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.
Joseph 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.
HIGHLIGHTS OF 1996
Selected Financial Data (In Thousands except Per Share Data)
Percent
For the Year 1996 1995 Change
Net Income $4,131 $3,576 15.52%
Return on Average Assets 1.27% 1.20% 5.83%
Return on Average Equity 11.60% 11.45% 1.31%
Per Share
Net Income $1.22 $1.09 * 11.93%
Book Value 10.51 10.33 * 1.74%
Balances at Year-End
Assets $338,112 $314,229 7.60%
Securities 47,079 47,333 -0.54%
Net Loans 263,504 229,249 14.94%
Deposits 283,811 267,955 5.92%
Stockholders Equity 34,809 33,976 2.45%
Shares Outstanding 3,311 3,290 * 0.64%
Cash Dividends 1,455 1,268 14.75%
<FN>
* Adjusted to reflect weighted outstanding shares and adjusted for stock dividends and 2-for-1 stock split.
</FN>
FORM 10-K
A copy of the Annual Report filed with the Securities and
Exchange Commission will be available on April 1, 1997
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 27,
1997 at 3:30 p.m.
TABLE OF CONTENTS
Highlights of 1996 1
Report to Stockholders 2-5
Officers 6
Description of Business 7
Selected Financial Data 8-11
Management's Discussion 12-19
Stock Prices and Dividends 20
Accountant's Report 21
Financial Data 22-36
PRESIDENT'S LETTER TO STOCKHOLDERS
Dear Shareholders:
The year 1996 is now a completed chapter in our 109 year
history, a year characterized by corporate-wide achievements and
individual milestones that light the way for our transition into
the coming century.
Farmers National Bank has a history of growth and success
no other locally owned bank can match. This past year marks the
fifteenth consecutive year that the Bank has been able to
increase both assets and net income over the previous year.
With great pleasure I share some of the highlights and
accomplishments of your company that were attained in 1996.
FINANCIAL PERFORMANCE
Net income for the year reached a record high of $4.13 million,
up 15.5 percent over 1995. Total assets for Farmers National
Banc Corp. at year-end were $338 million, an increase of 7.6
percent over year-end 1995.
The net income per share was $1.22 per share in 1996 as
compared to $1.09 per share in 1995. This represents an 11.9
percent increase. Cash dividends paid on Farmers National Banc
Corp. common stock were $.44 per share in 1996, representing a
10 percent increase over a year ago. These amounts have been
adjusted to reflect the recent two-for-one stock split that was
completed on January 17, 1997. In addition to the cash
dividends and stock split, the Corporation also paid
shareholders a 2% stock dividend in October 1996.
Equity, in the form of capital ratios, is a measure used in
defining safety within the banking industry. The $34.8 million
in Shareholder Equity gives the Corporation a 10.18 percent Tier
1 capital to average 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 1996,
shareholders reinvested cash dividends of $800,000 and made
additional cash contributions in the amount of $1.7 million,
totaling $2.5 million that was used to purchase shares of
common stock in Farmers National Banc Corp.
Picture of Bank Staff
The higher earnings and returns were a result of several
factors. Net interest income is the major factor that affects
net income. In 1996, net interest income, before provision for
loan losses, was $14.1 million as compared to $12.3 million in
1995. This 14 percent increase is a major reason for the
favorable results for 1996. Total loans increased to record
levels of $266.7 million at year-end 1996, a 15 percent increase
from 1995. Other factors attributing to our successful results
for 1996 include proper management of interest rate risks,
ongoing monitoring of asset quality, active capital management
and a tight control of overhead expenses.
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-six was a financially successful
year as detailed in the accompanying review, analysis and
graphs. This review summarizes careful management of operating
fundamentals, size of our Corporation and shareholder return.
OPERATIONS
During 1996, we completed the second phase of a total upgrade
of data processing systems. This project included a new and
improved delivery system for customer information and the
implementation of a platform automation system for both loans
and new accounts. These new systems enable the bank to be more
efficient in delivering new products and services. Rapid
changes in technology continue to challenge all business
entities. We are committed to investigate and evaluate new and
ongoing technology so that we can better position our Bank for
the future and provide the services and products needed in the
financial service industry.
Rapid changes in technology continue to challenge all business
entities. We are committed to investigate and evaluate new and
ongoing technology so that we can better position our bank for
the future and provide the services needed in the financial
service industry.
In October 1996, Farmers National Bank negotiated to purchase
certain real estate and equipment located in Damascus, Ohio.
This site represents the tenth community banking office for
Farmers National Bank. This former bank office was remodeled
and opened for business on January 6, 1997. We are excited
about being a part of the Damascus community and look forward to
a long and rewarding relationship. This office is the third
branch bank that we have opened in the past twenty-four months.
Picture of branch located in Damascus, Ohio
Farmers National Bank will introduce "The Common Sense Card"
during the first quarter of 1997. This debit card product will
be made available to all depositors of Farmers National Bank and
is to be used as an alternative to writing a check. We have
chosen the VISA Check Card as our debit card affiliation because
of it's acceptance and recognition. Transactions originated
through the debit card will be processed similarly to a credit
card transaction with the only difference being that funds are
deducted from your checking account rather than a loan advance
on your credit card. "The Common Sense Card" will automate
transactions and offer the card holder additional features that
I encourage you to utilize.
Plans for 1997 also include the introduction of an automated
phone system that will let our customers inquire on their
accounts, transfer funds between accounts, make loan and utility
payments and get current information concerning interest rates
and bank products.
Other products and services under study or in the development
stage include home banking through your personal computer, check
imaging and the viability of offering the non-traditional bank
products -- alternative investment products, various types of
insurance, annuities, financial planning and trust services.
Another product that currently is near completion with plans to
introduce in 1997, is our own WEB SITE page on the Internet.
When all details are complete, you will be able to access
various information about the bank on the Internet -- our domain
name will be FNB-CANF.COM. Our long range plan is to provide
our customers access to the Internet through a server that will
be located in our bank.
Our management team is changing elements of operations to take
into account the fundamental changes in the banking industry,
including consolidation and the growing number of activities
that banks engage.
As part of our Mission Statement and 1997 Strategic Plan, "...
through the provisions of high quality, modern, progressive, and
a complete line of products and services, The Farmers National
Bank attempts to meet the financial needs of its customers. Our
corporate mission is to maximize shareholder value and to act as
the financial leader in the communities we serve as a locally
owned, independent community banking organization."
Picture of Bank Staff
Everyone associated with Farmers National Bank would agree that
1996 was a noteworthy year in the storied history of this
institution. As you recall, at the annual shareholder meeting
held on March 28, 1996, Mr. William D. Stewart announced
significant management changes that were to take place in 1996.
The major thrusts of his message were changes in the executive
and senior management positions of the bank. This management
succession plan had been in planning over two years ago. The
Board of Directors crafted the final chapter of this plan and
used 1996 as the "transition" year for this new management team
to be fully acclimated in their new positions by March 27, 1997,
the date for this year's annual shareholder meeting. We have
taken the opportunity to include various photos of this new
management team. This group of individuals is a very dedicated,
loyal group of individuals that are strongly committed to the
continued success of Farmers National Bank. This group has many
years of service with Farmers National Bank and each one of them
has had the opportunity to work under the leadership of Mr.
William D. Stewart and Mr. Richard L. Calvin. As planned in the
year of transition, Mr. Stewart and Mr. Calvin both provided
their expertise and knowledge to management as everyone moved
forward in their new roles during 1996.
Picture of William D. Stewart and Richard L. Calvin
Mr. William D. Stewart, Chairman of the Board and Mr. Richard
L. Calvin, Vice Chairman of the Board will officially step down
as Executive Officers of the Bank at the annual reorganization
meeting that will be held immediately following the Annual
Shareholder Meeting on March 27, 1997. Combined, these two
individuals have given Farmers National Bank a total of
sixty-four years of service.
Mr. Stewart started with the bank in 1967. He was elected to
the Board of Directors in 1971 and was appointed as President in
1972, replacing Asa I. Skelton. He served in that capacity until
1996 at which time he was named Chairman of the Board. His
vision and leadership guided Farmers National Bank through a
period of unprecedented growth and expansion. In 1972, Farmers'
total assets were $43 million and the bank had three offices.
Mr. Stewart's efforts over the next twenty-three years saw the
bank grow to ten community locations and assets in excess of
$330 million. Mr. Stewart's accomplishments can be best
recognized as evidenced by the strong community support that
Farmers National Bank has gained through his leadership.
Management, sound and safe business decisions, and his ability
to gain shareholder support and loyalty are achievements that
did not go unnoticed. Bill will continue to serve on the Board
of Directors.
Mr. Calvin was recently recognized for his thirty-five years of
service to Farmers National Bank. He started with the bank in
1961 and held an officer title until being appointed as
Executive Vice President in 1972 and was elected as a Director
in 1975. Mr. Calvin was very instrumental in the development of
the bank's branch network. The Austintown Office was opened in
1959 with Mr. Calvin serving as Manager of that office from 1961
to 1975, at which time he moved to the Main Office in Canfield.
In his role as the chief operating officer, Richard guided the
development of the bank as a single back-office system into a
more efficient operating entity able to meet the regulatory
requirements for the banking industry. Richard, too, will
continue to serve as a Director.
On a personal note, I want to express my sincere appreciation
to both of these gentlemen. They have instilled a sense of
pride and honor to all of us working for Farmers National Bank.
Their efforts, loyalty and leadership are characteristics that
will be used to help guide your Corporation in the twenty-first
century. Thanks for a job well done. We wish a long and
healthy retirement for both Bill & Wilma and Richard & Corrine,
as they enjoy time with their children and grandchildren.
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
OFFICERS
Officers - Farmers National Banc Corp.
William D. Stewart Richard L. Calvin Frank L. Paden
Chairman Vice Chairman President and Secretary
Carl D. Culp Donald F. Lukas Adrianne R. Kempers
Executive Vice President Senior Vice President Auditor
& Treasurer
Farmers National Bank of Canfield
Officers & Management
Frank L. Paden Andrew A. Baird
President & CEO Assistant Cashier,
Manager - Data Center
Carl D. Culp Daniel G. Cerroni
Executive Vice President, Assistant Cashier
Cashier & CFO Main Office Loan Department
Donald F. Lukas Joseph E. Chapman
Senior Vice President, Assistant Cashier,
Bank Systems Manager - Collection Department
Adrianne R. Kempers Merle C. Garritano
Auditor Assistant Cashier/Consumer Loans
Mark L. Graham Diane Moran
Vice President/Loan Administrator Mortgage Loan Department
Anthony F. Peluso Janine M. Cox
Vice President/Human Resources Credit Administration
Alfred F. Ridel Joanie Orr
Vice President/Consumer Loans General Ledger Accounting Officer
Charles L. Burgoyne Phyllis A. Welton
Assistant Vice President, Assistant Cashier,
Loan Review & Compliance Manager - Bookkeeping Dept.
Bradley S. Henderson Gary J. Rosati
Assistant Vice President, Staff Legal Counsel
Branch Administration & Security
Roy A. Jackson Dorothy J. Weeden
Assistant Vice President, Assistant Cashier,
Indirect Lending Manager - Main Office
Barbara C. Fisher Pamela J. Cleghorn
Assistant Vice President, Manager, Colonial Plaza
Marketing & Deposit Operations
Susan E. Miller Keith A. Leonard
Assistant Vice President, Assistant Cashier
Corporate Services Administration Manager - Austintown Office
Patricia C. Rosko Greg V. Walla
Asst. Manager, Austintown Office Asst. Manager, Salem Office
Geraldine J. Gbur Jane C. Logan
Assistant Cashier, Asst. Manager, Columbiana Office
Manager - Columbiana Office
Kay A. Hedl Lynnita J. Kaschak
Manager, Leetonia Office Asst. Manager, Leetonia
Michele M. Ossoff Dennis S. Vitt
Manager, Damascus Office Assistant Cashier,
Manager - Lake Milton Office
Jennifer C.Tikkanen Robert L. Rozeski
Asst. Manager, Lake Milton Office Manager, Cornersburg Office
Barbara L. Sitler Larry A. Staub
Asst. Manager, Cornersburg Assistant Cashier,
Manager - Western Reserve Office
Claire F. Baldwin Larry E. White
Asst. Manager, Assistant Vice President,
Western Reserve Office Manager - Salem 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, Donald F. Lukas, Senior Vice
President, and Adrianne R. Kempers, Auditor.
Bank holding companies are permitted under Regulation Y
of the Board of Governors of the Federal Reserve System to
engage in other activities considered closely related to banking
such as leasing and mortgage banking. The Corporation has no
other subsidiaries engaged in such activities at this time.
The Farmers National Bank of Canfield
The Bank is a full service national bank engaged in
commercial and retail banking with the exception of trust
services. The Bank's commercial banking services include
checking accounts, savings accounts, time deposit accounts,
commercial, mortgage and installment loans, night depository,
automatic teller machines, safe deposit boxes, money order
services, travelers checks, government bond sales, food stamp
redemption, utility bill payments, MasterCard and Visa Credit
Cards, and other miscellaneous services normally offered by
commercial banks. In addition, the Bank offers discount
brokerage service through a correspondent bank.
The Bank's main office is located at 20 South Broad Street,
Canfield, Ohio. Business is conducted at a total of 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, 1996, the Corporation and its
subsidiary had 178 employees. The bank considers its relations
with its employees to be satisfactory.
Picture of Exterior of Main Office
GRAPHS AND CHARTS
Line Graph Depicting Total Deposits in Thousands
Year Amount
1992 $231,671
1993 $240,440
1994 $244,302
1995 $267,955
1996 $283,811
Line Graph Depicting Total Assets in Thousands
Year Amount
1992 $265,440
1993 $275,385
1994 $284,445
1995 $314,229
1996 $338,112
Line Graph Depicting Return on Average Assets
Year Rate
1992 1.10%
1993 1.16%
1994 1.22%
1995 1.20%
1996 1.27%
Line Graph Depicting Net Income in Thousands
Year Amount
1992 $2,825
1993 $3,160
1994 $3,424
1995 $3,576
1996 $4,131
Line Graph Depicting Net Loans in Thousands
Year Amount
1992 $189,813
1993 $200,993
1994 $214,988
1995 $229,249
1996 $263,504
Line Graph Depicting Net Income Per Share
Year Rate
1992 $0.97
1993 $1.04
1994 $1.09
1995 $1.09
1996 $1.22
Line Graph Depicting Efficiency Ratio
Year Rate
1992 56.62%
1993 58.98%
1994 59.66%
1995 59.63%
1996 56.50%
Line Graph Depicting Total Stockholders Equity in Thousands
Year Amount
1992 $22,698
1993 $25,996
1994 $28,915
1995 $33,976
1996 $34,809
SELECTED FINANCIAL DATA
(In Thousands except Per Share Data)
For the years Ending 1996 1995 1994 1993 1992
Summary of Earnings
Total Interest Income (including fees on loans) $24,877 $21,961 $19,731 $20,166 $21,464
Total Interest Expense 10,756 9,688 8,000 8,738 10,273
Net Interest Income 14,121 12,273 11,731 11,428 11,191
Provision for Credit Losses 655 270 330 620 1,310
Total Other Income 1,478 1,342 1,357 1,298 1,270
Total Other Expense 8,883 8,119 7,755 7,473 7,013
Income Before Federal Income Taxes 6,061 5,226 5,003 4,633 4,138
Federal Income Taxes 1,930 1,650 1,579 1,473 1,313
NET INCOME 4,131 3,576 3,424 3,160 2,825
Per Share Data (Note)
Net Income 1.22 1.09 1.09 1.04 0.97
Cash Dividends Paid 0.44 0.40 0.40 0.38 0.36
Book Value at Year-End 10.51 10.33 9.29 8.90 8.22
Balances at Year-End
Total Assets 338,112 314,229 284,445 275,385 265,440
Earning Assets 319,449 294,122 268,724 260,965 248,484
Total Deposits 283,811 267,955 244,302 240,440 231,671
Net Loans 263,504 229,249 214,988 200,993 189,813
Total Stockholder's Equity 34,809 33,976 28,915 25,996 22,698
Average Balances
Total Assets 325,537 297,159 279,839 273,257 256,160
Total Stockholder's Equity 35,629 31,177 27,221 24,557 21,390
Significant Ratios
Return on Average Assets (ROA) 1.27% 1.20% 1.22% 1.16% 1.10%
Return on Average Equity (ROE) 11.60 11.45 12.58 12.85 13.12
Average Earning Assets/Average Assets 94.88 94.75 94.91 94.55 94.24
Net Loans/Deposits 92.85 85.56 88.00 83.59 81.93
Allowance for Credit Losses/Total Loans 1.20 1.25 1.26 1.29 1.18
Allowance for Credit Losses/Nonperforming Loans 152.42 192.87 154.63 97.35 84.69
Efficiency Ratio 56.50 59.63 59.66 58.98 56.62
Cash Dividends as a Percentage of Net Income 35.22 35.46 34.45 33.41 32.83
<FN>
Note: Per share data is based on weighted average shares outstanding adjusted for stock dividends and 2-for-1 stock split.
</FN>
SELECTED FINANCIAL DATA
Average Balance Sheets and Related Yields and Rates
(In Thousands of Dollars)
Years ended December 31, 1996 1995 1994
EARNING ASSETS
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
Loans $250,616 $21,519 8.59% $221,955 $18,580 8.37% $210,148 $16,911 8.05%
Taxable securities 40,334 2,352 5.83 39,167 2,183 5.57 42,352 2,162 5.10
Tax-exempt securities 7,434 683 9.19 7,266 670 9.22 7,364 651 8.84
Federal funds sold 10,506 562 5.35 13,181 761 5.77 5,721 234 4.09
Total earning assets 308,890 25,116 8.13 281,569 22,194 7.88 265,585 19,958 7.51
NONEARNING ASSETS
Cash and due from banks 11,310 11,437 10,610
Premises and equipment 5,597 4,671 4,165
Allowance for Loan Losses (2,946) (2,897) (2,745)
Other assets 2,686 2,379 2,224
Total Assets $325,537 $297,159 $279,839
INTEREST-BEARING LIABILITIES
Time deposits $122,973 $7,095 5.77% $108,626 $6,205 5.71% $90,750 $4,298 4.74%
Savings deposits 76,182 1,931 2.53 74,752 1,986 2.66 80,969 2,256 2.79
Demand deposits 51,890 1,092 2.10 48,267 1,009 2.09 49,280 1,141 2.32
Repurchase agreements 12,075 497 4.12 10,032 440 4.39 8,832 289 3.27
Borrowings 2,651 142 5.36 804 48 5.97 551 16 2.90
Total Interest-Bearing Liabilities 265,771 10,757 4.05 242,481 9,688 4.00 230,382 8,000 3.47
NONINTEREST-BEARING LIABILITIES
Demand deposits 22,979 20,631 21,224
Other Liabilities 1,158 2,870 1,012
Stockholder's equity 35,629 31,177 27,221
Total Liabilities and
Stockholders' Equity $325,537 $297,159 $279,839
Net interest income $14,359 $12,506 $11,958
Net interest income to earning assets 4.65% 4.44% 4.50%
<FN>
Fully taxable equivalent basis computed at 35% in 1996, 1995 and 1994.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Corporation's net income totaled $4,131,415 during 1996, an
increase of 15.52% from $3,576,229 for 1995. On a per share
basis, net income was $1.22 for 1996 as compared to $1.09 for
1995 and 1994. Common comparative ratios for results of
operations include the return on average assets and return on
average stockholders equity. For 1996, the return on average
equity was 11.60% as compared to 11.45% for 1995 and 12.58% for
1994. The return on average assets was 1.27% for 1996 as
compared to 1.20% and 1.22% for 1995 and 1994, respectively.
These results of operations are the direct result of
management's concerted efforts to control expenses and increase
interest from our interest bearing assets. Overall growth in
deposits and the use of those funds in the loan portfolio,
particularly installment and mortgage loans, together with
control over the bank's general expenses have produced these
results.
Net Interest Income
Net interest income, the principal source of the Corporation's
earnings, represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing
liabilities. For 1996, net interest income increased $1,848,000
or 15.06% over 1995. The increase for 1995 was $542,000 or
4.62% over 1994. Interest-earning assets averaged $308,890,000
during 1996 representing a 9.70% increase over 1995, while 1995
averaged $281,569,000 or a 6.02% increase over 1994.
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 1996 the net interest margin,
measured on a fully taxable equivalent basis, totaled 4.65% in
comparison to 4.44% and 4.50% for 1995 and 1994, respectively.
The increase in net interest income margin in 1996 was due in
part to the increase in the interest rate environment and
increased loan demand.
Total interest income was $24,877,000 for 1996 as compared to
$21,961,000 and $19,731,000 for 1995 and 1994, respectively.
The 13.3% increase in interest income is largely attributed to a
14.94% increase in net loans and an increase in the interest
rate earned from 8.37% to 8.59%. Net loans were $263,504,000 at
year-end 1996 as compared to $229,249,000 at year-end 1995.
Total interest expense amounted to $10,757,000 for 1996,
representing an 11.03% increase from 1995 while interest expense
of $9,688,000 for 1995 represents a 21.10% decrease from 1994.
The increase in interest expense is primarily due to an increase
in the level of time deposits and the average rate paid on these
deposits. The average balances for time deposits increased by
13.2% over 1995 while the interest rate paid on those deposits
increased by 6 basis points.
Return on Equity and Assets
Information for the years indicated as follows: 1996 1995 1994
Net income to average total assets 1.27% 1.20% 1.22%
Net income to average equity 11.60% 11.45% 12.58%
Dividends per share to net income per share 36.07% 36.04% 34.96%
Average equity to average total assets 10.94% 10.49% 9.73%
Other Income
Other income increased $136,000 or 10.11% from 1995. Total
other income for 1995 decreased $15,000 or 1.11% from 1994. 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 1996 increased 9.41% over 1995 as
compared to an increase of 4.69% from 1995 over 1994. The rise
in other expenses is primarily due to salary and employee
benefits, which increased 15.78% from 1995. This increase is
the result of hiring additional employees to staff the new
branch offices. At December 31, 1996, the bank employed 170
full time equivalent employees compared to 154 in 1995. State
and local taxes also increased 17.05% from 1995. 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 1996, 1995 and 1994.
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 1996, the Corporation had a negative gap at
both three month and twelve month time periods. This liability
sensitive position typically produces a favorable contribution
to earnings during a period of decreasing rates. Although in
general rates may rise, the Corporation has the capacity to take
steps to minimize the negative effect of such movement.
With the largest amount of interest sensitive assets and
liabilities maturing within twelve months, the Corporation
monitors this area most closely. The Corporation does not
emphasize interest sensitivity analysis beyond this time frame
because it believes various unpredictable factors could result
in erroneous interpretations. Early withdrawal of deposits,
prepayments of loans and loan delinquencies are some of the
factors that could have such an effect. In addition, changes in
rates on interest sensitive assets and liabilities may not be
equal, which could result in a change in net margin.
Interest Rate Sensitivity
(In Thousands of Dollars)
December 31, 1996 December 31, 1995 December 31, 1994
Total Within Total Within Total Within
3 month 12 month 3 month 12 month 3 month 12 month
Total Interest-Sensitive Assets $36,137 $105,161 $44,064 $100,658 $36,940 $96,137
Total Interest-Sensitive Liabilities 56,249 112,027 55,706 103,701 53,912 77,970
Total Sensitivity Gap (20,112) (6,866) (11,642) (3,043) (16,972) 18,167
Ratio of Interest-Sensitive Assets to
Interest-Sensitive Liabilities 0.64 0.94 0.79 0.97 0.69 1.23
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, 1996, 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, 1996 amounted to
$1,400,000.
Cash flows generated from operating activities increased
19.48% to $6,289,000 in 1996 compared to $5,263,000 in 1995.
This increase is a result of an increase in total interest
received, as explained in the Net Interest Income section of
this report. Cash flows used in investing activities increased
128% to $35,715,000 in 1996 compared to $15,681,000 in 1995.
This is a result of increased loan demand, as net loans
increased 14.9%. Cash flows provided from financing activities
amount to $18,999,000 as compared to $25,305,000 in 1995. This
drop is a result of a smaller increase in time deposits during
1996 compared to the activity in 1995.
Maturities and Sensitivities of Loans to Interest Rates
The following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated:
(In Thousands of Dollars)
Years Ended December 31, 1996 1995 1994 1993 1992
Commercial, Financial and
Agricultural $26,481 9.9% $22,677 9.7% $24,477 11.2% $24,373 11.9% $24,572 12.8%
Real Estate-Mortgage 104,389 39.2 98,678 42.5 92,773 42.6 81,726 40.1 73,043 38.0
Installment Loans to
Individuals 135,832 50.9 110,805 47.8 100,484 46.2 97,515 48.0 94,432 49.2
Lease Financing 0 0.0 0 0.0 0 0.0 0 0.0 41 0.0
266,702 100.0 232,160 100.0 217,734 100.0 203,614 100.0 192,088 100.0
Less Unearned Income 0 0 0 0 1
Total Loans $266,702 100.0% $232,160 100.0% $217,734 100.0% $203,614 100.0% $192,087 100.0%
The following schedule sets forth maturities based on remaining scheduled
repayments of principal for various categories of loans listed above as of
December 31, 1996:
(In Thousands of Dollars)
Types of Loans 1 Year or less 1 to 5 Years Over 5 years
Commercial, Financial and
Agricultural $7,143 $2,399 $16,939
The amounts of commerical, financial and agricultural loans as of December 31,
1996, 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 $5,464 $1,740 $7,204
Fixed Rates of Interest 1,679 17,598 19,277
Total Loans $7,143 $19,338 $26,481
Loan Portfolio
Outstanding loans increased $34,542,000 or 15% in 1996. Most
of this growth occurred in the installment loan portfolio,
which increased from $110,805,000 in 1995 to $135,832,000 in
1996. Real estate mortgage loans also increased from
$98,678,000 in 1995 to $104,389,000 in 1996 which represents a
6% increase over the past year.
The bank's consumer loan portfolio represents approximately 51%
of the banks total loans outstanding. These loans, which
consist of automobile loans, home improvement loan, home equity
lines of credit and credit card plans reported a 23% growth in
1996. Consumers continue to take advantage of the low interest
rate environment with loans to purchase new automobiles and make
capital improvements to their homes.
The commercial loan balances outstanding have remained
relatively stable over the past few years. All commercial loans
are made to local small businesses for various purposes such as
equipment purchases, capital improvements, the purchase of
inventory or general working capital needs. This portfolio of
$26,481,000 is primarily variable rate loans that play an
important role in the banks monitoring of rate sensitive assets.
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, 1996 1995 1994 1993 1992
Balance at Beginning of Year $2,911 $2,746 $2,621 $2,274 $1,630
Loan Losses:
Commercial, Financial and Agricultural (75) (1) (185) (69) (411)
Real Estate-Mortgage (22) 0 0 (16) (63)
Installment Loans to Individuals (455) (275) (202) (351) (332)
Total Loan Losses (552) (276) (387) (436) (806)
Recoveries on Previous Loan Losses:
Commercial, Financial and Agricultural 9 44 39 36 36
Real Estate-Mortgage 15 0 0 7 0
Installment Loans to Individuals 160 127 143 120 104
Total Recoveries 184 171 182 163 140
Net Loan Losses (368) (105) (205) (273) (666)
Provision Charged to Operations (1) 655 270 330 620 1,310
Balance at End of Year $3,198 $2,911 $2,746 $2,621 $2,274
Ratio of Net Loan and Lease Losses to Average
Net Loans and Leases Outstanding 0.15% 0.05% 0.10% 0.14% 0.36%
<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>
Provisions charged to operations increased from $270,000 in
1995 to $655,000 in 1996. The balance in the allowance for
credit losses has increased substantially since 1992 to
$3,198,000 or 1.20% of loans at December 31,1996. The
substantial increase in provision charged to operations was a
result of the 15% growth in loans during 1996.
The allowance for possible loan and lease losses has been
allocated according to the amount deemed to be reasonably
necessary to provide for the possibility of losses being
incurred within the following categories of loans as of the
dates indicated:
(In Thousands of Dollars)
December 31, 1996 1995 1994 1993 1992
Commercial, Financial and Agricultural $1,873 $1,800 $1,700 $1,692 $1,599
Real Estate-Mortgage 263 250 200 170 75
Installment Loans to Individuals 1,062 861 846 759 600
$3,198 $2,911 $2,746 $2,621 $2,274
<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>
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. An
annual fee of two percent is charged for the issuance of a
letter of credit.
Risk Elements
The following table sets forth aggregate loans in each of the following categories for the years indicated:
(In Thousands of Dollars)
December 31, 1996 1995 1994 1993 1992
Loans Accounted For on a Nonaccrual Basis $0 $125 $302 $349 $453
Loans Contractually Past Due 90 Days or More as to Interest
or Principal Payments (Not Included in Nonaccrual Loans Above) 2,098 1,384 1,475 2,343 2,232
Loans Considered Troubled Debt Restructuring
(Not Included in Nonaccrual Loans or Contractually Past Due Above) 0 75 0 108 0
<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>
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, 1996, there were no concentrations of
loans exceeding 25% of total loans which are not disclosed as a
category of loans. As of that date also, there were no other
interest-earning assets that are either nonaccrual, past due or
restructured.
The following shows the amounts of contracted interest income
and interest income reflected in income on loans accounted for
on a nonaccrual basis and loans considered troubled debt
restructuring for the periods indicated:
(In Thousands of Dollars)
December 31, 1996 1995 1994 1993 1992
Gross Interest Income That Would have been Recorded if the Loans
had been Current in Accordance with Their Original Terms $0 $5 $21 $40 $51
Interest Income Included in Income on the Loans 0 0 0 0 0
Investment Securities
The investment securities portfolio decreased slightly during
1996. 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:
Type (In Thousands of Dollars)
December 31, 1996 1995 1994
U.S. Treasury Securities and Government Agencies $31,449 $31,692 $29,887
Obligations of States and Political Subdivisons 7,501 6,943 8,013
Other Securities 8,130 8,698 10,106
$47,080 $47,333 $48,006
A summary of securities held at December 31, 1996, classified according to
maturity and including weighted average yield for each range of maturities
is set forth below:
(In Thousands of Dollars)
Type and Maturity Grouping December 31, 1996
Weighted
Book Average
Value Yield (1)
U.S. Treasury and U.S. Government Agency Securities:
Maturing Within One Year $10,079 5.41%
Maturing After One Year But Within Five Years 18,690 5.92%
Maturing After Five Years But Within Ten Years 0 0.00%
Maturing After Ten Years 2,680 6.47%
Total U.S. Treasury and U.S. Government Agency Securities: $31,449 5.80%
Obligations of States and Political Subdivisions
Maturing Within One Year $796 7.81%
Maturing After One Year But Within Five Years 1,070 8.22%
Maturing After Five Years But Within Ten Years 2,884 8.94%
Maturing After Ten Years 2,751 8.96%
Total Obligations of States and Political Subdivisions $7,501 8.73%
Other Securities
Maturing Within One Year $2,621 6.54%
Maturing After One Year But Within Five Years 5,509 6.41%
Maturing After Five Years But Within Ten Years 0 0.00%
Maturing After Ten Years 0 0.00%
Total Other Securities $8,130 6.46%
<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 $21,142, $29,919, $87,652
and $83,803 for the four ranges of maturities.
</FN>
Deposits
Deposits represent the Corporation's principal source of
funds. The deposit base consists of demand deposits, savings
and money market accounts and other time deposits.
Average Deposits
The following table shows the classification of average deposits for
the periods indicated:
(In Thousands of Dollars)
Average Balances on December 31, 1996 1995 1994
Noninterest-Bearing Demand Deposits $22,979 $20,631 $21,227
Interest-Bearing Demand Deposits 51,890 48,267 49,281
Savings Deposits 76,182 74,752 80,969
Time Deposits 122,973 108,626 90,750
Total Average Deposits $274,024 $252,276 $242,227
The following shows the average rate paid on the following deposit
categories for the periods indicated:
Years ended December 31, 1996 1995 1994
Interest-Bearing Demand Deposits 2.10% 2.09% 2.32%
Savings 2.53% 2.66% 2.79%
Time Deposits 5.77% 5.71% 4.74%
A summary of time deposits of $100,000 or more as of December 31, 1996 by
maturity range is shown below:
(In Thousands of Dollars)
3 Months or Less Remaining Until Maturity $5,221
3 to 6 Months Remaining Until Maturity 3,738
6 to 12 Months Remaining Until Maturity 2,606
Over 12 Months Remaining Until Maturity 10,864
Total Outstanding $22,429
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 1996, 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 1996.
Capital Resources
The capital management function is a continuous process which
consists of providing capital for both the current financial
position and the anticipated future growth of the Corporation.
Important to this process is internal equity generation,
particularly through earnings retention. Internal capital
generation is measured as the percent of return on equity
multiplied by the percent of earnings retained. The return on
average equity was 11.60%, 11.45% and 12.58% for 1996, 1995 and
1994, respectively. Total cash dividends declared in 1996
represented 35.22% of net income as compared to 35.46% in 1995
and 34.45% in 1994. The resulting internal equity growth
percentage amounted to 7.51% in 1996 as compared to 7.39% in
1995 and 8.25% in 1994.
The bank subsidiary, as a national bank, is subject to the
dividend restrictions set forth by the Comptroller of the
Currency. The Comptroller of the Currency must approve
declaration of any dividends in excess of the sum of profits for
the current year and retained net profits for the preceding two
years (as defined). As of December 31,1996, the bank
subsidiary had $2,710,723 of retained earnings available for
distribution and $11,203,930 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, 1996, 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 14.09% and 15.34% respectively.
The bank subsidiary's leverage ratio at December 31, 1996 was
10.18%.
Audit
The Company's internal auditor, who is responsible to the
Audit Committee of the Board of Directors, reviews the results
and performance of operating units within the Company for
adequacy, effectiveness and reliability of accounting and
reporting systems, as well as managerial and operating controls.
The Audit Committee consists of four nonemployee directors
whose duties include: consideration of the adequacy of the
internal controls of the Company and the objectivity of
financial reporting; inquiry into the number, extent, adequacy
and validity of regular and special audits conducted by
independent public accountants and the internal auditors; the
recommendation to the Board of Directors of independent
accountants to conduct the normal annual audit and special
purpose audits as may be required; and reporting to the Board of
Directors the Committee's findings and any recommendation for
changes in scope, methods or procedures of the auditing
functions. The Audit Committee held four meetings during 1996.
Compliance
There are many activities in today's banking that are subject
to compliance regulations. The bank's policies and procedures
govern the way departments function and ensure fair, consistent
and sound banking practices. When those policies and procedures
are affected by new regulations, or regulation changes, the
Compliance Department is responsible to change those policies
involved, and is responsible to inform and train personnel. For
example, many of the forms used in opening deposit accounts and
loan accounts must subscribe to standards of format that are
designed to protect and to inform the customer.
Compliance is an ongoing effort that requires continuous
training. New regulations are introduced, changes to existing
regulations are made, employees change positions, and new
employees are hired. Assessment is made for the training needs
of the bank and then clearly communicated to all appropriate
bank employees through training programs. Quite often, two to
three sessions are required to reach all persons who need
training due to conflicting schedules.
From training, compliance objectives follow to monitoring or
testing procedures. Monitoring can focus on a broad range of
compliance issues and procedures, or it can be applied to
limited areas. Often, the extent of monitoring relates to the
complexity or length of the regulation. Upon the completion of
monitoring projects, areas where training is needed may be
revealed. The cycle of training, to monitoring, to training is
ever continuing.
It is our bank's mission to keep our employees well informed.
We urge them to ask questions and to use initiative in becoming
informed, as compliance regulations have become very complex.
This all translates in efficient and better service for our
customers.
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, 1996, there were 1,704
shareholders of record of common stock.
Market and Dividend Summary
Dividend Date High Low Dividend
March 1995 $32.00 $31.00 $0.20
June 1995 34.25 32.00 0.20
September 1995 36.50 34.25 0.20
October 1995 2% Stock Dividend
December 1995 39.50 36.50 0.20
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
Line Graph Depicting Market Value and Book Value of Common Stock
Market Book
Value Value
Year
1992 $8.00 $8.22
1993 $10.50 $8.90
1994 $14.75 $9.29
1995 $19.70 $10.33
1996 $23.13 $10.51
NOTE: Per share data is adjusted to reflect a 2:1 stock split in 1996
and 1994.
INDEPENDENT AUDITOR'S REPORT
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, 1997
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, 1996 and 1995 and the related consolidated
statements of income, stockholders equity and cash flows for
each of the three years in the period ended December 31, 1996.
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, 1996 and 1995 and the
consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted
accounting principles.
Hill, Barth & King, Inc.
Certified Public Accountants
CONSOLIDATED BALANCE SHEETS
December 31, 1996 1995
ASSETS
Cash & due from banks $13,302,154 $14,766,117
Federal funds sold 5,667,000 14,630,000
TOTAL CASH AND CASH EQUIVALENTS 18,969,154 29,396,117
Securities available for sale - NOTE B 45,611,788 46,479,885
Other securities 1,467,650 852,900
Loans - NOTE C 266,702,323 232,159,670
Less allowance for credit losses - NOTE D 3,197,889 2,910,838
NET LOANS 263,504,434 229,248,832
Premises and equipment, net - NOTE E 5,697,598 5,563,232
Other assets 2,861,617 2,687,806
$338,112,241 $314,228,772
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
Noninterest-bearing $23,468,432 $23,586,312
Interest-bearing - NOTE F 260,342,434 244,368,461
TOTAL DEPOSITS 283,810,866 267,954,773
Short-term borrowings:
U. S. Treasury interest-bearing demand note 622,129 748,470
Securities sold under repurchase agreements - NOTE G 15,748,622 9,847,119
Federal Home Loan Bank advances 1,400,000 0
TOTAL SHORT-TERM BORROWINGS 17,770,751 10,595,589
Other liabilities and deferred credits 1,721,635 1,702,145
TOTAL LIABILITIES 303,303,252 280,252,507
Commitments and contingent liabilities - NOTE H
Stockholders Equity - NOTES I, J:
Common Stock - no par value in 1996 and $2.50 par
value per share in 1995; authorized 5,000,000
shares in 1996 and 2,400,000 in 1995; issued
and outstanding 3,311,268 in 1996 and
1,644,559 in 1995. 24,253,806 4,111,398
Additional paid-in capital 0 16,059,118
Retained earnings 14,766,370 13,591,018
Unrealized appreciation on debt securities,
net of applicable income taxes 108,191 214,731
Treasury stock, 164,544 shares at cost (4,319,378) 0
TOTAL STOCKHOLDERS EQUITY 34,808,989 33,976,265
$338,112,241 $314,228,772
<FN>
See accompanying notes to consolidated financial statements
</FN>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996 1995 1994
INTEREST INCOME
Interest and fees on loans $21,519,178 $18,580,412 $16,911,283
Interest and dividends on securities:
Taxable interest 2,256,701 2,154,188 2,141,376
Nontaxable interest 444,322 438,779 423,123
Dividends 94,782 25,987 20,527
Interest on federal funds sold 562,115 761,257 234,334
TOTAL INTEREST INCOME 24,877,098 21,960,623 19,730,643
INTEREST EXPENSE
Deposits 10,117,809 9,199,760 7,694,588
Short-term borrowings 638,514 488,110 305,297
TOTAL INTEREST EXPENSE 10,756,323 9,687,870 7,999,885
NET INTEREST INCOME 14,120,775 12,272,753 11,730,758
Provision for credit losses 655,000 270,000 330,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 13,465,775 12,002,753 11,400,758
OTHER INCOME
Service charges on deposit accounts 1,089,891 972,325 940,077
Investment security gains (losses) 0 (197) 88,327
Other operating income 388,258 370,261 329,179
TOTAL OTHER INCOME 1,478,149 1,342,389 1,357,583
14,943,924 13,345,142 12,758,341
OTHER EXPENSES
Salaries and employee benefits - NOTE K 4,778,702 4,127,380 3,748,069
Net occupancy expense of premises 525,033 540,242 466,006
Furniture and equipment expense,
including depreciation 520,610 463,097 540,810
State and local taxes 514,943 439,918 389,988
Other operating expenses 2,543,221 2,548,276 2,610,518
TOTAL OTHER EXPENSES 8,882,509 8,118,913 7,755,391
INCOME BEFORE FEDERAL INCOME TAXES 6,061,415 5,226,229 5,002,950
FEDERAL INCOME TAXES - NOTE L 1,930,000 1,650,000 1,579,000
NET INCOME $4,131,415 $3,576,229 $3,423,950
NET INCOME PER SHARE $1.22 $1.09 $1.09
<FN>
See accompanying notes to consolidated financial statements
</FN>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996 1995 1994
COMMON STOCK
Balance at beginning of year $4,111,398 $3,892,480 $3,652,140
33,729 shares issued as a 2% stock dividend in 1996,
31,956 in 1995 and 30,210 in 1994, including
fractional shares. 1,500,940 79,890 75,525
59,618 shares sold in 1996,
55,611 in 1995 and 57,973 in 1994. 2,582,350 139,028 164,815
Transfer of additional paid-in capital to common stock 16,059,118 0 0
Balance at end of year 24,253,806 4,111,398 3,892,480
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 16,059,118 13,300,977 11,260,621
Excess proceeds over par value of shares sold
in 1995 and 1994 1,735,549 1,360,631
Excess of fair value over par value of shares issued as
stock dividends in 1995 and 1994, including
fractional shares 1,022,592 679,725
Transfer of balance to common stock in 1996. (16,059,118) 0 0
Balance at end of year 0 16,059,118 13,300,977
RETAINED EARNINGS
Balance at beginning of year 13,591,018 12,385,429 10,896,312
Net income 4,131,415 3,576,229 3,423,950
Dividends declared:
$.88 cash dividends per share in 1996,
$.80 in 1995 and $.98 in 1994. (1,455,123) (1,268,158) (1,179,583)
Stock dividends (1,500,940) (1,102,482) (755,250)
Balance at end of year 14,766,370 13,591,018 12,385,429
UNREALIZED APPRECIATION (DEPRECIATION)
ON DEBT SECURITIES
Balance at beginning of year 214,731 (663,619) 187,006
Net change in unrealized appreciation (depreciation) on
debt securities, net of income taxes. (106,540) 878,350 (850,625)
Balance at end of year 108,191 214,731 (663,619)
TREASURY STOCK, AT COST
Balance at beginning of year 0 0 0
Purchase of treasury stock (4,319,378) 0 0
Balance at end of year (4,319,378) 0 0
TOTAL STOCKHOLDERS EQUITY AT END OF YEAR $34,808,989 $33,976,265 $28,915,267
<FN>
See accompanying notes to consolidated financial statements
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 1995 1994
CASH FLOW FROM OPERATING ACTIVITIES
Interest received $25,979,036 $22,784,609 $20,697,876
Fees and commissions received 1,418,149 1,342,586 1,291,231
Interest paid (10,758,848) (9,399,584) (8,006,238)
Cash paid to suppliers and employees (8,274,784) (7,779,200) (7,294,773)
Income taxes paid (2,075,000) (1,685,000) (1,690,726)
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,288,553 5,263,411 4,997,370
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 14,329,066 18,140,000 14,123,630
Proceeds from maturities of investment securities held to maturity 0 2,343,086 5,966,905
Proceeds from sales of investment securities available for sale 0 1,999,687 4,081,530
Purchases of other securities and securities available for sale (14,466,574) (18,114,267) (18,414,362)
Purchases of investment securities held to maturity 0 (2,639,035) (4,041,914)
Net increase in loans made to customers (35,031,303) (16,079,770) (14,615,389)
Purchases of premises and equipment (545,977) (1,582,773) (343,288)
Purchase of other real estate 0 0 (164,433)
Proceeds from sale of other real estate 0 252,291 0
NET CASH USED IN INVESTING ACTIVITIES (35,714,788) (15,680,781) (13,407,321)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (906,533) (3,148,523) 3,339,998
Net increase in time deposits 21,380,975 27,746,071 2,227,314
Net increase in Federal Home Loan Bank Borrowings 1,400,000 0 0
Purchase of Treasury Stock (4,319,378) 0 0
Dividends paid (1,138,142) (1,167,362) (999,957)
Proceeds from sale of common stock 2,582,350 1,874,577 1,525,446
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,999,272 25,304,763 6,092,801
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,426,963) 14,887,393 (2,317,150)
CASH AND CASH EQUIVALENTS
Beginning of year 29,396,117 14,508,724 16,825,874
End of year $18,969,154 $29,396,117 $14,508,724
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Net income $4,131,415 $3,576,229 $3,423,950
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 394,384 379,012 379,224
Amortization and accretion 1,177,727 966,775 958,468
Provision for credit losses 655,000 270,000 330,000
(Gain) Loss on sale of investment securities 0 197 (88,327)
Deferred income taxes (70,000) (12,636) (197,613)
Other 27 83,834 191,668
NET CASH PROVIDED BY OPERATING ACTIVITIES $6,288,553 $5,263,411 $4,997,370
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities:
Unrealized loss on available for sale securities $48,228 $67,517 $1,005,950
Transfer of investment securities available for sale 0 4,663,982 0
Land exchanged for other borrowing 0 250,000 0
<FN>
See accompanying notes to consolidated financial statements
</FN>
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
1996 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 form temporary
differences between the financial accounting and income tax
basis of assets and liabilities. Deferred taxes are computed on
the liability method as prescribed in Statement of Financial
Accounting Standards (SFAS) no. 109, "Accounting for Income
Taxes".
Per Share Amounts: Earnings per share are based on weighted
average shares outstanding. Average shares outstanding, per
share amounts and reference to number of shares in notes to
consolidated financial statements have been restated to give
effect to stock dividends. Weighted average shares outstanding
were 3,378,142 for 1996, 3,282,686 for 1995 and 3,152,900 for
1994.
NOTE B - SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1996 and 1995 are summarized as follows:
1996 1995
U.S. Treasury and U.S. Government agencies $31,448,958 $31,691,768
Corporate debt securities 6,661,560 7,702,820
Obligations of states and political subdivisions 7,501,270 6,943,089
Collateralized mortgage obligations 0 142,208
TOTALS $45,611,788 $46,479,885
Net unrealized gains (losses) for securities available for sale at December 31, 1996 and 1995 are summarized below:
UNREALIZED UNREALIZED NET UNREALIZED
December 31, 1996 GAINS LOSSES GAINS
U.S. Treasury and U.S. Government agencies $82,250 ($36,892) $45,358
Corporate debt securities 41,705 (10,171) 31,534
Obligations of states and political subdivisions 88,200 (1,165) 87,035
TOTALS $212,155 ($48,228) $163,927
December 31, 1995
U.S. Treasury and U.S. Government agencies $208,710 ($53,309) $155,401
Corporate debt securities 59,924 (11,490) 48,434
Obligations of states and political subdivisions 120,542 (59) 120,483
Collateralized mortgage obligations 3,691 0 3,691
TOTALS $392,867 ($64,858) $328,009
The fair value and book value of securities available for sale by contractual maturities at December 31, 1996
are summarized below:
FAIR VALUE BOOK VALUE
Due in 1 year or less $13,489,952 $13,463,410
Due after one year through five years 24,392,024 24,300,457
Due after five years through ten years 2,595,932 2,547,945
Due after ten years 5,133,880 5,136,049
TOTALS $45,611,788 $45,447,861
Securities with a carrying value of $30,100,000 at December 31, 1996 and
$28,000,000 at December 31, 1995 were pledged to secure deposits in
accordance with federal and state requirements and to secure repurchase
agreements sold.
NOTE C - LOANS
Following is a summary of loans:
December 31, 1996 1995
Real Estate $105,026,533 $98,703,845
Installment 133,865,605 109,291,914
Commercial and Industrial 26,548,440 23,302,163
Subtotal 265,440,578 231,297,922
Net origination and deferred loan fees 1,261,745 861,748
TOTAL LOANS $266,702,323 $232,159,670
<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>
NOTE D - ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of changes in the allowance for credit losses for the years ended December 31:
1996 1995 1994
Balance at beginning of year $2,910,838 $2,746,420 $2,620,741
Additions:
Provision for credit losses 655,000 270,000 330,000
Recoveries on loans previously charged off 184,098 170,879 183,050
TOTAL ADDITIONS 3,749,936 3,187,299 3,133,791
Credits charged off (552,047) (276,461) (387,371)
Balance at end of year $3,197,889 $2,910,838 $2,746,420
<FN>
The allowance for federal income tax purposes amounted to $752,962 at December 31, 1996, which is $2,444,927
less than the allowance for financial accounting purposes.
</FN>
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment:
December 31, 1996 1995
Land $1,204,876 $1,180,876
Premises 4,987,755 4,780,574
Equipment 3,481,239 3,803,326
Leasehold Improvements 179,778 178,123
9,853,648 9,942,899
Less accumulated depreciation 4,156,050 4,379,667
NET BOOK VALUE $5,697,598 $5,563,232
<FN>
Depreciation expense was $394,384 for the year ended December 31, 1996, $379,012 for 1995 and
$379,224 for 1994.
</FN>
NOTE F - INTEREST-BEARING DEPOSITS
Following is a summary of scheduled maturities of certificates of deposit
during the years following December 31, 1996:
1997 $69,703,188
1998 39,205,874
1999 4,953,892
2000 8,165,424
2001 and thereafter 9,071,049
TOTAL $131,099,427
Following is a summary of certificates of deposit of $100,000 or more by
remaining maturities as of December 31, 1996:
Three months or less $5,221,113
Three to six months 3,737,601
Six to twelve months 2,606,127
Over twelve months 10,864,346
TOTAL $22,429,187
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
$16,925,491 for the year ended December 31, 1996 and $12,819,579
for 1995. The market value was $16,923,236 for 1996 and
$12,829,848 for 1995. At December 31, 1996, these agreements
had a weighted average interest rate of 4.55% and will mature
January through March 1997. The securities, although held in
safekeeping outside the bank subsidiary, were under the bank
subsidiary's control. Securities sold under repurchase
agreements averaged monthly $11,691,979 in 1996 and $9,498,008
in 1995. Maximum amounts outstanding at any month end during
1996 and 1995 were $15,748,622 and $11,849,736, respectively.
The bank subsidiary has access to short term credit facilities
at the Federal Home Loan Bank, which totaled $11,424,000 at
December 31, 1996. At December 31, 1996, the total advances
outstanding was $1,400,000, and was 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 $125,129 for 1996, $120,750 for 1995 and
$94,106 for 1994. 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, 1996:
Year ending:
December 31, 1997 $85,728
December 31, 1998 56,720
December 31, 1999 30,000
TOTAL $172,448
The bank subsidiary is required to maintain noninterest-bearing
reserve balances with the Federal Reserve Bank. The average
reserve balance was $6,165,000 for 1996.
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.
CONTRACT OR NOTIONAL AMOUNT
Financial instruments whose contract amounts represent credit
risk:
Commitments to extend credit $9,791,134
Standby letters of credit
and financial guarantees written $ 237,203
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 2,400,000 shares, par value $2.50, to
5,000,000 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). As of December 31, 1996, the bank
subsidiary had $2,710,723 of retained earnings available for
distribution and $11,203,930 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, 1996, that the bank subsidiary meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, 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.
The following table reflects various measures of capital at year-end:
Requirement
For Capital
Actual Adequacy Purposes:
Amount Ratio Amount Ratio
As of December 31, 1996
Total Capital
(to Risk-Weighted Assets) $37,199,000 15.34% $19,399,000 8.00%
Tier I Capital
(to Risk-Weighted Assets) $34,166,000 14.09% $9,700,000 4.00%
Tier I Capital
(to Average Assets) $34,166,000 10.18% $13,424,000 4.00%
As of December 31, 1995
Total Capital
(to Risk-Weighted Assets) $36,072,000 16.84% $17,141,000 8.00%
Tier I Capital
(to Risk-Weighted Assets) $33,391,000 15.58% $8,571,000 4.00%
Tier I Capital
(to Average Assets) $33,391,000 10.69% $12,496,000 4.00%
NOTE K - RETIREMENT PLANS
The bank subsidiary has a noncontributory defined benefit
pension plan covering substantially all employees. Normal
retirement age is 65. Benefit payments for normal retirement
are based on a percentage of employees' average monthly
compensation during the last five years of employment. Funding
of the plan, which is invested principally in domestic bank
certificates of deposit, is based upon current service cost plus
amortization of past service cost over 15 years. The company's
funding policy is to generally contribute annually the maximum
amount that can be deducted for federal income tax purposes.
The company adopted a resolution on January 22, 1996 to
terminate the defined benefit pension plan effective November 1,
1995. At December 31, 1996 the plan assets exceeded plan
obligations by $65,645. Management's intent is to allocate this
surplus to each qualified participant on a pro-rata basis. All
plan assets will be distributed upon approval of the necessary
authorities. Pension expense for the defined benefit plan was
$17,295 in 1996, $156,253 in 1995 and $183,157 in 1994.
In May, 1996, the company adopted 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. Company contributions to the 401(k)
plan were $161,435 for the year ended December 31, 1996.
The components of pension expense related to the defined benefit
plan for the year ended December 31, 1995 are as follows:
Service cost $132,605
Interest cost 134,030
Return on assets (39,659)
Other (70,723)
TOTAL $156,253
Following is the funded status of the plan as of December 31, 1995:
Actuarial present value of benefit obligations:
Vested benefit obligation $1,557,215
Accumulated benefit obligation $1,573,680
Projected benefit obligation ($2,119,606)
Plan assets at fair value 1,738,082
Projected benefit obligation in excess of plan assets (381,524)
Unrecognized transition gain (9,070)
Unrecognized prior service cost (70,006)
Unrecognized net loss 529,188
Prepaid pension cost $68,588
Assumptions used to develop the net periodic pension cost were:
Assumed discount rate 6.25%
Assumed rate of compensation increase 4.00%
Expected rate of return on plan assets 6.25%
NOTE L - FEDERAL INCOME TAXES
The provision for income taxes (credit) consists of the following:
Years ended December 31 1996 1995 1994
Current $2,000,000 $1,662,636 $1,776,613
Deferred (70,000) (12,636) (197,613)
TOTALS $1,930,000 $1,650,000 $1,579,000
Following is a reconciliation between federal income taxes at statutory rates and actual taxes based on income before
federal income taxes:
Years ended December 31 1996 1995 1994
Percent of Percent of Percent of
Amount pretax income Amount pretax income Amount pretax income
Statutory tax $2,121,500 35% $1,829,180 35% $1,751,050 35%
Effect of nontaxable interest (155,510) (3) (152,360) (3) (148,100) (3)
Other (35,990) 0 (26,820) 0 (23,950) 0
ACTUAL TAX $1,930,000 32% $1,650,000 32% $1,579,000 32%
Deferred taxes (credit) result from certain temporary differences in the recognition of income and expenses for financial
reporting and income tax purposes. The sources and tax effects of significant temporary differences are as follows:
Years ended December 31 1996 1995 1994
Depreciation $42,397 $17,176 $1,330
Provision for credit losses (97,597) (57,546) (137,931)
Deferred loan fees and
origination costs (13,496) 29,038 (59,708)
Other (1,304) (1,304) (1,304)
TOTALS ($70,000) ($12,636) ($197,613)
Deferred tax liabilities (assets) are comprised of the following at December 31:
Deferred tax asset: 1996 1995
Allowance for credit losses ($817,876) ($720,279)
Deferred loan fee income (134,501) (169,733)
Gross deferred tax assets (952,377) (890,012)
Deferred tax liabilities:
Depreciation 420,129 376,428
Prepaid loan origination costs 50,002 100,005
Mark-to-market adjustment -
securities available for sale 55,734 110,619
Other 22,182 23,515
Gross deferred tax liabilities 548,047 610,567
($404,330) ($279,445)
<FN>
No valuation allowance for deferred tax assets was recorded at December 31, 1996. Federal income taxes applicable to
investment securities gains were $70 for 1995 and $30,100 for 1994.
</FN>
NOTE M - LOANS TO RELATED PARTIES
Certain directors, executive officers and associates of such
persons were loan customers during 1996. Such loans were made
in the ordinary course of business under normal credit terms and
do not represent more that a normal risk of collection.
Following is an analysis of the amount of loans in which the
aggregate of the loans to any such person exceeded $60,000
during 1996:
Total loans at December 31, 1995 $1,092,464
New loans 172,204
Repayments 201,143
Total loans at December 31, 1996 $1,063,525
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, 1996:
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.
The estimated fair values of the company's financial instruments as of December 31, 1996 and 1995 are as follows:
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
Financial assets:
Cash and cash equivalents $18,969,154 $18,969,154 $29,396,117 $29,396,117
Investment securities:
Available for sale 45,611,788 45,859,357 46,479,885 46,601,970
Other securities 1,467,650 1,467,650 852,900 852,900
Loans - Net 263,504,434 263,590,306 229,248,832 229,711,573
TOTAL FINANCIAL ASSETS $329,553,026 $329,886,467 $305,977,734 $306,562,560
Financial liabilities:
Deposits $283,810,866 $284,578,528 $267,954,773 $269,381,383
Securities sold under repurchase agreements 15,748,622 15,748,622 9,847,119 9,847,119
Short term borrowings 2,022,129 2,022,129 748,470 748,470
TOTAL FINANCIAL LIABILITIES $301,581,617 $302,349,279 $278,550,362 $279,976,972
Unrecognized financial instruments:
Commitments to extend credit $9,791,134 $9,791,134 $9,868,007 $9,868,007
Standby letters of credit and financial guarantees 237,203 237,203 123,604 123,604
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.
December 31, 1996 December 31, 1995
BALANCE SHEETS
Assets:
Cash $1,197,314 $692,398
Receivables 7,918 7,918
Investment in bank subsidiary 34,506,112 33,756,098
$35,711,344 $34,456,414
Liabilities:
Accounts payable $1,010,546 $694,880
Stockholders equity:
Common stock 24,253,806 4,111,398
Additional paid-in capital 0 16,059,118
Retained earnings 14,766,370 13,591,018
Treasury Stock (4,319,378) 0
TOTAL STOCKHOLDERS EQUITY 34,700,798 33,761,534
$35,711,344 $34,456,414
STATEMENTS OF INCOME
Years ended December 31, 1996 December 31, 1995 December 31, 1994
Income:
Equity in net income of subsidiary $4,194,441 $3,621,920 $3,472,068
Other expenses (63,026) (45,691) (48,118)
NET INCOME $4,131,415 $3,576,229 $3,423,950
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 December 31, 1995 December 31, 1994
Cash flows from operating activities:
Net income $4,131,415 $3,576,229 $3,423,950
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease in deferred director fees (1,316) (1,302) (1,233)
Income from subsidiary (4,194,441) (3,621,920) (3,472,068)
Dividends received from subsidiary 6,026,778 1,267,017 1,283,911
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,962,436 1,220,024 1,234,560
Cash flows from investing activities:
Investment in subsidiary (2,582,350) (1,874,575) (1,525,446)
NET CASH USED IN INVESTING ACTIVITIES (2,582,350) (1,874,575) (1,525,446)
Cash flows from financing activities:
Purchase of Treasury Stock (4,319,378) 0 0
Dividends paid (1,138,142) (1,167,362) (999,957)
Proceeds from sale of common stock 2,582,350 1,874,577 1,525,446
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,875,170) 707,215 525,489
NET INCREASE IN CASH 504,916 52,664 234,603
CASH
Beginning of year 692,398 639,734 405,131
End of year $1,197,314 $692,398 $639,734
<FN>
Cash dividends of $6,026,778, $1,267,017 and $1,283,911 were recevied from the bank subsidiary in 1996, 1995 and 1994,
respectively.
</FN>
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
WESTERN RESERVE
102 W. Western Reserve Rd. Youngstown, OH 44514 726-8896
COLUMBIANA
340 State Rt. 14 Columbiana, OH 44408 482-1974
LEETONIA
16 Walnut St. Leetonia, OH 44431 427-2436
DAMASCUS
29053 State Route 62 Damascus, OH 44619 537-4004