-----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, B2mHPHUGd+ipqbSZQ3G1BSzKCgI9Qtb+CcPApC8KayIVIJhAWX4sRGbEhf6BHdi5 O49jC+6gwmMA6fRCXCsovw== 0000709337-96-000004.txt : 19960329 0000709337-96-000004.hdr.sgml : 19960329 ACCESSION NUMBER: 0000709337-96-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12055 FILM NUMBER: 96539520 BUSINESS ADDRESS: STREET 1: 20 S BROAD STREET STREET 2: P O BOX 555 CITY: CANFIELD STATE: OH ZIP: 44406 BUSINESS PHONE: 2165333341 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursurant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1995, Commission file number 0-12055 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) 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, Ohio 44406 44406 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: 216-533-3341 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $2.50 per share (Title of Class) Indicate by checkmark 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 by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The registrant estimates that as of February 5, 1996, the aggregate market value of the voting stock held by non-affiliates of the registrant (including 113,490 shares held by officers and directors of the registrant) was approximately $66,193,500. As of February 5, 1996, the registrant had outstanding 1,644,559 shares of common stock having a par value of $2.50 per share. DOCUMENTS INCORPORATED BY REFERENCE Parts of Form 10-K into which Document Document is Incorporated 1995 Annual Report to Shareholders II Definitive proxy statement for the 1995 Annual Meeting of Shareholders to be held on March 28, 1996 III FARMERS NATIONAL BANC CORP. FORM 10-K 1995 INDEX Part I. Page Item 1. Business: General I-2 Statistical Information I-7 Item 2. Properties I-24 Item 3. Legal Proceedings I-24 Item 4. Submission of Matters to a Vote of Security Holders I-24 Part II. Item 5. Market for Registrant's Common Stock and Related Stockholder Matters II-1 Item 6. Selected Financial Data II-1 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations II-1 Item 8. Financial Statements and Supplementary Data II-1 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures II-1 Part III. Item 10. Directors and Executive Officers of the Registrant III-1 Item 11. Executive Compensation III-2 Item 12. Security Ownership of Certain Beneficial Owners and Management III-2 Item 13. Certain Relationships and Related Transactions III-2 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K IV-1 Part I Item 1. Business General The Corporation The registrant, Farmers National Banc Corp. (herein sometimes referred to as the Corporation), is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The only subsidiary is The Farmers National Bank of Canfield, which was acquired March 31, 1983. The Corporation and its subsidiary operate in one industry, domestic banking. The Corporation conducts no business activities except for investment in securities permitted under the Bank Holding Company Act. Bank holding companies are permitted under Regulation Y of the Board of Governors of the Federal Reserve System to engage in other activities such as leasing and mortgage banking. The Bank The Bank is a full-service national bank engaged in commercial and retail banking in Mahoning and Columbiana Counties, Ohio. The Bank's commercial banking services include checking accounts, savings accounts, time deposit accounts, commercial, mortgage and installment loans, home equity loans, home equity lines of credit, night depository, safe deposit boxes, money orders, bank checks, automated teller machines and travelers checks, "E" Bond transactions, utility bill payments, MasterCard and Visa credit cards, and other miscellaneous services normally offered by Commercial Banks. In addition, the Bank offers Discount Brokerage Service. Supervision and Regulation The Corporation is a one bank holding company and is regulated by the Federal Reserve Bank (the "FRB"). The bank is a national bank and is regulated by the Office of the Comptroller of the Currency (the "OCC"), as well as the Federal Deposit Insurance Corporation (the "FDIC"). Changes have developed over the past several years regarding minimum capital requirements for financial institutions. A listing of the minimum requirements for capital and the Corporation's capital position as of December 31, 1995 are presented on page 18 of the annual report to shareholders for the year ended December 31, 1995 and is hereby incorporated by reference. The Corporation is subject to regulation under the Bank Holding Company Act of 1956, as amended. This Act restricts the geographic and product range of bank holding companies by defining the types and locations of institutions the holding companies can own or acquire. This act also regulates transactions between the Corporation and the bank and generally prohibits tie-ins between credit and other products and services. Supervision and Regulation (Continued) The bank is subject to regulation under the National Banking Act and is periodically examined by the OCC and is subject to the rules and regulations of the FRB. As an insured institution and member of the Bank Insurance Fund ("BIF"), the bank is also subject to regulation by the FDIC. Establishment of branches is subject to approval of the OCC and geographic limits established by state law. Ohio branch banking law permits a bank having its principal place of business in the State of Ohio to establish branch offices in any county in Ohio without geographic restrictions. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and several other federal banking statutes. Among other things, FDICIA requires federal banking agencies to broaden the scope of corrective action taken with respect to banks that do not meet minimum capital requirements and to take such actions promptly in order to minimize losses to the FDIC. FDICIA established five capital tiers: "well capitalized"; "adequately capitalized"; "undercapitalized"; "significantly undercapitalized"; and "critically undercapitalized" and imposes significant restrictions on the operations of a depository institution that is not in either of the first two of such categories. A depository institution's capital tier will depend upon the relationship of its capital to various capital measures. A depository institution will be deemed to be "well capitalized" if it is significantly exceeds the minimum level required by regulation for each relevant capital measure, "adequately capitalized" if it meets each such measure, "undercapitalized" if it significantly below any such measure and "critically undercapitalized" if it fails to meet any critical capital level set forth in regulations. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating or is deemed to be in an unsafe or unsound condition or to be engaging in unsafe or unsound practices. Under regulations adopted under these provisions, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any specific capital order or directive. For an institution to be adequately capitalized, it must have a total risk-based capital ratio of at least 8%, a Tier I risk-based capital ratio of at least 4% and a Tier I leverage ratio of at least 4% (or in some cases 3%). Under the regulations, an institution will be deemed to be undercapitalized if the bank has a total risk-based capital ratio that is less than 8%, a Tier I risk-based capital ratio that is less than 4% or a Tier I leverage ratio of less than 4% (or in some cases 3%). An institution will be deemed to be significantly undercapitalized if the bank has a total risk-based capital ratio that is less than 6%, a Tier I risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3% and will be deemed to be critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less than 2%. Supervision and Regulation (Continued) FDICIA generally prohibits a depository institution from making a capital distribution (including payment of dividends) or paying management fees to any entity that controls the institution if it thereafter would be undercapitalized. If an institution becomes undercapitalized, it will be generally restricted from borrowing from the Federal Reserve, increasing its average total assets, making any acquisitions, establishing any branches or engaging in any new line of business. An undercapitalized institution must submit an acceptable capital restoration plan to the appropriate federal banking agency, which plan must, in the opinion of such agency, be based on realistic assumptions and be "likely to succeed" in restoring the institution's capital. In connection with the approval of such a plan, the holding company of the institution must guarantee that the institution will comply with the plan, subject to a limitation of liability equal to a portion of the institution's assets. If an undercapitalized institution fails to submit an acceptable plan or fails to implement such a plan, it will be treated as if it is significantly undercapitalized. Under FDICIA, bank regulators are directed to require "significantly undercapitzlized" institutions, among other things, to restrict business activities, raise capital through a sale of stock, merge with another institution and/or take any other action which the agency determines would better carry out the purposes of FDICIA. Within 90 days after an institution is determined to be "critically undercapitalized", the appropriate federal banking agency must, in most cases, appoint a receiver or conservator for the institution or take such other action as the agency determines would better achieve the purposes of FDICIA. In general, "critically undercapitalized" institutions will be prohibited from paying principal or interest on their subordinated debt and will be subject to other substantial restrictions. Under FDICIA, an institution that is not well capitalized is generally prohibited from accepting brokered deposits. Undercapitalized institutions are prohibited from offering interest rates on deposits significantly higher than prevailing rates. The provisions of FDICIA governing capital regulations became effective on December 19, 1992. FDICIA also directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, a maximum ratio of classified assets to capital, a minimum ratio of market value to book value for publicly traded shares (if feasible) and such other standards as the agency deems appropriate. Supervision and Regulation (Continued) FDICIA also contains a variety of other provisions that could affect the operations of the Corporation, including new reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch, limitations on credit exposure between banks, restrictions on loans to a bank's insiders and guidelines governing regulatory examinations. Pursuant to FDICIA, the FDIC has developed a transitional risk-based assessment system, under which, beginning on January 1, 1993, the assessment rate for an insured depository institution varied according to its level of risk. An institution's risk category will depend upon whether the institution is well capitalized, adequately capitalized or less than adequately capitalized and whether it is assigned to Subgroup A, B or C. Subgroup A institutions are financially sound institutions with few minor weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration; and Subgroup C institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the area of weakness. Based on its capital and supervisory subgroups, each BIF member institution will be assigned an annual FDIC assessment rate per $100 of insured deposits. INTERSTATE BANKING AND BRANCHING LEGISLATION The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorizes interstate acquisitions of banks and bank holding companies without geographic constraint beginning September 29, 1995. Beginning June 1, 1997, the IBBEA also authorizes banks to merge with banks located in another state provided that neither state has "opted out" of interstate branching between September 29, 1994 and May 31, 1997. States also may enact legislation permitting interstate merger transactions prior to June 1, 1997. After acquiring interstate branches through a merger, a bank may establish additional branches in that state at the same locations as any bank involved in the merger could have established branches under state and federal law. In addition, a bank may establish a de novo branch in another state that expressly permits the establishment of such branches. A bank that establishes a de novo interstate branch may thereafter establish additional branches on the same basis as a bank that has established interstate branches through a merger transaction. If a state "opts out" of interstate branching, no bank from another state may establish a branch in that state, whether through a merger or de novo establishment. Several states are considering legislation to opt out of the interstate branching provisions of the IBBEA or, alternatively, to permit interstate branching prior to the June 1, 1997 statutory effective date. It is not possible to predict the full impact of these actions on the Bank or the Corporation until May 31, 1997, the date by which all such statutes must be adopted. Competition The Bank competes with state and national banks located in Mahoning and Columbiana counties. The Bank also competes with a large number of other financial institutions, such as savings and loan associations, insurance companies, consumer finance companies, credit unions and commercial finance and leasing companies, for deposits, loans and service business. Money market mutual funds, brokerage houses and similar institutions provide in a relatively unregulated environment many of the financial services offered by the Bank. Many competitors have substantially greater resources than the Bank. In the opinion of management, the principal methods of competition are the rates of interest charged for loans, the rates of interest paid for funds, the fees charged for services and the availability of services. Employees As of December 31, 1995, the Corporation and its subsidiaries had 162 employees. The registrant considers its relations with its employees to be satisfactory. Statistical Information 1. Distribution of Assets, Liabilities and Stockholders Equity: Interest Rates and Interest Differential AVERAGE BALANCE SHEETS The following shows consoldiated average balances of assets, liabilities and stockholders equity for the years indicated.
(In Thousands of Dollars) ASSETS 1995 1994 1993 Cash and due from banks 11,437 10,610 10,190 Federal funds sold 13,181 5,721 10,701 Total Cash & Cash Equivalents 24,618 16,331 20,891 Interest Bearing Deposits In Other Banks 0 0 71 Investment Securities: U.S. Treasury Securities 27,148 28,250 25,571 U.S. Government Agencies and corporations 2,298 2,251 5,032 Obligations of states and political subdivisions 7,266 7,364 6,683 Other securities 9,721 11,851 15,614 TOTAL INVESTMENT SECURITIES 46,433 49,716 52,900 Loans: Total Loans 221,955 210,148 194,708 Less allowance for possible credit losses 2,897 2,745 2,528 NET LOANS 219,058 207,403 192,180 Property and equipment, net 4,671 4,165 4,698 Other assets 2,379 2,224 2,115 297,159 279,839 272,855
AVERAGE BALANCE SHEETS, (Continued)
(In Thousands of Dollars) LIABILITIES AND STOCKHOLDERS EQUITY 1995 1994 1993 Deposits (All domestic): Noninterest-bearing demand deposits 20,631 21,224 19,417 Interest-bearing demand deposits 48,267 49,280 45,508 Savings 74,752 80,969 78,292 Time 108,626 90,750 95,568 TOTAL DEPOSITS 252,276 242,223 238,785 Other Borrowings U.S. Treasury interest-bearing demand note & 804 551 548 other borrowings Securities sold under repurchase agreements 10,032 8,832 7,955 TOTAL OTHER BORROWINGS 10,836 9,383 8,503 Accrued expenses and other liabilities 2,870 1,012 1,532 TOTAL LIABILITIES 265,982 252,618 248,820 Stockholders equity: Common stock 3,960 3,739 3,518 Additional paid-in capital 14,121 11,913 10,324 Retained earnings 13,096 11,569 10,193 TOTAL STOCKHOLDERS EQUITY 31,177 27,221 24,035 297,159 279,839 272,855
ANALYSIS OF NET INTEREST EARNINGS (In Thousands of Dollars) The following schedules show the average amounts of interest-earning assets, interest-bearing liabilities, the related amounts of interest earned or paid and the related average yields or interest rates paid for the year indicated:
Year ended December 31, 1995 Interest Average Average Earned Yield or Outstanding or Paid Rate Interest-earning assets: Investment securities: U.S. Treasury securities and U.S. 29,446 1,636 5.6% Govt. agencies and corporations Obligations of states and political 7,266 670 9.2% subdivisions (1) Other securities 9,721 547 5.6% Total investment securities (1) 46,433 2,853 6.1% Federal funds sold 13,181 761 5.8% Total loans (2) 221,955 18,580 8.4% Total interest-earning assets 281,569 22,194 7.9% Interest-bearing liabilities: Interest-bearing demand deposits 48,267 1,009 2.1% Savings 74,752 1,986 2.7% Time 108,626 6,205 5.7% Total 231,645 9,200 4.0% Other borrowings: U.S. Treasury interest-bearing demand note & 804 48 6.0% other borrowings Securities sold under repurchase agreements 10,032 440 4.4% Total other borrowings 10,836 488 4.4% Total interest-bearing liabilities 242,481 9,688 4.0% Net yield on interest-earning assets (3) 12,506 4.4%
ANALYSIS OF NET INTEREST EARNINGS, (Continued)
(In Thousands of Dollars) Year ended December 31, 1994 Interest Average Average Earned or Yield or Outstanding Paid Rate Interest-earning assets: Investment securities: U.S. Treasury securities and U.S. 30,501 1,462 4.8% Government agencies and corporations Obligations of states and political 7,364 651 8.8% subdivisions (1) Other securities 11,851 700 5.9% Total investment securities (1) 49,716 2,813 5.6% Federal funds sold 5,721 234 4.1% Total loans (2) 210,148 16,911 8.0% Total interest-earning assets 265,585 19,958 7.5% Interest-bearing liabilities: Interest-bearing demand deposits 49,280 1,141 2.3% Savings 80,969 2,256 2.8% Time 90,750 4,298 4.7% Total 220,999 7,695 3.5% Short-term borrowings: U.S. Treasury interest-bearing demand note 551 16 2.9% Securities sold under repurchase agreements 8,832 289 3.3% Total short-term borrowings 9,383 305 3.3% Total interest-bearing liabilities 230,382 8,000 3.5% Net yield on interest-earning assets (3) 11,958 4.5%
ANALYSIS OF NET INTEREST EARNINGS, (Continued)
(In Thousands of Dollars) Year ended December 31, 1993 Interest Average Average Earned or Yield or Outstanding Paid Rate Interest-earning assets: Interest-bearing bank deposits 71 6 8.5% Investment securities: U.S. Treasury securities and U.S. 30,603 1,599 5.2% Government Agencies and corporations Obligations of states and political 6,683 598 8.9% subdivisions (1) Other securities 15,614 871 5.6% Total investment securities (1) 52,900 3,068 5.8% Federal funds sold 10,701 324 3.0% Total loans (2) 194,708 16,971 8.7% Total interest-earning assets 258,380 20,369 7.9% Interest-bearing liabilities: Interest-bearing demand deposits 45,508 1,257 2.8% Savings 78,292 2,429 3.1% Time 95,568 4,764 5.0% Total 219,368 8,450 3.9% Short-term borrowings: U.S. Treasury interest-bearing demand note 548 12 2.2% Securities sold under repurchase agreements 7,955 276 3.5% Total short-term borrowings 8,503 288 3.4% Total interest-bearing liabilities 227,871 8,738 3.8% Net yield on interest-earning assets (3) 11,631 4.5%
ANALYSIS OF NET INTEREST EARNINGS, (Continued) (1) The amounts are reflected on a fully taxable equivalent basis using the statutory tax rate of 35% in 1995, 1994 and 1993. Tax-free income from states and political subdivisions, and loans amounted to 156,662 and 278,671, respectively for 1995, 173,707 and 249,416 for 1994, and 212,097 and 182,883 for 1993. (2) Average outstanding loans include the average balance outstanding of all loans including non-accruing loans. (3) Net yield on interest-earning assets is calculated by dividing the difference between total interest earned and total interest paid by total interest-earning assets. RATE AND VOLUME ANALYSIS The following tables analyze by rate and volume the dollar amount of changes in the components of the interest differential:
(In Thousands of Dollars) 1995 Change from 1994 Total Change Change Due Change Due to volume to rate Interest Income Interest-earning assets: Investment securities: U.S. Treasury securities and U.S. 174 (56) 230 Government agencies and corporations Obligations of states and political 19 (9) 28 subdivsions Other securities (153) (125) (28) Total investment securities 40 (190) 230 Federal funds sold 527 306 221 Total loans 1,669 974 695 Total interest income 2,236 1,090 1,146 Interest Expense Interest-bearing demand deposits (132) (29) (103) Savings (270) (184) (86) Time 1,907 831 1,076 Total 1,505 618 887 Other borrowings: U.S. Treasury interest-bearing demand note 32 7 25 & other borrowings Securities sold under repurchase agreements 151 40 111 Total other borrowings 183 47 136 Total interest expense 1,688 665 1,023
RATE AND VOLUME ANALYSIS, (Continued)
(In Thousands of Dollars) 1994 Change from 1993 Total Change Due Change Due Change to Volume to Rate Interest Income Interest-earning assets: Interest-bearing bank deposits (6) (6) 0 Investment securities: U.S. Treasury securities and U.S. (137) (7) (130) Government agencies and corporations Obligations of states and political 53 69 (16) subdivisions Other securities (171) (210) 39 Total investment securities (255) (148) (107) Federal funds sold (90) (151) 61 Total loans (60) 1,330 (1,390) Total interest income (411) 1,025 (1,436) Interest Expense Interest-bearing demand deposits (116) 118 (234) Savings (173) 92 (265) Time (466) (241) (225) Total (755) (31) (724) Short-term borrowings: U.S. Treasury interest-bearing demand note 4 (31) 34 Securities sold under repurchase agreements 13 (4) 18 Total short-term borrowings 17 (35) 52 Total interest expense (738) (66) (672) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes.
II. INVESTMENT PORTFOLIO The following table sets forth the carrying amount of investment securities and securities available for sale at the date indicated.
(In Thousands of Dollars) December 31, 1995 December 31, 1994 Securities Securities Securities Securities Held To Available Held To Available Maturity For Sale Maturity For Sale U.S. Treasury & U.S. 0 31,692 921 28,966 Government Agencies Obligations of States & 0 6,943 8,013 0 Political Subdivsions Other Securities 853 7,845 559 9,547 TOTALS 853 46,480 9,493 38,513
The following table sets forth the maturities of securities as of December 31, 1995 including weighted average yield, on a taxable equivalent basis:
(In Thousands of Dollars) December 31, 1995 TYPE AND MATURITY GROUPING Weighted Book Average Value Yield (1) U.S. Treasury & U.S. Government Agencies Maturing within one year 8,041 5.13% Maturing after one year but within five years 21,949 5.66% Maturing after ten years 1,702 6.69% TOTAL U.S. TREASURY & U.S. GOVERNMENT AGENCIES 31,692 5.58% Obligations of States and Political Subdivisions Maturing within one year 763 9.79% Maturing after one year but within five years 1,273 9.04% Maturing after five years but within ten years 1,897 8.79% Maturing after ten years 3,010 9.15% TOTAL OBLIGATIONS OF STATES & POLITICAL SUBDIVISIONS 6,943 9.09% Other Securities Maturing within one year 4,037 5.22% Maturing after one year but within five years 3,657 6.66% Maturing after ten years 1,004 5.74% TOTAL OTHER SECURITIES 8,698 5.89%
II. INVESTMENT PORTFOLIO (CONTINUED) (1) The weighted average yield has been computed by dividing the total interest income adjusted for amortization of premium or accretion of discount over the life of the security by the par value of the securities outstanding. The weighted average yield of tax-exempt obligations of states and political sub-divisions has been calculated on a fully taxable equivalent basis. The amounts of adjustments to interest which is based on the statutory tax rate of 35% were $25,398, $38,186 , $56,693 and $93,610 for the four ranges of maturities. The Corporation's total investment securities decresased slightly from $48,006,000 in 1994 to $47,333,000 in 1995. In the same period however, the net unrealized gains (losses) of the portfolio increased from $(1,064,000) in 1994 to $328,000. This increase in valuation is a result of the general decline of interest rates in 1995. During December, 1995, the Corporation transferred its portfolio of securities held-to-maturity to the available for sale classification. The transfer was made upon adoption of the Special Report "A Guide To Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board. The amortized cost of the transferred securities was $4,543,695 and the related unrealized gain was $120,287. Mangement executed this transfer to give the Corporation more flexibiltiy in managing interest rate risk and liquidity in future years. The Coproration's objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in short and intermediate term securities which are readily marketable and of the highest credit quality. In general, investment in securities is limited to those funds the bank feels it has in excess of funds used to satisfy loan demand and operating considerations. III. LOAN PORTFOLIO The following schedule shows the composition of loans at the dates indicated:
(In Thousand of Dollars) December 31, 1995 1994 1993 1992 1991 Commercial, financial and agricultural 22,677 24,477 24,373 24,572 26,445 Real Estate - Mortgage 98,678 92,773 81,726 73,043 61,490 Installment loans to indivduals 110,805 100,484 97,515 94,432 92,069 Lease Financing 0 0 0 41 117 232,160 217,734 203,614 192,088 180,121 Less Unearned Income 0 0 0 1 27 Total Loans 232,160 217,734 203,614 192,087 180,094
MATURITIES AND SENSITIVITIES OF LOANS TO INTEREST RATES The following schedule sets forth maturities based on remaining scheduled repayments of principal for various categories of loans listed above as of December 31, 1995.
(In Thousands of Dollars) 1 year 1 to 5 Over 5 or less years years Commercial, financial and agricultural 5,066 5,207 12,404
The amounts of loans as of December 31, 1995, based on remaining scheduled repayments of principal are shown in the following table:
(In Thousands of Dollars) Loan Types 1 year Over 1 Total or less year Floating or adjustable rates of interest 2,124 5,942 8,066 Fixed rates of interest 2,942 11,669 14,611 Totals 5,066 17,611 22,677
Total net loans were $229,248,832 at year-end 1995 compared to $214,987,926 at year-end 1994. This is an increase of $14,260,906, or 6.63%. Loans comprised 78.8% of the Bank's average earning assets during 1995, compared to 79.1% in 1994. The product mix in the Loan Portfolio shows Commercial Loans comprising 9.7%, Real Estate Mortgage Loans 42.5% and Installment Loans to Individuals 47.8% at December 31, 1995, compared with 11.2%, 42.6% and 46.2%, respectively, at December 31, 1994. III. LOAN PORTFOLIO (CONTINUED) Loans contributed 84.6% of total interest income in 1995 compared to 85.7% in 1994. Loan yield was 8.37% in 1995, 49 basis points greater than the average rate for total earning assets. Management recognizes that while the Loan Portfolio holds some of the Bank's highest yielding assets, it is inherently the most risky portfolio. Accordingly, Management attempts to balance credit risk versus return with conservative credit standards. Management has developed and maintains comprehensive underwriting guidelines and a loan review function which monitors credits during and after the approval process. To minimize risks associated with changes in the borrower's future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral. Installment Loans to Individuals increased from $100,484,000 on December 31, 1994 to $110,805,000 on December 31, 1995 which represents a 10.3% increase. Management continues to target the automobile dealer network to purchase indirect Installment Loans. Dealer paper was purchased using strict underwriting guidelines with an emphasis on quality. Indirect Loans comprise 75% of the Installment Loan Portfolio. Net loan losses on the Installment Loan portfolio were $148,000 in 1995 as compared to $59,000 in 1994. This represents .14% of total Installments Loans outstanding for 1995 and .06% for 1994. Real Estate Mortgage Loans increased to $98,678,000 at December 31, 1995, an increase of 6.4% over 1994. This $98,678,000 includes $18,890,000 of commercial real estate loans. These loans are all made within the Bank's primary market area. The corporation originated both fixed rate and adjustable rate mortgages during 1995. All mortgage loans made in 1995 are held in the Mortgage Loan portfolio and are not sold on the secondary market. Fixed rate terms are limited to fifteen year terms while adjustable rate products are offered with maturities up to thirty years. Commercial Loans at December 31, 1995 decreased slightly from year-end 1994 with outstanding balances of $22,677,000. This portfolio is primarily variable rate loans. The Bank's commercial loans are granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers and business types. The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment purchases, capital improvements, the purchase of inventory, general working capital purposes and small business lines of credit. RISK ELEMENTS The following table sets forth aggregate loans in each of the following categories for the years indicated:
December 31, 1995 1994 1993 1992 1991 Loans accounted for on a nonaccrual 125 302 349 453 1,599 basis Loans contractually past due 90 days or 1,384 1,475 2,343 2,232 2,226 more as to interest or principal payments (not included in nonaccrual loans above Loans considered troubled debt 75 0 108 0 113 restructurings (not included in nonaccrual loans or contractually past due above) Management is not aware of any loans not included in the table above where serious doubt exists as to the ability of 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:
Years Ended December 31, (In Thousands of Dollars) 1995 1994 1993 1992 1991 Gross interest income that would have 5 21 40 51 115 been recorded if the loans had been current in accordance with their original terms Interest income included in income on 0 0 0 0 0 the loans Non-accrual loans are loans which are 90 days past due and with respect to which, in Management's opinion, collection of interest is doubtful. These loans no longer accrue interest and are accounted for on a cash basis. Loans which are 90 days or more past due but continue to accrue interest are loans which, in Management's opinion, are well secured and are in the process of collection.
As of December 31, 1995, 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. I-19 IV. SUMMARY OF LOAN LOSS EXPERIENCE The following is an analysis of the Allowance for Loan and Lease Losses for the periods indicated:
(In Thousands of Dollars) Years Ended December 31, 1995 1994 1993 1992 1991 Balance at beginning of year 2,746 2,621 2,274 1,630 1,440 Loan losses: Commercial, financial and (1) (185) (69) (411) (174) agricultural Real estate - mortgage 0 0 (16) (63) (51) Installment loans to individuals (275) (202) (351) (332) (310) Total Loan Losses (276) (387) (436) (806) (535) Recoveries on previous loan losses: Commercial, financial and 44 39 36 36 30 agricultural Real estate - mortgage 0 0 7 0 0 Installment loans to individuals 127 143 120 104 87 Total recoveries 171 182 163 140 117 Net loan losses (105) (205) (273) (666) (418) Provisions charged to operations (1) 270 330 620 1,310 608 Balance at end of year 2,911 2,746 2,621 2,274 1,630 Ratio of net loan and lease losses .05% .10% .14% .36% .23% to average net loans and leases outstanding (1) The provision for possible credit losses charged to operating expense is based on management's judgement 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, that 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, (Continued) 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 dated indicated.
(In Thousands of Dollars) Years Ended December 31, 1995 1994 1993 1992 1991 Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans to to to to to Total Total Total Total Total Loans Loans Loans Loans Loans Commercial, 1,800 9.7% 1,700 11.2% 1,692 11.9% 1,599 12.8% 1,180 14.7% financial and agricultural Real estate - 250 42.5% 200 42.6% 170 40.1% 75 38.0% 50 34.1% mortage Installment 861 47.8% 846 46.2% 759 48.0% 600 49.2% 400 51.1% loans to individuals Lease 0 .0% 0 .0% 0 .0% 0 .0% 0 .1% financing 2,911 100% 2,746 100% 2,621 100% 2,274 100% 1,630 100% The allocation of the allowance as shown in the table 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.
LOAN COMMITMENTS AND LINES OF CREDIT In the normal course of business, the banking subsidiary has extended various commitments for credit. Commitments for mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one year. Normally no fees are charged on any unused portion. A fee of two percent is charged for the issuance of a letter of credit. DEPOSITS (All Domestic) Deposits represent the Corporation's principal source of funds. The deposit base consists of demand deposits, savings and money market accounts and other time deposits. During 1995, the Corporation's total deposits grew from 244,302,000 in 1994 to $267,955,000 in 1995, which equates to an increase of 9.7% . Most of this growth occurred in time deposits, which increased from $91,984,000 in 1994 to $119,467,918 in 1995. This increase was fueled by customer demand as the result of substantial increases in rates paid on time deposits that the banking industry experienced during 1995. Some of this increase was the result of a movement by customers from the lower yielding savings deposits, which saw a decrease in balances in 1995 of 5.24%. The Corporation also offered a special rate on certificates of deposit in the first quarter of 1995 that generated approximately $12,000,000 in new accounts. In September of 1995, the Corporation acquired the fixed assets, certain loans, deposits and related accruals of the Leetonia, Ohio branch of Bank One. This transaction resulted in an increase of approximately $6 million in deposits. AVERAGE DEPOSITS The following table shows the classification of average deposits for the periods indicated:
(In Thousands of Dollars) Average Balance 1995 1994 1993 Noninterest-bearing demand deposits 20,631 21,224 19,417 Interest-bearing demand deposits 48,267 49,280 45,508 Savings deposits 74,752 80,969 78,292 Time deposits 108,626 90,750 95,568 Total average deposits 252,276 242,223 238,785
The following shows the average rate paid on the following deposit categories for the periods indicated:
Type 1995 1994 1993 Interest-bearing demand deposits 2.09% 2.32% 2.76% Savings deposits 2.66% 2.79% 3.10% Time deposits 5.71% 4.74% 4.98%
A summary of time deposits of $100,000 or more as of December 31, 1995 by maturity range is shown below: 3 months or less remaining until maturity 2,317 3 to 6 months remaining until maturity 3,523 6 to 12 months remaining until maturity 8,804 Over 12 months remaining until maturity 3,776 Total outstanding 18,420 VI. Return on Equity and Assets Information for the years indicated as follows:
1995 1994 1993 Net income to average total assets 1.20% 1.22% 1.16% Net income to average equity 11.45% 12.58% 12.85% Dividends per share to net income per share 36.04% 34.96% 33.94% Average equity to average total assets 10.49% 9.73% 8.81%
VII. SHORT-TERM BORROWINGS Securities sold under repurchase agreements generally mature within one to ninety days from the transaction date. The details of these borrowings (in thousands) relating to the year 1995 are as follows: Balance at December 31: 9,847 Weighted average interest rate at year end 4.45% Maximum amount outstanding at any months end 11,850 Average amount outstanding during the year 9,498 Weighted average interest rate during the year 4.39% VIII. INTEREST RATE SENSITIVITY
(In Thousands of Dollars) December 31, 1995 December 31, 1994 December 31,1993 Total Within Total Within Total Within 3 month 12 month 3 month 12 month 3 month 12 month Loans 27,433 73,388 29,941 74,965 30,254 73,507 Securities 2,001 12,640 4,016 18,189 3,002 18,205 Federal funds sold 14,630 14,630 2,983 2,983 6,063 6,063 Total Interest-Sensitive 44,064 100,658 36,940 96,137 39,319 97,775 Assets Total Interest-Sensitive 55,706 103,701 53,912 77,970 50,417 77,158 Liabilities Total Senstivity Gap (11,642) (3,043) (16,972) 18,167 (11,098) 20,617 Ratio of Interest-Sensitive 0.79 0.97 0.69 1.23 0.78 1.27 Assets to Interest-Sensitive Liabilities
VIII INTEREST RATE SENSITIVITY (CONTINUED) Interest rate sensitivity management provides some degree of protection against net interest income volatility. It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest-sensitive assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure. Core deposits and loans with non-contractual maturities are distributed or spread among the two repricing categories based upon historical patterns of repricing which are reveiwed at least annually. Item 2. Properties Farmers National Banc Corp.'s Properties The Farmers National Banc Corp. owns no property. Operations are conducted at 20 South Broad Street, Canfield, Ohio. Bank Property The Main Office is located at 20 S. Broad Street, Canfield, Ohio. The other eight offices of the bank are: Austintown Office 22 N. Niles-Canfield Rd., Youngstown, Ohio Lake Milton Office 17817 Mahoning Avenue, Lake Milton, Ohio Cornersburg Office 3619 S. Meridian Rd., Youngstown, Ohio Colonial Plaza Office Colonial Plaza, Canfield, Ohio Western Reserve Office 102 W. Western Reserve Rd., Youngstown, Ohio Salem Office 1858 E. State Street, Salem, Ohio Columbiana Office 340 State Rt. 14, Columbiana, Ohio Leetonia Office 16 Walnut St., Leetonia, Ohio The bank owns the Main Office, Austintown, Cornersburg, Lake Milton, Salem, Columbiana and Leetonia Offices. The Colonial Plaza and Western Reserve offices are occupied under operating leases expiring at various times to 1999. All of the leases provide for renewal options in favor of the bank. Item 3. Legal Proceedings There are no material pending legal proceedings to which the registrant or its subsidiary is a party or of which any of its property is subject, except proceedings which arise in the ordinary course of business. In the opinion of managment, pending legal proceedings will not have a material affect on the consolidated financial position of the registrant or its subsidiary. Item 4. Submission of Matters to a Vote of Security Holders There are no matters submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 1995. PART II Information relating to Items 5, 6, 7 & 8 is set forth in the registrant's 1995 Annual Report to Shareholders under the captions and on the pages set forth below and is incorporated herein by reference. Pages in 1995 Annual Report Item No. Caption in the Annual Report to Shareholders to Shareholders Item 5. Market for Registrants Common Stock and Related Stockholders Matters 20 Item 6. Selected Financial Data 10-11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 Item 8. Financial Statements and Supplementary Data 21-36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures NONE PART III Item 10. Directors and Executive Officers of the Registrant Information relating to Directors is set forth in the registrant's definitive proxy statement, which was used in connection with its annual meeting of shareholders which was held March 28, 1996. The proxy statement is attached hereto. Executive Officers of the Registrant The names, ages and positions of the executive officers as of March 1, 1996 Name Age Position Held William D. Stewart 66 President & Secretary, Director Richard L. Calvin 69 Exec. Vice Pres. & Treasurer, Director Frank L. Paden 45 Exec. Vice President Carl D. Culp 32 Controller Adrianne R. Kempers 38 Auditor Officers are elected annually by the Board of Directors immediately following the annual meeting of shareholders. The term of office for all the above executive officers is for the period ending with the next annual meeting. Principal Occupation and Business Experience of Executive Officers Mr. William D. Stewart has served as President and Secretary since the inception of registrant on March 31, 1983, President of the Bank since 1972 and has held various other executive positions with the Bank. Mr. Richard L. Calvin has served as Executive Vice President and Treasurer of the registrant since its inception on March 31, 1983, Executive Vice President of the bank since 1972 and has held various other executive positions with the Bank. Mr. Frank L. Paden has served as Executive Vice President of the registrant since March 1995, Executive Vice President of the Bank since March 1995 and has held various other executive positions with the Bank. Mr. Carl D. Culp has served as Controller of the registrant since November 1995 and as Controller of the Bank since November 1995. Ms. Adrianne R. Kempers has served as Auditor of the registrant since November 1995 and as Auditor of the Bank since November 1995. Part III, (Continued) Item 11. Executive Compensation Information regarding this item is set forth in the registrant's definitive proxy statement, which was used in connection with its annual meeting of shareholders which was held March 28, 1996. The proxy statement is attached hereto. Item 12. Security Ownership of Certain Beneficial Owners and Management Information relating to this item is set forth in the registrant's definitive proxy statement, which was used in connection with its annual meeting of shareholders which was held March 28, 1996. The proxy statement is attached hereto. Item 13. Certain Relationships and Related Transactions Information regarding this item is set forth in the registrant's definitive proxy statement, which was used in connection with its annual meeting of shareholders which was held March 28, 1996. The proxy statement is attached hereto. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)1. Financial Statements Included in Part II of this report Item 8., Financial Statements and Supplementary Datais set forth in the registrant's 1995 Annual Report to Shareholders and is incorporated by reference in Part II of this report (a)2. Financial Statement Schedules Page Accountant's consent IV-2 All schedules are omitted because they are not applicable. (a)3. Exhibits The exhibits filed or incorporated by reference as a part of this report are listed in the Index of Exhibits, which appears at page IV-4 hereof and is incorporated herein by reference. (b) Report on Form 8-K No reports on Form 8-K were filed for three months ended December 31, 1995. INDEPENDENT AUDITORS' CONSENT FARMERS NATIONAL BANC CORP.: We hereby consent to the incorporation by reference in this Registration Statement of our report dated January 26, 1996, relating to the consolidated financial statements of Farmers National Banc Corp. and subsidiary. /S/ HILL, BARTH & KING, INC. Warren, Ohio March 15, 1996 SIGNATURES Pursuant to the requirements of Section 13 or 15(D) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the under signed, thereunto duly authorized. Farmers National Banc Corp. Farmers National Banc Corp. by___________________________________ by__________________________________ William D. Stewart Carl D. Culp President & Chief Executive Officer Controller & Chief Financial Officer ________________________ President & Director March 25, 1996 William D. Stewart ________________________ Director March 25, 1996 Benjamin R. Brown ________________________ Executive Vice President March 25, 1996 Richard L. Calvin and Director ________________________ Director March 25, 1996 Joseph O. Lane ________________________ Director March 25, 1996 David C. Myers ________________________ Director March 25, 1996 Edward A. Ort ________________________ Executive Vice President March 25, 1996 Frank L. Paden and Director ________________________ Director March 25, 1996 Ronald V. Wertz INDEX TO EXHIBITS The following exhibits are filed or incorporated by references as part of this report: 3.1. Not applicable. 3.2. Not applicable. 4.1. 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. 9.1. Not applicable. 10.1. Not applicable. 11.1. Not applicable. 12.1. Not applicable. 13.1. Annual Report to security holders (filed herewith). 18.1. Not applicable. 19.1. Not applicable. 22.1. Subsidiaries of the registrant (filed herewith). 23.1. Not applicable. 24.1. Not applicable. 25.1. Not applicable. 27.1 Financial Data Schedule (filed herewith) 28.1. Not applicable. 99.1 Definitive Proxy Statement (filed herewith) Copies of any exhibits will be furnished to shareholders upon written request. Request should be directed to Richard L. Calvin, Executive Vice President, Farmers National Banc Corp., 20 S. Broad Street, Canfield, Ohio 44406. EX-13 2 Highlights of 1995 Selected Financial Data (In Thousands except Per Share Data)
For the Year 1995 1994 Percent Change Net Income 3,576 3,424 +4.45% Return on Average Assets 1.20% 1.22% -1.64% Return on Average Equity 11.45% 12.58% -8.98% Per Share Net Income 2.22 2.22 0% Book Value 20.66 18.57 +11.25% Balances at Year-End Assets 314,229 284,445 +10.46% Securities 47,333 48,006 -1.40% Net Loans 229,249 214,988 +6.63% Deposits 267,955 244,302 +9.68% Stockholders Equity 33,976 28,915 +17.50% Shares Outstanding 1,645 1,577 +5.65% Cash Dividends 1,268 1,180 +7.46% * Adjusted to reflect weighted outstanding shares and adjusted for stock dividends.
Table of Contents Highlights of 1995....................1 Report to Stockholders........... .2-4 Officers................................5 Board of Directors................... 6 Description of Business........... 7 Selected Financial Data.......... 8-11 Management's Discussion....... 12-19 Stock Prices and Dividends..... 20 Accountants' Report................ 21 Financial Data......................22-36 Form 10- K A copy of the Annual Report filed with the Securities and Exchange Commission will be available on April 1, 1996 without charge upon written request to: Mr. Richard L. Calvin, Treasurer Farmers National Banc Corp. 20 South Broad Street P.O. Box 555 Canfield, Ohio 44406 Mailing address and phone: Farmers National Banc Corp. 20 South Broad Street P.O. Box 555 Canfield, Ohio 44406 Phone: (330) 533-3341 The Annual Meeting of the Shareholders of Farmers National Banc Corp. will be held at Colonial Catering at 429 Lisbon St., Canfield, Ohio on Thursday, March 28, 1996 at 4:30 p.m. Presidents Letter to Stockholders In this era of continuing consolidation of financial institutions and the resulting creation of "superregional banks", your Bank's performance validates the role, necessity and vitality of community banks. Our growth demonstrates that community banks that retain traditional standards of personal service, while adapting to evolving financial and technological trends, are well-positioned for the 21st Century. Your Corporation completed an exceptionally prosperous year in 1995. Corporate assets reached record levels of $314,000,000 which represented an 11% increase over the previous year. Net income was $3,577,000, or $2.22 per common share. Return on Average Assets was 1.20% and Return on Average Equity was 11.45%. 1995 marked the thirteenth consecutive year that net income has increased from the previous year. The higher earnings were a direct result of excellent asset growth, deposit and loan growth, active capital management, proper management of interest rate risk and control of overhead expenses. Net income for 1995 represents a 4.45% increase over 1994. Management embarked on numerous projects in 1995 in order to better position the bank for the future. Understandably, these changes had some impact on the overall earnings of the Corporation. Spurred by the consolidation of two separate bank mergers that closed two banking offices in Columbiana, Farmers National Bank decided to select Columbiana as our next location to expand our branch office network. In October 1994, we received regulatory authority to open a new branch office in the Village of Columbiana. In December 1994, we opened a full banking office in a temporary trailer facility, while the plans for our new permanent location were being finalized. Construction for this new 5,300 square foot branch bank started in July 1995. This state of the art facility was designed with an emphasis on giving the customer a community banking office to transact all financial transactions conveniently and confidentially. I am glad to report that on January 8, 1996, we relocated to our permanent location in the Oakmont Plaza on Rt. 14 in Columbiana. We are excited about being a part of this fine community and look forward to a long and rewarding relationship. Two Pictures (Exterior & Interior) of Newly built Columbiana Branch In April 1995, Farmers National Bank successfully bid for the Purchase and Assumption of the Leetonia Branch Banking Office from Bank One, Youngstown NA. Farmers purchased the banking office, real estate, furniture and fixtures and all deposit accounts. This $6,700,000 transaction was consummated in September 1995. Farmers National Bank was able to retain the entire branch employee staff from Bank One which helped make this conversion be completed with the least amount of inconvenience to our new customers. This additional office gives Farmers National Bank nine community offices offering full banking services. Picture of Newly Acquired Leetonia Branch The third project that was completed in 1995 focused on technology. The Bank has strategically positioned itself to better prepare for the information highway and a new age of expanding, technology-driven, financial opportunities. The Bank's total communications system between the main office and all branches was upgraded. These improvements included the installation of personal computer workstations along with various software enhancements. As we move into 1996, we plan to complete the second phase of this project which will be to install a new and improved delivery system for customer information and the implementation of a platform automation system for both loans and new accounts. These new systems will enable the bank to be more efficient in delivering new products and services. Risk Management is being stressed by all regulatory agencies as a way to better manage your Bank. Throughout 1995, we continued to move forward to put the bank in a better position to manage and monitor these various risks. The Bank was approved as a member of the Federal Home Loan Bank of Cincinnati. This membership gives us accessibility to various financial tools to be used in asset liability management, interest rate risk management and liquidity. Your bank has Capital ratios that far exceed the regulatory guidelines. As of December 31, 1995, the Bank's Tier 1 Risk Based Capital Ratio was 15% as compared to the 8% minimum level required by the Regulators. The Stockholders Equity grew to $33,976,000 in 1995 which represents an increase of 17.5% over 1994 or $5,061,000. In addition to net income, this capital account has grown from a very well participated dividend reinvestment plan along with the optional cash contributions that was received from the dividend reinvestment participants. During 1995, dividend reinvestors made cash contributions in excess of $1,150,000 which was used to purchase additional common stock. Cash dividends amounted to $.80 per share. The Board of Directors also approved and paid a 2% stock dividend in October 1995. This strong capital position reaffirms the Bank's commitment to the community and affords the Bank more opportunity to pursue additional acquisitions, expansion, and the development of new products and services. The year-end market value of Farmers National Banc Corp. stock is listed at $39.50 as compared to $31.00 per share in December 1994, which equates to a 27% increase in market value over the past year. Book value per share increased by 11% over this same period. Asset quality continues to be a top priority for management as we monitor credit risk. Net charge-offs to average loans was .05% for 1995, more favorable than our industry peer group ratio of .14%. Management gives credit to this favorable ratio due to a more stable local economy and sound credit underwriting policies. Loan interest income and loan fee income represents approximately 80% of the gross income generated from the Bank during 1995. The loan mix of our Bank continues to put more emphasis on the retail market. Loan growth in 1995 was $15,000,000 or 7% with all of the growth concentrated in retail installment loans and residential one-to-four family home mortgage loans. Farmers has historically been an active participant in the indirect automobile dealer financing market. These types of loans represent 36% of the banks overall loan portfolio. In order to become more efficient, the indirect loan operations and approval process have been centralized. This $82,000,000 portfolio is managed by Mr. Alfred F. Ridel, Assistant Vice President/Installment Loan Manager and is under the direct supervision of Mr. Roy A. Jackson, Assistant Vice President/Indirect Lending Administration. A result of your Bank's growth was a need for additional work space, making it necessary for management to expand into additional facilities near our main office in Canfield. During 1995, the bank relocated various departments into buildings located on South Broad Street -- directly south of the main banking office. The Compliance, Loan Review, Electronic Funds Transfer, Training, and the Mastercard/Visa operations departments were relocated to these new facilities. In addition, the bank designed a formal training/meeting room available for bank use. Several personnel changes have been made in 1995 to fill vacancies caused from retirements and reassignments. Mr. Carl D. Culp was appointed Controller for the Bank and Farmers National Banc Corp. Mr. Culp had previously been the bank's Auditor. Ms. Adrianne R. Kempers joined the Bank in 1995 and was recently appointed as Auditor to replace Culp. Other changes included Mr. Bradley S. Henderson who was transferred from our branch system and was appointed Assistant Vice President for Branch Administration and Security Officer; Mr. Larry A. Staub, Assistant Cashier relocated as Branch Manager from our Cornersburg Office to our Western Reserve Office; and Mr. Robert L. Rozeski, who joined the Bank in 1995, has been appointed Branch Manager at the Cornersburg Office. We would also like to extend a special appreciation to Gene A. Dean and Doris K. Paskey, whom both retired in December 1995. Mr. Dean, a prominent banker in this community for over thirty years, played a critical role in the financial management as Controller of Farmers for the past eighteen years. Ms. Paskey served Farmers as a Branch Manager, consumer loan officer and most recently a mortgage loan officer. Both will be greatly missed. We we wish them well and thank them for being a part of our Bank. In closing, I encourage you to review Management's Discussion of the financial condition of the Bank along with the Accountant's Report. I would like to thank my associates for their professionalism, commitment and highly productive work during this past year. I look forward to their continued strong efforts in the year ahead. I also want to express my appreciation to our customers for their continued business relationship, and to our Board of Directors for their counsel and guidance on behalf of the shareholders. The common sense manner of conducting business that is our heritage, leavened by an openness to future trends in banking, positions your Bank for continued growth. Sincerely, William D. Stewart President Picture of Employees in New Technology Training Session Officers Officers of the Farmers National Banc Corp. William D. Stewart Richard L. Calvin President & Secretary Executive Vice President & Treasuer Frank L. Paden Carl D.Culp Adrianne R. Kempers Executive Vice President Controller Auditor Executive Officers of the Farmers National Bank of Canfield William D. Stewart Richard L. Calvin President Executive Vice President & Cashier Frank L. Paden Carl D. Culp Donald F. Lukas Executive Vice President & Sr. Loan Officer Controller Vice President Data Processing Senior Officers of Farmers National Bank of Canfield Anthony F. Peluso Bradley S. Henderson Assistant Vice President Human Resources Asst Vice President Branch Admin. Mark L. Graham Alfred F. Ridel Asst. Vice President Comm'l Loans Asst. Vice President Consumer Loans Roy A. Jackson Charles L. Burgoyne Asst. Vice President Indirect Loans Asst. Vice President Loan Review Barbara C. Fisher Adrianne R. Kempers Assistant Cashier Deposit Operations Auditor Officers and Managment of the Farmers National Bank of Canfield Andrew A. Baird Assistant Cashier Susan E. Miller Assistant Cashier Phyllis A. Welton Assistant Cashier Joseph E. Chapman Assistant Cashier Clare F. Baldwin Assistant Cashier Larry A. Staub Assistant Cashier Joanie Orr Accounting Officer Gary J. Rosati In-House Legal Counsel Dorothy J. Weeden Assistant Cashier Pamela J. Cleghorn Manager Larry E. White Asst. Vice President Michele M. Ossoff Assistant Manager Geraldine A. Gbur Assistant Cashier Jane C. Logan Assistant Manager Robert L. Rozeski Manager Barbara J. Sitler Assistant Manager Merle C. Garritano Assistant Cashier Daniel B. Cerroni, Assistant Cashier Lynnita J. Kaschak Loan Officer Janine Cox Credit Administration Kay A. Hedl, Manager Keith A. Leonard Assistant Cashier Patricia C. Rosko Assistant Cashier Dennis S. Vitt Assistant Cashier Marjorie I. Yerman Assistant Manager BOARD OF DIRECTORS Picture of Board of Directors William D. Stewart, President and Secretary of Farmers National Banc Corp; President of the Farmers National Bank of Canfield Richard L. Calvin, Executive Vice President and Treasurer of Farmers National Banc Corp; Executive Vice President and Cashier of the Farmers National Bank of Canfield Frank L. Paden, Executive Vice President of Farmers National Banc Corp; Executive Vice Presidnet and Senior Loan Officer of the Farmers National Bank of Canfield Benjamin R. Brown, President - Castruction Co. Joseph O. Lane, President - Lane Funeral Homes, Inc. and Lane Life Corp. David C. Myers, Co-Owner Myers Equipment Co. Edward A. Ort, President - Ort Furniture Manufacturing Co. Ronald V. Wertz, President - Boyer Insurance Co. Brief Description of Business Farmers National Banc Corp. Farmers National Banc Corp. (the "Corporation") is a one-bank holding company formed under the Bank Holding Company Act of 1956, as amended, operating under regulations of the Board of Governors of the Federal Reserve System. Its principal subsidiary is The Farmers National Bank of Canfield, which was acquired March 31, 1983. Presently the Corporation and its subsidiary operate in one industry, domestic banking. The Corporation conducts no business activities except for investment in securities permitted under the Bank Holding Company Act. The Board of Directors of the Corporation and the Bank are identical. The officers of the Corporation are William D. Stewart, President and Secretary, Richard L. Calvin, Executive Vice President and Treasurer, Frank L. Paden, Executive Vice President, Carl D. Culp, Controller and Adrianne R. Kempers, Auditor. Bank holding companies are permitted under Regulation Y of the Board of Governors of the Federal Reserve System to engage in other activities considered closely related to banking such as leasing and mortgage banking. The Corporation has no other subsidiaries engaged in such activities at this time. The Farmers National Bank of Canfield The Bank is a full service national bank engaged in commercial and retail banking with the exception of trust services. The Bank's commercial banking services include checking accounts, savings accounts, time deposit accounts, commercial, mortgage and installment loans, night depository, automatic teller machines, safe deposit boxes, money order services, travelers checks, government bond sales, food stamp redemption, utility bill payments, MasterCard and Visa Credit Cards, and other miscellaneous services normally offered by commercial banks. In addition, the Bank offers discount brokerage service through a correspondent bank. The Bank's main office is located at 20 South Broad Street, Canfield, Ohio. Business is conducted at a total of nine (9) offices located in the counties of Mahoning and Columbiana in Ohio. As a national banking association, the Bank is a member of the Federal Reserve System, subject to supervision and regulation of the Comptroller of the Currency and its deposits are insured by the Federal Deposit Insurance Corporation to the extent provided by law. The Bank is affected also by the monetary and fiscal policies of the United States and of various regulatory agencies. The Bank competes with state and national banks located in Mahoning and Columbiana counties. The Bank also competes with a large number of other financial institutions, such as savings and loan associations, insurance companies, consumer finance companies, credit unions and commercial finance and leasing companies, for deposits, loans and service business. Money market mutual funds, brokerage houses and similar institutions provide, in a relatively unregulated environment, many of the financial services offered by the Bank. In the opinion of management, the principal methods of competition are the rates of interest charged for loans, the rates of interest paid for funds, the fees charged for services and the availability of services. As of December 31, 1995, the Corporation and its subsidiary had 162 employees. The bank considers its relations with its employees to be satisfactory. Picture of Exterior of Main Office Bar Graph Depicting Total Deposits in Thousands Year Amount 1991 225,569 1992 231,671 1993 240,440 1994 244,302 1995 267,955 Bar Graph Depicting Total Assets in Thousands Year Amount 1991 250,496 1992 265,440 1993 275,385 1994 284,445 1995 314,229 Bar Graph Depicting Return on Average Assets Year Rate 1991 1.04% 1992 1.10% 1993 1.16% 1994 1.22% 1995 1.20% Bar Graph Depicting Net Income in Thousands Year Amount 1991 2,518 1992 2,825 1993 3,160 1994 3,424 1995 3,576 Bar Graph Depiciting Net Loans in Thousands Year Amount 1991 178,464 1992 189,813 1993 200,993 1994 214,988 1995 229,249 Bar Graph Depicting Net Income Per Share Year Amount 1991 1.83 1992 1.98 1993 2.13 1994 2.22 1995 2.22 Bar Graph Depicting Efficency Ratio Year Rate 1991 60.29% 1992 56.62% 1993 58.98% 1994 59.66% 1995 59.63% Bar Graph Depicting Dividends and Earnings Per Share
Year Dividends Earnings Per Share Per Share 1991 0.68 1.83 1992 0.71 1.98 1993 0.75 2.13 1994 0.79 2.22 1995 0.80 2.22
Bar Graph Depicting Common Stock - Book Value Year Amount 1991 15.7 1992 16.44 1993 17.8 1994 18.57 1995 20.66 Bar Graph Depiciting Common Stock - Market Value Year Amount 1991 13.25 1992 16.00 1993 21.00 1994 29.50 1995 39.50 FARMERS NATIONAL BANC CORP. AND SUBSIDIARY Selected Financial Data (in Thousands except Per Share Data)
For the Years Ending 1995 1994 1993 1992 1991 Summary of Earnings Total Interest Income (including fees on loans) 21,961 19,731 20,166 21,464 22,328 Total Interest Expense 9,688 8,000 8,738 10,273 12,741 Net Interest Income 12,273 11,731 11,428 11,191 9,587 Provision for Loan Losses 270 330 620 1,310 609 Total Other Income 1,342 1,357 1,298 1,271 1,081 Total Other Expense 8,119 7,755 7,473 7,013 6,432 Income Before Federal Income Taxes 5,226 5,003 4,633 4,139 3,627 Federal Income Taxes 1,650 1,579 1,473 1,312 1,109 NET INCOME 3,576 3,424 3,160 2,825 2,518 Per Share Data (Note) Net Income 2.22 2.22 2.13 1.98 1.83 Cash Dividends Paid 0.80 0.79 0.75 0.71 0.68 Book Value at Year-End 20.66 18.57 17.80 16.44 15.70 Balances At Year-End Total Assets 314,229 284,445 275,385 265,440 250,496 Earning Assets 294,122 268,724 260,965 248,484 235,492 Total Deposits 267,955 244,302 240,440 231,671 225,569 Net Loans 229,249 214,988 200,993 189,813 178,464 Total Stockholder's Equity 33,976 28,915 25,996 22,698 19,978 Average Balances Total Assets 297,159 279,839 273,257 256,160 242,049 Total Stockholder's Equity 31,177 27,221 24,557 21,390 18,708 Significant Ratios Return on Average Assets (ROA) 1.20% 1.22% 1.16% 1.10% 1.04% Return on Average Equity (ROE) 11.45% 12.58% 12.85% 13.12% 13.46% Average Earning Assets/Average Assets 94.75% 94.91% 94.55% 94.24% 94.33% Net Loans/Deposits 85.56% 88.00% 83.59% 81.93% 79.12% Allowance for Loan Losses/Total Loans 1.25% 1.26% 1.29% 1.18% 0.91% Allowance for Loan Losses/Nonperforming Loans 192.87% 154.63% 97.35% 84.69% 42.61% Efficiency Ratio 59.63% 59.66% 58.98% 56.62% 60.29% Cash Dividends as a Percentage of Net Income 35.46% 34.45% 33.41% 32.83% 33.09% Note: Per share data is based on weighted average shares outstanding adjusted for stock dividends.
SELECTED FINANCIAL DATA Average Balance Sheets and Related Yields and Rates
(In Thousands of Dollars) Years Ended December 31, 1995 1994 1993 EARNING ASSETS AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE BALANCE BALANCE BALANCE Loans 221,955 18,580 8.37% 210,148 16,911 8.05% 194,705 16,971 8.72% Taxable securities 39,167 2,183 5.57% 42,352 2,162 5.10% 46,217 2,470 5.34% Tax-exempt securities 7,266 670 9.22% 7,364 651 8.84% 6,683 608 9.10% Federal funds sold 13,181 761 5.77% 5,721 234 4.09% 10,701 324 3.03% Interest earning deposits 0 0 71 6 8.45% Total Earning Assets 281,569 22,194 7.88% 265,585 19,958 7.51% 258,377 20,379 7.89% NONEARNING ASSETS Cash and due from banks 11,437 10,610 10,595 Premises and equipment 4,671 4,165 4,250 Allowance for Loan Losses (2,897) (2,745) (2,528) Other assets 2,379 2,224 2,563 Total Assets 297,159 279,839 273,257 INTEREST-BEARING LIABILITIES Time deposits 108,626 6,205 5.71% 90,750 4,298 4.74% 95,568 4,764 4.98% Savings deposits 74,752 1,986 2.66% 80,969 2,256 2.79% 78,292 2,429 3.10% Demand deposits 48,267 1,009 2.09% 49,280 1,141 2.32% 45,508 1,257 2.76% Repurchase agreements 10,032 440 4.39% 8,832 289 3.27% 7,955 276 3.47% Borrowings 804 48 5.97% 551 16 2.90% 551 12 2.18% Total Interest-Bearing Liabilities 242,481 9,688 4.00% 230,382 8,000 3.47% 227,874 8,738 3.83% NONINTEREST -BEARING LIABILITIES Demand deposits 20,631 21,224 19,415 Other liabilities 2,870 1,012 1,411 Stockholders' equity 31,177 27,221 24,557 Total Liabilities and Stockholders' Equity 297,159 279,839 273,257 Net interest income 12,506 11,958 11,641 Net interest income to earning assets 4.44% 4.50% 4.51% Fully taxable equivalent basis computed at 35% in 1995, 1994 and 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Corporation's net income totaled $3,576,229 during 1995, an increase of 4.45% from $3,423,950 for 1994. On a per share basis, net income was $2.22 for 1995 as compared to $2.22 and $2.13 for 1994 and 1993, respectively. Common comparative ratios for results of operations include the return on average assets and return on average stockholders equity. For 1995, the return on average equity was 11.45% as compared to 12.58% for 1994 and 12.85% for 1993. The return on average assets was 1.20% for 1995 as compared to 1.22% and 1.16% for 1994 and 1993, respectively. These results of operations are the direct result of management's concerted efforts to control expenses and increase interest from our interest bearing assets. Overall growth in deposits and the use of those funds in the loan portfolio, particularly installment and mortgage loans, together with control over the bank's general expenses have produced these results. Net Interest Income Net interest income, the principal source of the Corporation's earnings, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. For 1995, net interest income increased $542,000 or 4.62% over 1994. The increase for 1994 was $303,000 or 2.65% over 1993. Interest-earning assets averaged $281,569,000 during 1995 representing a 6.02% increase over 1994, while 1994 averaged $265,585,000 or a 2.79% increase over 1993. The Corporation finances its earning assets with a combination of interest-bearing and interest-free funds. The interest-bearing funds are composed of deposits, short-term borrowings and long-term debt. Interest paid for the use of these funds is the second factor in the net interest income equation. Interest-free funds, such as demand deposits and stockholders equity, require no interest expense and, therefore, contribute significantly to net interest income. The profit margin, or spread, on invested funds is a key performance measure. The Corporation monitors two key performance indicators - net interest spread and net interest margin. The net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin represents the overall profit margin: net interest income as a percentage of total interest-earning assets. This performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds. For 1995 the net interest margin, measured on a fully taxable equivalent basis, totaled 4.44% in comparison to 4.50% and 4.51% for 1994 and 1993, respectively. The decrease in net interest income margin in 1995 was due in part to the interest rate environment applied to the Corporation's liability sensitive balance sheet and in part to the increased deposit volume, as presented in the Asset/Liability section of this discussion. Total interest income was $21,961,000 for 1995 as compared to $19,731,000 and $20,166,000 for 1994 and 1993, respectively. The 11.3% increase in interest income is largely attributed to a 6.6% increase in outstanding loan balances and an increase in the interest rate earned from 8.05% to 8.37%. Net loans were $229,249,000 at year-end 1995 as compared to $214,988,000 at year-end 1994. Total interest expense amounted to $9,688,000 for 1995, representing a 21.10% increase from 1994 while interest expense of $8,000,000 for 1994 represents a 8.45% decrease from 1993. The increase in interest expense is primarily due to an increase in the level of time deposits and the average rate paid on these deposits. The average balances for time deposits increased by 20% over 1994 while the interest rate paid on those deposits increased by 97 basis points. Return on Equity and Assets
Information for the years indicated as follows: 1995 1994 1993 Net income to average total assets 1.20% 1.22% 1.16% Net income to average equity 11.45% 12.58% 12.85% Dividends per share to net income per share 36.04% 34.96% 33.94% Average equity to average total assets 10.49% 9.73% 9.01%
Other Income Other income decreased $15,000 or 1.11% from 1994. Total other income for 1994 increased $59,000 or 4.56% from 1993. Management will continue to try to improve our other income contribution to our net income. Other Expenses Total other expenses for 1995 increased 4.69% over 1994 as compared to an increase of 3.78% from 1994 over 1993. The increase is due to increased depreciation, salary and other employee benefits, state and local taxes, and other operating expenses as compared to 1994 and 1993. Every effort is being made to control other expenses of the bank. These expenses are increasing each year due primarily to the increased volume of the operations of the bank. Management will continue to hold these increases to a minimum. Income Taxes Federal income taxes are computed using the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective federal income tax rate was 32% for the periods ending 1995, 1994 and 1993. Asset/Liability Management Important considerations in asset/liability management are liquidity, the balance between interest rate sensitive assets and liabilities and the adequacy of capital. Interest rate sensitive assets and liabilities are those which have yields on rates subject to change within a future time period due to maturity of the instrument or changes in market rates. While liquidity management involves meeting the funds flow requirements of the Corporation, the management of interest rate sensitivity focuses on the structure of these assets and liabilities with respect to maturity and repricing characteristics. Balancing interest rate sensitive assets and liabilities provides a means of tempering fluctuating interest rates and maintaining net interest margins through periods of changing interest rates. Although the Corporation does not match each of its interest sensitive assets against specific interest sensitive liabilities, it does monitor total assets and liabilities to determine the overall interest rate position over various time frames. As of year-end 1995, the Corporation had a negative gap at both three month and twelve month time periods. This liability sensitive position typically produces a favorable contribution to earnings during a period of decreasing rates. Although in general rates may rise, the Corporation has the capacity to take steps to minimize the negative effect of such movement. With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the Corporation monitors this area most closely. The Corporation does not emphasize interest sensitivity analysis beyond this time frame because it believes various unpredictable factors could result in erroneous interpretations. Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that could have such an effect. In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net margin. Interest Rate Sensitivity
(In Thousands of Dollars) December 31, 1995 December 31, 1994 December 31, 1993 Total Within Total Within Total Within 3 month 12 month 3 month 12 month 3 month 12 month Total Interest-Sensitive Assets 44,064 100,658 36,940 96,137 39,319 97,775 Total Interest-Sensitive Liabilities 55,706 103,701 53,912 77,970 50,417 77,158 Total Sensitivity Gap (11,642) (3,043) (16,972) 18,167 (11,098) 20,617 Ratio of Interest-Sensitive Assets to .79% .97% .69% 1.23% .78% 1.27% Interest-Sensitive Liabilities
Interest rate sensitivity management provides some degree of protection against net interest income volatility. It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure. 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. Along with its liquid assets, the Corporation has additional sources of liquidity available which help to insure that adequate funds are available as needed. These other sources include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at three major domestic banks. At December 31, 1995, the Corporation had not borrowed against these lines of credit. Management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis. The Corporation also has additional borrowing capacity with the Federal Home Loan Bank of Cincinnati, as well as access to the Federal Reserve Discount Window, which provides an additional source of funds. Cash flows generated from operating activities increased 5.3% to $5,263,000 in 1995 compared to $4,997,000 in 1994. This increase is a result of an increase in total interest received, as explained in the Net Interest Income section of this report. Cash flows used in investing activities increased 17% to $15,681,000 in 1995 compared to $13,407,000 in 1994. This is a result of increased loan demand, as net loans increased 6.6%. Cash flows provided from financing activities amount to $25,305,000 as compared to $6,093,000 in 1994. These funds were the result of increased levels of time deposits. Loan Portfolio Outstanding loans increased $14,425,000 or 7% in 1995, with the most growth occurring primarily in the installment loan portfolio. While the interest rates remained relatively stable, homeowners continued to take advantage of refinancing opportunities throughout the year. Real estate mortgage loan increased from $92,773,000 in 1994 to $98,678,000 in 1995 which represents a 6% increase over the past year. The bank's consumer loan portfolio represents approximately 47% of the banks total loans outstanding. These loans, which consist of automobile loans, home improvement loan, home equity lines of credit and credit card plans reported a 10% growth in 1995. Consumers continue to take advantage of the low interest rate environment with loans to purchase new automobiles and make capital improvements to their homes. The commercial loan balances outstanding have remained relatively stable over the past few years. All commercial loans are made to local small businesses for various purposes such as equipment purchases, capital improvements, the purchase of inventory or general working capital needs. This portfolio of $22,677,000 is primarily variable rate loans that play an important role in the banks monitoring of rate sensitive assets. Maturities and Sensitivities of Loans to Interest Rates The following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated:
(In Thousands of Dollars) Years Ended December 31, 1995 1994 1993 1992 1991 Commercial, Financial and Agricultural 22,677 9.7% 24,477 11.2% 27,373 11.9% 24,572 12.8% 26,445 14.7% Real Estate-Mortgage 98,678 42.5% 92,773 42.6% 81,726 40.1% 73,043 38.0% 61,490 34.1% Installment Loans to Individuals 110,805 47.8% 100,484 46.2% 97,515 48.0% 94,432 49.2% 92,069 51.1% Lease Financing 0 .0% 0 .0% 0 .0% 41 .0% 117 .1% 232,160 100.0% 217,734 100.0% 203,614 100.0% 192,088 100.0% 180,121 100.0% Less Unearned Income 0 0 0 1 27 Total Loans 232,160 100.0% 217,734 100.0% 203,614 100.0% 192,087 100.0% 180,094 100.0%
The following schedule sets forth maturities based on remaining scheduled repayments of principal for various categories of loans listed above as of December 31, 1995:
(In Thousands of Dollars) Types of Loans 1 Year 1 to 5 Over 5 or less years years Commercial, Financial and Agricultural 5,066 5,207 12,404
The amounts of commercial, financial and agricultural loans as of December 31, 1995, based on remaining scheduled repayments of principal, are shown in the following table:
(In Thousands of Dollars) Loan Sensitivities 1 Year Over 1 Total or less year Floating or Adjustable Rates of Interest 2,124 5,942 8,066 Fixed Rates of Interest 2,942 11,669 14,611 Total Loans 5,066 17,611 22,677
Summary of Loan Loss Experience The following is an analysis of the allowance for loan and lease losses for the periods indicated:
(In Thousands of Dollars) Years Ended December 31, 1995 1994 1993 1992 1991 Balance at Beginning of Year 2,746 2,621 2,274 1,630 1,440 Loan Losses Commercial, Financial and Agricultural (1) (185) (69) (411) (174) Real Estate-Mortgage 0 0 (16) (63) (51) Installent Loans to Individuals (275) (202) (351) (332) (310) Total Loan Losses (276) (387) (436) (806) (535) Recoveries on previous Loan Losses: Commercial, Financial and Agricultural 44 39 36 36 30 Real Estate- Mortgage 0 0 7 0 0 Installment Loans to Individuals 127 143 120 104 87 Total Recoveries 171 182 163 140 117 Net Loan Losses (105) (205) (273) (666) (418) Provision Charged to Operations (1) 270 330 620 1,310 608 Balance at End of Year 2,911 2,746 2,621 2,274 1,630 Ratio of Net Loan and Lease Losses to Average .05% .10% .14% .36% .23% Net loans and leases outstanding (1) The provisions for possible credit losses charged to operating expense is based on management's judgment after taking into consideration all factors connected with the collectability 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.
Provisions charged to operations decreased from $330,000 in 1994 to $270,000 in 1995. The balance in the allowance for credit losses has increased substantially since 1991 to $2,910,000 or 1.25% of loans at December 31,1995. The allowance balance improved by $165,000 and was aided by the lowest dollar amount of net loan losses since 1991. Management attributes this decrease in net loan losses to an overall improvement in the local economy and sound credit underwriting standards set forth in lending policies. 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:
(In Thousands of Dollars) December 31, 1995 1994 1993 1992 1991 Commercial, Financial and Agricultural 1,800 1,700 1,692 1,599 1,180 Real Estate-Mortgage 250 200 170 75 50 Installment Loans to Individuals 861 846 759 600 400 2,911 2,746 2,621 2,274 1,630 The allocation of the allowance as shown in the table 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.
Loan Commitments and Lines of Credit In the normal course of business, the banking subsidiary has extended various commitments for credit. Commitments for mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one year. Normally no fees are charged on any unused portion. A fee of two percent is charged for the issuance of a letter of credit. Risk Elements The following table sets forth aggregate loans in each of the following categories for the years indicated:
(In Thousands of Dollars) December 31, 1995 1994 1993 1992 1991 Loans Accounted for on a Nonaccrual Basis 125 302 349 453 1,599 Loans Contractually Past Due 90 Days or More 1,384 1,475 2,343 2,232 2,226 as to Interest or Principal Payments (Not Included in Nonaccrual Loans Above) Loans Considered Troubled Debt Restructuring 75 0 108 0 113 (Not Included in Nonaccrual Loans or Contractually Past Due Above) Management is not aware of any 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.
Non-accrual loans are loans which are 90 days past due and with respect to which, in Management's opinion, collection of interest is doubtful. These loans no longer accrue interest and are accounted for on a cash basis. Loans which are 90 days or more past due but continue to accrue interest are loans which, in Management's opinion, are well secured and are in the process of collection. As of December 31, 1995, there were no concentrations of loans exceeding 25% of total loans which are not disclosed as a category of loans. As of that date also, there were no other interest-earning assets that are either nonaccrual, past due or restructured. 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) Years ended December 31, 1995 1994 1993 1992 1991 Gross Interest Income That Would have been 5 21 40 51 115 Recorded if the Loans had been Current in Accordance with Their Original Terms Interest Income Included in Income on the Loans 0 0 0 0 0
Investment Securities The investment securities portfolio decreased during 1995. Holdings of U. S. Treasury and U. S. Government Agency securities totaled $31,692,000 on December 31, 1995. Obligations of states and political subdivisions totaled $6,943,000 at year-end. Other securities at year-end totaled $8,730,000. Our objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in short and intermediate term securities which are readily marketable and of the highest credit quality. In general investment in securities is limited to those funds the bank feels it has in excess of funds used to satisfy loan demand and operating considerations. The following table shows the book value of investment securities by type of obligation at the dates indicated:
(In Thousands of Dollars) December 31, 1995 1994 1993 U.S. Treasury and Government Agencies 31,692 29,887 31,694 Obligations of States and Political Subdivisions 6,943 8,013 6,326 Other Securities 8,698 10,106 13,269 47,333 48,006 51,289
A summary of securities held at December 31, 1995, classified according to maturity and including weighted average yield for each range of maturities is set forth below:
(In Thousands of Dollars) December 31, 1995 Types and Maturity Grouping Book Weighted Value Avg. Yield (1) U.S. Treasury and U.S. Government Agencies Securities: Maturing Within One Year 8,041 5.13% Maturing After One Year But Within Five Years 21,949 5.66% Maturing After Five Years But Within Ten Years 0 0 Maturing After Ten Years 1,702 6.69% Total U.S. Treasury and U.S. Government Agencies Securities 31,692 5.58% Obligations of States and Political Subdivision: Maturing Within One Year 763 9.79% Maturing After One Year But Within Five Years 1,273 9.04% Maturing After Five Years But Within Ten Years 1,897 8.79% Maturing After Ten Years 3,010 9.15% Total Obligations of States and Political Subdivisions 6,943 9.09% Other Securities: Maturing Within One Year 4,037 5.22% Maturing After One Year But Within Five Years 3,657 6.66% Maturing After Five Years But Within Ten Years 0 0 Maturing After Ten Years 1,004 5.74% Total Other Securities 8,698 5.89% (1) The weighted average yield has been computed by dividing the total interest income adjusted for amortization of premium or accretion of discount over the life of the security by the par value of the securities outstanding. The weighted average yield of tax-exempt obligations of states and political subdivisions has been calculated on a fully taxable equivalent basis. The amounts of adjustments to interest which are based on the statutory tax rate of 34% were $25,398, $38,186, $56,693 and $93,610 for the four ranges of maturities.
Deposits Deposits represent the Corporation's principal source of funds. The deposit base consists of demand deposits, savings and money market accounts and other time deposits. Average Deposits The following table shows the classification of average deposits for the periods indicated:
(In Thousands of Dollars) Average Balances on December 31, 1995 1994 1993 Noninterest-Bearing Demand Deposits 20,631 21,227 19,418 Interest-Bearing Demand Deposits 48,267 49,281 45,507 Savings Deposits 74,752 80,969 78,292 Time Deposits 108,626 90,750 95,568 Total Average Deposits 252,276 242,227 238,785
The following shows the average rate paid on the following deposit categories for the periods indicated:
Years ended December 31, 1995 1994 1993 Interest-Bearing Demand Deposits 2.09% 2.32% 2.76% Savings 2.66% 2.79% 3.10% Time Deposits 5.71% 4.74% 4.98%
A summary of time deposits of 100,000 or more as of December 31, 1995 by maturity range is shown below: (In Thousand of Dollars) 3 Months or Less Remaining Until Maturity 2,317 3 to 6 Months Remaining Until Maturity 3,523 6 to 12 Months Remaining Until Maturity 8,804 Over 12 Months Remaining Until Maturity 3,776 Total Outstanding 18,420 The steady increase in total deposits over the years reflects managements' efforts to continue to insure the growth of the bank and to maintain a viable banking institution. During 1995, the bank has attracted deposits due to its effort to remain competitive in the local community as to rates paid for all types of deposits particularly in the time deposit area. The bank has been at or near the top in interest rates paid to depositors throughout 1995. 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. Important to this process is internal equity generation, particularly through earnings retention. Internal capital generation is measured as the percent of return on equity multiplied by the percent of earnings retained. The return on average equity was 11.45%, 12.58% and 12.85% for 1995, 1994 and 1993, respectively. Total cash dividends declared in 1995 represented 35.42% of net income as compared to 34.45% in 1994 and 33.41% in 1993. The resulting internal equity growth percentage amounted to 7.39% in 1995 as compared to 8.25% in 1994 and 8.56% in 1993. The bank subsidiary, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. The Comptroller of the Currency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). As of December 31,1995, the bank subsidiary had $6,681,283 of retained earnings available for distribution and $9,638,228 not available for distribution to the company as dividends without prior approval of the Comptroller of the Currency. The bank subsidiary is also required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31, 1995, the bank subsidiary is required to have a minimum Tier 1 and Total Capital ratios of 4.00% and 8.00%, respectively. The bank subsidiary's actual Tier 1 and Total Capital ratios at that date were 15.58% and 16.84% respectively. The bank subsidiary's leverage ratio at December 31, 1995 was 10.69%. Audit The Company's internal auditor, who is responsible to the Audit Committee of the Board of Directors, reviews the results and performance of operating units within the Company for adequacy, effectiveness and reliability of accounting and reporting systems, as well as managerial and operating controls. The Audit Committee consists of four nonemployee directors whose duties include: consideration of the adequacy of the internal controls of the Company and the objectivity of financial reporting; inquiry into the number, extent, adequacy and validity of regular and special audits conducted by independent public accountants and the internal auditors; the recommendation to the Board of Directors of independent accountants to conduct the normal annual audit and special purpose audits as may be required; and reporting to the Board of Directors the Committee's findings and any recommendation for changes in scope, methods or procedures of the auditing functions. The Audit Committee held four meetings during 1995. Compliance There are many activities in today's banking that are subject to compliance regulations. It is a very large task to implement the many requirements of compliance and to determine that all requirements are met. For example, many of the forms used in opening deposit accounts and loan accounts must subscribe to standards of format that ensures that information solicited from customers and information to be disclosed to customers is in conformance with regulations that are designed to protect and to inform the customer. It is an ongoing task to absorb the many changes that take place during the course of the year and to implement them in the banking system. To do this, it is necessary to provide training to bank personnel. The training segment of compliance has become extremely important in recent years. Scarcely a month goes by without some form of formal training taking place in our bank. During the past year, the Compliance Department moved into new quarters adjacent to the Main Office. The move has afforded good facilities in which to hold training sessions. Quite often, two to three sessions are required to reach all persons who need training due to conflicting schedules. From training, compliance objectives follow to monitoring or testing procedures. Monitoring can focus on a broad range of compliance issues and procedures, or it can be applied to limited areas. Often, the extent of monitoring relates to the complexity or length of the regulation. Upon the completion of monitoring projects, areas where training is needed may be revealed. The cycle of training, to monitoring, to training is ever continuing. It is our bank's mission to keep our employees well informed. We urge them to ask questions and to use initiative in becoming informed, as compliance regulations have become very complex. This all translates into efficient and better service for our customers. Stock Prices and Dividends Information as to Stock Prices and Dividends The common stock of the Corporation is traded mostly through a local brokerage firm and some private sales. Set forth in the accompanying table are per share prices at which common stock of the Corporation has actually been purchased and sold in transactions during the periods indicated, to the knowledge of the Corporation. Also included in the table are dividends per share paid on the outstanding common stock and any stock dividends paid. As of December 31, 1995, there were 1,358 shareholders of record of common stock. Market and Dividend Summary
Dividend Date High Low Dividend March 1994 44.00 41.75 0.38 April 1994 2-for-1 stock split June 1994 24.00 21.25 0.20 September 1994 25.50 23.50 0.20 October 1994 2% Stock Dividend December 1994 31.00 25.00 0.20 March 1995 32.00 31.00 0.20 June 1995 34.25 32.00 0.20 September 1995 36.50 34.25 0.20 October 1995 2% Stock Dividend December 1995 39.50 36.50 0.20 Note: Per share data is adjusted to reflect a 2-for-1 stock split in 1994.
Bar Graph Depicting Common Stock Book and Market Value
Year Book Value Market Value 1991 15.70 13.25 1992 16.44 16.00 1993 17.80 21.00 1994 18.57 29.50 1995 20.66 39.50
Hill, Barth & King, Inc. Certified Public Accountants 255 East Market Street Warren, Ohio 44481 Telephone (216) 373-1737 FAX (216) 373-1861 January 25, 1996 Board of Directors Farmers National Banc Corp. Canfield, Ohio Independent Auditors' Report We have audited the accompanying consolidated balance sheets of Farmers National Banc Corp. and subsidiary as of December 31, 1995 and 1994 and the related consolidated statements of income, stockholders equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Farmers National Banc Corp. and subsidiary as of December 31, 1995 and 1994 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Hill, Barth & King, Inc. Certified Public Accountants CONSOLIDATED BALANCE SHEETS Farmers National Banc Corp. and Subsidiary December 31, 1995 and 1994
ASSETS 1995 1994 Cash and due from banks 14,766,117 11,525,724 Federal funds sold 14,630,000 2,983,000 TOTAL CASH AND CASH EQUIVALENTS 29,396,117 14,508,724 Securities available for sale - NOTE B 46,479,885 38,513,343 Securities held to maturity (fair value of 0 9,122,505 $9,434,831 for 1994) - NOTE C Other securities 852,900 370,500 Loans - NOTE D 232,159,670 217,734,346 Less allowance for credit losses - NOTE E 2,910,838 2,746,420 NET LOANS 229,248,832 214,987,926 Premises and equipment, net - NOTE F 5,563,232 4,121,382 Other assets 2,687,806 2,820,447 314,228,772 284,444,827 LIABILITIES AND STOCKHOLDERS EQUITY Deposits (all domestic): Noninterest-bearing 23,586,312 24,598,424 Interest-bearing - NOTE H 244,368,461 219,703,940 TOTAL DEPOSITS 267,954,773 244,302,364 Short-term borrowings: U.S. Treasury interest-bearing demand note 748,470 792,011 Securities sold under repurchase agreements 9,847,119 9,211,919 - NOTE I TOTAL SHORT-TERM BORROWINGS 10,595,589 10,003,930 Other liabilities and deferred credits 1,702,145 1,223,266 TOTAL LIABILITIES 280,252,507 249,388,904 Commitments and contingent liabilities - NOTE J Stockholders equity - NOTE K: Common Stock - $2.50 par value per share 4,111,398 3,892,480 Authorized 2,400,000 shares; issued and outstanding 1,644,559 in 1995 and 1,556,992 in 1994. Additional paid-in capital 16,059,118 13,300,977 Retained earnings 13,591,018 12,385,429 Unrealized appreciation (depreciation) on debt 214,731 (663,619) securities, net of applicable income taxes TOTAL STOCKHOLDERS EQUITY 33,976,265 28,915,267 314,228,772 284,444,827 See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME Farmers National Banc Corp. and Subsidiary Years Ended December 31, 1995,1994 and 1993
1995 1994 1993 INTEREST INCOME Interest and fees on loans 18,580,412 16,911,283 16,971,479 Interest and dividends on securities: Taxable interest 2,154,188 2,141,376 2,451,230 Nontaxable interest 435,332 423,123 394,980 Dividends 25,987 20,527 18,415 Interest on deposits with banks 3,447 0 5,844 Interest on federal funds sold 761,257 234,334 324,171 TOTAL INTEREST INCOME 21,960,623 19,730,643 20,166,119 INTEREST EXPENSE Deposits 9,199,760 7,694,588 8,450,275 Short-term borrowings 488,110 305,297 287,967 TOTAL INTEREST EXPENSE 9,687,870 7,999,885 8,738,242 NET INTEREST INCOME 12,272,753 11,730,758 11,427,877 Provision for credit losses 270,000 330,000 620,000 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 12,002,753 11,400,758 10,807,877 OTHER INCOME Service charges on deposit accounts 972,325 940,077 933,791 Investment security gains (losses) (197) 88,327 56,509 Other operating income 370,261 329,179 308,096 TOTAL OTHER INCOME 1,342,389 1,357,583 1,298,396 13,345,142 12,758,341 12,106,273 OTHER EXPENSES Salaries and employee benefits - NOTE L 4,127,380 3,748,069 3,543,575 Net occupancy expense of premises 540,242 466,006 464,014 Furniture and equipment expense, including 463,097 540,810 524,105 depreciation Federal deposit insurance 283,869 540,895 529,407 State and local taxes 439,918 389,988 347,613 Other operating expenses 2,264,407 2,069,623 2,064,535 TOTAL OTHER EXPENSES 8,118,913 7,755,391 7,473,249 INCOME BEFORE FEDERAL INCOME TAXES 5,226,229 5,002,950 4,633,024 FEDERAL INCOME TAXES - NOTE M 1,650,000 1,579,000 1,473,000 NET INCOME 3,576,229 3,423,950 3,160,024 NET INCOME PER SHARE 2.22 2.22 2.13 See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY Farmers National Banc Corp. and Subsidiary Years Ended December 31, 1995, 1994, and 1993
Years ended December 31, 1995 1994 1993 COMMON STOCK Balance at beginning of year 3,892,480 3,652,140 3,451,745 31,956 shares issued as a 2% stock dividend in 1995, 79,890 75,525 70,980 30,210 in 1994 and 14,196 in 1993, including fractional shares 55,611 shares sold in 1995, 57,973 in 1994 and 139,028 164,815 129,415 25,833 in 1993. Balance at end of year 4,111,398 3,892,480 3,652,140 ADDITIONAL PAID-IN CAPITAL Balance at beginning of year 13,300,977 11,260,621 9,893,789 Excess proceeds over par value of shares sold 1,735,549 1,360,631 877,070 Excess of fair value over par value of shares 1,022,592 679,725 489,762 issued as stock dividends, including fractional shares Balance at end of year 16,059,118 13,300,977 11,260,621 RETAINED EARNINGS Balance at beginning of year 12,385,429 10,896,312 9,352,933 Net income 3,576,229 3,423,950 3,160,024 Dividends declared: $.80 cash dividends per share in 1995, (1,268,158) (1,179,583) (1,055,903) $.98 in 1994 and $1.50 in 1993. Stock dividends (1,102,482) (755,250) (560,742) Balance at end of year 13,591,018 12,385,429 10,896,312 UNREALIZED APPRECIATION (DEPRECIATION) ON DEBT SECURITIES Balance at beginning of year (663,619) 187,006 0 Net change in unrealized appreciation (depreciation) 878,350 (850,625) 187,006 on debt securities, net of income taxes. Balance at end of year 214,731 (663,619) 187,006 TOTAL STOCKHOLDERS EQUITY AT END OF YEAR 33,976,265 28,915,267 25,996,079 See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS Farmers National Banc Corp. and Subsidiary Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Interest received 22,784,609 20,697,876 21,242,839 Fees and commissions received 1,342,586 1,291,231 1,260,112 Interes paid (9,399,584) (8,006,238) (8,869,251) Cash paid to suppliers and employees (7,792,000) (7,294,773) (7,106,554) Income taxes paid (1,685,000) (1,690,726) (1,803,603) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,263,411 4,997,370 4,723,543 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment 18,140,000 14,123,630 0 securities available for sale Proceeds from maturities of investment 2,343,086 5,966,905 20,072,870 securities held to maturity Proceeds from sales of securities available 1,999,687 4,081,530 0 for sale Proceeds from sales of securities held to 0 0 3,061,033 maturity Purchase of other securities and securities (18,114,267) (18,414,362) (17,526,244) available for sale Purchase of investment securities held to (2,639,035) (4,041,914) (10,528,788) maturity Net increase in loans made to customers (16,079,770) (14,615,389) (12,004,114) Purchase of premises and equipment (1,582,773) (343,288) (163,685) Purchase of other real estate 0 (164,433) (128,851) Proceeds from sale of other real estate 252,291 0 752,569 NET CASH USED IN INVESTING ACTIVITIES (15,680,781) (13,407,321) (16,465,210) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, NOW (3,148,523) 3,339,998 11,704,054 accounts and savings accounts Net increase (decrease) in time deposits 27,746,071 2,227,314 (5,121,729) Dividends paid (1,167,362) (999,957) (1,007,330) Proceeds from sale of common stock 1,874,577 1,525,446 1,006,485 NET CASH PROVIDED BY FINANCING ACTIVITIES 25,304,763 6,092,801 6,581,480 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,887,393 (2,317,150) (5,160,187) CASH AND CASH EQUIVALENTS Beginning of year 14,508,724 16,825,874 21,986,061 End of year 29,396,117 14,508,724 16,825,874 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income 3,576,229 3,423,950 3,160,024 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 379,012 379,224 375,036 Amortization and accretion 966,775 958,468 898,412 Provision for credit losses 270,000 330,000 620,000 Deferred income taxes (12,636) (197,613) (83,533) Gain on sale of investment securities 197 (88,327) (56,509) Other 83,834 191,668 (189,887) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,263,411 4,997,370 4,723,543 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS Supplemental schedule of noncash investing and financing activities: Unrealized loss on available for sale 67,517 1,005,950 34,016 securities Transfer of investment securities 4,663,982 0 39,827,141 available for sale Land exchanged for other borrowing 250,000 0 0 See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principals of Consolidation: The consolidated financial statements include the accounts of the company and its wholly-owned subsidiary, The Farmers' National Bank of Canfield. All significant intercompany balances and transactions have been eliminated. Nature of Operations: The company's wholly owned subsidiary, The Farmers National Bank of Canfield, operates under a national bank charter and provides full banking services. As a national bank, the Bank is subject to regulation of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The area served by the Bank is the northeastern region of Ohio and service is provided at nine (9) locations. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, due from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Securities Available for Sale: Securities available for sale are carried at fair value. Fair value is based on market price if available. If market price is not available, fair value is based on broker quotations. Deferred income taxes are provided on any unrealized appreciation or decline in value. Such appreciation or decline in value, net of deferred taxes, is reflected as a separate component of stockholders equity. The company does not utilize a trading account. Securities Held to Maturity: Securities held to maturity are carried at amortized cost. Premiums and discounts on debt securities held to maturity are amortized to expense and accreted to income over the life of the securities using the interest method. These securities are classified as held to maturity based on management's intent and the company's ability to hold such securities to maturity. Other Securities: Other securities include stock in the Federal Reserve Bank and the Federal Home Loan Bank and are recorded at amortized cost. Loans: Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest income is ordinarily discontinued when a loan becomes 90 days past due as to principal or interest; however, management may elect to continue the accrual when the estimated net realizable value of collateral is sufficient to cover the principal balance and the accrued interest. When interest accruals are discontinued, interest credited to income in the current year is reversed. When the loan is determined to be uncollectible, interest accrued in prior years and the principal are charged to the allowance for loan losses. This policy applies to the bank's installment, real estate and commercial and industrial loans. Loan Origination Fees and Costs: Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Impaired Loans: Impaired loans are classified according to the Financial Accounting Standards Board Statement 114, "Accounting by creditors for impairment of loans". Under this standard, the 1995 reserve for loan losses related to loans that are considered impaired would be based on discounted cash flows using the loan's initial effective interest rate and the fair value of the collateral for certain collateral dependent loans. At the present time, management did not have any loans it considers to be impaired. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Allowance for Credit Losses: the allowance for credit losses represent the amounts which, in management's judgment, are adequate to absorb charge-offs, of existing loans which may become uncollectible. The allowance is base on management's judgment taking into consideration past loss experience, reviews of individual credits, current economic conditions and other factors considered relevant by management at the financial statement date. While management uses the best information available to establish the allowance, future adjustments to the allowance may be necessary, which may be material, if economic conditions differ substantially from the assumptions used in estimating the allowances. If additions to the original estimate of the allowance for credit losses are deemed necessary, they will be reported in earning in the period in which they become reasonably estimable. Premises and Equipment: Premises and equipment are stated at cost. Depreciation is computed on the straight-line method. Income Taxes: Income taxes, based on filing a consolidated return with the company's subsidiary, are provided for amounts currently due and deferred amounts arising form temporary differences between the financial accounting and income tax basis of assets and liabilities. Deferred taxes are computed on the liability method as prescribed in Statement of Financial Accounting Standards (SFAS) no. 109, "Accounting for Income Taxes". Per Share Amounts: Earnings per share are based on weighted average shares outstanding. Average shares outstanding, per share amounts and reference to number of shares in notes to consolidated financial statements have been restated to give effect to stock dividends. Weighted average shares outstanding were 1,609,160 for 1995, 1,545,539 for 1994 and 1,486,513 for 1993. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE B - SECURITIES AVAILABLE FOR SALE Securities available for sale at December 31, 1995 and 1994 are summarized as follows:
1995 1994 U.S Treasury and U.S. Government agencies 31,691,768 28,966,063 Corporate debt securities 7,702,820 9,547,280 Obligations of states and political subdivisions 6,943,089 0 Collateralized mortgage obligations 142,208 0 TOTALS 46,479,885 38,513,343
Net unrealized gains (losses) for securities available for sale at December 31, 1995 and 1994 are summarized below:
December 31, 1995 Unrealized Unrealized Net Unrealized Gains Losses Gains (Losses) U.S. Treasury and U. S. Government Agencies 208,710 (53,309) 155,401 Corporate debt securities 59,924 (11,490) 48,434 Obligations of states and political subdivisions 120,542 (59) 120,483 Collateralized mortgage obligations 3,691 0 3,691 TOTALS 392,867 (64,858) 328,009 December 31, 1994 U.S. Treasury and U.S. Government Agencies 466 (785,396) (784,930) Corporate debt securities 0 (220,554) (220,554) TOTALS 466 (1,005,950) (1,005,484)
The fair value and book value of securities available for sale by contractual maturities at December 31, 1995 are summarized below: Fair Value Book Value Due in one year or less 12,840,773 12,839,599 Due in one year through five years 26,878,711 26,631,845 Due after five years through ten years 1,896,580 1,837,025 Due after ten years 4,863,821 4,843,407 TOTALS 46,479,885 46,151,876
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE B - SECURITIES AVAILABLE FOR SALE (CONTINUED) Proceeds from sale of a security available for sale were $1,199,687 at December 31, 1995. A loss of $197 was realized on this sale. Securities with a carrying value of $28,000,000 at December 31,1995 and $26,000,000 at December 31,1994 were pledged to secure deposits in accordance with federal and state requirements and to secure repurchase agreements sold. During December 1995, the Bank transferred its portfolio of securities held-to-maturity to the available-for-sale classification. The transfer was made upon adoption of the Special Report "A Guide To Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board. The amortized cost of the transferred securities was $4,543,695 and the related unrealized gain was $120,287. NOTE C - SECURITIES HELD TO MATURITY The book value and fair value of securities classified as held to maturity at December 31, 1994 are as follows:
BOOK VALUE FAIR VALUE U.S. Treasury and U.S.Government agencies 921,377 847,759 Obligations of states and political subdivisions 8,013,420 8,043,862 Collateralized mortgage obligations 187,708 172,710 TOTALS 9,122,505 9,064,331
Unrealized gains and losses for securities held to maturity at December 31, 1994 are summarized as follows:
UNREALIZED UNREALIZED NET UNREALIZED GAINS LOSSES GAINS (LOSSES) U.S. Treasury and U.S.Government agencies 0 (73,618) (73,618) Obligations of states and political subdivisions 49,680 (19,238) 30,442 Collateralized mortgage obligations 0 (14,998) (14,998) TOTALS 49,680 (107,854) (58,174) Proceeds from early maturities of callable securities classified as held to maturity were $522,675 in 1994. Gross gains of $17,675 were realized on these early maturities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE D - LOANS Following is a summary of loans:
December 31, 1995 1994 Real estate 98,677,572 92,773,065 Installment 110,805,473 100,483,979 Commercial and Industrial 22,676,625 24,477,302 TOTAL LOANS 232,159,670 217,734,346 Nonperforming loans have not been separately classified because such loans are not material compared to total loans and nonaccrued interest is not material in relation to net income.
NOTE E - ALLOWANCE FOR CREDIT LOSSES Following is an analysis of changes in the allowance for credit losses for the years ended December 31:
1995 1994 1993 Balance at beginning of year 2,746,420 2,620,741 2,273,870 Additions: Provision for credit losses 270,000 330,000 620,000 Recoveries on loans previously charged off 170,879 183,050 162,569 TOTAL ADDITIONS 3,187,299 3,133,791 3,056,439 Credits charged off (276,461) (387,371) (435,698) Balance at end of year 2,910,838 2,746,420 2,620,741 The allowance for federal income tax purposes amounted to $752,962 at December 31, 1995, which is $2,157,856 less than the allowance for financial accounting purposes.
NOTE F - PREMISES AND EQUIPMENT Following is a summary of premises and equipment:
December 31, 1995 1994 Land 1,180,876 816,515 Premises 4,780,574 3,768,748 Equipment 3,803,326 3,286,271 Leasehold improvements 178,123 293,166 9,942,899 8,164,700 Less accumulated depreciation 4,379,666 4,043,318 NET BOOK VALUE 5,563,232 4,121,382 Depreciation expense was $379,012 for the year ended December 31,1995, $379,224 for 1994 and $375,036 for 1993.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE G - BRANCH ACQUISITION In September of 1995, the bank subsidiary acquired the fixed assets, certain loans, deposits and related accruals of the Leetonia branch of Bank One. Total assets acquired were $351,485. Liabilities assumed exceeded assets by $6,060,782, which was received in cash. The acquisition cost of the branch exceeded the book value of net assets by $373,422 which has been recorded as goodwill and is included in other assets in the accompanying balance sheet. Proforma consolidated financial information for the branch acquisition is not included because it was not a purchase of complete business. NOTE H - INTEREST-BEARING DEPOSITS Following is a summary of certificates of deposit of $100,000 or more by remaining maturities as of December 31, 1995: Three months or less 2,317,427 Three to six months 3,522,663 Six to twelve months 8,803,990 Over twelve months 3,776,170 TOTAL 18,420,250 NOTE I - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND UNUSED LINES OF CREDIT The bank subsidiary enters into sales of securities under repurchase agreements (reverse repurchase agreements). Securities underlying the agreements are U.S. Government securities with a book value including accrued interest of $12,819,579 for the year ended December 31, 1995 and $10,941,647 for 1994. The market value was $12,829,848 for 1995 and $10,556,926 for 1994. At December 31, 1995, these agreements had a weighted average interest rate of 4.45% and will mature January through March 1996. The securities, although held in safekeeping outside the bank subsidiary, were under the bank subsidiary's control. Securities sold under repurchase agreements averaged $9,498,008 in 1995 and $8,329,370 in 1994. Maximum amounts outstanding at any month end during 1995 and 1994 were $11,849,736 and $10,381,008, respectively. The bank subsidiary has access to short term credit facilities at the Federal Home Loan Bank, which totaled $4,216,590 at December 31, 1995, and if used would require collateralization. No amounts were used as of December 31, 1995. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE J - COMMITMENTS AND CREDIT RISK The bank subsidiary utilizes equipment and conducts certain of its branch operations under noncancelable operating leases extending to 1999. The building leases include options for renewal in five to ten year increments. Rental expense charged to operations totaled $120,750 for 1995, $94,106 for 1994 and $99,111 for 1993. Following is a summary of future minimum rental payments under operating leases that have initial or remaining noncancelable terms in excess of one year as of December 31, 1995: Year ending: December 31, 1996 85,728 December 31, 1997 85,728 December 31, 1998 56,720 December 31, 1999 30,000 TOTAL 258,176 The bank subsidiary maintains deposit at various banks for services such as check clearing. Such deposits, which are not legally restricted form withdrawal, amounted to $4,178,000 at December 31, 1995. The bank subsidiary is a part to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the bank subsidiary has in particular classed of financial instruments. The bank subsidiary's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represent by the contractual notional amount of those instruments. The bank subsidiary uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. CONTRACT OR NOTIONAL AMOUNT Financial instruments whose contract amounts represent credit risk: Commitments to extend credit 9,868,007 Standby letters of credit and financial guarantees written 123,604 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The bank subsidiary evaluates customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the bank subsidiary upon extension of credit, is base on management's credit evaluation of the counter-party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income producing commercial properties. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE J - COMMITMENTS AND CREDIT RISK (CONTINUED) Standby letters of credit and financial guarantees written are conditional commitments issued by the bank subsidiary to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Most of the bank subsidiary's business activity is with a diversified customer base located within Mahoning and Columbiana Counties in Ohio. The concentrations of credit by type of loan are presented in Note D. NOTE K - REGULATORY MATTERS The bank subsidiary, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. The Comptroller of the Currency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). As of December 31, 1995, the bank subsidiary had $6,681,283 of retained earnings available for distribution and $9,638,228 not available for distribution to the company as dividends without prior approval of the Comptroller of the Currency. The bank subsidiary is also required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31,1995, the bank subsidiary is required to have minimum Tier 1 and Total Capital ratios of 4.00% and 8.00%, respectively. The bank subsidiary's actual Tier 1 and Total Capital ratios at that date were 15.58% and 16.84% respectively. The bank subsidiary's leverage ratio at December 31, 1995 was 10.69%. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE L - PENSION PLAN The bank subsidiary has a noncontributory defined benefit pension plan covering substantially all employees. Normal retirement age is 65. Benefit payments for normal retirement are base on a percentage of employees' average monthly compensation during the last five years of employment. Funding of the plan, which is invested principally in domestic bank certificates of deposit, is based upon current service cost plus amortization of past service cost over 15 years. The company's funding policy is to generally contribute annually the maximum amount that can be deducted for federal income tax purposes. Pension expense in 1995, 1994 and 1993 was $156,253, $183,157, and $180,836 respectively. The components of pension expense are as follows:
Years ended December 31, 1995 1994 Service cost 132,605 145,518 Interest cost 134,030 138,907 Return on assets (39,659) (168,933) Other (70,723) 67,665 TOTALS 156,253 183,157
Following is the funded status of the plan:
Years ended December 31, 1995 1994 Actuarial present value of benefit obligations: Vested benefit obligation 1,557,215 1,868,684 Accumulated benefit obligation 1,573,680 1,887,156 Projected benefit obligation (2,119,606) (2,383,023) Plan assets at fair value 1,738,082 2,127,866 Projected benefit obligation in excess of plan assets (381,524) (255,157) Unrecognized transition gain (9,070) (10,582) Unrecognized prior service cost (70,006) (65,178) Unrecognized net loss 529,188 380,304 Prepaid pension cost 68,588 49,387
Assumptions used to develop the net periodic pension cost were: December 31, December 31, 1995 1994 Assumed discount rate 6.25% 6.25% Assumed rate of compensation increase 4.00% 4.00% Expected rate of return on plan assets 6.25% 6.25% NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE M - FEDERAL INCOME TAXES The provision for income taxes (credit) consists of the following:
Years ended December 31, 1995 1994 1993 Current 1,662,636 1,776,613 1,556,553 Deferred (12,636) (197,613) (83,553) TOTALS 1,650,000 1,579,000 1,473,000
Following is a reconciliation between federal income taxes at statutory rates and actual taxes base on income before federal income taxes:
Years ended December 31, 1995 1994 1993 Amount Percent of Amount Percent of Amount Percent of pretax income pretax income pretax income Statutory tax 1,829,180 35% 1,751,050 35% 1,621,558 35% Effect of nontaxable interest (152,360) (3) (148,100) (3) (134,293) (3) Other (26,820) 0 (23,950) 0 (14,265) 0 ACTUAL TAX 1,650,000 32% 1,579,000 32% 1,473,000 32%
Deferred taxes (credit) result from certain temporary differences in the recognition of income and expenses for financial reporting and income tax purposes. The sources and tax effects of significant temporary differences are as follows:
Years ended December 31, 1995 1994 1993 Depreciation 17,176 1,330 5,387 Provision for credit losses (57,546) (137,931) (22,736) Deferred loan fees and origination costs 29,038 (59,708) (64,899) Other (1,304) (1,304) (1,305) TOTALS (12,636) (197,613) (83,553)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE M - FEDERAL INCOME TAXES (CONTINUED) Deferred tax liabilities (assets) are comprised of the following as of December 31:
Deferred tax asset: 1995 1994 Allowance for credit losses (720,279) (664,377) Deferred loan fee income (169,733) (244,063) Mark-to-market adjustment - securities 0 (341,865) available for sale Gross deferred tax assets (890,012) (1,250,305) Deferred tax liabilities: Depreciation 376,428 356,216 Prepaid loan origination costs 100,005 150,007 Mark-to-market adjustment - securities 110,619 0 available for sale Other 23,515 24,790 Gross deferred tax liabilities 610,567 531,013 (279,445) (719,292) No valuation allowance for deferred tax assets was recorded at December 31, 1995. Federal income taxes applicable to investment securities gains were $70 for 1995, $30,100 for 1994 and $19,200 for 1993.
NOTE N - LOANS TO RELATED PARTIES Certain directors, executive officers and associates of such persons were loan customers during 1995. Such loans were made in the ordinary course of business under normal credit terms and do not represent more that a normal risk of collection. Following is an analysis of the amount of loans in which the aggregate of the loans to any such person exceeded $60,000 during 1995: Total loans at December 31, 1994 866,748 New loans 60,000 Repayments 121,812 Total loans at December 31, 1995 804,936 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE O - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments at December 31, 1995: Cash and cash equivalents: The carrying amounts in the consolidated balance sheets of cash and cash equivalents approximates their fair value. Investment securities: The fair value of securities available for sale and held to maturity equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans: For certain homogeneous categories of loans, such as credit card receivables, and other consumer loans, fair value is estimated using the quoted market prices for similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be make to borrower with similar credit rating and for the same remaining maturities. Deposits: The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Securities sold under repurchase agreements: The carrying amount for securities sold under repurchase agreement approximates their fair value. Short term borrowings: The carrying amounts of short-term borrowings approximates their fair value. Commitments to extend credit, standby letters of credit and financial guarantees written: The fair value of commitments is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE O - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The estimated fair values of the company's financial instruments as of December 31, 1995 and 1994 are as follows:
1995 1994 CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE Financial assets: Cash and cash equivalents 29,396,117 29,396,117 14,508,724 14,508,724 Investment securities: Available for sale 46,479,885 46,601,970 38,513,343 38,513,343 Held to maturity 0 0 9,122,505 9,064,331 Other securities 852,900 852,900 370,500 370,500 Loans - Net 229,248,832 229,711,573 214,987,926 211,267,542 TOTAL FINANCIAL ASSETS 305,977,734 306,562,560 277,502,998 273,724,440 Financial liabilities: Deposits 267,954,773 269,381,383 244,302,364 244,740,039 Securities sold under repurchase agreements 9,847,119 9,847,119 9,211,919 9,211,919 Short term borrowings 748,470 748,470 792,011 792,011 TOTAL FINANCIAL LIABILITIES 278,550,362 279,976,972 254,306,294 254,743,969 Unrecognized financial instruments: Commitments to extend credit 9,868,007 9,868,007 7,407,313 7,407,313 Standby letters of credit and financial 123,604 123,604 615,763 615,763 guarantees
NOTE P - CONDENSED FINANCIAL INFORMATION Below is condensed financial information of Farmers National Banc Corp. (parent company only). In this information, the parent's investment in bank subsidiary is stated at cost plus equity in undistributed earning of the subsidiary since acquisition. This information should be read in conjunction with the consolidated financial statements and related notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE P - CONDENSED FINANCIAL INFORMATION (CONTINUED)
BALANCE SHEETS December 31, 1995 December 31, 1994 Assets: Cash 692,398 639,734 Receivables 7,918 7,918 Investment in bank subsidiary 33,756,098 29,526,621 34,456,414 30,174,273 Liabilities: Accounts payable 694,880 595,387 Stockholders equity Common stock 4,111,398 3,892,480 Additional paid-in capital 16,059,118 13,300,977 Retained earnings 13,591,018 12,385,429 TOTAL STOCKHOLDERS EQUITY 33,761,534 29,578,886 34,456,414 30,174,273
STATEMENTS OF INCOME
Years ended December 31,1995 December 31, 1994 December 31, 1993 Income from subsidiary: Dividends 1,267,017 1,283,911 1,060,199 Equity in undistributed net income 2,354,903 2,188,157 2,138,095 TOTAL INCOME FROM SUBSIDIARY 3,621,920 3,472,068 3,198,294 Other expenses (45,691) (48,118) (38,270) NET INCOME 3,576,229 3,423,950 3,160,024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Farmers National Banc Corp. and Subsidiary December 31,1995, 1994, and 1993 NOTE P - CONDENSED FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
Years ended December 31, December 31, December 31, 1995 1994 1993 Cash flows from operating activities: Net income 3,576,229 3,423,950 3,160,024 Adjustments to reconcile net income to net cash provided by operating activities Increase (decrease) in deferred director (1,302) (1,233) (1,293) fees Income from subsidiary (3,621,920) (3,472,068) (3,198,294) Dividends received from subsidiary 1,267,017 1,283,911 1,060,199 NET CASH PROVIDED BY OPERATING ACTIVITIES 1,220,024 1,234,560 1,020,636 Cash flows from investing activities: Investment in subsidiary (1,874,575) (1,525,446) (1,006,485) NET CASH USED IN INVESTING ACTIVITIES (1,874,575) (1,525,446) (1,006,485) Cash flows from financing activities: Dividends paid (1,167,362) (999,957) (1,007,330) Proceeds from sale of common stock 1,874,577 1,525,446 1,006,485 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 707,215 525,489 (845) NET INCREASE IN CASH 52,664 234,603 13,306 CASH Beginning of year 639,734 405,131 391,825 End of year 692,398 639,734 405,131
NOTE Q - RECLASSIFICATIONS Certain items for 1994 and 1993 have been reclassified to conform with the 1995 presentation. Such reclassifications had no effect on retained earnings or stockholders equity as previously reported. Drawing of Map of Ohio Highlighting Branch Locations MAIN OFFICE 20 S. Broad St., Canfield, OH 44406 533-3341 AUSTINTOWN 22 N. Niles-Canfield Rd. Youngstown, OH 44515 792-1411 COLONIAL PLAZA 401 E. Main St. Canfield, OH 44406 533-2686 CORNERSBURG 3619 S. Meridian Rd. Youngstown, OH 44511 793-3971 LAKE MILTON 17817 Mahoning Ave. Lake Milton, OH 44429 654-3351 SALEM 1858 E. State St. Salem, OH 44460 332-1558 WESTERN RESERVE 102 W. Western Reserve Rd. Youngstown, OH 44514 726-8896 COLUMBIANA 340 State Rt. 14 Columbiana, OH 44408 482-1974 LEETONIA 16 Walnut St. Leetonia, OH 44431 427-2436 EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000709337 FARMERS NATIONAL BANC CORP 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 14,766 0 14,630 0 46,480 853 853 232,160 2,911 314,229 267,955 11,596 1,701 0 0 0 20,171 13,806 314,229 18,580 3,381 0 21,961 9,200 9,688 12,273 270 0 8,119 5,226 5,226 0 0 3,576 2.22 2.22 7.88 125 1,384 75 0 2,746 276 171 2,911 2,911 0 0
EX-20 4 SCHEDULE 14A-INFORMATION REQUIRED IN PROXY STATEMENT (Last amended in Exch Act Rel No. 35113, Eff. 1/30/95.) SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e) (2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 _________________________Farmers National Banc Corp._________________________ (Name of Registrant as Specified in its Charter) _____________________________________________________________________________ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ............................................................................ 2) Aggregate number of securities to which transaction applies: ............................................................................ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ............................................................................ 4) Proposed maximum aggregate value of transaction: ............................................................................ 5) Total fee paid: ............................................................................ [X] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ............................................................................ 2) Form, Schedule or Registration Statement No.: ............................................................................ 3) Filing Party: ............................................................................ 4) Date Filed: ............................................................................ (Amended by Exch Act Rel No. 35113, eff 1/30/95.) FARMERS NATIONAL BANC CORP 20 SOUTH BROAD STREET CANFIELD, OHIO 44406 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS March 4, 1996 TO THE HOLDERS OF SHARES OF COMMON STOCK: NOTICE IS HEREBY GIVEN that pursuant to call of its Directors, the regular annual meeting of the Shareholders of FARMERS NATIONAL BANC CORP, Canfield, Ohio will be held at Colonial Catering located at 429 Lisbon Street, Canfield, Ohio on Thursday March 28, 1996, at four-thirty o'clock (4:30) P.M., Eastern Standard Time, for the purpose of considering and voting upon the following matters: (1) ELECTION OF DIRECTORS. Fixing the number of Directors to be elected at eight (8) and the election of the eight (8) persons listed in the accompanying Proxy Statement. (2) AMENDMENT TO ARTICLE IV. Increasing the authorized number of shares to 5,000,000 shares of stock with no par value from 2,400,000 shares of stock with a par value of $2.50 per share. (3) SUCH OTHER BUSINESS as may properly come before the meeting or any adjournment thereof. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE (whether or not you plan to attend the meeting in person). IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE. Only those shareholders of record at the close of business on February 28, 1996 shall be entitled to notice of meeting and to vote at the meeting. BY ORDER OF THE BOARD OF DIRECTORS WILLIAM D. STEWART, PRESIDENT FARMERS NATIONAL BAN C CORP CANFIELD, OHIO 44406 PROXY STATEMENT ANNUAL MEETING OF SH AREHOLDERS MARCH 28, 1996 Farmers National Banc Corp, herein referred to as "Farmers" or the "Corporation" is furnishing this Proxy Statement to its shareholders in connection with the solicitation, by order of the Board of Directors of Farmers, of proxies to be used at the Annual Meeting of Shareholders to be held on Thursday, March 28, 1996 at 4:30 P.M., Eastern Standard Time, at Colonial Catering, 429 Lisbon Street, Canfield, Ohio 44406, and at any adjournments thereof. The cost for solicitation of proxies will be borne by Farmers. Brokerage firms and other custodians, nominees and fiduciaries may be requested to forward soliciting material to their principals and to obtain authorization for the execution of proxies. Farmers will, upon request, reimburse brokerage firms, and other custodians, nominees and fiduciaries for the execution of proxies and for their expenses in forwarding proxy material to their principals. The proxy statements and the form of proxy are being mailed on March 4, 1996 or as soon thereafter as practicable to all shareholders entitled to vote at the meeting. In addition to the use of mails, proxies may be solicited by officers, directors and employees of Farmers by personal interview, telephone and telegraph. VOTING RIGHTS Only shareholders of record at the close of business on February 28, 1996 will be entitled to vote at the meeting. As of February 28, 1996, Farmers had issued and outstanding 1,644,559 shares of common stock with a par value of $2.50 per share. Each outstanding share entitles the recordholder to one vote. The number of shares present at the meeting in person or by proxy will constitute a quorum for the transaction of business. It is important that your stock be represented at the meeting regardless of the number of shares you may own. We would appreciate your signing and returning the enclosed proxy. The shares represented by each proxy, which is properly executed and returned to Farmers, will be voted in the manner described in this proxy statement and the proxy. In the absence of instructions, the proxy will be voted "FOR" the election of the eight (8) persons listed and "FOR" the amendment to Article IV as stated in this Proxy Statement. The proxy may be revoked at any time prior to its exercise, by delivering notice of revocation or a duly executed proxy bearing a later date to the Treasurer of the Corporation at any time before the proxy is voted. Shareholders who attend the meeting in person may vote their stock even though they may have sent in a proxy. No officer or employee of Farmers may be named as a proxy. If you received two or more proxy forms because of difference in addresses or registration of shareholdings, each should be executed and returned in order to assure a complete tabulation of all shares. The Corporation will appoint two officers to act as inspectors for purposes of tabulating the votes cast by proxy. Broker non-votes and abstentions are not treated as votes cast for purposes of any of the matters to be voted on at the meeting. The Annual Report of Farmers for the calendar year 1995 has been mailed to Shareholders. THE FORM 10-K ANNUAL REPORT TO THE SECURITIES & EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE UPON WRITTEN REQUEST TO RICHARD L. CALVIN, EXECUTIVE VICE PRESIDENT AND TREASURER, FARMERS NATIONAL BANC CORP, 20 SOUTH BROAD STREET, PO BOX 555, CANFIELD, OHIO 44406. PROPOSAL TO AMEND ARTICLES OF INCORPORATION: AMEND ARTICLE IV TO INCREASE AUTHORIZED SHARES TO 5,000,000 NEW PARAGRAPH: Among the proposals to be submitted to the shareholders for approval at the Annual Meeting is the proposed amendment to Article IV of the Amended Articles of Incorporation of the Corporation, which would increase the number of authorized shares from 2,400,000 shares of $2.50 par value common stock to 5,000,000, all of which would be without par value. The availability of additional authorized and unissued shares, which could be issued by the Board into friendly hands for the purpose of diluting a potential acquiror's ownership of the Corporation, would have an anti-takeover effect. Moreover, the issuance of all or any part of the additional authorized and unissued shares, unless made on a pro-rata basis to all existing shareholders, would have the effect of diluting the ownership interest of existing shareholders. Although the Board believes the availability of additional authorized and unissued shares would afford management and the Board greater flexibility in meeting future capital needs of the Corporation, the Board has no current plans for the issuance of any common shares to any person or entity for any purpose. Farmers' Amended Articles of Incorporation (the "Articles") presently authorize the issuance of 2,400,000 shares of $2.50 par value common stock, of which 1,644,559 shares were issued and outstanding as of December 31, 1995. The Board of Directors believes that an increase in the number of authorized shares to 5,000,000 would be in the best interest of Farmers and its shareholders. The authorization of additional shares in the Articles of Incorporation will in no way affect the rights of current shareholders. The existing voting rights, dividend rights, redemption rights and similar rights of shareholders will in no way be affected by the proposed amendment to the Articles of Incorporation. The Board unanimously recommends adoption by the shareholders of the following resolution: BE IT RESOLVED: that Article IV of the Amended Articles of Incorporation of the Corporation be amended to read in its entirety as follows: The aggregate number of common shares which the corporation shall have the authority to issue is Five Million (5,000,000) shares each of no par value. The total number of authorized and outstanding shares of common stock shall be changed from time to time to reflect economic conditions of the corporation and business opportunities available to the shareholders of the corporation. Shares of the authorized and outstanding common stock may be redeemed by the corporation at a regularly or specially called meeting for said purpose. Furthermore, the corporation, through its Board of Directors, shall have the power to purchase, hold, sell, and transfer the shares of its capital, except where otherwise permitted by law, and provided further that shares of its own capital stock belonging to it are not voted upon directly or indirectly. Adoption of the foregoing resolution by the shareholders will enable the Board of Directors to continue issuing additional shares through Farmers' Dividend Reinvestment Plan and afford the Board additional corporate flexibility. ADOPTION OF THE PROPOSED AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO THIRDS (2/3) OF THE COMMON SHARES. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT. ELECTION OF DIRECTORS Pursuant to the Code of Regulations, the authorized number of directors of Farmers has been set at eight (8). The Board of Directors has nominated the eight (8) persons named below to serve as directors until the next Annual Meeting or until their earlier death, resignation or removal from office. Each of the eight (8) nominees is presently a member of the Board of Directors and has consented to serve another term as director if re-elected. If any of the nominees should be unavailable to serve for any reason (which is not anticipated), the Board of Directors may designate a substitute nominee or nominees (in which case the persons named on the enclosed proxy card will vote all valid proxy cards for the election of such substitute nominee or nominees), allow the vacancy or vacancies to remain open until a suitable candidate or candidates are located, or by resolution provide for a lesser number of directors. INFORMATION WITH RESPECT TO NOMINEES Certain information in the following tabulation has been furnished to Farmers by the respective nominees for director. Shares Owned Name Principal Occupation Beneficially Age And Five Year at 12/31/95 & Director Since(A) Business Experience % of Class (B) - ---------------------------------------------------------------------- Benjamin R. Brown President and Owner, Castruction 13,094 Age 50 Company, incorporated in 1965 - .80% Director - 1991 designs and manufactures pre-cast shapes and associated products for the steel industry. Richard L. Calvin Executive Vice President/Cashier 17,888 Age 69 of Farmers National Bank since 1972 1.09% Director - 1975 Executive Vice President/Treasurer of Farmers National Banc Corp-1983 Joseph O. Lane Owner and President of Lane Funeral 36,835 Age 71 Homes, Inc. since 1950, Lane Life 2.24% Director - 1965 Paramedics, Inc. and Lane Monument Co. - operates three funeral homes, and EMT and ambulance service. David C. Myers Co-owner of Myers Equipment Company 11,680 Age 67 since 1955 - sales of truck equipment .71% Director - 1988 and school buses. Mr. Myers operates a 2000 acre farm since 1946. Edward A. Ort President of Ort Furniture Mfg Co. 2,701 Age 66 since 1973 - manufacture of upholstered .16% Director - 1993 furniture which is shipped to retail furniture stores in northeastern United States since 1957. Frank L. Paden EVP/Sr. Loan Officer of Farmers National 3,774 Age 44 Bank since 1995. Executive Vice Pres. .23% Director - 1992 of Farmers National Banc Corp. since 1995. Previously, Sr. Vice Pres./Loan Dept. Mgr. of Farmers National Bank since 1991. William D. Stewart President of Farmers National Bank 14,288 Age 66 since 1972, President & Secretary of .87% Director - 1972 Farmers National Banc Corp since 1983. Ronald V. Wertz President since 1981 and Director 11,133 Age 48 since 1974 of Boyer Insurance Inc. - .68% Director - 1989 provides risk management analysis and policies for individuals, families and business insurance plans, including property, liability, health, life and bonding. (A) Includes the period served as a director of The Farmers National Bank of Canfield prior to its reorganization into a wholly owned subsidiary of this Corporation. (B) Beneficial Ownership includes those shares over which the nominee has either sole or shared voting and/or investment powers, such as beneficial interest of a spouse, children, grandchildren or business affiliates. There are no family relationships between any of the above named nominee-directors or any of the principal officers of Farmers. FIVE PERCENT EQUITY SECURITY OWNERS At the record date, no persons or groups (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) owned of record, or to the Corporation's knowledge owned beneficially, 5% or more of the Corporation's outstanding stock. SECURITY OWNERSHIP OF MANAGEMENT The total shares held beneficially by Directors, Nominees and Executive Officers as a group (113,490) is 6.90% of shares issued and outstanding as of December 31, 1995. COMMITTEES OF THE BOARD OF DIRECTORS At the Directors' organizational meeting, held immediately following the last annual shareholders' meeting of The Farmers National Banc Corp, held on March 30, 1995, the following committees were appointed by the Chairman: EXECUTIVE COMPENSATION AND EMPLOYEES SALARY COMMITTEE: Joseph O. Lane, Chairman; Benjamin R. Brown, David C. Myers, Edward A. Ort and Ronald V. Wertz. EXAMINING COMMITTEE: David C. Myers, Chairman; Benjamin R. Brown, Edward A. Ort and Ronald V. Wertz. DISCOUNT COMMITTEE: William D. Stewart, Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, Frank L. Paden and Ronald V. Wertz. BUILDING COMMITTEE: Richard L. Calvin, Chairman; Ad Hoc. LONG RANGE AND STRATEGIC PLANNING: William D. Stewart, Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, Frank L. Paden and Ronald V. Wertz. NOMINATING COMMITTEE: William D. Stewart, Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, Frank L. Paden, and Ronald V. Wertz. RISK MANAGEMENT AND INSURANCE COMMITTEE: Ronald V. Wertz, Chairman; Benjamin R. Brown, Richard L. Calvin and Gene Dean, Comptroller. The Executive Compensation and Employees Salary Committee reviews the compensation of the official staff and makes recommendations regarding all employee benefits to the Board of Directors. This committee met one time in 1995. The Examining Committee directs the activities of the internal audit staff, reviews the internal auditor's reports, reviews all examinations of the Comptroller of the Currency and makes recommendations to the Board regarding the engagement of an external auditing firm to perform the annual audit and prepare income tax returns. This committee met four times during 1995. The Discount Committee meets weekly to review all loans made during the previous week and to approve all loan commitments which are either above the assigned lending limits of the loan officers or are not in keeping with existing bank policy. The Nominating Committee makes decisions with respect to: (a) nominees for election as director at the annual meeting of shareholders; (b) nominees to fill Board vacancies between annual meetings; and (c) the composition of membership of the various other standing committees. This committee did not meet in 1995. The Building Committee oversees site selection, office additions and modifications. The committee did not specifically meet in 1995, however, the chairman did report to the directors at other meetings. The Long Range and Strategic Planning Committee is responsible for formulation and implementation of the Strategic Plan for the operation of the Corporation. This committee met once in 1995. The Risk Management and Insurance Committee is responsible for reviewing coverage and protection levels of insurance maintained by the Bank. This committee met once in 1995. During 1995, each director standing for re-election was present for more than 75% of the combined number of meetings of the Board of Directors and of each committee of the Board on which such director served. There were twelve regular and seven special meetings of the Board of Directors in 1995. Members of the Board of Directors receive $300.00 for each board meeting they attend, and $200.00 for each committee meeting they attend with the exception of inside directors who receive no compensation for committee meetings. NOTE: THE ABOVE COMMITTEES ARE COMMITTEES OF THE FARMERS NATIONAL BANK OF CANFIELD (the Bank), A WHOLLY OWNED SUBSIDIARY OF FARMERS NATIONAL BANC CORP. CURRENTLY, THE MEMBERS OF FARMERS' BOARD OF DIRECTORS ALSO SERVE AS THE DIRECTORS OF THE BANK, AND ATTEND BOARD MEETINGS FOR BOTH FARMERS AND THE BANK. ALTHOUGH THESE MEETINGS ARE CONDUCTED SEPARATELY ON THE SAME DAY, A MEMBER RECEIVES COMPENSATION (WHICH IS PAID BY FARMERS) FOR ONLY ONE MEETING. CONSEQUENTLY, MEMBERS ATTENDING A MEETING OF THE BOARDS OF BOTH FARMERS AND THE BANK ON A SINGLE DAY ARE CREDITED WITH ONE BOARD MEETING FOR ATTENDANCE AND COMPENSATION PURPOSES. RETIREMENT PENSION PLAN The following table sets forth the estimated benefits payable on retirement to eligible employees, including all executive officers under The Farmers National Bank of Canfield Salaried Employees Pension Plan ("Pension Plan"), a Defined Benefit Plan. The Pension Plan provides for a monthly benefit based upon the highest average monthly compensation, as actually paid, for the highest five consecutive years of service to termination of employment. The formula is 30% of compensation, reduced 1/20 for each year of service less than twenty, plus 20% of compensation in excess of Social Security base, reduced 1/30 for each year of service less than thirty, at normal retirement age. The Summary Compensation Table shown elsewhere does reflect the compensation which is used to calculate the benefit as stated. The table below sets forth the annual benefits payable under the Pension Plan to employees assuming they reached the normal retirement age (age 65) on November 1, 1995. PENSION PLAN DISCLOSURE TABLE Final Average Years of Credited Service Earnings ($) 15 20 25 30 35 . 70,000 20,478 27,304 28,880 30,456 30,456 90,000 26,978 35,971 38,213 40,456 40,456 110,000 33,478 44,637 47,547 50,456 50,456 130,000 39,978 53,304 56,880 60,456 60,456 The amounts shown in the foregoing table represent the annual benefit payable to an employee for life on a ten year certain basis and reflect the Social Security integration provisions of the Pension Plan. Optional forms of payment of benefit may commute or reduce the amount shown in the table. The Executive Officers that remain active participants in the plan have approximate years of credited service as of November 1, 1995 for Pension Plan purposes as follows: Frank L. Paden, 22; Barbara C. Fisher, 20; Mark L. Graham, 18; Donald F. Lukas, 18; Bradley S. Henderson, 15; Anthony F. Peluso, 10; Carl D. Culp, 7. For the Plan Year beginning November 1, 1995 there were 114 eligible Plan Participants, net of terminations, including the Auxiliary Fund. SUMMARY COMPENSATION TABLE LONG TERM ANNUAL COMPENSATION COMPENSATION (a) (b) (c) (d) (e) (f) (g) (h) (i) Other All Name Annual Other and Compen- Compen- Principal sation sation Position Year Salary($) Bonus($) ($) ($) - ------------------------------------------------------------------------------ W.D. Stewart 1995 $118,727 $2,000 $3,861 N/A N/A President 1994 107,950 2,000 1,505 1993 99,860 2,000 1,544 Listed is the total compensation paid by the Corporation's subsidiary, The Farmers National Bank of Canfield during the latest fiscal year to the named person(s) for services in all capacities, specifically setting forth the direct compensation to the President. No other executive officer of Farmers receives total annual salary and bonus in excess of $100,000. In 1991, as a result of certain changes in the Internal Revenue Code, the Bank's pension plan was amended to reduce significantly the benefits of several key employees, including those of Mr. Stewart. As a result the Bank has entered into Deferred Compensation Agreements with certain of its executive officers, including Mr. Stewart. Under the terms of Mr. Stewart's Deferred Compensation Agreement he will receive monthly payments of $1,665.00 for a period of two hundred and four (204) months, commencing with his retirement at the age of 65. This Agreement also provides that Mr. Stewart will be available to perform consulting services for the Bank during the period he is receiving these payments, and prohibits him from entering into competition with the Corporation during that same period. In the event that any payments should still remain due and payable to Mr. Stewart under the Agreement at the time of his death, those payments would be made to his surviving spouse. In the event that any payment should still remain due and payable to either Mr. Stewart or his spouse under the Agreement at the death of the survivor of them, those payments would be reduced to their then present value at a predetermined rate of interest and paid to the estate of the survivor in a lump sum. Payments will be prorated in the event Mr. Stewart retires before the age of 65, and will be increased proportionately if he retires after the age of 65. The Agreement is funded by a life insurance policy owned by the Bank, on which the Bank is the beneficiary and the premiums of which are paid by the Bank. NOTE: Tables containing disclosures of Stock Appreciation Rights Plans and Long Term Incentive Plans have been omitted because no such programs exist for either Farmers National Banc Corp or The Farmers National Bank of Canfield. No Employment contracts or Golden Parachute Agreements exist between any executive officer and either Farmers National Banc Corp or The Farmers National Bank of Canfield. INDEBTEDNESS OF MANAGEMENT Farmers has had, and expects to have in the future, banking transactions in the ordinary course of business with directors, executive officers and their associates on the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others. Since the beginning of 1995, the largest aggregate extensions of credit to officers, directors and their associates during the year ended December 31, 1995 was $1,032,388 or 3.04% of Equity Capital Accounts. In the opinion of the management of Farmers, these transactions do not involve more than a normal risk of collectability or present other unfavorable features. NOTE: THE INDEBTEDNESS OF MANAGEMENT INDICATED IN THE ABOVE PARAGRAPH APPLIES TO THE OFFICERS AND DIRECTORS AND THE PERCENTAGE OF DEBT HELD BY THIS GROUP WITH RESPECT TO THE EQUITY CAPITAL ACCOUNTS OF THE CORPORATION'S SUBSIDIARY, THE FARMERS NATIONAL BANK OF CANFIELD. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors is made up of all of the outside directors of Farmers. No officers of the corporation sit on this committee. This committee reports back to the full board but its' decisions are not subject to full board approval. The committee has the purpose and responsibility of providing the Bank, its staff and the communities it serves with consistent long-term leadership of the highest quality possible while protecting the interests of the shareholders. The committee sets the limits for increases in the aggregate for all staff, reviews performance of executive officers and sets their salaries for the coming year. In addition, any incentive/bonus program is set by the board based on the recommendation of the compensation committee. The committee takes a straightforward approach to the review of executives and bases its consideration of salaries on specific job performance, contribution to target levels of growth, profitability, stability, capital, return on equity (ROE) and return on assets (ROA). Also considered is the executive's contribution to the general success of the Bank and its business plan and community standing, which cannot necessarily be quantified in an appropriate manner but is weighted heavily in a community bank which is located exclusively in small communities. Successful bank operations are contingent upon accomplishments in all areas and integration with the business community's direction and success in our market areas. Executive performance must therefore be evaluated by using these factors as well. Specific results of each executive's area of responsibility are evaluated and considered, but would not be appropriately discussed here as a matter of confidentiality. The committee evaluates the President on the same bases as other executive officers with weight being given to the achievement of target levels of growth, capital and return on equity and, in addition, specific target goals of the overall strategic plan of the Bank. The accomplishment of meeting the goals and targets are reflected in the Summary Compensation Table. The members of the Compensation Committee are Joseph O. Lane, Chairman; Benjamin R. Brown, David C. Myers, Edward A. Ort and Ronald V. Wertz. None has registered a disagreement with the above report. Compensation Committee Interlocks and Insider Participation. No member of the Compensation Committee is currently or was at any time, an officer or an employee of, or had an employment agreement with the Corporation or the Bank. No corporate or committee interlocks exist which require disclosure under SEC regulations. PERFORMANCE GRAPH The Securities and Exchange Commission requires a line graph comparing the cumulative annual shareholders return of the Corporation, over a five year period against an overall stock market index and an industry index, as presented below. The per share price for each quarter, which is the price for each quarterly dividend and is used in the calculations of this graph, is established by the stock's market maker, Butler Wick and Company of Youngstown Ohio. [PERFORMANCE GRAPH FILED IN FORM SE] TOTAL RETURN GRAPH DATA At December 31 1990 1991 1992 1993 1994 1995 Farmers National Banc Corp 100 111 146 203 265 389 NASDAQ Stock Mkt - US 100 161 187 215 210 296 NASDAQ Bank 100 164 239 272 271 404 NOTE: This graph contains two comparison indices, NASDAQ Stock Mkt-US and NASDAQ Bank, which are broad based indices, and will be used in future graphs as a more appropriate comparison for our bank than the S&P indices. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has elected Hill, Barth and King to serve as the corporation's independent public accountant for the fiscal year ending December 31, 1996. Hill, Barth and King also served as the corporation's independent public accountant for the fiscal year ended December 31, 1995. Hill, Barth and King is expected to have a representative present at the annual meeting and will be available to respond to shareholders' questions and, if they desire, will have an opportunity to make any statement they consider appropriate. SHAREHOLDER PROPOSALS Any Shareholder proposal intended to be placed in the Proxy Statement for the 1996 annual meeting to be held in March 1997 must be received by the Corporation no later than December 1, 1996. Written proposals should be sent to Richard L. Calvin, Executive Vice President and Treasurer, Farmers National Banc Corp, 20 South Broad Street, P. O. Box 555, Canfield, Ohio 44406. Each proposal submitted should be accompanied by the name and address of the shareholder submitting the proposal and the number of shares owned. If the proponent is not a shareholder of record, proof of beneficial ownership should also be submitted. All proposals must be a proper subject for action and comply with the proxy rules of the Securities and Exchange Commission. MISCELLANEOUS The Board of Directors does not know of matters other than the review of 1995, the election of Directors and the amendment to Article IV as described in this Proxy Statement to be acted upon at the annual meeting. If any other matters should come before the meeting, the proxy holders will vote upon them in accordance with their best judgment. BY ORDER OF THE BOARD OF DIRECTORS WILLIAM D. STEWART, PRESIDENT (APPENDIX) FARMERS NATIONAL BANC CORP PROXY FOR ANNUAL MEETING 20 South Broad St., P.O. Box 555, Canfield, Ohio 44406 SOLICITED BY THE BOARD OF DIRECTORS KNOW ALL MEN BY THESE PRESENTS, that I, the Undersigned Shareholder of Farmers National Banc Corp of Canfield, Ohio, do hereby nominate and appoint William D. Calhoun, Ronald V. Wertz and David W. Yeany (no officer or employee of the Corporation may be named as proxy) or any one of them (with full power to act alone), my true and lawful attorney(s) with full power of substitution, for me and in my name, place and stead to vote all the Common Stock of said Corporation standing in my name on its books on February 28, 1996, at the annual meeting of its Shareholders to be held at Colonial Catering, 429 Lisbon Street, Canfield, Ohio 44406, on Thursday, March 28, 1996, at 4:30 P.M., Eastern Standard Time, or any adjournment thereof with all the powers the undersigned would possess if personally present as follows: 1. ELECTION OF DIRECTORS: Fixing the number of Directors to be elected at eight (8) and the election of the eight (8) persons listed in the Proxy Statement dated March 4, 1996 accompanying the notice of said meeting. FOR (all nominees except as indicated below) ________ WITHHOLD AUTHORITY (as to all nominees) ________ To withhold your vote from certain nominees, strike a line through their name. Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward A. Ort, Frank L. Paden, William D. Stewart, Ronald V. Wertz 2. AMENDMENT TO ARTICLE IV. Increasing the authorized number of shares to 5,000,000 shares of stock with no par value from 2,400,000 shares of stock with a par value of $2.50 per share. FOR ________ AGAINST ________ ABSTAIN ________ 3. SUCH OTHER BUSINESS as may properly come before the meeting or any adjournment thereof. (Please sign on reverse side and return promptly.) THIS PROXY CONFERS AUTHORITY TO VOTE "FOR" EACH PROPOSITION LISTED UNLESS OTHERWISE INDICATED. If any other business is presented at said meeting, this Proxy shall be voted in accordance with the recommendations of the Board of Directors. The Board of Directors recommends a vote "FOR" each of the listed propositions. This proxy is solicited on behalf of The Board of Directors and may be revoked prior to its exercise. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE (whether or not you plan to attend the meeting in person). IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE. DATED______________________________________ NUMBER OF SHARES HELD _____________________ ____________________________________ (L.S.) ____________________________________ (L.S.) Signature of Shareholder(s)* *When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. All joint owners must sign. -----END PRIVACY-ENHANCED MESSAGE-----