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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursurant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995, Commission file number 0-12055
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Farmers National Banc Corp.
(Exact name of registrant as specified in its charter)
Ohio 34-1371693
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20 South Broad Street
Canfield, Ohio 44406 44406
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 216-533-3341
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
(Title of Class)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The registrant estimates that as of February 5, 1996, the aggregate market
value of the voting stock held by non-affiliates of the registrant (including
113,490 shares held by officers and directors of the registrant) was
approximately $66,193,500.
As of February 5, 1996, the registrant had outstanding 1,644,559 shares of
common stock having a par value of $2.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K
into which
Document Document is Incorporated
1995 Annual Report to Shareholders II
Definitive proxy statement for the 1995 Annual
Meeting of Shareholders to be held on March 28, 1996 III
FARMERS NATIONAL BANC CORP.
FORM 10-K
1995
INDEX
Part I. Page
Item 1. Business:
General I-2
Statistical Information I-7
Item 2. Properties I-24
Item 3. Legal Proceedings I-24
Item 4. Submission of Matters to a Vote of Security Holders I-24
Part II.
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters II-1
Item 6. Selected Financial Data II-1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations II-1
Item 8. Financial Statements and Supplementary Data II-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures II-1
Part III.
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-2
Item 12. Security Ownership of Certain Beneficial Owners and
Management III-2
Item 13. Certain Relationships and Related Transactions III-2
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K IV-1
Part I
Item 1. Business General
The Corporation
The registrant, Farmers National Banc Corp. (herein sometimes referred to
as the Corporation), is a one-bank holding company registered under the
Bank Holding Company Act of 1956, as amended. The only subsidiary is The
Farmers National Bank of Canfield, which was acquired March 31, 1983. The
Corporation and its subsidiary operate in one industry, domestic banking.
The Corporation conducts no business activities except for investment in
securities permitted under the Bank Holding Company Act. Bank holding
companies are permitted under Regulation Y of the Board of Governors of
the Federal Reserve System to engage in other activities such as leasing
and mortgage banking.
The Bank
The Bank is a full-service national bank engaged in commercial and retail
banking in Mahoning and Columbiana Counties, Ohio. The Bank's commercial
banking services include checking accounts, savings accounts, time deposit
accounts, commercial, mortgage and installment loans, home equity loans,
home equity lines of credit, night depository, safe deposit boxes, money
orders, bank checks, automated teller machines and travelers checks, "E"
Bond transactions, utility bill payments, MasterCard and Visa credit
cards, and other miscellaneous services normally offered by Commercial
Banks. In addition, the Bank offers Discount Brokerage Service.
Supervision and Regulation
The Corporation is a one bank holding company and is regulated by the
Federal Reserve Bank (the "FRB"). The bank is a national bank and is
regulated by the Office of the Comptroller of the Currency (the "OCC"),
as well as the Federal Deposit Insurance Corporation (the "FDIC").
Changes have developed over the past several years regarding minimum
capital requirements for financial institutions. A listing of the
minimum requirements for capital and the Corporation's capital position
as of December 31, 1995 are presented on page 18 of the annual report to
shareholders for the year ended December 31, 1995 and is hereby
incorporated by reference.
The Corporation is subject to regulation under the Bank Holding Company
Act of 1956, as amended. This Act restricts the geographic and product
range of bank holding companies by defining the types and locations of
institutions the holding companies can own or acquire. This act also
regulates transactions between the Corporation and the bank and generally
prohibits tie-ins between credit and other products and services.
Supervision and Regulation (Continued)
The bank is subject to regulation under the National Banking Act and is
periodically examined by the OCC and is subject to the rules and
regulations of the FRB. As an insured institution and member of the Bank
Insurance Fund ("BIF"), the bank is also subject to regulation by the
FDIC. Establishment of branches is subject to approval of the OCC and
geographic limits established by state law. Ohio branch banking law
permits a bank having its principal place of business in the State of
Ohio to establish branch offices in any county in Ohio without geographic
restrictions.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA")revised the bank regulatory and funding provisions of the
Federal Deposit Insurance Act and several other federal banking statutes.
Among other things, FDICIA requires federal banking agencies to broaden
the scope of corrective action taken with respect to banks that do not
meet minimum capital requirements and to take such actions promptly in
order to minimize losses to the FDIC.
FDICIA established five capital tiers: "well capitalized"; "adequately
capitalized"; "undercapitalized"; "significantly undercapitalized"; and
"critically undercapitalized" and imposes significant restrictions on the
operations of a depository institution that is not in either of the first
two of such categories. A depository institution's capital tier will
depend upon the relationship of its capital to various capital measures.
A depository institution will be deemed to be "well capitalized" if it is
significantly exceeds the minimum level required by regulation for each
relevant capital measure, "adequately capitalized" if it meets each such
measure, "undercapitalized" if it significantly below any such measure
and "critically undercapitalized" if it fails to meet any critical
capital level set forth in regulations. An institution may be deemed to
be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination
rating or is deemed to be in an unsafe or unsound condition or to be
engaging in unsafe or unsound practices.
Under regulations adopted under these provisions, for an institution to be
well capitalized it must have a total risk-based capital ratio of at least
10%, a Tier I risk-based capital ratio of at least 6% and a Tier I leverage
ratio of at least 5% and not be subject to any specific capital order or
directive. For an institution to be adequately capitalized, it must have a
total risk-based capital ratio of at least 8%, a Tier I risk-based capital
ratio of at least 4% and a Tier I leverage ratio of at least 4% (or in some
cases 3%). Under the regulations, an institution will be deemed to be
undercapitalized if the bank has a total risk-based capital ratio that is
less than 8%, a Tier I risk-based capital ratio that is less than 4% or a
Tier I leverage ratio of less than 4% (or in some cases 3%). An institution
will be deemed to be significantly undercapitalized if the bank has a total
risk-based capital ratio that is less than 6%, a Tier I risk-based capital
ratio that is less than 3%, or a leverage ratio that is less than 3% and will
be deemed to be critically undercapitalized if it has a ratio of tangible
equity to total assets that is equal to or less than 2%.
Supervision and Regulation (Continued)
FDICIA generally prohibits a depository institution from making a
capital distribution (including payment of dividends) or paying
management fees to any entity that controls the institution if it
thereafter would be undercapitalized.
If an institution becomes undercapitalized, it will be generally
restricted from borrowing from the Federal Reserve, increasing its
average total assets, making any acquisitions, establishing any branches
or engaging in any new line of business. An undercapitalized
institution must submit an acceptable capital restoration plan to the
appropriate federal banking agency, which plan must, in the opinion of
such agency, be based on realistic assumptions and be "likely to
succeed" in restoring the institution's capital. In connection with the
approval of such a plan, the holding company of the institution must
guarantee that the institution will comply with the plan, subject to a
limitation of liability equal to a portion of the institution's assets.
If an undercapitalized institution fails to submit an acceptable plan or
fails to implement such a plan, it will be treated as if it is
significantly undercapitalized.
Under FDICIA, bank regulators are directed to require "significantly
undercapitzlized" institutions, among other things, to restrict business
activities, raise capital through a sale of stock, merge with another
institution and/or take any other action which the agency determines
would better carry out the purposes of FDICIA.
Within 90 days after an institution is determined to be "critically
undercapitalized", the appropriate federal banking agency must, in most
cases, appoint a receiver or conservator for the institution or take
such other action as the agency determines would better achieve the
purposes of FDICIA. In general, "critically undercapitalized"
institutions will be prohibited from paying principal or interest on
their subordinated debt and will be subject to other substantial
restrictions.
Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits. Undercapitalized
institutions are prohibited from offering interest rates on deposits
significantly higher than prevailing rates.
The provisions of FDICIA governing capital regulations became effective
on December 19, 1992. FDICIA also directs that each federal banking
agency prescribe standards for depository institutions and depository
institution holding companies relating to internal controls, information
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, a maximum ratio of classified
assets to capital, a minimum ratio of market value to book value for
publicly traded shares (if feasible) and such other standards as the
agency deems appropriate.
Supervision and Regulation (Continued)
FDICIA also contains a variety of other provisions that could affect the
operations of the Corporation, including new reporting requirements,
regulatory standards for real estate lending, "truth in savings"
provisions, the requirement that a depository institution give 90 days'
prior notice to customers and regulatory authorities before closing any
branch, limitations on credit exposure between banks, restrictions on
loans to a bank's insiders and guidelines governing regulatory
examinations.
Pursuant to FDICIA, the FDIC has developed a transitional risk-based
assessment system, under which, beginning on January 1, 1993, the
assessment rate for an insured depository institution varied according to
its level of risk. An institution's risk category will depend upon
whether the institution is well capitalized, adequately capitalized or
less than adequately capitalized and whether it is assigned to Subgroup
A, B or C. Subgroup A institutions are financially sound institutions
with few minor weaknesses; Subgroup B institutions are institutions that
demonstrate weaknesses which, if not corrected, could result in
significant deterioration; and Subgroup C institutions are institutions
for which there is a substantial probability that the FDIC will suffer a
loss in connection with the institution unless effective action is taken
to correct the area of weakness. Based on its capital and supervisory
subgroups, each BIF member institution will be assigned an annual FDIC
assessment rate per $100 of insured deposits.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorizes interstate acquisitions of banks and bank
holding companies without geographic constraint beginning September 29,
1995. Beginning June 1, 1997, the IBBEA also authorizes banks to merge
with banks located in another state provided that neither state has
"opted out" of interstate branching between September 29, 1994 and May
31, 1997. States also may enact legislation permitting interstate merger
transactions prior to June 1, 1997. After acquiring interstate branches
through a merger, a bank may establish additional branches in that state
at the same locations as any bank involved in the merger could have
established branches under state and federal law. In addition, a bank
may establish a de novo branch in another state that expressly permits
the establishment of such branches. A bank that establishes a de novo
interstate branch may thereafter establish additional branches on the
same basis as a bank that has established interstate branches through a
merger transaction.
If a state "opts out" of interstate branching, no bank from another state
may establish a branch in that state, whether through a merger or de novo
establishment. Several states are considering legislation to opt out of
the interstate branching provisions of the IBBEA or, alternatively, to
permit interstate branching prior to the June 1, 1997 statutory effective
date. It is not possible to predict the full impact of these actions on
the Bank or the Corporation until May 31, 1997, the date by which all
such statutes must be adopted.
Competition
The Bank competes with state and national banks located in Mahoning and
Columbiana counties.
The Bank also competes with a large number of other financial
institutions, such as savings and loan associations, insurance companies,
consumer finance companies, credit unions and commercial finance and
leasing companies, for deposits, loans and service business. Money
market mutual funds, brokerage houses and similar institutions provide in
a relatively unregulated environment many of the financial services
offered by the Bank.
Many competitors have substantially greater resources than the Bank. In
the opinion of management, the principal methods of competition are the
rates of interest charged for loans, the rates of interest paid for
funds, the fees charged for services and the availability of services.
Employees
As of December 31, 1995, the Corporation and its subsidiaries had 162
employees. The registrant considers its relations with its employees to
be satisfactory.
Statistical Information
1. Distribution of Assets, Liabilities and Stockholders Equity:
Interest Rates and Interest Differential
AVERAGE BALANCE SHEETS
The following shows consoldiated average balances of assets, liabilities and
stockholders equity for the years indicated.
(In Thousands of Dollars)
ASSETS 1995 1994 1993
Cash and due from banks 11,437 10,610 10,190
Federal funds sold 13,181 5,721 10,701
Total Cash & Cash Equivalents 24,618 16,331 20,891
Interest Bearing Deposits In Other Banks 0 0 71
Investment Securities:
U.S. Treasury Securities 27,148 28,250 25,571
U.S. Government Agencies and corporations 2,298 2,251 5,032
Obligations of states and political subdivisions 7,266 7,364 6,683
Other securities 9,721 11,851 15,614
TOTAL INVESTMENT SECURITIES 46,433 49,716 52,900
Loans:
Total Loans 221,955 210,148 194,708
Less allowance for possible credit losses 2,897 2,745 2,528
NET LOANS 219,058 207,403 192,180
Property and equipment, net 4,671 4,165 4,698
Other assets 2,379 2,224 2,115
297,159 279,839 272,855
AVERAGE BALANCE SHEETS, (Continued)
(In Thousands of Dollars)
LIABILITIES AND STOCKHOLDERS EQUITY 1995 1994 1993
Deposits (All domestic):
Noninterest-bearing demand deposits 20,631 21,224 19,417
Interest-bearing demand deposits 48,267 49,280 45,508
Savings 74,752 80,969 78,292
Time 108,626 90,750 95,568
TOTAL DEPOSITS 252,276 242,223 238,785
Other Borrowings
U.S. Treasury interest-bearing demand note & 804 551 548
other borrowings
Securities sold under repurchase agreements 10,032 8,832 7,955
TOTAL OTHER BORROWINGS 10,836 9,383 8,503
Accrued expenses and other liabilities 2,870 1,012 1,532
TOTAL LIABILITIES 265,982 252,618 248,820
Stockholders equity:
Common stock 3,960 3,739 3,518
Additional paid-in capital 14,121 11,913 10,324
Retained earnings 13,096 11,569 10,193
TOTAL STOCKHOLDERS EQUITY 31,177 27,221 24,035
297,159 279,839 272,855
ANALYSIS OF NET INTEREST EARNINGS
(In Thousands of Dollars)
The following schedules show the average amounts of interest-earning assets,
interest-bearing liabilities, the related amounts of interest earned or paid
and the related average yields or interest rates paid for the year indicated:
Year ended December 31, 1995 Interest Average
Average Earned Yield or
Outstanding or Paid Rate
Interest-earning assets:
Investment securities:
U.S. Treasury securities and U.S. 29,446 1,636 5.6%
Govt. agencies and corporations
Obligations of states and political 7,266 670 9.2%
subdivisions (1)
Other securities 9,721 547 5.6%
Total investment securities (1) 46,433 2,853 6.1%
Federal funds sold 13,181 761 5.8%
Total loans (2) 221,955 18,580 8.4%
Total interest-earning assets 281,569 22,194 7.9%
Interest-bearing liabilities:
Interest-bearing demand deposits 48,267 1,009 2.1%
Savings 74,752 1,986 2.7%
Time 108,626 6,205 5.7%
Total 231,645 9,200 4.0%
Other borrowings:
U.S. Treasury interest-bearing demand note & 804 48 6.0%
other borrowings
Securities sold under repurchase agreements 10,032 440 4.4%
Total other borrowings 10,836 488 4.4%
Total interest-bearing liabilities 242,481 9,688 4.0%
Net yield on interest-earning assets (3) 12,506 4.4%
ANALYSIS OF NET INTEREST EARNINGS, (Continued)
(In Thousands of Dollars)
Year ended December 31, 1994 Interest Average
Average Earned or Yield or
Outstanding Paid Rate
Interest-earning assets:
Investment securities:
U.S. Treasury securities and U.S. 30,501 1,462 4.8%
Government agencies and corporations
Obligations of states and political 7,364 651 8.8%
subdivisions (1)
Other securities 11,851 700 5.9%
Total investment securities (1) 49,716 2,813 5.6%
Federal funds sold 5,721 234 4.1%
Total loans (2) 210,148 16,911 8.0%
Total interest-earning assets 265,585 19,958 7.5%
Interest-bearing liabilities:
Interest-bearing demand deposits 49,280 1,141 2.3%
Savings 80,969 2,256 2.8%
Time 90,750 4,298 4.7%
Total 220,999 7,695 3.5%
Short-term borrowings:
U.S. Treasury interest-bearing demand note 551 16 2.9%
Securities sold under repurchase agreements 8,832 289 3.3%
Total short-term borrowings 9,383 305 3.3%
Total interest-bearing liabilities 230,382 8,000 3.5%
Net yield on interest-earning assets (3) 11,958 4.5%
ANALYSIS OF NET INTEREST EARNINGS, (Continued)
(In Thousands of Dollars)
Year ended December 31, 1993 Interest Average
Average Earned or Yield or
Outstanding Paid Rate
Interest-earning assets:
Interest-bearing bank deposits 71 6 8.5%
Investment securities:
U.S. Treasury securities and U.S. 30,603 1,599 5.2%
Government Agencies and corporations
Obligations of states and political 6,683 598 8.9%
subdivisions (1)
Other securities 15,614 871 5.6%
Total investment securities (1) 52,900 3,068 5.8%
Federal funds sold 10,701 324 3.0%
Total loans (2) 194,708 16,971 8.7%
Total interest-earning assets 258,380 20,369 7.9%
Interest-bearing liabilities:
Interest-bearing demand deposits 45,508 1,257 2.8%
Savings 78,292 2,429 3.1%
Time 95,568 4,764 5.0%
Total 219,368 8,450 3.9%
Short-term borrowings:
U.S. Treasury interest-bearing demand note 548 12 2.2%
Securities sold under repurchase agreements 7,955 276 3.5%
Total short-term borrowings 8,503 288 3.4%
Total interest-bearing liabilities 227,871 8,738 3.8%
Net yield on interest-earning assets (3) 11,631 4.5%
ANALYSIS OF NET INTEREST EARNINGS, (Continued)
(1) The amounts are reflected on a fully taxable equivalent basis using
the statutory tax rate of 35% in 1995, 1994 and 1993. Tax-free income from
states and political subdivisions, and loans amounted to 156,662 and
278,671, respectively for 1995, 173,707 and 249,416 for 1994, and 212,097
and 182,883 for 1993.
(2) Average outstanding loans include the average balance outstanding of
all loans including non-accruing loans.
(3) Net yield on interest-earning assets is calculated by dividing the
difference between total interest earned and total interest paid by total
interest-earning assets.
RATE AND VOLUME ANALYSIS
The following tables analyze by rate and volume the dollar amount of changes
in the components of the interest differential:
(In Thousands of Dollars)
1995 Change from 1994
Total Change Change Due Change Due
to volume to rate
Interest Income
Interest-earning assets:
Investment securities:
U.S. Treasury securities and U.S. 174 (56) 230
Government agencies and corporations
Obligations of states and political 19 (9) 28
subdivsions
Other securities (153) (125) (28)
Total investment securities 40 (190) 230
Federal funds sold 527 306 221
Total loans 1,669 974 695
Total interest income 2,236 1,090 1,146
Interest Expense
Interest-bearing demand deposits (132) (29) (103)
Savings (270) (184) (86)
Time 1,907 831 1,076
Total 1,505 618 887
Other borrowings:
U.S. Treasury interest-bearing demand note 32 7 25
& other borrowings
Securities sold under repurchase agreements 151 40 111
Total other borrowings 183 47 136
Total interest expense 1,688 665 1,023
RATE AND VOLUME ANALYSIS, (Continued)
(In Thousands of Dollars)
1994 Change from 1993
Total Change Due Change Due
Change to Volume to Rate
Interest Income
Interest-earning assets:
Interest-bearing bank deposits (6) (6) 0
Investment securities:
U.S. Treasury securities and U.S. (137) (7) (130)
Government agencies and corporations
Obligations of states and political 53 69 (16)
subdivisions
Other securities (171) (210) 39
Total investment securities (255) (148) (107)
Federal funds sold (90) (151) 61
Total loans (60) 1,330 (1,390)
Total interest income (411) 1,025 (1,436)
Interest Expense
Interest-bearing demand deposits (116) 118 (234)
Savings (173) 92 (265)
Time (466) (241) (225)
Total (755) (31) (724)
Short-term borrowings:
U.S. Treasury interest-bearing demand note 4 (31) 34
Securities sold under repurchase agreements 13 (4) 18
Total short-term borrowings 17 (35) 52
Total interest expense (738) (66) (672)
The amount of change not solely due to rate or volume changes was allocated
between the change due to rate and the change due to volume based on the
relative size of the rate and volume changes.
II. INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment securities
and securities available for sale at the date indicated.
(In Thousands of Dollars)
December 31, 1995 December 31, 1994
Securities Securities Securities Securities
Held To Available Held To Available
Maturity For Sale Maturity For Sale
U.S. Treasury & U.S. 0 31,692 921 28,966
Government Agencies
Obligations of States & 0 6,943 8,013 0
Political Subdivsions
Other Securities 853 7,845 559 9,547
TOTALS 853 46,480 9,493 38,513
The following table sets forth the maturities of securities as of December
31, 1995 including weighted average yield, on a taxable equivalent basis:
(In Thousands of Dollars)
December 31, 1995
TYPE AND MATURITY GROUPING Weighted
Book Average
Value Yield (1)
U.S. Treasury & U.S. Government Agencies
Maturing within one year 8,041 5.13%
Maturing after one year but within five years 21,949 5.66%
Maturing after ten years 1,702 6.69%
TOTAL U.S. TREASURY & U.S. GOVERNMENT AGENCIES 31,692 5.58%
Obligations of States and Political Subdivisions
Maturing within one year 763 9.79%
Maturing after one year but within five years 1,273 9.04%
Maturing after five years but within ten years 1,897 8.79%
Maturing after ten years 3,010 9.15%
TOTAL OBLIGATIONS OF STATES & POLITICAL SUBDIVISIONS 6,943 9.09%
Other Securities
Maturing within one year 4,037 5.22%
Maturing after one year but within five years 3,657 6.66%
Maturing after ten years 1,004 5.74%
TOTAL OTHER SECURITIES 8,698 5.89%
II. INVESTMENT PORTFOLIO (CONTINUED)
(1) The weighted average yield has been computed by dividing the total
interest income adjusted for amortization of premium or accretion of discount
over the life of the security by the par value of the securities outstanding.
The weighted average yield of tax-exempt obligations of states and political
sub-divisions has been calculated on a fully taxable equivalent basis. The
amounts of adjustments to interest which is based on the statutory tax rate
of 35% were $25,398, $38,186 , $56,693 and $93,610 for the four ranges of
maturities.
The Corporation's total investment securities decresased slightly from
$48,006,000 in 1994 to $47,333,000 in 1995. In the same period however, the
net unrealized gains (losses) of the portfolio increased from $(1,064,000) in
1994 to $328,000. This increase in valuation is a result of the general
decline of interest rates in 1995.
During December, 1995, the Corporation transferred its portfolio of
securities held-to-maturity to the available for sale classification. The
transfer was made upon adoption of the Special Report "A Guide To
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" issued by the Financial Accounting Standards Board.
The amortized cost of the transferred securities was $4,543,695 and the
related unrealized gain was $120,287. Mangement executed this transfer to
give the Corporation more flexibiltiy in managing interest rate risk and
liquidity in future years.
The Coproration's objective in managing the investment portfolio is to
preserve and enhance corporate liquidity through investment in short and
intermediate term securities which are readily marketable and of the highest
credit quality. In general, investment in securities is limited to those
funds the bank feels it has in excess of funds used to satisfy loan demand
and operating considerations.
III. LOAN PORTFOLIO
The following schedule shows the composition of loans at the dates indicated:
(In Thousand of Dollars)
December 31,
1995 1994 1993 1992 1991
Commercial, financial and agricultural 22,677 24,477 24,373 24,572 26,445
Real Estate - Mortgage 98,678 92,773 81,726 73,043 61,490
Installment loans to indivduals 110,805 100,484 97,515 94,432 92,069
Lease Financing 0 0 0 41 117
232,160 217,734 203,614 192,088 180,121
Less Unearned Income 0 0 0 1 27
Total Loans 232,160 217,734 203,614 192,087 180,094
MATURITIES AND SENSITIVITIES OF LOANS TO INTEREST RATES
The following schedule sets forth maturities based on remaining scheduled
repayments of principal for various categories of loans listed above as of
December 31, 1995.
(In Thousands of Dollars)
1 year 1 to 5 Over 5
or less years years
Commercial, financial and agricultural 5,066 5,207 12,404
The amounts of loans as of December 31, 1995, based on remaining scheduled
repayments of principal are shown in the following table:
(In Thousands of Dollars)
Loan Types 1 year Over 1 Total
or less year
Floating or adjustable rates of interest 2,124 5,942 8,066
Fixed rates of interest 2,942 11,669 14,611
Totals 5,066 17,611 22,677
Total net loans were $229,248,832 at year-end 1995 compared to $214,987,926
at year-end 1994. This is an increase of $14,260,906, or 6.63%. Loans
comprised 78.8% of the Bank's average earning assets during 1995, compared to
79.1% in 1994. The product mix in the Loan Portfolio shows Commercial Loans
comprising 9.7%, Real Estate Mortgage Loans 42.5% and Installment Loans to
Individuals 47.8% at December 31, 1995, compared with 11.2%, 42.6% and 46.2%,
respectively, at December 31, 1994.
III. LOAN PORTFOLIO (CONTINUED)
Loans contributed 84.6% of total interest income in 1995 compared to 85.7% in
1994. Loan yield was 8.37% in 1995, 49 basis points greater than the average
rate for total earning assets. Management recognizes that while the Loan
Portfolio holds some of the Bank's highest yielding assets, it is inherently
the most risky portfolio. Accordingly, Management attempts to balance credit
risk versus return with conservative credit standards. Management has
developed and maintains comprehensive underwriting guidelines and a loan
review function which monitors credits during and after the approval process.
To minimize risks associated with changes in the borrower's future repayment
capacity, the Bank generally requires scheduled periodic principal and
interest payments on all types of loans and normally requires collateral.
Installment Loans to Individuals increased from $100,484,000 on December 31,
1994 to $110,805,000 on December 31, 1995 which represents a 10.3% increase.
Management continues to target the automobile dealer network to purchase
indirect Installment Loans. Dealer paper was purchased using strict
underwriting guidelines with an emphasis on quality. Indirect Loans comprise
75% of the Installment Loan Portfolio. Net loan losses on the Installment
Loan portfolio were $148,000 in 1995 as compared to $59,000 in 1994. This
represents .14% of total Installments Loans outstanding for 1995 and .06% for
1994.
Real Estate Mortgage Loans increased to $98,678,000 at December 31, 1995, an
increase of 6.4% over 1994. This $98,678,000 includes $18,890,000 of
commercial real estate loans. These loans are all made within the Bank's
primary market area. The corporation originated both fixed rate and
adjustable rate mortgages during 1995. All mortgage loans made in 1995 are
held in the Mortgage Loan portfolio and are not sold on the secondary market.
Fixed rate terms are limited to fifteen year terms while adjustable rate
products are offered with maturities up to thirty years.
Commercial Loans at December 31, 1995 decreased slightly from year-end 1994
with outstanding balances of $22,677,000. This portfolio is primarily
variable rate loans. The Bank's commercial loans are granted to customers
within the immediate trade area of the Bank. The mix is diverse, covering a
wide range of borrowers and business types. The Bank monitors and controls
concentrations within a particular industry or segment of the economy. These
loans are made for purposes such as equipment purchases, capital
improvements, the purchase of inventory, general working capital purposes and
small business lines of credit.
RISK ELEMENTS
The following table sets forth aggregate loans in each of the following
categories for the years indicated:
December 31,
1995 1994 1993 1992 1991
Loans accounted for on a nonaccrual 125 302 349 453 1,599
basis
Loans contractually past due 90 days or 1,384 1,475 2,343 2,232 2,226
more as to interest or principal
payments (not included in nonaccrual
loans above
Loans considered troubled debt 75 0 108 0 113
restructurings (not included in
nonaccrual loans or contractually past
due above)
Management is not aware of any loans not included in the table above where
serious doubt exists as to the ability of borrower to comply with the current
loan repayment terms.
The following shows the amounts of contracted interest income and interest
income reflected in income on loans accounted for on a nonaccrual basis and
loans considered troubled debt restructuring for the periods indicated:
Years Ended December 31,
(In Thousands of Dollars)
1995 1994 1993 1992 1991
Gross interest income that would have 5 21 40 51 115
been recorded if the loans had been
current in accordance with their
original terms
Interest income included in income on 0 0 0 0 0
the loans
Non-accrual loans are loans which are 90 days past due and with respect to
which, in Management's opinion, collection of interest is doubtful. These
loans no longer accrue interest and are accounted for on a cash basis. Loans
which are 90 days or more past due but continue to accrue interest are loans
which, in Management's opinion, are well secured and are in the process of
collection.
As of December 31, 1995, there were no concentrations of loans exceeding 10%
of total loans which are not disclosed as a category of loans. As of that
date also, there are no other interest-earning assets that are either
nonaccrual, past due or restructured.
I-19
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following is an analysis of the Allowance for Loan and Lease Losses for
the periods indicated:
(In Thousands of Dollars)
Years Ended December 31,
1995 1994 1993 1992 1991
Balance at beginning of year 2,746 2,621 2,274 1,630 1,440
Loan losses:
Commercial, financial and (1) (185) (69) (411) (174)
agricultural
Real estate - mortgage 0 0 (16) (63) (51)
Installment loans to individuals (275) (202) (351) (332) (310)
Total Loan Losses (276) (387) (436) (806) (535)
Recoveries on previous loan losses:
Commercial, financial and 44 39 36 36 30
agricultural
Real estate - mortgage 0 0 7 0 0
Installment loans to individuals 127 143 120 104 87
Total recoveries 171 182 163 140 117
Net loan losses (105) (205) (273) (666) (418)
Provisions charged to operations (1) 270 330 620 1,310 608
Balance at end of year 2,911 2,746 2,621 2,274 1,630
Ratio of net loan and lease losses .05% .10% .14% .36% .23%
to average net loans and leases
outstanding
(1) The provision for possible credit losses charged to operating expense is
based on management's judgement after taking into consideration all factors
connected with the collectibility of the existing loan portfolio. Management
evaluates the loan portfolio in light of economic conditions, changes in the
nature and volume of the loan portfolio, industry standards and other
relevant factors. Specific factors considered by management in determining
the amounts charged to operating expenses include previous credit loss
experience, that status of past due interest and principal payments, the
quality of financial information supplied by loan customers and the general
condition of the industries in the community to which loans have been made.
SUMMARY OF CREDIT LOSS EXPERIENCE, (Continued)
The allowance for possible loan and lease losses has been allocated according
to the amount deemed to be reasonably necessary to provide for the
possibility of losses being incurred within the following categories of loans
as of the dated indicated.
(In Thousands of Dollars)
Years Ended December 31,
1995 1994 1993 1992 1991
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
to to to to to
Total Total Total Total Total
Loans Loans Loans Loans Loans
Commercial, 1,800 9.7% 1,700 11.2% 1,692 11.9% 1,599 12.8% 1,180 14.7%
financial and
agricultural
Real estate - 250 42.5% 200 42.6% 170 40.1% 75 38.0% 50 34.1%
mortage
Installment 861 47.8% 846 46.2% 759 48.0% 600 49.2% 400 51.1%
loans to
individuals
Lease 0 .0% 0 .0% 0 .0% 0 .0% 0 .1%
financing
2,911 100% 2,746 100% 2,621 100% 2,274 100% 1,630 100%
The allocation of the allowance as shown in the table above should not be
interpreted as an indication that charge-offs in 1996 will occur in the same
proportions or that the allocation indicates future charge-off trends.
Furthermore, the portion allocated to each loan category is not the total
amount available for future losses that might occur within such categories
since the total allowance is a general allowance applicable to the entire
portfolio.
LOAN COMMITMENTS AND LINES OF CREDIT
In the normal course of business, the banking subsidiary has extended various
commitments for credit. Commitments for mortgages, revolving lines of credit
and letters of credit generally are extended for a period of one month up to
one year. Normally no fees are charged on any unused portion. A fee of two
percent is charged for the issuance of a letter of credit.
DEPOSITS (All Domestic)
Deposits represent the Corporation's principal source of funds. The deposit
base consists of demand deposits, savings and money market accounts and other
time deposits. During 1995, the Corporation's total deposits grew from
244,302,000 in 1994 to $267,955,000 in 1995, which equates to an increase of
9.7% . Most of this growth occurred in time deposits, which increased from
$91,984,000 in 1994 to $119,467,918 in 1995. This increase was fueled by
customer demand as the result of substantial increases in rates paid on time
deposits that the banking industry experienced during 1995. Some of this
increase was the result of a movement by customers from the lower yielding
savings deposits, which saw a decrease in balances in 1995 of 5.24%. The
Corporation also offered a special rate on certificates of deposit in the
first quarter of 1995 that generated approximately $12,000,000 in new
accounts.
In September of 1995, the Corporation acquired the fixed assets, certain
loans, deposits and related accruals of the Leetonia, Ohio branch of Bank One.
This transaction resulted in an increase of approximately $6 million in
deposits.
AVERAGE DEPOSITS
The following table shows the classification of average deposits for the
periods indicated:
(In Thousands of Dollars)
Average Balance 1995 1994 1993
Noninterest-bearing demand deposits 20,631 21,224 19,417
Interest-bearing demand deposits 48,267 49,280 45,508
Savings deposits 74,752 80,969 78,292
Time deposits 108,626 90,750 95,568
Total average deposits 252,276 242,223 238,785
The following shows the average rate paid on the following deposit categories
for the periods indicated:
Type 1995 1994 1993
Interest-bearing demand deposits 2.09% 2.32% 2.76%
Savings deposits 2.66% 2.79% 3.10%
Time deposits 5.71% 4.74% 4.98%
A summary of time deposits of $100,000 or more as of December 31, 1995 by
maturity range is shown below:
3 months or less remaining until maturity 2,317
3 to 6 months remaining until maturity 3,523
6 to 12 months remaining until maturity 8,804
Over 12 months remaining until maturity 3,776
Total outstanding 18,420
VI. Return on Equity and Assets
Information for the years indicated as follows:
1995 1994 1993
Net income to average total assets 1.20% 1.22% 1.16%
Net income to average equity 11.45% 12.58% 12.85%
Dividends per share to net income per share 36.04% 34.96% 33.94%
Average equity to average total assets 10.49% 9.73% 8.81%
VII. SHORT-TERM BORROWINGS
Securities sold under repurchase agreements generally mature within one to
ninety days from the transaction date.
The details of these borrowings (in thousands) relating to the year 1995
are as follows:
Balance at December 31: 9,847
Weighted average interest rate at year end 4.45%
Maximum amount outstanding at any months end 11,850
Average amount outstanding during the year 9,498
Weighted average interest rate during the year 4.39%
VIII. INTEREST RATE SENSITIVITY
(In Thousands of Dollars)
December 31, 1995 December 31, 1994 December 31,1993
Total Within Total Within Total Within
3 month 12 month 3 month 12 month 3 month 12 month
Loans 27,433 73,388 29,941 74,965 30,254 73,507
Securities 2,001 12,640 4,016 18,189 3,002 18,205
Federal funds sold 14,630 14,630 2,983 2,983 6,063 6,063
Total Interest-Sensitive 44,064 100,658 36,940 96,137 39,319 97,775
Assets
Total Interest-Sensitive 55,706 103,701 53,912 77,970 50,417 77,158
Liabilities
Total Senstivity Gap (11,642) (3,043) (16,972) 18,167 (11,098) 20,617
Ratio of Interest-Sensitive 0.79 0.97 0.69 1.23 0.78 1.27
Assets to Interest-Sensitive
Liabilities
VIII INTEREST RATE SENSITIVITY (CONTINUED)
Interest rate sensitivity management provides some degree of protection
against net interest income volatility. It is not possible or necessarily
desirable to attempt to eliminate this risk completely by matching
interest-sensitive assets and liabilities. Other factors, such as market
demand, interest rate outlook, regulatory restraint and strategic planning
also have an effect on the desired balance sheet structure.
Core deposits and loans with non-contractual maturities are distributed or
spread among the two repricing categories based upon historical patterns of
repricing which are reveiwed at least annually.
Item 2. Properties
Farmers National Banc Corp.'s Properties
The Farmers National Banc Corp. owns no property. Operations are conducted
at 20 South Broad Street, Canfield, Ohio.
Bank Property
The Main Office is located at 20 S. Broad Street, Canfield, Ohio. The other
eight offices of the bank are:
Austintown Office 22 N. Niles-Canfield Rd., Youngstown, Ohio
Lake Milton Office 17817 Mahoning Avenue, Lake Milton, Ohio
Cornersburg Office 3619 S. Meridian Rd., Youngstown, Ohio
Colonial Plaza Office Colonial Plaza, Canfield, Ohio
Western Reserve Office 102 W. Western Reserve Rd., Youngstown, Ohio
Salem Office 1858 E. State Street, Salem, Ohio
Columbiana Office 340 State Rt. 14, Columbiana, Ohio
Leetonia Office 16 Walnut St., Leetonia, Ohio
The bank owns the Main Office, Austintown, Cornersburg, Lake Milton, Salem,
Columbiana and Leetonia Offices. The Colonial Plaza and Western Reserve
offices are occupied under operating leases expiring at various times to
1999. All of the leases provide for renewal options in favor of the bank.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the registrant or
its subsidiary is a party or of which any of its property is subject,
except proceedings which arise in the ordinary course of business. In the
opinion of managment, pending legal proceedings will not have a material
affect on the consolidated financial position of the registrant or its
subsidiary.
Item 4. Submission of Matters to a Vote of Security Holders
There are no matters submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of 1995.
PART II
Information relating to Items 5, 6, 7 & 8 is set forth in the registrant's
1995 Annual Report to Shareholders under the captions and on the pages set
forth below and is incorporated herein by reference.
Pages in 1995
Annual Report
Item No. Caption in the Annual Report to Shareholders to Shareholders
Item 5. Market for Registrants Common Stock and
Related Stockholders Matters 20
Item 6. Selected Financial Data 10-11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
Item 8. Financial Statements and Supplementary Data 21-36
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures NONE
PART III
Item 10. Directors and Executive Officers of the Registrant
Information relating to Directors is set forth in the registrant's definitive
proxy statement, which was used in connection with its annual meeting of
shareholders which was held March 28, 1996. The proxy statement is attached
hereto.
Executive Officers of the Registrant
The names, ages and positions of the executive officers as of March 1, 1996
Name Age Position Held
William D. Stewart 66 President & Secretary, Director
Richard L. Calvin 69 Exec. Vice Pres. & Treasurer,
Director
Frank L. Paden 45 Exec. Vice President
Carl D. Culp 32 Controller
Adrianne R. Kempers 38 Auditor
Officers are elected annually by the Board of Directors immediately following
the annual meeting of shareholders. The term of office for all the above
executive officers is for the period ending with the next annual meeting.
Principal Occupation and Business Experience of Executive Officers
Mr. William D. Stewart has served as President and Secretary since the
inception of registrant on March 31, 1983, President of the Bank since 1972
and has held various other executive positions with the Bank.
Mr. Richard L. Calvin has served as Executive Vice President and Treasurer of
the registrant since its inception on March 31, 1983, Executive Vice
President of the bank since 1972 and has held various other executive
positions with the Bank.
Mr. Frank L. Paden has served as Executive Vice President of the registrant
since March 1995, Executive Vice President of the Bank since March 1995 and
has held various other executive positions with the Bank.
Mr. Carl D. Culp has served as Controller of the registrant since November
1995 and as Controller of the Bank since November 1995.
Ms. Adrianne R. Kempers has served as Auditor of the registrant since
November 1995 and as Auditor of the Bank since November 1995.
Part III, (Continued)
Item 11. Executive Compensation
Information regarding this item is set forth in the registrant's definitive
proxy statement, which was used in connection with its annual meeting of
shareholders which was held March 28, 1996. The proxy statement is attached
hereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to this item is set forth in the registrant's definitive
proxy statement, which was used in connection with its annual meeting of
shareholders which was held March 28, 1996. The proxy statement is attached
hereto.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is set forth in the registrant's definitive
proxy statement, which was used in connection with its annual meeting of
shareholders which was held March 28, 1996. The proxy statement is attached
hereto.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
Included in Part II of this report
Item 8., Financial Statements and Supplementary Datais
set forth in the registrant's 1995 Annual Report to
Shareholders and is incorporated by reference in Part II
of this report
(a)2. Financial Statement Schedules Page
Accountant's consent IV-2
All schedules are omitted because they are
not applicable.
(a)3. Exhibits
The exhibits filed or incorporated by reference as a part of
this report are listed in the Index of Exhibits, which
appears at page IV-4 hereof and is incorporated herein by
reference.
(b) Report on Form 8-K
No reports on Form 8-K were filed for three months ended
December 31, 1995.
INDEPENDENT AUDITORS' CONSENT
FARMERS NATIONAL BANC CORP.:
We hereby consent to the incorporation by reference in this Registration
Statement of our report dated January 26, 1996, relating to the consolidated
financial statements of Farmers National Banc Corp. and subsidiary.
/S/ HILL, BARTH & KING, INC.
Warren, Ohio
March 15, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the under signed, thereunto duly authorized.
Farmers National Banc Corp. Farmers National Banc Corp.
by___________________________________ by__________________________________
William D. Stewart Carl D. Culp
President & Chief Executive Officer Controller & Chief Financial Officer
________________________ President & Director March 25, 1996
William D. Stewart
________________________ Director March 25, 1996
Benjamin R. Brown
________________________ Executive Vice President March 25, 1996
Richard L. Calvin and Director
________________________ Director March 25, 1996
Joseph O. Lane
________________________ Director March 25, 1996
David C. Myers
________________________ Director March 25, 1996
Edward A. Ort
________________________ Executive Vice President March 25, 1996
Frank L. Paden and Director
________________________ Director March 25, 1996
Ronald V. Wertz
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by references as part of
this report:
3.1. Not applicable.
3.2. Not applicable.
4.1. The registrant agrees to furnish to the Commission upon request
copies of all instruments not filed herewith defining the rights
of holders of long-term debt of the registrant and its
subsidiaries.
9.1. Not applicable.
10.1. Not applicable.
11.1. Not applicable.
12.1. Not applicable.
13.1. Annual Report to security holders (filed herewith).
18.1. Not applicable.
19.1. Not applicable.
22.1. Subsidiaries of the registrant (filed herewith).
23.1. Not applicable.
24.1. Not applicable.
25.1. Not applicable.
27.1 Financial Data Schedule (filed herewith)
28.1. Not applicable.
99.1 Definitive Proxy Statement (filed herewith)
Copies of any exhibits will be furnished to shareholders upon written
request. Request should be directed to Richard L. Calvin, Executive Vice
President, Farmers National Banc Corp., 20 S. Broad Street, Canfield, Ohio
44406.