FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended - June 30, 1995
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 - 0-10782
FARMERS NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3156490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 West First Street, Geneseo, Illinois 61254
(Address of principal executive offices)
Registrant's telephone number, including area code - (309) 944-5361
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 REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 309,918
shares as of June 30, 1995.
Transitional Small Business Disclosure format: YES - ( ) NO - (X)
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FARMERS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Unaudited Audited
-In Thousands-
6-30-95 12-31-94
<S> <C> <C>
ASSETS
Cash and due from banks $5,101 $6,375
Interest-bearing deposits in other banks 47 39
Federal funds sold 690 9,675
Investment Securities:
Held-to-maturity (approximate market 34,048 31,874
value of $34,490,371 at June 30, 1995
and $31,698,935 at December 31, 1994)
Available-for-sale 43,186 39,382
------------------
Total investment securities 77,234 71,256
------------------
Loans 91,884 86,699
Less: Allowance for loan losses 2,297 2,288
Unearned income 174 198
------------------
Net Loans 89,413 84,213
------------------
Premises and equipment 1,999 2,024
Accrued interest receivable 2,044 1,938
Intangible assets 367 421
Other assets 406 906
------------------
TOTAL ASSETS $177,301 $176,847
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $12,646 $12,683
Interest-bearing 138,881 140,240
------------------
Total deposits 151,527 152,923
------------------
Federal funds purchased 0 0
Securities sold under agreements to repurchase 225 1,129
Note Payable 1,000 0
Advances from FHLB 9,000 6,500
Other liabilities 1,727 1,646
------------------
Total liabilities 163,479 162,198
------------------
Contingencies and commitments
STOCKHOLDERS' EQUITY
Common Stock; $5 par value; authorized 600,000
shares; issued 375,000 shares 1,875 1,875
Additional paid-in capital 1,635 1,635
Retained earnings 13,987 13,148
Net unrealized gains (losses) on available-
for-sale securities (75) (1,303)
------------------
17,422 15,355
Less: Treasury stock, at cost, 65,082 shares
at June 30, 1995; 18,776 shares at
December 31, 1994 3,600 706
------------------
Total stockholders' equity 13,822 14,649
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $177,301 $176,847
==================
</TABLE>
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<TABLE>
FARMERS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-Unaudited-
<CAPTION>
-In Thousands-
Quarter Ended Six months ended
6-30-95 6-30-94 6-30-95 6-30-94
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans 1,982 $1,734 $3,896 $3,415
Interest and dividends on
investment securities:
Taxable 949 842 1,863 1,663
Nontaxable 287 218 569 431
Interest on interest-bearing
deposits 0 0 1 0
Other interest income 29 36 92 64
-------------------------------------
Total interest income 3,247 2,830 6,421 5,573
-------------------------------------
Interest expense:
Interest on deposits $1,579 1,230 $3,078 2,440
Interest on federal funds
purchased 5 1 5 1
Interest on securities sold under
agreements to repurchase 3 0 8 1
Interest on advances from FHLB 125 82 228 156
Interest on other borrowings 9 0 9 0
-------------------------------------
Total interest expense 1,721 1,313 3,328 2,598
-------------------------------------
Net interest income 1,526 1,517 3,093 2,975
Provision for loan losses 0 0 0 0
-------------------------------------
Net interest income after provision
for loan losses 1,526 1,517 3,093 2,975
-------------------------------------
Other income:
Investment security gains 17 29 20 105
Other 237 265 457 518
Total other income 254 294 477 623
-------------------------------------
Income before operating expenses 1,780 1,811 3,570 3,598
-------------------------------------
Operating expenses:
Salaries and employee benefits 510 510 984 1,015
Net occupancy expense 176 163 0 322
Exam, legal and audit fees 27 30 0 60
FDIC insurance premiums 85 81 170 163
Environmental expense 37 0 220 0
Premium amortization 27 27 54 54
Other operating expenses 209 190 818 378
-------------------------------------
Total operating expenses 1,071 1,001 2,246 1,992
-------------------------------------
Income before income tax expense 709 810 1,324 1,606
Applicable tax expense 152 212 273 423
-------------------------------------
Net income $557 $598 $1,051 $1,183
=====================================
Per common share
Net income $1.70 $1.66 $3.09 $3.28
=====================================
Dividends declared $0.32 $0.32 $0.64 $0.64
=====================================
Weighted average common
shares outstanding 324,848 359,052 340,501 360,187
=====================================
</TABLE>
<PAGE>
<TABLE>
FARMERS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-Unaudited-
<CAPTION>
-In Thousands-
Quarter ended
6-30-95 6-30-94
<S> <C> <C>
Cash flows from operating activities:
Net income $1,051 $1,183
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 176 158
Provision for possible loan losses 0 0
Amortization of deposit premium 54 54
Amortization/accretion of investment
securities, net 7 144
Investment securities (gains) (20) (105)
(Increase) Decrease in accrued interest receivable (107) 22
(Increase) decrease in other assets (161) 12
Increase in accrued interest payable 162 2
Increase in other liabilities 130 219
------------------
Net cash provided by operating activities 1,292 1,689
------------------
Cash flows from investing activities:
(Increase) decrease in federal funds sold 8,985 (1,200)
(Increase) in interest-bearing deposits
in other banks (7) (2)
Proceeds from sales, maturities and principal
repayments of investment securities:
Held to Maturity 888 5,979
Available for sale 912 9,386
Purchases of investment securities:
Held to Maturity (3,070) (5,037)
Available for sale (2,804) (5,999)
Net (increase) in loans (5,200) (3,857)
Purchase of premises on equipment (152) (211)
------------------
Net cash provided by (used in)
investing activities (448) (941)
------------------
Cash flows from financing activities:
Net (decrease) in deposit accounts (1,396) (1,005)
Increase (Decrease) in securities sold
with agreements to repurchase (904) (138)
Increase in note payable 1,000 0
Increase in advances from FHLB 2,500 0
Dividends paid (424) (405)
Increase in purchase Treasury Stock (2,894) (198)
------------------
Net cash provided by (used in)
financing activities (2,118) (1,746)
------------------
Net (decrease) in cash and due from banks (1,274) (998)
Cash and due from banks, beginning of year 6,375 5,896
------------------
Cash and due from banks, end of period $5,101 $4,898
==================
Supplemental schedule of non cash investing
and financing activities:
Securities available for sale adjustment, net (75) (433)
==================
</TABLE>
<PAGE>
Summary of Significant Accounting Policies
The Consolidated Statements of Condition of Farmers National Bancorp,
Inc. and subsidiaries, at December 31, 1994, have been taken from
audited financial statements at that date. All other consolidated
financial statements contained herein have been prepared by the
management of the Company and are unaudited. In the opinion of
management, the accompanying unaudited consolidated financial
statements presented herein contain all adjustments consisting of
normal recurring accruals necessary to present fairly the financial
position of the Company at June 30, 1995 and the results of its
operations and statement of cash flows for the periods presented herein
on a consistent basis with that of prior periods.
Item 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations
(1) Material Changes in Financial Condition
During the first six months of 1995, the Company experienced an 8%
increase in investment securities and an 6% increase in loans.
Investment securities increased as a result of more favorable rates
compared to federal funds rates. The loan increases result from
increased demand, especially in residential real estate loans and
agricultural loans. Funding for these increases in earning assets came
from reduction in federal funds sold.
Deposits decreased approximately 1% during the period. New fixed rate
advances from the Federal Home Loan Bank in the amount of $2,500,000
were funded during the period with maturities ranging from 1-2 years.
In May, the Company purchased a block of its own common stock from
Howe-Barnes Investments, Inc., who makes a market in the Company's
stock. The purchase amounted to approximately 12% of the Company's
outstanding stock. The transaction was funded primarily from a
dividend from the subsidiary bank and a $1,000,000 unsecured loan from
a correspondent bank that matures in one year.
Equity decreased during the period due to the stock repurchase, and in
spite of earnings of over $1,000,000 and reductions in unrealized
losses of securities of approximately $1,200,000. This reduction is
consistent with the Company's strategic plan to employ excess capital
in a manner that will enhance shareholder value. As a result of the
transaction, earnings per share, for example, has increased
approximately 7%.
There were no other significant changes or trends which occurred during
the period.
Under Federal Reserve regulations the company is required to maintain
risk-based capital of at least 8.0%. At June 30, 1995 the Company's
risk-based capital ratio was 15.69%. The Company's core or leverage
capital is well above the required minimums.
The liquidity of the bank remains strong. In addition to maintaining
sufficient liquid assets to meet expecting funding needs during the
next 90 days, about 30% of the total assets of the bank are available
sources of liquidity to meet unexpected funding needs, should they
arise. In addition, investment securities held-to-maturity and
available-for-sale include unrealized gains of $1,465,491 and
unrealized losses of $895,482.
(2) Material Changes In the Results of Operations
Earnings for the second quarter and first six months were each lower
than the same periods in 1994. However, environmental expenses,
which consist of legal and engineering fees and the costs of testing
bank properties for environmental damage, totaled $37,000 during the
second quarter and $220,000 during the first six months. Adjusting for
those expenses, net of taxes, the Company actually increased net income
slightly compared to the first six months of 1995. Earnings per share,
after the same adjustments, show a 7% increase for both the quarter
and six months.
Net interest income has increased slightly this year due to better
margins and increased lending. Other noninterest income was reduced
primarily as a result of security gains being taken in 1994 but not
this year. Noninterest expenses, net of environmental, were increased
slightly.
(3) Other Items
As previously disclosed, since 1994 the Company has incurred legal and
engineering fees, and performed various site investigations on bank
properties to determine if any of the properties contain environmental
damage or a potential for environmental damage liability. As a result
of these investigations, the Company has notified the Illinois
Environmental Protection Agency (IEPA) that there has been a release
on a bank-owned vacant lot that appears to be both gasoline and coal
tar. In April 1995 the company applied for and was admitted to the
state's voluntary remediation program in order to perform additional
site investigation and possible remediation of both the gasoline and
coal tar contamination at the site with oversight by the IEPA. The
quantity of the release has not been determined at this time. In
addition, investigation into the potential for remediation by
predecessor owners or insurers is under way. The Company is working
with the IEPA, as well as its own engineers and attorneys, to
determine the nature and scope of this environmental problem, to
ascertain the need for a remediation program and to consider the costs
and allocations of responsibility with respect to any expenses incurred
under a remediation program. Because of insufficient information, no
conclusions have been reached at this time by the Company, its
attorneys, or engineers, about a plan of remediation and the costs that
maybe associated with such a remediation. While there can be no
assurance of the probability of future events, it is reasonably likely
that conclusions regarding the possibility of required or desired
remediation will be reached in 1995 which may significantly affect the
results of operations in that year.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
None to report.
Item 2.
Changes in Securities
None to report.
Item 3.
Defaults Upon Senior Securities
Item 4.
Submission of Matters to a Vote of Security Holders.
None to report.
Item 5.
Other Information
None to report.
Item 6.
Exhibits and Reports on Form 8-K
On July 17, 1995 the Company reported a change in independent
accountants on Form 8-K. There were no accounting disagreements with
the former accountants.
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, INC.
Dated: July 27, 1995 _______________________________
Gaylon E. Martin, President
Dated: July 27, 1995 _______________________________
Wayne A. Hulting, Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 5,101
<INT-BEARING-DEPOSITS> 47
<FED-FUNDS-SOLD> 690
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,186
<INVESTMENTS-CARRYING> 34,048
<INVESTMENTS-MARKET> 34,490
<LOANS> 91,884
<ALLOWANCE> 2,297
<TOTAL-ASSETS> 177,301
<DEPOSITS> 151,507
<SHORT-TERM> 1,225
<LIABILITIES-OTHER> 1,727
<LONG-TERM> 9,000
<COMMON> 1,875
0
0
<OTHER-SE> 15,547
<TOTAL-LIABILITIES-AND-EQUITY> 177,301
<INTEREST-LOAN> 3,896
<INTEREST-INVEST> 2,432
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<INTEREST-TOTAL> 6,421
<INTEREST-DEPOSIT> 3,078
<INTEREST-EXPENSE> 3,328
<INTEREST-INCOME-NET> 3,093
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 20
<EXPENSE-OTHER> 2,246
<INCOME-PRETAX> 1,324
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,051
<EPS-PRIMARY> 3.09
<EPS-DILUTED> 3.09
<YIELD-ACTUAL> 3.64%
<LOANS-NON> 28
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<ALLOWANCE-UNALLOCATED> 2,276
</TABLE>
