FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended September 30, 1995 Commission file number 2-80339
FARMERS NATIONAL BANC CORP.
(Exact name of registrant as specified in its charter)
OHIO 34-1371693
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
20 South Broad Street
Canfield, OH 44406 44406
(Address of principal executive offices) (Zip Code)
(216) 533-3341
(Registrant's telephone number, including area code)
Not applicable
(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 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.
Class Outstanding at September 30, 1995
Common Stock, $2.50 Par Value 1,597,850 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Included in Part I of this report:
Farmers National Banc Corp. and Subsidiary
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
PART II - OTHER INFORMATION
Other Information and Signatures 11-13
CONSOLIDATED BALANCE SHEETS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
Sept. 30, Dec. 31,
1995 1994
ASSETS
Cash and due from banks $ 12,197,694 $ 11,525,724
Federal funds sold 16,847,000 2,983,000
TOTAL CASH & CASH EQUIVALENTS 29,044,694 14,508,724
Investment Securities:
Securities available for sale 35,364,553 38,513,343
Securities held to maturity 10,178,784 9,493,005
TOTAL INVESTMENT SECURITIES 45,543,337 48,006,348
Total Loans 226,787,065 217,734,346
Less allowance for possible loan losses 2,973,851 2,746,420
NET LOANS 223,813,214 214,987,926
Premises and equipment, net 5,010,093 4,121,382
Other assets 2,613,419 2,820,447
$306,024,757 $284,444,827
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $ 21,610,053 $ 24,598,424
Interest bearing 238,909,129 219,703,940
TOTAL DEPOSITS 260,519,182 244,302,364
Short-term borrowings:
U.S. Treasury interest-bearing demand note 766,142 792,011
Securities sold under repurchase agreements 11,109,535 9,211,919
TOTAL SHORT-TERM BORROWINGS 11,875,677 10,003,930
Other liabilities & deferred credits 1,127,157 1,223,266
TOTAL LIABILITIES 273,522,016 255,529,560
Stockholders equity:
Common stock-Authorized 2,400,000 shares
issued & outstanding 1,597,850 in Sept. 1995
& 1,556,992 in December 1994 3,994,625 3,892,480
Additional paid-in capital 14,534,924 13,300,977
Retained earnings 13,979,518 12,385,429
Unrealized Apprec. (Deprec.) on debt securities (6,326) (663,619)
TOTAL STOCKHOLDERS EQUITY 32,502,741 28,915,267
$306,024,757 $284,444,827
1
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
Three months ended Nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
INTEREST INCOME
Interest & fees on loans $ 4,751,850 $ 4,283,661 $13,648,570 $12,522,110
Interest & dividends on investment sec.:
Taxable interest 537,932 564,272 1,599,803 1,602,052
Interest exempt from fed. income taxes 104,520 103,409 328,105 304,242
Dividends 5,556 5,839 17,010 15,331
Interest on federal funds sold 237,334 47,551 466,636 177,451
TOTAL INTEREST INCOME 5,637,192 5,004,732 16,060,124 14,621,186
INTEREST EXPENSE
Deposits 2,414,498 1,887,596 6,698,579 5,754,790
Short-term borrowing 129,868 86,138 350,943 217,659
TOTAL INTEREST EXPENSE 2,544,366 1,973,734 7,049,522 5,972,449
NET INTEREST INCOME 3,092,826 3,030,998 9,010,602 8,648,737
Provision for possible loan losses 60,000 60,000 240,000 270,000
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,032,826 2,970,998 8,770,602 8,378,737
OTHER INCOME
Service charges on deposit accounts 243,615 244,726 721,956 709,182
Net investment security gains/(losses) -0- 17,675 ( 197) 88,327
Other operating income 94,119 86,726 283,143 243,178
TOTAL OTHER INCOME 337,734 349,127 1,004,902 1,040,687
OTHER EXPENSES
Salaries and employee benefits 1,048,431 926,956 3,068,104 2,761,509
Net occupancy expense of premises 126,206 111,832 378,314 353,366
Furniture and equipment expense,
including depreciation 124,913 119,991 376,422 400,704
Intangible and other assets 107,958 95,287 331,959 293,334
Federal deposit insurance 5,306 133,558 283,868 409,558
Other operating expenses 573,453 503,711 1,643,811 1,492,470
TOTAL OTHER EXPENSES 1,986,267 1,891,335 6,082,478 5,710,941
INCOME BEFORE FEDERAL INCOME TAXES 1,384,293 1,428,790 3,693,026 3,708,483
FEDERAL INCOME TAXES 440,109 454,746 1,156,732 1,170,116
NET INCOME $ 944,184 $ 974,044 $ 2,536,294 $ 2,538,367
*Net income per share $ .60 $ .65 $ 1.61 $ 1.68
<FN>
*Adjusted to reflect weighted average
shares outstanding, without audit and
before adjustments.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
Sept. 30, Sept. 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 16,469,349 $ 15,229,748
Fees and commissions received 1,005,099 952,360
Interest paid ( 6,816,764) ( 6,006,479)
Cash paid to suppliers and employees ( 5,918,423) ( 5,593,933)
Income taxes paid ( 1,145,000) ( 1,270,135)
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,594,261 3,311,561
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investments available for sale 12,000,000 12,123,630
Proceeds from maturity of investments held to maturity 1,655,981 4,780,321
Proceeds from sale of securities held to maturity -0- 522,675
Proceeds from sale of investments available for sale 1,999,687 4,081,530
Purchase of investment securities held to maturity ( 2,347,685) ( 3,932,614)
Purchase of investment securities available for sale ( 10,052,705) ( 17,418,502)
Net increase in loans made to customers ( 10,416,456) ( 11,152,381)
Purchase of premises and equipment ( 1,185,021) ( 246,807)
Purchase of other real estate -0- ( 164,433)
Proceeds from sale of other real estate 252,291 -0-
NET CASH USED IN INVESTING ACTIVITIES ( 8,093,908) ( 11,406,581)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts ( 7,396,953) 4,103,422
Net increase (decrease) in time deposits 26,115,942 1,845,804
Dividends paid ( 888,637) ( 720,527)
Proceeds from sale of common stock 1,336,052 1,101,724
Other ( 130,787) -0-
NET CASH PROVIDED FROM FINANCING ACTIVITIES 19,035,617 6,330,423
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 14,535,970 ( 1,764,597)
CASH AND CASH EQUIVALENTS
Beginning of period 14,508,724 16,825,874
End of period $ 29,044,694 $ 15,061,277
RECONCILATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income $ 2,536,294 $ 2,538,367
Add (deduct) items not affecting cash:
Depreciation 296,310 284,620
Amortization and accretion 706,702 728,792
Provision for credit losses 240,000 270,000
Increase in interest & fees receivable ( 295,849) ( 120,230)
Increase (Decrease) in interest payable 232,758 ( 34,030)
Decrease in accrued expenses ( 17,845) ( 161,587)
(Gain) Loss on sale of investment securities 197 ( 88,327)
Other ( 104,306) ( 106,044)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,594,261 $ 3,311,561
3
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for September 30, 1995 and 1994 have been
prepared by management without audit and, therefore, have not been certified
by our Independent Certified Public Accountants.
In the opinion of the management of the registrant, the accompanying
consolidated financial statements for the nine month period ending September
30, 1995 and 1994 include all adjustments, consisting of only normal
recurring adjustments necessary for a fair statement of the results for the
periods.
Notes:
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
(1) Federal Income Tax
Income before Federal Income Tax $3,693,026 $3,708,483
Less nontaxable interest and dividends 328,105 304,242
Taxable Income 3,364,921 3,404,241
Federal Income Tax $1,156,732 $1,170,116
4
(2) Stockholders Equity:
For the nine months
ended Sept. 30, 1995
Common Stock
Balance 1/1/95 $ 3,892,480
Dividend Reinvestment 102,145
Balance 9/30/95 $ 3,994,625
Additional Paid In Capital
Balance 1/1/95 $13,300,977
Dividend Reinvestment 1,233,947
Balance 9/30/95 $14,534,924
Retained Earnings
Balance 1/1/95 $12,385,429
Net Income 2,536,294
Dividends Declared:
$.60 Cash Dividends on
Common Stock 942,205
Balance 9/30/95 $13,979,518
Unrealized Appreciation (Depreciation) on Debt Securities
Balance 1/1/95 $ (663,619)
Net Change in Unrealized Appreciation on Debt Sec. 657,293
Balance 9/30/95 $ ( 6,326)
TOTAL STOCKHOLDERS EQUITY AT 9/30/95 $32,502,741
(3) Effect of New Financial Accounting Standards:
Effective January 1, 1995, the company adopted Financial Accounting Standards
Board Statement 114, "Accounting by creditors for impairment of loans". Under
the new standard, the 1995 reserve for loan losses related to loans that are
considered impaired would be based on discounted cash flows using the loan's
initial effective interest rate and the fair value of the collateral for
certain collateral dependent loans. At the present time, management did not
have any loans it considered to be impaired.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Corporation's net income for the third quarter of 1995 was $944,184
or $.60 per share, which is a 3.07% decrease compared with the $974,044 or
$.65 earned during the same period last year. Return on average assets and
return on average equity for the third quarter of 1995 were 1.26% and 11.93%
respectively, compared to 1.39% and 14.20% for the same period in 1994.
Net income for the first nine months of 1995 was $2,536,294 or $1.61 per
share, which results in a slight .01% decrease compared to the $2,538,367 or
$1.68 per share for the first nine months of 1994. Return on average assets
and return on average equity for the nine months ended September 30, 1995 were
1.16% and 11.06% respectively, compared to 1.21% and 12.65% for the same
period last year.
The decrease in net income for the third quarter was mainly attributable
to a 5.02% increase in other expenses. This increase is primarily due to an
increase in staff and facilities to support growth in assets and the opening
of the Columbiana, Ohio office in December, 1994. The increase in other
expenses was partially offset by a $128,252 decrease in federal deposit
insurance expense. The Corporation's net interest income increased 2.04% from
$3,030,998 for 1994 to $3,092,826 for the same quarter of 1995. This increase
resulted from an increase in loan balances of 5.83% over the past twelve
months, as well as from the overall rise in interest rates. Additionally, the
substantial growth in the balance of Federal funds sold has resulted in an
increase in federal funds sold income of $189,783 for the quarter. This
growth in federal funds sold is fueled by a 6.91% increase in deposits in the
past twelve months.
Liquidity
Liquidity is defined as the ability to meet all financial obligations
when due. The central role of liquidity management is to insure that the
6
Liquidity (cont'd)
corporation has ready access to sufficient liquid funds to meet normal
transaction requirements such as customer loan requirements, to take advantage
of market opportunities which require flexibility and speed to provide a
cushion against unforeseeable needs.
As of September 30, 1995, the Corporation's formula for measuring
liquidity stood at 6.05%, with 3.0% considered adequate to meet funding needs.
This calculation compares favorably to 3.86% at the same time last year.
The corporation has just recently become a member of the Federal Home
Loan Bank. The Corporation plans to utilize the bank's services as an
additional source of funding.
Capital Resources
The capital management function is a continuous process which consists of
providing capital for both the current financial position and the anticipated
future growth of the Corporation. As of September 30, 1995, the corporation's
total risk-based capital ratio stood at 16.41%, and the Tier I risk-based
capital ratio and Tier I leverage ratio were at 15.16% and 10.70%,
respectively. Regulations established by the Federal Deposit Insurance
Corporation Improvement Act require that for a bank to be considered well
capitalized, it must have a total risk-based capital ratio of 10%, a Tier I
risk-based capital ratio of 6% and a Tier I leverage ratio of 5%.
Loan Portfolio
The following shows the composition of loans at the dates indicated:
Sept. 30, Dec. 31,
1995 1994
Commercial, financial and agricultural $ 22,626,785 $ 24,477,302
Real estate - mortgage 94,738,167 92,773,065
Installment loans to individuals 109,422,113 100,483,979
Total Loans $226,787,065 $217,734,346
7
Risk Elements
The following table sets forth aggregate loans in each of the following
categories for the dates indicated:
Sept. 30, Dec. 31,
1995 1994
Loans accounted for on a nonaccrual basis $ 111,688 $ 301,520
Loans contractually past due 90 days
or more as to interest or principal
payments (not included in nonaccruals
loans above) 1,670,077 1,474,642
Loans considered troubled debt re-
structurings (not included in non-
accrual or contracturally past due
above) -0- -0-
Management knows of no loans not included in the table above where serious
doubt exists as to the ability of the borrower to comply with the current loan
repayment terms.
The following shows the amounts of contracted interest income and interest
income reflected in income on loans accounted for on a nonaccrual basis and
loans considered troubled debt restructuring for the periods indicated:
Sept. 30, Dec. 31,
1995 1994
Gross interest income that would have been
recorded if the loans had been current
in accordance with their original terms $ 4,137 $ 21,785
Interest income included in income on the
loans -0- -0-
A loan is placed on a nonaccrual basis whenever sufficient information is
received to question the collectibility of the loan. Once a loan is placed on
a nonaccrual basis, interest that may be accrued and not collected on the loan
is charged against earnings.
As of September 30, 1995, there were no concentrations of loans exceeding 10%
of total loans which are not disclosed as a category of loans. As of that
date also, there are no other interest-earning assets that are either
nonaccrual, past due or restructured.
8
Summary of Credit Loss Experience
The following is an analysis of the Allowance for Loan and Lease Losses for
the periods indicated:
Nine Months Ended Year Ended
Sept. 30, Dec. 31,
1995 1994
Balance at beginning of period $2,746,420 $2,620,741
Loan losses:
Commercial, financial & agricultural ( 1,500) (185,426)
Real estate - mortgage -0- -0-
Installment loans to individuals (160,698) (201,909)
(162,198) (387,335)
Recoveries on previous loan losses:
Commercial, financial & agricultural 43,665 38,995
Real estate - mortgage -0- -0-
Installment loans to individuals 105,964 144,019
149,629 183,014
Net loan losses ( 12,569) (204,321)
Provision charged to operations (1) 240,000 330,000
Balance at end of period $2,973,851 $2,746,420
Ratio of net loan and lease losses to
average net loans and leases outstanding .01% .10%
(1) The provision for possible credit losses charged to operating expense is
based on management's judgement after taking into consideration all factors
connected with the collectibility of the existing loan portfolio. Management
evaluates the loan portfolio in light of economic conditions, changes in the
nature and volume of the loan portfolio, industry standards and other relevant
factors. Specific factors considered by management in determining the amounts
charged to operating expenses include previous credit loss experience, the
status of past due interest and principal payments, the quality of financial
information supplied by loan customers and the general condition of the
industries in the community to which loans have been made.
9
Summary of Credit Loss Experience (cont'd)
The allowance for possible loan and lease losses has been allocated according
to the amount deemed to be reasonably necessary to provide for the possibility
of losses being incurred within the following categories of loans as of the
dates indicated.
Sept. 30, Dec. 31,
1995 1994
Types of Loans
Commercial, financial & agricultural $1,843,787 $1,702,781
Real estate - mortgage 208,169 192,249
Installment 921,895 851,390
$2,973,851 $2,746,420
The allocation of the allowance as shown above should not be interpreted as an
indication that charge-offs in 1995 will occur in the same proportions or that
the allocation indicates future charge-off trends. Furthermore, the portion
allocated to each loan category is not the total amount available for future
losses that might occur within such categories since the total allowance is a
general allowance applicable to the entire portfolio.
The percentage of loans in each category to total loans is summarized as
follows:
Sept. 30, Dec. 31,
1995 1994
Types of Loans
Commercial, financial & agricultural 9.98% 11.20%
Real estate - mortgage 41.77 42.60
Installment loans to individuals 48.25 46.20
Total 100.00% 100.00%
Other Matters
The Farmers National Banc Corp.'s subsidiary, the Farmers National Bank
of Canfield purchased the deposits, premises and equipment of the Leetonia,
Ohio office of Banc One Corp. on September 11, 1995. This transaction
increased the Corporation's deposits by approximately $6,700,000.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the registrant
or its subsidiary is a party, or of which any of their property is the
subject, except proceedings which arise in the ordinary course of business.
In the opinion of management, pending legal proceedings will not have a
material effect on the consolidated financial position of the registrant and
its subsidiary.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1. Not applicable.
4.1. The rights of holders of equity securities are defined in
portions of the Articles of Incorporation and By-laws. The
Articles of Incorporation are incorporated by reference to
Exhibit 3.1. of the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994. The By-laws are
incorporated by reference to Exhibit 3.2. of the registrant's
Annual Report on Form 10-K for the fiscal year ended De-
cember 31, 1994. The registrant agrees to furnish to the
Commission upon request copies of all instruments not filed
herewith defining the rights of holders of long-term debt of
the registrant and its subsidiary.
11
Item 6. (a) - Continued
11.1. Not applicable.
15.1. Not applicable.
18.1. Not applicable.
19.1. Not applicable.
20.1. Not applicable.
23.1. Not applicable.
24.1. Not applicable.
25.1. Not applicable.
28.1. Not applicable.
(b) - Reports on Form 8-K
No reports on Form 8-K were filed for the nine months ended
September 30, 1995.
12
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.
FARMERS NATIONAL BANC CORP.
Dated: ___________________ ______________________________________
William D. Stewart
President and Secretary
Dated: ___________________ ______________________________________
Gene A. Dean
Comptroller, Farmers National Banc Corp.
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