-----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, IGkq49NWU8zzeihU/cI56Zjwtpr0dIsv9+XI8+NuMgb2TU45YdeXzPIBms2fEH7G M/iyrnf2bUsU/niA+tuWlg== 0000709337-99-000005.txt : 19990513 0000709337-99-000005.hdr.sgml : 19990513 ACCESSION NUMBER: 0000709337-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: 99618540 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 March 31, 1999 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, as of the latest practicable date. Class Outstanding at March 31, 1999 Common Stock, No Par Value 3,678,343 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 and Comprehensive Income 2 Consolidated Statements of Cash Flows 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-10 PART II - OTHER INFORMATION Other Information and Signatures 10-13 CONSOLIDATED BALANCE SHEETS FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
March 31, December 31, 1999 1998 (In Thousands of Dollars) ASSETS Cash & due from banks $12,265 $16,686 Federal funds sold 4,778 5,994 TOTAL CASH AND CASH EQUIVALENTS 17,043 22,680 Securities available for sale 82,217 81,664 Other securities 2,699 2,655 Loans 290,422 286,802 Less allowance for credit losses 3,774 3,689 NET LOANS 286,648 283,113 Premises and equipment, net 8,051 7,785 Other assets 3,647 3,724 $400,305 $401,621 LIABILITIES AND STOCKHOLDERS EQUITY Deposits (all domestic): Noninterest-bearing $25,730 $29,380 Interest-bearing 290,469 292,138 TOTAL DEPOSITS 316,199 321,518 U. S. Treasury interest-bearing demand note 242 72 Securities sold under repurchase agreements 25,205 24,473 Short-term borrowings 3,994 3,647 Long-term borrowings 3,553 1,696 Other liabilities and deferred credits 2,599 2,941 TOTAL LIABILITIES 351,792 354,347 Stockholders Equity: Common Stock - Authorized 12,500,000 shares in 1999 and 5,000,000 in 1998; issued and outstanding 3,678,343 in 1999 and 3,657,288 in 1998 32,545 31,661 Retained earnings 15,902 15,337 Accumulated other comprehensive income 66 276 TOTAL STOCKHOLDERS EQUITY 48,513 47,274 $400,305 $401,621
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FARMERS NATIONAL BANC CORP. AND SUBSIDIARY
For the Three Months Ended March 31, March 31, 1999 1998 (In Thousands except Per Share Data) INTEREST INCOME Interest and fees on loans $6,064 $5,929 Interest and dividends on securities: Taxable interest 973 891 Nontaxable interest 156 128 Dividends 41 29 Interest on federal funds sold 65 82 TOTAL INTEREST INCOME 7,299 7,059 INTEREST EXPENSE Deposits 2,683 2,920 Borrowings 350 234 TOTAL INTEREST EXPENSE 3,033 3,154 NET INTEREST INCOME 4,266 3,905 Provision for credit losses 210 210 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 4,056 3,695 OTHER INCOME Service charges on deposit accounts 280 286 Investment security gains 3 5 Other operating income 117 128 TOTAL OTHER INCOME 400 419 OTHER EXPENSES Salaries and employee benefits 1,376 1,281 Net occupancy expense of premises 144 140 Furniture and equipment expense, including depreciation 153 141 Intangible and other taxes 148 153 Other operating expenses 789 718 TOTAL OTHER EXPENSES 2,610 2,433 INCOME BEFORE FEDERAL INCOME TAXES 1,846 1,681 FEDERAL INCOME TAXES 586 539 NET INCOME $1,260 $1,142 OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized losses on securities (210) (4) COMPREHENSIVE INCOME $1,050 $1,138 * NET INCOME PER SHARE $0.34 $0.32 *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
Three Months Ended March 31, March 31, 1999 1998 (In Thousands of Dollars) CASH FLOW FROM OPERATING ACTIVITIES Interest received $7,442 $7,150 Fees and commissions received 392 409 Interest paid (3,081) (3,186) Cash paid to suppliers and employees (2,716) (2,033) Income taxes paid (84) (3) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,953 2,337 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities available for sale 5,508 1,859 Proceeds from sales of investment securities available for sale 138 1,023 Purchases of other securities and securities available for sale (6,682) (8,528) Net decrease (increase) in loans made to customers (5,270) 174 Purchases of premises and equipment (399) (113) NET CASH USED IN INVESTING ACTIVITIES (6,705) (5,585) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, NOW accounts and savings accounts 137 1,670 Net increase (decrease) in time deposits (3,212) 17 Net increase (decrease) in Federal Home Loan Bank borrowings 2,204 (884) Dividends paid (898) (93) Proceeds from sale of common stock 884 931 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (885) 1,641 NET DECREASE IN CASH AND CASH EQUIVALENTS (5,637) (1,607) CASH AND CASH EQUIVALENTS Beginning of period 22,680 19,182 End of period $17,043 $17,575 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS Net income $1,260 $1,142 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 122 105 Amortization and accretion 358 328 Provision for credit losses 210 210 Gain on sale of investment securities (3) (5) Decrease (increase) in prepaid expenses (222) 256 Other 228 301 NET CASH PROVIDED BY OPERATING ACTIVITIES $1,953 $2,337
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Management Representation: The financial statements for March 31, 1999 and 1998 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, 1999 and 1998 include all adjustments, consisting of only normal recurring adjustments necessary for a fair statement of the results for the periods. Stockholders Equity Three Months Ended March 31, 1999 (In Thousands of Dollars) Common Stock Balance 1/1/99 $31,661 21,055 shares sold 884 Balance 3/31/99 32,545 Retained Earnings Balance 1/1/99 15,337 Net Income 1,260 Dividends Declared: $.19 Cash dividends on common stock (695) Balance 3/31/99 15,902 Accumulated Other Comprehensive Income Balance 1/1/99 276 Net change in unrealized depreciation on debt securities, net of income taxes (210) Balance 3/31/99 66 Total Stockholders Equity at 3/31/99 $48,513 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 quarter of 1999 was $1.260 million, or $.34 per share, which is a 10.3% increase compared with the $1.142 million, or $.32 per share earned during the same period last year. Return on average assets and return on average equity for the first three months of 1999 were 1.28% and 10.69% respectively, compared to 1.25% and 11.03% for the same period in 1998. 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 9.24% from $3.905 million for 1998 to $4.266 million for the same quarter in 1999. Total interest income is up 3.4% compared to the first quarter of last year. Some of this increase is a result of the growth 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 4.47%. This growth has contributed to the increase in loan income of $135 thousand or 2.28%. 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 17.96% from March, 1998 to March, 1999. This growth has increased income on securities by $105 thousand or 9.29%, comparing the first three months of 1999 to the first three months of 1998. Total interest expense is 3.84% lower for the first three months of 1999 compared to the first three months of 1998. This decrease is the result of an overall decrease in the rates paid on interest-bearing liabilities. Other income decreased 4.5% from $419 thousand in 1998 to $400 thousand in 1999. The Corporation's total other expenses for the first three months of 1999 increased 7.3% from $2.433 million in 1998 to $2.610 million in 1999. 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 decreased to $1.953 million compared to $2.337 million for the same period in 1998. This decrease of $384 thousand is primarily the result of an increase in non-interest expense. Net cash flows used in investing activities amounted to $6.705 million. Most of these funds were used to fund loans made to customers, which increased 5.81% since March 31, 1998. Net cash flows used in financing activities were $884 thousand in 1999 compared to $1.641 million provided by financing activities in 1998. In 1999, $3.075 million of these funds were used for decreases in customer deposits. Although the Corporation experienced a decrease in customer deposits of $3.075 million, $2.204 in Federal Home Loan Bank Borrowings were used to fund some of the increase in loans made to customers. 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, 1999, the corporation's total risk-based capital ratio stood at 19.29%, and the Tier I risk-based capital ratio and Tier I leverage ratio were at 18.04% and 12.15%, 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, 1999 1998 Commercial, financial and agricultural $11,339 $10,885 Residential mortgage loans 113,634 113,547 Nonresidential mortgage loans 44,913 44,371 Installment loans to individuals 120,536 117,999 Total loans $290,422 $286,802 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, 1999 1998 Loans accounted for on a nonaccrual basis $596 $576 Loans contractually past due 90 days or more as to interest or principal payments (not included in nonaccrual loans above) 329 435 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) March 31, Dec. 31, 1999 1998 Gross interest that would have been recorded if the loans had been current in accordance with their original terms $12 $27 Interest income included in income on the loans 1 1 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, 1999, 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, 1999 1998 Balance at beginning of period $3,689 $3,429 Loan losses: Commercial, financial & agricultural (23) (63) Real estate - mortgage 0 (39) Installment loans to individuals (160) (772) (183) (874) Recoveries on previous loan losses: Commercial, financial & agricultural 2 0 Real estate - mortgage 4 9 Installment loans to individuals 52 285 58 294 Net loan losses (125) (580) Provision charged to operations (1) 210 840 Balance at end of period $3,774 $3,689 Ratio of net credit losses to average net loans outstanding .18% .21% (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) March 31, Dec. 31, Types of Loans 1999 1998 Commercial, financial & agricultural $1,099 $812 Real estate - mortgage 958 1,017 Installment 1,717 1,860 Total $3,774 $3,689 The allocation of the allowance as shown above should not be interpreted as an indication that charge-offs in 1999 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 1999 1998 Commercial, financial & agricultural 3.9% 3.8% Residential mortgage loans 39.1% 39.6% Nonresidential mortgage loans 15.5% 15.5% Installment loans to individuals 41.5% 41.1% 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 , Renovation and Validation phases and has substantially completed the implementation of its mission critical 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 has substantially completed a year 2000 contingency plan to address the possible risks that may be faced within and outside of the Corporation's control. Item 3. Quantitative and Qualitative Disclosures About Market Risk There are no material changes from the end of the preceding fiscal year that would cause additional disclosure of the bank's exposure to market risk. 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 25, 1999. (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 year 2000 annual meeting of shareholders were management's nominees Benjamin R. Brown (2,665,564 votes), Richard L. Calvin (2,665,564 votes), Joseph D. Lane (2,646,181 votes), David C. Myers (2,662,034 votes) , Edward A. Ort (2,665,564 votes), Frank L. Paden (2,665,564 votes), William D. Stewart (2,665,564 votes) and Ronald V. Wertz (2,664,477 votes). A proposal to increase the number of authorized shares of common stock, no par value, of the Corporation from 5,000,000 to 12,500,000 was approved with the following results: For the proposal: 2,492,408; Against: 174,876; Abstain: 27,672. A proposal to adopt the Farmers National Banc. Corp. 1999 Stock Option Plan and release of preemptive rights as to shares issued under the plan was approved with the following results: For the proposal: 2,217,085; Against: 134,701; Abstain: 87,737. 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 three months ended March 31, 1999. 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: 5/12/99 /s/ Frank L. Paden President and Secretary Dated: 5/12/99 /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 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 12,265 0 4,778 0 82,217 2,699 2,699 290,422 3,774 400,305 316,199 29,441 2,599 3,553 0 0 32,545 15,968 400,305 6,064 1,235 0 7,299 2,683 3,033 4,266 210 3 2,610 1,846 1,846 0 0 1,260 .34 .34 7.81 596 329 0 0 3,689 183 58 3,774 3,774 0 0
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