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, 1997
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 12, 1997
Common Stock, $2.50 Par Value 3,083,442
<PAGE>
<TABLE>
SOUTHWEST NATIONAL CORPORATION
FORM 10-Q INDEX
FOR QUARTER ENDED MARCH 31, 1997
<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,
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $10,245 $9,418
Interest on money market investments:
Interest bearing deposits with banks 3 2
Federal funds sold 259 314
Interest and dividends on investment securities:
U.S. Treasury securities and obligations of
U.S. government agencies and corporations 1,765 1,748
Obligations of states and political subdivisions 285 290
Collateralized mortgage obligations 907 1,097
Other securities 41 40
------------------
Total interest income 13,505 12,909
INTEREST EXPENSE
Interest on deposits 5,124 5,119
Interest on securities sold under agreements to repurchase 112 39
Interest on Federal Home Loan Bank advances 83 45
------------------
Total interest expense 5,319 5,203
------------------
Net interest income 8,186 7,706
Provision for possible loan losses 450 450
------------------
Net interest income after provision
for possible loan losses 7,736 7,256
NONINTEREST INCOME
Trust income 386 386
Service charges on deposit accounts 580 536
Other service charges, commissions, and fees 166 147
Other income 151 288
------------------
Total noninterest income 1,283 1,357
NONINTEREST EXPENSE
Salaries and employee benefits 2,844 2,766
Net occupancy expense 484 524
Equipment expenses and data processing fees 811 809
Pennsylvania shares tax 177 164
FDIC insurance expense 23 18
Other expenses 1,342 1,183
------------------
Total noninterest expense 5,681 5,464
------------------
Income before income taxes 3,338 3,149
Income taxes 998 926
------------------
NET INCOME $2,340 $2,223
==================
PER SHARE (based on 3,127,132 average common
shares in 1997 and 3,180,787 in 1996)
Net income $ .75 $ .70
Cash dividends .32 .30
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 1
<TABLE>
SOUTHWEST NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(in thousands)
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from banks $25,659 $26,521 $24,162
Money market investments:
Int. bearing deposits with banks 106 82 20
Federal funds sold 5,500 28,800 11,200
----------------------------------------------
Total money market investments: 5,606 28,882 11,220
Investment securities:
Securities available for sale 144,186 135,183 145,457
Securities held to maturity (market values: $58,457;
$61,609 and $70,124) 59,309 62,067 70,875
----------------------------------------------
Total investment securities 203,495 197,250 216,332
Loans, net of unearned income of $90; $138
and $458 495,217 489,188 452,994
Less: reserve for possible loan losses (5,737) (5,910) (5,723)
----------------------------------------------
Loans, net 489,480 483,278 447,271
Bank premises and equipment 8,627 8,089 8,326
Other assets 12,290 11,338 11,705
----------------------------------------------
Total assets $745,157 $755,358 $719,016
==============================================
LIABILITIES
Deposits
Noninterest bearing demand $106,866 $105,202 $98,100
NOW accounts 53,975 55,232 53,020
Savings 240,193 239,794 240,366
Time 250,675 251,100 238,723
---------------------------------------------
Total deposits 651,709 651,328 630,209
Securities sold under agreements to repurchase 8,507 6,811 4,319
Federal Home Loan Bank borrowings 0 11,907 1,942
Other liabilities 5,196 5,148 5,166
--------------------------------------------
Total liabilities 665,412 675,194 641,636
SHAREHOLDERS' EQUITY
Common stock 7,952 7,952 7,952
Surplus 31,760 31,760 31,760
Retained earnings 43,470 42,132 37,660
Treasury stock, at cost (2,521) (1,800) 0
Net unrealized gain (loss) on securities available for sale (916) 120 8
--------------------------------------------
Total shareholders' equity 79,745 80,164 77,380
--------------------------------------------
Total liabilities and shareholders' equity $745,157 $755,358 $719,016
============================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 2
<TABLE>
SOUTHWEST NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<CAPTION>
Unrealized gain Total
Common Retained Treasury (loss) on securities shareholders'
stock Surplus earnings stock available for sale equity
----- ------- -------- ----- ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
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
============================================================================
Balance at January 1, 1997 7,952 31,760 42,132 (1,800) 120 80,164
Net income -- -- 2,340 -- -- 2,340
Cash dividends -- -- (1,002) -- -- (1,002)
Purchase of treasury stock -- -- -- (721) -- (721)
Net unrealized loss on
securities available
for sale -- -- -- -- (1,036) (1,036)
----------------------------------------------------------------------------
Balance at March 31, 1997 $7,952 $31,760 $43,470 ($2,521) ($916) $79,745
============================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 3
<TABLE>
SOUTHWEST NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,340 $2,223
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 319 305
Provision for loan losses 450 450
Increase from net interest receivable/payable 124 (209)
Net increase (decrease) from other operating activities (315) (110)
------- -------
NET CASH FROM OPERATING ACTIVITIES 2,918 2,659
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of inv. securities (available for sale) 10,775 20,405
Purchase of investment securities (available for sale) (21,340) (27,461)
Proceeds from maturities of inv. securities (held to maturity) 2,758 1,113
Purchase of investment securities (held to maturity) 0 0
Net increase in loans made to customers (6,839) (4,913)
Net property and equipment expenditures (857) (365)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (15,503) (11,221)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 381 6,424
Net increase in securities sold under agreements to repurchase 1,696 925
Repayment of Federal Home Loan Bank advances (11,907) (12)
Dividends paid (1,002) (955)
Purchase of treasury stock (721) 0
-------- --------
NET CASH FROM FINANCING ACTIVITIES (11,553) 6,382
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (24,138) (2,180)
======== ========
Cash and cash equivalents at beginning of period $55,403 $37,562
Cash and cash equivalents at end of period 31,265 35,382
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ($24,138) ($2,180)
========= ========
CASH PAID DURING THE PERIOD FOR:
Interest $3,447 $3,275
Income taxes 50 131
<FN>
<F1>Transfers from loans to other real estate owned and other repossessions totaled $549 thousand and
$255 thousand in 1997 and 1996, respectively.
<F2>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.
<F3>See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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.
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. A $916,000, net of tax,
unrealized loss on securities classified as available for sale at March
31, 1997, was recorded as a separate component of shareholders' equity.
<PAGE> 5
PART I. FINANCIAL INFORMATION
(continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
Net income for the first quarter of 1997 advanced 5.3% to
$2,340,000 from the $2,223,000 achieved in the same period last year.
Per share earnings rose to $.75 in 1997 from $.70 in 1996, a 7.1%
increase. Return on assets remained unchanged period to period as the
return on equity rose to 11.66% from 11.51% reported in 1996.
The growth in earnings was principally the result of improved net
interest income. Core earnings actually rose 11.7% for the first three
months of 1997, since 1996 results included a gain on the sale of
available for sale investment securities.
Net interest income on a fully taxable equivalent basis increased
to $8,397,000 for the first quarter of 1997, up $462,000 (5.8%)
from 1996. Excluding the taxable equivalent adjustment, net interest
income rose $480,000 (6.2%) to $8,186,000 in 1997 from $7,706,000
in 1996. Average earning assets rose to $711,563,000 for the period, an
increase of $34,552,000 (5.1%) compared to 1996. This growth in earning
assets, in particular loan growth of 10.3%, coupled with an improved net
interest margin of 4.72% fueled the rise in net interest income period
to period.
Noninterest income declined $74,000 (5.5%) amounting to $1,283,000
for the quarter. This decrease in 1997 was primarily due to the gain of
$196,000 recorded on the sale of available for sale investment
securities in 1996. Exclusive of this item, noninterest income would
have risen $122,000 (10.5%) period to period. Service charges on
deposit accounts rose $44,000 (8.2%) due to a higher level of NSF fees
collected. Other income declined $137,000 period to period due
principally to the aforementioned security gains.
Noninterest expense rose $217,000 (4.0%) amounting to $5,681,000
compared to the first quarter of 1996. Salaries and employee benefits
rose $78,000 (2.8%) due to normal merit increases. Net occupancy
expense decreased $40,000 (7.6%), due to expenses returning to more
normal levels compared to 1996 which included the effect of severe
winter weather. Other expenses increased to $1,342,000 for the first
quarter of 1997, up $159,000 (13.4%). Increases in several expense
categories contributed to this rise and included: office temporaries
($33,000); printed forms/envelopes ($23,000); legal fees ($17,000); and
core deposit amortization ($21,000).
At March 31, 1997, assets totalled $745,157,000, up $26,141,000
(3.6%), compared to $719,016,000 at March 31, 1996. During the same
period, loans rose $42,223,000 (9.3%), while investment securities
declined $12,837,000 (5.9%). Deposits advanced, totalling $651,709,000
at March 31, 1997, up $21,500,000 (3.4%) from the prior year which
helped to fund asset growth.
Shareholders' equity at March 31, 1997 totalled $79,745,000, up
$2,365,000 (3.1%), over March 31, 1996. Shareholders' equity includes
an unrealized loss on securities net of tax of $916,000 and an
unrealized gain net of tax of $8,000 at March 31, 1997 and March 31,
1996, respectively. Total capital as a percentage of risk-weighted
assets was 17.67% at March 31, 1997, compared to 18.90% at March 31,
1996. The decline in this ratio period to period was the result of
asset growth and, to a lesser extent, common stock repurchases. The
Corporation's leverage capital ratio decreased to 10.76% at March 31,
1997.
Nonperforming assets rose to $2,503,000 at March 31, 1997 from
$2,004,000 at March 31, 1996 while loans past due declined to $1,429,000
from $1,745,000 over the same period. The ratio of nonperforming loans to
loans was .46% at March 31, 1997 up slightly from .43% at March 31, 1996.
The increase in net charge-offs to $623,000 from $378,000 in the prior period
reflects the rising trend of consumer delinquencies which has generally been
an industry-wide issue, as well as the continuing growth in the loan
portfolio. The reserve for loan losses to nonperforming loans was 253.96% at
period end down from 293.94% at March 31, 1996.
<PAGE> 6
FIRST QUARTER 1997 COMPARED TO FOURTH QUARTER 1996 - BALANCE SHEET
Total assets declined slightly by $10,201,000 (1.4%) period to
period. Deposits funding those assets and shareholders' equity remained
flat period to period.
The ratio of loans past due 90 days or more to total loans improved
from .41% at December 31, 1996 to .29% at March 31, 1997, as the
remaining asset quality ratios continued to trend upwards.
Total capital as a percentage of risk-weighted assets was basically
unchanged as the leverage capital ratio declined to 10.76% at March 31,
1997 from 10.87% at December 31, 1996.
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, 1997.
<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 12, 1997 /s/ David S. Dahlmann
- ----------------- ---------------------------------------
Date David S. Dahlmann
President and Chief Executive Officer
May 12, 1997 /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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,659
<INT-BEARING-DEPOSITS> 106
<FED-FUNDS-SOLD> 5,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 144,186
<INVESTMENTS-CARRYING> 59,309
<INVESTMENTS-MARKET> 58,457
<LOANS> 495,217
<ALLOWANCE> 5,737
<TOTAL-ASSETS> 745,157
<DEPOSITS> 651,709
<SHORT-TERM> 8,507
<LIABILITIES-OTHER> 5,196
<LONG-TERM> 0
0
0
<COMMON> 7,952
<OTHER-SE> 71,793
<TOTAL-LIABILITIES-AND-EQUITY> 745,157
<INTEREST-LOAN> 10,245
<INTEREST-INVEST> 2,998
<INTEREST-OTHER> 262
<INTEREST-TOTAL> 13,505
<INTEREST-DEPOSIT> 5,124
<INTEREST-EXPENSE> 5,319
<INTEREST-INCOME-NET> 8,186
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,681
<INCOME-PRETAX> 3,338
<INCOME-PRE-EXTRAORDINARY> 2,340
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,340
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<YIELD-ACTUAL> 7.71
<LOANS-NON> 2,259
<LOANS-PAST> 1,429
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,910
<CHARGE-OFFS> 857
<RECOVERIES> 234
<ALLOWANCE-CLOSE> 5,737
<ALLOWANCE-DOMESTIC> 5,737
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
