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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, 1998
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
(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 25, 1999, the
aggregate market value of the voting stock held by
non-affiliates of the registrant (including 243,681 shares held
by officers and directors of the registrant) was approximately
$154,520,418.
As of February 25, 1999, the registrant had outstanding
3,657,288 shares of common stock having no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K
into which
Document Document is Incorporated
1998 Annual Report to Shareholders II
Definitive proxy statement for the 1998 Annual
Meeting of Shareholders to be held on March 25, 1999 III
Farmers National Banc Corp 1999 Stock Option Plan III
Form 10-K Cross Reference Index to Annual Report to Shareholders
Part I
Item 1 - Business
Description of Business 9
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 30-31
Part II
Item 5
Market For Registrant's Common Stock
and Related Stockholder Matters 21
Item 6
Selected Financial Data 10-12
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, 1998 and 1997 23
Consolidated Statements of Income & Comprehensive Income -
Calendar Years 1998, 1997 and 1996 24
Consolidated Statement of Stockholders'
Equity - Calendar Years 1998, 1997 and 1996 25
Consolidated Statements of Cash
Flows - Calendar Years 1998, 1997 and 1996. 26
Notes to Consolidated Financial Statements 27-36
FARMERS NATIONAL BANC CORP.
FORM 10-K
1998
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 II
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk 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
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.
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, 1998 are presented in Note K on
page 32 of the annual report to shareholders for the year ended
December 31, 1998 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.
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%.
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 ten 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
Poland Office 106 McKinley Way West, Poland, Ohio
The bank owns the Main Office, Austintown, Cornersburg, Lake
Milton, Western Reserve, Salem, Columbiana, Leetonia, Damascus
and Poland Offices. The Colonial Plaza is occupied under an
operating lease expiring in 2004.
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 1998.
Part II
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
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. The Corporation monitors interest rate
sensitive assets and liabilities to determine the overall
interest rate position over various time frames.
The Corporation considers the primary market exposure to be
interest rate risk. Simulation analysis is used to monitor the
Corporation's exposure to changes in interest rates, and the
effect of the change to net interest income. The following
table shows the effect on net interest income in the event of a
sudden and sustained 100 or 200 basis point increase or decrease
in market interest rates:
Changes In Change In % Change
Interest Rate Net Interest In Net
(basis points) Income Interest Income
-200 359 2.14%
-100 179 1.07%
100 -327 -1.95%
200 -653 -3.89%
The results of this analysis comply with internal limits
established by the Corporation. A report on interest rate risk
is presented to the Board of Directors and the Asset/Liability
Committee on a quarterly basis. The Corporation has no market
risk sensitive instruments held for trading purposes, nor does
it hold derivative financial instruments, and does not plan to
purchase these instruments in the future.
With the largest amount of interest sensitive assets and
liabilities maturing within twelve months, the Corporation
monitors this area most closely. The Corporation does not
emphasize interest sensitivity analysis beyond this time frame
because it believes various unpredictable factors could result
in erroneous interpretations. Early withdrawal of deposits,
prepayments of loans and loan delinquencies are some of the
factors that could have such an effect. In addition, changes in
rates on interest sensitive assets and liabilities may not be
equal, which could result in a change in net margin.
Interest rate sensitivity 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.
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 will be used in
connection with its annual meeting of shareholders which will be
held March 25, 1999. The proxy statement is attached hereto.
Executive Officers of the Registrant
The names, ages and positions of the executive officers as of
March 1, 1999:
Name Age Position Held
William D. Stewart 69 Chairman
Richard L. Calvin 72 Vice Chairman
Frank L. Paden 48 President and Secretary
Carl D. Culp 35 Exec. Vice Pres. and Treasurer
Donald F. Lukas 52 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.
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 25,
1999. 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 25, 1999. 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 25,
1999. 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 1998 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, 1998.
INDEPENDENT AUDITORS' CONSENT
FARMERS NATIONAL BANC CORP:
We hereby consent to the incorporation by reference in this Registration
Statement of our report dated January 19, 1999, relating to the consolidated
financial statements of Farmers National Banc Corp. and subsidiary.
HILL, BARTH & KING, INC.
Warren, Ohio
March 16, 1999
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 16, 1999
/s/ Benjamin R. Brown Director March 16, 1999
/s/Richard L. Calvin Vice Chairman March 16, 1999
/s/Joseph O. Lane Director March 16, 1999
/s/David C. Myers Director March 16, 1999
/s/Edward A. Ort Director March 16, 1999
/s/Frank L. Paden President March 16, 1999
and Director
/s/Ronald V. Wertz Director March 16, 1999
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.