<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 March 31, 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 April 30, 1994
Common stock, $1.00 par value 2,699,056 shares
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FARMERS NATIONAL BANCORP
INDEX
PART I. Financial Information Page Number
ITEM I. Financial Statements
Consolidated Balance Sheets
March 31, 1994 and December 1993 1
Consolidated Statements of Income
Three Months Ended March 31, 1994 and 1993 2
Consolidated Statements of Changes in
Stockholders' Equity
Three Months Ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
ITEM 2. Managements's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. Other Information
Items 1 Through 6(B) 10
Signatures 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FARMERS NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousand)
<TABLE>
<CAPTION>
March 31, 1994 Dec. 31, 1993
-------------- -------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 32,808 $ 30,460
Interest bearing deposits with banks 2,334 2,328
Federal funds sold 28,000 42,400
Investment securities
Available for sale 128,951 100,639
Held to maturity - fair value of
$192,083 (1994) and $217,779 (1993) 193,304 216,237
--------- ---------
Total investment securities 322,255 316,876
Loans 304,450 303,423
Less: allowance for loan losses (5,594) (5,558)
--------- ---------
Net loans 298,856 297,865
Premises and equipment, net 9,189 9,182
Other real estate owned 2,100 2,100
Accrued income and other assets 14,031 12,998
--------- ---------
Total Assets $709,573 $714,209
========= =========
Liabilities
Noninterest bearing demand deposits $ 81,909 $ 84,680
Interest bearing demand deposits 201,888 204,481
Savings deposits 166,135 162,175
Time deposits 167,705 168,621
--------- ---------
Total deposits 617,637 619,957
Federal funds purchased and securities sold
under agreement to repurchase 10,206 10,481
Liabilities for borrowed money 3,166 6,976
Accrued expenses and other liabilities 8,039 6,855
--------- ---------
Total Liabilities 639,048 644,269
--------- ---------
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 38,098 37,513
--------- ---------
Total Stockholders' Equity 70,525 69,940
--------- ---------
Total Liabilities and Stockholders' Equity $709,573 $714,209
========= =========
See accompanying notes.
</TABLE>
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FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending March 31,
1994 1993
------- -------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 6,683 $ 6,955
Interest on deposits with banks 35 67
Interest on federal funds sold 245 144
Interest and dividends on investment securities:
Taxable interest and dividend income 2,823 3,502
Tax-exempt interest and dividend income 864 678
------- -------
Total interest and dividends on investment
securities 3,687 4,180
------- -------
Total Interest Income 10,650 11,346
------- -------
Interest Expense
Interest on deposits:
Time deposits of $100,000 or more 271 304
Other deposits 3,700 3,983
------- -------
Total interest on deposits 3,971 4,287
Interest on Federal funds purchased and securities
sold under agreement to repurchase 58 60
Interest on borrowed money 31 27
------- -------
Total Interest Expense 4,060 4,374
------- -------
Net Interest Income 6,590 6,972
Provision for loan losses 224 393
------- -------
Net Interest Income After Provision for Loan Losses 6,366 6,579
------- -------
Noninterest Income
Trust income 173 147
Service charges on deposit accounts 610 629
Other service charges and commissions 107 109
Gains (losses) on investment securities 30 --
Other income 225 222
------- -------
Total Noninterest Income $ 1,145 $ 1,107
------- -------
</TABLE>
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FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Three Months Ending March 31,
1994 1993
------- ------
<S> <C> <C>
Noninterest Expense
Salaries and employee benefits $ 2,437 $ 2,331
Net occupancy expense 298 268
Furniture and equipment expense 412 360
FDIC Insurance Expense 345 337
Other expenses 926 1,015
------- -------
Total Noninterest Expense 4,418 4,311
------- -------
Income Before Income Taxes 3,093 3,375
Income Taxes 791 940
------- -------
Income before cumulative effect of
Accounting Change 2,302 2,435
Cumulative effect of Accounting Change (1) -- 1,431
------- -------
Net Income $ 2,302 $ 3,866
======= =======
PER SHARE DATE
Income before cumulative effect of
Accounting Change $ .85 $ .90
Cumulative effect of Accounting Change (1) -- .53
----- -----
Net Income $ .85 $1.43
===== =====
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.
See accompanying notes.
</TABLE>
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FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES
IN FINANCIAL POSITION
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending March 31,
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 $29,406
Net Income 2,302 3,866
Cash dividends ($.30 per share in 1994,
$.25 per share in 1993) (810) (675)
Change in net unrealized holding gains (losses)
on investment securities available for sale (907) --
------- -------
Balance, end of period $38,098 $32,597
======= =======
See accompanying notes.
</TABLE>
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FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending March 31,
1994 1993
--------- ---------
<S> <C> <C>
Operating Activities
Net income $ 2,302 $ 3,866
Adjustments to reconcile net income to net
cash provided by operating activities:
Cummulative effect of accounting change -- (1,431)
Provision for loan losses 224 393
Depreciation and amortization 374 327
Decrease (increase) in accrued
income and other assets (558) (418)
Increase (decrease) in accrued
expenses and other liabilities 1,184 437
Other, net 439 517
--------- ---------
Net cash provided by operating activities 3,965 3,691
--------- ---------
Investing Activities
Net decrease (increase) in interest
bearing balances with banks (6) (1,000)
Maturities, sales and principal payments
of investment securities 55,554 35,183
Funds invested in investment securities (62,714) (41,644)
Net (increase) in loans (1,271) (2,403)
Expenditures for premises and equipment (365) (479)
--------- ---------
Net cash provided by (applied to)
investing activities (8,802) (10,343)
--------- ---------
Financing Activities
Net increase (decrease) in deposits (2,320) (9,381)
Net increase (decrease) in
short-term borrowings (4,073) (2,374)
Repayments of long-term debt (12) (11)
Cash dividends paid (810) (675)
--------- --------
Net cash provided by (applied to)
financing activities (7,215) (12,441)
--------- --------
Net increase (decrease) in cash and
cash equivalents (12,052) (19,093)
Cash and cash equivalents at
beginning of period 72,860 64,082
--------- ---------
Cash and cash equivalents at end of period $ 60,808 $ 44,989
========= =========
Noncash Investing Activities
Transfer from loans to OREO $ -- $ --
Net unrealized holding gains (losses) on
investment securities available for sale (907) --
========= =========
See accompanying notes
</TABLE>
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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 March 31, 1994,
and December 31, 1993, and the results of operations and cash flows
for the three month periods ended March 31, 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.
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Item 2. Managememt's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
Total assets of Farmers National Bancorp ("Bancorp") were $710 million as of
March 31, 1994, a 4.0 percent increase over the $682 million of March 31, 1993
and a 0.6 percent decrease from the $714 million of December 31, 1993.
The increased assets were primarily funded by deposit growth and retained
earnings. Total deposits of $618 million represented a 3.3 percent increase over
the $617 million of a year ago. During 1993, continued low interest rates
created a shift of funds from certificates of deposit to savings accounts,
enabling the consumer to maintain liquidity in anticipation of rising rates in
1994. As a result, certificates of deposits decreased $13 million during the
past year while savings account balances increased $20 million. During the same
period noninterest bearing deposits also increased $10 million.
Loan demand continued to remain weak in the first quarter. Therefore, new funds
as well as maturing assets were placed in federal funds sold and short term
investment securities. With the anticipation that interest rates would be rising
in the near future, it is management's intent to maintain a positive interest
rate sensitivity position.
Capital Resources
Total equity capital at March 31, 1994 was $70.5 million. This represents an
increase of $5.5 million or 8.5 percent from the $65.0 million as of March 31,
1993, and a 0.8 percent increase over the December 31, 1993 total of $69.9
million. For the three months ending March 31, 1994, Bancorp did not enter into
any transactions that required external financing. During this period, Bancorp's
primary source of capital was retained earnings. Net increases through retained
earnings after payment of dividends amounted to $1.5 million.
As of December 31, 1993, Bancorp affiliates adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investment in
Debt and Equity Securities." This statement requires the identification and
segregation of its investment portfolio into those securities it intends to hold
to maturity and those securities which are available for sale. Investment
securities held to maturity are carried at amortized cost while investment
securities available for sale are carried at fair value. Net unrealized holdings
gains and losses on securities available for sale are reported as a separate
component of stockholders' equity, net of related income taxes. As a result,
Bancorp recorded an unrealized loss on investment securities available for sale
in the amount of $905 thousand net of related taxes.
A strong capital base provides for growth and expansion activities, gives
stability to current operations and adds to the public confidence of the
Company. Historically, appropriate regulatory agencies have determined the
capital adequacy guidelines of financial institutions. There are two current
measurements of adequate capital levels, leverage and risk-based.
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An institutions leverage ratio is tier 1 capital divided by quarterly average
assets. Minimum leverage guidelines are three percent, with up to an additional
capital cushion of one to two percent. The tier 1 capital ratio is tier 1
capital divided by total risk-adjusted assets and the total capital ratio is
tier 1 capital plus tier 2 capital divided by total risk-adjusted assets.
Regulatory requirements for tier 1 capital is 4 percent and for total capital it
is 8 percent. 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 3/31/93 12/31/93 3/31/94
<S> <C> <C> <C> <C>
Leverage ratio 3.0% to 5.0% 9.4% 9.8% 10.0%
Tier 1 capital ratio 4.0% 17.9% 18.3% 18.8%
Total capital ratio 8.0% 19.1% 19.5% 20.1%
</TABLE>
Results of Operations - Three months ending March 31
For the quarter ended March 31, 1994, Farmers National Bancorp had earnings of
$2.3 million or $.85 per share. This is equal to the 4th quarter 1993 earnings
and a 5.5 percent decrease from the comparable earnings of $2.4 million or $.90
per share recorded for the first quarter of 1993. 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 the first quarter of 1993, which added $1.4 million or $.53 per share to
earnings. As a result, 1993 first quarter net income was $3.9 million or $1.43
per share.
The flattened earnings are due primarily to a decrease in the net interest
margin arising from a continued decline in the yield on earning assets while
interest expense paid on deposits has leveled. Interest income for the three
months ended March 31, 1994 totaled $10.7 million, a decrease of $700 thousand
or 6.1 percent from the amount earned during the same period in 1993. At the
same time interest expense decreased $300 thousand or 7.2 percent. As a result,
net interest income before the provision for possible loan losses totaled $6.6
million, a decrease of 5.5%.
The yield on average earning assets was 6.8 percent in 1994, a decrease of 70
basis points from the 1993 yield of 7.5 percent. The rate paid on interest
bearing liabilities was 3.0 percent in 1994, a decrease of 30 basis points below
the 3.3 percent paid in 1993. The resulting effect was a decrease of 40 basis
points in the net interest spread and net yield on average earning assets.
In 1994 the provision for possible loan losses totaled $224 thousand, compared
to $393 thousand in 1993. The decrease in the loan loss provision reflects the
improved credit quality as well as the modest growth in the loan portfolio. Net
charge-offs for the first quarter of 1994 totaled $188 thousand, a substantial
decrease from the $364 thousand recorded in the first quarter of 1993. As of
March 31, 1994 non-performing loans totaled $3.5 million compared with $3.0
million as of March 31, 1993. Management feels the 1.84 percent reserve for
possible loan losses to total loans is adequate, based on current portfolio
composition and quality.
-8-
<PAGE>
Noninterest income in 1994 totaled $1.1 million, a modest increase of 3.4
percent over 1993. Trust department income and fees generated from the sale of
mortgages in the secondary market contributed to the increase while charges and
fees collected from deposit activities decreased slightly.
In 1994 noninterest expense totaled $4.4 million compared to $4.3 in 1993, an
increase of 2.5 percent. The modest increase reflects management's continued
emphasis on controlling costs. Salaries and employee benefits, which represent
more than half the total grew 4.5 percent. The added expenses are attributable
to merit increases and higher benefit costs. Full time equivalent employees were
304 and 301 at March 31, 1994 and 1993 respectively. Included in other expenses
is the item of legal and consultant fees which decreased substantially in 1994.
Other categories of expense recorded nominal increases generated by generally
higher overhead costs and increased volumes. Annualized noninterest expense
expressed as a percentage of average assets was 2.5 percent both years.
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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.
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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: May 11, 1994 _____________________________________
John M. Suit, II
President and Chief Executive Officer
\s\Louis A. Supanek
Date: May 11, 1994 ____________________________________
Louis A. Supanek
Vice President and Treasurer
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