SECURITIES AND EXCHANGE COMMISSION
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 March 31, 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 0-11026
Southwest National Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1409649
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 South Main Street
Greensburg, Pennsylvania 15601
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (412) 834-2310
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. [X] Yes [ ] No.
Indicate the number of shares outstanding of each of the issuer's common
stock, as of the latest practicable date.
Class Outstanding at May 13, 1996
Common Stock, $2.50 Par Value 3,180,787
<PAGE>
<TABLE>
SOUTHWEST NATIONAL CORPORATION
FORM 10-Q INDEX
FOR QUARTER ENDED MARCH 31, 1996
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Southwest National Corporation and Subsidiary
Consolidated Statement of Income 1
Consolidated Balance Sheet 2
Consolidated Statement of Changes in Shareholders' Equity 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
</TABLE>
<TABLE>
Southwest National Corporation and Subsidiary
Consolidated Statement of Income
(in thousands, except per share amounts)
<CAPTION>
Three months
ended March 31,
1996 1995
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 9,418 $ 8,972
Interest on money market investments:
Interest bearing deposits with banks 2 2
Federal funds sold 314 457
Interest and dividends on investment securities:
U.S. Treasury securities and obligations of
U.S. government agencies and corporations 1,748 1,528
Obligations of states and political subdivisions 290 338
Collateralized mortgage obligations 1,097 1,136
Other securities 40 40
-------------------
Total interest income 12,909 12,473
INTEREST EXPENSE
Interest on deposits 5,119 4,724
Interest on short-term borrowings 46 15
Interest on long-term borrowings 38 39
-------------------
Total interest expense 5,203 4,778
-------------------
Net interest income 7,706 7,695
Provision for possible loan losses 450 510
-------------------
Net interest income after provision
for possible loan losses 7,256 7,185
NONINTEREST INCOME
Trust income 386 354
Service charges on deposit accounts 536 507
Other service charges, commissions, and fees 147 152
Other income 288 88
-------------------
Total noninterest income 1,357 1,101
NONINTEREST EXPENSE
Salaries and employee benefits 2,766 2,680
Net occupancy expense 524 438
Equipment expenses and data processing fees 809 801
Pennsylvania shares tax 164 153
FDIC insurance expense 18 342
Other expenses 1,183 1,190
-------------------
Total noninterest expense 5,464 5,604
-------------------
Income before income taxes 3,149 2,682
Income taxes 926 765
-------------------
NET INCOME $2,223 $1,917
===================
Per share (based on 3,180,787 average common
shares in 1996 and 3,189,866 in 1995)
Net income $ .70 $ .60
Cash dividends .30 .28
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 1
<TABLE>
SOUTHWEST NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(in thousands)
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Cash and due from banks $24,162 $25,254 $23,368
Money market investments:
Int. bearing deposits with banks 20 108 149
Federal funds sold 11,200 12,200 43,700
----------------------------------
Total money market investments: 11,220 12,308 43,849
Investment securities:
Securities available for sale 145,457 139,895 99,575
Securities held to maturity
(market values: $70,124;
$71,981 and $91,906) 70,875 71,991 94,722
----------------------------------
Total investment securities 216,332 211,886 194,297
Loans, net of unearned income of
$458; $643 and $1,609 451,493 446,917 414,787
Less: reserve for possible loan
losses (5,723) (5,651) (5,342)
----------------------------------
Loans, net 445,770 441,266 409,445
Bank premises and equipment 8,326 8,266 7,390
Other assets 13,206 11,836 12,231
----------------------------------
Total assets $719,016 $710,816 $690,580
==================================
LIABILITIES
Deposits
Noninterest bearing demand $ 98,100 $100,811 $99,879
NOW accounts 53,020 53,014 56,191
Savings 240,366 235,809 245,376
Time 238,723 234,151 211,539
----------------------------------
Total deposits 630,209 623,785 612,985
Short-term borrowings 4,366 3,441 2,028
Long-term borrowings 1,895 1,907 1,942
Other liabilities 5,166 4,473 3,449
----------------------------------
Total liabilities 641,636 633,606 620,404
SHAREHOLDERS' EQUITY
Common stock 7,952 7,952 7,952
Surplus 31,760 31,760 31,760
Retained earnings 37,660 36,392 32,006
Net unrealized gain (loss) on
securities available for sale 8 1,106 (1,542)
----------------------------------
Total shareholders' equity 77,380 77,210 70,176
----------------------------------
Total liabilities and
shareholders' equity $719,016 $710,816 $690,580
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
<TABLE>
Southwest National Corporation and Subsidiary
Consolidated Statement of Changes in Shareholders' Equity
(in thousands)
<CAPTION>
Unrealized gain Total
Common Retained (loss) on securities shareholders'
stock Surplus earnings available for sale equity
<S> <C> <C> <C> <C> <C>
Balance at
January 1,
1995 $7,981 $31,760 $31,262 ($2,901) $68,102
Net income -- -- 1,917 -- 1,917
Cash
dividends -- -- (894) -- (894)
Retirement
of common
stock (29) -- (279) -- (308)
Net
unrealized
gain on
securities
available
for sale -- -- -- 1,359 1,359
-----------------------------------------------------------
Balance at
March 31,
1995 $7,952 $31,760 $32,006 ($1,542) $70,176
===========================================================
Balance at
January 1,
1996 $7,952 $31,760 $36,392 $1,106 $77,210
Net income -- -- 2,223 -- 2,223
Cash
dividends -- -- (955) -- (955)
Net
unrealized
loss on
securities
available
for sale -- -- -- (1,098) (1,098)
-----------------------------------------------------------
Balance
at
March 31,
1996 $7,952 $31,760 $37,660 $8 $77,380
===========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
Southwest National Corporation and Subsidiary
Consolidated Statement of Cash Flows
(in thousands)
<CAPTION>
Three months
ended
March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,223 $1,917
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 305 284
Provision for loan losses 450 510
Increase (decrease) in net interest
receivable/payable (209) 1,095
Net increase (decrease) from other
operating activities (248) 428
------------------
Net cash from operating activities 2,521 4,234
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of inv. securities
(available for sale) 20,206 10,051
Purchase of investment securities (available for
sale) (27,461) 0
Proceeds from maturities of inv. securities
(held to maturity) 1,113 2,222
Purchase of investment securities
(held to maturity) 0 0
Net increase in loans made to customers (4,576) (3,018)
Net property and equipment expenditures (365) (67)
------------------
Net cash used for investing activities (11,083) 9,188
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 6,424 910
Net increase in short-term borrowings 925 1,385
Repayment of long-term borrowings (12) (11)
Dividends paid (955) (894)
Retirement of common stock 0 (308)
------------------
Net cash from financing activities 6,382 1,082
------------------
Net change in cash and cash equivalents ($2,180) $14,504
==================
Cash and cash equivalents at beginning of period $37,562 $52,713
Cash and cash equivalents at end of period 35,382 67,217
------------------
Net change in cash and cash equivalents ($2,180) $14,504
==================
CASH PAID DURING THE PERIOD FOR:
Interest $3,275 $3,045
Income taxes 131 0
</TABLE>
Transfers from loans to other real estate owned and other repossessions
totaled $255 thousand and $148 thousand in 1996 and 1995, respectively.
The Corporation has defined cash and cash equivalents as cash and due from
banks, certain interest bearing deposits with banks, and federal funds sold
with an original maturity of less than three months.
See accompanying notes to consolidated financial statements.
<PAGE> 4
SOUTHWEST NATIONAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies have not changed since the last
reporting period, except for the accounting for impairment of long-lived
assets, which is discussed in Note 3 below.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Southwest National Corporation (the Corporation) include the accounts of
the Corporation and its wholly-owned subsidiary, Southwest National Bank
of Pennsylvania (the Bank). All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain items previously reported have been reclassified to conform with
the current year's classifications. In the opinion of management, all
normal recurring adjustments necessary for fair presentation of the
financial position and results of operations for the periods have been
included.
2. INVESTMENT SECURITIES
Investment securities are classified as follows: debt securities that
the Corporation has the positive intent and ability to hold to maturity are
classified as securities held to maturity and reported at amortized cost;
debt and equity securities bought and held principally for the purpose of
selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in the
current period earnings; or debt and equity securities not classified as
either securities held to maturity or trading securities are classified as
securities available for sale and reported at fair value, with unrealized
gains and losses reported as a separate component of shareholders' equity.
An $8,000, net of tax, unrealized gain on securities classified as
available for sale at March 31, 1996, was recorded as a separate component
of shareholders' equity.
3. ADOPTION OF NEW ACCOUNTING STANDARDS
On January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards (FAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." Adoption of
this standard did not have a material affect on the Corporation's financial
position or results of operations.
<PAGE> 5
PART I. FINANCIAL INFORMATION
(continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995
Net income for the first quarter of 1996 was $2,223,000, an increase
of $306,000 or 16.0% compared to the same quarter last year. Per share
earnings increased to $.70 in 1996 from $.60 in 1995, a 16.7% rise. Return
on assets amounted to 1.25% up from the 1.13% reported in 1995.
The growth in earnings was primarily the result of higher noninterest
income up $256,000 (23.3%) -- $199,000 related to the gain recognized on
the sale of available for sale securities -- and reduced noninterest
expense down $140,000 (2.5%) as net interest income remained flat from
year to year. Excluding the security transaction, earnings would have
risen $175,000 (9.1%).
Net interest income on a fully taxable equivalent basis increased
slightly to $7,935,000 from $7,916,000. Excluding the taxable equivalent
adjustment, net interest income also increased slightly to $7,706,000 from
$7,695,000. The net interest margin fell 18 basis points to 4.71% for the
quarter compared to the 4.89% registered in the same quarter last year.
The decrease in the margin resulted from two factors: a declining yield
on earning assets due to the lower rate environment and the continued shift
in deposit composition to higher cost funds, principally certificates of
deposit. Average earning assets rose to $675,535,000 for the period up
$31,461,000 (4.9%) compared to 1995 which offset the decline in the net
interest margin.
Noninterest income advanced $256,000 (23.3%) amounting to $1,357,000
for the quarter. This rise was primarily due to the gain of $199,000
recorded on the sale of available for sale investment securities. Trust
income rose $32,000 (9.0%) as the result of increased fees recognized in
the personal trust sector. Service charges on deposit accounts rose
$29,000 (5.7%) due to increases in fees charged for certain services.
Other income rose period to period $200,000 as a result of the previously
mentioned security gains.
Noninterest expense decreased $140,000 (2.5%) amounting to $5,464,000
for the quarter. Salaries and employee benefits rose $86,000 (3.2%) as a
result of normal merit increases for existing staff partially offset by a
lower full-time equivalent level of employees. Net occupancy expense also
rose $86,000 (19.6%) as a result of increases in most categories primarily
due to the severe winter weather of 1996. The FDIC Insurance expense
dropped $324,000 because of the significant premium reductions compared to
last year. Excluding the deposit insurance premiums, noninterest expense
would have risen $184,000 (3.5%) period to period.
At March 31, 1996 assets totalled $719,016,000 up $28,436,000 (4.1%)
compared to $690,580,000 at March 31, 1995. During the same period loans
rose $36,706,000 (8.9%) and investment securities rose $22,035,000 (11.3%).
Deposits also improved totalling $630,209,000 at March 31, 1996 up
$17,224,000 (2.8%) from the prior year which helped to fund earning asset
growth.
Shareholders' equity at March 31, 1996 totalled $77,380,000 up
$7,204,000 (10.3%) over March 31, 1995. Shareholders' equity includes an
unrealized gain on securities net of tax of $8,000 and an unrealized loss
net of tax of $1,542,000 at March 31, 1996 and March 31, 1995,
respectively. Total capital as a percentage of risk-weighted assets was
18.90% at March 31, 1996 compared to 19.10% at March 31, 1995. The
Corporation's leverage capital ratio rose to 10.85% at March 31, 1996.
Nonperforming assets and loans past due rose from period end to period
end. All asset quality ratios declined period to period as the trend of
delinquencies has been rising, primarily in the consumer sector. However,
Southwest's ratios still compare favorably to our peer group. Generally,
this trend has been an industry-wide issue.
<PAGE> 6
On January 1, 1996 the Corporation adopted FAS No. 121. This statement
establishes guidelines for recognition of impairment losses related to
long-lived assets and certain intangibles and related goodwill for assets
to be held and used, as well as assets held for disposition. This
statement excludes financial instruments, long-term customer relationships
of financial institutions and other servicing rights and deferred tax
assets. Adoption of this standard did not have a material effect on the
Corporation's financial position or results of operations.
FIRST QUARTER 1996 COMPARED TO FOURTH QUARTER 1995 - BALANCE SHEET
Assets and deposits funding those assets were relatively flat period
to period growing by approximately 1.0%. Shareholders' equity also
remained flat period to period.
Asset quality ratios declined from December 31, 1995 to March 31, 1996
as delinquencies continued to trend upwards. Total capital as a percentage
of risk-weighted assets declined slightly to 18.90% at March 31, 1996 from
19.10% at December 31, 1995 as the leverage capital ratio remained
basically unchanged period to period.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27: Financial Data Schedule.
The registrant filed no Form 8-K Current Report during the first
quarter ended March 31, 1996.
<PAGE> 7
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 National Corporation
(Registrant)
May 13, 1996 /s/ David S. Dahlmann
Date David S. Dahlmann
President and Chief Executive Officer
May 13, 1996 /s/ Donald A. Lawry
Date Donald A. Lawry
Secretary and Treasurer
(Chief Financial Officer)
<PAGE> 8
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,162
<INT-BEARING-DEPOSITS> 20
<FED-FUNDS-SOLD> 11,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 145,457
<INVESTMENTS-CARRYING> 70,875
<INVESTMENTS-MARKET> 70,124
<LOANS> 451,493
<ALLOWANCE> 5,723
<TOTAL-ASSETS> 719,016
<DEPOSITS> 630,209
<SHORT-TERM> 4,366
<LIABILITIES-OTHER> 5,166
<LONG-TERM> 1,895
0
0
<COMMON> 7,952
<OTHER-SE> 69,428
<TOTAL-LIABILITIES-AND-EQUITY> 719,016
<INTEREST-LOAN> 9,418
<INTEREST-INVEST> 3,175
<INTEREST-OTHER> 316
<INTEREST-TOTAL> 12,909
<INTEREST-DEPOSIT> 5,119
<INTEREST-EXPENSE> 5,203
<INTEREST-INCOME-NET> 7,706
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 199
<EXPENSE-OTHER> 5,464
<INCOME-PRETAX> 3,149
<INCOME-PRE-EXTRAORDINARY> 2,223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,223
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 7.81
<LOANS-NON> 1,947
<LOANS-PAST> 1,745
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,651
<CHARGE-OFFS> 484
<RECOVERIES> 106
<ALLOWANCE-CLOSE> 5,723
<ALLOWANCE-DOMESTIC> 5,723
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
