected repricing characteristics of its asset/liability
mix. During 2000, BT will continue to emphasize growth in non-interest-bearing
demand deposits which contribute additional funds available for investment by
the Corporation at no interest cost.
Fully taxable equivalent net interest income rose $4.0 million, or 5.2%,
while average interest-earning assets increased $143.5 million, or 8.8%, in 1998
compared to 1997. The higher level of net interest income in 1998 was
principally due to a greater volume of average interest-earning assets resulting
from increased loan and security levels which were funded mainly by increased
long-term borrowings in the form of FHLB advances. In 1998, the availability of
favorably priced wholesale funding allowed BT to prudently leverage its balance
sheet by increased earning asset levels in order to enhance net interest income
while contributing to the management of interest rate risk. The net interest
margin, on a fully taxable equivalent basis, declined 15 basis points to 4.58%
in 1998 compared to 4.73% in 1997. The decline was primarily due to lower yields
earned on loans while the overall cost of deposits rose slightly. The effect of
BT's balance sheet leveraging strategy also played a role in the net interest
margin compression during 1998.
BT's fundamental strategy of generating quality loan growth through
acquisitions and internal loan growth continued throughout 1999. The loan
portfolio represents BT's largest component of average interest-earning assets.
Average loans were 78.0% of average interest-earning assets in 1999 compared to
71.1% in 1998 and 72.1% in 1997.
FINANCIAL REPORT TO SHAREHOLDERS 41
<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>
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------- ----------------------------- ----------------------------
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) $1,467,585 $117,508 8.01% $1,265,545 $107,792 8.52% $1,180,277 $102,656 8.70%
Taxable securities 278,930 17,752 6.36 426,322 27,917 6.55 408,311 26,486 6.49
Nontaxable securities 114,018 8,163 7.16 67,500 5,091 7.54 23,719 1,987 8.38
Federal funds sold 20,549 1,039 5.06 19,833 1,059 5.34 23,280 1,280 5.50
Time deposits in
other banks 157 8 5.10 407 29 7.13 534 32 5.99
- ---------------------------------------------------------- ------------------------------ -----------------------------
Total interest-earning
assets 1,881,239 144,470 7.68 1,779,607 141,888 7.97 1,636,121 132,441 8.09
Non-interest-earning assets:
Cash and cash equivalents 54,241 54,362 55,196
Premises and
equipment, net 30,778 33,176 33,837
Other assets 45,639 54,228 48,690
Less: Reserve for
loan losses (14,880) (13,097) (12,551)
- -----------------------------------------------------------------------------------------------------------------------
Total assets $1,997,017 $1,908,276 $1,761,293
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand and
savings deposits $ 511,413 8,118 1.59 $ 518,656 8,650 1.67 $ 518,002 7,955 1.54
Other time deposits 832,844 40,614 4.88 832,411 44,274 5.32 810,219 43,917 5.42
Federal funds purchased
and securities sold
under agreements
to repurchase 39,659 1,351 3.41 45,958 1,985 4.32 37,345 1,793 4.80
Short-term borrowings 40,803 2,272 5.57 17,350 1,001 5.77 3,209 210 6.54
Long-term borrowings 135,773 7,129 5.25 83,062 4,510 5.43 16,028 1,112 6.94
- ---------------------------------------------------------- ----------------------------- -----------------------------
Total interest-bearing
liabilities 1,560,492 59,484 3.81 1,497,437 60,420 4.03 1,384,803 54,987 3.97
Non-interest-bearing
liabilities:
Demand deposits 235,918 215,886 194,299
Other liabilities 13,346 12,099 10,926
- ---------------------------------------------------------- ------------------------------ ----------------------------
Total liabilities 1,809,756 1,725,422 1,590,028
- ---------------------------------------------------------- ------------------------------ ----------------------------
Shareholders' equity 187,261 182,854 171,265
- ---------------------------------------------------------- ------------------------------ ----------------------------
Total liabilities and
shareholders' equity $1,997,017 $1,908,276 $1,761,293
======================================================================================================================
Net interest income $84,986 $81,468 $77,454
Net interest spread(3) 3.87% 3.94% 4.12%
Net yield on earning assets(4) 4.52% 4.58% 4.73%
</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 interest-earning assets.
42 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
The following table provides an analysis of the changes in interest income and
expense attributable to changes in volume and rate.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- ------------------------------------------
1999 VS 1998 1998 VS 1997
- ------------------------------------------------------------------------- ------------------------------------------
NET INCREASE DUE TO CHANGES IN NET INCREASE DUE TO CHANGES IN
(DECREASE) VOLUME RATE (DECREASE) VOLUME RATE
- ------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
INTEREST INCOME
Loans, net of
unearned interest(1)(2) $ 9,716 $ 17,210 $(7,494) $ 5,136 $ 7,417 $ (2,281)
Taxable securities (10,165) (9,652) (513) 1,431 1,168 263
Non-taxable securities(1) 3,072 3,508 (436) 3,104 3,668 (564)
Federal funds sold (20) 38 (58) (221) (190) (31)
Time deposits in other banks (21) (18) (3) (3) (8) 5
- -------------------------------------------------------------------------- -----------------------------------------
Total interest income 2,582 11,086 (8,504) 9,447 12,055 (2,608)
- -------------------------------------------------------------------------- ----------------------------------------
INTEREST EXPENSE
Interest-bearing demand
and savings deposits (532) (121) (411) 695 10 685
Other time deposits (3,660) 23 (3,683) 357 1,203 (846)
Federal funds purchased and
securities sold under
agreements to repurchase (634) (272) (362) 192 414 (222)
Short-term borrowings 1,271 1,353 (82) 791 925 (134)
Long-term borrowings 2,619 2,862 (243) 3,398 4,651 (1,253)
- -------------------------------------------------------------------------- ----------------------------------------
Total interest expense (936) 3,845 (4,781) 5,433 7,203 (1,770)
- -------------------------------------------------------------------------- ----------------------------------------
Change in net interest income(1) $ 3,518 $ 7,241 $(3,723) $ 4,014 $ 4,852 $ (838)
========================================================================== ========================================
</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
BT's other income growth has contributed substantially to the higher
profitability and efficiency of the Corporation in recent years. Management
recognizes the importance of fee-based revenue growth in improving corporate
profitability and to become less reliant on spread-based income. One of BT's key
strategic goals is to seek and enhance areas which will broaden and diversify
its revenue streams. Total other income, excluding security gains and a
nonrecurring gain of $609,000 related to the 1999 sale of two branch offices,
increased $1.2 million, or 8.6%, in 1999 compared to 1998. The nonrecurring gain
of $609,000 was realized from the sale of Laurel Bank's two Indiana,
Pennsylvania branch offices in the second quarter of 1999. These branches were
sold as part of management's ongoing efforts to review branches to determine
their fit with BT's strategy of providing more efficient delivery channels.
Trust income experienced the largest percentage growth of BT's other income
components, up 10.4%, or $381,000 in 1999 over 1998. Revenue gains in connection
with trust, custodian and escrow administration, and employee benefits plans
accounted for the 1999 increase. Service fees are the most significant component
of BT's other income, generating 66.9% of total other income, excluding security
gains and the branch sale gain in 1999. Service fees increased $775,000, or
8.1%, during 1999 compared to 1998 due principally to higher ATM/debit card
service income, a rise in loan insurance commissions and a higher level of
deposit account fees. Usage of BT's debit card product has steadily increased
since its launch in 1997. Accordingly, debit card fees rose $287,000 or 82.4% to
$635,000 in 1999 compared to 1998. The inclusion of Philson's customer base
should provide further debit card revenue gains in 2000. A new pricing structure
for various deposit services will be implemented in 2000 which should also
generate additional fee income. Additionally, in 2000 BT will begin a program to
generate revenue through the retail annuity, mutual fund and life insurance
product lines to be provided by Security First Financial Corporation. The other
income component of total other income includes the aforementioned branch sale
gain of $609,000 in 1999. Excluding this gain, other income grew $80,000 or 7.8%
to $1.1 million in 1999 compared to 1998 primarily due to increased gains from
the sale of certain loans.
Total other income, exclusive of security gains, increased $922,000, or
6.9% in 1998 over 1997. Trust income increased $464,000, or 14.6%, due to
increased assets under management from new business. In 1998, higher levels of
ATM/debit card revenue and loan insurance commissions led service fees to a
$942,000 or 10.8% increase over the prior year level. The sale of the credit
card portfolio and BT's merchant credit card relationships added $554,000 to
other income in 1997.
FINANCIAL REPORT TO SHAREHOLDERS 43
<PAGE>
Securities transactions income declined $374,000 in 1999 from the 1998
level of $460,000 which represented an increase of $265,000 over 1997. BT
realized increased gains in 1998 related to called securities and sales of U.S.
federal agency securities as part of a strategy involving the selling of
securities likely to be called and reinvesting the proceeds into tax-exempt
municipal issues. 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 may occur periodically when funding
is required for loan or deposit outflows.
OTHER EXPENSES
BT continuously evaluates the efficiency of its operations to seek improved
processes and delivery channels which will best serve its customers while
reducing operating costs. BT's efficiency ratio, exclusive of nonrecurring
items, improved to 56% in 1999 compared to 59% in 1998 and 60% in 1997. The
efficiency ratio measures the ability to generate revenue in relation to
expenditures. The lower ratios indicate improvement in BT's strategic goal of
improving efficiency by utilizing its resources more effectively to produce
revenue. The Philson merger in July of 1999 should result in significant
cost-savings to BT in 2000 as the full-year impact of synergies and efficiencies
from the elimination of redundant overhead expenses and branch closures are
realized. During the fourth quarter of 1999, two branches of the former Philson
Bank, N.A. along with one branch of Laurel were closed and consolidated into
nearby locations as a result of duplicate service areas created by the merger.
The costs associated with the branch closings did not have a material impact on
BT's financial position or results of operations. BT believes that the execution
of this merger went exceptionally well as evidenced by a high retention of
former Philson customers and minimal deposit runoff.
BT's nonrecurring pre-tax expenses consisted of the following for 1999 and
1998, respectively: merger-related costs of $4.2 million and $290,000, legal
settlements and other legal costs of $200,000 and $348,000, and severance costs
related to early retirements of $175,000 and $337,000. BT also incurred a
one-time expense of $46,000 in 1999 in connection with the sale of two branch
offices of Laurel Bank. These branches were sold as part of BT's ongoing
strategy to improve the efficiency and quality of its branch-based product
delivery system. Since 1996, BT has consolidated 14 branch offices, sold three
and relocated two others to new facilities. In 2000, branch reductions are
likely to continue as BT moves toward increasing rationalization of the branch
network while pursuing alternative technology-based product delivery systems
such as Internet banking, expected to debut in the second quarter of 2000.
Total other expenses, excluding nonrecurring costs, rose slightly by
$416,000, or 0.7%, in 1999 compared to 1998. Excluding one-time charges,
personnel expenses, comprising salaries and benefits, were up $633,000, or 2.3%,
in 1999 due primarily to normal merit increases and a higher level of incentive
payments. The increase was mitigated by reduced staffing levels in the second
half of 1999 associated with the elimination of redundant functions due to the
Philson merger. Full-time equivalent employees declined to 840 at year-end 1999
from 882 at year-end 1998. The decrease has resulted from a reduction in staff
in connection with the Philson merger and a focus toward more efficient staffing
levels. BT's branch staffing model was developed in 1998 and increases
utilization of part-time employees at the branch level. The model was designed
as an efficiency measure to develop a more cost-effective delivery system by
lowering costs while enhancing customer service throughout the branch network.
Average assets per employee have risen to $2.4 million in 1999 compared to $2.2
million in 1998 and $1.9 million in 1997. Occupancy expense increased 5.4% due
to various increases in building costs. A nominal increase of 1.7% was
experienced in equipment expense. Nonrecurring reorganization charges of $4.2
million were incurred during 1999 in connection with the Philson merger while
$290 was expensed in 1998 due to the Peoples merger. Other operating expenses,
excluding nonrecurring items, declined 3.6% due mainly to decreased professional
services costs along with declines in various other operating expense categories
due in part to a partial year impact of synergies derived from the Philson
merger. Total other expenses, including nonrecurring costs, increased $4.1
million or 7.1% in 1999 compared to 1998 principally due to the Philson merger
costs.
In 1998, total other expenses, excluding nonrecurring costs, increased
3.9% over 1997. Salaries and benefits, excluding nonrecurring charges, increased
4.3% in 1998 reflecting the impact of normal merit increases and a higher level
of sales incentives. Full-time equivalent employees declined to 882 at year-end
1998 from 907 at year-end 1997 due to more efficient staffing levels. Net
occupancy and equipment expense rose 2.8% in 1998 resulting largely from higher
depreciation levels associated with technology-based investments. Other
operating expense rose 4.0% due primarily to higher legal expenses associated
with various litigation cases.
PROVISION FOR INCOME TAXES
Income before taxes decreased $534,000, or 1.8%, in 1999, to $29.5 million after
a $667,000, or 2.2%, decrease in 1998 compared to 1997. The effective tax rate
was 29.4% in 1999 compared to 29.9% in 1998 and 33.3% in 1997. A substantial
increase in tax-exempt securities income was primarily responsible for the
decline in the effective tax rate in 1998 compared to 1997.
44 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
Financial Condition
LOAN PORTFOLIO
BT's loan portfolio consists of a balanced composition of commercial loans to
small- to mid-sized businesses, consumer loans and residential mortgage loans.
In 1999, average total loans, net of unearned interest, grew $202.0 million, or
16.0%, over 1998 to an average of $1.47 billion. At year-end 1999, total loans
outstanding, net of unearned interest, were $1.51 billion, an increase of $189.1
million, or 14.3%, over year-end 1998. The 1999 increase followed a $139.5
million, or 11.8%, increase at year-end 1998 over 1997. Real estate loans,
comprising residential and commercial mortgages, accounted for most of the
increase at year-end 1999 compared to 1998 gaining $152.3 million, or 21.3%. The
growth was largely due to a home equity loan promotional campaign in place
during most of 1999. Recent loan growth has also been stimulated by Laurel
Bank's regionalized marketing approach in place for 1998 and 1999. Under this
structure, Laurel Bank operates six local sales-focused banking regions designed
to place managers closer to their customers enabling them to focus on customer
needs more effectively. The Philson merger resulted in the addition of the sixth
region in mid-1999. The Corporation maintained its traditional conservative
underwriting posture throughout the year in conjunction with the loan growth. BT
adheres to strict underwriting and credit guidelines in its loan review
processes to preserve a quality loan portfolio. Indirect consumer lending
through the bank's centralized dealer center demonstrated loan growth for the
second consecutive year. This growth has been achieved through competitive
pricing and the use of automated processes, which have enabled the center to
meet the demands of its dealer base. The mortgage origination area took
advantage of the refinance market and was able to sustain growth through most of
1999. A focus on asset generation for sale into the secondary market led to a
decrease in mortgage loans outstanding during the fourth quarter of 1999 as BT
achieved its internal loan growth targets. BT has established secondary market
relationships which allow the sale of certain longer term loans. This enhances
BT's capability to manage its balance sheet more effectively both from a
liquidity and risk perspective while providing the potential for fee gains
related to the asset sales. BT has recruited several highly experienced and
successful commercial lenders from large financial institutions to manage the
commercial lending teams in each local region to facilitate quality commercial
loan growth. Additionally, for the first three quarters of 1999, BT operated in
a very favorable interest rate environment. To further take advantage of this
environment, BT made a strategic decision to offer very attractive loan sale
rates with five and ten year terms, which precipitated a significant level of
commercial and commercial real estate loan growth in 1999. In 2000, BT will
centralize its direct lending function in an effort to expand the direct loan
portfolio while increasing the ability to better serve customers. BT will also
emphasize commercial loan growth by exploiting existing and potential commercial
relationship opportunities within its market area.
At year-end 1998, total loans outstanding, net of unearned interest, were
$1.33 billion compared to $1.19 billion at year-end 1997. The increase primarily
resulted from the increased focus on sales and customer service inherent in the
formation of Laurel's local banking regions late in 1997.
At December 31, 1999, 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, 1999, BT did not have any loan
concentrations in any category exceeding 10% of total loans.
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>
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Commercial, financial and agricultural $223,995 $208,805 $186,047 $188,905 $182,645
Real estate 868,729 716,451 670,104 615,294 590,722
Consumer 436,972 430,562 388,531 393,301 394,134
- -------------------------------------------------------------------------------------------------------------------
Total $1,529,696 $1,355,818 $1,244,682 $1,197,500 $1,167,501
</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, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Maturing
- -------------------------------------------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
Commercial, financial and agricultural $123,547 $ 73,537 $ 26,911 $223,995
Real estate construction 14,786 -- -- 14,786
- -------------------------------------------------------------------------------------------------------------------
Total $138,333 $ 73,537 $ 26,911 $238,781
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Commercial, financial, and agricultural loans due after one year and
having floating or adjustable rates approximated $35 million.
FINANCIAL REPORT TO SHAREHOLDERS 45
<PAGE>
BT's highly leveraged financings were not significant at December 31,
1999. 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 as a
percent of total assets were .53% at year-end 1999 compared to .46% at year-end
1998 and .68% at year-end 1997. Total nonperforming assets increased $2.1
million, or 23.8%, to $11.0 million at year-end 1999 compared to $8.9 million at
year-end 1998. This increase followed a $3.2 million, or 26.6% decrease at
year-end 1998 compared to year-end 1997. The current year increase is primarily
due to a higher level of nonaccrual commercial mortgage loans offset partially
by declines in nonaccrual commercial and consumer loans. The increased
nonaccrual commercial mortgages were mainly due to various loans associated with
one commercial borrower. These loans are fully secured and are in the process of
foreclosure and liquidation. Management is currently anticipating only a nominal
loss in connection with these loans. Excluding these loans, BT's nonperforming
assets would have decreased by approximately $1.1 million at year-end 1999
compared to year-end 1998. BT strives to maintain high asset quality while
managing internal and merger-related growth. BT's Asset Recovery function
focuses on liquidation and repossession issues in conjunction with the pursuit
of charged-off loan amounts. Additionally, BT utilizes an automated, centralized
collection area to enhance collection efforts. The Special Assets department of
BT concentrates on nonperforming commercial loans.
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans 90-days or
more past due $ 582 $ 694 $1,696 $1,014 $2,238
Restructured loans 212 264 266 317 318
Nonaccrual loans 8,936 6,721 8,126 12,052 5,126
- ------------------------------------------------------------------------
Total nonperforming loans 9,730 7,679 10,088 13,383 7,682
Other real estate owned 502 615 711 1,024 943
Repossessed assets 784 601 1,312 851 318
- ------------------------------------------------------------------------
Total nonperforming assets $11,016 $ 8,895 $12,111 $15,258 $8,943
========================================================================
Nonperforming loans as a
percent of total loans,
net of unearned interest 0.64% 0.58% 0.85% 1.17% 0.69%
</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 judgement, 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. Consumer loans are generally placed on
nonaccrual status when they become 120-days past due and are normally
charged-off within 180 days of delinquency, when they are determined to be
uncollectible and all collateral securing the loans has been liquidated. During
1999, BT adopted early the recent Federal Reserve revised policy specifying the
charge-off criteria for certain consumer loans. The policy mandates the
charge-off of open-end and closed-end consumer loans when they reach 180- and
120-days past due, respectively. The revised policy resulted from an update of
the Uniform Retail Credit Classification and Account Management Policy which
establishes standards for delinquent retail credits.
Interest income of $1.0 million, $899,000 and $895,000 would have been
recorded in 1999, 1998 and 1997, respectively, if nonaccrual and restructured
loans were on a current basis in accordance with their original terms. Interest
income of $405,000, $303,000 and $323,000 on nonaccrual and restructured loans
was recorded in each of the years of 1999, 1998 and 1997, 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 $20.4
million at December 31, 1999 compared to $19.8 million at December 31, 1998.
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.
46 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
RESERVE FOR LOAN LOSSES
The reserve for loan losses totaled $15.7 million at December 31, 1999 compared
to $13.7 million at December 31, 1998 and $12.6 million at December 31, 1997.
The reserve for loan losses is increased by provisions charged to earnings and
is reduced by charge-offs, net of recoveries of previously charged off loans.
The reserve for loan losses, as a percent of loans, net of unearned interest was
1.03% at year-end 1999 and 1998 compared to 1.06% at year-end 1997. Net
charge-offs decreased $746,000 in 1999 to $4.1 million, mainly due to a lower
level of commercial loan charge-offs offset partially by increased consumer loan
charge-offs. The increased consumer loans charged off in 1999 were mainly due to
the early adoption of the Federal Reserve revised charge-off policy which
accelerated the charge-off of certain consumer loans. Real estate charge-offs
decreased due primarily to a lower level of residential loans charged off. In
1998, net charge-offs increased $432,000 over 1997 to $4.9 million. The higher
level was mainly due to increased credit losses associated with commercial
mortgage loans. Consumer and commercial loan charge-offs in 1998 were consistent
with 1997 levels. The ratio of net charge-offs to average loans, net of unearned
discount, improved to .28% in 1999 compared to .39% in 1998 and .38% in 1997.
The provision for loan losses increased to $6.1 million in 1999 compared to $6.0
million in 1998 and $4.3 million in 1997. Growth in the loan portfolio was a
primary factor for the increased provisions. The coverage ratio (reserve to
nonperforming loans) was 1.6x in 1999, 1.8x in 1998 and 1.3x in 1997. 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.
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 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Total loans outstanding at period end
(net of unearned interest) $1,514,824 $1,325,741 $1,186,260 $1,140,591 $1,117,871
=======================================================================================================
Reserve for loan losses
at beginning of year $13,702 $12,611 $12,822 $13,040 $11,906
Reserve of acquired banks -- -- -- 159 849
Loans charged off:
Commercial, financial
and agricultural (376) (1,669) (1,639) (664) (562)
Real estate (1,411) (1,643) (900) (452) (297)
Consumer (3,373) (2,530) (2,620) (2,652) (1,181)
- -------------------------------------------------------------------------------------------------------
Total loans charged off (5,160) (5,842) (5,159) (3,768) (2,040)
Recoveries of loans
previously charged off:
Commercial, financial
and agricultural 122 49 75 146 61
Real estate 529 524 259 378 341
Consumer 362 376 364 426 357
- -------------------------------------------------------------------------------------------------------
Total recoveries 1,013 949 698 950 759
- -------------------------------------------------------------------------------------------------------
Net loans charged off (4,147) (4,893) (4,461) (2,818) (1,281)
Additions to reserve
charged to operations 6,099 5,984 4,250 2,441 1,566
- -------------------------------------------------------------------------------------------------------
Reserve for loan losses
at year end $ 15,654 $ 13,702 $ 12,611 $ 12,822 $ 13,040
=======================================================================================================
Ratio of net charge-offs during
year to average loans, net
of unearned interest 0.28% 0.39% 0.38% 0.25% 0.12%
Reserve for loan losses as a
percent of loans, net of
unearned interest 1.03% 1.03% 1.06% 1.12% 1.17%
Reserve for loan losses to
nonperforming loans 1.6x 1.8x 1.3x 1.0x 1.7x
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 47
<PAGE>
The following table summarizes the allocation of the reserve for
loan losses at December 31 for the years indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
% 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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial, financial
and agricultural $3,307 14.6% $3,989 15.4% $3,605 15.0% $4,331 15.8% $4,586 15.6%
Real estate 4,906 56.8 4,295 52.8 3,987 53.8 3,732 51.4 3,295 50.6
Consumer 4,310 28.6 2,811 31.8 2,726 31.2 2,150 32.8 2,076 33.8
Unallocated 3,131 -- 2,607 -- 2,293 -- 2,609 -- 3,083 --
- -------------------------------------------------------------------------------------------------------------------
Total reserve $15,654 100.0% $13,702 100.0% $12,611 100.0% $12,822 100.0% $13,040 100.0%
===================================================================================================================
</TABLE>
Not withstanding the foregoing allocations, the entire reserve for loan
losses is available to absorb charge-offs in any category of loans.
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. The portfolio does not contain any derivative
investments or any investments in hedge funds. Total investment securities have
declined $73.9 million, or 17.0%, at year-end 1999 compared to 1998. Most of the
decline has been due to decreases in U.S. Treasury and other U.S. Government
agency securities. Additionally, the upward bias in interest rates experienced
throughout 1999 has resulted in an unrealized decline in market value of $20.1
million compared to year-end 1998. BT's recent funding strategies have generally
involved utilizing the proceeds from maturing and called securities to support
recent loan growth. As a result, average securities declined $100.9 million, or
20.4%, in 1999 compared to 1998. Loans generally provide higher yields than
securities and sound loan expansion remains one of BT's key growth strategies.
Two government agency securities totalling $50 million were purchased during the
second quarter of 1999 in a balance sheet leveraging strategy designed to
enhance net interest income by utilizing favorably priced wholesale funding. At
year-end 1998, securities totaled $435.8 million compared to $463.4 million at
year-end 1997, a 6.0% decrease. The decrease was due to a decline in U.S.
Treasury and other U.S. Government agency securities offset partially by
increases in municipal securities and other debt securities. However, average
securities increased $61.8 million, or 14.3%, in 1998 compared to 1997. The
increase was primarily due to higher levels of municipal securities purchased as
part of a strategy in 1998 to invest in additional securities prior to the
actual call dates of existing securities to capture higher yields. More
securities were purchased in 1998 as part of a balance sheet leveraging plan
that enabled BT to enhance net interest income by utilizing favorably priced
wholesale funding. The yield on the securities portfolio, on a fully taxable
equivalent basis, was 6.60% in 1999 compared to 6.68% in 1998 and 6.59% in 1997.
The following table summarizes the carrying value of BT's securities
portfolio at December 31 for each of the years indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies:
Available-for-sale $187,660 $170,097 $191,510
Held-to-maturity 1,999 99,515 220,045
States and political subdivisions:
Available-for-sale 105,766 97,700 8,359
Held-to-maturity -- 9,100 14,770
Other securities:
Available-for-sale 66,457 49,157 20,322
Held-to-maturity -- 10,246 8,397
- -----------------------------------------------------------------------------
Total $361,882 $435,815 $463,403
=============================================================================
</TABLE>
48 BT FINANCIAL CORPORATION AND AFFILATES
<PAGE>
The following table summarizes the amortized cost and weighted
average yields of BT's securities portfolio at December 31, 1999 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)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Securities held to maturity:
U.S. Treasury and other
U.S. Government agencies $ -- --% $ 1,999 6.51% $ -- --% $ -- --%
Securities available for sale:
U.S. Treasury and other
U.S. Government agencies 11,303 5.31 18,002 5.64 168,548 6.45 -- --
States and political
subdivisions(2) 3,226 8.92 8,694 7.52 24,088 6.41 75,698 7.26
Other securities 4,837 5.97 25,315 5.94 4,761 5.98 32,351 6.14
- -------------------------------------------------------------------------------------------------------------------
Total $19,366 6.08% $54,010 6.12% $197,397 6.44% $108,049 6.92%
===================================================================================================================
</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
BT's primary funding source is its deposits. Average total deposits were $1.58
billion in 1999 compared to $1.57 billion in 1998 and $1.52 billion in 1997. At
year-end 1999, total deposits increased $17.0 million or 1.1% compared to
year-end 1998. Current deposit totals reflect a reduction of approximately $6.8
million due to deposits sold in connection with the sale of Laurel Bank's two
Indiana, Pennsylvania branches in the second quarter of 1999. Excluding the
impact of the sold deposits, total deposits increased $23.8 million or 1.5%
compared to year-end 1998. Non-interest-bearing demand deposits, excluding the
impact of sold deposits, increased $7.8 million or 3.3% compared to year-end
1998. Interest-bearing deposits, excluding the impact of sold deposits,
increased $16.0 million or 1.1% compared to year-end 1998. The increases in
deposits are attributed to attracting new accounts through BT's sales focus and
cross-selling into its existing customer base. BT's primary deposit gathering
strategy emphasizes growth in non-interest-bearing demand deposits and other low
cost deposits. Additionally, BT has targeted growth in longer-term certificates
of deposit by offering more aggressive rates for selected extended maturities.
This strategy allows BT to provide funding for asset growth at rates lower than
current wholesale credit sources. Jumbo certificates of deposit, particularly
public funds, have also been marketed at competitive rates which have been lower
than comparable wholesale funding costs. At year-end 1998, total deposits
increased $28.6 million or 1.8% compared to 1997. The increase was principally
due to non-interest-bearing demand deposit growth. BT faces competition from
banks, savings and loans, credit unions and other financial companies for
deposits.
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 1999 1998 1997
- ------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Non-interest-bearing
demand deposits $235,918 --% $215,886 --% $194,299 --%
Interest-bearing
demand deposits 263,946 1.8 248,014 1.8 228,618 1.5
Savings deposits 247,467 1.3 270,642 1.5 289,384 1.5
Time deposits 832,844 4.9 832,411 5.3 810,219 5.4
- ------------------------------------------------------------------------------
Total $1,580,175 $1,566,953 $1,522,520
========== ========== ==========
</TABLE>
The maturity schedule of BT's time certificates of deposit of $100,000 or
more at December 31, 1999 is summarized below.
<TABLE>
<CAPTION>
- --------------------------------------------------------
TIME CERTIFICATES OF DEPOSIT
(in thousands)
<S> <C>
3 months or less $ 90,277
Over 3 through 6 months 29,051
Over 6 through 12 months 28,899
Over 12 months 29,358
- --------------------------------------------------------
Total $177,585
========================================================
</TABLE>
FINANCIAL REPORT TO SHAREHOLDERS 49
<PAGE>
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. During 1999,
the average balance of short-term borrowings increased $17.2 million, or 27.1%,
over 1998 which followed a $22.8 million, or 56.1%, increase over 1997, due
principally to an increased level of FHLB borrowings which have funded loan
growth and various securities purchases.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(dollars in thousands)
Amount outstanding at year end $116,357 $39,199 $41,532
Weighted average interest rate at year end 4.85% 3.14% 5.09%
Maximum amount outstanding at any month end 160,126 122,859 86,403
Average amount outstanding during the year 80,462 63,308 40,554
Weighted average interest rate during the year 4.50% 4.72% 4.94%
</TABLE>
CAPITAL RESOURCES
BT's primary source of capital has historically been retained earnings. Other
sources may include the sale of common stock, long-term borrowings, 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 32 consecutive years. Common dividends paid per share were $.71 in
1999 and $.61 in 1998. A common dividend of $.20 was paid for the first quarter
of 2000. BT Common Stock attained a 136% total cumulative return during the
five-year period from December 31, 1994 to December 31, 1999, assuming
reinvestment of all dividends. BT's historical stock price performance is not
necessarily indicative of future price performance.
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- and long-term borrowings and the
acquisition and growth of deposits. At December 31, 1999, cash and due from
banks totaled $65.8 million compared to $67.8 million in 1998. Securities due to
mature within one year were $22.8 million at December 31, 1999 compared to $38.0
million in 1998. Short-term borrowings at year-end 1999 totaled $116.4 million
compared to $39.2 million in 1998. Long-term borrowings at year-end 1999 were
$150.0 million versus $100.0 million at year-end 1998.
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 1999, net cash provided by financing activities was $132.2
million. This was primarily due to net increases in short-term borrowings of
$77.2 million, long-term borrowings of $50.0 million and deposits of $17.0
million partially offset by payments for dividends of $11.9 million. Net cash
used in investing activities was $184.2 million, consisting primarily of a
$207.4 million increase in loans and a $29.3 million increase in federal funds
sold offset by $53.8 million provided by securities transactions. Net cash
provided by operating activities was $50.0 million. Overall, cash and cash
equivalents decreased $2.0 million at year-end 1999 compared to year-end 1998.
50 BT FINANCIAL CORPORATION AND AFFILIATES
<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, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NON-RATE
SENSITIVE
0-90 91-365 OVER 1-5 AND OVER
DAYS DAYS YEARS 5 YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Loans $ 261,476 $ 261,096 $587,367 $404,885 $1,514,824
Securities 2,786 19,993 48,527 290,576 361,882
Other interest-earning assets 49,136 -- -- -- 49,136
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 313,398 281,089 635,894 695,461 1,925,842
Other assets -- -- -- 134,830 134,830
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 313,398 $ 281,089 $ 635,894 $830,291 $2,060,672
====================================================================================================================
Demand deposits $ 65,756 $ 29,513 $ 108,840 $294,178 $ 498,287
Savings deposits 1,653 1,252 136,628 91,086 230,619
Interest-bearing time deposits 255,049 311,298 265,866 34,000 866,213
Short-term borrowings 91,207 25,150 -- -- 116,357
Long-term borrowings -- 50,010 100,000 -- 150,010
Other liabilities -- -- -- 14,159 14,159
Shareholders' equity -- -- -- 185,027 185,027
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 413,665 $ 417,223 $ 611,334 $618,450 $2,060,672
====================================================================================================================
Net interest sensitivity gap $(100,267) $(136,134) $ 24,560 $211,841 $ --
- --------------------------------------------------------------------------------------------------------------------
Net cumulative interest gap $(100,267) $(236,401) $(211,841) $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The information on the above table indicates the potential for interest
rate adjustment on only a one-day position at year-end 1999. 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 magnitude of repricing may vary significantly,
depending on the asset or liability as interest rates change. Therefore, 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 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, 1999, BT's simulation analysis indicated that
a 200 basis point decrease in interest rates would increase projected net
interest income by approximately $2.4 million for a one-year period. Conversely,
the simulation analysis indicated that a 200 basis point increase in rates would
reduce projected net interest income by approximately $4.1 million over the same
period. This variance is within BT's policy guidelines. If these scenarios
actually would occur, BT would likely take some actions to mitigate its exposure
to the interest rate changes.
FINANCIAL REPORT TO SHAREHOLDERS 51
<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 June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires, among other things, that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial condition and
measures those instruments at fair value. In June of 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133," which postponed the adoption
date of SFAS No. 133. As such, the Corporation is not required to adopt SFAS No.
133 until fiscal year 2001. Since BT does not currently use derivative financial
instruments, the adoption of the standard would not have any material impact on
BT's financial position or results of operations.
YEAR 2000 COMPLIANCE
BT instituted procedures and underwent extensive systems testing to prepare for
potential Year 2000 problems, as disclosed in earlier reports. To date BT has
not had any Year 2000 related problems, and all internal systems have functioned
properly since the beginning of the Year 2000. All key vendors have not had any
problems that BT is aware of. Additionally, BT is not aware of any adverse Year
2000 effects on Laurel Bank's loan customers. At this time, management does not
foresee significant Year 2000 risks resulting from its dealings with vendors or
customers. BT will continue to monitor its systems on an ongoing basis to ensure
all processes continue to function properly. BT expended a total of
approximately $726,000 in connection with Year 2000 compliance.
MANAGEMENT'S REPORT ON INTERNAL CONTROL
Management has assessed its internal control over financial reporting as of
December 31, 1999. 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 effective
internal control over financial reporting as of December 31, 1999.
/s/ John H. Anderson
John H. Anderson
Chairman and
Chief Executive Officer
/s/ Brian H. Lehman
Brian H. Lehman
Senior Vice President
and Chief Financial Officer
52 BT FINANCIAL CORPORATION AND AFFILIATES
<PAGE>
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
Bedford Associates of
Delaware, Inc. 100% Delaware
Flex Financial Consumer 100% Pennsylvania
Discount Company
Laurel Investment Advisors, Inc. 100% Pennsylvania
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of BT Financial Corporation on Form S-8 (File No. 33-93454)
of our report dated January 25, 2000, on our audits of the consolidated
financial statements of BT Financial Corporation as of December 31, 1999
and 1998, and for the years ended December 31, 1999, 1998, and 1997,
which report is incorporated by reference in the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, PA
March 29, 2000
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 of BT Financial Corporation for the
year ended December 31, 1999, of our report dated January 22, 1999
except for Note 17, as to which the date is February 23, 1999 insofar
as such report relates to the financial statements of First Philson
Financial Corporation as of December 31, 1998 and for the years ended
December 31, 1998 and 1997.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 65,812
<INT-BEARING-DEPOSITS> 136
<FED-FUNDS-SOLD> 49,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 359,883
<INVESTMENTS-CARRYING> 1,999
<INVESTMENTS-MARKET> 1,983
<LOANS> 1,529,696
<ALLOWANCE> 15,654
<TOTAL-ASSETS> 2,060,672
<DEPOSITS> 1,595,119
<SHORT-TERM> 116,357
<LIABILITIES-OTHER> 14,159
<LONG-TERM> 150,010
0
0
<COMMON> 83,416
<OTHER-SE> 101,611
<TOTAL-LIABILITIES-AND-EQUITY> 2,060,672
<INTEREST-LOAN> 116,038
<INTEREST-INVEST> 23,080
<INTEREST-OTHER> 1,047
<INTEREST-TOTAL> 140,165
<INTEREST-DEPOSIT> 48,731
<INTEREST-EXPENSE> 59,484
<INTEREST-INCOME-NET> 80,681
<LOAN-LOSSES> 6,099
<SECURITIES-GAINS> 86
<EXPENSE-OTHER> 61,314
<INCOME-PRETAX> 29,500
<INCOME-PRE-EXTRAORDINARY> 29,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,814
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 4.52
<LOANS-NON> 8,936
<LOANS-PAST> 582
<LOANS-TROUBLED> 212
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,702
<CHARGE-OFFS> 5,160
<RECOVERIES> 1,013
<ALLOWANCE-CLOSE> 15,654
<ALLOWANCE-DOMESTIC> 15,654
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule restates previously filed financial information to give
effect to the merger between BT Financial Corporation and First Philson
Financial Corporation. The merger was completed on July 14, 1999 and
was accounted for as a pooling-of-interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 MAR-31-1999
<CASH> 55,582 50,644
<INT-BEARING-DEPOSITS> 85 46
<FED-FUNDS-SOLD> 10,800 15,600
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 337,468 305,689
<INVESTMENTS-CARRYING> 46,405 66,829
<INVESTMENTS-MARKET> 46,142 67,081
<LOANS> 1,504,252 1,411,137
<ALLOWANCE> 15,317 14,373
<TOTAL-ASSETS> 2,002,662 1,890,216
<DEPOSITS> 1,571,431 1,546,677
<SHORT-TERM> 85,779 43,197
<LIABILITIES-OTHER> 9,593 10,720
<LONG-TERM> 150,022 100,026
0 0
0 0
<COMMON> 79,449 79,449
<OTHER-SE> 106,388 110,147
<TOTAL-LIABILITIES-AND-EQUITY> 2,002,662 1,890,216
<INTEREST-LOAN> 55,455 27,095
<INTEREST-INVEST> 11,763 6,002
<INTEREST-OTHER> 366 144
<INTEREST-TOTAL> 67,584 33,241
<INTEREST-DEPOSIT> 23,637 12,020
<INTEREST-EXPENSE> 27,669 13,654
<INTEREST-INCOME-NET> 39,915 19,587
<LOAN-LOSSES> 3,170 1,477
<SECURITIES-GAINS> 90 77
<EXPENSE-OTHER> 28,849 14,530
<INCOME-PRETAX> 15,907 7,050
<INCOME-PRE-EXTRAORDINARY> 15,907 7,050
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,319 5,061
<EPS-BASIC> .68 .30
<EPS-DILUTED> .68 .30
<YIELD-ACTUAL> 4.69 4.71
<LOANS-NON> 5,604 6,596
<LOANS-PAST> 4,118 566
<LOANS-TROUBLED> 213 264
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 13,702 13,702
<CHARGE-OFFS> 2,060 1,051
<RECOVERIES> 505 245
<ALLOWANCE-CLOSE> 15,317 14,373
<ALLOWANCE-DOMESTIC> 15,317 14,373
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule restates previously filed financial information to give
effect to the merger between BT Financial Corporation and First Philson
Financial Corporation. The merger was completed on July 14, 1999 and
was accounted for as a pooling-of-interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 MAR-31-1998 DEC-31-1997
<CASH> 55,992 57,145 59,597
<INT-BEARING-DEPOSITS> 539 654 935
<FED-FUNDS-SOLD> 23,400 11,200 10,700
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 333,635 291,248 220,191
<INVESTMENTS-CARRYING> 195,229 232,566 243,212
<INVESTMENTS-MARKET> 196,437 233,845 244,864
<LOANS> 1,304,135 1,276,460 1,244,682
<ALLOWANCE> 13,265 12,712 12,611
<TOTAL-ASSETS> 1,947,431 1,893,135 1,792,036
<DEPOSITS> 1,567,458 1,553,302 1,549,520
<SHORT-TERM> 75,488 110,713 41,532
<LIABILITIES-OTHER> 9,657 11,893 9,416
<LONG-TERM> 112,898 38,616 14,335
0 0 0
0 0 0
<COMMON> 79,449 79,449 39,725
<OTHER-SE> 102,481 99,162 137,508
<TOTAL-LIABILITIES-AND-EQUITY> 1,947,431 1,893,135 1,792,036
<INTEREST-LOAN> 52,254 25,709 101,413
<INTEREST-INVEST> 16,567 7,673 27,788
<INTEREST-OTHER> 449 173 1,312
<INTEREST-TOTAL> 69,270 33,555 130,513
<INTEREST-DEPOSIT> 26,672 13,311 51,872
<INTEREST-EXPENSE> 30,184 14,486 54,987
<INTEREST-INCOME-NET> 39,086 19,069 75,526
<LOAN-LOSSES> 2,915 1,253 4,250
<SECURITIES-GAINS> 64 21 195
<EXPENSE-OTHER> 28,700 14,581 54,149
<INCOME-PRETAX> 14,140 6,405 30,701
<INCOME-PRE-EXTRAORDINARY> 14,140 6,405 30,701
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,851 4,413 20,478
<EPS-BASIC> .59 .26 1.23
<EPS-DILUTED> .59 .26 1.23
<YIELD-ACTUAL> 4.62 4.66 4.73
<LOANS-NON> 8,544 9,235 8,126
<LOANS-PAST> 504 543 1,696
<LOANS-TROUBLED> 265 265 266
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 12,611 12,611 12,822
<CHARGE-OFFS> 2,914 1,292 5,159
<RECOVERIES> 638 140 698
<ALLOWANCE-CLOSE> 13,265 12,712 12,611
<ALLOWANCE-DOMESTIC> 13,265 12,712 12,611
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
