<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Date of Report: June 28, 1996
F.N.B. CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-8144 25-1255406
------------------------ ------------ -------------------
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
Hermitage Square, Hermitage, Pennsylvania 16148
----------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(412) 981-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR MERGER
On February 2, 1996, F.N.B. Corporation (FNB) signed a definitive
merger agreement with Southwest Banks, Inc. (Southwest), a bank holding company
headquartered in Naples, Florida, with assets of approximately $400 million.
The merger agreement calls for an exchange of .819 share of FNB common stock
for each share of Southwest common stock, after giving effect to the 5% stock
dividend announced on April 24, 1996. FNB has reserved 3,276,700 shares to be
issued in conjunction with the merger.
In connection with the merger agreement, Southwest granted FNB an
option to purchase, under certain circumstances, up to 727,136 shares of
Southwest common stock at a price of $15.00 per share. The exchange ratio,
number of shares under option and the price of the options are all subject to
possible adjustment. The transaction will be accounted for as a pooling of
interests, and is expected to close in early 1997, subject to approval by
certain regulatory authorities. The merger agreement was approved by
Southwest's shareholders on June 17, 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Following are the Consolidated financial statements of Southwest.
<PAGE> 3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ..................................................................... F-2
Consolidated Balance Sheets, December 31, 1995, 1994, 1993 ....................................... F-3
Consolidated Statements of Operations, Years Ended December 31, 1995, 1994, 1993 ................. F-4
Consolidated Statements of Stockholders' Equity, Years Ended December 31, 1995, 1994, 1993 ....... F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1994, 1993 ................. F-6-7
Notes to Consolidated Financial Statements, Years Ended December 31, 1995, 1994, 1993 ............ F-8-27
</TABLE>
F-1
<PAGE> 4
January 19, 1996, except for Note I,
as to which the date is February 2, 1996
Board of Directors and Stockholders
of Southwest Banks, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
Southwest Banks, Inc. and its subsidiaries, First National Bank of Naples and
Cape Coral National Bank (collectively, the Company), as of December 31, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Southwest Banks, Inc. and its subsidiaries as of December 31, 1995 and 1994 and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
company changed its method of accounting for debt and equity securities
effective January 1, 1994.
HILL, BARTH & KING, INC.
Certified Public Accountants
Naples, Florida
F-2
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,135,628 $ 14,934,854
Federal funds sold 31,724,000 0
------------- -------------
TOTAL CASH AND CASH EQUIVALENTS 56,859,628 14,934,854
------------- -------------
Securities available for sale - NOTE B 50,401,563 20,149,743
Securities held to maturity (fair value of
$23,946,120 and $29,315,823, respectively) - NOTE B 23,834,164 30,799,597
Loans - NOTE C 238,509,066 186,006,407
Less:
Allowance for loan losses - NOTE C (1,585,285) (1,182,157)
Unearned income and deferred loan fees (257,550) (317,269)
------------- -------------
NET LOANS 236,666,231 184,506,981
------------- -------------
Premises and equipment - NOTE D 14,413,940 10,951,413
Accrued interest receivable 2,594,888 1,664,948
Other assets 1,691,377 1,606,361
------------- -------------
$ 386,461,791 $ 264,613,897
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits - NOTE E $ 324,830,614 $ 201,245,235
Federal funds purchased and securities
sold under agreements to repurchase - NOTE F 18,276,769 17,572,942
Other borrowings - NOTE F 10,000,000 16,500,000
Accrued interest payable 1,714,022 563,056
Accrued expenses and other liabilities 1,307,593 881,702
------------- -------------
TOTAL LIABILITIES 356,128,998 236,762,935
------------- -------------
Commitments and contingencies - NOTE H
Employee Stock Ownership Plan obligation - NOTE J 388,890 140,652
Stockholders' Equity - NOTE L:
Preferred stock, par value $.10 per share - 100,000
shares authorized, -0- shares issued and outstanding 0 0
Common stock, par value $.10 per share - 25,000,000
shares authorized, 3,654,089 and 3,560,556 shares
issued and outstanding, respectively 365,409 356,056
Capital surplus 28,322,888 27,193,122
Retained earnings 1,462,295 651,465
Unrealized increase (decrease) in fair value on
securities available for sale (net of applicable
income taxes) 182,201 (349,681)
Employee Stock Ownership Plan obligation - NOTE J (388,890) (140,652)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 29,943,903 27,710,310
------------- -------------
$ 386,461,791 $ 264,613,897
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $20,811,978 $12,704,458 $ 9,151,743
Interest on federal funds sold 834,820 94,456 88,920
Interest on securities and other 3,737,561 2,616,202 1,945,438
----------- ----------- -----------
TOTAL INTEREST INCOME 25,384,359 15,415,116 11,186,101
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 9,652,475 5,436,108 4,524,257
Interest on other borrowings 2,103,576 870,339 134,852
----------- ----------- -----------
TOTAL INTEREST EXPENSE 11,756,051 6,306,447 4,659,109
----------- ----------- -----------
NET INTEREST INCOME 13,628,308 9,108,669 6,526,992
Provision for loan losses 835,000 605,000 240,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,793,308 8,503,669 6,286,992
----------- ----------- -----------
OTHER INCOME
Service charges, commissions and fees 2,681,594 1,440,689 995,167
Net gain on sale of securities 14,597 2,000 234,085
Gain on sale of loans 0 0 66,689
Gain on sale of assets 12,280 0 0
----------- ----------- -----------
TOTAL OTHER INCOME 2,708,471 1,442,689 1,295,941
----------- ----------- -----------
15,501,779 9,946,358 7,582,933
----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits - NOTE J 6,716,083 4,813,925 3,006,030
Net occupancy expenses for premises 1,040,532 672,559 496,720
Equipment rental, depreciation and
maintenance 1,438,910 824,372 604,004
General operating - NOTE O 3,744,279 2,742,967 1,871,297
----------- ----------- -----------
TOTAL OTHER EXPENSES 12,939,804 9,053,823 5,978,051
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,561,975 892,535 1,604,882
INCOME TAXES - NOTE G 855,440 242,212 599,652
----------- ----------- -----------
NET INCOME $ 1,706,535 $ 650,323 $ 1,005,230
=========== =========== ===========
EARNINGS PER SHARE $ .44 $ .19 $ .47
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,884,789 3,401,704 2,148,049
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS
-------- ----------- -----------
<S> <C> <C> <C>
Balance December 31,
1992 $182,711 $10,806,396 $ 5,702
Common stock issued,
net of offering costs
of $873 12,289 969,926 0
Stock dividend 3,895 307,705 (312,000)
Net income 0 0 1,005,230
-------- ----------- -----------
Balance December 31,
1993 198,895 12,084,027 698,932
Common stock issued,
net of offering costs
of $442,992
150,000 14,407,008 0
Common stock issued,
pursuant to options
exercised 208 13,770 0
Stock dividend 6,953 688,317 (697,790)
Unrealized decrease in
fair value on
securities available 0 0 0
for sale
Obligation under ESOP
Plan 0 0 0
Net income 0 0 650,323
Balance December 31, -------- ----------- -----------
1994 356,056 27,193,122 651,465
Common stock issued,
pursuant to options
exercised 112 9,110 0
Common stock issued, to
ESOP, net of offering
costs of $6,233 2,115 236,958 0
Stock dividend 7,126 883,698 (895,705)
Unrealized increase in
fair value on
securities available
for sale 0 0 0
Obligation under ESOP
Plan 0 0 0
Net income 0 0 1,706,535
Balance December 31, -------- ----------- -----------
l995 $365,409 $28,322,888 $l, 462,295
======== =========== ===========
<CAPTION>
UNREALIZED
INCREASE
(DECREASE)
IN FAIR
VALUE ON
SECURITIES OBLIGATION TOTAL
AVAILABLE UNDER STOCKHOLDERS'
FOR SALE ESOP PLAN EQUITY
---------- ---------- ------------
<S> <C> <C> <C>
Balance December 31,
1992 $ 0 $ 0 $ 10,994,809
Common stock issued,
net of offering costs
of $873 0 0 982,215
Stock dividend 0 0 (400)
Net income 0 0 1,005,230
--------- ---------- ------------
Balance December 31,
1993 0 0 12,981,854
Common stock issued,
net of offering costs
of $442,992 0 0 14,557,008
Common stock issued,
pursuant to options
exercised 0 0 13,978
Stock dividend 0 0 (2,520)
Unrealized decrease in
fair value on
securities available
for sale (349,681) 0 (349,681)
Obligation under ESOP
Plan 0 (140,652) (140,652)
Net income 0 0 650,323
--------- ---------- ------------
Balance December 31,
1994 (349,681) (140,652) 27,710,310
Common stock issued,
pursuant to options
exercised 0 0 9,222
Common stock issued, to
ESOP, net of offering
costs of $6,233 0 0 239,073
Stock dividend 0 0 (4,881)
Unrealized increase in
fair value on
securities available
for sale 531,882 0 531,882
Obligation under ESOP
Plan 0 (248,238) (248,238)
Net income 0 0 1,706,535
--------- ---------- -----------
Balance December 31,
l995 $ 182,201 $ (388,890) $29,943,903
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,706,535 $ 650,323 $ 1,005,230
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,407,052 818,267 568,824
Deferred income taxes (76,557) (347,257) (16,382)
Accretion of deferred loan fees and discounts (444,370) (230,178) (332,698)
Provision for loan losses 835,000 605,000 240,000
Gain on sale of securities, net (14,597) (2,000) (234,085)
Gain on sale of loans, net 0 0 (66,689)
Gain on sale of assets (12,280) 0 0
(Increase) decrease in accrued interest
receivable (929,940) (684,508) 12,813
Increase in other assets (16,005) (136,872) (407,132)
Increase in accrued interest
payable 1,150,966 187,372 5,535
Increase in accrued expenses
and other liabilities 425,891 58,627 302,390
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,031,695 918,774 1,077,806
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan participations purchased (3,225,828) (2,528,290) 0
Proceeds from sales of loan participations 448,845 4,316,951 10,057,677
Net increase in loans (49,862,196) (60,941,718) (41,502,941)
Purchases of securities held to maturity (2,393,179) (13,691,626) (22,254,706)
Proceeds from maturing of securities held to
maturity and principal collections 9,447,911 8,094,545 25,869,164
Purchases of securities available for sale (55,765,656) (11,847,420) 0
Proceeds from maturing of securities available
for sale and principal collections 21,655,550 2,391,650 0
Proceeds from sale of securities available
for sale 4,404,766 1,002,000 0
Purchases of premises and equipment (4,849,754) (8,445,041) (885,970)
Proceeds from maturing interest-earning
deposits 0 0 1,000,000
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (80,139,541) (81,648,949) (27,716,776)
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Net increase in deposits $ 123,585,379 $ 43,875,123 $ 25,332,914
Increase (decrease) in other borrowings (6,500,000) 19,795,000 3,000,000
Net increase in securities sold under
agreement to repurchase 703,827 7,374,339 1,718,593
Proceeds from sale of common stock 248,295 14,570,986 982,215
Payment of dividends (4,881) (2,520) (400)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 118,032,620 85,612,928 31,033,322
------------- ------------- -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 41,924,774 4,882,753 4,394,352
CASH AND CASH EQUIVALENTS
Beginning of year 14,934,854 10,052,101 5,657,749
------------- ------------- -------------
End of year $ 56,859,628 $ 14,934,854 $ 10052,101
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 10,605,085 $ 6,129,951 $ 4,653,574
============= ============= =============
Income taxes 949,500 $ 569,500 $ 379,000
============= ============= =============
Noncash Transactions:
Property acquired in repossessions and
foreclosures $ 581,241 $ 75,884 $ 120,405
============= ============= =============
Unrealized increase (decrease) in fair
value on securities available for sale $ 852,786 $ (560,657) $ 0
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation:
The consolidated financial statements of Southwest Banks, Inc. (the
Company) include the accounts of the Company and its wholly-owned subsidiaries,
First National Bank of Naples and Cape Coral National Bank (the Banks). All
significant intercompany balances and transactions have been eliminated.
Nature of Operations:
The Banks operate under national bank charters and provide full banking
services. As national banks, they are subject to regulation of the Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The area served by the Banks is the Southwest region of Florida and services
are provided at 6 branch offices.
Estimates:
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications:
The consolidated financial statements for 1993 and 1994 have been
reclassified to conform with the presentation for 1995. Such reclassifications
had no effect on net results of operations.
Cash and Cash Equivalents:
Cash, demand balances due from banks and federal funds sold are
considered cash and cash equivalents for cash flow reporting purposes.
Generally, federal funds are sold for one-day periods.
Investment Securities:
Management determines the appropriate classification of securities at
the time of purchase. These investments in securities are classified in two
categories and accounted for as follows:
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires that securities available for sale
be carried at fair value, based upon market or broker quotations. Such
appreciation or decline in value, net of deferred taxes, is reported in a
separate component of stockholders' equity until realized. Deferred income
taxes are provided on any unrealized appreciation or decline in value. There
was no cumulative effect of this accounting change.
Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
- - Securities Held to Maturity:
Securities held to maturity are carried at amortized cost. Premiums and
discounts on debt securities held to maturity are amortized to expense and
accrued to income over the life of the securities using the interest method.
These securities are classified as held to maturity based on management's
intent and the banks' ability to hold such securities to maturity.
F-8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest Income on Loans:
Interest on loans is credited to operations daily based upon the
principal amount outstanding. Unearned income on loans is credited to
operations based on the interest method. Wherever doubt exists as to the
collectibility of loans, the loans are placed on nonaccrual status and interest
income is recorded as payments are received.
Allowance for Loan Losses:
The allowance for loan losses is established through a provision for
loan losses charged to expense based on management's evaluation of the
potential losses in its loan portfolio. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably
assured, considers, among other matters, historical loss experience, net
realizable value of collateral, current economic conditions and trends, and
such other factors as in management's judgment deserve recognition. Many of
these factors involve a significant degree of estimation, are beyond
management's control or are subject to changes which may be unforeseen.
Although management believes the allowance is adequate to absorb losses on
existing loans that may become uncollectible, the ultimate losses may vary
significantly from the current estimates.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This statement generally requires all creditors to
account for impaired loans, except those loans that are accounted for at fair
value or at the lower of cost or fair value, at the present value of expected
future cash flows discounted at the loan's effective interest rate. In October
1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures." This statement amends SFAS No.
114 to allow a creditor to use existing methods for recognizing interest income
on an impaired loan. SFAS No. 118 does not change the provisions in SFAS No.
114 that requires a creditor to me&sure impairment based on the present value
of expected future cash flows discounted at the loan's effective interest rate,
or at the market price of the loan, or the fair value of the collateral if the
loan is collateral dependent. The implementation of SFAS No. 114 and SFAS No.
118 during fiscal year 1995 did not have a material impact on the Company's
consolidated financial position or results of operations.
Other Real Estate:
Other real estate, acquired through partial or total satisfaction of
loans, is carried at the lower of cost or fair market value. At the date of
acquisition, losses are charged to the allowance for loan losses, and
subsequent write downs are charged to expense in the period they are incurred.
Loan Origination Fees and Costs:
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
Premises and Equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the depreciable assets.
F-9
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax bases
of assets and liabilities and their reported amounts in the consolidated
financial statements. Deferred tax assets and liabilities are included in the
consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled.
The Company and the Banks file a consolidated tax return.
Fair Value of Financial Instruments:
In December l99l, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments". SFAS No. 107 requires disclosure of
the fair value of financial instruments, both assets and liabilities recognized
and not recognized in the balance sheets, for which it is practical to estimate
fair value. Management has adopted SFAS No. 107 during fiscal 1995 (see Note
N).
Earnings Per Share of Common Stock:
Earnings per share are based on the weighted average number of shares
outstanding during the year plus, where applicable, common stock equivalents
attributable to stock options and warrants.
F-l0
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE B - SECURITIES
Investment securities shown in the consolidated balance sheets of the
Company at December 31 were as follows:
<TABLE>
<CAPTION> GROSS UNREALIZED
Available for sale securities: AMORTIZED ------------------------- FAIR
December 31, 1995: COST GAINS LOSSES VALUE
----------- ------------------------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities of
U.S. Government agencies $17,673,278 $169,533 $ 0 $17,842,811
U.S. Treasury securities 6,987,083 95,363 1,796 7,080,650
Other U.S. Government agencies 20,643,832 78,628 13,375 20,709,085
Other securities 4,133,091 6,600 42,824 4,096,867
Federal Reserve Bank Stock 672,150 0 0 672,150
----------- -------- ---------- -----------
Total $50,109,434 $350,124 $ 57,995 $50,401,563
=========== ======== ========== ===========
December 31, 1994:
Mortgage-backed securities of
U.S. Government agencies $ 216,111 $ 0 $ 13,701 $ 202,410
U.S. Treasury securities 7,991,889 0 109,239 7,882,650
Other U.S. Government agencies 7,971,024 0 344,646 7,626,378
Other securities 3,919,176 0 93,071 3,826,105
Federal Reserve Bank Stock 612,200 0 0 612,200
----------- -------- ---------- -----------
Total $20,710,400 $ 0 $ 560,657 $20,149,743
=========== ======== ========== ===========
Held to maturity securities:
December 31, 1995:
Mortgage-backed securities of
U.S. Government agencies $ 1,671,403 $ 23,439 $ 0 $ 1,694,842
U.S. Treasury securities 5,266,147 9,123 17,020 5,258,250
Other U.S. Government agencies 9,957,047 98,387 20,174 10,035,260
State and political
subdivisions 6,939,567 56,184 37,983 6,957,768
----------- -------- ---------- -----------
Total $23,834,164 $187,133 $ 75,177 $23,946,120
=========== ======== ========== ===========
December 31, 1994:
Mortgage-backed securities of
U.S. Government agencies $ 1,823,382 $ 2,662 $ 82,964 $ 1,743,080
U.S. Treasury securities 9,310,991 0 223,541 9,087,450
Other U.S. Government agencies 12,980,221 0 514,072 12,466,149
State and political
subdivisions 6,685,003 1,381 667,240 6,019,144
----------- -------- ---------- -----------
Total $30,799,597 $ 4,043 $1,487,817 $29,315,823
=========== ======== ========== ===========
</TABLE>
F-11
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE B - SECURITIES (CONTINUED)
Gross gains realized from the sale of investments during the year ended
December 31, 1995 were $14,597, $2,000 for 1994 and $234,085 for 1993. The
applicable equivalent income tax on these net gains was $5,493 for 1995, $753
for 1994 and $88,086 for 1993.
Actual maturities of securities held to maturity and available for sale
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. As of
December 31, 1995, the amortized cost and fair value of investment securities,
by contractual maturities, were as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 8,340,733 $ 8,355,474 $ 5,003,121 $ 5,009,860
Due from one to
five years 7,646,099 7,635,957 19,344,751 19,537,159
Due from five to
ten years 7,847,332 7,954,689 14,997,396 15,083,530
Due after ten years 0 0 5,958,925 6,001,997
----------- ----------- ----------- -----------
23,834,164 23,946,120 45,304,193 45,632,546
Other securities 0 0 4,133,091 4,096,867
Federal Reserve Bank 0 0 672,150 672,150
----------- ----------- ----------- -----------
Total $23,834,164 $23,946,120 $50,109,434 $50,401,563
=========== =========== =========== ===========
</TABLE>
Securities with an amortized cost and fair value of $10,105,566 and
$10,160,427, respectively, at December 31, 1995, were pledged to secure public
deposits. Securities with an amortized cost and fair value of $40,095,418 and
$40,830,120, respectively, at December 31, 1995, were pledged as collateral for
other borrowings (see Note F).
F-12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE C - LOANS
The composition of loans at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial $100,529,085 $ 69,099,015
Real estate 57,340,573 47,484,132
Lines of credit 24,072,934 20,734,649
Installment 56,566,474 48,688,611
------------ ------------
Total $238,509,066 $186,006,407
============ ============
</TABLE>
The majority of the Company's lending activities are conducted
principally with customers located in the Southwest Florida region. Commercial
loans are primarily extended to small and mid-sized corporate borrowers in
service and manufacturing related industries.
At December 31, 1995, the Company's commercial and lines of credit loan
portfolios, aggregating approximately $124,602,000 were secured as follows:
$94,282,067 by real estate; $1,853,464 by deposit accounts; $12,590,361 by
furniture, equipment and other plant assets; $3,383,922 by assignments, letters
of credit and repurchase agreements; $2,804,975 by boats, mobile homes,
aircrafts and automobiles; $5,707,029 by marketable securities; and $3,980,182
was unsecured.
Nonperforming loans have not been separately classified because such
loans are not material compared to total loans and nonaccrued interest is not
material in relation to net income.
The activity in the allowance for loan losses for each of the three
years in the period ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning
of year $ 1,182,157 $ 742,489 $ 691,436
Provision charged to
operations 835,000 605,000 240,000
Charge-offs (528,185) (257,982) (204,126)
Recoveries 96,313 92,650 15,179
----------- ----------- -----------
Balance at end of year $ 1,585,285 $ 1,182,157 $ 742,489
=========== =========== ===========
</TABLE>
F-13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and land improvements $ 4,087,745 $ 3,145,304
Building 6,101,053 4,100,505
Motor vehicles 40,193 68,012
Leasehold improvements 1,012,846 994,810
Furniture, fixtures and equipment 3,514,861 2,564,592
EDP equipment and software 2,484,350 1,958,960
Construction in progress 467,814 355,542
----------- -----------
17,708,862 13,187,725
Less accumulated depreciation 3,294,922 2,236,312
----------- -----------
Total $14,413,940 $10,951,413
=========== ===========
</TABLE>
Depreciation expense was $1,378,233, $803,292 and $540,132 for the years
ended December 31, 1995, 1994 and 1993, respectively.
NOTE E - DEPOSITS
Deposits at December 31, 1995 and 1994 are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Interest-bearing:
Money market $ 20,199,150 $ 14,805,783
Negotiable order of withdrawal accounts 115,669,393 75,676,368
Savings 25,309,178 18,581,816
Certificates of deposit:
Less than $100,000 87,723,807 42,461,318
$100,000 or more 29,750,411 19,137,209
------------ ------------
278,651,939 170,662,494
Demand (non-interest-bearing) 46,178,675 30,582,741
------------ ------------
Total $324,830,614 $201,245,235
============ ============
</TABLE>
F-14
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE E - DEPOSITS (CONTINUED)
The maturities on certificates of deposit of $100,000 or more as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Three months or less $ 6,874,462
Over three months to six months 7,754,577
Over six months to twelve months 13,343,280
Over twelve months 1,778,092
-----------
Total $29,750,411
===========
</TABLE>
Included in interest expense is $1,323,125, $913,358 and $734,465 for
1995, 1994 and 1993, respectively, which relates to interest on certificates of
deposit greater than $100,000.
NOTE F - SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
The securities sold under agreement to repurchase (the repurchase
agreement) represent investment securities with a book value of $37,259,101, at
December 31, 1995. The repurchase agreement has been accounted for as a
financing and the obligation to repurchase the securities sold is reflected as a
liability in the consolidated balance sheets. The repurchase agreements were
transacted with various Bank customers and the securities underlying the
agreement, with a market value of $37,347,128, were retained in the custodial
account of the Banks. Interest is payable monthly at varying rates (average rate
of 4.78% at December 31, 1995) tied to the daily Federal Funds or the 13-week
U.S. Treasury Bill rates. These agreements immediately terminate upon written
notice by either party. Securities sold under agreement to repurchase averaged
$25,336,826 and $10,771,829 during 1995 and 1994, respectively, and the weighted
average interest was 5.42% and 4.90% during 1995 and 1994, respectively. The
maximum amount outstanding at any month end under such agreement during 1995 and
1994 was $30,486,820 and $15,908,712, respectively.
The other borrowings consist of adjustable rate loans from the Federal
Home Loan Bank with interest rates ranging from 5.79% to 5.84% at December 31,
1995. The loans are collateralized by mortgage loans held in the Bank's
portfolio. Below is a schedule of maturities on other borrowings for years
following December 31, 1995:
1996 $10,000,000
===========
F-15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE G - INCOME TAXES
The provision for income taxes (credit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31: 1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $ 874,840 $ 553,817 $ 583,575
Deferred (79,111) (320,912) (14,828)
--------- --------- ---------
795,729 232,905 568,747
--------- --------- ---------
State:
Current 57,157 35,652 32,459
Deferred 2,554 (26,345) (1,554)
--------- --------- ---------
59,711 9,307 30,905
--------- --------- ---------
Total taxes $ 855,440 $ 242,212 $ 599,652
========= ========= =========
</TABLE>
Following is a reconciliation between tax expense using federal
statutory rates and actual taxes:
<TABLE>
<CAPTION>
1995 1994 1993
------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory tax $ 896,691 35.0% $ 312,387 35.0% $ 561,709 35.0%
Tax exempt income (83,978) (3.3) (73,647) (8.3)
State taxes net of federal
benefit 39,409 1.6 6,143 .7 20,397 1.3
Other 3,318 .1 (2,671) (.3) 17,546 1.1
--------- ---- --------- ---- --------- ----
Actual taxes $ 855,440 33.4% $ 242,212 2.1% $ 599,652 37.4%
========= ==== ========= ==== ========= ====
</TABLE>
The significant temporary differences that give rise to deferred tax
assets and deferred tax liabilities which are included in other assets are as
follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 445,096 $ 351,741
Deferred loan origination fees and costs 90,839 111,902
Other deductions deferred for income taxes 112,866 138,250
--------- ---------
Total gross deferred tax assets 648,801 601,893
Deferred tax liabilities:
Depreciation (33,211) (62,860)
--------- ---------
Net deferred tax assets $ 615,590 $ 539,033
========= =========
</TABLE>
F-16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company and the Banks have entered into operating lease agreements
for a commercial building expiring in 1999 and land underlying its operations
center with two partnerships in which three of the directors of the Company are
partners. Rent expense was $304,609 for 1995, $225,391 for 1994 and $195,192
for 1993.
Future minimum rental commitments as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Year ending -
<S> <C>
December 31, 1996 $ 280,901
December 31, 1997 280,901
December 31, 1998 280,901
December 31, 1999 199,058
December 31, 2000 84,478
Thereafter 5,468,340
----------
Total minimum payments required $6,594,579
==========
</TABLE>
The Company and the Banks have entered into employment agreements
expiring in 1999 with seven senior officers providing for annual compensation
aggregating approximately $701,500.
The Federal Reserve Bank requires banks to maintain certain average
reserve balances in the form of vault cash or funds on deposit with the Federal
Reserve Bank. At December 31, 1995, the Bank had on deposit approximately
$5,643,255 at the Federal Reserve Bank to satisfy its required average reserve
balance.
NOTE I - SUBSEQUENT EVENT
On February 2, 1996, the company entered into an Agreement and Plan of
Merger (Agreement) with FNB Corporation (FNB). The Agreement calls for each
outstanding share of the Company's common stock to be converted into and
exchanged for 0.78 shares of FNB common stock, subject to possible adjustment in
certain circumstances as described in the Agreement. Each outstanding stock
option or stock purchase warrant granted by the Company will be converted into
an option or warrant to purchase shares of FNB common stock, adjusting the
number of shares subject to such option or warrant and the exercise price
thereof based on the exchange ratio. The consummation of this transaction is
subject to approval by the stockholders of the Company, securities law
clearances and regulatory approvals. The merger is anticipated to be accounted
for as a pooling of interests. The Company anticipates closing on the merger to
take place in early 1997.
F-17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE J - RETIREMENT PLAN
The Company maintains a Salary Savings ESOP Plan (the Plan) to which
eligible employees may contribute from 1% to 13.5% of their pay. The Company
contributes to the Plan 50% of an eligible employee's deferral on the first 6%
that the eligible employee defers, and may make discretionary contributions in
excess of that amount based on the Company's profitability and approval of the
board of directors. Employees are generally eligible to participate who have
completed at least one year of service and have attained age 21. Employee
contributions are 100% vested as amounts are credited to the employee's
account. Company contributions become 20% vested when an employee has completed
two years of service, and vest at a rate of 20% per year thereafter, fully
vesting when an employee has completed six years of service. The Company made
contributions to the Plan of $298,335 in 1995, $188,777 in 1994 and $133,548 in
1993.
The company is required, under federal income tax regulations, to grant
a put option to each ESOP participant who may receive a distribution of common
stock from the ESOP if the stock is not readily tradeable by the distributee on
an established market. The put option is a right to demand that the sponsor
redeem shares of employer stock held by the participant for which there is no
market for an established cash price.
At December 31, 1995, the ESOP plan held 33,182 shares of Company
common stock.
NOTE K - RELATED PARTY TRANSACTIONS
The Banks have granted loans to executive officers and directors of the
Banks and the Company and to associates of such executive officers and
directors. Such loans were made in the ordinary course of business under normal
credit terms and do not represent more than the normal risk of collection. The
activity for these loans for 1995 is as follows:
<TABLE>
<S> <C>
Total loans at December 31, 1994 $ 5,642,982
New loans 279,905
Repayments (1,667.030)
-----------
Total loans at December 31, 1995 $ 4,255,857
===========
</TABLE>
The Banks also have accepted deposits from employees, officers and
directors of the Banks and the Company and from associates of such officers and
directors. The deposits were accepted on substantially the same terms as those
of other depositors. Such deposits amounted to approximately $3,294,000 and
$2,126,000 at December 31, 1995 and 1994, respectively.
F-18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE K - RELATED PARTY TRANSACTIONS (CONTINUED)
The banks have entered into a correspondent relationship to purchase
loan participations from and sell loan participations to another bank located
in the state of Pennsylvania (the Pennsylvania Bank). The Chairman of the Board
of the Pennsylvania Bank is a stockholder and member of the board of directors
of the Company. In addition, the Pennsylvania Bank holds 172,621 shares of
common stock of the Company. The Banks purchased $2,000,000, $147,500 and $-0-
in loan participations from the Pennsylvania Bank during the years ended
December 31, 1995, 1994 and 1993, respectively, and the Banks sold $-0-,
$1,750,000 and $10,057,677 in loan participations to the Pennsylvania Bank
during the years ended December 31, 1995, 1994 and 1993, respectively. All
purchases and sales of loan participations were at the market value of the
loans at date of sale and were without recourse. At December 31, 1995, the
unpaid balances of the loan participations purchased and sold were
approximately $1,927,467 and $14,391,377, respectively.
NOTE L - STOCKHOLDERS' EQUITY
The Company granted a 2% stock dividend in May 1995.
The Company has adopted an incentive stock option plan for certain of
its employees and has authorized and reserved 527,340 shares of common stock
for issuance under this plan. Transactions related to this stock option plan
are as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C>
Balance December 31, 1992 158,119 $5.65-$7.54
Granted 198,715 $7.54-$9.61
-------
Balance December 31, 1993 356,834 $5.65-$9.61
Granted 80,274 $9.61-$12.00
Exercised (2,121) $6.60
Forfeited (8,387) $7.54
-------
Balance December 31, 1994 426,600 $5.65-$12.01
Granted 30,920 $12.01-$14.00
Exercised (1,142) $7.54-$12.01
Forfeited (3,448) $12.01
-------
Balance December 31, 1995 452,930
=======
</TABLE>
At December 31, 1995, options for 168,423 shares were exercisable at an
average price per share of $7.96.
F-19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE L - STOCXHOLDERS' EQUITY (CONTINUED)
In connection with its initial offering of common stock, the Company
granted to certain organizers of the Company warrants to purchase one share of
common stock (at an exercise price of $5.65 per share) for each four shares
purchased by such organizers in this offering. Such warrants became exercisable
two years after the Banks commenced operations with an exercise period of ten
years thereafter. The Company has reserved 123,854 shares of common stock for
issuance in connection with these warrants.
Under risk-based capital guidelines issued by the Federal Reserve Bank
and the OCC, total capital is defined as core (tier-one) capital and
supplementary (tier-two) capital. The Company's tier-one capital consists
primarily of stockholders' equity while tier-two capital consists of a portion
of the allowance for loan losses. The definition of assets includes items on
and off the balance sheet with each item being assigned a "risk-weight" for
determination of total assets.
The guidelines require that total capital of 8% be held against total
risk-adjusted assets, at least of which 4% must be tier-one capital. In
addition, a minimum leverage ratio of 4% tier-one capital to total assets is
required. The following schedule presents the Bank's regulatory capital ratios
as of December 31:
<TABLE>
<CAPTION>
1995
------------
<S> <C>
Tier I capital:
Stockholders' equity $ 29,762,000
Tier II capital:
Allowable allowance for loan losses 1,585,000
------------
Total Tier II capital $ 31,347,000
============
Risk weighted assets $263,040,000
============
Risk based capital ratios:
Tier I 11.31%
Total risk based (Tier II) 11.92%
Leverage 8.13%
</TABLE>
The earnings per share of common stock for 1994, 1993 and 1992 have
been retroactively adjusted to reflect the effect of a 2% stock dividend issued
in May 1995.
The approval of the Comptroller of the Currency is required for
national banks to pay dividends in excess of earnings retained in the current
year plus retained net profits for the preceding two years. As of December 31,
1995, approximately $3,700,146 of undistributed earnings was available for
distribution to the Company as dividends without prior regulatory approval.
F-20
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE M - OFF-BALANCE SHEET RISK
In the normal course of business, the Banks utilize various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. The credit risks associated with financial
instruments are generally managed in conjunction with the Banks' balance sheet
activities and are subject to normal credit policies, financial controls and
risk limiting and monitoring procedures.
Credit losses are incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Banks' exposure to off-balance
sheet credit risk is represented by the contractual amount of the commitments
to extend credit and standby letters of credit. At December 31, 1995 and 1994,
the Banks had commitments of approximately $43,040,000 and $24,202,000 for
undisbursed portions of loans in process and unused portions of lines of
credit. Commitments under standby letters of credit aggregated approximately
$2,150,000 and $1,504,000 at December 31, 1995 and 1994, respectively.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Banks upon extension of credit, is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include compensating balances, accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Most guarantees expire within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral supporting these commitments
for which collateral is deemed necessary is maintained by the Banks.
F-21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the company disclose estimated fair values for its financial
instruments. The market value of securities, as presented in Note D, are based
primarily upon quoted market prices. For substantially all other financial
instruments, the fair values are management's estimates of the values at which
the instruments could be exchanged in a transaction between willing parties. In
accordance with SFAS No. 107, the fair values are based on estimates using
present value and other valuation techniques in instances where quoted prices
are not available. These techniques are significantly affected by the
assumptions used, including discount rates and estimates cannot be
substantiated by comparison to independent markets and, further, may not be
realizable in an immediate settlement of the instruments. SFAS No. 107 also
excludes certain items from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent, and should not be
construed to represent, the underlying value of the company.
The following table presents the estimates of fair value of financial
instruments as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 56,859,628 $ 56,859,628
Securities available for sale 50,401,563 50,401,563
Securities held to maturity 23,834,164 23,946,120
Net loans 236,666,231 240,626,038
Financial liabilities:
Deposits 324,830,614 325,507,100
Short-term borrowings 28,276,769 28,276,769
Off-Balance Sheet Credit Risk:
Commitments to extend credit 43,040,000 43,040,000
Standby letters of credit 2,150,000 2,150,000
</TABLE>
F-22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 both securities available for sale and investment
securities, fair value equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans: The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for 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 deposits is estimated by discounting
future cash flows using rates currently offered for deposits of similar
remaining maturities. The fair value estimates do not include the benefits that
result from low-cost funding provided by the deposit liabilities compared to
the cost of alternate sources of funds.
Short-term borrowings: The carrying amounts for short-term borrowings
approximate fair value for amounts that mature in 90 days or less. The fair
value of subordinated notes is estimated by discounting future cash flows using
rates currently offered.
Off-balance sheet credit risk: 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 customer. 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 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.
F-23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the bank's long-term
relationships with depositors and the benefit that results from low-cost
funding provided by deposit liabilities. In addition, significant assets which
are not considered financial instruments and are, therefore, not a part of the
fair value estimates include office properties and equipment.
NOTE O - GENERAL OPERATING EXPENSES
The following amounts comprise general operating expenses for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Stationery and supplies $ 518,420 $ 391,148 $ 225,204
Telephone 180,274 136,053 78,874
Professional fees 734,462 431,320 398,371
Media costs and public
relations 685,983 446,511 271,532
Professional dues 70,466 47,613 35,200
Insurance 358,159 427,868 333,238
Amortization of
organization costs 7,546 14,975 28,692
Automobile 48,663 51,629 39,974
Other 1,140,306 795,850 460,212
---------- ---------- ----------
Total $3.744,279 $2,742.967 $1,871,297
========== ========== ==========
</TABLE>
F-24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE P - CONDENSED FINANCIAL INFORMATION
The condensed financial information of Southwest Banks, Inc. (parent
company only) as of December 31, 1995 and 1994 and for each of the three years
in the period ended December 31, 1995, is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Investment in and indebtedness of
subsidiaries, at equity $ 29,357,744 $ 26,922,383
Securities available for sale 205,000 0
Premises and equipment 553,049 793,895
Other assets 397.394 244,005
------------ ------------
$ 30,513,187 $ 27,960,283
============ ============
Liabilities:
Accrued expenses and other liabilities $ 180,394 $ 109,321
Employee Stock Ownership Plan obligation 388,890 140,652
Stockholders' equity:
Preferred stock 0 0
Common stock 365,409 356,056
Capital surplus 28,322,888 27,193,122
Retained earnings 1,462,295 651,465
Unrealized increase (decrease) in fair value
on securities available for sale (net of
applicable income taxes) 182,201 (349,681)
Employee Stock Ownership Plan obligation (388,890) (140,652)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 29,943,903 27,710.310
-------------- ------------
$ 30,513,187 $ 27,960,283
============= ============
</TABLE>
F-25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE P - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Income:
Interest on indebtedness of First
National Bank of Naples $ 105,371 $ 237,188 $ 22,245
Management and other fees
from subsidiaries 2,038,689 939,938 440,000
Interest on investment securities
and other 3,959 372 0
----------- ----------- -----------
TOTAL INCOME 2,148,019 1,177,498 462,245
----------- ----------- -----------
Expenses:
Salaries and employee benefits 1,549,231 930,931 172,375
Equipment rental, depreciation and maintenance 239,824 206,269 192,070
General operating 358,964 156,773 169,886
----------- ----------- -----------
TOTAL EXPENSES 2,148,019 1.293,973 534,331
LOSS FROM OPERATIONS BEFORE EQUITY IN ----------- ----------- -----------
UNDISTRIBUTED NET INCOME OF
SUBSIDIARIES 0 (116,475) (72,086)
Equity in undistributed earnings of
subsidiaries 1,706,535 722,968 1,050,190
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,706,535 606,493 978,104
Income tax credit 0 43,830 27,126
----------- ----------- -----------
NET INCOME 1,706,535 650,323 1,005,230
Retained earnings:
Beginning of year 651,465 698,932 5,702
----------- ----------- -----------
2,358,000 1,349,255 1,010,932
Stock dividend declared 895,705 697,790 312,000
----------- ----------- -----------
End of year $ 1,462,295 $ 651,465 $ 698.932
=========== =========== ===========
</TABLE>
F-26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
December 31, 1995, 1994 and 1993
NOTE P - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,706,535 $ 650,323 $ 1,005,230
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of premises and
equipment 139,331 98,991 125,972
(Increase) decrease in other assets (153,389) 239,420 (76,673)
Increase in accrued expenses
and other liabilities 319,311 7,595 231,544
Equity in undistributed earnings
of subsidiary banks (1,706.535) (722,968) (1,050,190)
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 305,253 273.361 235,883
------------ ------------ ------------
Cash flows from investing activities:
Investment in subsidiary banks (55,182) (14,158,497) (1,108,520)
Purchases of premises and equipment (493,485) (683.330) (109,178)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (548.667) (14,841,827) (1,217,698)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock 248,295 14,570,986 982,215
Payment of dividends (4.881) (2,520) (400)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 243,414 14.568,466 981,815
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 0 0 0
Cash and cash equivalents:
Beginning of year 0 0 0
------------ ------------ -----------
End of year $ 0 $ 0 $ 0
============ ============ ===========
</TABLE>
F-27
<PAGE> 30
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Current Report of F.N.B. Corporation on Form
8K of our report dated January 19, 1996, except for Note I, as to which the date
is February 2, 1996, relating to the financial statements of Southwest Banks,
Inc. appearing elsewhere in this Current Report.
Hill, Barth & King, Inc.
Certified Public Accountants
HILL, BARTH & KING, INC.
Naples, Florida
June 26, 1996
<PAGE> 31
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereto duly authorized.
F.N.B. CORPORATION
(Registrant)
By: /s/ JOHN D. WATERS
------------------------------
Name: John D. Waters
Title: Vice President and
Chief Financial Officer
Dated: June 28, 1996
