Regulatory Matters

12 Months Ended

Dec. 31, 2011

Regulatory Matters [Abstract]

REGULATORY MATTERS

NOTE 12—REGULATORY MATTERS

Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action by regulators that, if undertaken, could have a direct material effect on the financial statements. Management believes as of December 31, 2011, the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2011 and 2010, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

Dividend Restrictions: The Corporation’s principal source of funds for dividend payments is dividends received from the Bank and Trust. The Bank and Trust are subject to the dividend restrictions set forth by the Comptroller of the Currency and Ohio Department of Commerce – Division of Financial Institutions, respectively. The respective regulatory agency 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. During 2012, the Bank could, without prior approval, declare dividends of approximately $16.6 million plus any 2012 net profits retained to the date of the dividend declaration. The Trust would need agency approval to declare dividends in 2012, since it has exceeded its limits by $974 thousand at December 31, 2011.

Due to the continuing growth in the Bank’s business and the increase in its allowance for loan losses associated with current economic conditions, senior management and the Board have determined that higher levels of capital are appropriate. The OCC concurred in the Board’s view that additional capital would be beneficial in supporting its continued growth and operations. As a result, effective February 2, 2010, the OCC proposed and the Bank accepted the following individual minimum capital requirements for Farmers National Bank: Tier I Capital to Adjusted Total Assets of 7.20% and Total Capital to Risk-Weighted Assets of 11.00%. As of December 31, 2011, the Bank is in compliance with the minimum capital requirements set forth by the Board and the OCC.

To increase capital levels, the Company executed an offering of 5 million common shares of Farmers National Banc Corp stock, during January 2011. The offering of the 5 million shares at $3 per share involved a rights offering with existing shareholders, an offering with standby investors and an offering to the public. The Company issued 2,946,864 authorized but unissued common shares and reissued 2,053,136 shares of treasury stock. Total proceeds from the offering net of offering costs of $1.2 million were $13.8 million. Since the Company's cost basis of the treasury shares was greater than the price paid for common shares issued in the rights offering, the difference of $19.3 million was recorded as a reduction to retained earnings. The Company contributed $8 million to the Bank for general operating purposes which may include, among others, payment of expenses, payments of dividends, and pursuing strategic opportunities which may be presented to the Bank from time to time.

Actual and required capital amounts and ratios are presented below at year-end:

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
						Requirement					To be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes:					Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2011
Total Capital to risk weighted assets
Consolidated	$	107,794		17.43	%	$	49,475		8.00	%		N/A		N/A
Bank		97,773		15.85	%		49,282		8.00	%	$	61,603		10.00	%
Tier I Capital to risk weighted assets
Consolidated		99,953		16.16	%		24,737		4.00	%		N/A		N/A
Bank		89,981		14.60	%		24,641		4.00	%		36,962		6.00	%
Tier I Capital to average assets
Consolidated		99,953		9.50	%		42,081		4.00	%		N/A		N/A
Bank		89,981		8.54	%		42,119		4.00	%		52,649		5.00	%
2010
Total Capital to risk weighted assets
Consolidated	$	85,942		13.99	%	$	49,143		8.00	%		N/A		N/A
Bank		81,936		13.36	%		49,056		8.00	%	$	61,320		10.00	%
Tier I Capital to risk weighted assets
Consolidated		78,220		12.73	%		24,572		4.00	%		N/A		N/A
Bank		74,238		12.11	%		24,528		4.00	%		36,792		6.00	%
Tier I Capital to average assets
Consolidated		78,220		7.65	%		40,885		4.00	%		N/A		N/A
Bank		74,238		7.38	%		40,225		4.00	%		50,282		5.00	%