<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: Commission File Number:
MARCH 31, 1996 0-18505
SOUTHWEST BANKS, INC.
------------------------------------------------------
(Exact name of registrant as specified on its charter)
FLORIDA 65-0083473
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
900 GOODLETTE ROAD NORTH, NAPLES, FLORIDA 33940
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941)262-7600
--------------------------
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(Former name, former address and former fiscal year, if changed since last
report)
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 and 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:
COMMON STOCK, $.10 PAR VALUE 3,654,089
- ---------------------------- --------------------------
Class Outstanding at May 1, 1996
<PAGE> 2
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income:
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Securities Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
MAR 31, 1996 DEC 31, 1995
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<S> <C> <C>
ASSETS
Cash and Demand Balances Due from Banks $ 28,527,665 $ 25,135,628
Federal Funds Sold 12,554,000 31,724,000
-------------- ---------------
Total Cash and Cash Equivalents 41,081,665 56,859,628
Securities Available for Sale at Fair Value
(Cost of $60,111,146 and $50,109,434) 59,786,266 50,401,563
Securities Held to Maturity at Cost
(Fair Value of $20,532,222 and $23,946,120) 20,521,051 23,834,164
Loans 251,255,299 238,509,066
Less: Allowance for loan losses (1,679,779) (1,585,285)
Unearned income & deferred loan fees (194,044) (257,550)
-------------- ---------------
Net Loans 249,381,476 236,666,231
Premises and Equipment 14,578,940 14,413,940
Accrued Interest Receivable 2,611,065 2,594,888
Other Assets 4,304,793 1,691,377
-------------- ---------------
TOTAL $ 392,265,256 $ 386,461,791
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 333,156,317 $ 324,830,614
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase 20,375,687 18,276,769
Other Short Term Borrowings 5,000,000 10,000,000
Accrued Interest Payable 1,697,947 1,714,022
Accrued Expenses and Other Liabilities 1,747,828 1,696,483
-------------- ---------------
Total Liabilities 361,977,779 356,517,888
Stockholders' Equity:
Common Stock, Par Value $.10, 25,000,000 Shares
Authorized, 3,654,089 Shares Issued and Outstanding 365,409 365,409
Capital Surplus 28,322,888 28,322,888
Retained Earnings 2,263,038 1,462,295
Unrealized (Loss)Gain on Securities Available for Sale (202,628) 182,201
Employee Stock Ownership Plan Obligation (461,230) (388,890)
-------------- ---------------
Total Stockholders' Equity 30,287,477 29,943,903
-------------- ---------------
TOTAL $ 392,265,256 $ 386,461,791
============== ===============
</TABLE>
See notes to consolidated financial statements.
3
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SOUTHWEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
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<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 5,878,880 $ 4,419,417
Interest on Federal Funds Sold 302,647 250,181
Interest on Investment Securities and Other 1,153,575 680,003
------------ -------------
Total Interest Income 7,335,102 5,349,601
INTEREST EXPENSE
Interest Expense on Deposits 2,809,982 1,917,674
Interest on Short-Term Borrowings 347,408 599,964
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Total Interest Expense 3,157,390 2,517,638
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Net Interest Income 4,177,712 2,831,963
Provision for Loan Losses 225,000 150,000
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Net Interest Income after Provision for Loan Losses 3,952,712 2,681,963
OTHER INCOME
Service Charges, Commissions and Fees 849,654 533,655
Gain on Sale of Investment Securities 0 0
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Total Other Income 849,654 533,655
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OTHER EXPENSE
Salaries and Benefits 1,954,862 1,565,677
Occupancy 292,903 223,198
Equipment Rental, Depreciation and Maintenance 483,649 355,192
General Operating 853,795 862,790
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Total Other Expenses 3,585,209 3,006,857
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Income Before Taxes 1,217,157 208,761
Provision for Income Taxes 416,414 54,438
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NET INCOME $ 800,743 $ 154,323
============ =============
EARNINGS PER SHARE $ 0.20 $ 0.05
============ =============
Weighted average shares outstanding 3,923,461 3,297,947
</TABLE>
See notes to consolidated financial statements.
4
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SOUTHWEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 800,743 $ 154,323
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
Depreciation and Amortization 429,838 299,164
Accretion of discounts and deferred loan fees, net (70,569) (68,209)
Provision for loan losses 225,000 150,000
(Increase) decrease in other assets (2,613,416) (11,184)
Increase (decrease) in accrued expenses and
other iabilities (20,995) (310,569)
(Increase) decrease in accrued interest receivable (16,177) (100,644)
Increase (decrease) in accrued interest payable (16,075) 231,715
------------ -------------
Cash provided by (used in) operating activities (1,281,651) 344,596
NET CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (12,841,383) (15,045,458)
Gross loan participations sold 0 0
Loan participations purchased (20,000) (2,232,834)
Purchase of held-to-maturity-securities 0 (2,208,179)
Proceeds from maturing held-to-maturity securities 3,304,820 3,128,849
Purchases of available-for-sale securities (19,739,245) (9,058,969)
Proceeds from available-for-sale securities 9,969,713 3,378,577
Purchases of premises and equipment (594,838) (2,098,222)
------------- --------------
Cash used in investing activities (19,920,933) (24,136,236)
NET CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,325,703 41,193,263
Net increase (decrease) in securities sold under
agreement to repurchase 2,098,918 9,299,219
Net increase (decrease) in federal funds purchased and
other short-term borrowings (5,000,000) (4,500,000)
Net proceeds from sale of common stock 0 245,305
-------------- ---------------
Cash provided by financing activities 5,424,621 46,237,787
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (15,777,963) 22,446,147
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 56,859,628 14,934,854
-------------- ---------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 41,081,665 $ 37,381,001
============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - Cash paid during period for:
Interest $ 3,173,465 $ 2,285,923
============== ===============
Taxes $ 0 $ 7,500
============== ===============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
SOUTHWEST BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1: Basis of Presentation
The Consolidated Balance Sheets for Southwest Banks, Inc. and Subsidiaries (the
Company) as of March 31, 1996 and December 31, 1995, the Consolidated
Statements of Income for the three month periods ended March 31, 1996 and 1995,
and the Consolidated Statements of Cash Flows for the three month periods ended
March 31, 1996 and 1995 included in form 10-Q have been prepared by the Company
which is responsible for their integrity and objectivity pursuant to the rules
and regulations of the Securities and Exchange Commission. The statements are
unaudited except for the Balance Sheet as of December 31, 1995 and have not
been compiled, reviewed or audited by outside accountants.
The accounting policies followed for interim financial reporting are set forth
in Note A of the Company's latest Annual Report to Shareholders, which is
incorporated by reference in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance that assets are safeguarded and the transactions
are properly executed, recorded and summarized to produce reliable records and
reports.
To the best of management's knowledge and belief, the statements and related
information were prepared in conformity with generally accepted accounting
principles and are based on recorded transactions and management's best
estimates and judgments. The interim results of operations are not necessarily
indicative of the results which may be expected for the full year.
The consolidated financial statements included herein include, in the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial condition and
results of operations of the Company for the periods indicated.
Note 2: Pending Merger Transaction
In February, 1996, the Company entered into an Agreement and Plan of
Merger with F.N.B. Corporation ("FNB"), Hermitage, Pennsylvania, which provides
for the merger of the Company into FNB. Upon effectiveness of the merger, the
Company's shareholders will become entitled to receive, subject to adjustment
under certain circumstances, 0.78 shares of FNB common stock in exchange for
each share of common stock of the Company then held by them. In connection
with this agreement, the Company has granted FNB an option to purchase 727,163
shares of the Company's common stock for $15 per share, which becomes
exercisable upon the occurrence of certain events, as defined.
The merger agreement and the transactions contemplated in that agreement
are subject to the approval of a majority of the outstanding shares of the
Company (excluding those shares held by FNB and its affiliates), entitled to
vote at a special meeting of shareholders, as well as the receipt of certain
regulatory consents.
The proposed merger is expected to be treated as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code and shall be treated as a
pooling-of-interests for accounting purposes.
6
<PAGE> 7
In this connection, the Company is deferring expenses associated with the
merger until such time as all conditions precedent to the merger are met or the
merger agreement is otherwise terminated. Costs incurred in connection with
the merger aggregate approximately $199,000 of March 31, 1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
For the three months ended March 31, 1996, the Company experienced continued
asset, loan and deposit growth. Total assets were $392,265,256, an increase of
$5,803,465 or 1.5%, compared to fiscal year end 1995. The increase was
recognized primarily by increases in net loans of $12.8 million and investments
of $6.1 million, net of a decrease in cash and cash equivalent of $15.8
million. Total earning assets remained at levels consistent with that at
December 31, 1995 aggregating $343 million at March 31, 1996.
Funding the increase in assets was an increase in deposits and short term
borrowings. Deposits and short term borrowings increased 1.5% or $5.4 million
since December 31, 1995.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995:
Interest income increased $1,985,501 or 37.1% in the first three months of 1996
compared to the comparable period for 1995, while average earning assets
increased by 33.0%. Yields on average earning assets were 8.6% and 8.35% for
the respective periods, the increase resulting from increases in market rates
stemming from Federal Reserve Board rate hikes since this time last year.
Interest expense increased $639,752 or 25.4% in the first three months of 1996
as compared to the first three months of 1995. While interest bearing
liabilities increased 34.1%, a change in the pricing and mix of deposit
products reduced average rates paid from 4.45% in 1995 to 4.16% in 1996.
Net interest income increased $1,345,749 or 47.5% in the first three months of
1996 as compared to the first three months of 1995 primarily due to the growth
in volume complemented by the increase in market rates of earning assets
together with the change in deposit pricing and mix as previously discussed.
The net interest margin rose from 4.42% in 1995 to 4.90% in 1996.
Non-interest income for the three months ended March 31, 1996, increased
$315,999 or 59.2% as compared to the comparable period for 1995. The increase
is a result of the growth in deposit and fee generating activity, coupled with
the introduction of service charges on certain services that had previously
been provided without charge.
Total non-interest expense increased $578,352 or 19.2% for the three months
ended March 31, 1996 compared to the comparable period for 1995. Salaries and
benefits expense represented the area of greatest change. Full time equivalent
employees (FTE) increased from 166 at March 31, 1995 to 193 at March 31, 1996.
Average assets per FTE at March 31, 1996 of approximately $2.03 million
improved from $1.88 million at March 31, 1995.
As a result of the above factors, net income increased to $800,743 or $.20 per
share for the three months ended March 31, 1996 from $154,323 or $.05 per share
during the comparable period of 1995.
7
<PAGE> 8
The provision for possible loan losses for the three months ended March 31,
1996 of $225,000 increased by 50% compared to that for the three month period
ended March 31, 1995. While net loans have increased by 24% in the comparable
period, because of the increase in the Company's lending limits and the
resultant increasing size of individual credits being extended, a
proportionately larger increase in the provision is warranted.
CAPITAL RESOURCES AND LIQUIDITY
Consistent with the objective of operating a sound financial organization, the
Company maintains high capital ratios. Regulatory agencies including the
Office of the Comptroller of the Currency and the Federal Reserve Board have
approved guidelines for a risk-based capital framework that make capital
requirements more sensitive to the risks germane to each individual
institution. The guidelines require that total capital of 8% be held against
total risk-adjusted assets.
At March 31, 1996, the Company's total risk-based capital ratio was 12.46%.
This compared to 13.66% at March 31, 1995.
The Company's ability to satisfy demands for credit, deposit withdrawals and
other corporate needs depends on its level of liquidity. The Company utilizes
several means to manage its liquidity. Traditionally, increases in deposits
are sufficient to provide adequate levels of liquidity; however, if needed, the
Company has approved extensions of credit available from correspondent banks,
sources for loan sales and primarily short term investments that could be
liquidated if necessary. While the Company has not had a need to utilize these
sources of liquidity, it continues to maintain their availability on a
contingent basis. At March 31, 1996, loans aggregating $277,000 were accounted
for on a non-accrual basis, accruing loans of $68,000 were contractually past
due 90 days or more as to principal or interest payments, and there were no
loans which would be defined as troubled debt restructurings. In addition,
management is not aware of any known trends, demands, events, commitments or
uncertainties that either will result or are reasonably likely to result in a
material increase or decrease in liquidity.
For the three months ended March 31, 1996, the Company used cash of $1,281,651
in operating activities as compared to providing cash of $344,596 for the same
period in 1995. The change results principally from an increase in net accrued
and other assets and liabilities aggregating approximately $2,013,000.
Cash used in investing activities for the first quarter of 1996 was $19,920,933
as compared to $24,136,236 in 1995. The decrease was principally realized in
decreases in loan growth ($12,861,383 in 1996 as compared to $17,278,292 in
1995).
Cash provided from financing activities was $5,424,621 for the three months
ended March 31, 1996 as compared to $46,237,787 for the comparable period in
1995. The decrease was principally due to a reduction in the attraction of
deposits and customer repurchase agreements ($10,424,621 in 1996 as compared to
$50,492,482 in 1995).
8
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K with the
Securities and Exchange Commission on March 16, 1996 reporting
the Agreement of Plan and Merger between the Company and FNB
Corporation dated February 2, 1996. See NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited), included herein.
9
<PAGE> 10
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.
SOUTHWEST BANKS, INC.
Dated: March 10, 1996 By: /s/ Gary L. Tice
------------------ ------------------------------------------
Gary L. Tice
President and Chief Executive Officer
Dated: March 10, 1996 By: /s/ Lewis S. Albert
------------------ ------------------------------------------
Lewis S. Albert
Senior Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF SOUTHWEST BANKS FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 27,527,665
<INT-BEARING-DEPOSITS> 1,000,000
<FED-FUNDS-SOLD> 12,554,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,786,266
<INVESTMENTS-CARRYING> 20,521,051
<INVESTMENTS-MARKET> 20,532,222
<LOANS> 251,061,255
<ALLOWANCE> 1,679,779
<TOTAL-ASSETS> 392,265,256
<DEPOSITS> 333,156,317
<SHORT-TERM> 25,375,687
<LIABILITIES-OTHER> 3,445,775
<LONG-TERM> 0
0
0
<COMMON> 365,409
<OTHER-SE> 29,922,068
<TOTAL-LIABILITIES-AND-EQUITY> 392,265,256
<INTEREST-LOAN> 5,878,880
<INTEREST-INVEST> 1,153,575
<INTEREST-OTHER> 302,647
<INTEREST-TOTAL> 7,335,102
<INTEREST-DEPOSIT> 2,809,982
<INTEREST-EXPENSE> 3,157,390
<INTEREST-INCOME-NET> 4,177,712
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,585,209
<INCOME-PRETAX> 1,217,157
<INCOME-PRE-EXTRAORDINARY> 800,743
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800,743
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
