FCFT, Inc.
P O Box 5909
Princeton, West Virginia 24740
November 13, 1996
Securities and Exchange Commission
Washington, DC 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 September 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 November 12, 1996
Common Stock, $5 Par Value 4,517,498
<PAGE>
FCFT, INC.
FORM 10-Q
For the quarter ended September 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION REFERENCE
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets September 30, 1996 and December 31, 1995 4
Consolidated Statements of Income for the Nine and Three Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 6
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 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>
September 30, 1996 December 31, 1995
Assets
Cash and due from banks $ 30,065 $ 23,915
Federal funds sold 0 2,360
Securities available for sale (amortized cost of $115,884 September 30,
1996; $120,553 December 31, 1995) 114,970 121,193
Investment securities:
U.S. Treasury securities 10,750 16,563
U.S. Government agencies and corporations 45,873 59,793
States and political subdivisions 47,680 47,975
Other securities 1,054 1,055
Total Investment Securities (market value, $105,270 September 30, 1996;
$126,756 December 31, 1995) 105,357 125,386
Total loans, net of unearned income 548,996 485,151
Less: reserve for possible loan losses 9,123 8,321
Net Loans 539,873 476,830
Premises and equipment, net 12,473 12,600
Interest receivable 5,852 6,620
Other assets 15,133 11,460
Total Assets $ 823,723 $ 780,364
Liabilities
Deposits, non-interest bearing $ 92,978 $ 86,460
Deposits, interest-bearing 559,969 536,263
Total Deposits 652,947 622,723
Interest, taxes and other liabilities 12,342 11,838
Federal funds purchased 5,050 0
Securities sold under agreement to repurchase 50,705 50,205
Other indebtedness 15,128 15,136
Total Liabilities 736,172 699,902
Stockholders' Equity
Common stock, $5 par value; 10,000,000 shares authorized; 4,604,425 issued
in 1996 and 1995; 4,517,498 and 4,475,267 shares outstanding in 1996 and
1995, respectively 23,022 23,022
Additional paid-in capital 20,340 20,376
Retained earnings 46,110 39,319
Treasury stock, at cost (1,363) (2,646)
Unrealized (loss) gain on securities available for sale (558) 391
Total Stockholders' Equity 87,551 $80,462
Total Liabilities and Stockholders' Equity $ 823,723 $ 780,364
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>
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
Interest Income
Interest and fees on loans $ 37,371 $ 31,063 $ 13,115 $ 10,869
Interest on securities available for sale 5,466 4,211 1,830 1,478
Interest on investment securities:
U.S. Treasury securities 635 799 184 266
U.S. Government agencies and corporations 2,630 4,626 875 1,317
States and political subdivisions 1,878 2,224 567 759
Other securities 62 239 19 80
Interest on federal funds sold 117 160 3 91
Interest on deposits in banks 25 16 0 8
Total Interest Income 48,184 43,338 16,593 14,868
Interest Expense
Interest on deposits 17,150 15,247 5,805 5,447
Interest on borrowings 2,831 1,770 1,113 643
Total Interest Expense 19,981 17,017 6,918 6,090
Net Interest Income 28,203 26,321 9,675 8,778
Provision for possible loan losses 1,657 1,265 621 418
Net Interest Income After Provision for
Possible Loan Losses 26,546 25,056 9,054 8,360
Non-Interest Income
Fiduciary income 1,203 1,220 422 369
Service charges on deposit accounts 2,199 1,939 755 700
Other charges, commissions and fees 1,699 1,478 558 487
Investment securities (losses) gains (165) 457 0 (45)
Other operating income 583 261 100 70
Total Non-Interest Income 5,519 5,355 1,835 1,581
Non-Interest Expense
Salaries and employee benefits 7,302 7,471 2,396 2,433
Occupancy expense of bank premises 1,291 1,276 422 416
Furniture and equipment expense 1,028 1,076 313 386
Other operating expense 6,656 7,748 2,387 2,299
Total Non-Interest Expense 16,277 17,571 5,518 5,534
Income before income taxes 15,788 12,840 5,371 4,407
Income tax expense 4,836 3,605 1,720 1,056
Net Income $ 10,952 $ 9,235 $ 3,651 $ 3,351
Net income per common share $ 2.44 $ 2.06 $ .81 $ .75
Weighted average shares outstanding 4,491,437 4,492,568 4,517,498 4,488,132
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
(Amounts in Thousands)
<S> <C> <C>
Nine Months Ended
September 30 September 30
1996 1995
Cash Flows From Operating Activities:
Net income $ 10,952 $ 9,235
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses 1,657 1,265
Depreciation of premises and equipment 658 744
Amortization of intangibles 474 590
Investment amortization and accretion, net 40 121
Loss (Gain) on the sale of assets, net 130 (485)
Other liabilities, net 178 1,089
Interest receivable 774 (213)
Other assets, net (1,439) 2,220
Other, net (34) (246)
Net cash provided by operating activities 13,390 14,320
Cash Flows From Investment Activities:
Increase (decrease) in cash realized from:
Sales of securities available for sale 11,016 9,134
Maturities and calls of investment securities 22,789 33,893
Maturities and calls of securities available for sale 13,279 16,754
Purchase of investment securities (2,915) (13,075)
Purchase of securities available for sale (19,678) (29,683)
Loans made to customers, net (64,655) (43,996)
Purchase of equipment (228) (448)
Sale of equipment 41 23
Cash provided by branch acquisitions 18,771 --
Net cash used in investment activities (21,580) (27,398)
Cash Flows From Financing Activities:
Increase (decrease) in cash realized from:
Demand and savings deposits, net 1,194 (27,443)
Time deposits, net 8,155 26,913
Short-term borrowings, net 5,550 17,568
Payments of long-term debt (8) (43)
Acquisition of treasury stock (170) (592)
Sale of treasury stock 1,420 --
Cash dividends paid (4,161) (3,631)
Net cash provided by financing activities 11,980 12,772
Net increase (decrease) in cash and cash equivalents 3,790 (306)
Cash and cash equivalents at beginning of year 26,275 28,232
Cash and cash equivalents at end of quarter $ 30,065 $ 27,926
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 $ 23,022 $ 20,376 $ 32,057 $ (1,807) $ (3,445)
Net income -- -- 9,235 -- --
Common dividends
declared ($.81
per common share) -- -- (3,630) -- --
Purchase of 19,672
shares at $30.14
per share -- -- -- (593) --
Unrealized net gain
on securities available
for sale -- -- -- -- 2,917
Balance, September 30, 1995 23,022 20,376 37,662 (2,400) (528)
Balance beginning of
the period,
January 1, 1996 $ 23,022 $ 20,376 $ 39,319 $ (2,646) $ 391
Net income -- -- 10,952 -- --
Common dividends declared
($.93 per common share) -- -- (4,161) -- --
Purchase of 5,100 shares at $33.42
per share -- -- -- (170) --
Unrealized net loss on securities available
for sale -- -- -- -- (949)
Sale of 47,331 treasury shares
at $30.02 per share -- (36) -- 1,453 --
Balance, September 30, 1996 $ 23,022 $ 20,340 $ 46,110 $ (1,363) $ (558)
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 September 30, 1996 and the
unaudited consolidated statements of income, cash flows and changes in
stockholders' equity for the periods ended September 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 September 30, 1996 and their results of operations, cash
flows, and changes in stockholders' equity for the periods ended September
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 thereto included in the 1995 Annual Report of FCFT, Inc.
Note 2. Acquisitions
At the close of business on September 26, 1996, First Community Bank, Inc.,
a subsidiary of FCFT Inc., acquired the Grafton and Rowlesburg, West Virginia
branches of Huntington National Bank West Virginia. The acquisition of these
branches added approximately $21 million in deposits. The intangible value
of this transaction totaled approximately $1 million which will be amortized
over a 15 year period. This acquisition was accounted for under the purchase
method of accounting. Accordingly, the consolidated results in future
periods after September 26, 1996 will include the operations of the Grafton
and Rowlesburg branches only from the date of acquisition.
At the close of business on July 3, 1996, FCFT, Inc. merged with 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. Based upon the number of shares of
Citizens common stock outstanding upon consummation of the Citizens merger,
approximately 263,159 shares of FCFT, Inc. common stock were issued to
holders of Citizens common stock. The merger will be accounted for under the
pooling of interests method. Accordingly, all financial reporting periods
presented have been restated to properly reflect this business combination.
Subsequent to the merger, Citizens will operate as a wholly-owned subsidiary
of FCFT, Inc.
Combined and separate results of FCFT and Citizens for the periods presented
are as follows:
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nine Months Ended Three Months Ended
1996 1995 1996 1995
Net Interest Income
FCFT $ 26,708 $ 25,015 $ 9,134 $ 8,339
Citizens 1,495 1,306 541 439
Combined 28,203 26,321 9,675 8,778
Provision for possible loan losses
FCFT 1,541 1,151 557 399
Citizens 116 114 64 19
Combined 1,657 1,265 621 418
Non-Interest Income
FCFT 5,349 5,243 1,601 1,543
Citizens 170 112 54 38
Combined 5,519 5,355 1,655 1,581
Non-Interest Expense
FCFT 15,433 16,693 5,066 5,256
Citizens 844 878 272 278
Combined 16,277 17,571 5,338 5,534
Income tax expense
FCFT 4,618 3,460 1,639 995
Citizens 218 145 81 61
Combined 4,836 3,605 1,720 1,056
Net Income
FCFT 10,465 8,954 3,473 3,232
Citizens 487 281 178 119
Combined $ 10,952 $ 9,235 $ 3,651 $ 3,351
Net income per common share
FCFT $ 2.33 $ 2.00 $ 0.77 $ 0.72
Citizens $ 0.11 $ 0.06 $ 0.04 $ 0.03
Combined $ 2.44 $ 2.06 $ 0.81 $ 0.75
</TABLE>
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 $30.1 million in September 30, 1996 and $21.7 million in
September 30, 1995 and federal funds sold of $6.2 million in September 30,
1995.
<PAGE>
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 and is currently pursuing
settlement negotiations in an attempt to conclude this and related matters.
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
adverse financial impact on future earnings or financial position as a
result of 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.
Note 5. Employee Benefits
The Company elected, effective October 31, 1996, to terminate benefits in its
defined benefit pension plan as of November 30, 1996. In accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 88,
the Company anticipates the recognition of a curtailment gain in the fourth
quarter of 1996.
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 September 30, 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
nine and three month periods ended September 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
October 23, 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. This discussion and
analysis should be read in conjunction with the 1995 Annual Report to
Shareholders and the other financial information included in this report.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1996 was $11.0 million,
increasing 19.6% from the $9.2 million reported for the same period in 1995.
Earnings per share increased to $2.44 for the nine month period ended
September 30, 1996, up from $2.06 reported in the corresponding period in
1995. Net income in the third quarter of 1996 totaled $3.7 million or $.81
per share, compared with net income of $3.4 million or $.75 per share, in the
comparable period in 1995.
The improvement in earnings for the first nine months of 1996 can be
attributed to the $1.9 million increase in net interest income and the
decrease in non-interest expense of $1.3 million as compared with the
corresponding period in 1995. The decrease in non-interest expense was due
primarily to a reduction in FDIC insurance premiums totaling $540,000 for the
first nine months of 1996 and 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. The Company's tax position required an
increase in the effective tax rate from 28% through the third quarter of 1995
to the 1996 level of 31%. This increase in income tax expense offset a
portion of the improvement in earnings during this period.
The $300,000 or 9% increase in net income between the third quarter of 1995
and 1996 primarily is the result of a $900,000 increase in net interest
income. The effective tax rate of 24% for the third quarter of 1995 increased
to 32% for the corresponding period in 1996, which offset a portion of the
improvement in net interest income for the period.
Return on Average Equity (ROE) and Return on Average Assets (ROA) were 17.35%
and 1.84% for the nine months ended September 30, 1996 compared with 16.44%
and 1.66% for the same period in 1995. In comparing the third quarter of
1996 with the same period in 1995, ROA showed a slight improvement from 1.76%
in 1995 to 1.78% in 1996. ROE decreased from 17.20% to 16.67% as a result of
compounded earnings and the sale of 47,331 shares of the Company's common
stock held in treasury.
Net Interest Income
Net interest income, on a fully taxable equivalent basis, for the nine months
ended September 30, 1996 was $30 million, a 7.2% increase from the $28
million earned in the corresponding period in 1995. Interest income
increased as a result of the increases in the yield and average balances
of earning assets.
Loans, the Company's highest yielding asset category, experienced an $80
million or 18.4% increase in the average balances from the third quarter of
1995 to the most recent quarter. The increase in the loan portfolio was
funded through the calls and maturities of investments, wholesale funding
from Federal Home Loan Bank advances, and increases in deposits of $11.9
million. The yield on the loan portfolio was 9.81% for the first nine months
of 1996 compared with 7.12% on the investment portfolio. Average earning
assets increased 7.3% in 1996 over the comparable period in 1995.
During the last twelve months, the rate paid on short-term borrowings and
time deposits increased 31 and 60 basis points, respectively. This market
pressure on rates did not effect short-term deposits, such as interest-
bearing demand deposits and savings accounts, with the cost of these funding
sources remaining flat during this period.
<PAGE>
<TABLE>
NET INTEREST INCOME ANALYSIS
(Unaudited)
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
Yield/ Yield/
Average Interest Rate Average Interest Rate
Balance (1)(2) (2) Balance (1)(2) (2)
Earning Assets:
Loans (3)
Taxable $ 499,691 $ 36,521 9.76% $ 417,487 $ 30,145 9.65%
Tax-Exempt 15,488 1,308 11.28% 17,650 1,413 10.70%
Total 515,179 37,829 9.81% 435,137 31,558 9.70%
Reserve for Possible Loan Losses (8,716) (8,380)
Net Total 506,463 426,757
Investments Available for Sale:
Taxable 101,669 4,815 6.33% 87,323 4,212 6.45%
Tax-Exempt 15,500 1,001 8.62% 0 0 0.00%
Total 117,169 5,816 6.63% 87,323 4,212 6.45%
Investment Securities:
Taxable 69,060 3,376 6.53% 121,509 5,713 6.29%
Tax-Exempt 47,072 2,813 7.98% 53,052 3,346 8.43%
Total 116,132 6,189 7.12% 174,561 9,059 6.94%
Interest-Bearing Deposits 869 25 3.84% 308 15 6.51%
Federal Funds Sold 2,906 116 5.33% 3,741 160 5.72%
Total Earning Assets 743,539 49,975 8.98% 692,690 45,004 8.69%
Other Assets 53,540 52,266
Total $ 797,079 $ 744,956
Interest-Bearing Liabilities
Interest-bearing Demand Deposits $ 92,180 1,864 2.70% $ 99,380 2,003 2.69%
Savings Deposits 134,512 3,115 3.09% 142,102 3,285 3.09%
Time Deposits 309,667 12,171 5.25% 286,389 9,971 4.65%
Short-Term Borrowings 65,182 2,175 4.46% 42,097 1,307 4.15%
Other Indebtedness 15,132 656 5.79% 10,175 452 5.94%
Total Interest-Bearing Liabilities 616,673 19,981 4.33% 580,143 17,018 3.92%
Demand Deposits 82,796 79,336
Other Liabilities 13,317 10,377
Stockholders' Equity 84,293 75,100
Total $ 797,079 $ 744,956
Net Interest Earnings $ 29,994 $ 27,986
Net Interest Spread 4.65% 4.76%
Net Interest Margin 5.39% 5.40%
</TABLE>
(1) Interest amounts represent taxable equivalent results for the first nine
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 $1.7 million in the first nine months of 1996 compared with
$1.3 million in the first nine months of 1995. The provision for the third
quarter of 1996 reached $621,000, increasing $203,000 over the $418,000
reported for the third quarter of 1995.
Net charge-offs year to date totaled $855,000 in 1996, significantly below
the 1995 level of $2 million. For the third quarter of 1996 net charge-offs
were $250,000, as compared to $1.3 million for the corresponding period in
1995. Charge-offs in 1995 include a partial charge-off of $500,000 on a
commercial real estate loan in Charleston, West Virginia, to reduce the
carrying value to the Company's revised estimate of the value of underlying
collateral. Two other additional partial write-downs contributed to the
elevated level of charge-offs in 1995. Expressed as a percentage of loans,
net charge-offs were .15% for the nine month period ended September 30, 1996
and .42% for the corresponding period in 1995.
The reserve for possible loan losses totaled $9.1 million at September 30,
1996 compared with reserves of $8.3 million at December 31, 1995 resulting
in reserve to loan ratios of 1.66% and 1.71%, respectively.
The coverage ratio represents the percentage of non-performing assets covered
through available reserves. As of September 30, 1996, this ratio was 67.1%
as compared to 84.6% at September 30, 1995 and 143.5% at December 31, 1995.
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 $5.5 million and $5.4 million for the nine months ended September 30,
1996 and 1995, respectively. In comparing third quarter of 1996 with third
quarter of 1995, non-interest income increased $254,000 or 16.1%, improving
from $1.6 million in 1995 to $1.8 million in 1996. Non-interest income for
1996 includes $295,000 in other income received from life insurance proceeds
of a deceased former officer. A loss of $165,000 on the sale of securities
available for sale is also included 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 ownership position.
Also included in non-interest income is service charges on deposit accounts,
which increased $260,000, or 13.4% for the nine month period ended September
30, 1996, over the corresponding period in 1995. Likewise, third quarter
results showed a favorable variance of $55,000, or 7.9%, rising to $755,000
for 1996 over the $700,000 reported for the third quarter of 1995. This
increasing trend is the result of ongoing enhancements to the Company's
service charge pricing structure as well as a higher transaction deposit
base, and stricter adherence to the Company's policy on non-sufficient funds
and overdraft charges. Another contributor to the overall improvement in non-
interest income was other charges, commissions and fees, increasing $221,000
for the nine month period ended September 30, 1996 over the same period in
1995 and increasing from $487,000 for the third quarter in 1995 to $558,000
for the third quarter in 1996, as the Company realized continued growth in
fees earned on credit card accounts.
Non-Interest Expense
Non-interest expense decreased $1.3 million or 7.4% from $17.6 million in the
first nine months of 1995 to $16.3 million in 1996. The largest percentage
decrease was in the other operating expense category with a decrease of $1.1
million or 14.1% for the nine month period. In April 1995, FDIC premium
payments were suspended as a
<PAGE>
result of full funding of the Bank Insurance Fund, accounting for $600,000 or
54.9% of the decrease in other operating expense, when comparing the first
nine months of 1995 with the same period for 1996. Partially offsetting this
decrease was a $60,000 FDIC premium expense recorded in the third quarter of
1996 in response to a one-time assessment of 65.7 basis points on SAIF
deposits, which was signed into law on September 30, 1996. The Company
currently holds approximately $9 million in SAIF deposits acquired in 1990
from a former savings and loan association. In 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, further contributing
to the higher level of non-interest expense in 1995.
Comparing non-interest expense for the third quarter of 1996 with the third
quarter of 1995, the Company experienced a slight decline of $16,000.
Personnel costs and furniture and equipment expenses were down $37,000 or
1.5% and $73,000 or 18.9%, respectively, while other operating expenses
increased $88,000 or 3.8%. The increase in other operating expense was due
mainly to a valuation adjustment of $125,000 to decrease the carrying value
of repossessed equipment.
Income Tax Expense
Income tax expense increased $1.2 million from $3.6 million in the first nine
months of 1995 to $4.8 million for the corresponding period in 1996
reflecting effective tax rates of 28.1% and 30.6%, respectively. The
increase in taxes is principally the result of the increase in pre-tax
income of $2.9 million or 23% when comparing the first nine months of 1996
with the corresponding period in 1995. For the third quarter of 1996, the
Company reported $1.7 million in income tax expense, an increase of $664,000
over the $1.1 million reported for the third quarter of 1995. The effective
tax rates for the third quarter were 32% in 1996 and 24% in 1995. Tax-exempt
income, when expressed as a percentage of total interest income, was greater
for the three months ended September 30, 1995 than for the corresponding
period in 1996, resulting in the lower effective tax rate in 1995.
FINANCIAL POSITION
Securities
Securities totaled $220.3 million at September 30, 1996 reflecting a decrease
of $26.3 million from December 31, 1995. This 10.6% decrease was used to
fund growth in the loan portfolio of $63.8 million or 13.2% from December 31,
1995 to September 30, 1996.
Securities available for sale were $115 million at September 30, 1996 versus
$121.2 million at December 31, 1995. Securities available for sale are
recorded at their fair market value at September 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 $949,000 from a $391,000 gain at December 31, 1995 to a
$558,000 unrealized loss at September 30, 1996.
Investment securities, which are purchased with the intent to hold until
maturity, totaled $105.4 million at September 30, 1996, as compared with
$125.4 million at December 31, 1995. The market value of investment
securities at September 30, 1996 was approximately 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 $63.8 million to $549 million at September 30, 1996
from $485.2 million at December 31, 1995. Average total loans have increased
$80 million over the last twelve months. The loan-to-deposit ratio has
increased to 84% at September 30, 1996 as compared with 78% 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
<PAGE>
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.
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 $13.6 million at
September 30, 1996, or 2.5% of total loans and OREO, compared with $9.4
million or 1.8% at June 30, 1996, and $6 million or 1.2% 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) September 30 June 30 March 31 December 31 September 30
1996 1996 1996 1995 1995
Non-Accrual $ 6,620 $ 4,420 $ 4,650 $ 4,369 $ 6,126
Ninety Days Past Due 4,960 2,635 1,524 673 2,226
Other Real Estate Owned 1,969 2,309 1,590 929 968
$ 13,549 $ 9,364 $ 7,764 $ 5,971 $ 9,320
Restructured loans performing in
accordance with modified terms $ 405 $ 409 $ 436 $ 439 $ 446
</TABLE>
Non-accrual loans and loans ninety-days past due increased $2.3 million and
$4.3 million, respectively, when comparing September 30, 1996 and December
31, 1995. The increase in non-accrual loans is due primarily to one
relationship totaling $2 million. This relationship, a student housing
complex in Morgantown, West Virginia, has thirteen guarantors and the Company
has secondary collateral sufficient to believe the carrying values of this
credit to be recoverable. The increase in ninety-day past due loans also
relates primarily to one relationship totaling $3.6 million which reached
ninety-days past due late in the third quarter of 1996. This relationship is
a local furniture manufacturing firm with several investors and is partially
guaranteed by the FHA. The Company anticipates the investors will make a
significant capital injection in the fourth quarter and expects the loan to
become current by year-end. Other real estate owned at September 30, 1996,
increased $1 million or 112% 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 September 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 $87.6 million at September 30, 1996,
representing an increase of $7.1 million or 8.8% over year-end 1995. The
increase in stockholders' equity was the result of earnings net of dividends
of $6.8 million and the sale of 47,331 shares of treasury stock at a weighted
cost of $30.02 per share or $1.4 million. The merger with Citizens Bank of
Tazewell was consummated in the third quarter of 1996. This transaction was
accounted for under the pooling of interests method; therefore, all prior
financial statements have been restated to
<PAGE>
reflect this business combination. 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 September 30, 1996, the Company's risk adjusted
capital-to-asset ratio was 16.91%. The Company's leverage ratio at September
30, 1996 was 10.34% compared with 9.86% 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.
Liquidity
The Company maintains a significant level of liquidity in the form of cash
and due from bank balances ($30.1 million), investment securities available
for sale ($115 million), and Federal Home Loan Bank of Pittsburgh credit
availability of $41.2 million. Cash 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
and is currently pursuing settlement negotiations in an attempt to conclude
this and related matters. Management and legal counsel are of the opinion
that these settlement negotiations will not result in an adverse impact on
results of operations on the Company's financial position.
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. Other Information
(a) N/A
Item 6. 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 third 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: November 13, 1996
_______________________________
James L. Harrison, Sr.
President & Chief Executive Officer
(Duly Authorized Officer)
DATE: November 13, 1996
_______________________________
Randy K. Walker
Vice President-Operations
(Principal Accounting Officer)
<PAGE>
Exhibit 15
November 12, 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
September 30, 1996 and 1995, as indicated in our report dated October 23,
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 September 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
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 29,499
<INT-BEARING-DEPOSITS> 566
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 114,970
<INVESTMENTS-CARRYING> 105,357
<INVESTMENTS-MARKET> 105,270
<LOANS> 548,996
<ALLOWANCE> 9,123
<TOTAL-ASSETS> 823,723
<DEPOSITS> 652,947
<SHORT-TERM> 55,755
<LIABILITIES-OTHER> 12,342
<LONG-TERM> 15,128
0
0
<COMMON> 23,022
<OTHER-SE> 64,529
<TOTAL-LIABILITIES-AND-EQUITY> 823,723
<INTEREST-LOAN> 37,371
<INTEREST-INVEST> 10,671
<INTEREST-OTHER> 142
<INTEREST-TOTAL> 48,184
<INTEREST-DEPOSIT> 17,150
<INTEREST-EXPENSE> 19,981
<INTEREST-INCOME-NET> 28,203
<LOAN-LOSSES> 1,657
<SECURITIES-GAINS> (165)
<EXPENSE-OTHER> 16,277
<INCOME-PRETAX> 15,788
<INCOME-PRE-EXTRAORDINARY> 15,788
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,952
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.44
<YIELD-ACTUAL> 5.39
<LOANS-NON> 6,666
<LOANS-PAST> 4,958
<LOANS-TROUBLED> 405
<LOANS-PROBLEM> 11,624
<ALLOWANCE-OPEN> 8,321
<CHARGE-OFFS> 1,326
<RECOVERIES> 470
<ALLOWANCE-CLOSE> 9,123
<ALLOWANCE-DOMESTIC> 1,480
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,643
</TABLE>
