SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to __________
Commission file number 0-12055
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 offices) (Zip Code)
Registrant's telephone number, including area code: 330-533-3341
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark 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 24, 1998, the
aggregate market value of the voting stock held by
non-affiliates of the registrant (including 254,241 shares held
by officers and directors of the registrant) was approximately
$122,189,795.
As of February 24, 1998, the registrant had outstanding
3,491,137 shares of common stock having no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K
into which
Document Document is Incorporated
1997 Annual Report to Shareholders II
Definitive proxy statement for the 1997 Annual
Meeting of Shareholders to be held on March 26, 1998 III
Form 10-K Cross Reference Index to Annual Report to Shareholders
Part I
Item 1 - Business
Description of Business 7
Average Balance Sheets/Yields/Rates 11
Rate and Volume Analysis 12
Securities 18
Loans 15-16
Risk Elements of Loan Portfolio 17
Loan Loss Experience 16
Deposits 19
Financial Ratios 10
Short-Term Borrowings 31
Part II
Item 5
Market For Registrant's Common Stock
and Related Stockholder Matters 21
Item 6
Selected Financial Data 10
Item 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-20
Item 8
Financial Statements and Supplementary Data 23-36
Item 9
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure - None
Part IV
Report of Hill, Barth & King, Inc.,
Independent Auditors 22
Financial Statements:
Consolidated Balance Sheets -
December 31, 1997 and 1996 23
Consolidated Statements of Income -
Calendar Years 1997, 1996 and 1995 24
Consolidated Statement of Stockholders'
Equity - Calendar Years 1997, 1996 and 1995 25
Consolidated Statements of Cash
Flows - Calendar Years 1997, 1996
and 1995. 26
Notes to Consolidated Financial Statements 27-36
FARMERS NATIONAL BANC CORP.
FORM 10-K
1997
INDEX
Part I. Page
Item 1. Business:
General I-2
Item 2. Properties I-6
Item 3. Legal Proceedings I-6
Item 4. Submission of Matters to a Vote of Security Holders I-6
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
Signatures IV-3
Index to Exhibits IV-4
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, 1997 are presented in Note J on
page 32 of the annual report to shareholders for the year ended
December 31, 1997 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 significantly exceeds the minimum level
required by regulation for each relevant capital measure,
"adequately capitalized" if it meets each such measure,
"undercapitalized" if it is 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 undercapitalized" 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.
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 nine 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 401 E. Main St., 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
Damascus Office 29053 State Rt. 62 Damascus, Ohio
The bank owns the Main Office, Austintown, Cornersburg, Lake
Milton, Salem, Columbiana, Leetonia and Damascus 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 management,
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 were no matters submitted to a vote of security holders
through the solicitation of proxies or otherwise during the
fourth quarter of 1997.
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 will be
held March 26, 1998. The proxy statement is attached hereto.
Executive Officers of the Registrant
The names, ages and positions of the executive officers as of
March 1, 1998:
Name Age Position Held
William D. Stewart 68 Chairman
Richard L. Calvin 71 Vice Chairman
Frank L. Paden 47 President and Secretary
Carl D. Culp 34 Executive Vice President and Treasurer
Donald F. Lukas 51 Senior Vice President
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 Chairman since March 1996.
Prior to that time, he was President and Secretary since the
inception of registrant on March 31, 1983, was President of the
Bank since 1972 and has held various other executive positions
with the Bank.
Mr. Richard L. Calvin has served as Vice Chairman since March
1996. Prior to that time, he was Executive Vice President and
Treasurer of the registrant since its inception on March 31,
1983, was 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 President and Secretary since
March 1996. Prior to that time he was Executive Vice President
of the registrant since March 1995, was Executive Vice President
of the Bank since March 1995 and has held various other
executive positions with the Bank.
PART III, (Continued)
Mr. Carl D. Culp has served as Executive Vice President and
Treasurer since March 1996. Prior to that time he was
Controller of the registrant since November 1995 and was
Controller of the Bank since November 1995.
Mr. Donald F. Lukas has served as Senior Vice President of the
registrant since March 1996. Prior to that time, he was Vice
President of the Bank since March 1987.
Item 11. Executive Compensation
Information regarding this item is set forth in the registrant's
definitive proxy statement, which will be used in connection with
its annual meeting of shareholders to be held March 26,
1998. 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 will be used in
connection with its annual meeting of shareholders to be
held March 26, 1998. 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 will be used in connection with
its annual meeting of shareholders to be held March 26,
1998. 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 Data
is set forth in the registrant's 1997 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 were filed for three months ended December 31, 1997.
INDEPENDENT AUDITORS' CONSENT
FARMERS NATIONAL BANC CORP.:
We hereby consent to the incorporation by reference in this Registration
Statement of our report dated January 23, 1998, relating to the consolidated
financial statements of Farmers National Banc Corp. and subsidiary.
HILL, BARTH & KING, INC.
Warren, Ohio
March 10, 1998
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 /s/Frank L. Paden by /s/Carl D. Culp
President and Secretary Executive Vice President and
Treasurer
/s/William D. Stewart Chairman March 10, 1998
/s/Benjamin R. Brown Director March 10, 1998
/s/Richard L. Calvin Vice Chairman March 10, 1998
/s/Joseph O. Lane Director March 10, 1998
/s/David C. Myers Director March 10, 1998
/s/Edward A. Ort Director March 10, 1998
/s/Frank L. Paden President March 10, 1998
and Director
/s/Ronald V. Wertz Director March 10, 1998
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by references
as part of this report:
2. Not applicable.
3(i). Not applicable.
3(ii). Not applicable.
4. The registrant agrees to furnish to the Commission upon
request copies of all instruments not filed herewith defining
the rights of holders of long-term debt of the registrant and
its subsidiaries.
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
13. Annual Report to security holders (filed herewith).
16. Not applicable.
18. Not applicable.
21. Subsidiaries of the registrant (filed herewith).
22. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedule (filed herewith)
99. Definitive Proxy Statement (filed herewith)
Copies of any exhibits will be furnished to shareholders upon
written request. Request should be directed to Carl D. Culp,
Executive Vice President, Farmers National Banc Corp., 20 S.
Broad Street, Canfield, Ohio 44406.
INSIDE FRONT COVER
BOARD OF DIRECTORS
Picture of Board of Directors
William D. Stewart, Chairman of Farmers National Banc Corp. and
of the Farmers National Bank of Canfield
Richard L. Calvin, Vice Chairman of Farmers National Banc Corp.
and of the Farmers National Bank of Canfield
Frank L. Paden, President and Secretary of Farmers National Banc
Corp; President and Chief Executive Officer of the Farmers
National Bank of Canfield
Benjamin R. Brown, President - Castruction Co.
Joeseph O. Lane, President - Lane Funeral Homes, Inc. and Lane
Life Corp.
David C. Myers, President - Myers Equipment Corp.
Edward A. Ort, President - Ort Furniture Manufacturing Co.
Ronald V. Wertz, President - Boyer Insurance Inc.
<TABLE>
HIGHLIGHTS OF 1997
Selected Financial Data (In Thousands except Per Share Data)
<CAPTION> Percent
For the Year 1997 1996 Change
<S> <C> <C> <C>
Net Income $4,742 $4,131 14.79%
Return on Average Assets 1.34% 1.27% 5.51%
Return on Average Equity 12.67% 11.60% 9.22%
Per Share
Net Income $1.39 $1.20 15.83%
Book Value 11.72 10.51 12.05%
Balances at Year-End
Assets $368,449 $338,112 8.97%
Securities 68,306 47,080 45.09%
Net Loans 271,665 263,504 3.10%
Deposits 305,830 283,810 7.76%
Stockholders Equity 40,923 34,809 17.56%
Shares Outstanding 3,491 3,311 5.44%
Cash Dividends 1,958 1,455 34.57%
<FN>
* Adjusted to reflect weighted outstanding shares and adjusted for stock dividends.
</FN>
</TABLE>
FORM 10-K
A copy of the Annual Report filed with the Securities and
Exchange Commission will be available on April 1, 1998
without charge upon written request to:
Mr. Carl D. Culp, Treasurer
Farmers National Banc Corp.
20 South Broad St. P.O. Box 555
Canfield, Ohio 44406
Mailing address and phone:
Farmers National Banc Corp.
20 South Broad St. 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 26,
1998 at 3:30 p.m.
TABLE OF CONTENTS
Highlights of 1997 1
Report to Stockholders 2-5
Officers 6
Description of Business 7
Graphs & Charts 8-9
Selected Financial Data 10-11
Rate & Volume Analysis 12
Management's Discussion 13-20
Stock Prices and Dividends 21
Accountant's Report 22
Financial Data 23-36
PRESIDENT'S LETTER TO STOCKHOLDERS
Dear Shareholders:
In last year's annual report , my message told our shareholders
of the history of growth and success that we have experienced
during the first 109 years of existence. As we plan and prepare
for the 21st Century, we will look to our history to help guide
us into the future.
Nineteen hundred ninety-seven was truly a year of significant
accomplishments for the Farmers National Banc Corp. Record
earnings, increased cash dividends, another new community branch
bank location, and a new management team committed to the
corporate mission . . . " to maximize shareholder value and act
as the financial leader in the communities we serve as a locally
owned, independent community banking organization."
Your Board of Directors and Management are pleased with our
1997 results and we are very optimistic as we develop a vision
for the future. It is with great pleasure that I share some of
the highlights and accomplishments of your company that were
attained in 1997.
FINANCIAL PERFORMANCE
Net income for the year reached a record high of $4.74 million,
up 14.8 percent over 1996. Total assets for Farmers National
Banc Corp. at year-end were $368 million, an increase of 8.9
percent over year-end 1996.
The net income was $1.39 per share for 1997 as compared to
$1.20 per share in 1996. This represents a 15.8 percent
increase. Cash dividends paid on Farmers National Banc Corp.
common stock were $.58 per share in 1997, representing a 31.8
percent increase over a year ago. In addition to the cash
dividends, the Corporation also paid shareholders a 2% stock
dividend in October 1997. That stock dividend represents the
twenty-second consecutive year that your Directors approved and
paid a stock dividend.
Equity, in the form of capital ratios, is a measure used in
defining safety within the banking industry. The $40.9 million
in Shareholder Equity gives the Corporation an 11.1 percent
total capital to asset ratio -- well above regulatory measures
and near the top percentile in comparison to our peer group of
banks. Shareholder participation in the Corporation's Dividend
Reinvestment Plan continues to provide a source of additional
capital to the Corporation. During 1997, shareholders
reinvested cash dividends of $1.1 million and made additional
cash contributions in the amount of $1.9 million, totaling $3
million, that was used to purchase shares of common stock in
Farmers National Banc Corp.
The market value of our common stock was $22.25 per share
following the two-for-one stock split in January 1997. This
market value has increased to a year-end value of $30.75 per
share, a 38 percent increase during 1997. Our common stock is
quoted on the OTC Bulletin Board under the symbol FMNB.
As I reported to you in the quarterly reports, both positive
earnings and growth trends were attained throughout the year.
The higher earnings and returns were a result of several
factors. Net interest income is the major factor that affects
net income. In 1997, net interest income, before provision for
loan losses, was $15.5 million as compared to $14.1 million in
1996. This 9.4 percent increase is one of the reasons for the
favorable results for 1997. Total loans increased to $275.1
million at year-end 1997, a modest 3.15 percent increase from
1996. Other factors attributing to our successful results for
1997 were a 21.8 percent increase in investment income and a
19.3 percent increase in non-interest income. With management's
ability to increase the sources of income, we were also able to
control the non-interest expenses. The corporation's efficiency
ratio increased by nearly 180 basis points from 56.5 percent in
1996 to 54.7 percent in 1997.
You will note from the financial information outlined in this
report that Farmers National Banc Corp.'s operating and
performance measurements identify continuing positive trends.
Nineteen hundred and ninety-seven was a financially successful
year and is detailed in the accompanying financial review,
analysis and graphs which summarize the careful management of
operating fundamentals, size of our Corporation and shareholder
return.
OPERATIONS
In January 1997, Farmers National Bank opened a branch banking
office in Damascus, Ohio. The location represents the ninth
community branch banking office for Farmers National Bank. This
branch has been graciously accepted by the community. The growth
in deposits and loans both exceeded our expectations. This
branch alone represented approximately twenty percent of the
growth in deposits that the entire Corporation experienced in
1997. To better serve the demands of the community, we will be
installing a 24 hour ATM at this site during the first quarter
of 1998.
During the summer of this past year, our Austintown Branch Bank
went through a major exterior capital improvement project.
These improvements included a new gable style roof replacing a
flat roof that had been on the building since 1959. Other
improvements were new windows & doors, a renovated entrance area
and a completely new exterior finish to the entire building.
This new look clearly adds to our strong commitment to the
Austintown community. Additional interior improvements are
planned for the near future.
Farmers National Bank introduced "The Common Sense Card"
during the first quarter of 1997. This debit card product has
been well accepted by our customers as evidenced by the number
of transactions completed through the ATM and merchant network.
I encourage you to take advantage of this product as a way to
automate your transactions and eliminate the need to write
checks.
Plans for 1998 will include the introduction of an automated
phone system that will allow our customers to inquire about
their accounts, transfer funds between accounts, make loan and
utility payments and get current information concerning interest
rates and bank products. With the development of the automated
phone system to allow banking transactions, our efforts will be
turned to alternative ways to deliver bank products and
services. Home banking through your personal computer and/or
Internet banking are two issues that are currently under strong
consideration by our operations staff. It is our strategy to
fully evaluate the viability of these products and how they will
compliment the current products and services we make available
though our network of branches. Customers expect to be able to
obtain products and services any time and any place. We are
committed to have systems in place to meet these expectations.
Technology continues to have an effect on all business
entities. The ability to manage this technology is a major
challenge today. It is our strategy to position our bank to
provide the most efficient means of distributing and delivering
our financial products and services through the mix of modern
technology and common sense banking.
Another product that was completed in 1997 is our own WEB SITE
page on the Internet. You are currently able to access various
information about the bank on the Internet -- our domain name is
www.fnb-canf.com. During 1998, we plan to enhance this web page
and give the visitors additional options to link to other
services and communicate directly with our bank through
electronic mail. Our long range plan is to provide our
customers access to the Internet through a server that will be
located in our bank allowing customers to conduct all their
banking over the Internet.
A non-financial goal for 1997 was to develop and introduce a
new deposit product that was designed for individuals who find
value in an investment product that offers accessibility,
stability and an exceptional return on investment. The Money
Market Index Account was introduced to the public in September
and we now have nearly $2 million in deposit balances.
In planning for 1998, I am pleased to report that we will open
a full-service branch bank located within the Village limits of
Poland, Ohio. This site will be our tenth community branch
office and our fourth expansion project within the last three
years. This project is currently in process and it is our goal
to open in the fall of this year. Much planning has been put
into the design and appearance of this branch, which we feel
will be the premier banking facility located in Poland Village.
Our banking family was saddened by the deaths of three Bank
Officers during 1997. Mr. Charles Burgoyne, Mr. Larry Staub and
Ms. Adrianne Kempers all suddenly passed away during this past
year. Charles Burgoyne, a valued friend, had served the bank
in excess of thirty-nine years in various positions, retiring in
May 1997 as Assistant Vice President/Loan Review Officer and
Compliance Officer. His dedicated service and leadership are
well known and his valued contributions to Farmers National Bank
will be greatly missed. Larry Staub had been with the bank over
eight years and served in the capacity of Branch Manager at our
Cornersburg and Western Reserve branch offices. Larry's
management ability, organizational skills, and compassion for
fellow employees are qualities that cannot be replaced.
Adrianne Kempers was employed with the bank for the past two
years as our Internal Auditor for both the Bank and the Bank
holding company. She was a member of the Operations Committee
and served as an Executive Officer of the Bank. Adrianne's
professional vocation as a CPA and her sincere commitment to
community service best exemplified her role with our bank.
These three individuals will be greatly missed as friends and as
co-workers. Each contributed to our success in their own way.
In closing, I would like to offer special thanks to our
shareholders, directors, officers, employees and customers for
their loyal patronage of our services and steadfast commitment
to our bank. We are extremely confident as we prepare for the
twenty-first century, and we welcome you to be a part of it.
Sincerely,
Frank L. Paden
President & CEO
Farmers National Banc Corp.
Officers
William D. Stewart Richard L. Calvin
Chairman Vice Chairman
Frank L. Paden Carl D. Culp
President and Secretary Executive Vice President
& Treasurer
Donald F. Lukas
Senior Vice President
Farmers National Bank of Canfield
Officers & Management
Frank L. Paden Andrew A. Baird
President & CEO Asst. Cashier, Manager-Data Center
Carl D. Culp Joseph E. Chapman
Executive Vice President, Assistant Cashier,
Cashier & CFO Manager - Collection Department
Donald F. Lukas Janine M. Cox
Senior Vice President, Assistant Cashier, Credit Admin.
Bank Systems
Charlene K. Daugherty
Mark L. Graham Assistant Cashier/Human Resources
Vice President/Loan Administrator
Merle Garritano
Bradley S. Henderson Assistant Cashier/Consumer Loans
Vice President,
Branch Administration & Security Linda Liston
Compliance Officer
Anthony F. Peluso
Vice President/Human Resources Joanie Orr
General Ledger Accounting Officer
Alfred F. Ridel
Vice President/Consumer Loans Gary J. Rosati
Staff Legal Counsel
Daniel G. Cerroni
Assistant Vice President, Diane Moran
Main Office Loan Department Mortgage Loan Department
Barbara C. Fisher Anita L. Jarvis
Assistant Vice President, Internal Auditor
Marketing & Deposit Operations
Rob Mort
Roy A. Jackson Corporate Financial Accountant
Assistant Vice President,/Indirect Lending
Dorothy J. Weeden
Fred Kotheimer Assistant Cashier,
Assistant Vice President/Loan Review Manager - Main Office
Susan E. Miller Pamela J. Cleghorn
Assistant Vice President, Assistant Cashier,
Corporate Services Administration Manager, Colonial Plaza
Phyllis A. Welton Keith A. Leonard
Assistant Vice President, Assistant Cashier
Manager - Bookkeeping Dept. Manager - Austintown Office
Patricia C. Rosko Larry E. White
Asst. Manager, Austintown Office Assistant Vice President,
Manager - Salem Office
Dennis S. Vitt
Assistant Cashier, Gregory Walla
Manager - Lake Milton Office Asst. Manager, Salem Office
Jennifer Tikkanen Geraldine J. Gbur
Asst. Manager, Lake Milton Office Assistant Cashier,
Manager - Columbiana Office
Robert L. Rozeski
Assistant Cashier, Jane C. Logan
Manager, Cornersburg Office Asst. Manager, Columbiana Office
Barbara L. Sitler Kay A. Hedl
Asst. Manager, Cornersburg Manager, Leetonia Office
Clare F. Baldwin Lynnita J. Kaschak
Asst. Manager, Western Reserve Office Asst. Manager, Leetonia
Michele M. Ossoff
Assistant Cashier,
Manager, Damascus Office
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, Chairman, Richard L. Calvin, Vice Chairman, Frank L.
Paden, President and Secretary, Carl D. Culp, Executive Vice
President and Treasurer and Donald F. Lukas, Senior Vice
President.
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 ten (10)
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, 1997, the Corporation and its
subsidiary had 180 employees. The bank considers its relations
with its employees to be satisfactory.
Picture of Exterior of Main Office
GRAPHS AND CHARTS
Bar Graph Depicting Total Deposits in Thousands
Year Amount
1993 $240,440
1994 $244,302
1995 $267,955
1996 $283,811
1997 $305,830
Bar Graph Depicting Return on Average Equity
Year Amount
1993 12.85%
1994 12.58%
1995 11.45%
1996 11.60%
1997 12.67%
Bar Graph Depicting Return on Average Assets
Year Amount
1993 1.16%
1994 1.22%
1995 1.20%
1996 1.27%
1997 1.34%
Bar Graph Depicting Net Income in Thousands
Year Amount
1993 $3,160
1994 $3,424
1995 $3,576
1996 $4,131
1997 $4,742
Bar Graph Depicting Net Loans in Thousands
Year Amount
1993 $200,993
1994 $214,988
1995 $229,249
1996 $263,504
1997 $271,665
Bar Graph Depicting Net Income Per Share
Year Amount
1993 $1.02
1994 $1.06
1995 $1.07
1996 $1.20
1997 $1.39
Bar Graph Depicting Loans Loss Provision/Non-Performing Loans
Year Amount
1993 97.35%
1994 154.63%
1995 192.87%
1996 152.42%
1997 383.13%
Bar Graph Depicting Total Stockholders Equity in Thousands
Year Amount
1993 $25,996
1994 $28,915
1995 $33,976
1996 $34,809
1997 $40,923
<TABLE>
SELECTED FINANCIAL DATA
(In Thousands except Per Share Data)
<CAPTION>
For the Years Ending 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Summary of Earnings
Total Interest Income (including fees on loans) $27,576 $24,877 $21,960 $19,731 $20,166
Total Interest Expense 12,129 10,756 9,688 8,000 8,738
Net Interest Income 15,447 14,121 12,273 11,731 11,428
Provision for Credit Losses 855 655 270 330 620
Total Other Income 1,768 1,478 1,342 1,357 1,298
Total Other Expense 9,418 8,883 8,118 7,755 7,473
Income Before Federal Income Taxes 6,942 6,061 5,226 5,003 4,633
Federal Income Taxes 2,200 1,930 1,650 1,579 1,473
NET INCOME 4,742 4,131 3,576 3,424 3,160
Per Share Data (Note)
Net Income 1.39 1.20 1.07 1.06 1.02
Cash Dividends Paid 0.58 0.44 0.40 0.40 0.38
Book Value at Year-End 11.72 10.51 10.33 9.29 8.90
Balances at Year-End
Total Assets 368,449 338,112 314,229 284,445 275,385
Earning Assets 349,102 319,449 294,122 268,724 260,965
Total Deposits 305,830 283,810 267,955 244,302 240,440
Net Loans 271,665 263,504 229,249 214,988 200,993
Total Stockholder's Equity 40,923 34,809 33,976 28,915 25,996
Average Balances
Total Assets 354,005 325,537 297,159 279,839 273,257
Total Stockholder's Equity 37,431 35,629 31,177 27,221 24,557
Significant Ratios
Return on Average Assets (ROA) 1.34% 1.27% 1.20% 1.22% 1.16%
Return on Average Equity (ROE) 12.67 11.60 11.45 12.58 12.85
Average Earning Assets/Average Assets 95.28 94.88 94.75 94.91 94.55
Net Loans/Deposits 88.83 92.85 85.56 88.00 83.59
Allowance for Credit Losses/Total Loans 1.25 1.20 1.25 1.26 1.29
Allowance for Credit Losses/Nonperforming Loans 383.13 152.42 192.87 154.63 97.35
Efficiency Ratio 54.71 56.50 59.63 59.66 58.98
Cash Dividends as a Percentage of Net Income 41.29 35.22 35.46 34.45 33.41
Dividends Per Share to Net Income Per Share 41.73 36.07 36.04 34.96 33.94
<FN>
Note: Per share data is based on weighted average shares outstanding adjusted for stock dividends.
</FN>
</TABLE>
<TABLE>
Average Balance Sheets and Related Yields and Rates
(In Thousands of Dollars)
<CAPTION>
Years ended December 31, 1997 1996 1995
EARNING ASSETS
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $268,581 $23,487 8.74% $250,616 $21,519 8.59% $221,955 $18,580 8.37%
Taxable securities 51,520 3,123 6.06 40,334 2,352 5.83 39,167 2,183 5.57
Tax-exempt securities 8,072 712 8.82 7,434 683 9.19 7,266 670 9.22
Federal funds sold 9,116 503 5.52 10,506 562 5.35 13,181 761 5.77
Total earning assets 337,289 27,825 8.25 308,890 25,116 8.13 281,569 22,194 7.88
NONEARNING ASSETS
Cash and due from banks 11,001 11,310 11,437
Premises and equipment 5,647 5,597 4,671
Allowance for Loan Losses (3,282) (2,946) (2,897)
Other assets 3,350 2,686 2,379
Total Assets $354,005 $325,537 $297,159
INTEREST-BEARING LIABILITIES
Time deposits $141,659 $8,094 5.71% $122,973 $7,095 5.77% $108,626 $6,205 5.71%
Savings deposits 74,117 1,870 2.52 76,182 1,931 2.53 74,752 1,986 2.66
Demand deposits 54,560 1,141 2.09 51,890 1,092 2.10 48,267 1,009 2.09
Repurchase agreements 15,039 676 4.49 12,075 497 4.12 10,032 440 4.39
Borrowings 6,000 348 5.80 2,651 142 5.36 804 48 5.97
Total Interest-Bearing Liabilities 291,375 12,129 4.16 265,771 10,757 4.05 242,481 9,688 4.00
NONINTEREST-BEARING LIABILITIES
Demand deposits 21,868 22,979 20,631
Other Liabilities 3,331 1,158 2,870
Stockholder's equity 37,431 35,629 31,177
Total Liabilities and
Stockholders' Equity $354,005 $325,537 $297,159
Net interest income $15,696 $14,359 $12,506
Net interest income to earning assets 4.65% 4.65% 4.44%
<FN>
Fully taxable equivalent basis computed at 35% in 1997, 1996 and 1995.
</FN>
</TABLE>
<TABLE>
Rate and Volume Analysis
The following table analyzes by rate and volume the dollar amount of changes in the components of the
interest differential:
(In Thousands of Dollars)
<CAPTION>
1997 change from 1996 1996 change from 1995
Net Change Due Change Due Net Change Due Change Due
Change To Volume To Rate Change To Volume To Rate
<S> <C> <C> <C> <C> <C> <C>
Tax Equivalent Interest Income
Loans $1,968 $1,554 $414 $2,939 $2,393 $546
Taxable securities 771 653 118 169 65 104
Tax-exempt securities 29 58 (29) 13 15 (2)
Federal funds sold (59) (74) 15 (199) (154) (45)
Total interest income $2,709 $2,191 $518 $2,922 $2,319 $603
Interest Expense
Time deposits $999 $1,081 ($82) $890 $817 $73
Savings deposits (61) (53) (8) (55) 41 (96)
Demand deposits 49 55 (6) 83 77 6
Repurchase agreements 179 123 56 57 90 (33)
Borrowings 206 26 180 94 110 (16)
Total interest expense $1,372 $1,232 $140 $1,069 $1,135 ($66)
Increase in tax equivalent
net interest income $1,337 $1,853
<FN>
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.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Corporation's net income totaled $4.742 million during
1997, an increase of 14.79% from $4.131 million for 1996. On a
per share basis, net income was $1.39 for 1997 as compared to
$1.20 for 1996 and $1.07 for 1995. Common comparative ratios
for results of operations include the return on average assets
and return on average stockholders equity. For 1997, the return
on average equity was 12.67% as compared to 11.60% for 1996 and
11.45% for 1995. The return on average assets was 1.34% for
1997 as compared to 1.27% and 1.20% for 1996 and 1995,
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 investment and loan
portfolio, particularly commercial, commercial real estate and
home equity 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 1997, net interest income increased $1.326
million or 9.39% over 1996. The increase for 1996 was $1.849
million or 15.06% over 1995. Interest-earning assets averaged
$337.289 million during 1997 representing a 9.19% increase over
1996, while 1996 averaged $308.890 million or a 9.70% increase
over 1995.
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 1997 and 1996 the net interest
margin, measured on a fully taxable equivalent basis was 4.65%
in comparison to 4.44% for 1995.
Total interest income was $27.576 million for 1997 as compared
to $24.877 million and $21.960 million for 1996 and 1995,
respectively. The 10.85% increase in interest income is
attributed to a 3.1% increase in net loans and an increase in the
interest rate earned from 8.59% to 8.74%. Net loans were $271.665
million at year-end 1997 as compared to $263.504 million at
year-end 1996. Interest and dividends on securities also increased
21.8% from $3.358 million in 1996 to $4.089 million in 1997. The
increase was also attributable to a 46.05% increase in the balance
of securities available for sale, as well as an increase in the
overall yield on these assets.
Total interest expense amounted to $12.129 million for 1997,
representing a 12.76% increase from 1996 while interest expense
of $10.756 million for 1996 represents a 11.03% increase from
1995. The increase in interest expense is primarily due to an
increase in the level of borrowings and the average rate paid on
these liabilities. The average balances for time deposits
increased by 15.2% over 1996, but the interest rate paid on
those deposits decreased by 6 basis points.
Other Income
Other income increased $290 thousand or 19.62% from 1996.
Total other income for 1996 increased $136 thousand or 10.13%
from 1995. The increase in other income is a result of
increased levels of service charges and fees related to deposit
accounts. Management continues to explore new products and
services that could increase other income in future years.
Other Expenses
Total other expenses for 1997 increased 6.03% over 1996 as
compared to an increase of 9.41% from 1996 over 1995. The rise
in other expenses is primarily due to salary and employee
benefits, which increased $280 thousand or 5.86% from 1996.
This increase is the result of hiring additional employees to
staff the new branch offices. The Corporation's other operating
expenses also increased $232 thousand or 9.12% over 1996.
These expenses are increasing each year due primarily to asset growth
and the increased volume of the operations of the bank. Management
will continue to closely monitor and keep the increases in other
expenses 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 1997, 1996 and 1995.
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 1997, 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.
<TABLE>
Interest Rate Sensitivity
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 December 31, 1996 December 31, 1995
Total Within Total Within Total Within
3 month 12 month 3 month 12 month 3 month 12 month
<S> <C> <C> <C> <C> <C> <C>
Total Interest-Sensitive Assets $43,489 $117,790 $36,137 $105,161 $44,064 $100,658
Total Interest-Sensitive Liabilities 70,990 129,809 56,249 112,027 55,706 103,701
Total Sensitivity Gap (27,501) (12,019) (20,112) (6,866) (11,642) (3,043)
Ratio of Interest-Sensitive Assets to
Interest-Sensitive Liabilities 0.61 0.91 0.64 0.94 0.79 0.97
</TABLE>
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, 1997, 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. Advances outstanding from the
Federal Home Loan Bank at December 31, 1997 amounted to $4.612
million.
Cash flows generated from operating activities increased
12.01% to $7.043 million in 1997 compared to $6.288 million in
1996. 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
decreased 9.92% to $32.171 million in 1997 compared to $35.715
million in 1996. This decrease in cash used resulted from an
increase in proceeds from sales of investment securities of
$3.106 million. Although the net increase in loans made to
customers dropped from $35.031 million in 1996 to $10.464
million in 1997, this was offset by a corresponding increase in
purchases of investment securities, which increased from $14.467
million in 1996 to 38.547 million in 1997. Cash flows provided
from financing activities amount to $25.341 million as compared
to $19.000 million in 1996. This 33.38% increase is primarily
the result of treasury stock transactions in 1996 and 1997.
The Corporation's net increase in Federal Home Loan Bank
Borrowings also grew by $1.812 million.
<TABLE>
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:
<CAPTION>
(In Thousands of Dollars)
Years Ended December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural $10,784 3.9% $8,454 3.1% $19,842 8.6% $22,465 10.3% $21,026 10.4%
Real Estate - Mortgage 147,979 53.8 136,212 51.1 110,870 47.9 102,322 47.0 92,115 45.2
Installment Loans to Individuals 116,331 42.3 122,036 45.8 100,748 43.5 92,947 42.7 90,473 44.4
Total Loans $275,094 100.0% $266,702 100.0% $231,460 100.0% $217,734 100.0% $203,614 100.0%
</TABLE>
The composition of loans for 1993 through 1996 have been reclassified to
conform with the presentation for 1997. Such reclassification had no
effect on results of operations.
The following schedule sets forth maturities based on remaining scheduled
repayments of principal for various categories of loans listed above as
of December 31, 1997:
(In Thousands of Dollars)
Types of Loans 1 Year or less 1 to 5 Years Over 5 Years
Commercial, Financial and
Agricultural $5,314 $4,117 $1,353
The amounts of commerical, financial and agricultural loans as of
December 31, 1997, based on remaining scheduled repayments of
principal, are shown in the following table:
(In Thousands of Dollars)
Loan Sensitivities 1 Year or less Over 1 Year Total
Floating or Adjustable Rates
of Interest $4,360 $1,031 $5,391
Fixed Rates of Interest 954 4,439 5,393
Total Loans $5,314 $5,470 $10,784
Loan Portfolio
Total net loans were $271.665 million at year-end 1997 compared
to $263.504 million at year-end 1996. This represents an
increase of $8.161 million or 3.10%. Loans comprised 79.6% of
the Bank's average earning assets during 1997, compared to 81.1%
in 1996. The product mix in the Loan Portfolio shows Commercial
Loans comprising 3.9%, Real Estate Mortgage Loans (Residential and
Commercial) 53.8% and Installment Loans to Individuals 42.3% at
December 31, 1997 compared with 3.1%, 51.1% and 45.8%, respectively,
at December 31, 1996.
Loans contributed 84.4% of total interest income in 1997
compared to 86.5% in 1996. Loan yield was 8.74% in 1997, 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 decreased from $122.036 million
on December 31, 1996 to $116.331 million on December 31, 1997
which represents a 4.9% decrease. 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 87.4% of the Installment Loan Portfolio. Net
loan losses on the Installment Loan portfolio were $667 thousand
in 1997 as compared to $295 thousand in 1996. This represents
.57% of total Installments Loans outstanding for 1997 and .24%
for 1996. Management attributes the increase in net losses in 1997
to the national trend in the economy, indicating high consumer debt
and an increased number of personal bankruptcy filings.
Real Estate Mortgage Loans increased to $147.979 million at
December 31, 1997, an increase of 8.6% over 1996. This portfolio
consists of $108.077 million of 1-4 family residential properties and
$39.902 million in commercial real estate properties, all made within
the Bank's primary market area. The corporation originated both fixed
rate and adjustable rate mortgages during 1997. All mortgage loans
made in 1997 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, 1997 increased from year-end
1996 with outstanding balances of $10.784 million. This
portfolio is comprised of 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 and leasehold improvements, the
purchase of inventory, general working capital purposes and small
business lines of credit.
<TABLE>
Summary of Loan Loss Experience
The following is an analysis of the allowance for loan losses for the periods indicated:
<CAPTION>
(In Thousands of Dollars)
Years Ended December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $3,198 $2,911 $2,746 $2,621 $2,274
Loan Losses:
Commercial, Financial and Agricultural 0 (75) (1) (185) (69)
Real Estate-Mortgage 0 (22) 0 0 (16)
Installment Loans to Individuals (824) (455) (275) (202) (351)
Total Loan Losses (824) (552) (276) (387) (436)
Recoveries on Previous Loan Losses:
Commercial, Financial and Agricultural 3 9 44 39 36
Real Estate-Mortgage 40 15 0 0 7
Installment Loans to Individuals 157 160 127 143 120
Total Recoveries 200 184 171 182 163
Net Loan Losses (624) (368) (105) (205) (273)
Provision Charged to Operations (1) 855 655 270 330 620
Balance at End of Year $3,429 $3,198 $2,911 $2,746 $2,621
Ratio of Net Loan Losses to Average
Net Loans and Leases Outstanding 0.23% 0.15% 0.05% 0.10% 0.14%
<FN>
(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.
</FN>
</TABLE>
Provisions charged to operations increased from $655 thousand
in 1996 to $855 thousand in 1997. The provision charged to
operations was increased to offset an increase in net loan losses
in 1997. The balance in the allowance for credit losses has
increased substantially since 1993 to $3.429 million or 1.25% of
loans at December 31,1997. This ratio has increased from the 1.20%
reported at December 31, 1996. The allowance for credit losses as
a percentage of nonperforming loans increased substantially from
152.42% at December 31, 1996 to 383.13% at December 31, 1997.
The allowance for possible credit losses has been allocated
according to the amount deemed to be reasonably necessary to provide
for the possibility of losses being incurred within the following
categories of loans as of the dates indicated:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 1996 1995 1994 1993
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural $1,928 3.9% $1,873 3.1% $1,800 8.6% $1,700 10.3% $1,692 10.4%
Real Estate-Mortgage 275 53.8 263 51.1 250 47.9 200 47.0 170 45.2
Installment Loans to Individuals 1,226 42.3 1,062 45.8 861 43.5 846 42.7 759 44.4
$3,429 100.0% $3,198 100.0% $2,911 100.0% $2,746 100.0% $2,621 100.0%
<FN>
The allocation of the allowance as shown in the table above
should not be interpreted as an indication that charge-offs in
1997 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.
</FN>
</TABLE>
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.
Normally, an annual fee of two percent is charged for the
issuance of a letter of credit.
<TABLE>
Risk Elements
The following table sets forth aggregate loans in each of the following categories for the years indicated:
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Loans Accounted For on a Nonaccrual Basis $493 $0 $125 $302 $349
Loans Contractually Past Due 90 Days or More as to Interest
or Principal Payments (Not Included in Nonaccrual Loans Above) 402 2,098 1,384 1,475 2,343
Loans Considered Troubled Debt Restructuring
(Not Included in Nonaccrual Loans or Contractually Past Due Above) 0 0 75 0 108
<FN>
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.
</FN>
</TABLE>
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, 1997, 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,
restructured or nonperforming.
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:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Gross Interest Income That Would have been Recorded if the Loans
had been Current in Accordance with Their Original Terms $9 $7 $5 $21 $40
Interest Income Included in Income on the Loans 13 0 0 0 0
</TABLE>
Investment Securities
The investment securities portfolio increased 45.08% in 1997.
Most of this increase occurred in U.S. Treasury and U.S.
Government agencies, which grew $22 million in 1997. The increase
is primarily attributable to excess funds resulting from deposit
growth outpacing the current year loan demand. 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:
<TABLE>
<CAPTION>
Type (In Thousands of Dollars)
December 31, 1997 1996 1995
<S> <C> <C> <C>
U.S. Treasury Securities and Government Agencies $53,449 $31,449 $31,692
Obligations of States and Political Subdivisons 9,145 7,501 6,943
Other Securities 5,712 8,130 8,698
$68,306 $47,080 $47,333
</TABLE>
A summary of securities held at December 31, 1997, classified according to
maturity and including weighted average yield for each range of maturities
is set forth below:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Type and Maturity Grouping December 31, 1997
Book Value Weighted Average Yield (1)
<S> <C> <C>
U.S. Treasury and U.S. Government Agency Securities:
Maturing Within One Year $11,529 5.51%
Maturing After One Year But Within Five Years 31,518 6.14%
Maturing After Ten Years 10,402 6.47%
Total U.S. Treasury and U.S. Government Agency Securities: $53,449 6.06%
Obligations of States and Political Subdivisions
Maturing Within One Year $323 8.62%
Maturing After One Year But Within Five Years 2,165 9.10%
Maturing After Five Years But Within Ten Years 2,606 8.31%
Maturing After Ten Years 4,051 8.60%
Total Obligations of States and Political Subdivisions $9,145 8.63%
Other Securities
Maturing Within One Year $2,008 6.61%
Maturing After One Year But Within Five Years 3,704 6.22%
Total Other Securities $5,712 6.42%
<FN>
(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 $9.371 thousand, $63.771
thousand, $72.803 thousand and $116.151 thousand for the four
ranges of maturities.
</FN>
</TABLE>
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. During the year, the
Corporation's total deposits grew from $283.810 million in 1996
to $305.830 million in 1997, which equates to an increase of
7.76%. Most of this growth occurred in time deposits, which
increased from $129.650 million in 1996 to $147.841 million in
1997. This increase is primarily the result of two special
rate offerings on certificates of deposit occurring in the first
and third quarters of the year which generated approximately $10
million in new time deposit money to the Corporation.
Average Deposits
<TABLE>
The following table shows the classification of average deposits for
the periods indicated:
<CAPTION>
(In Thousands of Dollars)
Average Balances on December 31, 1997 1996 1995
<S> <C> <C> <C>
Noninterest-Bearing Demand Deposits $21,868 $22,979 $20,631
Interest-Bearing Demand Deposits 54,560 51,890 48,267
Savings Deposits 74,117 76,182 74,752
Time Deposits 141,659 122,973 108,626
Total Average Deposits $292,204 $274,024 $252,276
</TABLE>
<TABLE>
The following shows the average rate paid on the following deposit
categories for the periods indicated:
<CAPTION>
Years ended December 31, 1997 1996 1995
<S> <S> <S> <S>
Interest-Bearing Demand Deposits 2.09% 2.10% 2.09%
Savings 2.52% 2.53% 2.66%
Time Deposits 5.71% 5.77% 5.71%
</TABLE>
A summary of time deposits of $100,000 or more as of December 31, 1997
by maturity range is shown below:
(In Thousands of Dollars)
3 Months or Less Remaining Until Maturity $11,735
3 to 6 Months Remaining Until Maturity 8,159
6 to 12 Months Remaining Until Maturity 5,225
Over 12 Months Remaining Until Maturity 5,525
Total Outstanding $30,644
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 1997, 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 1997.
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 12.67%, 11.60% and 11.45% for 1997, 1996 and
1995, respectively. Total cash dividends declared in 1997
represented 41.29% of net income as compared to 35.22% in 1996
and 35.46% in 1995. The resulting internal equity growth
percentage amounted to 7.44% in 1997 as compared to 7.51% in
1996 and 7.39% in 1995.
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). In 1997, the bank subsidiary received approval
from the Comptroller of the Currency to exceed its maximum amount of
retained earnings available for distribution by $635 thousand. As of
December 31, 1997 the bank subsidiary had $12.133 million 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, 1997, 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 14.29% and 15.55% respectively.
The bank subsidiary's leverage ratio at December 31, 1997 was
9.89%.
Audit
The Company's acting 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 1997.
Compliance
Compliance is an important element of a financial
institution's ongoing operation with various laws and
regulations. Failure to comply with regulations can result in
significant and often costly penalties or mandated actions from
regulatory agencies. Therefore, policies and procedures are set
forth to govern the way departments function and ensure fair,
consistent and sound banking practices. When those policies and
procedures are affected by new regulations, or regulations
change, the Compliance Department is responsible to change
those policies involved, and is responsible to inform and train
personnel.
The task of training is large, particularly considering the
length and complexity of various regulations. The bank's
management depends on the Compliance Department to communicate
with the appropriate responsibilities to each area. The
training segment of compliance has become extremely important in
recent years.
Monitoring, or testing, procedures are also focused upon in
several areas to ensure that compliance of the regulations and
laws are within compliance standards. Often, the extent of
monitoring relates to the complexity or length of the
regulation. Upon the completion of monitoring projects, areas
where training are needed may be revealed.
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 in efficient and better service for our
customers.
Bank Information Systems
The Corporation has conducted a comprehensive review of its
computer systems to identify the systems that could be affected
by the "Year 2000" issue and is developing an implementation
plan to resolve the issue. The Year 2000 problem is the result
of computer programs being written using two digits rather than
four to define the applicable year. Any of the Corporation's
programs that have time sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The
Corporation presently believes that, with modifications to
existing software and converting to new software, the Year 2000
problem will not pose significant operational problems for the
Corporation's computer systems as so modified and converted.
At this time, it is not expected that expenses to address Year
2000 issues will materially impact future operating results.
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, 1997, there were 2,128
shareholders of record of common stock.
Market and Dividend Summary
Dividend Date High Low Dividend
March 1996 $40.00 $39.50 $0.20
June 1996 42.25 40.00 0.22
September 1996 44.50 42.25 0.22
October 1996 2% Stock Dividend
December 1996 46.25 44.50 0.24
December 1996 2-for-1 Stock Split
March 1997 26.75 23.13 0.13
June 1997 27.25 25.00 0.14
September 1997 29.00 25.63 0.15
October 1997 2% Stock Dividend
December 1997 33.00 27.38 0.16
Bar Graph Depicting Market Value and Book Value of Common Stock
Market Book
Value Value
Year
1993 $10.50 $8.90
1994 $14.75 $9.29
1995 $19.70 $10.33
1996 $23.13 $10.51
1997 $30.75 $11.72
Hill, Barth & King, Inc.
Certified Public Accountants
Park Place South, Suite 200
155 South Park Avenue
Warren, Ohio 44481
Telephone (330) 394-3773
FAX (330) 395-3713
January 23, 1998
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, 1997 and 1996 and the related consolidated
statements of income, stockholders equity and cash flows for
each of the three years in the period ended December 31, 1997.
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 audits provide 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, 1997 and 1996 and the
consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted
accounting principles.
Hill, Barth & King, Inc.
Certified Public Accountants
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 1996
ASSETS
<S> <C> <C>
Cash & due from banks $13,480 $13,302
Federal funds sold 5,702 5,667
TOTAL CASH AND CASH EQUIVALENTS 19,182 18,969
Securities available for sale - NOTE B 66,620 45,612
Other securities 1,686 1,468
Loans - NOTE C 275,094 266,702
Less allowance for credit losses - NOTE D 3,429 3,198
NET LOANS 271,665 263,504
Premises and equipment, net - NOTE E 6,025 5,697
Other assets 3,271 2,862
$368,449 $338,112
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $26,282 $23,468
Interest-bearing - NOTE F 279,548 260,342
TOTAL DEPOSITS 305,830 283,810
Borrowings:
U. S. Treasury interest-bearing demand note 559 622
Securities sold under repurchase agreements - NOTE G 14,659 15,749
Federal Home Loan Bank advances 4,612 1,400
TOTAL BORROWINGS 19,830 17,771
Other liabilities and deferred credits 1,866 1,722
TOTAL LIABILITIES 327,526 303,303
Commitments and contingent liabilities - NOTE H
Stockholders Equity - NOTES I, J:
Common Stock - Authorized 5,000,000 shares;
issued and outstanding 3,491,137 in 1997 and
3,311,268 in 1996 24,792 24,254
Retained earnings 15,717 14,766
Unrealized appreciation on debt securities,
net of applicable income taxes 414 108
Treasury stock, at cost; 164,544 shares in 1996 0 (4,319)
TOTAL STOCKHOLDERS EQUITY 40,923 34,809
$368,449 $338,112
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(In Thousands except Per Share Data)
Years ended December 31, 1997 1996 1995
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $23,487 $21,519 $18,580
Interest and dividends on securities:
Taxable interest 3,017 2,257 2,154
Nontaxable interest 463 444 439
Dividends 106 95 26
Interest on federal funds sold 503 562 761
TOTAL INTEREST INCOME 27,576 24,877 21,960
INTEREST EXPENSE
Deposits 11,105 10,118 9,200
Short-term borrowings 1,024 638 488
TOTAL INTEREST EXPENSE 12,129 10,756 9,688
NET INTEREST INCOME 15,447 14,121 12,272
Provision for credit losses 855 655 270
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 14,592 13,466 12,002
OTHER INCOME
Service charges on deposit accounts 1,176 1,090 972
Investment security gains 6 0 0
Other operating income 586 388 370
TOTAL OTHER INCOME 1,768 1,478 1,342
16,360 14,944 13,344
OTHER EXPENSES
Salaries and employee benefits - NOTE K 5,059 4,779 4,127
Net occupancy expense of premises 561 525 540
Furniture and equipment expense, including depreciation 491 521 463
State and local taxes 532 515 440
Other operating expenses 2,775 2,543 2,548
TOTAL OTHER EXPENSES 9,418 8,883 8,118
INCOME BEFORE FEDERAL INCOME TAXES 6,942 6,061 5,226
FEDERAL INCOME TAXES - NOTE L 2,200 1,930 1,650
NET INCOME $4,742 $4,131 $3,576
NET INCOME PER SHARE $1.39 $1.20 $1.07
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
(In Thousands of Dollars)
Years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $24,254 $4,111 $3,892
33,729 shares issued as a 2% stock dividend in 1996,
and 31,956 in 1995, including fractional shares. 0 1,501 80
Excess of fair value of shares sold over treasury stock cost 15 0 0
Excess of fair value of shares issued as a stock dividend
over treasury stock cost 51 0 0
15,335 shares sold in 1997,
59,618 shares sold in 1996 and 55,611 in 1995 472 2,583 139
Transfer of additional paid-in capital to common stock 0 16,059 0
Balance at end of year 24,792 24,254 4,111
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 0 16,059 13,301
Excess proceeds over par value of shares sold
in 1995 0 0 1,735
Excess of fair value over par value of shares issued as
stock dividends in 1995, including
fractional shares 0 0 1,023
Transfer of balance to common stock 0 (16,059) 0
Balance at end of year 0 0 16,059
RETAINED EARNINGS
Balance at beginning of year 14,766 13,591 12,385
Net income 4,742 4,131 3,576
Dividends declared:
$.58 cash dividends per share in 1997,
$.88 in 1996 and $.80 in 1995. (1,958) (1,455) (1,268)
Stock dividends (1,833) (1,501) (1,102)
Balance at end of year 15,717 14,766 13,591
UNREALIZED APPRECIATION (DEPRECIATION)
ON DEBT SECURITIES
Balance at beginning of year 109 215 (663)
Net change in unrealized appreciation (depreciation) on
debt securities, net of income taxes. 305 (107) 878
Balance at end of year 414 108 215
TREASURY STOCK, AT COST
Balance at beginning of year (4,319) 0 0
Purchase of treasury stock 0 (4,319) 0
67,907 shares reissued as a 2% stock dividend in 1997,
including fractional shares 1,783 0 0
Sale of treasury stock 2,536 0 0
Balance at end of year 0 (4,319) 0
TOTAL STOCKHOLDERS EQUITY AT END OF YEAR $40,923 $34,809 $33,976
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION> (In Thousands of Dollars)
Years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $28,327 $25,979 $22,785
Fees and commissions received 1,723 1,418 1,342
Interest paid (12,012) (10,759) (9,400)
Cash paid to suppliers and employees (8,777) (8,275) (7,779)
Income taxes paid (2,219) (2,075) (1,685)
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,042 6,288 5,263
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 14,479 14,329 18,140
Proceeds from maturities of investment securities held to maturity 0 0 2,343
Proceeds from sales of investment securities available for sale 3,106 0 2,000
Purchases of other securities and securities available for sale (38,547) (14,467) (18,114)
Purchases of investment securities held to maturity 0 0 (2,639)
Net increase in loans made to customers (10,464) (35,031) (16,080)
Purchases of premises and equipment (745) (546) (1,583)
Proceeds from sale of other real estate 0 0 252
NET CASH USED IN INVESTING ACTIVITIES (32,171) (35,715) (15,681)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 3,115 (906) (3,149)
Net increase in time deposits 17,848 21,381 27,746
Net increase in Federal Home Loan Bank Borrowings 3,212 1,400 0
Sale (purchase) of Treasury Stock 2,537 (4,319) 0
Dividends paid (1,858) (1,138) (1,167)
Proceeds from sale of common stock 488 2,582 1,875
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,342 19,000 25,305
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 213 (10,427) 14,887
CASH AND CASH EQUIVALENTS
Beginning of year 18,969 29,396 14,509
End of year $19,182 $18,969 $29,396
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATIONS
Net income $4,742 $4,131 $3,576
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 398 394 379
Amortization and accretion 1,228 1,178 967
Provision for credit losses 855 655 270
Gain on sale of investment securities (6) 0 0
Deferred income taxes (77) (70) (13)
Other (98) 0 84
NET CASH PROVIDED BY OPERATING ACTIVITIES $7,042 $6,288 $5,263
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities:
Unrealized loss on available for sale securities $42 $48 $68
Transfer of investment securities available for sale 0 0 4,664
Land exchanged for other borrowing 0 0 250
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Farmers National Banc Corp. and Subsidiary
December 31, 1997, 1996, and 1995
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 ten (10) 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. Gains
and losses are determined using the specific identification
method. The company does not utilize a trading account.
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
1997 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.
Allowance for Credit Losses: the allowance for credit losses
represents the amounts which, in management's judgment, are
adequate to absorb charge-offs of existing loans which may
become uncollectible. The allowance is based 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 earnings 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 from 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 3,422,200 for 1997, 3,445,705 for 1996 and 3,348,340 for
1995.
Reclassifications: The consolidated financial statements for
1996 have been reclassified to conform with the presentation for
1997. Such reclassifications had no effect on net results of
operations.
<TABLE>
NOTE B - SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1997 and 1996 are summarized as follows:
<CAPTION>
(In Thousands of Dollars)
1997 1996
<S> <C> <C>
U.S. Treasury and U.S. Government agencies $53,449 $31,449
Corporate debt securities 4,026 6,662
Obligations of states and political subdivisions 9,145 7,501
TOTALS $66,620 $45,612
</TABLE>
<TABLE>
Net unrealized gains (losses) for securities available for sale at December 31, 1997 and 1996 are
summarized below:
<CAPTION>
(In Thousands of Dollars)
UNREALIZED UNREALIZED NET UNREALIZED
December 31, 1997 GAINS LOSSES GAINS (LOSSES)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies $531 ($23) $508
Corporate debt securities 12 (15) (3)
Obligations of states and political subdivisions 126 (4) 122
TOTALS $669 ($42) $627
December 31, 1996
U.S. Treasury and U.S. Government agencies $82 ($37) $45
Corporate debt securities 42 (10) 32
Obligations of states and political subdivisions 88 (1) 87
TOTALS $212 ($48) $164
</TABLE>
<TABLE>
The fair value and book value of securities available for sale by contractual maturities at December
31, 1997 are summarized below:
<CAPTION>
(In Thousands of Dollars)
FAIR VALUE BOOK VALUE
<S> <C> <C>
Due in 1 year or less $13,881 $13,861
Due after one year through five years 35,655 35,320
Due after five years through ten years 2,631 2,610
Due after ten years 14,453 14,203
TOTALS $66,620 $65,994
</TABLE>
Securities with a carrying value of $35 million at December 31, 1997 and
$30 million at December 31, 1996 were pledged to secure deposits in
accordance with federal and state requirements and to secure repurchase
agreements sold.
NOTE C - LOANS
<TABLE>
Following is a summary of loans:
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 1996
<S> <C> <C>
Real Estate - Mortgage $148,740 $136,849
Installment Loans to Individuals 114,470 120,069
Commercial, Financial and Agricultural 10,784 8,522
Subtotal 273,994 265,440
Net origination and deferred loan fees 1,100 1,262
TOTAL LOANS $275,094 $266,702
<FN>
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.
</FN>
</TABLE>
NOTE D - ALLOWANCE FOR CREDIT LOSSES
<TABLE>
Following is an analysis of changes in the allowance for credit losses for the years
ended December 31:
<CAPTION>
(In Thousands of Dollars)
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $3,198 $2,911 $2,746
Additions:
Provision for credit losses 855 655 270
Recoveries on loans previously charged off 200 184 171
TOTAL ADDITIONS 4,253 3,750 3,187
Credits charged off (824) (552) (276)
Balance at end of year $3,429 $3,198 $2,911
<FN>
The allowance for federal income tax purposes amounted to $753 thousand at December 31, 1997,
which is $2.676 million less than the allowance for financial accounting purposes.
</FN>
</TABLE>
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment:
(In Thousands of Dollars)
December 31, 1997 1996
Land $1,631 $1,205
Premises 5,129 4,987
Equipment 3,625 3,481
Leasehold Improvements 180 180
10,565 9,853
Less accumulated depreciation (4,540) (4,156)
NET BOOK VALUE $6,025 $5,697
Depreciation expense was $398 thousand for the year ended December 31, 1997,
$394 thousand for 1996 and $379 thousand for 1995.
NOTE F - INTEREST-BEARING DEPOSITS
Following is a summary of scheduled maturities of certificates of deposit
during the years following December 31, 1997:
(In Thousands of Dollars)
1998 $105,573
1999 20,608
2000 10,310
2001 4,353
2002 and thereafter 10,217
TOTAL $151,061
Following is a summary of certificates of deposit of $100 thousand or
more by remaining maturities as of December 31, 1997.
(In Thousands of Dollars)
Three months or less $11,735
Three to six months 8,159
Six to twelve months 5,225
Over twelve months 5,525
TOTAL $30,644
NOTE G - 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
$15.593 million for the year ended December 31, 1997 and $16.925
million for 1996. The market value was $15.709 million for 1997
and $16.923 million for 1996. At December 31, 1997, these
agreements had a weighted average interest rate of 4.43% and
will mature January through March 1998. The securities,
although held in safekeeping outside the bank subsidiary, were
under the bank subsidiary's control. Securities sold under
repurchase agreements averaged monthly $14.887 million in 1997
and $11.692 million in 1996. Maximum amounts outstanding at any
month end during 1997 and 1996 were $16.211 million and $15.749
million, respectively.
The bank subsidiary has access to borrowing facilities
at the Federal Home Loan Bank, which totaled $13.9 million at
December 31, 1997. At December 31, 1997, the bank had two advances
from the Federal Home Loan Bank in the amounts of $3.074 million at
5.78% and $1.538 million outstanding at 5.97%, both maturing in April
1999, and were collateralized by a blanket pledge of residential
mortgage loans.
NOTE H - 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 $114 thousand for 1997, $125 thousand for
1996 and $121 thousand for 1995. 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, 1997:
(In Thousands of Dollars)
Year ending:
December 31, 1998 $57
December 31, 1999 30
TOTAL $87
The bank subsidiary is required to maintain noninterest-bearing
reserve balances with the Federal Reserve Bank. The average
reserve balance was $6.184 million for 1997.
The bank subsidiary is a party 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
classes 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 represented 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.
(In Thousands of Dollars)
CONTRACT OR NOTIONAL AMOUNT
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $14,479
Standby letters of credit
and financial guarantees written $406
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 based 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.
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 C.
NOTE I - STOCKHOLDERS EQUITY
On March 28, 1996, the shareholders of the company approved a
resolution which amended the company's Restated Articles of
Incorporation to increase the number of authorized shares of
common stock from 2.4 million shares, par value $2.50, to 5
million shares, without par value. The additional paid-in
capital account has been combined with common stock as presented
in the Consolidated Statements of Stockholders Equity.
NOTE J - 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). The bank subsidiary received approval from
the Comptroller of the Currency to exceed its maximum amount of
retained earnings available for distribution by $635 thousand.
As of December 31, 1997, the bank subsidiary had $12.133 million
not available for distribution to the company as dividends
without prior approval of the Comptroller of the Currency.
The bank subsidiary is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory-and possibly additional discretionary-actions
by regulators that, if undertaken, could have a direct material
effect on the bank subsidiary's financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the bank subsidiary must meet specific
capital guidelines that involve quantitative measures of its
assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The bank
subsidiary's capital amounts and classification are also subject
to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the bank subsidiary to maintain minimum
amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of
December 31, 1997, that the bank subsidiary meets all capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the
Office of the Comptroller of the Currency categorized the bank
subsidiary 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.
<TABLE>
The following table reflects various measures of capital at year-end:
<CAPTION>
(In Thousands of Dollars)
Requirement
For Capital
Actual Adequacy Purposes:
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
As of December 31, 1997
Total Capital
(to Risk-Weighted Assets) $39,215 15.55% $20,181 8.00%
Tier I Capital
(to Risk-Weighted Assets) $36,058 14.29% $10,090 4.00%
Tier I Capital
(to Average Assets) $36,058 9.89% $14,589 4.00%
As of December 31, 1996
Total Capital
(to Risk-Weighted Assets) $37,199 15.34% $19,399 8.00%
Tier I Capital
(to Risk-Weighted Assets) $34,166 14.09% $9,700 4.00%
Tier I Capital
(to Average Assets) $34,166 10.18% $13,424 4.00%
</TABLE>
NOTE K - RETIREMENT PLANS
The company has a qualified 401(k) deferred compensation,
noncontributory Retirement Savings Plan. All employees of the
bank who have completed at least one year of service and meet
certain other eligibility requirements are eligible to
participate in the plan. Under the terms of the Plan, employees
may voluntarily defer a portion of their annual compensation,
not to exceed 15%, pursuant to section 401(k) of the Internal
Revenue Code. The company matches a percentage of the
participants' voluntary contributions up to 6% of gross wages.
In addition, at the discretion of the Board of Directors, the
company may make an additional profit sharing contribution to
the plan. Total contributions to company retirement plans were
$203 thousand, $179 thousand, and $156 thousand for the years
ended December 31, 1997, 1996 and 1995 respectively.
NOTE L - FEDERAL INCOME TAXES
<TABLE>
The provision for income taxes (credit) consists of the following:
<CAPTION>
(In Thousands of Dollars)
Years ended December 31 1997 1996 1995
<S> <C> <C> <C>
Current $2,277 $2,000 $1,663
Deferred (77) (70) (13)
TOTALS $2,200 $1,930 $1,650
</TABLE>
<TABLE>
Following is a reconciliation between federal income taxes at statutory rates and actual taxes based on income before
federal income taxes:
<CAPTION>
(In Thousands of Dollars)
Years ended December 31 1997 1996 1995
Percent of Percent of Percent of
Amount pretax income Amount pretax income Amount pretax income
<S> <C> <C> <C> <C> <C> <C>
Statutory tax $2,429 35% $2,122 35% $1,829 35%
Effect of nontaxable interest (162) (2) (156) (3) (152) (3)
Other (67) (1) (36) 0 (27) 0
ACTUAL TAX $2,200 32% $1,930 32% $1,650 32%
</TABLE>
<TABLE>
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:
<CAPTION>
(In Thousands of Dollars)
Years ended December 31 1997 1996 1995
<S> <C> <C> <C>
Depreciation $41 $42 $17
Provision for credit losses (78) (98) (58)
Deferred loan fees and origination costs 2 (13) 29
Federal Home Loan Bank dividends 26 0 0
Deferred compensation (67) 0 0
Other (1) (1) (1)
TOTALS ($77) ($70) ($13)
</TABLE>
<TABLE>
Deferred tax liabilities (assets) are comprised of the following at December 31:
<CAPTION>
(In Thousands of Dollars)
Deferred tax assets: 1997 1996
<S> <C> <C>
Allowance for credit losses ($896) ($818)
Deferred compensation (130) (62)
Deferred loan fee income (59) (134)
Gross deferred tax assets (1,085) (1,014)
Deferred tax liabilities:
Depreciation 481 442
Prepaid loan origination costs 0 50
Mark-to-market adjustment - securities
available for sale 213 56
Federal Home Loan Bank dividends 45 20
Other 0 42
Gross deferred tax liabilities 739 610
($346) ($404)
<FN>
No valuation allowance for deferred tax assets was recorded at December 31, 1997. Federal income taxes applicable to
investment securities gains in 1997 were $2 thousand.
</FN>
</TABLE>
NOTE M - LOANS TO RELATED PARTIES
Certain directors, executive officers and associates of such
persons were loan customers during 1997. 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 thousand
during 1997:
(In Thousands of Dollars)
Total loans at December 31, 1996 $1,063
New loans 411
Repayments 621
Total loans at December 31, 1997 $853
NOTE N - 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, 1997:
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 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 made to borrowers with similar credit ratings 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.
<TABLE>
The estimated fair values of the company's financial instruments as of December 31, 1997 and 1996 are as follows:
<CAPTION>
(In Thousands of Dollars)
1997 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $19,182 $19,182 $18,969 $18,969
Investment securities:
Available for sale 66,620 66,720 45,612 45,859
Other securities 1,686 1,686 1,468 1,468
Loans - Net 271,665 272,442 263,504 263,590
TOTAL FINANCIAL ASSETS $359,153 $360,030 $329,553 $329,886
Financial liabilities:
Deposits $305,830 $306,611 $283,811 $284,578
Securities sold under repurchase agreements 14,659 14,659 15,749 15,749
Short term borrowings 5,171 5,171 2,022 2,022
TOTAL FINANCIAL LIABILITIES $325,660 $326,441 $301,582 $302,349
Unrecognized financial instruments:
Commitments to extend credit $14,479 $14,479 $9,791 $9,791
Standby letters of credit and financial guarantees 406 406 237 237
</TABLE>
NOTE O - 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 earnings of the
subsidiary since acquisition. This information should be read in conjunction
with the consolidated financial statements and related notes.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31, 1997 December 31, 1996
BALANCE SHEETS
<S> <C> <C>
Assets:
Cash $5,186 $1,197
Receivables 8 8
Investment in bank subsidiary 36,373 34,506
Other securities 54 0
$41,621 $35,711
Liabilities:
Accounts payable $1,112 $1,010
Stockholders equity:
Common stock 24,792 24,254
Retained earnings 15,717 14,766
Treasury Stock 0 (4,319)
TOTAL STOCKHOLDERS EQUITY 40,509 34,701
$41,621 $35,711
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME (In Thousands of Dollars)
Years ended December 31, 1997 December 31, 1996 December 31, 1995
<S> <C> <C> <C>
Income:
Equity in net income of subsidiary $4,819 $4,194 $3,622
Other expenses (77) (63) (46)
NET INCOME $4,742 $4,131 $3,576
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
Years ended December 31, 1997 December 31, 1996 December 31, 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $4,742 $4,131 $3,576
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase (Decrease) in deferred director fees 2 (1) (1)
Income from subsidiary (4,819) (4,194) (3,622)
Dividends received from subsidiary 5,977 6,027 1,267
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,902 5,963 1,220
Cash flows from investing activities:
Investment in subsidiary (3,025) (2,582) (1,875)
Purchase of other investments (54) 0 0
NET CASH USED IN INVESTING ACTIVITIES (3,079) (2,582) (1,875)
Cash flows from financing activities:
Purchase of treasury stock 0 (4,319) 0
Proceeds from sale of treasury stock 2,536 0 0
Dividends paid (1,858) (1,138) (1,168)
Proceeds from sale of common stock 488 2,582 1,875
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,166 (2,875) 707
NET INCREASE IN CASH 3,989 506 52
CASH
Beginning of year 1,197 692 640
End of year $5,186 $1,197 $692
<FN>
Cash dividends of $5.976 million, $6.027 million and $1.267 million were recevied from the bank subsidiary in 1997,
1996 and 1995, respectively.
</FN>
</TABLE>
INSIDE BACK COVER
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
BOARDMAN
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
DAMASCUS
29053 State Rt. 62 Damascus, OH 44619 537-4004
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000709337
<NAME> FARMERS NATIONAL BANC CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,480
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,702
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66,620
<INVESTMENTS-CARRYING> 1,686
<INVESTMENTS-MARKET> 1,686
<LOANS> 275,094
<ALLOWANCE> 3,429
<TOTAL-ASSETS> 368,449
<DEPOSITS> 305,830
<SHORT-TERM> 15,218
<LIABILITIES-OTHER> 1,866
<LONG-TERM> 4,612
0
0
<COMMON> 24,792
<OTHER-SE> 16,131
<TOTAL-LIABILITIES-AND-EQUITY> 368,449
<INTEREST-LOAN> 23,487
<INTEREST-INVEST> 4,089
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,576
<INTEREST-DEPOSIT> 11,105
<INTEREST-EXPENSE> 12,129
<INTEREST-INCOME-NET> 15,447
<LOAN-LOSSES> 855
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 9,418
<INCOME-PRETAX> 6,942
<INCOME-PRE-EXTRAORDINARY> 6,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,742
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 8.25
<LOANS-NON> 493
<LOANS-PAST> 402
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,198
<CHARGE-OFFS> 824
<RECOVERIES> 200
<ALLOWANCE-CLOSE> 3,429
<ALLOWANCE-DOMESTIC> 3,429
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
SCHEDULE 14A-INFORMATION REQUIRED IN PROXY STATEMENT
(Last amended in Exch Act Rel No. 35113, Eff. 1/3/95)
SCHEDULE 14 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 of Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $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:
Title of each class of securities to which transaction applies:
.................................................................
....................................................
Aggregate number of securities to which transaction applies:
.................................................................
...................................................
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):
.................................................................
...................................................
Proposed maximum aggregate value of transaction:
.................................................................
...................................................
Total fee paid:
.................................................................
............................
[ ] 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
TO BE HELD ON THURSDAY, MARCH 26, 1998
TO THE HOLDERS OF SHARES OF COMMON STOCK:
NOTICE IS HEREBY GIVEN that pursuant to call of its Directors,
the 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 44406 on Thursday, March
26, 1998 at three-thirty o'clock (3:30) P.M., Eastern Standard
Time, for the purpose of considering and voting upon the
following matters:
1. ELECTION OF DIRECTORS. The election of the eight (8) persons
listed in the accompanying Proxy Statement.
2. TO TRANSACT SUCH OTHER BUSINESS as may properly come before the
Meeting or any adjournment thereof.
Shareholders of record at the close of business on February 6,
1998 are the only shareholders entitled to notice of and to vote
at the Annual Shareholders Meeting.
By Order of the Board of Directors
Frank L. Paden, President & Secretary
Canfield, Ohio
March 5, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL
MEETING, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE.
FARMERS NATIONAL BANC CORP.
CANFIELD, OHIO 44406
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 26, 1998
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 26,
1998 at 3:30 P.M., Eastern Standard Time, at Colonial Catering,
429 Lisbon Street, Canfield, Ohio 44406, and at any adjournments
thereof. The Corporation is a one-bank holding company of which
The Farmers National Bank of Canfield is the wholly owned
subsidiary.
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 5, 1998 or as soon thereafter as practicable to all
shareholders entitled to vote at the meeting. In addition to
use of mails, proxies may be solicited by officers, directors,
and employees of Farmers by personal interview, telephone and
telegraph.
The 1997 Annual Report, including the required audited
financial statements of the Corporation and related financial
information, is enclosed with this proxy soliciting material.
VOTING RIGHTS
Only shareholders of record at the close of business on
February 6, 1998 will be entitled to vote at the meeting. As of
February 6, 1998, Farmers had issued and outstanding 3,491,137
shares of common stock with no par value held by approximately
2,128 holders of record eligible to vote. 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. A
plurality of the votes duly cast is required for the election of
Directors (i.e., the nominees receiving the greatest number of
votes will be elected).
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 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 shares.
The corporation will appoint two officers to act as inspectors
for purpose 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 Board of Directors knows of no other business that will be
presented for consideration at the 1998 Annual Meeting other
than the matters described in this Proxy Statement. If any
other matters should come before the meeting, the proxy holders
will vote upon them in accordance with their best judgment.
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. It is
presently anticipated that each person elected as a Director of
the Corporation at the annual meeting will be elected by the
Corporation as a Director of the Corporation's wholly-owned
subsidiary, Farmers National Bank of Canfield.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
ELECTION OF THE EIGHT NOMINEES LISTED BELOW.
INFORMATION WITH RESPECT TO NOMINEES
Certain information in the following tabulation has been
furnished to Farmers by the respective nominees for director.
Principal Occupation and Director
Name Five Year Business Experience Age Since (A)
Benjamin R. Brown President and Owner of Castruction 52 1991
Company, Incorporated in 1965. The
Company designs and manufactures
pre-cast shapes and associated
products for the steel industry.
Richard L. Calvin Vice Chairman since 1996, formerly, 71 1975
Executive Vice President/Cashier of
Farmers National Bank since 1972
and Executive Vice President/
Treasurer of Farmers National Banc
Corp. since 1983.
Joseph O. Lane President and Owner of Lane Funeral 73 1965
Homes, Inc. since 1950, Lane Life
Paramedics, Inc. and Lane Monument
Co. Mr. Lane operates three funeral
homes, an EMT and ambulance service.
David C. Myers President and Owner of Myers 69 1988
Equipment Corp. since 1955. The
Company sells truck equipment and
school buses. Mr. Myers has
operated a 2,000 - acre farm since
1946.
Edward A. Ort President of Ort Furniture Mfg. Co. 68 1993
since 1973. The Company
manufactures upholstered furniture
which is shipped to retail furniture
stores in northeastern United States
since 1957.
Frank L. Paden President & CEO of Farmers National 46 1992
Bank since 1996 and EVP/Sr. Loan
Officer since 1991. President &
Secretary of Farmers National Banc
Corp. since 1996.
William D. Stewart Chairman since 1996, formerly, 68 1972
President of Farmers National Bank
since 1972 and President & Secretary
of Farmers National Banc Corp. since
1983.
Ronald V. Wertz President and Owner of Boyer 51 1989
Insurance Inc. since 1981. The
Company 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 in 1983.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
the Corporation's directors and executive officers, and persons
who own more than 10% of a registered class of the Corporation's
equity securities, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports
of changes in ownership of Common Stock and other equity
securities of the Corporation. Officers, Directors and greater
than 10% stockholders are required by SEC regulation to furnish
the Corporation with copies of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on a review of the
copies of such reports furnished to the Corporation and written
representations that no other reports were required, during
1997, all Section 16(a) filing requirements applicable to its
officers, Directors and greater that 10% beneficial owners were
complied with.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding beneficial
ownership as of December 31, 1997, of the Corporation's common
shares of each Director and all Executive Officers as a group.
Name Aggregate Number of Percent of
Shares Beneficially Outstanding
Owned (A) Shares
Benjamin R. Brown 28,848 .83%
Richard L. Calvin 39,060 1.12%
Joseph O. Lane 83,973 2.41%
David C. Myers 26,307 .75%
Edward A. Ort 7,140 .20%
Frank L. Paden 8,470 .24%
William D. Stewart 30,942 .89%
Ronald V. Wertz 26,325 .75%
Executive Officers as a Group 11,646 (B) .33%
All Directors and
Executive Officers as a Group 254,241 7.28%
(A) Information relating to beneficial ownership is based upon
information available to Farmers and uses "Beneficial Ownership"
concepts set forth in the rules of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended. Under such rules, Beneficial Ownership includes those
shares over which an individual has sole or shared voting,
and/or investment powers such as beneficial interest of a
spouse, minor children, or other relatives living in the home of
the named individual, trusts, estates and certain affiliated
companies.
(B) Includes 8,470 shares held by Frank L. Paden, President and
CEO of Farmers National Bank of Canfield and President and
Secretary of the Corporation.
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 27, 1997, 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.
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 1997.
AUDIT & EXAMINING COMMITTEE: David C. Myers, Chairman;
Benjamin R. Brown, Edward A. Ort, and Ronald V. Wertz.
The Audit and 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 in
1997.
DISCOUNT LOAN COMMITTEE: Frank L. Paden, Chairman; Benjamin
R. Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers,
Edward A. Ort, William D. Stewart, and Ronald V. Wertz.
The Discount Loan 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.
BUILDING COMMITTEE: Richard L. Calvin, Chairman; Ad Hoc.
The Building Committee oversees site selection, office
additions and modifications. This committee did not
specifically meet in 1997, however, the chairman did report to
the directors at other meetings.
LONG RANGE AND STRATEGIC PLANNING COMMITTEE: Frank L. Paden,
Chairman; Benjamin R. Brown, Richard L. Calvin, Joseph O. Lane,
David C. Myers, Edward A. Ort, William D. Stewart, and Ronald V.
Wertz.
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 1997.
NOMINATING COMMITTEE: Frank L. Paden, Chairman; Benjamin R.
Brown, Richard L. Calvin, Joseph O. Lane, David C. Myers, Edward
A. Ort, William D. Stewart, and Ronald V. Wertz.
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 met once in
1997.
RISK MANAGEMENT AND INSURANCE COMMITTEE: Ronald V. Wertz,
Chairman; Benjamin R. Brown, Richard L. Calvin, and Carl D.
Culp, EVP/Cashier/CFO.
The Risk Management and Insurance Committee is responsible for
reviewing coverage and protection levels of insurance maintained
by the Bank. The committee met once in 1997.
During 1997, each Director standing for re-election, was
present for more that 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 six
special meetings of the Board of Directors in 1997.
Members of the Board of Directors receive $400.00 for each
board meeting they attend, and $300.00 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.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Principal Position Year Annual Salary Bonus 401(k) All Other
and Director Corporation Compensation
Fees (a) Contribution (c)
(b)
<S> <C> <C> <C> <C> <C>
Frank L. Paden, President & CEO 1997 103,665 0 7,486 1,098
1996 86,318 0 4,749 1,038
1995 75,883 2,000 0 659
<FN>
(a) The amount of Director Fees included in this annual amount
is as follows: Paden ($7,900, $8,250 and $6,700).
(b) In May, 1996, the Corporation adopted a 401(k) Profit
Sharing Retirement Savings Plan. All employees of Farmers
National Bank who have completed at least one year of service
and meet certain other eligibility requirements are eligible to
participate in the Plan. Under the terms of the Plan, employees
may voluntarily defer a portion of their annual compensation,
not to exceed 15%, pursuant to Section 401(k) of the Internal
Revenue Code. The Corporation matches a percentage of the
participants' voluntary contributions up to 6% of gross wages.
In addition, at the discretion of the Board of Directors, the
Corporation may make an additional profit sharing contribution
to the Plan. The Corporation's contributions are subject to a
vesting schedule and the Plan meets the requirements of Section
401(a) of the Internal Revenue Code and Department of Labor
Regulations under ERISA.
(c) Amounts represent cost of group term life insurance and
other benefits.
</FN>
</TABLE>
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 & CEO. No other executive officer of Farmers
receives the 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. Paden. As a result, the Bank has entered into
Deferred Compensation Agreements with certain of its executive
officers, including Mr. Paden. Under the terms of the Deferred
Compensation Agreement, they he will receive monthly payments
of $930.00 for a period of two hundred and four (204) months,
commencing with retirement age of 65. This agreement also
provides that these executive officers 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 the executive officer 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 the executive officer 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 the employee
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 and 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 1997, the largest aggregate
extensions of credit to officers, directors and their associates
during the year ended December 31, 1997 was $1,175,249 or 2.87%
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.
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 and 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 appropriated manner but is weighted heavily in
a community bank, which is located exclusively in small
communities. Successful bank operations are contingent upon
accomplishment 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 basis as
other executive offices 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 during 1997, 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
presentation comparing cumulative, five-year shareholder returns
on an indexed basis with a broad equity market index and either
a nationally recognized industry standard or an index of peer
companies selected by the Corporation. The Corporation has
selected the NASDAQ Stock Market US Index and the NASDAQ Banks
Index for purposes of this performance comparison which appears
below. The Performance Graph presents a comparison which
assumes $100 invested on December 31, 1992, in the Corporation's
common stock, The NASDAQ Stock Market US Index and the NASDAQ
Banks Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN *
AMONG FARMERS NATIONAL BANC CORP., THE NASDAQ STOCK MARKET - US
INDEX AND THE NASDAQ BANKS INDEX
[PERFORMANCE GRAPH PAPER COPY MAILED TO SEC]
TOTAL RETURN GRAPH DATA
12/92 12/93 12/94 12/95 12/96 12/97
Farmers National Banc Corp. 100 139 182 267 350 487
NASDAQ Stock Mkt-US 100 115 112 159 195 240
NASDAQ Bank 100 114 114 169 223 377
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, 1998. Hill, Barth and King also
served as the Corporation's independent public accountant for
the fiscal year ended December 31, 1997. 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 1998 annual meeting to be held in March 1999
must be received by the Corporation no later than December 1,
1998. Written proposals should be sent to Carl D. Culp,
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. Reference is made to Rule 14a-8 under the
Securities Exchange Act of 1934, as amended, for information
concerning the content and form of such proposal and the manner
in which such proposal must be made.
ANNUAL REPORT ON FORM 10-K
A copy of the Corporation's 1997 report filed with the
Securities and Exchange Commission, on Form 10-K, will be
available without charge to shareholders upon written request to
Carl D. Culp, Executive Vice President and Treasurer, Farmers
National Banc Corp., 20 South Broad Street, P.O. Box 555,
Canfield, Ohio 44406.
BY ORDER OF THE BOARD OF DIRECTORS
FRANK L. PADEN, PRESIDENT & SECRETARY
FARMERS NATIONAL BANC CORP.
20 South Broad St., P.O. Box 555, Canfield, Ohio 44406
PROXY FOR ANNUAL MEETING
SOLICITED BY THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENT, 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 6, 1998, at the annual meeting of its
Shareholders to be held at Colonial Catering, 429 Lisbon Street,
Canfield, Ohio 44406, on Thursday, March 26, 1998, at 3:30 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: The election of the eight (8) persons
listed in the Proxy Statement dated March 5, 1998 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. SUCH OTHER BUSINESS as may properly come before the meeting or
any adjournment thereof.
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__________________________
_______________________________________________
_______________________________________________
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 others must sign.
