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 March 31, 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 March 31, 1996
Common Stock, No Par Value 1,659,255 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>
March 31, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash & due from banks 11,266,274 14,766,117
Federal funds sold 13,659,000 14,630,000
TOTAL CASH AND CASH EQUIVALENTS 24,925,274 29,396,117
Securities available for sale 46,566,119 46,479,885
Other securities 1,382,150 852,900
Loans 240,968,493 232,159,670
Less allowance for credit losses 2,935,128 2,910,838
NET LOANS 238,033,365 229,248,832
Premises and equipment, net 5,572,364 5,563,232
Other assets 2,992,574 2,687,806
319,471,846 314,228,772
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing 22,216,184 23,586,312
Interest-bearing 249,824,390 244,368,461
TOTAL DEPOSITS 272,040,574 267,954,773
Short-term borrowings:
U. S. Treasury interest-bearing demand not 674,286 748,470
Securities sold under repurchase agreement 10,199,267 9,847,119
TOTAL SHORT-TERM BORROWINGS 10,873,553 10,595,589
Other liabilities and deferred credits 1,504,094 1,702,145
TOTAL LIABILITIES 284,418,221 280,252,507
Stockholders Equity:
Common Stock - no par value at March 31, 1996,
$2.50 par value per share at December 31, 1995;
authorized 5,000,000 shares at March 31, 1996
and 2,400,000 at December 31, 1995; issued and
outstanding 1,659,255 at March 31, 1996 and
1,644,559 at December 31, 1995. 20,758,356 4,111,398
Additional paid-in capital 0 16,059,118
Retained earnings 14,217,530 13,591,018
Unrealized appreciation on debt securities,
net of applicable income taxes 77,739 214,731
TOTAL STOCKHOLDERS EQUITY 35,053,625 33,976,265
319,471,846 314,228,772
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
<CAPTION>
For the Three Months Ended
March 31, March 31,
INTEREST INCOME 1996 1995
<S> <C> <C>
Interest and fees on loans 5,008,142 4,378,248
Interest and dividends on securities:
Taxable interest 557,213 509,160
Nontaxable interest 107,096 116,078
Dividends 23,212 5,264
Interest on federal funds sold 214,774 35,060
TOTAL INTEREST INCOME 5,910,437 5,043,810
INTEREST EXPENSE
Deposits 2,508,580 1,990,476
Short-term borrowings 115,774 104,909
TOTAL INTEREST EXPENSE 2,624,354 2,095,385
NET INTEREST INCOME 3,286,083 2,948,425
Provision for credit losses 90,000 90,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 3,196,083 2,858,425
OTHER INCOME
Service charges on deposit accounts 238,813 234,559
Investment security gains (losses) 0 (197)
Other operating income 86,571 89,930
TOTAL OTHER INCOME 325,384 324,292
OTHER EXPENSES
Salaries and employee benefits 1,117,433 998,681
Net occupancy expense of premises 141,336 124,387
Furniture and equipment expense,
including depreciation 150,732 125,601
Intangible and other taxes 132,299 113,274
Other operating expenses 580,343 669,952
TOTAL OTHER EXPENSES 2,122,143 2,031,895
INCOME BEFORE FEDERAL INCOME TAXES 1,399,324 1,150,822
FEDERAL INCOME TAXES 443,900 355,991
NET INCOME 955,424 794,831
* NET INCOME PER SHARE 0.58 0.50
<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
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Interest received 5,878,123 5,164,566
Fees and commissions received 325,384 324,489
Interest paid (2,620,796) (2,032,814)
Cash paid to suppliers and employees (2,306,653) (2,320,801)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,276,058 1,135,440
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for 2,412,475 4,000,000
Proceeds from maturities of investment securities held to matur 0 220,268
Proceeds from sales of investment securities available for sale 0 1,999,687
Purchases of other securities and securities available for sale (3,306,746) (1,010,547)
Purchases of investment securities held to maturity 0 (107,700)
Net increase in loans made to customers (8,591,886) (323,033)
Purchases of premises and equipment (134,671) (228,014)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (9,620,828) 4,550,661
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 253,729 (10,622,269)
Net increase in time deposits 3,294,082 12,510,258
Dividends paid (261,724) (325,693)
Proceeds from sale of common stock 587,840 403,713
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,873,927 1,966,009
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,470,843) 7,652,110
CASH AND CASH EQUIVALENTS
Cash beginning of period 29,396,117 14,508,724
Cash end of period 24,925,274 22,160,834
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income 955,424 794,831
Add (deduct) items not affecting cash:
Depreciation 121,348 97,912
Amortization and accretion 289,429 241,179
Provision for possible loan and lease losses 90,000 90,000
Loss on sale of investment securities 0 197
Other (180,143) (88,679)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,276,058 1,135,440
</TABLE>
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for March 31, 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 three
month period ending March 31, 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>
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
(1) Federal Income Tax
Income before Federal Income Tax 1,399,324 1,150,822
Less nontaxable interest and dividends 107,096 116,078
Taxable Income 1,292,228 1,034,744
Federal Income Tax 443,900 355,991
</TABLE>
<TABLE>
<CAPTION>
(2) Stockholders Equity Three Months Ended
March 31, 1996
<S> <C>
Common Stock
Balance 1/1/96 4,111,398
Transfer of additional paid-in capital to common stock 16,059,118
Dividend Reinvestment 587,840
Balance 3/31/96 20,758,356
Additional Paid-In Capital
Balance 1/1/96 16,059,118
Transfer of balance to common stock (16,059,118)
Balance 3/31/96 0
Retained Earnings
Balance 1/1/96 13,591,018
Net Income 955,424
Dividends Declared: $.20 Cash dividends on common
stock 328,912
Balance 3/31/96 14,217,530
Unrealized Appreciation On Debt Securities
Balance 1/1/96 214,731
Net change in unrealized appreciation on debt securities,
net of income taxes (136,992)
Balance 3/31/96 77,739
Total Stockholders Equity at 3/31/96 35,053,625
</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 first quarter of 1996
was $955,424 or $.58 per share, which is a 20.20% increase
compared with the $794,831 or $.50 per share earned during the
same period last year. Return on average assets and return on
average equity for the first quarter of 1996 were 1.21% and
11.21% respectively, compared to 1.13% and 10.65% for the same
period in 1995.
Results of Operations (cont'd)
The increase in net income for the first quarter was the
result of an increase in net interest income and reduction of
other operating expenses. The Corporation's net interest
income increased 11.45% from $2,948,425 for 1995 to $3,286,083
for the same quarter of 1996. This increase resulted from an
increase in loan balances of 10.86% over the
past twelve months, as well as from the overall rise in interest
rates. Additionally, the substantial growth in the balance of
Federal funds sold has resulted in an increase in federal funds
sold income of $179,714 for the quarter of 1996 compared to the
same period in 1995. This growth in federal funds sold is the
result of a 10.29% increase in deposits in the past twelve
months.
The Corporation's total other expenses increased 4.44% from
$2,031,895 in 1995 to $2,122,143 in 1996. Salaries and employee
benefits increased 11.89% as a result of additional staff added
to support the overall growth in assets . The increase 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
Liquidity is defined as the ability to meet all financial
obligations when due. The central role of liquidity management
is to insure that the corporation has ready access to sufficient
liquid funds to meet normal transaction requirements such as customer loan
requirements, to take advantage of market opportunities which
require flexibility and speed to provide a cushion against
unforeseeable needs.
As of March 31, 1996, the Corporation's formula for
measuring liquidity stood at 3.78%, with 3.0% considered
adequate to meet funding needs. This ratio has declined from
5.49% reported at the same time last year.
Cash flows generated from operating activities increased
12.38% to $1,276,058 compared to $1,135,440 for the same period
in 1995. This increase is the result of a 13.82% increase in
total interest received. Net cash flows used in investing
activities amounted to $9,620,828. Most of these funds were
used to fund the bank's increase in net loans, which increased
$8,591,886 during the first quarter of 1996. Net cash flows
provided by financing activities were $3,873,927 compared to
$1,966,009 in 1995. The increase in funds is the due to a 10.3%
increase in total deposits.
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 March 31, 1996, the corporation's total
risk-based capital ratio stood at 16.69%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at
15.44% and 10.93%, 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>
March 31, Dec. 31,
1996 1995
<S> <C> <C>
Commercial, financial and agricultural 23,952,004 22,676,625
Real estate - mortgage 99,786,959 98,677,572
Installment loans to individuals 117,229,530 110,805,473
Total loans 240,968,493 232,159,670
</TABLE>
Risk Elements
<TABLE>
The following table sets forth aggregate loans in each of the
following categories for the dates indicated:
<CAPTION>
March 31, Dec. 31,
1996 1995
<S> <C> <C>
Loans accounted for on a nonaccrual basis 100,171 125,422
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 1,469,577 1,383,797
Loans considered troubled debt restructurings
(not included in nonaccrual or contractually
past due above) 72,938 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>
March 31, 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 1,900 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 March 31, 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>
Three Months Year
Ended Ended
March 31, 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 (104,013) (274,961)
(106,607) (276,461)
Recoveries on previous loan losses:
Commercial, financial & agricultural 1,050 43,924
Real estate - mortgage 0 0
Installment loans to individuals 39,847 126,955
40,897 170,879
Net loan losses (65,710) (105,582)
Provision charged to operations (1) 90,000 270,000
Balance at end of period 2,935,128 2,910,838
Ratio of net credit losses to average net
loans outstanding .02% .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>
March 31, Dec. 31,
Types of Loans 1996 1995
<S> <C> <C>
Commercial, financial & agricultural 1,800,000 1,800,000
Real estate - mortgage 255,000 250,000
Installment 880,128 860,838
Total 2,935,128 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:
<CAPTION>
March 31, Dec. 31,
Types of Loans 1996 1995
<S> <C> <C>
Commercial, financial & agricultural 9.9% 9.7%
Real estate - mortgage 41.4% 42.5%
Installment loans to individuals 48.7% 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
(a) Farmers National Banc Corp's annual meeting of
shareholders was held on March 28, 1996.
(b & c) Proxies were solicited by Farmers National Banc
Corp's management pursuant to Regulation 14 under the
Securities Exchange Act of 1934. Elected to serve as director
until the 1996 annual meeting of shareholders were management's
nominees Benjamin R. Brown (1,244,144 votes), Richard L. Calvin
(1,244,144 votes), Joseph O. Lane (1,244,144 votes), David C.
Myers (1,244,124 votes), Edward A. Ort (1,244,144 votes), Frank
L. Paden (1,244,144 votes), William D. Stewart (1,244,144 votes)
and Ronald V. Wertz (1,244,144 votes).
A proposal to increase the number of authorized shares from
2,400,000 of $2.50 par value common stock to 5,000,000 no par
value was approved with the following results: For the proposal:
1,210,841; Against: 23,495; Abstain: 9,808.
(d) 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 December 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.
25.1. Not applicable.
28.1. Not applicable.
(b) - Reports on Form 8-K
No reports on Form 8-K were filed for the three months
ended March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,266
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,659
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,566
<INVESTMENTS-CARRYING> 1,382
<INVESTMENTS-MARKET> 1,382
<LOANS> 240,968
<ALLOWANCE> 2,935
<TOTAL-ASSETS> 319,472
<DEPOSITS> 272,041
<SHORT-TERM> 10,874
<LIABILITIES-OTHER> 1,504
<LONG-TERM> 0
0
0
<COMMON> 20,758
<OTHER-SE> 14,295
<TOTAL-LIABILITIES-AND-EQUITY> 319,472
<INTEREST-LOAN> 5,008
<INTEREST-INVEST> 902
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,910
<INTEREST-DEPOSIT> 2,509
<INTEREST-EXPENSE> 2,624
<INTEREST-INCOME-NET> 3,286
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,122
<INCOME-PRETAX> 1,399
<INCOME-PRE-EXTRAORDINARY> 1,399
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 955
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
<YIELD-ACTUAL> 7.71
<LOANS-NON> 100
<LOANS-PAST> 1,470
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,911
<CHARGE-OFFS> 107
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 2,935
<ALLOWANCE-DOMESTIC> 2,935
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
