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 June 30, 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 June 30, 1997
Common Stock, No Par Value 3,369,847 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
June 30, December 31,
1997 1996
ASSETS
Cash & due from banks $13,689,484 $13,302,154
Federal funds sold 1,710,000 5,667,000
TOTAL CASH AND CASH EQUIVALENTS 15,399,484 18,969,154
Securities available for sale 62,307,561 45,611,788
Other securities 1,553,950 1,467,650
Loans 268,938,276 266,702,323
Less allowance for credit losses 3,272,951 3,197,889
NET LOANS 265,665,325 263,504,434
Premises and equipment, net 5,588,928 5,697,598
Other assets 3,118,613 2,861,617
$353,633,861 $338,112,241
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $23,423,170 $23,468,432
Interest-bearing 265,432,667 260,342,434
TOTAL DEPOSITS 288,855,837 283,810,866
U. S. Treasury interest-bearing demand note 699,932 622,129
Securities sold under repurchase agreements 16,072,112 15,748,622
Short-term borrowings 5,000,000 1,400,000
Long-term borrowings 4,994,000 0
Other liabilities and deferred credits 359,015 1,721,635
TOTAL LIABILITIES 315,980,896 303,303,252
Commitments and contingent liabilities
Stockholders Equity:
Common Stock - no par value; authorized 5,000,000
shares; issued and outstanding 3,369,847 in 1997 and
3,311,268 in 1996 24,193,591 24,253,806
Retained earnings 16,064,289 14,766,370
Unrealized appreciation on debt securities,
net of applicable income taxes 176,297 108,191
Treasury stock, at cost; 105,955 shares in 1997 and
164,544 in 1996 (2,781,212) (4,319,378)
TOTAL STOCKHOLDERS EQUITY 37,652,965 34,808,989
$353,633,861 $338,112,241
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
INTEREST INCOME 1997 1996 1997 1996
Interest and fees on loans $5,796,607 $5,263,979 $11,474,074 $10,272,121
Interest and dividends on securities:
Taxable interest 791,523 572,633 1,366,625 1,129,846
Nontaxable interest 113,980 113,863 225,470 220,959
Dividends 24,776 22,809 49,259 46,021
Interest on federal funds sold 114,481 171,368 261,994 386,142
TOTAL INTEREST INCOME 6,841,367 6,144,652 13,377,422 12,055,089
INTEREST EXPENSE
Deposits 2,708,568 2,533,973 5,355,988 5,042,553
Borrowings 267,845 128,423 455,364 244,197
TOTAL INTEREST EXPENSE 2,976,413 2,662,396 5,811,352 5,286,750
NET INTEREST INCOME 3,864,954 3,482,256 7,566,070 6,768,339
Provision for credit losses 200,000 90,000 350,000 180,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 3,664,954 3,392,256 7,216,070 6,588,339
OTHER INCOME
Service charges on deposit accounts 288,280 272,436 564,499 511,249
Investment security gains (losses) (341) 0 3,064 0
Other operating income 114,256 75,732 198,466 162,303
TOTAL OTHER INCOME 402,195 348,168 766,029 673,552
OTHER EXPENSES
Salaries and employee benefits 1,255,950 1,156,863 2,566,571 2,274,296
Net occupancy expense of premises 137,685 127,325 281,088 268,661
Furniture and equipment expense,
including depreciation 120,826 135,322 250,742 286,054
Intangible and other taxes 134,149 129,401 274,907 261,700
Other operating expenses 659,430 672,421 1,371,485 1,252,764
TOTAL OTHER EXPENSES 2,308,040 2,221,332 4,744,793 4,343,475
INCOME BEFORE FEDERAL INCOME TAXES 1,759,109 1,519,092 3,237,306 2,918,416
FEDERAL INCOME TAXES 571,994 481,798 1,041,093 925,698
NET INCOME $1,187,115 $1,037,294 $2,196,213 $1,992,718
* NET INCOME PER SHARE $0.36 $0.31 $0.66 $0.59
<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
Six Months Ended
June 30, June 30,
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES
Interest received $13,626,034 $12,388,448
Fees and commissions received 762,965 673,552
Interest paid (5,755,619) (5,312,334)
Cash paid to suppliers and employees (4,760,288) (4,533,731)
Income taxes paid (1,005,000) (940,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,868,092 2,275,935
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 8,577,921 7,719,979
Proceeds from sales of investment securities available for sale 103,064 0
Purchases of other securities and securities available for sale (25,429,216) (8,590,031)
Net increase in loans made to customers (4,525,356) (21,392,313)
Purchases of premises and equipment (97,422) (280,150)
NET CASH USED IN INVESTING ACTIVITIES (21,371,009) (22,542,515)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (2,103,455) 3,136,410
Net increase in time deposits 7,934,331 5,138,341
Net increase in Federal Home Loan Bank borrowings 8,594,000 0
Dividends paid (969,581) (629,015)
Proceeds from sale of common stock 1,477,951 1,172,199
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,933,246 8,817,935
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,569,670) (11,448,645)
CASH AND CASH EQUIVALENTS
Beginning of period 18,969,154 29,396,117
End of period $15,399,484 $17,947,472
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income $2,196,213 $1,992,718
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 196,825 209,269
Amortization and accretion 572,000 636,257
Provision for credit losses 350,000 180,000
Gain on sale of investment securities (3,064) 0
Increase in prepaid expenses (286,373) (392,458)
Other (157,509) (349,851)
NET CASH PROVIDED BY OPERATING ACTIVITIES $2,868,092 $2,275,935
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for June 30, 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 six month
period ending June 30, 1997 and 1996 include all adjustments,
consisting of only normal recurring adjustments necessary for a
fair statement of the results for the periods.
Notes:
Six Months Ended
June 30, June 30,
1997 1996
(1) Federal Income Tax
Income before Federal Income Tax 3,237,306 2,918,416
Less nontaxable interest and dividends 225,470 220,959
Taxable Income 3,011,836 2,697,457
Federal Income Tax 1,041,093 925,698
(2) Stockholders Equity Six Months Ended
June 30, 1997
Common Stock
Balance 1/1/97 24,253,806
Excess of treasury stock cost over value of shares sold (60,215)
Balance 6/30/97 24,193,591
Retained Earnings
Balance 1/1/97 14,766,370
Net Income 2,196,213
Dividends Declared: $.27 Cash dividends on common stock (898,294)
Balance 6/30/97 16,064,289
Unrealized Appreciation On Debt Securities
Balance 1/1/97 108,191
Net change in unrealized appreciation on debt securities,
net of income taxes 68,106
Balance 6/30/97 176,297
Treasury Stock, At Cost
Balance 1/1/97 (4,319,378)
Shares Sold 1,538,166
Balance 6/30/97 (2,781,212)
Total Stockholders Equity at 6/30/97 37,652,965
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The Corporation's net income for the second quarter of 1997
was $1,187,115 or $.36 per share, which is a 14.44% increase
compared with the $1,037,294 or $.31 per share earned during the
same period last year. Return on average assets and return on
average equity for the first six months of 1997 were 1.28% and
12.33% respectively, compared to 1.25% and 11.44% for the same
period in 1996.
Results of Operations (cont'd)
The increase in net income for the second quarter was
primarily the result of an increase in net interest income.
The Corporation's net interest income increased 10.99% from
$3,482,256 for 1996 to $3,864,954 for the same quarter of 1997.
Total interest income is up 11.34% compared to the second
quarter of last year. This increase resulted from an increase
in loan balances of 6.33% over the past twelve months, as well
as from an increase in yields on loans. Total interest expense
is 11.79% higher for the second quarter of 1997 compared to the
second quarter of 1996. This increase is due primarily to
growth in time deposits. The bank's time deposits have grown
15.06% over the twelve months.
Provisions for credit losses in the second quarter amounted
to $200,000, compared to $90,000 for the same quarter in 1996.
This substantial increase is the result of a $16 million or
6.33% increase in loans in the past twelve months.
The Corporation's total other expenses for the second
quarter increased 3.9% from $2,221,332 in 1996 to $2,308,040 in
1997. Salaries and employee benefits increased 8.57%, as a
result of additional staff 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 $2,868,092 compared to $2,275,935 for the same
period in 1996. This increase of $592,157 is primarily the
result of increased levels of interest income. Net cash flows
used in investing activities amounted to $21,371,009. Most of
these funds were used to fund the bank's purchase of investment
securities available for sale, which increased $16,695,773
during the first six months of 1997, while loans increased
$2,235,953 during the same time period. Net cash flows provided
by financing activities were $14,933,246 compared to $8,817,935
in 1996. Approximately $5,831,000 of these funds were generated
from increases in balances in deposit accounts, and $8,594,000
was borrowed 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 June 30, 1997, the corporation's total
risk-based capital ratio stood at 16.59%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at
15.34% and 10.59%, 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:
June 30, Dec. 31,
1997 1996
Commercial, financial and agricultural 9,636,971 8,454,064
Residential mortgage loans 103,106,781 104,088,173
Nonresidential mortgage loans 37,557,260 32,124,015
Installment loans to individuals 118,637,264 122,036,071
Total loans 268,938,276 266,702,323
Risk Elements
The following table sets forth aggregate loans in each of the
following categories for the dates indicated:
June 30, Dec. 31,
1997 1996
Loans accounted for on a nonaccrual basis 880,921 0
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 527,686 2,098,118
Loans considered troubled debt restructurings
(not included in nonaccrual or contractually
past due above) 0 0
Risk Elements (Continued)
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:
June 30, Dec. 31,
1997 1996
Gross interest that would have been recorded
if the loans had been current in accordance
with their original terms 17,494 0
Interest income included in income on the loans 30,088 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 June 30, 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:
Six Months Year
Ended Ended
June 30, 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 (350,912) (454,665)
(350,912) (552,046)
Recoveries on previous loan losses:
Commercial, financial & agricultural 232 9,450
Real estate - mortgage 5,200 15,000
Installment loans to individuals 70,542 159,647
75,974 184,097
Net loan losses (274,938) (367,949)
Provision charged to operations (1) 350,000 655,000
Balance at end of period 3,272,951 3,197,889
Ratio of net credit losses to average net
loans outstanding .10% .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.
June 30, Dec. 31,
Types of Loans 1997 1996
Commercial, financial & agricultural 574,401 1,873,000
Real estate - mortgage 1,254,848 263,000
Installment 1,443,702 1,061,889
Total 3,272,951 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:
June 30, Dec. 31,
Types of Loans 1997 1996
Commercial, financial & agricultural 3.6% 3.2%
Residential mortgage loans 38.3% 39.0%
Nonresidential mortgage loans 14.0% 12.0%
Installment loans to individuals 44.1% 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
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.
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.
Exhibits and Reports on Form 8-K (Continued)
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
No reports on Form 8-K were filed for the six months ended
June 30, 1997.
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: 8/7/97
/s/Frank L. Paden
President and Secretary
Dated: 8/7/97
/s/Carl D. Culp
Executive Vice President
and Treasurer