<PAGE>
UNITED STATES
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 September 30, 1994
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 2-76280
FARMERS NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1241460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Church Circle, Annapolis, Maryland 21401
(Address of principal executive offices)
(Zip Code)
(410) 263-2603
(Registrant's telephone number, including area code)
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......
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Class Outstanding at October 31, 1994
Common stock, $1.00 par value 2,699,056 shares
<PAGE>
FARMERS NATIONAL BANCORP
INDEX
PART I. Financial Information Page Number
ITEM I. Financial Statements
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 1
Consolidated Statements of Income
Nine Months Ended September 30, 1994 and 1993 2
Three Months Ended September 30, 1994 and 1993 4
Consolidated Statements of Changes in
Stockholders' Equity
Nine Months Ended September 30, 1994 and 1993 6
Three Months Ended September 30, 1994 and 1993 7
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994 and 1993 8
Three Months Ended September 30, 1994 and 1993 9
Notes to Consolidated Financial Statements 10
ITEM 2. Managements's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. Other Information
Items 1 Through 6(B) 14
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FARMERS NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousand)
<TABLE>
<CAPTION>
Sept. 30, 1994 Dec. 31, 1993
-------------- -------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 29,431 $ 30,460
Interest bearing deposits with banks 2,368 2,328
Federal funds sold 11,300 42,400
Investment securities
Available for sale 38,881 100,639
Held to maturity - fair value of
$280,108 (1994) and $217,779 (1993) 285,712 216,237
--------- ---------
Total investment securities 324,593 316,876
Loans 321,184 303,423
Less: allowance for loan losses (5,812) (5,558)
--------- ---------
Net loans 315,372 297,865
Premises and equipment, net 8,938 9,182
Other real estate owned 2,170 2,100
Accrued income and other assets 14,592 12,998
--------- ---------
Total Assets $708,764 $714,209
========= =========
Liabilities
Noninterest bearing demand deposits $ 88,931 $ 84,680
Interest bearing demand deposits 197,845 204,481
Savings deposits 167,272 162,175
Time deposits 162,421 168,621
--------- ---------
Total deposits 616,469 619,957
Federal funds purchased and securities sold
under agreement to repurchase 8,705 10,481
Liabilities for borrowed money 3,440 6,976
Accrued expenses and other liabilities 6,827 6,855
--------- ---------
Total Liabilities 635,441 644,269
--------- ---------
Stockholders' Equity
Common stock, par value $1 per share; shares
authorized 10,000,000; shares issued 2,699,056 2,699 2,699
Surplus 29,728 29,728
Retained earnings 40,896 37,513
--------- ---------
Total Stockholders' Equity 73,323 69,940
--------- ---------
Total Liabilities and Stockholders' Equity $708,764 $714,209
========= =========
</TABLE>
See accompanying notes.
-1-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ending Sept. 30,
1994 1993
------- -------
<S> <C> <C>
Interest Income
Interest and fees on loans $20,655 $20,677
Interest on deposits with banks 104 104
Interest on federal funds sold 716 561
Interest and dividends on investment securities:
Taxable interest and dividend income 8,877 10,191
Tax-exempt interest and dividend income 2,586 2,149
------- -------
Total interest and dividends on investment
securities 11,463 12,340
------- -------
Total Interest Income 32,938 33,682
------- -------
Interest Expense
Interest on deposits:
Time deposits of $100,000 or more 769 892
Other deposits 11,486 11,751
------- -------
Total interest on deposits 12,255 12,643
Interest on Federal funds purchased and securities
sold under agreement to repurchase 214 172
Interest on borrowed money 76 78
------- -------
Total Interest Expense 12,545 12,893
------- -------
Net Interest Income 20,393 20,789
Provision for loan losses 613 1,348
------- -------
Net Interest Income After Provision for Loan Losses 19,780 19,441
------- -------
Noninterest Income
Trust income 451 348
Service charges on deposit accounts 1,885 1,938
Other service charges and commissions 398 386
Gains (losses) on investment securities 29 --
Other income 705 679
------- -------
Total Noninterest Income $ 3,468 $ 3,351
------- -------
</TABLE>
-2-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ending Sept. 30,
1994 1993
------- ------
<S> <C> <C>
Noninterest Expense
Salaries and employee benefits $ 7,437 $ 6,989
Net occupancy expense 890 876
Furniture and equipment expense 1,172 988
FDIC Insurance Expense 1,035 1,014
Other expenses 3,165 2,950
------- -------
Total Noninterest Expense 13,699 12,817
------- -------
Income Before Income Taxes 9,549 9,975
Income Taxes 2,600 2,772
------- -------
Income before cumulative effect of
Accounting Change 6,949 7,203
Cumulative effect of Accounting Change (1) -- 1,431
------- -------
Net Income $ 6,949 $ 8,634
======= =======
PER SHARE DATA
Income before cumulative effect of
Accounting Change $2.57 $2.67
Cumulative effect of Accounting Change (1) -- .53
----- -----
Net Income $2.57 $3.20
===== =====
Dividends declared $ .90 $ .75
===== =====
<FN>
(1) Benefit as of January 1, 1993 due to adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
</TABLE>
See accompanying notes.
-3-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending Sept. 30,
1994 1993
------- -------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 7,106 $ 6,863
Interest on deposits with banks 34 34
Interest on federal funds sold 245 239
Interest and dividends on investment securities:
Taxable interest and dividend income 3,089 3,242
Tax-exempt interest and dividend income 846 778
------- -------
Total interest and dividends on investment
securities 3,935 4,020
------- -------
Total Interest Income 11,320 11,156
------- -------
Interest Expense
Interest on deposits:
Time deposits of $100,000 or more 252 296
Other deposits 3,965 3,887
------- -------
Total interest on deposits 4,217 4,183
Interest on Federal funds purchased and securities
sold under agreement to repurchase 83 57
Interest on borrowed money 23 33
------- -------
Total Interest Expense 4,323 4,273
------- -------
Net Interest Income 6,997 6,883
Provision for loan losses 217 477
------- -------
Net Interest Income After Provision for Loan Losses 6,780 6,406
------- -------
Noninterest Income
Trust income 140 126
Service charges on deposit accounts 627 638
Other service charges and commissions 150 151
Gains (losses) on investment securities -- --
Other income 248 225
------- -------
Total Noninterest Income $ 1,165 $ 1,140
------- -------
</TABLE>
-4-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Three Months Ending Sept. 30,
1994 1993
------- ------
<S> <C> <C>
Noninterest Expense
Salaries and employee benefits $ 2,541 $ 2,362
Net occupancy expense 312 345
Furniture and equipment expense 359 295
FDIC Insurance Expense 346 340
Other expenses 1,311 974
------- -------
Total Noninterest Expense 4,869 4,316
------- -------
Income Before Income Taxes 3,076 3,230
Income Taxes 914 889
------- -------
Income before cumulative effect of
Accounting Change 2,162 2,341
Cumulative effect of Accounting Change (1) -- --
------- -------
Net Income $ 2,162 $ 2,341
======= =======
PER SHARE DATA
Income before cumulative effect of
Accounting Change $ .80 $ .87
Cumulative effect of Accounting Change (1) -- --
----- -----
Net Income $ .80 $ .87
===== =====
Dividends declared $ .30 $ .25
===== =====
<FN>
(1) Benefit as of January 1, 1993 due to adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
</TABLE>
See accompanying notes.
-5-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ending Sept. 30,
1994 1993
------- -------
<S> <C> <C>
Common Stock
Balance, beginning of period $ 2,699 $ 2,699
------- -------
Balance, end of period $ 2,699 $ 2,699
======= =======
Surplus
Balance, beginning of period $29,728 $29,728
------- -------
Balance, end of period $29,728 $29,728
======= =======
Retained Earnings
Balance, beginning of period $37,513 $29,406
Net Income 6,949 8,634
Cash dividends ($.90 per share in 1994,
$.75 per share in 1993) (2,429) (2,024)
Change in net unrealized holding
gains (losses) on investment securities (1,137) --
------- -------
Balance, end of period $40,896 $36,016
======= =======
</TABLE>
See accompanying notes.
-6-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending Sept. 30,
1994 1993
------- -------
<S> <C> <C>
Common Stock
Balance, beginning of period $ 2,699 $ 2,699
------- -------
Balance, end of period $ 2,699 $ 2,699
======= =======
Surplus
Balance, beginning of period $29,728 $29,728
------- -------
Balance, end of period $29,728 $29,728
======= =======
Retained Earnings
Balance, beginning of period $39,506 $34,350
Net Income 2,162 2,341
Cash dividends ($.30 per share in 1994,
$.25 per share in 1993) (809) (675)
Change in net unrealized holding
gains (losses) on investment securities 37 --
------- -------
Balance, end of period $40,896 $36,016
======= =======
</TABLE>
See accompanying notes.
-7-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ending Sept. 30,
1994 1993
--------- ---------
<S> <C> <C>
Operating Activities
Net income $ 6,949 $ 8,634
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change -- (1,431)
Provision for loan losses 613 1,348
Depreciation and amortization 1,100 915
Decrease (increase) in accrued
income and other assets (987) (568)
Increase (decrease) in accrued
expenses and other liabilities (28) (792)
Other, net 856 1,547
--------- ---------
Net cash provided by operating activities 8,503 9,653
--------- ---------
Investing Activities
Net decrease (increase) in interest
bearing balances with banks (40) 1,991
Maturities, sales and principal payments
of investment securities 113,999 109,523
Funds invested in investment securities (124,285) (125,678)
Net (increase) in loans (18,269) (8,045)
Expenditures for premises and equipment (808) (1,595)
--------- ---------
Net cash provided by (applied to)
investing activities (29,403) (23,804)
--------- ---------
Financing Activities
Net increase (decrease) in deposits (3,488) 3,557
Net increase (decrease) in
short-term borrowings (5,274) 2,543
Repayments of long-term debt (38) (35)
Cash dividends paid (2,429) (2,024)
--------- --------
Net cash provided by (applied to)
financing activities (11,229) 4,041
--------- --------
Net increase (decrease) in cash and
cash equivalents (32,129) (10,110)
Cash and cash equivalents at
beginning of period 72,860 64,082
--------- ---------
Cash and cash equivalents at end of period $ 40,731 $ 53,972
========= =========
Noncash Investing Activities
Transfer from loans to
other real estate owned $ 70 $ 91
Net unrealized holding gains
(losses) on investment securities (1,137) --
========= =========
</TABLE>
See accompanying notes
-8-
<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending Sept. 30,
1994 1993
--------- ---------
<S> <C> <C>
Operating Activities
Net income $ 2,162 $ 2,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change -- --
Provision for loan losses 217 477
Depreciation and amortization 347 267
Decrease (increase) in accrued
income and other assets (629) (397)
Increase (decrease) in accrued
expenses and other liabilities 298 (312)
Other, net 156 509
--------- ---------
Net cash provided by operating activities 2,551 2,885
--------- ---------
Investing Activities
Net decrease (increase) in interest
bearing balances with banks (32) (6)
Maturities, sales and principal payments
of investment securities 26,006 40,059
Funds invested in investment securities (23,845) (46,168)
Net (increase) in loans (5,174) (3,826)
Expenditures for premises and equipment (146) (496)
--------- ---------
Net cash provided by (applied to)
investing activities (3,191) (10,437)
--------- ---------
Financing Activities
Net increase (decrease) in deposits (1,327) (4,347)
Net increase (decrease) in
short-term borrowings (1,405) 1,702
Repayments of long-term debt (13) (12)
Cash dividends paid (809) (675)
--------- --------
Net cash provided by (applied to)
financing activities (3,554) (3,332)
--------- --------
Net increase (decrease) in cash and
cash equivalents (4,194) (10,884)
Cash and cash equivalents at
beginning of period 44,925 64,856
--------- ---------
Cash and cash equivalents at end of period $ 40,731 $ 53,972
========= =========
Noncash Investing Activities
Transfer from loans to
other real estate owned $ -- $ 91
Net unrealized holding gains
(losses) on investment securities (37) --
========= =========
</TABLE>
See accompanying notes
-9-
<PAGE>
FARMERS NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) in conformity with generally accepted accounting principles
necessary to present fairly the financial position as of September 30, 1994, and
December 31, 1993, and the results of operations and cash flows for the nine and
three month periods ended September 30, 1994 and 1993. Certain reclassifications
have been made to amounts previously reported to conform with the classification
made in 1994.
Note 2. Earning per share
Earning per share are based on the 2,699,056 weighted average number of
shares outstanding in both 1994 and 1993.
Note 3. Pending Affiliation
On July 1, 1994, Farmers National Bancorp announced that it had entered
into an Agreement and Plan of Reorganization with First Virginia Banks, Inc.
pursuant to which First Virginia Banks, Inc. will affiliate with Bancorp by
means of a merger in which Bancorp stockholders will receive 1.5 shares of
First Virginia's common stock in exchange for each share of Bancorp stock,
provided that, at the election of the holders, up to 30% of all outstanding
Bancorp shares may be exchanged for cash at $58.53 per share. First Virginia
has waived a provision of the Agreement and Plan of Reorganization that under
certain circumstances might have required an exchange of some shares of
Bancorp common stock for cash by Bancorp stockholders desiring to receive
First Virginia common stock for their shares.
The merger of Bancorp and First Virginia contemplated by the Agreement and
Plan of Reorganization is subject to various conditions set forth in the
Agreement and Plan of Reorganization, including the approval of the merger by
Bancorp's stockholders and state and federal regulatory authorities. Another
such condition was the satisfactory completion of an audit of Bancorp and its
subsidiaries by First Virginia to confirm that Bancorp's consolidated
stockholders' equity was not less than $68.5 million as of June 30, 1994. By
letter dated July 27, 1994, First Virginia advised Bancorp that the audit has
been completed and this condition satisfied. By letter dated September 29, 1994,
the Federal Reserve Bank of Richmond approved the merger of Bancorp with First
Virginia pursuant to Section 3 of the Bank Holding Company Act and required that
the merger be consummated within three months of such date unless such period is
extended. On October 11, 1994, the Federal Reserve Bank of Richmond approved
the applications of Bancorp's three subsidiary banks to become members of the
Federal Reserve System. In addition, on October 6, 1994, the Bureau of
Financial Institutions of the Virginia State Corporation Commission approved
pursuant to Virginia law the acquisition of Bancorp's subsidiary banks by
First Virginia. Certain other conditions to consummation of the merger remain
outstanding.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
Total assets of Farmers National Bancorp ("Bancorp") were $709 million as of
September 30, 1994, a 1.0 percent increase over the $702 million of September
30, 1993, and a .8 percent decrease from the $714 million of December 31, 1993.
The lack of asset growth in 1994 is the result of flat deposits and moderate
loan demand offset by a reduction in Federal funds sold. Total deposits were
$616 million as of September 30, 1994, a slight increase of 1.0 percent over the
$611 million a year ago and a decrease of .6 percent from year end 1993.
As the banking industry continues to experience an erosion of deposits to mutual
funds and other nonbanking investments, Bancorp has continued to maintain it's
deposit base. However, there has been a shift in deposit products. The slight
decrease in interest bearing transaction accounts and significant decrease in
certificates of deposits was offset by the increase in regular savings accounts
as the consumer continues to deposit funds to accounts with liquidity and
adequate yield in anticipation of rising interest rates during 1994.
To improve the yield on earning assets, the balance of federal funds was reduced
and invested in short term government securities and the loan portfolio. While
loan demand still remains light, Bancorp has experienced increased consumer
activity during the second and third quarters. As a result, total loans
outstanding equaled $321 million at September 30, 1994, an increase of 5.9
percent over December 31, 1993.
Nonperforming loans, which are loans nonaccruing or past due more than 90 days,
increased slightly compared to a year ago, but still represent only 1.26 percent
of outstanding loans as of September 30, 1994. High credit quality is reflected
in the .05 percent ratio of net charge-offs to average loans outstanding for the
nine month period in 1994.
An interim regulatory policy revision on the classification of investment
securities pursuant to Financial Accounting Standards Board Statement No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("FASB 115")
enabled Bancorp to re-evaluate it's investment portfolio. Prior to the
implementation of FASB 115, Bancorp had the ability and intent to hold its
investment securities to maturity. Therefore, during the second quarter, a
portion of the portfolio that had been classified as available for sale was
reclassified as held to maturity.
Shareholder equity as of September 30, 1994 totaled $73 million, a 4.8 percent
increase over the December 31, 1993 total of $70 million, and a 7.1 percent
increase over the September 30, 1993 total of $68 million. Book value per share
was $27.17, $25.91 and $25.36 respectively.
-11-
<PAGE>
As indicated by the following table, all Bancorp's capital ratios continue to be
well above minimum regulatory capital standards.
<TABLE>
<CAPTION>
Regulatory As of As of As of
Requirements 9/30/94 12/31/93 9/30/93
<S> <C> <C> <C> <C>
Leverage ratio 3.0% to 5.0% 10.3% 9.8% 9.6%
Tier 1 capital ratio 4.0% 19.6% 18.3% 18.3%
Total capital ratio 8.0% 20.8% 19.5% 19.5%
</TABLE>
On July 1, 1994, Farmers National Bancorp announced that it had entered into an
Agreement and Plan of Reorganization with First Virginia Banks, Inc. See Item 5
for additional information.
Results of Operations - Nine months ended September 30
For the nine months ended September 30, 1994 Farmers National Bancorp had
earnings of $6.9 million or $2.57 per share, a slight decrease from the
comparative 1993 earnings of $7.2 million or $2.67 per share. However, a one
time accounting change which represented the effect of implementing the
Statement of Financial Accounting Standard (SFAS) No. 109 "Accounting for
Income Taxes" was recorded during 1993, which added $1.4 million or $.53 per
share to earnings. As a result, 1993 nine month earnings were $8.6 million or
$3.20 per share. The flat earnings are due primarily to a decrease in the net
interest margin, offset by a reduced provision for loan losses and continued
control of overhead expenses.
The yield on average earning assets was 7.0 percent in 1994, a decrease of 20
basis points from the 1993 yield of 7.2 percent. The rate paid on interest
bearing liabilities was 3.1 percent in 1994, a decrease of 10 basis points
below the 3.2 percent paid in 1993. As a result, the net interest spread of 3.9
percent was 10 basis points lower than in 1993. The decrease in the interest
spread coupled with a lack of growth in earning assets produced the 1.9 percent
loss in net interest income.
In 1994 the provision for possible loan losses totaled $613 thousand, compared
to $1,348 thousand in 1993. The decrease in the loan loss provision reflects the
improved credit quality as well as the modest growth of the loan portfolio. Net
charge-offs for this period of 1994 totaled $359 thousand, a substantial
decrease from the $697 thousand recorded for the comparable period in 1993.
Management feels the 1.81 percent reserve for possible loan losses to total
loans is adequate, based on current portfolio composition and quality.
Noninterest income in 1994 totaled $3.4 million, an increase of 3.5 percent over
1993. The majority of the increase was due to a 29.6 percent growth of trust
revenue generated by an upward adjustment of fees, a greater volume of managed
assets, and several estate settlements. The gain on investment securities was
the profit from the cash payment of an equity stock exchange.
-12-
<PAGE>
Noninterest expense increased 6.9 percent reflecting management's continued
emphasis on controlling overhead costs. Salaries and employee benefits, which
represent more than half the total, grew 6.4 percent. The added expenses are
attributable to merit increases, higher benefit costs, and increased consumer
loan staff. The cost of new teller equipment is reflected in the increased
furniture and equipment increase of 18.6 percent. Annualized noninterest
expense expressed as a percentage of average assets was 2.57 percent in 1994
and 2.47 percent in 1993. The efficiency ratio, which is noninterest expense
divided by net operating revenue, was 57.4 percent and compares very favorably
with peers.
Results of Operations - Quarter ended September 30
Net operating income for the third quarter of 1994 was $2.1 million, a 13.0
percent decrease from the second quarter total of $2.5 million and a 7.6 percent
decrease over the same period in 1993. On a per share basis earnings totaled
$.80, $.92, and $.87 respectively.
For the third quarter of 1994 net interest income was $7.0 million compared to
$6.9 million in 1993, an increase of 1.7 percent. The net interest spread for
the third quarter of both 1994 and 1993 was 3.9 percent. While the net interest
spread has remained constant for the reported periods the yield on earning
assets has improved due to the funding of the consumer loan portfolio from lower
yielding Federal funds. Since the company is slightly asset sensitive, the
several increases in the prime rate during 1994 have increased the interest
margin.
The 54.5 percent reduction in the loan loss provision in the third quarter of
1994 compared to 1993 is the result of a significant decrease in net charge offs
for the period and an improvement in the quality and composition of the loan
portfolio. As a result, net interest income after the loan loss provision
totaled $6.8 million for the three months ended September 30, 1994, an increase
of 5.8 percent over the comparable period in 1993.
Noninterest income continued to increase moderately during the third quarter.
Service charges and fees collected from deposit account activities decreased
slightly during the comparable periods due to the consumer maintaining higher
account balances, thereby reducing charges.
During the third quarter of 1994, noninterest expense increased 12.8 percent
over the same period in 1993. Legal and consultant fees experienced the largest
dollar increase arising from charges pursuant to the pending affiliation with
First Virginia Banks, Inc. Salaries and employee benefit costs experienced the
second largest dollar increase due to increased medical and retirement costs and
the addition of staff to expand the consumer loan business. The 21.7 percent
increase in furniture and fixture expense was the result of the installation of
new teller equipment and branch technology to more efficiently serve customers.
Most other expense categories increased slightly, consistent with increased
volumes and inflation.
-13-
<PAGE>
Part II - OTHER INFORMATION
Items 1 through 6(b).
Management notes that no occurrences have taken place during the reporting
period which require disclosure under any of the captioned headings except as
noted below.
Item 5. Other Information
On July 1, 1994, Farmers National Bancorp announced that it had entered
into an Agreement and Plan of Reorganization with First Virginia Banks, Inc.
pursuant to which First Virginia Banks, Inc. will affiliate with Bancorp by
means of a merger in which Bancorp stockholders will receive 1.5 shares of First
Virginia's common stock in exchange for each share of Bancorp stock, provided
that, at the election of the holders, up to 30% of all outstanding Bancorp
shares may be exchanged for cash at $58.53 per share. First Virginia has waived
a provision of the Agreement and Plan of Reorganization that under certain
circumstances might have required an exchange of some shares of Bancorp common
stock for cash by Bancorp stockholders desiring to receive First Virginia common
stock for their shares. Attached as Exhibit 2 to the Quarterly Report on Form
10-Q of Farmers National Bancorp filed August 12, 1994 is a copy of the
Agreement and Plan of Reorganization between Bancorp and First Virginia.
On July 7, 1994, Bancorp filed a Current Report on Form 8-K disclosing the
execution of the Agreement and Plan of Reorganization.
The merger of Bancorp and First Virginia contemplated by the Agreement and
Plan of Reorganization is subject to various conditions set forth in the
Agreement and Plan of Reorganization, including approval of the merger by
Bancorp's stockholders and state and federal regulatory authorities. Another
such condition was the satisfactory completion of an audit of Bancorp and its
subsidiaries by First Virginia to confirm that Bancorp's consolidated
stockholders' equity was not less than $68.5 million as of June 30, 1994. By
letter dated July 27, 1994, First Virginia advised Bancorp that the audit has
been completed and this condition satisfied. By letter dated September 29, 1994,
the Federal Reserve Bank of Richmond approved the merger of Bancorp with First
Virginia pursuant to Section 3 of the Bank Holding Company Act and required that
the merger be consummated within three months of such date unless such period is
extended. On October 11, 1994, the Federal Reserve Bank of Richmond approved
the applications of Bancorp's three subsidiary banks to become members of the
Federal Reserve System. In addition, on October 6, 1994, the Bureau of
Financial Institutions of the Virginia State Corporation Commission approved
pursuant to Virginia law the acquisition of Bancorp's subsidiary banks by First
Virginia. Certain other conditions to consummation of the merger remain
outstanding.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Agreement and Plan of Reorganization dated July 1, 1994 attached as
Exhibit 2 to the Quarterly Report on Form 10-Q of Farmers National Bancorp filed
August 12, 1994 is hereby incorporated by reference.
Reports on Form 8-K
Current Report on Form 8-K of Farmers National Bancorp dated July 7,
1994 is hereby incorporated by reference.
-14-
<PAGE>
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 BANCORP
/S/ JOHN M. SUIT, II
Date: November 10, 1994 _________________________________________
John M. Suit, II
President and Chief Executive Officer
/S/ LOUIS A. SUPANEK
Date: November 10, 1994 _____________________________________
Louis A. Supanek
Vice President and Treasurer
-15-
