FCFT, Inc.
P O Box 5909
Princeton, West Virginia 24740
August 14, 1996
Securities and Exchange Commission
Washington, D C 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q.
Sincerely,
FCFT, Inc.
Randy K. Walker
Vice President - Operations
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996 OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: ______________ to ___________________
Commission File Number: 0-19297
FCFT, INC.
(Exact name of registrant as specified in its charter)
Delaware 55-0694814
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Mercer Street, Princeton, West Virginia, 24740
(Address of principal executive offices) (Zip Code)
(304) 487-9000
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock, $5 Par Value 4,517,498
<PAGE>
FCFT, INC.
FORM 10-Q
For the quarter Ended June 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION REFERENCE
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets June 30, 1996 and December 31, 1995 4
Consolidated Statements of Income for the Six and Three Months Ended
June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996
and 1995 6
Consolidated Statements of Changes in Stockholders' Equity for the Six Months
Ended June 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
<CAPTION>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other information 15
Item 6. Exhibits and Reports on Form 8-K 15
Item 7. Financial Data Schedule 16
<CAPTION>
SIGNATURES 17
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</TABLE>
<TABLE>
FCFT, INC.
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
(Amounts in Thousands)
<S> <C> <C>
June 30, 1996 December 31, 1995
Assets
Cash and due from banks $ 22,494 $ 22,146
Federal funds sold 0 810
Securities available for sale (amortized cost of $110,120 June 30, 1996;
$110,989 December 31, 1995) 108,302 111,606
Investment securities:
U.S. Treasury securities 13,405 16,214
U.S. Government agencies and corporations 48,417 55,193
States and political subdivisions 46,470 46,444
Other securities 1,057 1,055
Total Investment Securities (market value, $109,399 June 30, 1996; $120,277
December 31, 1995) 109,349 118,906
Total loans, net of unearned income 499,201 456,788
Less: reserve for possible loan losses 8,425 8,038
Net Loans 490,776 448,750
Premises and equipment, net 11,084 11,554
Interest receivable 6,468 6,218
Other assets 13,347 11,408
Total Assets $761,820 $ 731,398
Liabilities
Deposits, non-interest bearing $ 80,666 $ 81,352
Deposits, interest-bearing 495,856 496,495
Total Deposits 576,522 577,847
Interest, taxes and other liabilities 11,889 11,604
Federal funds purchased 29,560 0
Securities sold under agreement to repurchase 47,887 50,205
Other indebtedness 15,131 15,136
Total Liabilities 680,989 654,792
Stockholders' Equity
Common stock, $5 par value; 10,000,000 shares authorized; 4,341,266 issued in
1996 and 1995; 4,254,339 and 4,212,108 shares outstanding in 1996 and 1995,
respectively 21,706 21,706
Additional paid-in capital 20,158 20,192
Retained earnings 41,439 36,978
Treasury stock, at cost (1,363) (2,646)
Unrealized (loss) gain on securities available for sale (1,109) 376
Total Stockholders' Equity 80,831 76,606
Total Liabilities and Stockholders' Equity $ 761,820 $ 731,398
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(Unaudited)
(Amounts in Thousands, Except
Share and Per Share Data
<S> <C> <C> <C> <C>
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
Interest Income
Interest and fees on loans $ 22,793 $ 18,921 $ 11,723 $ 9,682
Interest on securities available for sale 3,401 2,720 1,727 1,316
Interest on investment securities:
U.S. Treasury securities 440 519 209 257
U.S. Government agencies and corporations 1,617 2,967 791 1,479
States and political subdivisions 1,276 1,423 647 705
Other securities 42 146 21 71
Interest on federal funds sold 57 13 7 10
Interest on deposits in banks 21 5 15 2
Total Interest Income 29,647 26,714 15,140 13,522
Interest Expense
Interest on deposits 10,355 8,911 5,214 4,619
Interest on borrowings 1,719 1,127 957 607
Total Interest Expense 12,074 10,038 6,171 5,226
Net Interest Income 17,573 16,676 8,969 8,296
Provision for possible loan losses 984 752 536 378
Net Interest Income After Provision for
Possible Loan Losses 16,589 15,924 8,433 7,918
Non-Interest Income
Fiduciary income 782 851 397 413
Service charges on deposit accounts 1,358 1,185 703 626
Other charges, commissions and fees 1,115 974 559 475
Investment securities (losses) gains (165) 502 0 (35)
Other operating income 479 188 386 93
Total Non-Interest Income 3,569 3,700 2,045 1,572
Non-Interest Expense
Salaries and employee benefits 4,590 4,731 2,326 2,350
Occupancy expense of bank premises 839 834 420 411
Furniture and equipment expense 675 649 335 333
Other operating expense 4,083 5,223 2,015 2,972
Total Non-Interest Expense 10,187 11,437 5,096 6,066
Income before income taxes 9,971 8,187 5,382 3,424
Income tax expense 2,979 2,465 1,648 1,037
Net Income $ 6,992 $ 5,722 $ 3,734 $ 2,387
Net income per common share $ 1.66 $ 1.35 $ .88 $ .56
Weighted average shares outstanding 4,215,031 4,231,908 4,220,638 4,226,955
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
(Amounts in Thousands)
<S> <C> <C>
................ Six Months Ended
June 30 June 30
1996 1995
Cash Flows From Operating Activities:
Net income $ 6,992 $ 5,722
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 984 752
Depreciation of premises and equipment 423 466
Amortization of intangibles 348 391
Investment amortization and accretion, net 16 98
Loss (Gain) on the sale of assets, net 157 (526)
Other liabilities, net 285 207
Interest receivable (250) 140
Other assets, net 19 1,900
Other, net (55) (254)
Net cash provided by operating activities 8,919 8,896
Cash Flows From Investment Activities:
Increase (decrease) in cash realized from:
Sales of securities available for sale 11,016 6,349
Maturities and calls of investment securities 9,592 18,664
Maturities and calls of securities available for sale 6,697 12,481
Purchase of investment securities 0 (1,672)
Purchase of securities available for sale (17,060) (18,059)
Loans made to customers, net (44,225) (18,935)
Purchase of equipment (41) (154)
Sale of equipment 10 11
Net cash used in investment activities (34,011) (1,315)
Cash Flows From Financing Activities:
Increase (decrease) in cash realized from:
Demand and savings deposits, net (6,180) (22,749)
Time deposits, net 4,855 10,506
Short-term borrowings, net 27,242 7,181
Payments of long-term debt (5) (29)
Acquisition of treasury stock (170) (432)
Reissuance of treasury stock 1,419 0
Cash dividends paid (2,531) (2,325)
Net cash provided by (used in) financing activities 24,630 (7,848)
Net decrease in cash and cash equivalents (462) (267)
Cash and cash equivalents at beginning of year 22,956 23,628
Cash and cash equivalents at end of quarter $ 22,494 $ 23,361
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
(Amounts in Thousands, Except
Share and Per Share Data:
<S> <C> <C> <C> <C> <C>
Unrealized
(Loss) Gain
Additional on Securities
Common Paid-In Retained Treasury Available
Stock Capital Earnings Stock for Sale
Balance beginning of
the period,
January 1, 1995 $ 21,706 $ 20,192 $ 30,094 $ (1,807) $ (3,445)
Net income -- -- 5,722 -- --
Common dividends
declared ($.55
per common share) -- -- (2,325) -- --
Purchase of 14,524
shares at $29.74
per share -- -- -- (432) --
Unrealized net gain
on securities available
for sale -- -- -- -- 2,855
Balance, June 30, 1995 $21,706 $20,192 $33,491 $(2,239) $(590)
Balance beginning of
the period,
January 1, 1996 $21,706 $20,192 $36,978 $(2,646) $376
Net income -- -- 6,992 -- --
Common dividends declared ($.60 per common share) -- -- (2,531) -- --
Purchase of 5,100 shares at $33.42 per share -- -- -- (170) --
Unrealized net loss on securities available for sale -- -- -- -- (1,485)
Reissuance of 47,331 treasury shares at $30.02 per share -- (34) -- 1,453 --
Balance, June 30, 1996 $21,706 $20,158 $41,439 $(1,363) $(1,109)
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Unaudited Financial Statements
The unaudited consolidated balance sheet as of June 30, 1996 and the unaudited
consolidated statements of income, cash flows and changes in stockholders'
equity for the periods ended June 30, 1996 and 1995 have been prepared by the
management of FCFT, Inc. without audit. In the opinion of management, all
adjustments (including normal recurring accruals) necessary to present fairly
the financial position of FCFT, Inc. and subsidiaries at June 30, 1996 and
their results of operations, cash flows, and changes in stockholders' equity
for the periods ended June 30, 1996 and 1995, have been made. These results
are not necessarily indicative of the results of consolidated operations for
the full calendar year.
The consolidated balance sheet as of December 31, 1995 has been extracted from
audited financial statements included in the Company's 1995 Annual Report to
Shareholders. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements
should be read in conjunction with the financial statements and notes there
to included in the 1995 Annual Report of FCFT, Inc.
Note 2. Acquisitions
At the close of business on July 3, 1996, FCFT, Inc. acquired all of the
outstanding stock of Citizens Bank of Tazewell (Citizens), headquartered in
Tazewell, Virginia. Pursuant to the Agreement and Plan of Merger, FCFT
exchanged 3.51 shares of its common stock for each share of Citizen's common
stock. The transaction was valued at approximately $8.9 million, or $119.16
per share of Citizen's common stock. The merger will be accounted for under
the pooling of interests method. Subsequent to the merger, Citizens will
operate as a wholly-owned subsidiary of FCFT, Inc. Citizens had total
assets of $52.2 million and net income totaling $309,000, as of and for
the six month period ended June 30, 1996, as compared with $48.4 million
in total assets and $163,000 in net income for the corresponding period
in 1995.
On May 30, 1996, FCFT, Inc. entered into an agreement with Huntington National
Bank West Virginia (Huntington),wherein FCFT, Inc. will acquire Huntington
branches located in Grafton and Rowlesburg, West Virginia. These branch
acquisitions are anticipated to close on or before September 30, 1996. Deposits
of the two branches total approximately $25 million.
Note 3. Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and interest-bearing balances
available for immediate withdrawal of $22.5 million at June 30, 1996 and $23.4
million at June 30, 1995.
Note 4. Commitments and Contingencies
In the matter of Four Winds Development, Inc., W. Stephen Melcher and E. T.
Boggess, plaintiffs, vs. First Community Bank of Princeton and Dave Shields
Company, Inc., defendants, on May 1, 1996, the Company argued and was denied
its petition for appeal of the Circuit Court's decision. The Company continues
to pursue its right of financial offset. In the second quarter of 1995
reserves in excess of $500,000 were established in response to the verdict in
this case and the Company anticipates no financial impact on future earnings
regarding this matter.
The Company is currently a defendant in other actions surrounding lending and
collection activities in the normal course of business, certain of which have
remained dormant for a number of years. Certain of these actions are
described in greater detail in the Company's 1995 Report on Form 10-K. While
the Company and legal counsel are unable to assess the outcome of each of these
matters, they are of the belief that these actions should not have a material
adverse affect on the financial position or results of operations of the
Company.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of FCFT, Inc.
We have reviewed the accompanying consolidated balance sheet of FCFT, Inc.
and subsidiaries as of June 30, 1996, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the periods
ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of FCFT, Inc. and subsidiaries as
of December 31, 1995, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 30, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1995, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
August 2, 1996
<PAGE>
FCFT, INC.
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis is provided to address information about
the Company's financial condition and results of operations which is not
otherwise apparent from the consolidated financial statements incorporated by
reference or included in this report. Reference should be made to those
statements for an understanding of the following discussion and analysis.
RESULTS OF OPERATIONS
Net income increased 22% to $7.0 million for the first six months of 1996,
compared with $5.8 million for the same period in 1995. Earnings per common
share for the same period increased 23% from $1.35 to $1.66. The improvement
in earnings during the first half of 1996 is primarily attributable to the
$897,000 increase in net interest income and the decrease in non-interest
expense of $1.1 million compared with the corresponding period in 1995.
Second quarter earnings for 1996 increased $1.3 million or 56.4% over the
same period for 1995. This increase was due primarily to a $520,000 expense
recorded in the second quarter of 1995 to establish reserves in response to the
verdict in the Four Winds Development Inc. lawsuit. In addition, in the
second quarter of 1996, the Company recorded income of $295,000 from life
insurance proceeds, further contributing to the increase in net income between
the two periods.
Return on Average Assets (ROA) for the second quarter of 1996, reached 2%, as
compared to 1.38% for the second quarter of 1995. Year-to-date ROA was
1.90% for 1996 compared with 1.66% in 1995. Return on Average Equity (ROE)
which measures the stewardship of the shareholder's investment, also increased
to 17.85% for the first six months of 1996 from 16.38% for the comparable
period in 1995. In comparing the second quarter of 1996 with the same period
for 1995, ROE showed a significant improvement, increasing from 13.31% in
1995 to 18.90% in 1996.
Net Interest Income
Net interest income, the largest contributor to earnings, was $17.6 million for
the first six months of 1996 as compared with $16.7 million in the
corresponding period in 1995. For the second quarter of 1996, net interest
income reached $9.0 million, an increase of 8.1% over the $8.3 million
reported for the second quarter of 1995. Tax equivalent net interest income
was $18.8 million for the first half of 1996, a $1 million increase over the
$17.8 million reported for the same period in 1995. Net interest income
reached record levels as the yield on earning assets continued to increase
in response to the reinvestment of securities into the higher yielding loan
portfolio.
Net interest margin, the ratio of tax equivalent net interest income to average
earning assets, was 5.47% in the first half of 1996 compared with 5.55% for
the same period in 1995. This 8 basis point decrease in the net interest
margin is attributable to an increase in the cost of funds from 3.75% in 1995
to 4.25% in 1996.
Average total loans, the Company's highest yielding asset, increased $73
million or 18.14% over the last twelve months. The yield on earning assets
increased 30 basis points in response to this growth from 8.69% in 1995 to
8.99% for the six months ended June 30, 1996. The yield on the loan
portfolio was 9.81% for the first six months of 1996 compared with 9.68% for
the same period in 1995. The yield on investment securities held to maturity
showed an improvement of 3.88% , increasing from 6.96% in 1995 to 7.23% in
1996 as a result of maturities of certain lower yielding securities.
Securities available for sale showed yield improvement from 6.57% in 1995
to 6.65% in 1996 due to modest restructuring in the available for sale
portfolio.
Short-term borrowings and time deposits increased 25 and 81 basis points,
respectively. The increase in the cost of these funding sources reflects the
effect of market pressure on the rates paid on these funds. Short-term
deposits such as interest-bearing demand and savings deposits, experienced
no increase in costs over the past 12 months.
<PAGE>
<TABLE>
NET INTEREST INCOME ANALYSIS
(Unaudited)
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
Yield/ Yield/
Average Interest Rate Average Interest Rate
Balance (1)(2) (2) Balance (1)(2) (2)
Earning Assets:
Loans (3)
Taxable $457,891 $22,217 9.76% $383,845 $18,314 9.62%
Tax-Exempt 15,562 887 11.46% 16,920 933 11.13%
Total 473,453 23,104 9.81% 400,765 19,247 9.68%
Reserve for Possible Loan Losses (8,266) 0 0 (8,415)
Net Total 465,187 23,104 9.99% 392,350 19,247 9.89%
Investments Available for Sale:
Taxable 94,835 2,988 6.34% 83,520 2,720 6.57%
Tax-Exempt 14,768 635 8.65% 0 0 0
Total 109,603 3,623 6.65% 83,520 2,720 6.57%
Investment Securities:
Taxable 66,931 2,131 6.40% 117,509 3,664 6.29%
Tax-Exempt 45,554 1,913 8.45% 50,701 2,140 8.51%
Total 112,485 4,044 7.23% 168,210 5,804 6.96%
Interest-Bearing Deposits 760 21 5.56% 117 5 8.74%
Federal Funds Sold 2,123 57 5.40% 434 13 5.93%
Total Earning Assets 690,158 30,849 8.99% 644,631 27,789 8.69%
Other Assets 49,048 0 0 50,082 0 0
Total $739,206 $694,713
Interest-Bearing Liabilities
Interest-bearing Demand Deposits $90,721 $1,212 2.69% $98,851 $1,312 2.68%
Savings Deposits 126,054 1,898 3.03% 134,512 2,018 3.03%
Time Deposits 279,636 7,244 5.21% 256,006 5,588 4.40%
Short-Term Borrowings 59,273 1,283 4.35% 40,362 820 4.10%
Other Indebtedness 15,133 436 5.79% 10,182 300 5.93%
Total Interest-Bearing Liabilities 570,817 12,073 4.25% 539,913 10,038 3.75%
Demand Deposits 76,806 74,386
Other Liabilities 12,792 9,962
Stockholders' Equity 78,791 70,452
Total $739,206 $694,713
Net Interest Earnings $18,776 $17,751
Net Interest Spread 4.74% 4.94%
Net Interest Margin 5.47% 5.55%
</TABLE>
1. Interest amounts represent taxable equivalent results for the first six
months of 1996 and 1995.
2. Fully Taxable Equivalent - using the statutory rate of 35%.
3. Non-accrual loans are included in average balances outstanding with no
related interest income.
<PAGE>
Provision and Reserve for Possible Loan Losses
In order to maintain a balance in the reserve for possible loan losses which
is sufficient to absorb potential loan losses, charges are made to the
provision for possible loan losses (provision). The provision for possible
loan losses was $984,000 in the first six months of 1996 compared with
$752,000 in the first six months of 1995. The provision for the second
quarter of 1996 reached $536,000, increasing $158,000 over the $378,000
reported for the second quarter of 1995.
Net charge-offs year to date totaled $598,000 in 1996, near the 1995 level of
$595,000. For the second quarter of 1996 net charge-offs were $305,000,
as compared to $297,000 for the corresponding period in 1995. Expressed
as a percentage of loans, net charge-offs were .12% for the six month period
ended June 30, 1996 and .13% for the corresponding period in 1995.
The reserve for possible loan losses totaled $8.4 million at June 30, 1996
compared with reserves of $8.0 million at December 31, 1995 resulting in
reserve to loan ratios of 1.69% and 1.76%, respectively.
Management continually evaluates the adequacy of the reserve for possible
loan losses and makes specific adjustments to it based on the results of
risk analysis in the credit review process, the recommendation of regulatory
agencies, and other factors, such as loan loss experience and prevailing
economic conditions. Management considers the level of reserves adequate
based on the current risk profile in the loan portfolio.
Non-Interest Income
Non-interest income consists of all revenues which are not included in
interest and fee income related to earning assets. Total non-interest income
was $3.6 million and $3.7 million for the six months ended June 30, 1996
and 1995, respectively. In comparing second quarter of 1996 with second
quarter of 1995, non-interest income increased $473,000 or 30.1%, improving
from $1.6 million in 1995 to $2.0 million in 1996. Included in non-interest
income for the second quarter of 1996 was $295,000 in other income received
from life insurance proceeds for a deceased executive officer. Non-interest
income for 1996 also includes a loss of $165,000 on the sale of securities
available for sale as the Company repositioned a portion of its investment
portfolio for improved performance. Included in non-interest income for 1995
was $537,000 in gains from the sale of stock of another West Virginia Bank
Holding Company in which the Company had taken a nominal position.
Excluding the non-recurring items in 1996 and 1995, the Company's non-interest
income increased $276,000 or 8.73% when comparing the first six months of
1996 with the corresponding period in 1995. This improvement in non-interest
income is the net of increases in service charges on deposit accounts of
$173,000 or 14.60%, and other service charges, commissions and fees of
$141,000 or 14.48%, and a decrease of $69,000 or 8.11% in fiduciary income.
Second quarter results for 1996 showed an improvement of $77,000 in service
charges on deposit accounts and another $84,000 increase in other service
charges, commissions and fees over the corresponding period in 1995.
Non-Interest Expense
Non-interest expense decreased $1.25 million or 10.93%, from $11.4 million
in the first six months of 1995 to $10.2 million in 1996. Comparing second
quarter 1996 with second quarter 1995, the Company showed a favorable
variance of $970,000 decreasing from $6.1 million in 1995 to $5.1 million in
1996. The largest percentage decrease was in the other operating expense
category with a decrease of $1.1 million or 21.83% for the six month period
and a decrease of $957,000 or 32.2% for the three month period. In April,
1995, FDIC premium payments were suspended as a result of full funding
of the Bank Insurance Fund, accounting for $610,000 or 55.45% of the decrease
in other operating expense, when comparing the first half of 1995 with the
same period for 1996. In addition, during the second quarter of 1995, the
Company recorded an expense of approximately $520,000, in response to a
verdict awarded the plaintiffs in the Four Winds Development, Inc. lawsuit
in which one of the Company's subsidiaries was the defendant.
<PAGE>
Income Tax Expense
Income tax expense increased $514,000 from $2.5 million in the first six
months of 1995 to $3 million for the corresponding period in 1996 reflecting
effective tax rates of 30.1% and 29.9%, respectively. The increase in taxes
is principally the result of the increase in pre-tax income of $1.8 million
or 21.8% when comparing the first six months of 1996 with the corresponding
period in 1995. For the second quarter of 1996, the Company reported $1.6
million in income tax expense, an increase of $611,000 over the $1.0 million
reported for the second quarter of 1995. The effective tax rates for the
second quarter were 30.6% in 1996 and 30.3% in 1995.
FINANCIAL POSITION
Securities
Securities totaled $217.7 million at June 30, 1996 reflecting a decrease of
$12.9 million from December 31, 1995. This 5.58% decrease was due to
increases in the loan portfolio of $42.4 million or 9.29% along with decreases
of $1.3 million in deposit funding versus the first half of 1996.
Securities available for sale were $108.3 million at June 30, 1996 versus
$111.6 million at December 31, 1995. Securities available for sale are
recorded at their fair market value at June 30, 1996 and December 31, 1995.
The unrealized gain or loss which is the difference between book value and
market value, net of related deferred taxes, is recognized in the Stockholders'
Equity section of the balance sheet. The unrealized gain after taxes
decreased $1.5 million from $376,000 at December 31, 1995 to a $1.1 million
unrealized loss at June 30, 1996.
Investment securities, which are generally purchased with the intent to hold
until maturity, totaled $109.3 million at June 30, 1996, as compared with
$118.9 million at December 31, 1995. The market value of investment
securities at June 30, 1996 was 100% of book value as compared with 101%
at December 31, 1995, reflecting a slight decline in the bond market.
Loans
The Company's lending strategy stresses quality growth, diversified by product,
geography, and industry. A common credit underwriting structure and review
process is in place throughout the Company.
Total loans increased $42.4 million to $499.2 million at June 30, 1996 from
$456.8 million at December 31, 1995. Average total loans have increased $73
million over the last twelve months. The loan-to-deposit ratio has increased to
87% at June 30, 1996 as compared with 79% at December 31, 1995.
The strong growth in the loan portfolio over the past twelve months is
attributable to loan development programs initiated in 1995 and the
company's success in effectively competing with larger regional banks for
small business customers both in and around the Company's primary markets.
While commercial loan development has proven successful, the mix of the loan
portfolio has been substantially maintained due to improved penetration in
consumer, indirect auto and residential mortgage lending as well.
<PAGE>
Non-Performing Assets
Non-performing assets are comprised of loans on non-accrual status, loans
contractually past due 90 days or more and still accruing interest and other
real estate owned (OREO). Non-performing assets were $9.1 million at June 30,
1996, or 1.8% of total loans and OREO, compared with $7.6 million or 1.6%
at March 31, 1996, and $5.8 million or 1.37% at December 31, 1995. The
following schedule details non-performing assets by category at the close
of each of the last five quarters:
<TABLE>
<S> <C> <C> <C> <C> <C>
(In Thousands) June 30 March 31 December 31 September 30 June 30
1996 1996 1995 1995 1995
Non-Accrual $4,363 $4,496 $4,224 $6,006 $7,303
Ninety Days Past Due 2,459 1,504 646 2,153 1,886
Other Real Estate Owned 2,229 1,590 929 968 729
$9,051 $7,590 $5,799 $9,127 $9,918
Restructured loans performing in
accordance with modified terms $409 $436 $439 $446 $447
</TABLE>
Non-accrual loans and loans ninety-days past due increased $139,000 and
$1,813,000, respectively, when comparing June 30, 1996 and December 31, 1995.
The increase in ninety-day past due loans relates primarily to one
relationship totaling $961,000 which reached ninety-days past due late in
the second quarter of 1996. The Company anticipates this loan will become
current by the end of the third quarter. Other real estate owned at June 30,
1996, increased $1.3 million or 140% compared to December 31, 1995. This
increase was due to two foreclosures, one amounting to $755,000 in the first
quarter and another in the second quarter, in the amount of $500,000.
Management believes that the extent of problem loans at June 30, 1996 is
disclosed as non-performing assets in the preceding chart. However, there can
be no assurance that future circumstances, such as further erosions in economic
conditions and the related potential effect that such erosions may have on
certain borrowers' ability to continue to meet payment obligations, will not
lead to an increase in problem loan totals. Management further believes that
non-performing asset carrying values will be substantially recoverable after
taking into consideration the adequacy of applicable collateral and, in certain
cases, partial writedowns which have been taken and allowances that have
been established.
Stockholders' Equity
Total stockholders' equity was $80.8 million at June 30, 1996, representing
an increase of $4.2 million or 5.5% over year-end 1995. The increase in
stockholders' equity was the result of earnings net of dividends of $4.5
million and the reissuance of 47,331 shares of treasury stock at a weighted
cost of $30.02 per share or $1.4 million. The Federal Reserve's risk-based
capital guidelines and leverage ratio measure capital adequacy of banking
institutions. Risk-based capital guidelines weight balance sheet assets and
off-balance sheet commitments based on inherent risks associated with the
respective asset types. At June 30, 1996, the Company's risk adjusted
capital-to-asset ratio was 17.25%. The Company's leverage ratio at June 30,
1996 was 10.53% compared with 9.99% at December 31, 1995. Both the risk
adjusted capital-to-asset ratio and the leverage ratio exceed the current
minimum levels prescribed for bank holding companies of 8% and 3%,
respectively.
<PAGE>
Liquidity
The Company maintains a significant level of liquidity in the form of cash and
due from bank balances ($22.1 million), investment securities available for
sale ($108.3 million), and Federal Home Loan Bank of Pittsburgh credit
availability of $61.3 million. Cash and advances from the Federal Home
Loan Bank of Pittsburgh are immediately available for satisfaction of deposit
withdrawals, customer credit needs and operations of the Company. Investment
securities available for sale represent a secondary level of liquidity
available for conversion to liquid funds in the event of extraordinary needs.
FCFT, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a)In the matter of Four Winds Development, Inc., W. Stephen Melcher and E. T.
Boggess, plaintiffs, vs. First Community Bank of Princeton and Dave Shields
Company, Inc., defendants, on May 1, 1996, the Company argued and was denied
its petition for appeal of the Circuit Court's decision. The Company
continues to pursue its right of financial offset.
Item 2. Changes in Securities
(a) N/A
(b) N/A
Item 3. Defaults Upon Senior Securities
(a) N/A
(b) N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) N/A
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 15 - Letter regarding unaudited interim financial information
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the second quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FCFT, INC.
DATE: August 14, 1996
_______________________________
James L. Harrison, Sr.
President & Chief Executive Officer
(Duly Authorized Officer)
DATE: August 14, 1996
_______________________________
John M. Mendez
Vice President & Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 15
August 2, 1996
To the Board of Directors and Stockholders of FCFT, Inc.
Dear Sirs:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of FCFT, Inc. and subsidiaries for the periods ended
June 30, 1996 and 1995, as indicated in our report dated August 2, 1996;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated by reference in Registration Statement No. 33-72616 on Form S-8
and Registration Statement No. 333-2996 on Form S-4.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Yours truly,
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,070
<INT-BEARING-DEPOSITS> 424
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,302
<INVESTMENTS-CARRYING> 109,349
<INVESTMENTS-MARKET> 109,399
<LOANS> 499,201
<ALLOWANCE> 8,425
<TOTAL-ASSETS> 761,820
<DEPOSITS> 576,522
<SHORT-TERM> 77,447
<LIABILITIES-OTHER> 11,899
<LONG-TERM> 15,131
0
0
<COMMON> 21,706
<OTHER-SE> 59,125
<TOTAL-LIABILITIES-AND-EQUITY> 761,820
<INTEREST-LOAN> 22,793
<INTEREST-INVEST> 6,776
<INTEREST-OTHER> 78
<INTEREST-TOTAL> 29,647
<INTEREST-DEPOSIT> 10,355
<INTEREST-EXPENSE> 12,074
<INTEREST-INCOME-NET> 17,573
<LOAN-LOSSES> 984
<SECURITIES-GAINS> (165)
<EXPENSE-OTHER> 10,187
<INCOME-PRETAX> 9,971
<INCOME-PRE-EXTRAORDINARY> 9,971
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,992
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 5.47
<LOANS-NON> 4,363
<LOANS-PAST> 2,459
<LOANS-TROUBLED> 409
<LOANS-PROBLEM> 6,822
<ALLOWANCE-OPEN> 8,038
<CHARGE-OFFS> 746
<RECOVERIES> 148
<ALLOWANCE-CLOSE> 8,425
<ALLOWANCE-DOMESTIC> 1,345
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,080
</TABLE>
