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 Sept. 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 Sept. 30, 1996
Common Stock, No Par Value 1,720,172 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>
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash & due from banks 12,267,773 14,766,117
Federal funds sold 4,081,000 14,630,000
TOTAL CASH AND CASH EQUIVALENTS 16,348,773 29,396,117
Securities available for sale 46,126,010 46,479,885
Other securities 1,433,050 852,900
Loans 261,905,282 232,159,670
Less allowance for credit losses 2,970,052 2,910,838
NET LOANS 258,935,230 229,248,832
Premises and equipment, net 5,578,850 5,563,232
Other assets 2,921,670 2,687,806
331,343,583 314,228,772
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing 22,517,657 23,586,312
Interest-bearing 251,677,591 244,368,461
TOTAL DEPOSITS 274,195,248 267,954,773
Short-term borrowings:
U. S. Treasury interest-bearing demand note 739,997 748,470
Securities sold under repurchase agreements 13,131,293 9,847,119
Federal Home Loan Bank advances 5,000,000 0
TOTAL SHORT-TERM BORROWINGS 18,871,290 10,595,589
Other liabilities and deferred credits 733,028 1,702,145
TOTAL LIABILITIES 293,799,566 280,252,507
Stockholders Equity:
Common Stock - no par value at September 30, 1996,
$2.50 par value per share at December 31, 1995;
authorized 5,000,000 shares at September 30, 1996
and 2,400,000 at December 31, 1995; issued and
outstanding 1,720,172 at September 30, 1996 and
1,644,559 at December 31, 1995. 23,438,042 4,111,398
Additional paid-in capital 0 16,059,118
Retained earnings 14,149,505 13,591,018
Unrealized appreciation (depreciation) on debt securities,
net of applicable income taxes (43,530) 214,731
TOTAL STOCKHOLDERS EQUITY 37,544,017 33,976,265
331,343,583 314,228,772
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
INTEREST INCOME 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest and fees on loans 5,437,449 4,751,850 15,709,570 13,648,570
Interest and dividends on securities:
Taxable interest 559,113 537,932 1,688,959 1,599,803
Nontaxable interest 114,596 104,520 335,555 328,105
Dividends 29,374 5,556 75,395 17,010
Interest on federal funds sold 81,908 237,334 468,050 466,636
TOTAL INTEREST INCOME 6,222,440 5,637,192 18,277,529 16,060,124
INTEREST EXPENSE
Deposits 2,527,558 2,414,498 7,570,111 6,698,579
Short-term borrowings 156,069 129,868 400,266 350,943
TOTAL INTEREST EXPENSE 2,683,627 2,544,366 7,970,377 7,049,522
NET INTEREST INCOME 3,538,813 3,092,826 10,307,152 9,010,602
Provision for credit losses 90,000 60,000 270,000 240,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 3,448,813 3,032,826 10,037,152 8,770,602
OTHER INCOME
Service charges on deposit accounts 284,757 243,390 796,006 721,956
Investment security gains (losses) 0 0 0 (197)
Other operating income 144,976 94,344 307,279 283,143
TOTAL OTHER INCOME 429,733 337,734 1,103,285 1,004,902
OTHER EXPENSES
Salaries and employee benefits 1,227,097 1,048,431 3,501,393 3,068,104
Net occupancy expense of premises 128,519 126,206 397,180 378,314
Furniture and equipment expense,
including depreciation 127,583 124,913 413,637 376,422
Intangible and other taxes 126,549 107,958 388,249 331,959
Other operating expenses 611,027 578,759 1,863,791 1,927,679
TOTAL OTHER EXPENSES 2,220,775 1,986,267 6,564,250 6,082,478
INCOME BEFORE FEDERAL INCOME TAXES 1,657,771 1,384,293 4,576,187 3,693,026
FEDERAL INCOME TAXES 529,035 440,109 1,454,733 1,156,732
NET INCOME 1,128,736 944,184 3,121,454 2,536,294
* NET INCOME PER SHARE 0.67 0.58 1.84 1.55
<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 Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Interest received 18,962,932 16,469,349
Fees and commissions received 1,043,285 1,005,099
Interest paid (7,973,677) (6,816,764)
Cash paid to suppliers and employees (6,398,742) (5,918,423)
Income taxes paid (1,450,000) (1,145,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,183,798 3,594,261
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 10,297,111 12,000,000
Proceeds from maturities of investment securities held to maturity 0 1,655,981
Proceeds from sales of investment securities available for sale 0 1,999,687
Purchases of other securities and securities available for sale (11,100,712) (10,052,705)
Purchases of investment securities held to maturity 0 (2,347,685)
Net increase in loans made to customers (30,869,239) (10,416,456)
Purchases of premises and equipment (326,198) (1,185,021)
Proceeds from sale of other real estate 0 252,291
NET CASH USED IN INVESTING ACTIVITIES (31,999,038) (8,093,908)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits,
NOW accounts and savings accounts (4,240,966) (7,396,953)
Net increase in time deposits 13,225,161 26,115,942
Net increase in Federal Home Loan Bank Borrowings 5,000,000 0
Dividends paid (982,885) (888,637)
Proceeds from sale of common stock 1,766,586 1,336,052
Other 0 (130,787)
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,767,896 19,035,617
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,047,344) 14,535,970
CASH AND CASH EQUIVALENTS
Beginning of period 29,396,117 14,508,724
End of period 16,348,773 29,044,694
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income 3,121,454 2,536,294
Add (deduct) items not affecting cash:
Depreciation 297,834 296,310
Amortization and accretion 976,666 706,702
Provision for possible loan and lease losses 270,000 240,000
Loss on sale of investment securities 0 197
Increase in prepaid expenses (222,203) (92,857)
Increase in interest and fees receivable (272,592) (295,849)
Other 12,639 203,464
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,183,798 3,594,261
</TABLE>
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for September 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 nine
month period ending September 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:
Nine Months Ended
Sept. 30, Sept. 30,
1996 1995
(1) Federal Income Tax
Income before Federal Income Tax 4,576,187 3,693,026
Less nontaxable interest and dividends 335,555 328,105
Taxable Income 4,240,632 3,364,921
Federal Income Tax 1,454,733 1,156,732
(2) Stockholders Equity
Nine Months Ended
September 30, 1996
Common Stock
Balance 1/1/96 4,111,398
Transfer of additional paid-in capital to common stock 16,059,118
Dividend Reinvestment 1,766,586
Stock dividend 1,500,940
Balance 9/30/96 23,438,042
Additional Paid-In Capital
Balance 1/1/96 16,059,118
Transfer of balance to common stock (16,059,118)
Balance 9/30/96 0
Retained Earnings
Balance 1/1/96 13,591,018
Net Income 3,121,454
Dividends Declared: $.64 Cash dividends on common stock (1,062,027)
Stock dividends (1,500,940)
Balance 9/30/96 14,149,505
Unrealized Appreciation (Depreciation) On Debt Securities
Balance 1/1/96 214,731
Net change in unrealized appreciation on debt securities,
net of income taxes (258,261)
Balance 9/30/96 (43,530)
Total Stockholders Equity at 9/30/96 37,544,017
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations
Results of Operations
The Corporation's net income for the third quarter of 1996
was $1,128,736 or $.67 per share, which is a 19.50% increase
compared with the $944,184 or $.58 per share earned during the
same period last year. Return on average assets and return on
average equity for the first nine months of 1996 were 1.29% and
11.73% respectively, compared to 1.26% and 11.93% for the same
period in 1995.
Results of Operations (cont'd)
The increase in net income for the third quarter was
primarily the result of an increase in net interest income.
The Corporation's net interest income increased 14.44% from
$3,092,826 for 1995 to $3,538,813 for the same quarter of 1996.
Total interest income is up 10.38% compared to the third quarter
of last year. This increase resulted from an increase in loan
balances of 15.49% over the past twelve months, as well as from
the overall rise in interest rates. Total interest expense is
5.47% higher for the third quarter of 1996 compared to the third
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 for the third
quarter increased 11.81% from $1,986,267 in 1995 to $2,220,775
in 1996. Salaries and employee benefits increased 17.04% as a
result of additional staff added to support the overall growth
in assets .
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 increased
to $4,183,798 compared to $3,594,261 for the same period in
1995. This increase of $589,537 is primarily the result of
increased levels of interest income. Net cash flows used in
investing activities amounted to $31,999,038. Most of these
funds were used to fund the bank's increase in net loans, which
increased $29,686,398 during the first nine months of 1996. Net
cash flows provided by financing activities were $14,767,896
compared to $19,035,617 in 1995. Approximately $9,000,000 of
these funds were generated from increases in balances in deposit
accounts, and $5,000,000 was the result of borrowings from the
Federal Home Loan Bank.
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 September 30, 1996, the corporation's total
risk-based capital ratio stood at 16.72%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at
15.48% and 11.34%, 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
The following shows the composition of loans at the dates
indicated:
Sept. 30, Dec. 31,
1996 1995
Commercial, financial and agricultural 23,741,312 22,676,625
Real estate - mortgage 103,532,159 98,677,572
Installment loans to individuals 134,631,811 110,805,473
Total loans 261,905,282 232,159,670
Risk Elements
The following table sets forth aggregate loans in each of the
following categories for the dates indicated:
Sept. 30, Dec. 31,
1996 1995
Loans accounted for on a nonaccrual basis 0 125,422
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 1,899,323 1,383,797
Loans considered troubled debt restructurings
(not included in nonaccrual or contractually
past due above) 72,309 74,490
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.
Risk Elements (Continued)
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:
Sept. 30, Dec. 31,
1996 1995
Gross interest that would have been recorded
if the loans had been current in accordance
with their original terms 0 5,000
Interest income included in income on the loans 0 0
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 September 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
The following is an analysis of the allowance for credit losses
for the periods indicated:
Nine Months Year
Ended Ended
Sept. 30, Dec. 31,
1996 1995
Balance at beginning of period 2,910,838 2,746,420
Loan losses:
Commercial, financial & agricultural (3,603) (1,500)
Real estate - mortgage 0 0
Installment loans to individuals (317,588) (274,961)
(321,191) (276,461)
Recoveries on previous loan losses:
Commercial, financial & agricultural 5,150 43,924
Real estate - mortgage 0 0
Installment loans to individuals 105,255 126,955
110,405 170,879
Net loan losses (210,786) (105,582)
Provision charged to operations (1) 270,000 270,000
Balance at end of period 2,970,052 2,910,838
Ratio of net credit losses to average net
loans outstanding .09% .05%
(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.
Summary of Credit Loss Experience (cont'd)
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.
Sept. 30, Dec. 31,
Types of Loans 1996 1995
Commercial, financial & agricultural 1,850,000 1,800,000
Real estate - mortgage 270,000 250,000
Installment 883,034 860,838
Total 3,003,034 2,910,838
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.
The percentage of loans in each category to total loans is
summarized as follows:
Sept. 30, Dec. 31,
Types of Loans 1996 1995
Commercial, financial & agricultural 9.1% 9.7%
Real estate - mortgage 39.5% 42.5%
Installment loans to individuals 51.4% 47.8%
100.0% 100.0%
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 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 nine months ended
September 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: November 13, 1996
Frank L. Paden
President and Secretary
Dated: November 13, 1996
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,268
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,081
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,126
<INVESTMENTS-CARRYING> 1,433
<INVESTMENTS-MARKET> 1,433
<LOANS> 261,905
<ALLOWANCE> 2,970
<TOTAL-ASSETS> 331,344
<DEPOSITS> 274,195
<SHORT-TERM> 18,871
<LIABILITIES-OTHER> 734
<LONG-TERM> 0
0
0
<COMMON> 23,438
<OTHER-SE> 14,106
<TOTAL-LIABILITIES-AND-EQUITY> 331,344
<INTEREST-LOAN> 15,710
<INTEREST-INVEST> 2,567
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,277
<INTEREST-DEPOSIT> 7,570
<INTEREST-EXPENSE> 7,970
<INTEREST-INCOME-NET> 10,307
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,564
<INCOME-PRETAX> 4,576
<INCOME-PRE-EXTRAORDINARY> 4,576
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,121
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 7.74
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<LOANS-PAST> 1,899
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<ALLOWANCE-CLOSE> 2,970
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</TABLE>
