-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EkxOlKIqoOh4dhwg8D2s2VABjgj8ofCfwYt1hhEs7PIJ8qLDjbxv00KCSxdpJq7F gNhtg/7g4mP8CfrDC3jU0A== 0000709337-98-000006.txt : 19980817 0000709337-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000709337-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS NATIONAL BANC CORP /OH/ CENTRAL INDEX KEY: 0000709337 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341371693 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12055 FILM NUMBER: 98687419 BUSINESS ADDRESS: STREET 1: 20 S BROAD STREET STREET 2: P O BOX 555 CITY: CANFIELD STATE: OH ZIP: 44406 BUSINESS PHONE: 2165333341 10-Q 1 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, 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 practicable date. Class Outstanding at June 30, 1998 Common Stock, No Par Value 3,540,624 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 5-11 PART II - OTHER INFORMATION Other Information and Signatures 11-13 CONSOLIDATED BALANCE SHEETS FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
June 30, December 31, 1998 1997 (In Thousands of Dollars) ASSETS Cash & due from banks $15,332 $13,480 Federal funds sold 562 5,702 TOTAL CASH AND CASH EQUIVALENTS 15,894 19,182 Securities available for sale 69,250 66,620 Other securities 2,215 1,686 Loans 298,266 275,094 Less allowance for credit losses 3,616 3,429 NET LOANS 294,650 271,665 Premises and equipment, net 6,136 6,025 Other assets 3,498 3,271 $391,643 $368,449 LIABILITIES AND STOCKHOLDERS EQUITY Deposits (all domestic): Noninterest-bearing $27,171 $26,282 Interest-bearing 276,501 279,548 TOTAL DEPOSITS 303,672 305,830 U. S. Treasury interest-bearing demand note 818 559 Securities sold under repurchase agreements 18,702 14,659 Short-term borrowings 21,974 0 Long-term borrowings 754 4,612 Other liabilities and deferred credits 1,815 1,866 TOTAL LIABILITIES 347,735 327,526 Stockholders Equity: Common Stock - no par value; authorized 5,000,000 shares; issued and outstanding 3,540,624 in 1998 and 3,491,137 in 1997 26,638 24,792 Retained earnings 16,995 15,717 Unrealized appreciation on debt securities, net of applicable income taxes 275 414 TOTAL STOCKHOLDERS EQUITY 43,908 40,923 $391,643 $368,449
CONSOLIDATED STATEMENTS OF INCOME FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
For the Three Months Ended For the Six Months Ended June 30, June 30, June 30, June 30, 1998 1997 1998 1997 (In Thousands except Per Share Data) INTEREST INCOME Interest and fees on loans $6,140 $5,797 $12,069 $11,474 Interest and dividends on securities: Taxable interest 888 792 1,779 1,367 Nontaxable interest 137 114 265 226 Dividends 29 25 58 49 Interest on federal funds sold 86 114 168 262 TOTAL INTEREST INCOME 7,280 6,842 14,339 13,378 INTEREST EXPENSE Deposits 2,867 2,709 5,787 5,356 Borrowings 268 268 502 455 TOTAL INTEREST EXPENSE 3,135 2,977 6,289 5,811 NET INTEREST INCOME 4,145 3,865 8,050 7,567 Provision for credit losses 210 200 420 350 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 3,935 3,665 7,630 7,217 OTHER INCOME Service charges on deposit accounts 295 288 581 564 Investment security gains 0 0 5 3 Other operating income 128 114 256 198 TOTAL OTHER INCOME 423 402 842 765 OTHER EXPENSES Salaries and employee benefits 1,284 1,256 2,565 2,567 Net occupancy expense of premises 142 138 282 281 Furniture and equipment expense, including depreciation 126 121 267 251 Intangible and other taxes 145 134 298 275 Other operating expenses 756 659 1,474 1,371 TOTAL OTHER EXPENSES 2,453 2,308 4,886 4,745 INCOME BEFORE FEDERAL INCOME TAXES 1,905 1,759 3,586 3,237 FEDERAL INCOME TAXES 612 572 1,151 1,041 NET INCOME $1,293 $1,187 $2,435 $2,196 * NET INCOME PER SHARE $0.37 $0.35 $0.69 $0.65 *Adjusted to reflect weighted average shares outstanding and 2% stock dividend, without audit and before adjustments.
CONSOLIDATED STATEMENTS OF CASH FLOWS FARMERS NATIONAL BANC CORP. AND SUBSIDIARY Six Months Ended June 30, June 30, 1998 1997 (In Thousands of Dollars) CASH FLOW FROM OPERATING ACTIVITIES Interest received $14,782 $13,626 Fees and commissions received 828 763 Interest paid (6,358) (5,756) Cash paid to suppliers and employees (4,219) (4,760) Income taxes paid (1,103) (1,005) NET CASH PROVIDED BY OPERATING ACTIVITIES 3,930 2,868 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities available for sale 8,927 8,578 Proceeds from sales of investment securities available for sale 1,023 103 Purchases of other securities and securities available for sale (13,468) (25,429) Net increase in loans made to customers (23,130) (4,525) Purchases of premises and equipment (327) (98) NET CASH USED IN INVESTING ACTIVITIES (26,975) (21,371) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW accounts and savings accounts 5,240 (2,103) Net increase (decrease) in time deposits (3,491) 7,934 Net increase in Federal Home Loan Bank borrowings 15,016 8,594 Net increase in federal funds purchased 3,100 0 Dividends paid (1,954) (970) Proceeds from sale of common stock 1,846 1,478 NET CASH PROVIDED BY FINANCING ACTIVITIES 19,757 14,933 NET DECREASE IN CASH AND CASH EQUIVALENTS (3,288) (3,570) CASH AND CASH EQUIVALENTS Beginning of period 19,182 18,969 End of period $15,894 $15,399 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS Net income $2,435 $2,196 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 206 197 Amortization and accretion 681 572 Provision for credit losses 420 350 Gain on sale of investment securities (5) (3) Decrease (Increase) in prepaid expenses 298 (286) Other (105) (158) NET CASH PROVIDED BY OPERATING ACTIVITIES $3,930 $2,868
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Management Representation: The financial statements for June 30, 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 six month period ending June 30, 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) Six Months Ended June. 30, June 30, 1998 1997 (1) Federal Income Tax Income before Federal Income Tax $3,586 $3,237 Less nontaxable interest and dividends 265 226 Taxable Income 3,321 3,011 Federal Income Tax $1,151 $1,041 (2) Stockholders Equity Six Months Ended June 30, 1998 (In Thousands of Dollars) Common Stock Balance 1/1/98 $24,792 49,487 shares sold 1,846 Balance 6/30/98 26,638 Retained Earnings Balance 1/1/98 15,717 Net Income 2,435 Dividends Declared: $.33 Cash dividends on common stock (1,157) Balance 6/30/98 16,995 Unrealized Appreciation On Debt Securities Balance 1/1/98 414 Net change in unrealized depreciation on debt securities, net of income taxes (139) Balance 6/30/98 275 Total Stockholders Equity at 6/30/98 $43,908 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following financial review presents an analysis of the assets and liability structure of the Corporation and a discussion of the results of operations for each of the periods presented in this quarterly report, liquidity, capital and credit quality. Certain statements in this report that relate to Farmers National Banc Corp.'s plans, objectives, or future performance may be deemed to be forward-looking statements within the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations. Actual strategies and results in future periods may differ materially from those currently expected because of various risks and uncertainties. Results of Operations The Corporation's net income for the first six months of 1998 was $2.435 million, or $.69 per share. This compares favorably to the $2.196 million, or $.65 per share reported for the first six months of 1997. Net income for the second quarter of 1998 was $1.293 million or $.37 per share, which is a 8.9% increase compared with the $1.187 million or $.35 per share earned during the same period last year. Return on average assets and return on average equity for the first six months of 1998 were 1.31% and 11.33% respectively, compared to 1.28% and 12.33% for the same period in 1997. The increase in net income for the first six months of 1998 was primarily the result of an increase in net interest income. The Corporation's net interest income increased $483 thousand, or 6.38% from $7.567 million for 1997 to $8.050 million for the same period in 1998. Total interest income is up 7.2% compared to the same six months of last year. Some of this increase is a result of an increase in loans outstanding. Increasing demand in the Corporation's commercial real estate and residential real estate loan products has increased average balances in the total loan portfolio by 4.9%. This growth has contributed to the increase in loan income of $595 thousand or 5.2%. Funds not used for loan growth have been used to purchase investment securities. The Corporation's average balance of securities available for sale has increased 21.1% from June, 1997 to June, 1998. This growth has increased income on securities by $366 thousand or 19.22%, comparing the first six months of 1998 to the first six months of 1997. Total interest expense is 8.23% higher for the half of 1998 compared to the first half of 1997. This increase is the result of growth of 8.7% in the average balance of time deposits, as well as an overall increase in the rates paid on interest-bearing liabilities. Provision for credit losses increased from $350 thousand in the first six months of 1997 to $420 thousand in the first six months of 1998. The provision was increased to cover the growth of balances in the bank's loan portfolio. Other income increased 10.1% from $765 thousand in 1997 to $842 thousand in 1998, as a result of increased fees from bank services. The Corporation's total other expenses for the first six months of 1998 increased 3.0% from $4.745 million in 1997 to $4.886 million in 1998. The increase in other operating expenses is due primarily to asset growth and the increased volume of the operations of the bank. Management will continue 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 $3.930 million compared to $2.868 million for the same period in 1997. This increase of $1.062 million 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 $26.975 million. Most of these funds were used to fund new loans made to customers, which increased $23.130 million during the first six months of 1998. During the quarter ended June 30, 1998, approximately $17.5 million in new loans were made to customers for the purpose of purchasing stock in a local savings and loan institution's initial public offering. As of the July 31, 1998, repayments have reduced the balance on these loans from $17.5 million to $3.4 million. Net cash flows provided by financing activities were $19.757 million compared to $14.933 million in 1997. $15.016 million of funds were generated from an increase in Federal Home Loan Bank Borrowings, which were used to fund the loan increase. 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, 1998, the corporation's total risk-based capital ratio stood at 17.38%, and the Tier I risk-based capital ratio and Tier I leverage ratio were at 16.13% and 11.60%, 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) June 30, Dec. 31, 1998 1997 Commercial, financial and agricultural $11,498 $10,784 Residential mortgage loans 112,365 108,077 Nonresidential mortgage loans 42,667 39,902 Installment loans to individuals 131,736 116,331 Total loans $298,266 $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) June 30, Dec. 31, 1998 1997 Loans accounted for on a nonaccrual basis $400 $493 Loans contractually past due 90 days or more as to interest or principal payments (not included in nonaccrual loans above) 317 402 Loans considered troubled debt restructurings (not included in nonaccrual or contractually past due above) 0 0 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) June 30, Dec. 31, 1998 1997 Gross interest that would have been recorded if the loans had been current in accordance with their original terms $11 $9 Interest income included in income on the loans 4 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 June 30, 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) Six Months Year Ended Ended June 30, Dec. 31, 1998 1997 Balance at beginning of period $3,429 $3,198 Loan losses: Commercial, financial & agricultural (21) 0 Real estate - mortgage 0 0 Installment loans to individuals (365) (824) (386) (824) Recoveries on previous loan losses: Commercial, financial & agricultural 0 3 Real estate - mortgage 4 40 Installment loans to individuals 149 157 153 200 Net loan losses (233) (624) Provision charged to operations (1) 420 855 Balance at end of period $3,616 $3,429 Ratio of net credit losses to average net loans outstanding .08% .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. 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) June 30, Dec. 31, Types of Loans 1998 1997 Commercial, financial & agricultural $993 $1,928 Real estate - mortgage 1,090 275 Installment 1,533 1,226 Total $3,616 $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: June 30, Dec. 31, Types of Loans 1998 1997 Commercial, financial & agricultural 3.9% 3.9% Residential mortgage loans 37.7% 39.3% Nonresidential mortgage loans 14.3% 14.5% Installment loans to individuals 44.1% 42.3% 100.0% 100.0% Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Corporation's programs that have time sensitive software may recognize the date as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Federal Financial Institutions Examination Council recognizes five phases that banks must complete to achieve Year 2000 readiness: 1) Awareness of the potential risks associated with Year 2000; 2) Assessment of all information and environmental systems needing enhancements; 3) Renovation of the systems that are not Year 2000 ready; 4) Validation of the renovated systems to assure Year 2000 readiness; and 5)Implementation of the renovated product into the ongoing operations. The Corporation has completed the Awareness, Assessment and Renovation phases and is currently in the process of validating it's core processing systems for Year 2000 readiness. At this time it is not expected that expenses to address year 2000 issues will materially impact future operating results. The Corporation is in the process of completing a year 2000 contingency plan to address the possible risks that may be faced within and outside of the Corporation's control. 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) 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. 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 six months ended June 30, 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: 8/13/98 /s/Frank L. Paden President and Secretary Dated: 8/13/98 /s/Carl D. Culp Executive Vice President and Treasurer EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000709337 FARMERS NATIONAL BANC CORP 1,000 6-MOS DEC-31-1998 JAN-1-1998 JUN-30-1998 15,332 0 562 0 69,250 2,215 2,215 298,266 3,616 391,643 303,672 41,494 1,815 754 0 0 26,638 17,270 391,643 12,069 2,270 0 14,339 5,787 6,289 8,050 420 5 4,886 3,586 3,586 0 0 2,435 .69 .69 8.14 400 317 0 0 3,429 386 153 3,616 3,616 0 0
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