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 March. 31, 1997 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)
(330) 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 March 31, 1997
Common Stock, No Par Value 3,341,367 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 5-10
PART II - OTHER INFORMATION
Other Information and Signatures 11-13
CONSOLIDATED BALANCE SHEETS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
March 31, December 31,
1997 1996
ASSETS
Cash & due from banks $11,195,755 $13,302,154
Federal funds sold 9,099,000 5,667,000
TOTAL CASH AND CASH EQUIVALENTS 20,294,755 18,969,154
Securities available for sale 52,290,827 45,611,788
Other securities 1,467,650 1,467,650
Loans 263,097,704 266,702,323
Less allowance for credit losses 3,231,648 3,197,889
NET LOANS 259,866,056 263,504,434
Premises and equipment, net 5,638,738 5,697,598
Other assets 3,700,529 2,861,617
$343,258,555 $338,112,241
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $23,420,637 $23,468,432
Interest-bearing 266,626,066 260,342,434
TOTAL DEPOSITS 290,046,703 283,810,866
Short-term borrowings:
U. S. Treasury interest-bearing demand note 571,304 622,129
Securities sold under repurchase agreements 14,787,579 15,748,622
Federal Home Loan Bank advances 0 1,400,000
TOTAL SHORT-TERM BORROWINGS 15,358,883 17,770,751
Other liabilities and deferred credits 1,865,201 1,721,635
TOTAL LIABILITIES 307,270,787 303,303,252
Commitments and contingent liabilities
Stockholders Equity:
Common Stock - no par value; authorized 5,000,000
shares; issued and outstanding 3,341,367 in 1997 and
1,659,255 in 1996 24,200,643 24,253,806
Retained earnings 15,344,995 14,766,370
Unrealized appreciation (depreciation) on debt securities,
net of applicable income taxes (35,941) 108,191
Treasury stock, at cost; 134,165 shares in 1997 and
164,544 in 1996 (3,521,929) (4,319,378)
TOTAL STOCKHOLDERS EQUITY 35,987,768 34,808,989
$343,258,555 $338,112,241
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP AND SUBSIDIARY
For the Three Months Ended
March 31, March 31,
1997 1996
INTEREST INCOME
Interest and fees on loans $5,677,467 $5,008,142
Interest and dividends on securities:
Taxable interest 575,102 557,213
Nontaxable interest 111,490 107,096
Dividends 24,483 23,212
Interest on federal funds sold 147,513 214,774
TOTAL INTEREST INCOME 6,536,055 5,910,437
INTEREST EXPENSE
Deposits 2,647,420 2,508,580
Short-term borrowings 187,519 115,774
TOTAL INTEREST EXPENSE 2,834,939 2,624,354
NET INTEREST INCOME 3,701,116 3,286,083
Provision for credit losses 150,000 90,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 3,551,116 3,196,083
OTHER INCOME
Service charges on deposit accounts 276,219 238,813
Investment security gains 3,405 0
Other operating income 84,210 86,571
TOTAL OTHER INCOME 363,834 325,384
3,914,950 3,521,467
OTHER EXPENSES
Salaries and employee benefits 1,310,621 1,117,433
Net occupancy expense of premises 143,403 141,336
Furniture and equipment expense,
including depreciation 129,916 150,732
State and local taxes 140,758 132,299
Other operating expenses 712,055 580,343
TOTAL OTHER EXPENSES 2,436,753 2,122,143
INCOME BEFORE FEDERAL INCOME TAXES 1,478,197 1,399,324
FEDERAL INCOME TAXES 469,099 443,900
NET INCOME $1,009,098 $955,424
* NET INCOME PER SHARE $0.30 $0.28
<FN>
*Adjusted to reflect weighted average shares outstanding and
2 for 1 stock split without audit and before adjustments.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
Three Months Ended
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES
Interest received $6,472,359 $5,878,123
Fees and commissions received 360,429 325,384
Interest paid (2,844,299) (2,620,796)
Cash paid to suppliers and employees (2,616,761) (2,306,653)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,371,728 1,276,058
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 6,230,839 2,412,475
Proceeds from sales of investment securities available for sale 103,405 0
Purchases of other securities and securities available for sale (13,265,363) (3,306,746)
Net (increase) decrease in loans made to customers 3,094,685 (8,591,886)
Purchases of premises and equipment (46,442) (134,671)
NET CASH USED IN INVESTING ACTIVITIES (3,882,876) (9,620,828)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (737,825) 253,729
Net increase in time deposits 5,704,587 3,294,082
Net decrease in Federal Home Loan Bank Borrowings (1,400,000) 0
Dividends paid (474,299) (261,724)
Proceeds from sale of common stock 744,286 587,840
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,836,749 3,873,927
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,325,601 (4,470,843)
CASH AND CASH EQUIVALENTS
Beginning of year 18,969,154 29,396,117
End of year $20,294,755 $24,925,274
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income $1,009,098 $955,424
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 100,668 121,348
Amortization and accretion 277,900 289,429
Provision for credit losses 150,000 90,000
Gain on sale of investment securities (3,405) 0
Other (162,533) (180,143)
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,371,728 $1,276,058
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for March 1997 and 1996 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 three
month period ending March 31, 1997 and 1996 include all
adjustments, consisting of only normal recurring adjustments
necessary for a fair statement of the results for the periods.
Notes:
Three Months Ended
March 31, March 31,
1997 1996
(1) Federal Income Tax
Income before Federal Income Tax 1,478,197 1,399,324
Less nontaxable interest and dividends 111,490 107,096
Taxable Income 1,366,707 1,292,228
Federal Income Tax 469,099 443,900
(2) Stockholders Equity Three Months Ended
March 31, 1997
Common Stock
Balance 1/1/97 24,253,806
Excess of treasury stock cost over value of shares sold (53,163)
Balance 3/31/97 24,200,643
Retained Earnings
Balance 1/1/97 14,766,370
Net Income 1,009,098
Dividends Declared: $.13 Cash dividends on common
stock (430,473)
Balance 3/31/97 15,344,995
Unrealized Appreciation (Depreciation) On Debt
Securities
Balance 1/1/97 108,191
Net change in unrealized appreciation on debt securities,
net of income taxes (144,132)
Balance 3/31/97 (35,941)
Treasury Stock, At Cost
Balance 1/1/97 (4,319,378)
Shares Sold 797,449
Balance 3/31/97 (3,521,929)
Total Stockholders Equity at 3/31/97 35,987,768
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The Corporation's net income for the first quarter of 1997
was $1,009,098 or $.30 per share, which is a 5.62% increase
compared with the $955,424 or $.28 per share earned during the
same period last year. Return on average assets and return on
average equity for the first three months of 1997 were 1.19% and
11.58% respectively, compared to 1.21% and 11.21% for the same
period in 1996.
Results of Operations (cont'd)
The increase in net income for the first quarter was
primarily the result of an increase in net interest income.
The Corporation's net interest income increased 12.63% from
$3,196,083 for 1996 to $3,551,116 for the same quarter of 1997.
Total interest income is up 10.58% compared to the first quarter
of last year. This increase resulted from an increase in loan
balances of 9.18% over the past twelve months, as well as from
the slight increase in interest rates. Total interest expense
is 8.02% higher for the first quarter of 1997 compared to the
first quarter of 1996. This increase is due primarily to
growth in time deposits. The bank's time deposits have grown
15.09% over the past year.
The Corporation's total other expenses for the first
quarter increased 14.83% from $2,122,143 in 1996 to $2,436,753
in 1997. Salaries and employee benefits increased 17.29%, and
other operating expenses increased 22.7% as a result of
additional staff, supplies and equipment added to support the
overall growth in assets .
Liquidity
The Corporation maintains, in the opinion of management,
liquidity sufficient to satisfy depositors' requirements and
meet the credit needs of customers. The Corporation depends on
its ability to maintain its market share of deposits as well as
acquiring new funds. The Corporation's ability to attract
deposits and borrow funds depends in large measure on its
profitability, capitalization and overall financial condition.
Principal sources of liquidity for the Corporation include
assets considered relatively liquid such as short-term
investment securities, federal funds sold and cash and due from
banks.
Cash flows generated from operating activities increased
slightly to $1,371,728 compared to $1,276,058 for the same
period in 1996. This increase of $95,670 is primarily the
result of increased levels of interest income. Net cash flows
used in investing activities amounted to $3,882,876. Most of
these funds were used to fund the bank's increase in investment
securities available for sale, which increased $6,679,039 during
the first three months of 1997, while loans decreased $3,604,619
during the same time period. Net cash flows provided by
financing activities were $3,836,749, which is slightly lower
than the $3,873,927 reported in 1996. Approximately $5,700,000
of these funds were generated from increases in balances in time
deposit accounts, and $1,400,000 was used to repay borrowings
from the Federal Home Loan Bank.
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 March 31, 1997, the corporation's total
risk-based capital ratio stood at 16.03%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at
14.78% and 10.43%, 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:
March 31, Dec. 31,
1997 1996
Commercial, financial and agricultural 9,151,358 8,454,064
Residential mortgage loans 102,179,935 104,088,173
Nonresidential mortgage loans 35,100,428 32,124,015
Installment loans to individuals 116,665,983 122,036,071
Total loans 263,097,704 266,702,323
Risk Elements
The following table sets forth aggregate loans in each of the
following categories for the dates indicated:
Mar. 31, Dec. 31,
1997 1996
Loans accounted for on a nonaccrual basis 597,535 0
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 867,863 2,098,118
Loans considered troubled debt restructurings
(not included in nonaccrual or contractually
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.
Risk Elements (Continued)
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:
March 31, Dec. 31,
1997 1996
Gross interest that would have been recorded
if the loans had been current in accordance
with their original terms 2,444 0
Interest income included in income on the loans 23,492 0
A loan is placed on a nonaccrual basis whenever sufficient
information is received to question the collectibility of the
loan. Generally, 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 March 31, 1997, 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.
Summary of Credit Loss Experience
The following is an analysis of the allowance for credit losses
for the periods indicated:
Three Months Year
Ended Ended
March 31, Dec. 31,
1997 1996
Balance at beginning of period 3,197,889 2,910,838
Loan losses:
Commercial, financial & agricultural 0 (74,913)
Real estate - mortgage 0 (22,468)
Installment loans to individuals (147,179) (454,665)
(147,179) (552,046)
Recoveries on previous loan losses:
Commercial, financial & agricultural 0 9,450
Real estate - mortgage 3,200 15,000
Installment loans to individuals 27,738 159,647
30,938 184,097
Net loan losses (116,241) (367,949)
Provision charged to operations (1) 150,000 655,000
Balance at end of period 3,231,648 3,197,889
Ratio of net credit losses to average net
loans outstanding .04% .15%
(1) The provision for possible credit losses charged to
operating expense is based on management's judgment 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.
Summary of Credit Loss Experience (cont'd)
The allowance for possible credit 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.
March 31, Dec. 31,
Types of Loans 1997 1996
Commercial, financial & agricultural 536,775 1,873,000
Real estate - mortgage 1,230,934 263,000
Installment 1,463,939 1,061,889
Total 3,231,648 3,197,889
The allocation of the allowance as shown above should not be
interpreted as an indication that charge-offs in 1997 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:
March 31, Dec. 31,
Types of Loans 1997 1996
Commercial, financial & agricultural 3.5% 3.2%
Residential mortgage loans 38.8% 39.0%
Nonresidential mortgage loans 13.3% 12.0%
Installment loans to individuals 44.4% 45.8%
100.0% 100.0%
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
(a) Farmers National Banc Corp's annual meeting of
shareholders was held on March 27, 1997.
(b & c) Proxies were solicited by Farmers National Banc
Corp's management pursuant to Regulation 14 under the
Securities Exchange Act of 1934. Elected to serve as director
until the 1998 annual meeting of shareholders were management's
nominees Benjamin R. Brown (2,637,387 votes), Richard L. Calvin
(2,636,222 votes), Joseph O. Lane (2,662,149 votes), David C.
Myers (2,657,003 votes), Edward A. Ort (2,661,142 votes), Frank
L. Paden (2,661,136 votes), William D. Stewart (2,661,142 votes)
and Ronald V. Wertz (2,662,149 votes).
(d) Not Applicable
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed or incorporated by
references as part of this report:
2. Not applicable.
3(i). Not applicable.
3.(ii). Not applicable.
Item 6. Exhibits and Reports on Form 8-K (Continued)
4. 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 subsidiaries.
10. Not applicable.
11. Not applicable.
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule (filed herewith)
99. Not applicable.
(b) - Reports on Form 8-K
A Form 8-K was filed by the Corporation on March 4, 1997.
The item reported was classified as Item 5, Other Events, and
read as follows:
On March 24, 1994, and on March 28, 1996, the Shareholders
approved an increase in the authorized number of shares
available to the Corporation to 2,400,000 shares and 5,000,000
shares respectively. Further, the par value of the Common
Shares of the Corporation was reduced to $2.50 per share and no
par value per share respectively. Both Amendments were adopted
and approved by the Shareholders and the Board of Directors in
accordance with the Articles of Incorporation, Code of
Regulations of the Corporation and Ohio General Corporation Law.
Due to an administrative error, however, the Certificates of
Amendment and the appropriate filing fees were not timely filed
with the Secretary of the State of Ohio. In response to this
matter, the Corporation filed two Certificates of Amendment of
the Articles of Incorporation on February 3, 1997. On February
7, 1997, the Secretary of State of Ohio accepted the
Certificates of Amendment and filing fees. As a result, prior
to February 7, 1997, the Corporation had only 1,200,000 shares
authorized by the Secretary of State of Ohio. This matter was
rectified with the filing of the Certificates of Amendment.
As of February 7, 1997, the Corporation had 5,000,000
shares of no par value common stock authorized and there were
issued and outstanding 3,311,268 shares of the Corporation's
common stock. There are currently 164,544 Common Shares in the
treasury of the Corporation which are being registered with this
registration statement. Share amounts have been adjusted to
reflect a 2-for-1 stock split declared on December 31, 1996.
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: ___________________
/s/Frank L. Paden
President and Secretary
Dated: ___________________
/s/Carl D. Culp
Executive Vice President
and Treasurer