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, 1999 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, as of the latest practicable
date.
Class Outstanding at June 30, 1999
Common Stock, No Par Value 3,695,797 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 and Comprehensive
Income 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-10
PART II - OTHER INFORMATION
Other Information and Signatures 10-12
CONSOLIDATED BALANCE SHEETS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
June 30, December 31,
1999 1998
(In Thousands of Dollars
ASSETS
Cash & due from banks $13,096 $16,686
Federal funds sold 225 5,994
TOTAL CASH AND CASH EQUIVALENTS 13,321 22,680
Securities available for sale 80,430 81,664
Other securities 2,760 2,655
Loans 304,106 286,802
Less allowance for credit losses 3,877 3,689
NET LOANS 300,229 283,113
Premises and equipment, net 7,992 7,785
Other assets 3,676 3,724
$408,408 $401,621
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $28,503 $29,380
Interest-bearing 289,971 292,138
TOTAL DEPOSITS 318,474 321,518
U. S. Treasury interest-bearing demand note 771 72
Securities sold under repurchase agreements 24,448 24,473
Short-term borrowings 6,216 3,647
Long-term borrowings 7,237 1,696
Other liabilities and deferred credits 2,026 2,941
TOTAL LIABILITIES 359,172 354,347
Stockholders Equity:
Common Stock - Authorized 12,500,000 shares in 1999
and 5,000,000 in 1998; issued and outstanding
3,695,797 in 1999 and 3,657,288 in 1998 33,313 31,661
Retained earnings 16,524 15,337
Treasury stock, at cost; 2,500 shares (91) 0
Accumulated other comprehensive income (510) 276
TOTAL STOCKHOLDERS EQUITY 49,236 47,274
$408,408 $401,621
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE 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,
1999 1998 1999 1998
(In Thousands except Per Share Data)
INTEREST INCOME
Interest and fees on loans $6,294 $6,140 $12,358 $12,069
Interest and dividends on securities:
Taxable interest 917 888 1,890 1,779
Nontaxable interest 183 137 339 265
Dividends 41 29 82 58
Interest on federal funds sold 89 86 154 168
TOTAL INTEREST INCOME 7,524 7,280 14,823 14,339
INTEREST EXPENSE
Deposits 2,666 2,867 5,349 5,787
Borrowings 385 268 735 502
TOTAL INTEREST EXPENSE 3,051 3,135 6,084 6,289
NET INTEREST INCOME 4,473 4,145 8,739 8,050
Provision for credit losses 210 210 420 420
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 4,263 3,935 8,319 7,630
OTHER INCOME
Service charges on deposit accounts 283 295 563 581
Investment security gains 0 0 3 5
Other operating income 120 128 237 256
TOTAL OTHER INCOME 403 423 803 842
OTHER EXPENSES
Salaries and employee benefits 1,413 1,284 2,789 2,565
Net occupancy expense of premises 143 142 287 282
Furniture and equipment expense,
including depreciation 159 126 312 267
Intangible and other taxes 149 145 297 298
Other operating expenses 821 756 1,610 1,474
TOTAL OTHER EXPENSES 2,685 2,453 5,295 4,886
INCOME BEFORE FEDERAL INCOME TAXES 1,981 1,905 3,827 3,586
FEDERAL INCOME TAXES 624 612 1,210 1,151
NET INCOME $1,357 $1,293 $2,617 $2,435
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized losses on securities (576) (135) (786) (139)
COMPREHENSIVE INCOME $781 $1,158 $1,831 $2,296
* NET INCOME PER SHARE $0.37 $0.36 $0.71 $0.68
<FN>
*Adjusted to reflect weighted average shares outstanding
and 2% stock dividend, without audit and before adjustments.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
Six Months Ended
June 30, June 30,
1999 1998
(In Thousands of Dollars)
CASH FLOW FROM OPERATING ACTIVITIES
Interest received $15,691 $14,782
Fees and commissions received 790 828
Interest paid (6,137) (6,358)
Cash paid to suppliers and employees (5,323) (4,219)
Income taxes paid (1,244) (1,103)
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,777 3,930
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 11,850 8,927
Proceeds from sales of investment securities available for sale 138 1,023
Purchases of other securities and securities available for sale (12,460) (13,468)
Net increase in loans made to customers (18,915) (23,130)
Purchases of premises and equipment (461) (327)
NET CASH USED IN INVESTING ACTIVITIES (19,848) (26,975)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts and savings accounts 3,999 5,240
Net decrease in time deposits (5,314) (3,491)
Net increase in Federal Home Loan Bank borrowings 2,510 15,016
Net increase in federal funds purchased 5,600 3,100
Purchase of Treasury Stock (91) 0
Dividends paid (1,644) (1,954)
Proceeds from sale of common stock 1,652 1,846
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,712 19,757
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,359) (3,288)
CASH AND CASH EQUIVALENTS
Beginning of period 22,680 19,182
End of period $13,321 $15,894
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income $2,617 $2,435
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 230 206
Amortization and accretion 904 681
Provision for credit losses 420 420
Gain on sale of investment securities (3) (5)
Decrease (increase) in prepaid expenses (434) 298
Other 43 (105)
NET CASH PROVIDED BY OPERATING ACTIVITIES $3,777 $3,930
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for June 30, 1999 and 1998 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, 1999 and 1998 include all adjustments,
consisting of only normal recurring adjustments necessary for a
fair statement of the results for the periods.
Stockholders Equity Six Months Ended
June 30, 1999
(In Thousands of Dollars)
Common Stock
Balance 1/1/99 $31,661
41,009 shares sold 1,652
Balance 6/30/99 33,313
Retained Earnings
Balance 1/1/99 15,337
Net Income 2,617
Dividends Declared: $.39 Cash dividends on common
stock (1,430)
Balance 6/30/99 16,524
Treasury Stock, At Cost
Balance 1/1/99 0
Shares Purchased (91)
Balance 6/30/99 (91)
Accumulated Other Comprehensive Income
Balance 1/1/99 276
Net change in unrealized depreciation on debt
securities, net of income taxes (786)
Balance 6/30/99 (510)
Total Stockholders Equity at 6/30/99 $49,236
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following financial review presents an analysis of the
assets and liability structure of the Corporation and a
discussion of the results of operations for each of the periods
presented in this quarterly report, liquidity, capital and
credit quality. Certain statements in this report that relate
to Farmers National Banc Corp.'s plans, objectives, or future
performance may be deemed to be forward-looking statements
within the Private Securities Litigation Reform Act of 1995.
Such statements are based on management's current expectations.
Actual strategies and results in future periods may differ
materially from those currently expected because of various
risks and uncertainties.
Results of Operations
The Corporation's net income for the first six months of
1999 was $2.617 million, or $.71 per share, which is a 7.47%
increase compared with the $2.435 million, or $.68 per share
earned during the same period last year. Return on average
assets and return on average equity for the first six months of
1999 were 1.30% and 10.91% respectively, compared to 1.31% and
11.33% for the same period in 1998.
The increase in net income for the first six months of 1999
was primarily the result of an increase in net interest income.
The Corporation's net interest income increased $689 thousand,
or 8.56% from $8.050 million for 1998 to $8.739 million for the
same period in 1999. Interest income on loans and investment
securities is up 3.38% compared to the first six months of last
year. Some of this increase is a result of the growth in loans
outstanding. Increasing demand in the Corporation's commercial
real estate and installment loan products has increased average
balances in the total loan portfolio by 5.10%. This growth has
contributed to the increase in loan income of $289 thousand or
2.39%. Funds not used for loan growth have been used to
purchase investment securities. The Corporation's average
balance of securities available for sale has increased 16.99%
from June, 1998 to June, 1999. This growth has increased income
on securities by $195 thousand or 8.59%, comparing the first six
months of 1999 to the first six months of 1998. Interest
expense on deposits and borrowings is 3.26% lower for the first
six months of 1999 compared to the first six months of 1998.
This cost savings is the result of an overall decrease in the
rates paid on interest-bearing liabilities.
Other income decreased 4.63% from $842 thousand in 1998
to $803 thousand in 1999. The Corporation's total other
expenses for the first six months of 1999 increased 8.37% from
$4.886 million in 1998 to $5.295 million in 1999. The increase
in other operating expenses is due primarily to asset growth and
the increased volume of the operations of the bank. Management
will continue to closely monitor and keep the increases in
noninterest expenses to a minimum.
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 decreased to
$3.777 million compared to $3.930 million for the same period in
1998. This decrease of $153 thousand is primarily the result
of an increase in cash paid to suppliers and employees. Net
cash flows used in investing activities amounted to $19.848
million. Most of these funds were used to fund loans made to
customers, which increased $18.915 million since December 31,
1998.
Net cash flows provided by financing activities were $6.712
million in 1999 compared to $19.757 million in 1998. Although
the Corporation experienced a decrease in customer deposits of
$1.316 million, $2.51 million in Federal Home Loan Bank
borrowings and $5.6 million in federal funds purchased were used
to fund some of the increase in loans made to customers.
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, 1999, the corporation's total
risk-based capital ratio stood at 18.96%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at
17.71% and 12.09%, 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:
(In Thousands of Dollars)
June 30, Dec. 31,
1999 1998
Commercial, financial and agricultural $11,267 $10,885
Residential mortgage loans 116,356 113,547
Nonresidential mortgage loans 46,472 44,371
Installment loans to individuals 130,011 117,999
Total loans $304,106 $286,802
The following table sets forth aggregate loans in each of the
following categories for the dates indicated:
(In Thousands of Dollars)
June 30, Dec. 31,
1999 1998
Loans accounted for on a nonaccrual basis $484 $576
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 268 435
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.
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:
(In Thousands of Dollars)
June 30, Dec. 31,
1999 1998
Gross interest that would have been recorded
if the loans had been current in accordance
with their original terms $19 $27
Interest income included in income on the loans 4 1
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, 1999, 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:
(In Thousands of Dollars)
Six Months Year
Ended Ended
June 30, Dec. 31,
1999 1998
Balance at beginning of period $3,689 $3,429
Loan losses:
Commercial, financial & agricultural (25) (63)
Real estate - mortgage (45) (39)
Installment loans to individuals (311) (772)
(381) (874)
Recoveries on previous loan losses:
Commercial, financial & agricultural 11 0
Real estate - mortgage 6 9
Installment loans to individuals 132 285
149 294
Net loan losses (232) (580)
Provision charged to operations (1) 420 840
Balance at end of period $3,877 $3,689
Ratio of net credit losses to average net
loans outstanding .16% .21%
(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.
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.
(In Thousands of Dollars)
June 30, Dec. 31,
Types of Loans 1999 1998
Commercial, financial & agricultural $994 $812
Real estate - mortgage 993 1,017
Installment 1,890 1,860
Total $3,877 $3,689
The allocation of the allowance as shown above should not be
interpreted as an indication that charge-offs in 1999 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 1999 1998
Commercial, financial & agricultural 3.7% 3.8%
Residential mortgage loans 38.3% 39.6%
Nonresidential mortgage loans 15.3% 15.5%
Installment loans to individuals 42.7% 41.1%
100.0% 100.0%
Year 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Corporation's programs that have
time sensitive software may recognize the date as the year 1900
rather than the year 2000. This could result in a major system
failure or miscalculations. The Federal Financial Institutions
Examination Council recognizes five phases that banks must
complete to achieve Year 2000 readiness: 1) Awareness of the potential
risks associated with Year 2000; 2) Assessment of all information and
environmental systems needing enhancements; 3) Renovation of the
systems that are not Year 2000 ready; 4) Validation of the
renovated systems to assure Year 2000 readiness; and 5) Implementation
of the renovated product into the ongoing operations. The
Corporation has completed the Awareness, Assessment and
Renovation phases and has substantially completed the validation
of its mission critical systems for year 2000 readiness. At
this time it is not expected that expenses to address year 2000
issues will materially impact future operating results. The
Corporation has prepared a year 2000 contingency plan to address
the possible risks that may be faced within and outside of the
Corporation's control.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There are no material changes from the end of the preceding
fiscal year that would cause additional disclosure of the bank's
exposure to market risk.
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.
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, 1999.
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: 8/10/99
/s/ Frank L. Paden
President and Secretary
Dated: 8/10/99
/s/ Carl D. Culp
Executive Vice President
and Treasurer