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, 1998 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
(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, as of the latest praticable
date.
Class Outstanding at March 31, 1998
Common Stock, No Par Value 3,517,746 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 11-13
<TABLE>
CONSOLIDATED BALANCE SHEETS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
<CAPTION>
March 31, December 31,
1998 1997
(In Thousands of Dollars)
<S> <C> <C>
ASSETS
Cash & due from banks $11,886 $13,480
Federal funds sold 5,689 5,702
TOTAL CASH AND CASH EQUIVALENTS 17,575 19,182
Securities available for sale 72,128 66,620
Other securities 1,748 1,686
Loans 274,431 275,094
Less allowance for credit losses 3,534 3,429
NET LOANS 270,897 271,665
Premises and equipment, net 6,028 6,025
Other assets 3,484 3,271
$371,860 $368,449
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $26,219 $26,282
Interest-bearing 279,833 279,548
TOTAL DEPOSITS 306,052 305,830
U. S. Treasury interest-bearing demand note 559 559
Securities sold under repurchase agreements 16,963 14,659
Long-term borrowings 3,728 4,612
Other liabilities and deferred credits 2,125 1,866
TOTAL LIABILITIES 329,427 327,526
Stockholders Equity:
Common Stock - no par value; authorized 5,000,000
shares; issued and outstanding 3,517,746 in 1998 and
3,491,137 in 1997 25,723 24,792
Retained earnings 16,300 15,717
Unrealized appreciation on debt securities,
net of applicable income taxes 410 414
TOTAL STOCKHOLDERS EQUITY 42,433 40,923
$371,860 $368,449
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
<CAPTION>
For the Three Months Ended
March 31, March 31,
1998 1997
(In Thousands except Per Share Data)
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $5,929 $5,677
Interest and dividends on securities:
Taxable interest 891 575
Nontaxable interest 128 112
Dividends 29 24
Interest on federal funds sold 82 148
TOTAL INTEREST INCOME 7,059 6,536
INTEREST EXPENSE
Deposits 2,920 2,647
Borrowings 234 187
TOTAL INTEREST EXPENSE 3,154 2,834
NET INTEREST INCOME 3,905 3,702
Provision for credit losses 210 150
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 3,695 3,552
OTHER INCOME
Service charges on deposit accounts 286 276
Investment security gains 5 3
Other operating income 128 84
TOTAL OTHER INCOME 419 363
OTHER EXPENSES
Salaries and employee benefits 1,281 1,311
Net occupancy expense of premises 140 143
Furniture and equipment expense,
including depreciation 141 130
Intangible and other taxes 153 141
Other operating expenses 718 712
TOTAL OTHER EXPENSES 2,433 2,437
INCOME BEFORE FEDERAL INCOME TAXES 1,681 1,478
FEDERAL INCOME TAXES 539 469
NET INCOME $1,142 $1,009
* NET INCOME PER SHARE $0.33 $0.30
<FN>
*Adjusted to reflect weighted average shares outstanding
and 2% stock dividend, 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,
1998 1997
(In Thousands of Dollars)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Interest received $7,150 $6,472
Fees and commissions received 409 360
Interest paid (3,186) (2,844)
Cash paid to suppliers and employees (2,033) (2,617)
Income taxes paid (3) 0
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,337 1,371
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 1,859 6,231
Proceeds from sales of investment securities available for sale 1,023 103
Purchases of other securities and securities available for sale (8,528) (13,265)
Net increase in loans made to customers 174 3,095
Purchases of premises and equipment (113) (47)
NET CASH USED IN INVESTING ACTIVITIES (5,585) (3,883)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 1,670 (738)
Net increase in time deposits 17 5,705
Net decrease in Federal Home Loan Bank borrowings (884) (1,400)
Dividends paid (93) (474)
Proceeds from sale of common stock 931 745
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,641 3,838
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,607) 1,326
CASH AND CASH EQUIVALENTS
Beginning of period 19,182 18,969
End of period $17,575 $20,295
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income $1,142 $1,009
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 105 101
Amortization and accretion 328 278
Provision for credit losses 210 150
Gain on sale of investment securities (5) (4)
Increase in prepaid expenses 256 436
Other 301 (599)
NET CASH PROVIDED BY OPERATING ACTIVITIES $2,337 $1,371
</TABLE>
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Representation:
The financial statements for March 31, 1998 and 1997 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, 1998 and 1997 include all
adjustments, consisting of only normal recurring adjustments
necessary for a fair statement of the results for the periods.
Notes:
(In Thousands of Dollars)
Three Months Ended
March. 31, March 31,
1998 1997
(1) Federal Income Tax
Income before Federal Income Tax $1,681 $1,478
Less nontaxable interest and dividends 128 112
Taxable Income 1,553 1,366
Federal Income Tax $539 $469
(2) Stockholders Equity Three Months Ended
March 31, 1998
(In Thousands of Dollars)
Common Stock
Balance 1/1/98 $24,792
26,609 shares sold 931
Balance 3/31/98 25,723
Retained Earnings
Balance 1/1/98 15,717
Net Income 1,142
Dividends Declared: $.16 Cash dividends on common
stock (559)
Balance 3/31/98 16,300
Unrealized Appreciation On Debt Securities
Balance 1/1/98 414
Net change in unrealized depreciation on debt securities,
net of income taxes (4)
Balance 3/31/98 410
Total Stockholders Equity at 3/31/98 $42,433
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 1998
was $1.142 million or $.33 per share, which is a 13.2% increase
compared with the $1.009 million or $.30 per share earned during
the same period last year. Return on average assets and return
on average equity for the first three months of 1998 were 1.25%
and 11.03% respectively, compared to 1.19% and 11.58% for the
same period in 1997.
Results of Operations (cont'd)
The increase in net income for the first quarter was
primarily the result of an increase in net interest income.
The Corporation's net interest income increased 5.48% from
$3.702 million for 1997 to $3.905 million for the same quarter
of 1998. Total interest income is up 8% compared to the first
quarter of last year. This increase primarily the result of an
increase in the balance of investment securities of 37.42% over
the past twelve months, as well as from an increase in the yield
on investment securities. Interest and fees on loans also
increased 4.44% as a result of improved yields. Total interest
expense is 11.22% higher for the first quarter of 1998 compared
to the first quarter of 1997. This increase is due primarily
to growth in time deposits and a increase in the cost of these
funds. The bank's time deposits have grown 4.6% over the past
twelve months.
Provisions for credit losses in the first quarter amounted
to $210 thousand compared to $150 thousand for the same quarter
in 1997. This substantial increase is the result of a $11.3
million or 4.31% increase in loans in the past twelve months.
Other income increased 15.4% from $363 thousand in 1997 to
$419 thousand in 1998, as a result of increased fees from bank
servcies. The Corporation's total other expenses for the first
quarter decreased slightly from $2.437 million in 1997 to $2.433
million in 1998. Management continues to closely monitor and
keep the increases in noninterest expenses to a minimum.
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
acquiring 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
$2.337 million compared to $1.371 million for the same period in
1997. This increase of $966 thousand is primarily the result
of increased levels of interest income and a decrease in
non-interest expenses. Net cash flows used in investing
activities amounted to $5.585 million. Most of these funds were
used to purchase investment securities available for sale,
which increased $5.57 million during the first three months of
1998, while loans decreased slightly during the same time
period. Net cash flows provided by financing activities were
$1.641 million compared to $3.838 million in 1997. $1.670
million of funds were generated in 1998 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 March 31, 1998, the corporation's total
risk-based capital ratio stood at 18.15%, and the Tier I
risk-based capital ratio and Tier I leverage ratio were at
16.90% and 11.28%, 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:
(In Thousands of Dollars)
March 31, Dec. 31,
1998 1997
Commercial, financial and agricultural $11,314 $10,784
Residential mortgage loans 106,157 108,077
Nonresidential mortgage loans 41,089 39,902
Installment loans to individuals 115,871 116,331
Total loans $274,431 $275,094
Risk Elements
The following table sets forth aggregate loans in each of the
following categories for the dates indicated:
(In Thousands of Dollars)
March 31, Dec. 31,
1998 1997
Loans accounted for on a nonaccrual basis $337 $493
Loans contractually past due 90 days or
more as to interest or principal payments
(not included in nonaccrual loans above) 468 402
Loans considered troubled debt restructurings
(not included in nonaccrual or contractually
past due above) 0 0
Risk Elements (Continued)
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.
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:
(In Thousands of Dollars)
March 31, Dec. 31,
1998 1997
Gross interest that would have been recorded
if the loans had been current in accordance
with their original terms $7 $9
Interest income included in income on the loans 1 13
A loan is placed on a nonaccrual basis whenever sufficient
information is received to question the collectibility of the
loan. Generally, 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, 1998, 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:
(In Thousands of Dollars)
Three Months Year
Ended Ended
March 31, Dec. 31,
1998 1997
Balance at beginning of period $3,429 $3,198
Loan losses:
Commercial, financial & agricultural (15) 0
Real estate - mortgage 0 0
Installment loans to individuals (177) (824)
(192) (824)
Recoveries on previous loan losses:
Commercial, financial & agricultural 0 3
Real estate - mortgage 3 40
Installment loans to individuals 84 157
87 200
Net loan losses (105) (624)
Provision charged to operations (1) 210 855
Balance at end of period $3,534 $3,429
Ratio of net credit losses to average net
loans outstanding .15% .23%
(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 credit 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.
(In Thousands of Dollars)
March 31, Dec. 31,
Types of Loans 1998 1997
Commercial, financial & agricultural $1,026 $1,928
Real estate - mortgage 1,042 275
Installment 1,466 1,226
Total $3,534 $3,429
The allocation of the allowance as shown above should not be
interpreted as an indication that charge-offs in 1998 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:
March 31, Dec. 31,
Types of Loans 1998 1997
Commercial, financial & agricultural 4.1% 3.9%
Residential mortgage loans 38.7% 39.3%
Nonresidential mortgage loans 15.0% 14.5%
Installment loans to individuals 42.2% 42.3%
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
(a) Farmers National Banc Corp's annual meeting of
shareholders was held on March 26, 1998.
(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 1999 annual meeting of shareholders were management's
nominees Benjamin R. Brown (2,762,595 votes), Richard L. Calvin
(2,764,856 votes), Joseph O. Lane (2,764,897 votes), David C.
Myers (2,794,476 votes), Edward A. Ort (2,794,439 votes), Frank
L. Paden (2,794,476 votes), William D. Stewart (2,794,476 votes)
and Ronald V. Wertz (2,794,476 votes).
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed or incorporated by
references as part of this report:
2. Not applicable.
3(i). Not applicable.
3(ii). Not applicable.
4. 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
subsidiaries.
Exhibits and Reports on Form 8-K (Continued)
10. Not applicable.
11. Not applicable.
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule (filed herewith)
99. Not applicable.
(b) - Reports on Form 8-K
No reports on Form 8-K were filed for the three months
ended March 31, 1998.
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: 5/12/98
/s/Frank L. Paden
President and Secretary
Dated: 5/12/98
/s/Carl D. Culp
Executive Vice President
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY 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-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,886
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,689
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,128
<INVESTMENTS-CARRYING> 1,748
<INVESTMENTS-MARKET> 1,748
<LOANS> 274,431
<ALLOWANCE> 3,534
<TOTAL-ASSETS> 371,860
<DEPOSITS> 306,052
<SHORT-TERM> 17,522
<LIABILITIES-OTHER> 2,125
<LONG-TERM> 3,728
0
0
<COMMON> 25,723
<OTHER-SE> 16,710
<TOTAL-LIABILITIES-AND-EQUITY> 371,860
<INTEREST-LOAN> 5,929
<INTEREST-INVEST> 1,130
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,059
<INTEREST-DEPOSIT> 2,920
<INTEREST-EXPENSE> 3,154
<INTEREST-INCOME-NET> 3,905
<LOAN-LOSSES> 210
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 2,433
<INCOME-PRETAX> 1,681
<INCOME-PRE-EXTRAORDINARY> 1,681
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 8.13
<LOANS-NON> 337
<LOANS-PAST> 468
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 3,429
<CHARGE-OFFS> 192
<RECOVERIES> 87
<ALLOWANCE-CLOSE> 3,534
<ALLOWANCE-DOMESTIC> 3,534
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<ALLOWANCE-UNALLOCATED> 0
</TABLE>
