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 - September 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: 308,874
shares as of September 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
-In Thousands-
9-31-95 12-31-94
<S> <C> <C>
ASSETS
Cash and due from banks $4,440 $6,375
Interest-bearing deposits in other banks 55 39
Federal funds sold 1,525 9,675
Investment Securities:
Held-to-maturity (approximate market 34,514 31,874
value of $35,470,793 at September 30, 1995
and $31,698,935 at December 31, 1994)
Available-for-sale 41,835 39,382
------------------
Total investment securities 76,349 71,256
------------------
Loans 93,382 86,699
Less: Allowance for loan losses 2,300 2,288
Unearned income 170 198
------------------
Net Loans 90,912 84,213
------------------
Premises and equipment 1,927 2,024
Accrued interest receivable 2,200 1,938
Intangible assets 340 421
Other assets 268 906
------------------
TOTAL ASSETS $178,016 $176,847
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $11,978 $12,683
Interest-bearing 140,539 140,240
------------------
Total deposits 152,517 152,923
------------------
Federal funds purchased 0 0
Securities sold under agreements to repurchase 108 1,129
Note Payable 1,000 0
Advances from FHLB 8,000 6,500
Other liabilities 2,009 1,646
------------------
Total liabilities 163,634 162,198
------------------
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 14,493 13,148
Net unrealized gains (losses) on available-
for-sale securities 37 (1,303)
------------------
18,040 15,355
Less: Treasury stock, at cost, 66,126 shares
at September 30, 1995; 18,776 shares at
December 31, 1994 3,658 706
------------------
Total stockholders' equity 14,382 14,649
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $178,016 $176,847
==================
</TABLE>
<PAGE>
<TABLE>
FARMERS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-Unaudited-
<CAPTION>
-In Thousands-
Quarter Ended Nine months ended
9-30-95 9-30-94 9-30-95 9-30-94
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,050 $1,815 $5,946 $5,230
Interest and dividends on
investment securities:
Taxable 911 816 2,774 2,479
Nontaxable 298 251 867 682
Interest on interest-bearing
deposits 0 1 1 1
Other interest income 61 62 153 126
-------------------------------------
Total interest income 3,320 2,945 9,741 8,518
-------------------------------------
Interest expense:
Interest on deposits 1,652 1,311 4,730 3,751
Interest on federal funds
purchased 0 0 5 1
Interest on securities sold under
agreements to repurchase 2 2 10 3
Interest on advances from FHLB 139 86 367 242
Interest on other borrowings 19 0 28 0
-------------------------------------
Total interest expense 1,812 1,399 5,140 3,997
-------------------------------------
Net interest income 1,508 1,546 4,601 4,521
Provision for loan losses 0 0 0 0
-------------------------------------
Net interest income after provision
for loan losses 1,508 1,546 4,601 4,521
-------------------------------------
Other income:
Investment security gains 41 (1) 61 104
Other 219 254 676 772
-------------------------------------
Total other income 260 253 737 876
-------------------------------------
Income before operating expenses 1,768 1,799 5,338 5,397
-------------------------------------
Operating expenses:
Salaries and employee benefits 522 516 1,506 1,531
Net occupancy expense 165 162 518 484
Exam, legal and audit fees 34 31 89 91
FDIC insurance premiums 39 82 209 245
Environmental expense 5 0 225 0
Premium amortization 27 27 81 81
Other operating expenses 181 194 591 572
-------------------------------------
Total operating expenses 973 1,012 3,219 3,004
-------------------------------------
Income before income tax expense 795 787 2,119 2,393
Applicable tax expense 189 196 462 619
-------------------------------------
Net income $606 $591 $1,657 $1,774
=====================================
Per common share
Net income $1.96 $1.64 $5.02 $4.94
=====================================
Dividends declared $0.32 $0.32 $0.96 $0.96
=====================================
Weighted average common
shares outstanding 309,091 359,052 330,031 359,033
=====================================
</TABLE>
<PAGE>
<TABLE>
FARMERS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-Unaudited-
<CAPTION>
-In Thousands-
Quarter ended
9-31-95 9-31-94
<S> <C> <C>
Cash flows from operating activities:
Net income $1,657 $1,774
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 264 249
Provision for possible loan losses 0 0
Amortization of deposit premium 81 81
Amortization/accretion of investment
securities, net 8 171
Investment securities (gains) (61) (105)
(Increase) Decrease in accrued interest receivable (263) (129)
(Increase) decrease in other assets (64) (122)
Increase in accrued interest payable 477 255
Increase in other liabilities 97 119
------------------
Net cash provided by operating activities 2,196 2,293
------------------
Cash flows from investing activities:
(Increase) decrease in federal funds sold 8,150 (1,225)
(Increase) in interest-bearing deposits
in other banks (15) 0
Proceeds from sales, maturities and principal
repayments of investment securities:
Held to Maturity 1,197 4,311
Available for sale 2,884 15,989
Purchases of investment securities:
Held to Maturity (3,850) (8,411)
Available for sale (3,229) (6,990)
Net (increase) in loans (6,699) (7,393)
Purchase of premises on equipment (167) (227)
------------------
Net cash provided by (used in)
investing activities (1,729) (3,946)
------------------
Cash flows from financing activities:
Net (decrease) in deposit accounts (406) 907
Increase (Decrease) in securities sold
with agreements to repurchase (1,021) 182
Increase in note payable 1,000 0
Increase in advances from FHLB 1,500 0
Dividends paid (523) (519)
Increase in purchase Treasury Stock (2,952) (243)
------------------
Net cash provided by (used in)
financing activities (2,402) 327
------------------
Net (decrease) in cash and due from banks (1,935) (1,326)
Cash and due from banks, beginning of year 6,375 5,896
------------------
Cash and due from banks, end of period $4,440 $4,570
==================
Supplemental schedule of non cash investing
and financing activities:
Securities available for sale adjustment, net 37 (690)
==================
</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 September 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.
As discussed previously, the Bank has adopted SFAS 114 & 118,
"Accounting by Creditors for Impairment of a Loan."
Item 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations
(1) Material Changes in Financial Condition
During the first nine months of 1995, the Company experienced an 8%
increase in loans. 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 and investment securities.
Deposits were basically unchanged during the period. New fixed rate
advances from the Federal Home Loan Bank in the amount of $1,500,000
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, in
spite of earnings of over $1,600,000 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. Partly as a result of
the transaction, earnings per share, for example, has increased
approximately 19% during the third quarter this year compared to last
year.
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 September 30, 1995 the Company
risk-based capital ratio was 16.15%. 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 $1,609,096 and
unrealized losses of $618,926.
(2) Material Changes In the Results of Operations
Net income for the third quarter was higher 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 $5,000 during the second quarter and
$225,000 during the first nine months. Adjusting for those expenses,
net of taxes, the Company actually increased net income slightly
compared to the first nine months of 1995. Earnings per share, after
the same adjustments, show a modest increase for both the quarter and
nine 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. However, the reduction in FDIC insurance premiums announced
earlier this year will reduce bank expenses by approximately $300,000
annually.
(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. The lab results from a series of wells
have essentially concluded that contamination has not moved off-site.
In addition, recent legislation commonly known as the Brown-Field
Initiative, significantly reduces the level of clean-up which occurs
once remediation begins. 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 not be reached in 1995.
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
None to report.
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:November 10, 1995 _______________________________
Gaylon E. Martin, President
Dated:November 10, 1995 _______________________________
Wayne A. Hulting, Controller
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,440
<INT-BEARING-DEPOSITS> 55
<FED-FUNDS-SOLD> 1,525
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,835
<INVESTMENTS-CARRYING> 34,514
<INVESTMENTS-MARKET> 35,470
<LOANS> 93,382
<ALLOWANCE> 2,300
<TOTAL-ASSETS> 178,016
<DEPOSITS> 152,517
<SHORT-TERM> 1,108
<LIABILITIES-OTHER> 2,009
<LONG-TERM> 8,000
<COMMON> 1,875
0
0
<OTHER-SE> 16,165
<TOTAL-LIABILITIES-AND-EQUITY> 178,016
<INTEREST-LOAN> 5,946
<INTEREST-INVEST> 3,641
<INTEREST-OTHER> 154
<INTEREST-TOTAL> 9,741
<INTEREST-DEPOSIT> 4,730
<INTEREST-EXPENSE> 5,140
<INTEREST-INCOME-NET> 4,601
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 61
<EXPENSE-OTHER> 3,219
<INCOME-PRETAX> 2,119
<INCOME-PRE-EXTRAORDINARY> 2,119
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,657
<EPS-PRIMARY> 5.02
<EPS-DILUTED> 5.02
<YIELD-ACTUAL> 3.58
<LOANS-NON> 26
<LOANS-PAST> 363
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2288
<CHARGE-OFFS> 1
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 2300
<ALLOWANCE-DOMESTIC> 46
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2254
</TABLE>
