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, 1996 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.
Class Outstanding at June 30, 1996
Common Stock, No Par Value 1,673,086 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 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4-5
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
<TABLE>
CONSOLIDATED BALANCE SHEETS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash & due from banks 12,262,472 14,766,117
Federal funds sold 5,685,000 14,630,000
TOTAL CASH AND CASH EQUIVALENTS 17,947,472 29,396,117
Securities available for sale 46,170,440 46,479,885
Other securities 1,399,800 852,900
Loans 252,918,771 232,159,670
Less allowance for credit losses 2,955,590 2,910,838
NET LOANS 249,963,181 229,248,832
Premises and equipment, net 5,625,693 5,563,232
Other assets 3,050,825 2,687,806
324,157,411 314,228,772
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing 23,180,950 23,586,312
Interest-bearing 252,855,229 244,368,461
TOTAL DEPOSITS 276,036,179 267,954,773
Short-term borrowings:
U. S. Treasury interest-bearing demand note 640,503 748,470
Securities sold under repurchase agreement 10,550,463 9,847,119
TOTAL SHORT-TERM BORROWINGS 11,190,966 10,595,589
Other liabilities and deferred credits 814,806 1,702,145
TOTAL LIABILITIES 288,041,951 280,252,507
Stockholders Equity:
Common Stock - no par value at June 30, 1996,
$2.50 par value per share at December 31, 1995;
authorized 5,000,000 shares at June 30, 1996
and 2,400,000 at December 31, 1995; issued and
outstanding 1,673,086 at June 30, 1996 and
1,644,559 at December 31, 1995. 21,342,715 4,111,398
Additional paid-in capital 0 16,059,118
Retained earnings 14,889,788 13,591,018
Unrealized appreciation (depreciation) on debt
securities, net of applicable income taxes (117,043) 214,731
TOTAL STOCKHOLDERS EQUITY 36,115,460 33,976,265
324,157,411 314,228,772
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
INTEREST INCOME 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest and fees on loans 5,263,979 4,518,472 10,272,121 8,896,720
Interest and dividends on securities:
Taxable interest 572,633 552,711 1,129,846 1,061,871
Nontaxable interest 113,863 107,507 220,959 223,585
Dividends 22,809 6,190 46,021 11,454
Interest on federal funds sold 171,368 194,242 386,142 229,302
TOTAL INTEREST INCOME 6,144,652 5,379,122 12,055,089 10,422,932
INTEREST EXPENSE
Deposits 2,533,973 2,293,605 5,042,553 4,284,081
Short-term borrowings 128,423 116,166 244,197 221,075
TOTAL INTEREST EXPENSE 2,662,396 2,409,771 5,286,750 4,505,156
NET INTEREST INCOME 3,482,256 2,969,351 6,768,339 5,917,776
Provision for credit losses 90,000 90,000 180,000 180,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 3,392,256 2,879,351 6,588,339 5,737,776
OTHER INCOME
Service charges on deposit accounts 272,436 244,007 511,249 478,566
Investment security gains (losses) 0 0 0 (197)
Other operating income 75,732 98,869 162,303 188,799
TOTAL OTHER INCOME 348,168 342,876 673,552 667,168
OTHER EXPENSES
Salaries and employee benefits 1,156,863 1,020,992 2,274,296 2,019,673
Net occupancy expense of premises 127,325 127,721 268,661 252,108
Furniture and equipment expense,
including depreciation 135,322 125,908 286,054 251,509
Intangible and other taxes 129,401 110,727 261,700 224,001
Other operating expenses 672,421 678,968 1,252,764 1,348,920
TOTAL OTHER EXPENSES 2,221,332 2,064,316 4,343,475 4,096,211
INCOME BEFORE FEDERAL INCOME TAXES 1,519,092 1,157,911 2,918,416 2,308,733
FEDERAL INCOME TAXES 481,798 360,632 925,698 716,623
NET INCOME 1,037,294 797,279 1,992,718 1,592,110
* NET INCOME PER SHARE 0.63 0.50 1.21 1.00
<FN>
*Adjusted to reflect weighted average shares outstanding,
without audit and before adjustments.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Interest received 12,388,448 10,907,094
Fees and commissions received 673,552 667,365
Interest paid (5,312,334) (4,359,475)
Cash paid to suppliers and employees (4,533,731) (4,108,398)
Income taxes paid (940,000) (795,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,275,935 2,311,586
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for 7,719,979 7,000,000
Proceeds from maturities of investment securities held to matur 0 1,458,953
Proceeds from sales of investment securities available for sale 0 1,999,687
Purchases of other securities and securities available for sale (8,590,031) (8,024,580)
Purchases of investment securities held to maturity 0 (1,590,275)
Net increase in loans made to customers (21,392,313) (2,350,586)
Purchases of premises and equipment (280,150) (365,638)
Proceeds from sale of other real estate 0 84,113
NET CASH USED IN INVESTING ACTIVITIES (22,542,515) (1,788,326)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 3,136,410 (8,687,675)
Net increase in time deposits 5,138,341 17,707,405
Dividends paid (629,015) (595,555)
Proceeds from sale of common stock 1,172,199 857,502
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,817,935 9,281,677
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,448,645) 9,804,937
CASH AND CASH EQUIVALENTS
Beginning of period 29,396,117 14,508,724
End of period 17,947,472 24,313,661
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income 1,992,718 1,592,110
Add (deduct) items not affecting cash:
Depreciation 209,269 199,677
Amortization and accretion 636,257 461,561
Provision for possible loan and lease losses 180,000 180,000
Loss on sale of investment securities 0 197
Increase in prepaid expenses (392,458) (221,291)
(Increase) decrease in interest and fees receivable (290,451) 22,601
Other (59,400) 76,731
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,275,935 2,311,586
</TABLE>
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for June 30, 1996 and 1995 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, 1996 and 1995 include all adjustments, consisting of only normal
recurring adjustments necessary for a fair statement of the results for
the periods.
Notes:
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
(1) Federal Income Tax
Income before Federal Income Tax 2,918,416 2,308,733
Less nontaxable interest and dividends 220,959 223,585
Taxable Income 2,697,457 2,085,148
Federal Income Tax 925,698 716,623
</TABLE>
<TABLE>
<CAPTION>
(2) Stockholders Equity Six Months Ended
June 30, 1996
<S>
Common Stock <C>
Balance 1/1/96 4,111,398
Transfer of additional paid-in capital to common stock 16,059,118
Dividend Reinvestment 1,172,199
Balance 6/30/96 21,342,715
Additional Paid-In Capital
Balance 1/1/96 16,059,118
Transfer of balance to common stock (16,059,118)
Balance 6/30/96 0
Retained Earnings
Balance 1/1/96 13,591,018
Net Income 1,992,718
Dividends Declared: $.42 Cash dividends on common
stock 693,948
Balance 6/30/96 14,889,788
Unrealized Appreciation On Debt Securities
Balance 1/1/96 214,731
Net change in unrealized appreciation on debt securities,
net of income taxes (331,774)
Balance 6/30/96 (117,043)
Total Stockholders Equity at 6/30/96 36,115,460
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Corporation's net income for the second quarter of 1996 was
$1,037,294 or $.63 per share, which is a 30.10% increase compared with
the $797,279 or $.50 per share earned during the same period last year.
Return on average assets and return on average equity for the first six
months of 1996 were 1.25% and 11.44% respectively, compared to 1.13% and
10.44% for the same period in 1995.
Results of Operations (cont'd)
The increase in net income for the second quarter was primarily the
result of an increase in net interest income. The Corporation's net
interest income increased 17.27% from $2,969,351 for 1995 to $3,482,256 for
the same quarter of 1996. Total interest income is up 14.23% compared to the
second quarter of last year. This increase resulted from an increase in loan
balances of 15.36% over the past twelve months, as well as from the overall
rise in interest rates. Total interest expense is 10.48% higher for the
second quarter of 1996 compared to the second quarter of 1995. This increase
is due primarily to the increased cost of time deposits, as a result of the
increased rate environment.
The Corporation's total other expenses increased 7.61% from $2,064,316
in 1995 to $2,221,332 in 1996. Salaries and employee benefits increased
13.31% as a result of additional staff added to support the overall growth in
assets . The increase in salaries and employee benefits was partially offset
by a reduction in the bank's federal deposit insurance expense, which dropped
to $500 in 1996 compared to $139,281 for the same period in 1995.
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 aquiring 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 slightly to
$2,275,935 compared to $2,311,586 for the same period in 1995. Net cash
flows used in investing activities amounted to $22,542,515. Most of these
funds were used to fund the bank's increase in net loans, which increased
$20,759,101 during the first six months of 1996. Net cash flows provided by
financing activities were $8,817,935 compared to $9,281,677 in 1995.
Approximately $8,300,000 of these funds were generated from increases in
balances in deposit accounts.
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, 1996, the
corporation's total risk-based capital ratio stood at 16.7%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at 15.45% and 11.13%,
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
<TABLE>
The following shows the composition of loans at the dates indicated:
<CAPTION>
June 30, Dec. 31,
1996 1995
<S> <C> <C>
Commercial, financial and agricultural 22,909,495 22,676,625
Real estate - mortgage 99,602,940 98,677,572
Installment loans to individuals 130,406,336 110,805,473
Total loans 252,918,771 232,159,670
</TABLE>
Risk Elements
<TABLE>
The following table sets forth aggregate loans in each of the following
categories for the dates indicated:
<CAPTION>
June 30, Dec. 31,
1996 1995
<S> <C> <C>
Loans accounted for on a nonaccrual basis 122,301 125,422
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 1,422,012 1,383,797
Loans considered troubled debt restructurings
(not included in nonaccrual or contractually
past due above) 72,309 74,490
<FN>
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.
</FN>
</TABLE>
Risk Elements (Continued)
<TABLE>
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:
<CAPTION>
June 30, Dec. 31,
1996 1995
<S> <C> <C>
Gross interest that would have been recorded
if the loans had been current in accordance
with their original terms 4,600 5,000
Interest income included in income on the loans 0 0
</TABLE>
A loan is placed on a nonaccrual basis whenever sufficient information is
received to question the collectibility of the loan. 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, 1996, 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
<TABLE>
The following is an analysis of the allowance for credit losses for the
periods indicated:
<CAPTION>
Six Months Year
Ended Ended
June 30, Dec. 31,
1996 1995
<S> <C> <C>
Balance at beginning of period 2,910,838 2,746,420
Loan losses:
Commercial, financial & agricultural (2,594) (1,500)
Real estate - mortgage 0 0
Installment loans to individuals (212,288) (274,961)
(214,882) (276,461)
Recoveries on previous loan losses:
Commercial, financial & agricultural 4,850 43,924
Real estate - mortgage 0 0
Installment loans to individuals 74,784 126,955
79,634 170,879
Net loan losses (135,248) (105,582)
Provision charged to operations (1) 180,000 270,000
Balance at end of period 2,955,590 2,910,838
Ratio of net credit losses to average net
loans outstanding .06% .05%
<FN>
(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.
</FN>
</TABLE>
Summary of Credit Loss Experience (cont'd)
<TABLE>
The allowance for possible loan and lease 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.
<CAPTION>
June 30, Dec. 31,
Types of Loans 1996 1995
<S> <C> <C>
Commercial, financial & agricultural 1,700,000 1,800,000
Real estate - mortgage 270,000 250,000
Installment 985,590 860,838
Total 2,955,590 2,910,838
<FN>
The allocation of the allowance as shown above should not be interpreted as
an indication that charge-offs in 1996 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.
</FN>
</TABLE>
<TABLE>
The percentage of loans in each category to total loans is summarized as
follows:
June 30, Dec. 31,
Types of Loans 1996 1995
<S> <C> <C>
Commercial, financial & agricultural 9.1% 9.7%
Real estate - mortgage 39.4% 42.5%
Installment loans to individuals 51.6% 47.8%
100.0% 100.0%
</TABLE>
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) Exhibits
2.1. Not applicable.
4.1. The rights of holders of equity securities are defined in
portions of the Articles of Incorporation and By-laws. The
Articles of Incorporation are incorporated by reference to
Exhibit 3.1. of the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995. The By-laws are
incorporated by reference to Exhibit 3.2. of the registrant's
Annual Report on Form 10-K for the fiscal year ended De-
cember 31, 1995. 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 subsidiary.
Item 6. (a) - Continued
11.1. Not applicable.
15.1. Not applicable.
18.1. Not applicable.
19.1. Not applicable.
20.1. Not applicable.
23.1. Not applicable.
24.1. Not applicable.
11
25.1. Not applicable.
28.1. Not applicable.
(b) - Reports on Form 8-K
No reports on Form 8-K were filed for the six months ended
June 30, 1996.
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: ___________________
______________________________________
Frank L. Paden
President and Secretary
Dated: ___________________
______________________________________
Carl D. Culp
Executive Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000709337
<NAME> FARMERS NATIONAL BANC CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 12,262
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,685
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,170
<INVESTMENTS-CARRYING> 1,400
<INVESTMENTS-MARKET> 1,400
<LOANS> 252,919
<ALLOWANCE> 2,956
<TOTAL-ASSETS> 324,157
<DEPOSITS> 276,036
<SHORT-TERM> 11,191
<LIABILITIES-OTHER> 815
<LONG-TERM> 0
0
0
<COMMON> 21,343
<OTHER-SE> 14,772
<TOTAL-LIABILITIES-AND-EQUITY> 324,157
<INTEREST-LOAN> 10,272
<INTEREST-INVEST> 1,783
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,055
<INTEREST-DEPOSIT> 5,043
<INTEREST-EXPENSE> 5,287
<INTEREST-INCOME-NET> 6,768
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,343
<INCOME-PRETAX> 2,918
<INCOME-PRE-EXTRAORDINARY> 2,918
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,993
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 7.71
<LOANS-NON> 122
<LOANS-PAST> 1,422
<LOANS-TROUBLED> 72
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,911
<CHARGE-OFFS> 215
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 2,956
<ALLOWANCE-DOMESTIC> 2,956
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
