-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GszNTdDbTa+IYu6IG3Uxjl11Qu42H/N9NSQl1DBudhb4Se0RUuAfqHPsEODWg1Fe ToTqj426PcwBrBtaZSCBRg== 0000912057-94-001104.txt : 19940330 0000912057-94-001104.hdr.sgml : 19940330 ACCESSION NUMBER: 0000912057-94-001104 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMERS NATIONAL BANCORP /MD/ CENTRAL INDEX KEY: 0000700850 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 521241460 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 002-76280 FILM NUMBER: 94518538 BUSINESS ADDRESS: STREET 1: 5 CHURCH CIRCLE CITY: ANNAPOLIS STATE: MD ZIP: 21401 BUSINESS PHONE: 4102632603 MAIL ADDRESS: STREET 1: 5 CHURCH CIRCLE CITY: ANNAPOLIS STATE: MD ZIP: 21401 10-K 1 FORM 10-K UNITED STATES 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 (FEE REQUIRED) For the fiscal year ended December 31, 1993 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______________ to _________________ Commission file number 2-76280 FARMERS NATIONAL BANCORP (Exact name of registrant as specified in its charter) MARYLAND 52-1241460 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 CHURCH CIRCLE, ANNAPOLIS, MARYLAND 21401 21401 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (410) 263-2603 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, PAR VALUE $1.00 PER SHARE (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 aggregate market value of the Corporation's voting stock held by non-affiliates of the registrant as of March 1, 1994, was $89,068,848. The number of shares outstanding of the registrant's common stock, as of March 1,1994, was 2,699,056. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1993 are incorporated by reference into Parts II and IV of this Report. Portions of the annual proxy statement prepared for the 1994 annual meeting of stockholders are incorporated by reference into Part III of this Report. The exhibit index is located on page 52. PART I ITEM I. BUSINESS Farmers National Bancorp ("Bancorp"), located at 5 Church Circle, Annapolis, Maryland 21401, telephone (410) 263-2603, was incorporated under the laws of the State of Maryland on December 9, 1981. Bancorp is a multibank holding company registered under the Bank Holding Company Act of 1956 and owns all of the outstanding shares of capital stock of Farmers National Bank of Maryland ("FNB"), established in 1805, The Caroline County Bank ("CCB"), established in 1902, and Atlantic National Bank ("ANB"), established in 1973. Bancorp additionally owns all of the outstanding shares of capital stock of Farmers National Land Corporation ("FNLC"), formed in 1983; and Farmers National Mortgage Corporation ("FNMC"), formed in 1988. BUSINESS OF FARMERS NATIONAL BANK (FNB) GENERAL - FNB, established in 1805 as the Farmers Bank of Maryland, was chartered as a national bank in 1865 under the name Farmers National Bank of Annapolis. After the acquisition of the Millington Bank in 1976, the present name was adopted. FNB is a full service commercial bank offering a complete line of personal and commercial banking and trust services. The majority of FNB's business is in the retail or personal area, and includes checking accounts, passbook and statement savings accounts, money market deposit accounts, NOW accounts, certificates of deposit, cash management services, individual retirement accounts (IRAs), safe deposit facilities, travelers checks, certified checks, money orders, money wire transfers, 24 hour depository services, ATMs, and electronic banking services. FNB makes a variety of personal loans, including installment loans for automobiles, boats and other personal property, time loans, home improvement loans, home equity loans and residential mortgages. FNB extends personal lines of credit and offers check overdraft protection plans. FNB's commercial customers are primarily small businesses, including retail and wholesale merchants, manufacturers, builders, contractors, farmers, marine dealers and distributors, and state, county and local authorities. FNB accepts credit card deposits from merchants among its commercial customers and extends secured and unsecured lines of credit for short-term accounts receivable, inventory, working capital, floor plan and equipment financing. It also provides commercial mortgage loans, time notes and letters of credit. BRANCHES - FNB maintains fifteen retail banking offices. Its main banking office is located in downtown Annapolis. Five branch offices also are located in Annapolis, seven other branch offices are located in Anne Arundel County and one branch office is located in each of Kent and Queen Anne's Counties. EMPLOYEES - At December 31, 1993, Farmers National Bank had 56 officers and 236 other employees. COMPETITION - FNB is subject to competition in all aspects of its commercial banking business. Other commercial banking institutions based in Maryland conduct business in the market areas served by FNB. Additionally, commercial banking institutions based in Washington, D.C. and other locations outside Maryland compete for loans and other banking business in the market area served by FNB. Savings and loan associations, insurance companies, mutual savings banks, small loan companies, credit unions, and other financial institutions also compete with FNB. The table below presents information concerning deposits of FNB and other commercial banks operating in market areas served by FNB.
COMMERCIAL COMMERCIAL BANKING TOTAL MARKET AREAS BANKS OFFICES DEPOSITS (dollars in thousands) Anne Arundel County (a): County Totals 22 113 $4,426,041 FNB Totals 1 13 488,369 FNB Market Share 11.0% Kent County (b): County Totals 4 8 $310,112 FNB Totals 1 1 18,439 FNB Market Share 6.0% Queen Anne's County (c): County Totals 7 11 $311,278 FNB Totals 1 1 15,028 FNB Market Share 4.8% _____________ (a) Anne Arundel County 1992 population - 438,511; Annapolis (County seat) 1992 population - 30,919 (b) Kent County 1992 population - 18,193; Millington 1992 population - 588 (c) Queen Anne's County 1992 population - 35,251; Centreville 1992 population - 2,424
BUSINESS OF THE CAROLINE COUNTY BANK (CCB) GENERAL - CCB is a commercial bank incorporated in 1902 under laws of the State of Maryland. The majority of CCB's business is also in the retail or personal area, and includes checking accounts, passbook savings accounts, NOW accounts, certificates of deposit, individual retirement accounts (IRAs), safe deposit facilities, travelers checks, certified checks, money orders, and ATMs. CCB makes a variety of personal loans, including residential mortgage loans, installment loans for automobiles, boats and other personal property, time loans, home improvement loans and personal lines of credit. CCB makes commercial loans consisting mainly of farm production loans, short-term working capital loans, business mortgages, and equipment financing. BRANCHES - CCB operates one banking office which is located in Greensboro, Maryland. EMPLOYEES - At December 31, 1993, The Caroline County Bank had 3 officers and 9 other employees. COMPETITION - CCB is subject to competition in all aspects of its commercial banking business. Other commercial banking institutions based in Maryland conduct business in the market area served by CCB. Savings and loan associations, insurance companies, small loan companies, credit unions and other financial institutions also compete with CCB. The table below presents information concerning the deposits of CCB and other commercial banks operating in the market area served by CCB.
MARKET AREA: COMMERCIAL CAROLINE COMMERCIAL BANKING TOTAL COUNTY BANKS OFFICES DEPOSITS (dollars in thousands) County Totals 7 12 $217,343 CCB Totals 1 1 22,889 CCB Market Share 10.5% _____________ Caroline County 1992 population - 27,783; Greensboro 1992 population - 1,596
BUSINESS OF ATLANTIC NATIONAL BANK (ANB) GENERAL - ANB was established under a national bank charter in 1973. ANB is a full service commercial bank offering a complete line of personal and commercial services. The majority of ANB's business is in the commercial area. ANB's customers are primarily small businesses, including several hotels and motels, restaurants, amusement and real estate agencies. ANB accepts credit card deposits from merchants among its commercial customers and extends secured and unsecured lines of credit for short-term accounts receivable, inventory, working capital and equipment financing. ANB also provides commercial mortgage loans, time notes, and letters of credit. In the retail or personal area ANB's business includes checking accounts, passbook savings accounts, money market deposits, NOW accounts, certificates of deposit, individual retirement accounts (IRAs), safe deposit facilities, travelers checks, ATMs and 24 hour depository service. ANB makes a variety of personal loans, including installment loans for automobiles, boats and other personal property, time loans and both primary and secondary mortgage loans. BRANCHES - ANB maintains four retail banking offices. Its main office is located in Ocean City. Two branch offices are located in Salisbury and one is located in Ocean Pines. EMPLOYEES - At December 31, 1993, Atlantic National Bank had 12 officers and 22 other employees. COMPETITION - ANB is subject to competition in all aspects of its commercial banking business. Other commercial banking institutions based in Maryland conduct business in the market area served by ANB. Additionally, other institutions located outside Maryland compete for loans and other banking business in the market area served by ANB. Savings and loan associations, insurance companies, mutual savings banks, small loan companies, credit unions, and other financial institutions also compete with ANB. The table below presents information concerning deposits of ANB and other commercial banks operating in the market area served by ANB.
COMMERCIAL COMMERCIAL BANKING TOTAL MARKET AREA: BANKS OFFICES DEPOSITS (dollars in thousands) Wicomico County (a) County Totals 11 37 $956,363 ANB Totals 1 2 19,623 ANB Market Share 2.1% Worcester County (b) County Total 8 32 $608,326 ANB Total 1 2 26,967 ANB Market Share 4.4% ______________ (a) Wicomico County 1992 population - 76,303; Salisbury 1992 population - 20,886 (b) Worcester County 1992 population - 35,904; Ocean City 1992 population - 5,439 Ocean Pines 1990 population - 4,251
BUSINESS OF FARMERS NATIONAL LAND CORPORATION (FNLC) FNLC is a wholly owned subsidiary of Bancorp, formed November 28, 1983, for the purpose of leasing property, land and premises to others within the holding company. FNLC currently leases or holds (for future expansion) property, land and premises to or for others within the holding company. In addition, FNLC leases property, land or premises to the general public if not currently needed by other members of the holding company, and holds certain real property acquired by deed in lieu of foreclosure in connection with a loan to a third party originally made by FNB. BUSINESS OF FARMERS NATIONAL MORTGAGE CORPORATION (FNMC) FNMC is a wholly owned subsidiary of Bancorp, formed February 23, 1988. FNMC is a mortgage banking corporation formed for the purpose of originating, selling and servicing mortgage loans and to engage in any other activities incident to mortgage banking. During 1989, due to the lack of mortgage loan generation, the company was put in an inactive status. All mortgages were sold and the mortgage banking office was closed. SUPERVISION AND REGULATION Bancorp, as a registered bank holding company, is subject to regulation and examination by the Board of Governors of the Federal Reserve System (the "Board") under the Bank Holding Company Act of 1956 (the "Act"), and is required to file with the Board an annual report and such additional information as the Board may require pursuant to the Act. The Board may also examine Bancorp and each of its subsidiaries. The Act generally restricts all activities of all bank holding companies and their subsidiaries to banking, and the business of managing and controlling banks, and to other activities which are determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Act generally requires prior approval by the Board of the acquisition by Bancorp of more than five percent of the voting shares of any bank and limits the acquisition of shares of a bank located outside the state unless permitted by state law. With certain exceptions, the Act prohibits Bancorp from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank or bank holding company, unless the Board determines by order or regulation that the company's activities are so closely related to banking or managing or controlling banks as to be a proper incident thereto. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to, and certain other transactions with, the bank holding company and its nonbank affiliates. In January 1989, the Board adopted risk-based capital guidelines applicable to bank holding companies, which were fully implemented at year end 1992. These guidelines categorize the components of capital into core capital (Tier 1) and supplementary capital (Tier 2). Total capital is the combination of both Tier 1 and Tier 2 capital. Tier 1 consists primarily of common equity less goodwill and Tier 2 consists of certain qualifying debt instruments and a qualifying portion of the allowance for loan losses. As of December 31, 1992 minimum capital ratios of 4% for Tier 1 capital and 8% for total capital were required. Bancorp's ratios of core (Tier 1) and total capital to risk weighted assets as of December 31, 1993 were 18.3%, and 19.5%, respectively, exceeding the minimums required at year-end 1992. In addition, the Board has established a minimum leverage capital ratio (core capital to total assets) of 3% to 5%. Bancorp's leverage capital ratio was 9.8% on December 31, 1993. In 1989, The President of the United States signed into law the Financial Institutions Reform, Recovery and Enforcement Act of 1989. This legislation, among other things, expanded the scope of regulatory enforcement powers and increased deposit insurance premiums for banks. In 1991, the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") of 1991 was signed into law. This legislation, among other things, requires federal (or state) regulators to perform annual on- site examinations for all banks, establishes a Prompt Regulatory Action program based on five capital categories, amends the Federal Deposit Insurance Act to require uniform accounting standards for all financial institutions, and establishes new uniform disclosure requirements for interest rates and terms of deposits on savings instruments. None of the implemented regulations have had a material effect on the financial condition of Bancorp and management does not believe that any of the scheduled regulations will have a material effect on the financial condition or operations of Bancorp. Farmers National Bank and Atlantic National Bank are national banking associations subject to regulation and regular examination by the Office of the Comptroller of the Currency, in addition to regulation and examination by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (the "FDIC"). FNB and ANB are subject to provisions of Section 23A of the Federal Reserve Act that limit the amount of loans or extensions of credit to, investments in, and certain other transactions involving Bancorp and its affiliates. The Caroline County Bank is a state bank subject to the banking laws of the State of Maryland and to regulation by the State Bank Commissioner of Maryland, who is required by statue to make at least one examination of CCB in each twelve month period. CCB is also subject to regulation and examination by the FDIC and to federal laws and regulations pertaining to federally insured banking institutions. CCB is subject to provisions of Section 23A of the Federal Reserve Act that limit the amount of loans or extensions of credit to, investments in, and certain other transactions involving Bancorp and its affiliates. As nonbanking subsidiaries of Bancorp, Farmers National Land Corporation and Farmers National Mortgage Corporation are subject to examination by the Board and as Maryland corporations are subject to the laws of the state of Maryland. Also, as affiliates of FNB, ANB and CCB, FNLC and FNMC are subject to examination by the FDIC and subject to the provisions of Section 23A of the Federal Reserve Act that limit the amount of loans or extensions of credit to, investments in, and certain other transactions involving Bancorp and its affiliates. EFFECTS OF GOVERNMENTAL MONETARY POLICIES All commercial banking operations are affected by the policies of monetary authorities, including the Board of Governors of the Federal Reserve System, and these policies change from time to time. A function of the Federal Reserve System is to regulate the national supply of bank credit in order to achieve economic results deemed appropriate by its Board of Governors, including efforts to combat unemployment, recession, or inflationary pressures. Among the instruments of monetary policy used to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits and they also affect interest rates charged on loans or paid on deposits. The monetary policies of bank regulatory and other authorities have affected the operating results of banks in the past and are expected to continue to do so in the future. No prediction can be made on the effect governmental monetary policies will have on Bancorp, in view of changing conditions in the national economy, in the money markets, and in the relationships of international currencies, as well as the effect of legislation and of actions by monetary and fiscal authorities. STATISTICAL INFORMATION The following tables present statistical information relating to Bancorp and affiliates, on a consolidated basis in thousands of dollars. Interest income on tax-free loans and securities is presented on a fully taxable equivalent basis. This adjustment is made since income on loans to, and securities of states and political subdivisions is not subject to Federal income taxes. AVERAGE BALANCE SHEET The following table presents the distribution of the average consolidated balance sheets for the years indicated:
1993 1992 1991 ---- ---- ---- Assets Interest earning assets: Loans $ 302,455 $ 296,726 $ 273,944 Taxable investment securities 252,853 238,495 158,321 Non-taxable investment securities 63,341 48,103 33,224 Federal funds sold and securities purchased under agreement to resell 25,790 34,678 93,310 Interest-bearing deposits with banks 3,403 5,374 5,352 ------------ ----------- ------------ Total interest-earning assets 647,842 623,376 564,151 Cash and due from banks 29,599 25,454 21,086 Other assets 23,052 20,276 18,565 Less: allowance for loan losses (5,395) (4,551) (4,290) ------------ ----------- ------------ Total assets $ 695,098 $ 664,555 $ 599,512 ============ =========== ============ Liabilities and Stockholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $ 204,521 $ 191,029 $ 152,136 Savings deposits 150,055 121,728 95,426 Time deposits 177,113 201,381 214,591 Short-term borrowings 13,537 15,347 12,114 Long-term debt 152 196 237 ------------ ----------- ------------ Total interest-bearing liabilities: 545,378 529,681 474,504 Noninterest-bearing demand deposits 75,985 68,457 63,155 Other liabilities 6,976 7,278 7,999 ------------ ----------- ------------ Total liabilities 628,339 605,416 545,658 Stockholders' equity 66,759 59,139 53,854 ------------ ----------- ------------ Total liabilities and stockholders' equity $ 695,098 $ 664,555 $ 599,512 ============ =========== ============ NOTE: 1. Non-accrual loans are included in the average balances. Interest income on nonaccrual loans has not been included.
NET INTEREST EARNINGS The following table summarizes interest income and interest expense by major source and the ratio of net interest earned to average interest earning assets for the past three years.
1993 1992 1991 ---- ---- ---- Interest earned on: Loans $ 27,638 $ 28,600 $ 30,021 Taxable investment securities 13,182 14,540 12,243 Non-taxable investment securities 4,383 3,823 3,105 Federal funds sold and securities purchased under agreement to resell 767 1,228 5,319 Interest-bearing deposits with banks 139 339 421 --------- --------- --------- Total interest earned 46,109 48,530 51,109 --------- --------- --------- Interest paid on: Interest-bearing demand deposits 5,304 6,671 7,502 Savings deposits 4,541 4,525 4,603 Time deposits 6,874 10,367 14,932 --------- --------- --------- Total deposits 16,719 21,563 27,037 Short-term borrowings 307 417 573 Long-term debt 14 18 21 --------- --------- --------- Total interest paid 17,040 21,998 27,631 --------- --------- --------- Net interest earned $ 29,069 $ 26,532 $ 23,478 ========= ========= ========= Average interest-earning assets $647,842 $623,376 $564,151 ========= ========= ========= Net yield on interest-earning assets 4.5% 4.3% 4.2% ========= ========= ========= NOTE: 1. The indicated income and annual rate are presented on a taxable-equivalent basis using the federal marginal rate of 34%. 2. Loan fees included in interest income for 1993, 1992 and 1991 were $283,000, $290,000, and $362,000, respectively. 3. Non-accrual loans are included in the average balances. Interest income on nonaccrual loans has not been included.
AVERAGE RATES EARNED AND PAID The following table summarizes the average interest rates earned on a fully taxable equivalent basis and the average interest rates paid for the periods indicated.
1993 1992 1991 ---- ---- ---- Average rates earned: Loans 9.1% 9.6% 11.0% Taxable investment securities 5.2 6.1 7.7 Non-taxable investment securities 6.9 7.9 9.3 Federal funds sold and securities purchased under agreement to resell 3.0 3.5 5.7 Interest-bearing deposits with banks 4.1 6.3 7.9 Composite rate earned 7.1% 7.8% 9.0% Average rates paid: Interest-bearing demand deposits 2.6% 3.5% 4.9% Savings deposits 3.0 3.7 4.8 Time deposits 3.9 5.1 7.0 Short-term borrowings 2.3 2.7 4.7 Long-term debt 9.2 9.2 8.9 Composite rate paid 3.1% 4.2% 5.8% Net interest spread 4.0% 3.6% 3.2% Net yield on average earning assets and net interest income 4.5% 4.3% 4.2% NOTE: 1. The indicated income and annual rate are presented on a taxable-equivalent basis using the federal marginal rate of 34%. 2. Loan fees included in interest income for 1993, 1992, and 1991 were $283,000, $290,000, and $362,000, respectively. 3. Non-accrual loans are included in the average balances. Interest income on nonaccrual loans has not been included.
RATE/VOLUME ANALYSIS The following table presents changes in interest income and interest expense for the two years ended December 31, 1993. The change in interest due to both rate and volume has been allocated to change due to volume and change due to rate in proportion to the relationship of the absolute dollar amount of change in each.
1993 Over (Under) 1992 ------------------------------ Due to Variances in ------------------------------ Rate Volume Total ------------------------------ Interest income from earning assets: Loans $(1,507) $ 545 $ (962) Taxable investment securities (2,197) 839 (1,358) Non-taxable investment securities (540) 1,100 560 Federal funds sold and securities purchased under agreement to resell (177) (284) (461) Interest-bearing deposits with banks (98) (102) (200) -------- -------- -------- Total interest income $(4,519) $ 2,098 $(2,421) -------- -------- -------- Interest expense on deposits and borrowed funds: Interest-bearing demand deposits $(1,812) $ 445 $(1,367) Savings deposits (928) 944 16 Time deposits (2,345) (1,148) (3,493) Short-term borrowings (64) (46) (110) Long-term debt -- (4) (4) Total interest -------- -------- -------- expense $(5,149) $ 191 $(4,958) -------- -------- -------- Net interest income $ 630 $ 1,907 $ 2,537 ======== ======== ========
1992 Over (Under) 1991 ------------------------------ Due to Variances in ------------------------------ Rate Volume Total ------------------------------ Interest income from earning assets: Loans $(3,794) $ 2,373 $(1,421) Taxable investment securities (2,977) 5,274 2,297 Non-taxable investment securities (517) 1,235 718 Federal funds sold and securities purchased under agreement to resell (1,538) (2,553) (4,091) Interest-bearing deposits with banks (84) 2 (82) -------- -------- -------- Total interest income $(8,910) $ 6,331 $(2,579) Interest expense on deposits -------- -------- -------- and borrowed funds: Interest-bearing demand deposits $(2,488) $ 1,657 $ (831) Savings deposits (1,188) 1,110 (78) Time deposits (3,691) (874) (4,565) Short-term borrowings (283) 127 (156) Long-term debt -- (3) (3) Total interest -------- -------- -------- expense $(7,650) $ 2,017 $(5,633) -------- -------- -------- Net interest income $(1,260) $ 4,314 $ 3,054 ======== ======== ======== NOTE: 1. The indicated income and annual rate are presented on a taxable-equivalent basis using the federal marginal rate of 34%. 2. Loans fees included in interest income for 1993, 1992, and 1991 were $283,000, $290,000, and $362,000, respectively. 3. Non-accrual loans are included in the average balances. Interest income on nonaccrual loans has not been included.
INVESTMENT PORTFOLIO The following table shows the book value of investment securities held to maturity at the dates indicated.
1993 1992 1991 ---- ---- ---- U.S. Treasury and Government agencies $ 70,496 $ 155,300 $148,392 States and political subdivisions 76,822 53,431 43,061 Corporate securities 10,562 10,836 12,591 Mortgage-backed securities 58,357 77,189 48,128 Equity securities -- 10,169 5,704 --------- ---------- -------- Total $ 216,237 $ 306,925 $257,876 ========= ========== ========
The following table shows the book value of investment securities available for sale at the dates indicated.
1993 ---- U.S. Treasury and Government agencies $ 62,854 Mortgage-backed securities 31,021 Equity securities 6,760 --------- Total $ 100,635 =========
The amortized costs, gross unrealized gains and losses, and the fair values of investments held to maturity were as follows:
Gross Gross Amortized Unrealized Unrealized Fair December 31, 1993 Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury and Government agencies $ 70,496 $ 373 $ 53 $ 70,816 States and political subdivisions 76,822 1,070 172 77,720 Corporate securities 10,562 128 3 10,687 Mortgage-backed securities 58,357 315 116 58,556 --------- ---------- -------- --------- Total $ 216,237 $ 1,886 $ 344 $ 217,779 ========= ========== ======== ========= Gross Gross Amortized Unrealized Unrealized Fair December 31, 1992 Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury and Government agencies $ 155,300 $ 1,845 $ 296 $ 156,849 States and political subdivisions 53,431 929 115 54,245 Corporate securities 10,836 210 16 11,030 Mortgage-backed securities 77,189 236 381 77,044 Equity securities 10,169 30 25 10,174 --------- ---------- -------- --------- Total $ 306,925 $ 3,250 $ 833 $ 309,342 ========= ========== ======== =========
The amortized costs, gross unrealized holding gains and losses, and the fair values of investment securities available for sale were as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Fair December 31, 1993 Cost Gains Losses Value - ------------------ --------- ---------- ---------- --------- U.S. Treasury and Government agencies $ 62,854 $ 168 $ 160 $ 62,862 Mortgage-backed securities 31,021 71 141 30,951 Equity securities 6,760 66 -- 6,826 --------- -------- -------- --------- Total $ 100,635 $ 305 $ 301 $ 100,639 ========= ======== ======== =========
The breakdown of Bancorp's total investment portfolio held to maturity December 31, 1993 by maturity and yield is shown in the table below. Estimated prepayment assumptions have been incorporated into the maturities for collateralized mortgage obligations based on historical trends.
Greater Under 1-5 5-10 Than No Stated Amount 1 Year Years Years 10 Yrs Maturity Total ------- ------- ------- ------- -------- ------- U.S. Treasury and Government agencies $ 55,548 $ 14,948 $ -- $ -- $ -- $ 70,496 States and political subdivisions 13,052 39,520 24,250 -- -- 76,822 Corporate securities 8,040 2,522 -- -- -- 10,562 Mortgage-backed securities 41,617 13,838 2,902 -- -- 58,357 ---------- ----------- --------- ---------- ---------- --------- Total $ 118,257 $ 70,828 $ 27,152 $ -- $ -- $216,237 ========== =========== ========= ========== ========== ========= Greater Under 1-5 5-10 Than No Stated Weighted average yield 1 Year Years Years 10 Yrs Maturity Total ------- ------- ------- ------- ------- ------- U.S. Treasury and Government agencies 5.17 % 4.20 % -- % -- % -- % 4.96 % States and political subdivisions 7.80 6.68 6.45 -- -- 6.80 Corporate securities 6.42 4.93 -- -- -- 6.06 Mortgage-backed securities 4.63 5.33 5.67 -- -- 4.85 ---------- ----------- -------- --------- --------- -------- Total 5.36 % 5.83 % 6.37 % -- % -- % 5.64 % ========== =========== ======== ========= ========= ========
The breakdown of Bancorp's total investment portfolio available for sale December 31, 1993 by maturity and yield is shown in the table below. Estimated prepayment assumptions have been incorporated into the maturities for collateralized mortgage obligations based on historical trends.
Greater Under 1-5 5-10 Than No Stated Amount 1 Year Years Years 10 Yrs Maturity Total ------- ------- ------- ------- --------- ------- U.S. Treasury and Government agencies $ 2,008 $ 51,017 $ 9,837 $ -- $ -- $ 62,862 Mortgage-backed securities 4,727 25,677 547 -- -- 30,951 Equity securities -- -- -- -- 6,826 6,826 ---------- ----------- --------- ---------- ---------- --------- Total $ 6,735 $ 76,694 $ 10,384 $ -- $ 6,826 $100,639 ========== =========== ========= ========== ========== ========= Greater Under 1-5 5-10 Than No Stated Weighted average yield 1 Year Years Years 10 Yrs Maturity Total ------- ------- ------- ------- --------- ------- U.S. Treasury and Government agencies 4.95 % 4.41 % 5.50 % -- % -- % 4.60 % Mortgage-backed securities 4.30 4.78 4.67 -- -- 4.70 Equity securities -- -- -- -- 2.97 2.97 ---------- ----------- -------- --------- --------- -------- Total 4.49 % 4.53 % 5.46 % -- % 2.97 % 4.52 % ========== =========== ======== ========= ========= ======== NOTE: The weighted average yield has been computed on a taxable equivalent basis using the federal marginal rate of 34%.
The amortized cost and fair value of debt securities held to maturity at December 31, 1993 and 1992, by contractual maturity, are shown below. Expected maturities will differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
December 31, 1993 December 31, 1992 ---------------------- --------------------- Amortized Fair Amortized Fair Cost Value Cost Value ------- ------- ------- ------- Due in one year or less $ 76,640 $ 77,281 $ 82,040 $ 83,373 Due after one year through five years 56,990 57,537 128,457 129,474 Due after five years through ten years 24,250 24,405 9,070 9,277 --------- ---------- --------- ---------- Subtotal 157,880 159,223 219,567 222,124 Mortgage-backed securities 58,357 58,556 77,189 77,044 --------- ---------- --------- ---------- Total debt securities $ 216,237 $ 217,779 $296,756 $ 299,168 ========= ========== ======== =========
The amortized cost and fair value of debt securities available for sale at December 31, 1993, by contractual maturity, are shown below. Expected maturities will differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
December 31, 1993 ----------------------- Amortized Fair Cost Value ------- ------- Due in one year or less $ 2,000 $ 2,008 Due after one year through five years 51,071 51,017 Due after five years through ten years 9,783 9,837 --------- ---------- Subtotal 62,854 62,862 Mortgage-backed securities 31,021 30,951 --------- ---------- Total debt securities $ 93,875 $ 93,813 ========= ==========
At December 31, 1993 and 1992, the carrying value of no single issurer exceeded ten percent of stockholders equity. At December 31, 1993 and 1992, securities held to maturity with a book value $29,713,000 and $48,625,000; and securities available for sale at December 31, 1993 with a book value of $3,250,000, respectively, were pledged as collateral for borrowings and certain government deposits as required by law. There were no sales of debt securities during 1993,1992 or 1991. Gains of $11,000 and $22,000 on debt securities were recognized in 1992 and 1991, respectively, as a result of premiums paid on called debt securities. LOAN PORTFOLIO The following table categorizes loans at the dates indicated:
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Commercial, financial and agricultural $ 35,859 $ 40,153 $ 42,400 $ 52,611 $ 52,601 Real estate - construction 19,807 18,489 24,168 25,007 14,807 Real estate - other 223,784 214,831 182,027 163,230 133,916 Consumer loans 25,546 26,753 31,175 34,115 30,024 ----------- --------- --------- --------- ----------- Total loans, gross 304,996 300,226 279,770 274,963 231,348 Less: Unearned income (1,573) (1,637) (1,035) (1,155) (1,031) Allowance for loan losses (5,558) (5,034) (3,955) (3,865) (3,021) ----------- --------- --------- --------- ----------- Total loans, Net $ 297,865 $ 293,555 $ 274,780 $ 269,943 $ 227,296 =========== ========= ========= ========= ===========
The following table presents a maturity distribution of selected loans at December 31, 1993. Real estate mortgage loans and installment loans are excluded from this table.
Under 1-5 Over 1 Year Years 5 Yrs Total ------ ----- ----- ----- Commercial, financial and agricultural $ 24,297 $ 10,044 $ 1,518 $ 35,859 Real estate - construction 12,660 7,147 -- 19,807 ----------- --------- --------- --------- Total $ 36,224 $ 17,191 $ 1,518 $ 55,666 =========== ========= ========= ========= Loans maturing after one year: Predetermined interest rates $ 11,777 62.95% Floating interest rates 6,932 32.05% ----------- --------- Total $ 18,709 100.00% =========== =========
The following table shows information concerning the aggregate amount of risk elements. Risk elements comprise (1) loans accounted for on a non-accrual basis; (2) loans contractually past due ninety days or more as to interest or principal payments [exclusive of loans in (1) above]; (3) loans which have been restructured because of deterioration in the financial position of the borrower including: (a) loans in which terms have been renegotiated to provide a reduction in stated interest rates; (b) loans in which terms have been renegotiated to provide an extension of maturity at a favorable interest rate; (c) loans in which terms have been renegotiated to provide a reduction in the face amount of the debt; (d) loans in which terms have been renegotiated to provide a reduction in accrued interest [exclusive of loans in (1) or (2) above].
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Nonaccrual Loans $2,654 $3,176 $ - $445 $ 886 Loans contractually past due as to interest or principal 220 328 1,256 623 102 Loans classified as troubled debt restructured - - - - - ------ ------ ------ ------ ------ Totals $2,874 $3,504 $1,256 $1,068 $ 988 ====== ====== ====== ====== ======
During 1993, the gross amount of interest income that would have been recorded at the original rate for nonaccrual loans was $359,000. The interest included in 1993 income for these loans was $160,000; therefore the impact on interest revenue was $199,000. Loans, other than those secured by marketable collateral, or in the process of collection, are put on a nonaccrual status when principal or interest becomes ninety days delinquent. A loan may be put on a nonaccrual status sooner than this standard if, in management's judgement, that loan may be uncollectible. Placing a loan on nonaccrual is a determination that interest may not be collected in the current period and therefore should be reported as income only when collected. Until the loan becomes current as to principal and interest, and the borrower has demonstrated the ability to continue such payments, interest is included in income only to the extent received in cash. As of the end of the most recent reported period, there is no concentration of loans exceeding 10% of total loans which are not otherwise disclosed as a category of loans on page 28 of this report. SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses is the amount estimated to adequately cover future losses (charge offs) on loans outstanding and is established through charges to earnings by a provision for loan losses. The amount charged to earnings is based on several factors and includes growth and diversity of loan portfolio, historical loan loss experience, current and future economic conditions and the level of nonperforming and underperforming credits. Loans are charged to the reserve when collection results would be inadequate to recover principal and interest. Subsequent recovery of a loan previously charged off is credited to the reserve. A summary of the loan loss experience, changes in the reserve for loan losses and other related data is presented in the following table.
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Average loans outstanding, net of unearned income $ 302,455 $ 296,726 $ 273,944 $ 253,220 $ 221,004 ========== ========== ========== ========== ========== Reserve balance at beginning of year $ 5,034 $ 3,955 $ 3,865 $ 3,021 $ 2,578 Loans charged off: Commercial, financial and agricultural 217 203 1,288 324 704 Real estate - construction -- -- -- -- -- Real estate - other 933 1,080 26 327 25 Consumer loans 223 182 165 204 78 ---------- ---------- ---------- ---------- ---------- Total loans charged off: 1,373 1,465 1,479 855 807 Recoveries of loans previosly charged off: ---------- ---------- ---------- ---------- ---------- Commercial, financial and agricultural 37 35 58 2 10 Real estate - construction -- -- -- -- -- Real estate - other 18 6 88 -- -- Consumer loans 21 58 82 39 24 ---------- ---------- ---------- ---------- ---------- Total recoveries 76 99 228 41 34 ---------- ---------- ---------- ---------- ---------- Net loans charged off 1,297 1,366 1,251 814 773 Provision charged to operating expenses 1,821 2,445 1,341 1,658 1,216 ---------- ---------- ---------- ---------- ---------- Reserve balance at end of year $ 5,558 $ 5,034 $ 3,955 $ 3,865 $ 3,021 ========== ========== ========== ========== ========== Ratio of net charge offs during year to average loans outstanding 0.43% 0.46% 0.46% 0.32% 0.35% ========== ========== ========== ========== ==========
Bancorp has allocated the Reserve for Loan Losses to the various categories of loans. This allocation does not limit the amount of the reserve available to absorb losses from any type of loan and should not be viewed as an indicator of the specific amount or specific loan categories in which future charge offs may ultimately occur. The table below presents this allocation along with the percentage of loan amounts in each category, at the dates indicated.
1993 1992 1991 1990 1989 ------------- ------------- ------------- ------------- ------------- % of % of % of % of % of Resv. loan Resv. loan Resv. loan Resv. loan Resv. loan Amt. to tot. Amt. to tot. Amt. to tot. Amt. to tot. Amt. to tot. loans loans loans loans loans ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- Reserve amount allocated Commercial, financial, and agricultural loans $ 516 11.8 $ 445 13.4 $1,275 15.2 $1,908 19.1 $1,500 22.7 Real estate - construction 421 6.5 115 6.2 273 8.6 168 9.1 300 6.4 Real estate - other 3,230 73.3 4,145 71.5 906 65.1 610 59.4 150 57.9 Consumer loans 281 8.4 296 8.9 274 11.1 273 12.4 421 13.0 Unallocated 1,110 -- 33 -- 1,227 -- 906 -- 650 -- -------------- -------------- -------------- -------------- -------------- Total $ 5,558 100.0 $5,034 100.0 $3,955 100.0 $3,865 100.0 $3,021 100.0 ============== ============== ============== ============== ==============
DEPOSITS The following table presents the classification of average deposits for the periods indicated:
1993 1992 1991 ------------- ------------- ------------- Average Avg Average Avg Average Avg Amount Rate Amount Rate Amount Rate ------------- ------------- ------------- Noninterest- bearing demand deposits $ 75,985 - $ 68,457 - $ 63,155 - Interest-bearing demand deposits 204,521 2.6% 191,029 3.5% 152,136 4.9% Savings deposits 150,055 3.0% 121,728 3.7% 95,426 4.8% Time deposits 177,113 3.9% 201,381 5.1% 214,591 7.0% -------- -------- -------- Average deposits $607,674 $582,595 $525,308 ======== ======== ========
At December 31, 1993, the maturity distribution for time deposit issued in amounts of $100,000 or more was:
Certificates Other Time of Deposit Deposits Total ------------ ---------- ------- Time remaining to maturity Less than 3 months $12,605 $ 127 $12,732 3 to 6 months 3,343 279 3,622 6 to 12 months 10,247 224 10,471 Over 12 months 3,039 101 3,140 ------- ----- ------- Total $29,234 $ 731 $29,965 ======= ===== =======
RETURN ON EQUITY AND ASSETS The following table shows net income as a percent of average stockholders' equity and average total assets, as well as certain other ratios for the periods indicated.
1993 1992 1991 ---- ---- ---- Return on stockholders' equity: Average stockholders' equity $66,759 $59,139 $53,854 Net income before accumulative effect of accounting change $9,508 $7,794 $6,950 Cumulative effect of accounting change $ 1,431 -0- -0- Net income after cumulative effect of accounting change $10,939 $7,794 $6,950 Return on average stockholders' equity on net income before cumulative effect of accounting change 14.2% 13.2% 12.9% Return on average stockholder's equity on net income after cumulative effect of accounting change 16.4% 13.2% 12.9% Return on total assets: Average total assets $695,099 $664,555 $599,512 Return on average total assets on net income before cumulative effect of accounting change 1.4% 1.2% 1.2% Return on average total assets after cumulative effect of accounting change 1.6% 1.2% 1.2% Average stockholders' equity as a percent of average total assets 9.6% 8.9% 9.0% Dividend payout ratio: Total dividend declared $2,834 $2,375 $2,186 Percent of dividends declared on net income 25.9% 30.5% 31.5%
SHORT-TERM BORROWINGS Short-term borrowings, which consist primarily of securities sold under agreements to repurchase and the U.S. Treasury demand note were as follows:
1993 1992 1991 ---- ---- ---- Amount outstanding at year-end $17,329 $14,019 $17,333 Weighted average interest rate at year-end 2.4% 2.2% 3.2% Maximum amount outstanding at any month-end $17,565 $17,474 $17,333 Average amount outstanding $13,537 $15,347 $12,114 Weighted average interest rate during the year 2.3% 2.7% 4.7%
ITEM 1(a). EXECUTIVE OFFICERS OF BANCORP The current executive officers of Bancorp, their ages and current offices or positions with Bancorp and their business experience during the past five years is set forth below. Information concerning an officer's service as a director of Bancorp includes service as a director of FNB prior to the formation of Bancorp and its acquisition of FNB on August 1, 1982. Name and Position Business Experience During with Bancorp Age the Past Five Years Charles L. Schelberg 68 Chairman of the Board since Chairman of the Board 1982; Director since 1965; Director President of FNB from 1971-1986 John M. Suit,II 49 Elected President and Chief President and Executive Officer in August 1989; Chief Executive Officer Executive Vice President and a Director of Annapolis Banking & Trust until 1989. Joseph B. Riddleberger 73 Vice President since 1983; Vice President Director of CCB and Executive Vice President of CCB (retired 1982). Louis A. Supanek 52 Vice President and Treasurer Vice President, since 1982; Executive Vice Treasurer President, Cashier and Chief Financial Officer of FNB since 1990; Senior Vice President and Cashier of FNB 1982 - 1989. Frank T. Lowman, III 50 Vice President since 1992; Vice President Executive Vice President of FNB since 1990; Senior Vice President of FNB 1980 - 1989; Director of CCB since 1982. Norma K. Behlke 49 Secretary since 1984; Assistant Secretary Vice President of FNB since 1987.
ITEM 2. PROPERTIES FNB owns the following properties: Main Office 5 Church Circle, Annapolis, Maryland Parole Office 2015 West Street, Annapolis, Maryland Arnold Office Arnold Road and Ritchie Highway, Anne Arundel County, Maryland Pasadena Office 3030 Mountain Road, Anne Arundel County, Maryland Millington Office Millington, Kent County, Maryland Centreville Office Centreville, Queen Anne's County, Maryland The following properties are leased by FNB or owned subject to land lease: Eastport Office Eastport Shopping Center, Annapolis, Maryland City Dock Office 91 Main Street, Annapolis, Maryland Hillsmere Office 101 Hillsmere Drive, Annapolis, Maryland Heritage Harbour Compass Way, Annapolis, Maryland Severna Park Office Severna Park Shopping Village, Anne Arundel County, Maryland Edgewater Office Route 2 and Maryland Avenue, Anne Arundel County, Maryland Wayson's Corner Office 5401 Southern Maryland Boulevard, Anne Arundel County, Maryland Benfield Road Office Benfield and Jumpers Hole Roads, Anne Arundel County, Maryland Central Avenue Office 52 West Central Avenue, Anne Arundel County, Maryland Operations-Data Center McGuckian Street and Chinquapin Round Road, Annapolis, Maryland CCB owns the following property: Main Office Sunset and Main Streets, Greensboro, Maryland Operations Center Main Street, Greensboro, Maryland ANB owns the following property: Ocean Pines Office 11111 Racetrack Road, Ocean Pines, Maryland Salisbury Office 528 Riverside Drive, Salisbury, Maryland The following properties are leased by ANB or owned subject to land lease: Main Office 4604 Coastal Highway, Ocean City, Maryland N. Salisbury Office 2400 N. Salisbury Blvd, Salisbury, Maryland FNLC owns the following property: Commercial Building McGukian Street and Chinquapin Round Road, Annapolis, Maryland Commercial Building and 23 West Street, Annapolis, Maryland Parking Lot Banking Office 4604 Coastal Highway, Ocean City, Maryland Commercial Building and 33-41 West Street, Annapolis, Parking Lot Maryland Commercial Parking Lot George Avenue and Chinquapin Round Road, Annapolis, Maryland Commercial Building 203 N. Commerce Street, Centreville, Maryland Commercial Building and 104 Cathedral Street, Annapolis, Parking Lot Maryland Land (other real Bywater Road, Annapolis, Maryland estate owned) Commercial Building 15 West Street, Annapolis, Maryland The following properties are leased by FNLC or owned subject to land lease: Pad Site Ritchie Highway, Severna Park, Maryland ITEM 3. LEGAL PROCEEDINGS Bancorp and its subsidiaries are at times, in the ordinary course of business, subject to legal actions. Management is of the opinion that losses, if any, resulting from such matters will not have a material adverse effect on Bancorp's consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Common Stock Price and Dividend History" on page 13 of the Annual Report to Stockholders, which contains information concerning the market price of Bancorp and its affiliates for the past two years and the dividend record with respect thereto for the past two years, is incorporated herein by reference. As of March 1, 1994, it was determined by a count of registered shareholders that there were approximately 1,400 holders of common stock. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 3 of the Annual Report to Stockholders, which contains a summary of operations, per share data, return on equity and assets, dividend payout ratio and other data for the past five years, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations on pages 4 through 13 of the Annual Report to Stockholders, which contains information with respect to Bancorp's financial condition and results of operations (including liquidity, interest rate sensitivity and inflation, and capital resources), is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of Bancorp and its subsidiaries, included in the Annual Report to Stockholders on pages 14 through 24 are incorporated herein by reference: Independent Auditors' Report Consolidated Balance Sheets - December 31, 1993 and 1992. Consolidated Statements of Income - Years ended December 31, 1993, 1992, and 1991. Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1993, 1992, and 1991. Consolidated Statements of Cash Flows - Years ended December 31, 1993, 1992, and 1991. Notes to Consolidated Financial Statements - Years ended December 31, 1993, 1992, and 1991. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pages 1 through 4 of Bancorp's definitive Proxy Statement prepared for the 1994 annual meeting of stockholders, which contains information concerning the Directors of Bancorp, are incorporated herein by reference. Information concerning the Executive Officers of Bancorp is included on page 38 in Part I of the report. ITEM 11. EXECUTIVE COMPENSATION Except for information under the caption "Report of Personnel Committee of Farmers National on Executive Compensation" and the performance graph on page 11 of Bancorp's definitve proxy statement that is required by paragraphs (k)(l) of item 402, the information contained on pages 7 through 11 of Bancorp's definitive proxy statement prepared for the 1994 annual meeting of stockholders, which contains information concerning current remuneration of Bancorp's officers and directors and transactions with management, are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pages 5 through 6 of Bancorp's definitive proxy statement prepared for the 1994 annual meeting of stockholders, which contains information concerning ownership of Bancorp equity securities, are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Relationships and Related Transactions" appearing on page 11 of Bancorp's definitive proxy statement prepared for the 1994 annual meeting of stockholders, which contains information concerning transactions with directors and officers, is incorporated herein by reference. The information set forth under the caption "Related Party Transactions" on page 23 of the Annual Report to stockholders which contains information concerning indebtness of management is incorporated herein by reference. PART IV ITEM 14. EXHIBITS,FINANCIAL STATEMENT SCHEDULES,AND REPORTS ON FORM 8-K (a) Documents filed as a part of the report: 1. The following financial statements included in the Annual Report, for the year ended December 31, 1993, at pages 14 through 24 thereof, are incorporated by reference in Item 8. Independent Auditors' Report. Consolidated Balance Sheets - December 31, 1993 and 1992. Consolidated Statements of Income - Years ended December 31, 1993, 1992, and 1991. Consolidated Statements of Change in Stockholders' Equity - Years ended December 31, 1993, 1992, and 1991. Consolidated Statements of Cash Flows - Years ended December 31, 1993, 1992, and 1991. Notes to Consolidated Financial Statements - Years ended December 31, 1993, 1992, and 1991. 2. All schedules for which provision is made in the accounting regulation of the Commission are not applicable or are not required under the related instruction and have therefore been omitted. 3. Exhibits required by Item 601 of Regulation S-K: Exhibit 3A - Charter of the Registrant, as amended, is incorporated by reference to Exhibit 3A of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 3B - By-Laws of the Registrant, as amended, is incorporated by reference to Exhibit 3B of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 10A - Farmers National bank of Maryland Executive Benefits Plan, as amended, is incorporated by reference to Exhibit 10A of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 10B - Executive Benefits Plan Participation Agreement (Charles L. Schelberg), as amended, is incorporated by reference to Exhibit 10B of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 10C - Executive Benefit Plan Participation Agreement (Louis A. Supanek), as amended, is incorporated by reference to Exhibit 10C of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 10D - Executive Benefit Plan Participation Agreement (John M. Suit, II), is incorporated by reference to Exhibit 10D of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 10E - Executive Benefit Plan Participation Agreement (Frank T. Lowman, III), as amended, is incorporated by reference to Exhibit 10E of Form 10-K for the fiscal year ended December 31, 1993, of the Registrant. Exhibit 13 - 1993 Annual Report of the Registrant, filed herewith. Exhibit 22 - Subsidiaries of the Registrant, filed herewith. Exhibit 23 - Registrant's Proxy Statement for the 1994 Annual Meeting of Stockholders is incorporated by reference. Exhibit 24 - Consent of Independent Certified Public Accountants, filed herewith. Exhibit 25 - Power of Attorney, filed herewith. All other required Exhibits are not applicable to the Registrant. (b) Farmers National Bancorp filed no reports on Form 8-K during the last quarter ended December 31, 1993. (c) Exhibits - The Exhibits required by Item 601 of Regulation S- K are filed herewith or are incorporated by reference. (d) Financial Statement Schedules - All required Schedules are not applicable to the Registrant. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereonto duly authorized. FARMERS NATIONAL BANCORP \s\Charles L. Schelberg ___________________________________ Charles L. Schelberg Chairman of the Board March 8, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Principal Executive Officer \s\John M. Suit, II ___________________________________ John M. Suit, II President and Chief Executive Officer March 8, 1994 Principal Financial Officer \s\Louis A. Supanek ___________________________________ Louis A. Supanek Vice President & Treasurer March 8, 1994 Principal Accounting Officer \s\Louis A. Supanek ___________________________________ Louis A. Supanek Vice President & Treasurer March 8, 1994 SIGNATURES Majority of the Board of Directors * Charles L. Schelberg * John M. Suit, II * L. Tayloe Lewis, Jr. * Louis Hyatt * Alexander V. Sandusky * Raymond C. Shockley * Joseph S. Quimby * John B. Melvin * W. Robert Newnam * M. Virginai Meredith * Donald S. Taylor * Cary L. Meredith * William W. Simmons * James D. Edwards * W. Calvin Gray, Jr. *Signed by the undersigned as attorney in fact for the persons indicated. \s\Charles L. Schelberg ___________________________________ * Charles L. Schelberg SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 FARMERS NATIONAL BANCORP EXHIBIT INDEX Exhibit 13 1993 Annual Report of the Registrant Exhibit 22 Subsidiaries of the Registrant Exhibit 24 Consent of Independent Certified Public Accountants Exhibit 25 Power of Attorney EX-13 2 EXHIBIT 13 1 FINANCIAL HIGHLIGHTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PERCENT INCREASE YEARS ENDED DECEMBER 31, 1993 1992 (DECREASE) - ------------------------------------------------------------------------------ FOR THE YEAR Interest income $ 44,572 $ 47,180 (5.5)% Interest expense 17,040 21,998 (22.5) Net interest income 27,532 25,182 9.3 Income before cumulative effect of accounting change 9,508 7,794 22.0 Cumulative effect of accounting change 1,431 -- -- Net income 10,939 7,794 40.4 Cash dividends declared 2,834 2,375 19.3 - ------------------------------------------------------------------------------ AVERAGE Total assets $695,098 $664,555 4.6% Total deposits 607,674 582,595 4.3 Total loans 302,455 296,726 1.9 Stockholders' equity 66,759 59,139 12.9 - ------------------------------------------------------------------------------ AT YEAR END Total assets $714,209 $690,210 3.5% Total deposits 619,957 607,103 2.1 Total loans 303,423 298,589 1.6 Stockholders' equity 69,940 61,883 13.1 - ------------------------------------------------------------------------------ PER SHARE Income before cumulative effect of accounting change $ 3.52 $ 2.89 22.0% Cumulative effect of accounting change .53 -- -- Net income 4.05 2.89 40.4 Cash dividends declared 1.05 .88 19.3 Book value at year-end 25.91 22.91 13.1 - ------------------------------------------------------------------------------
Table of Contents - ----------------------------------------------------------------------------------- Financial Highlights 1 Message to Shareholders 2 Selected Financial Data 3 Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Consolidated Financial Statements 14 Notes to Consolidated Financial Statements 17 Report of Management 25 Independent Auditors' Report 25 Directors and Officers 26 Principal Affiliates 27 Shareholder Information 29
2 MESSAGE TO SHAREHOLDERS It is a pleasure to report that Farmers National Bancorp achieved record growth in operating earnings for 1993. Net income for the year, before recording a one time accounting change, totaled $9.5 million, compared to $7.8 million for 1992, an increase of 22 percent. On a per share basis, earnings were $3.52 compared to $2.89 the previous year. A one time accounting change was recorded during the first quarter of 1993, representing the effect of implementing the Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which added $1.4 million or $.53 per share to earnings. As a result, 1993 net income totaled $10.9 million or $4.05 per share compared to $7.8 million or $2.89 per share for the same period a year ago. Bancorp increased it's quarterly dividend during the fourth quarter to $.30 per share, a 20 percent increase over $.25 per share declared the prior quarter. Total assets at year-end were $714 million compared to $690 million at year-end 1992, a gain of $24 million or 3.5 percent. After several years of substantial increases, deposits grew slightly to $620 million during 1993 due primarily to the current low interest rate environment. Equity capital increased by 13.1 percent to $70 million. Loans grew a modest 1.6 percent to $303 million, reflecting slow economic recovery and low consumer and business demand for credit. We expect the economic recovery to become more evident during 1994. We anticipate both our net charge-off ratio and non-performing asset ratio to decline as the financial condition of our customers improves. Loan growth should be stronger in 1994 and we will continue to be aggressive in seeking new business. Additional loan origination and business development personnel will be added to the staff in 1994 to help develop loan business while maintaining excellent service and credit quality. Technology advances in 1993 were primarily directed toward customer service areas, with the installation of state-of-the-art ATM machines at all affiliate banks, and the development of a new PC based teller and platform system designed to improve customer service in branch lobbies. Installation at all Farmers National Bank branches is scheduled for completion in 1994. The new technology is designed to increase the efficiency of our staff by increasing the information available, and thereby enabling them to serve our customers faster and have access to an expanded product base. We continue to place high importance on our involvement in the communities we serve. Many of our officers and employees participate and serve in various community activities and functions. Our challenge is to maximize the value of our holding company for our shareholders. In order to broaden the scope of our banking franchise, we continue to look for opportunities of growth and expansion through the possible acquisition of small banks that fit into our corporate strategy. We enter 1994 with one of the strongest equity capital positions in the industry. We anticipate further success in 1994 and are grateful to you, our shareholders, for your continued, strong support. On behalf of the Board of Directors and staff, we thank you. /s/ John M. Suit, II John M. Suit, II PRESIDENT AND CHIEF EXECUTIVE OFFICER 3 SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ SUMMARY OF OPERATIONS Interest income $ 44,572 $ 47,180 $ 49,923 $ 46,436 $ 43,460 Interest expense 17,040 21,998 27,631 24,823 23,081 - ------------------------------------------------------------------------------------------------------------------ Net interest income 27,532 25,182 22,292 21,613 20,379 Provision for loan losses 1,821 2,445 1,341 1,658 1,216 - ------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 25,711 22,737 20,951 19,955 19,163 Noninterest income 4,472 4,331 4,337 3,688 3,568 Noninterest expense 17,117 15,980 15,249 13,443 12,444 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes 13,066 11,088 10,039 10,200 10,287 Applicable income taxes 3,558 3,294 3,089 3,511 3,271 - ------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of accounting change 9,508 7,794 6,950 6,689 7,016 Cumulative effect of accounting change 1,431 - - - - - ------------------------------------------------------------------------------------------------------------------ Net income $ 10,939 $ 7,794 $ 6,950 $ 6,689 $ 7,016 - ------------------------------------------------------------------------------------------------------------------ PER SHARE DATA Income before cumulative effect of accounting change $ 3.52 $ 2.89 $ 2.58 $ 2.48 $ 2.60 Cumulative effect of accounting change .53 - - - - Net income 4.05 2.89 2.58 2.48 2.60 Cash dividends declared 1.05 .88 .81 .77 .73 Book value 25.91 22.91 20.90 19.14 17.43 RETURN ON EQUITY AND ASSETS Average stockholders' equity 66,759 59,139 53,854 49,748 44,866 Return on average stockholders' equity before cumulative effect of accounting change 14.2% 13.2% 12.9% 13.4% 15.6% Return on average stockholders' equity 16.4% 13.2% 12.9% 13.4% 15.6% Average total assets $ 695,098 $ 664,555 $ 599,512 $ 497,975 $ 460,599 Return on average total assets before cumulative effect of accounting change 1.4% 1.2% 1.2% 1.3% 1.5% Return on average total assets 1.6% 1.2% 1.2% 1.3% 1.5% Average stockholders' equity to average assets 9.6% 8.9% 9.0% 10.0% 9.7% Average shares outstanding 2,699,056 2,699,056 2,699,056 2,699,056 2,699,056 DIVIDEND PAYOUT RATIO Total dividends declared $ 2,834 $ 2,375 $ 2,186 $ 2,079 $ 1,970 Percent of dividends declared to net income 25.9% 30.5% 31.5% 31.1% 28.1% OTHER DATA (AT YEAR END) Total assets $ 714,209 $ 690,210 $ 650,988 $ 545,376 $ 471,835 Total deposits 619,957 607,103 569,077 473,862 410,023 Total loans 303,423 298,589 278,735 273,808 230,317 Total stockholders' equity 69,940 61,833 56,414 51,650 47,040 - ------------------------------------------------------------------------------------------------------------------
4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of the financial condition and results of operation of Farmers National Bancorp and affiliates is intended to cover the significant factors affecting the corporation's financial statements for the past several years. It should be read in conjunction with the Consolidated Financial Statements and their related notes. Tabular information is presented in thousands of dollars. PERFORMANCE OVERVIEW Net income for 1993 was $10.94 million compared with $7.79 million in 1992, an increase of 40.4 percent. On a per share basis, 1993 earnings were $4.05 compared to $2.89 the preceding year. In 1993 Bancorp affiliates adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The adoption of SFAS No. 109 resulted in an additional after-tax benefit of $1.43 million. The effect of this change added $.53 to earnings per share. Excluding the effect of the change in accounting principle, net income was $9.51 million, or $3.52 per share, an increase of 22.0 percent over the comparative net income earned in 1992. Returns on average earning assets and average stockholder's equity for 1993 (excluding the benefit of the accounting change) were 1.4 percent and 14.2 percent respectively. These compare favorably to 1.2 percent and 13.2 percent for 1992. These performance measurements continue to remain above those of other banking companies of similar asset size. Through monitoring of asset quality, a continued conservative lending policy, and control of noninterest expenses Bancorp continues to maintain financial ratios which compare very favorably to other financial institutions in terms of capitalization, asset quality, liquidity and returns on assets and equity capital. Emphasis on quality customer service, expansion of product lines, and continued enhancement of technology are reflective of the commitment of each affiliate bank to serve its respective customers. NET INTEREST INCOME Net interest income is the difference between interest income generated by earning assets which include loans and investments, and interest expense paid for funds which include deposits and borrowings. It is the principal source and largest component of earnings for Bancorp. Net interest income is analyzed on a tax equivalent basis, a measure which adjusts interest income to reflect the federal income tax effects of holdings of tax-free loans and investments. Net interest income on a tax-equivalent basis was $29.1 million in 1993 compared with $26.5 million in 1992 and $23.5 million in 1991, respective increases of 9.6 percent and 13.0 percent. The discussion of net interest income should be read in conjunction with Table 2 which presents a summary of Bancorp's average earning assets and interest-bearing liabilities together with the tax equivalent yield earned and rates paid for each major category of asset and liability, and Table 3 which attributes changes in net interest income to either changes in the volume of average balances or to changes in the yield earned on earning assets and rates paid on interest-bearing liabilities. Improved net interest income in 1993 was primarily the effect of a declining rate environment which caused the interest paid on interest-bearing liabilities to decline more than the reduction in the interest earned on assets. Although the yield on earning assets decreased 70 basis points, the rate paid on interest-bearing liabilities fell 110 points which resulted in a 40 basis point increase in the net interest spread. Also contributing to the increase was a greater volume of average earning assets which grew 3.9 percent in 1993. Net interest margin is net interest income on a fully taxable-equivalent basis calculated as a percent of average earning assets. The net interest margin in 1993 was 4.5 percent compared to 4.3 percent in 1992 and 4.2 percent in 1991. The continued upward trend in the margin during the past two years is primarily the result of a widening net interest spread. TABLE 1 -- Net Interest Margin
YEARS ENDED DECEMBER 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------ Yield on earning assets 7.1% 7.8% 9.0% Rate paid on interest-bearing liabilities 3.1 4.2 5.8 - ------------------------------------------------------------------------------------------------------------ Net interest rate spread 4.0 3.6 3.2 Effect of noninterest-bearing liabilities 0.5 0.7 1.0 - ------------------------------------------------------------------------------------------------------------ Net interest margin 4.5% 4.3% 4.2% - ------------------------------------------------------------------------------------------------------------
5 TABLE 2 -- Consolidated Average Balances, Yields and Rates
1993 1992 1991 -------------------------- -------------------------- -------------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ YEARS ENDED DECEMBER 31, BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Interest income from earning assets: Loans $302,455 $27,638 9.1% $296,726 $28,600 9.6% $273,944 $30,021 11.0% Taxable investment securities 252,853 13,182 5.2 238,495 14,540 6.1 158,321 12,243 7.7 Non-taxable investment securities 63,341 4,383 6.9 48,103 3,823 7.9 33,224 3,105 9.3 Federal funds sold and securities purchased under agreement to resell 25,790 767 3.0 34,678 1,228 3.5 93,310 5,319 5.7 Interest-bearing deposits with banks 3,403 139 4.1 5,374 339 6.3 5,352 421 7.9 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets $647,842 $46,109 7.1% $623,376 $48,530 7.8% $564,151 $51,109 9.0% - ------------------------------------------------------------------------------------------------------------------------------ Noninterest-earning assets: Cash and due from banks 29,599 25,454 21,086 Other assets 23,052 20,276 18,565 Less: allowance for loan losses (5,395) (4,551) (4,290) - ------------------------------------------------------------------------------------------------------------------------------ Total assets $695,098 $664,555 $599,512 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Interest expense on deposits and borrowed funds: Interest-bearing demand deposits $204,521 $ 5,304 2.6% $191,029 $ 6,671 3.5% $152,136 $ 7,502 4.9% Savings deposits 150,055 4,541 3.0 121,728 4,525 3.7 95,426 4,603 4.8 Time deposits 177,113 6,874 3.9 201,381 10,367 5.1 214,591 14,932 7.0 Short-term borrowings 13,537 307 2.3 15,347 417 2.7 12,114 573 4.7 Long-term debt 152 14 9.2 196 18 9.2 237 21 8.9 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities $545,378 $17,040 3.1% $529,681 $21,998 4.2% $474,504 $27,631 5.8% - ------------------------------------------------------------------------------------------------------------------------------ Noninterest-bearing liabilities: Noninterest-bearing demand deposits 75,985 68,457 63,155 Other liabilities 6,976 7,278 7,999 Stockholders' equity 66,759 59,139 53,854 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $695,098 $664,555 $599,512 - ------------------------------------------------------------------------------------------------------------------------------ Net interest-earnings/spread $29,069 4.0% $26,532 3.6% $23,478 3.2% - ------------------------------------------------------------------------------------------------------------------------------ Net interest margin 4.5% 4.3% 4.2% - ------------------------------------------------------------------------------------------------------------------------------ Non-accrual loans are included in the average balances. Loan fees included in interest income for 1993, 1992, and 1991 were $283,000, $290,000 and $362,000, respectively. The indicated income and annual rate are presented on a taxable equivalent basis using the federal marginal rate of 34%.
6 TABLE 3 -- Rate/Volume Variance Analysis
1993 OVER (UNDER) 1992 1992 OVER (UNDER) 1991 ----------------------------- ----------------------------- CAUSED BY CAUSED BY TOTAL ------------------ TOTAL ------------------ VARIANCE RATE VOLUME VARIANCE RATE VOLUME - -------------------------------------------------------------------------------------------- Interest income from earnings assets: Loans $ (962) $ (1,507) $ 545 $ (1,421) $ (3,794) $ 2,373 Taxable investment securities (1,358) (2,197) 839 2,297 (2,977) 5,274 Non-taxable investment securities 560 (540) 1,100 718 (517) 1,235 Federal funds sold and securities purchased under agreement to resell (461) (177) (284) (4,091) (1,538) (2,553) Interest-bearing deposits with banks (200) (98) (102) (82) (84) 2 - -------------------------------------------------------------------------------------------- Total interest income $ (2,421) $ (4,519) $ 2,098 $ (2,579) $ (8,910) $ 6,331 - -------------------------------------------------------------------------------------------- Interest expense on deposits and borrowed funds: Interest-bearing demand deposits $ (1,367) $ (1,812) $ 445 $ (831) $ (2,488) $ 1,657 Savings deposits 16 (928) 944 (78) (1,188) 1,110 Time deposits (3,493) (2,345) (1,148) (4,565) (3,691) (874) Short-term borrowings (110) (64) (46) (156) (283) 127 Long-term debt (4) -- (4) (3) -- (3) - -------------------------------------------------------------------------------------------- Total interest expense $ (4,958) $ (5,149) $ 191 $ (5,633) $ (7,650) $ 2,017 - -------------------------------------------------------------------------------------------- Net interest income $ 2,537 $ 630 $ 1,907 $ 3,054 $ (1,260) $ 4,314 - --------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES The provision for loan losses is the charge to current earnings for potential losses associated with lending activities. Its purpose is to maintain the allowance for possible loan losses at a level adequate to cover potential losses in the loan portfolio. Changes in the mix and volume of the loan portfolio, delinquent and nonperforming loan portfolio totals, and economic conditions are considered when management evaluates the adequacy of the allowance for loan losses. In 1993 the provision for loan losses totaled $1,821,000, compared to $2,445,000 in 1992 and $1,341,000 in 1991. A detailed analysis of the allowance for possible loan losses is included with the discussion of loan quality beginning on page nine. NONINTEREST INCOME Noninterest income is composed of trust income, various service charges and fees, and other miscellaneous income items. As shown in Table 4, total noninterest income of $4.5 million increased 3.3 percent in 1993 over the 1992 total of $4.3 million. Service charges on deposit accounts, the largest component in the category, decreased slightly during the past year, and is attributable to customers maintaining higher balances and therefore assessed lower service charges and overdraft fees. Trust income was $472 thousand in 1993, an increase of 21.0 percent over 1992. A portion of trust fee income is based on the income generated by the assets under management. As interest rates dropped in 1992 and 1993, the income earned on these portfolios declined, which offset some of the income generated by new business and estate settlements. Bancorp did not realize any gains or losses on security transactions in 1993, whereas the gains in 1992 and 1991 were due to bonds called above par. The category of other income, which consists of safe deposit box fees, rental income generated by a non-banking affiliate, increased cash value of life insurance policies, and profit on the sale of mortgages, increased 9 percent in 1993. Farmers National Bank began to originate and sell mortgages in the secondary market during the past year which generated most of the increased fee income. TABLE 4 -- Noninterest Income
CHANGE FROM PRIOR YEAR ------------------------------------------- YEARS ENDED 1993/92 1992/91 ---------------------- ------------------ --------------------- 1993 1992 1991 AMOUNT PERCENT AMOUNT PERCENT - ------------------------------------------------------------------------------------------------------------------------ Trust department income $ 472 $ 390 $ 519 $ 82 21.0% $ (129) (24.9)% Service charges on deposit accounts 2,589 2,653 2,538 (64) (2.4) 115 4.5 Other service charges, commissions and fees 499 440 412 59 13.4 28 6.8 Gains on sales of securities -- 11 22 (11) (100.0) (11) (50.0) Other income 912 837 846 75 9.0 (9) (1.1) - ------------------------------------------------------------------------------------------------------------------------ Total $4,472 $4,331 $4,337 $ 141 3.3% $ (6) (0.1)% - ------------------------------------------------------------------------------------------------------------------------
7 NONINTEREST EXPENSE Noninterest expense totaled $17.1 million in 1993, an increase of 7.1 percent over the 1992 total of $16.0 million. Table 5 details the various categories of noninterest expense. Salaries and employee benefits, which comprise 55.1% of noninterest expense, increased $611 thousand in 1993. The largest portion of the increase is attributable to the increased cost of employee benefits, including medical insurance, payroll taxes, and profit sharing and retirement plans. Full time equivalent employees totaled 310 at December 31, 1993 compared to 307 the previous year. The 13.7 percent increase in net occupancy expense reflects increased maintenance and repair costs at various branch locations and non-banking properties. The cost of replacement of all existing automated teller machines (ATMs) as well as the installation of units at several new locations is reflected in the increase to furniture and equipment expense. However, the new units will enable the banks to offer greater convenience and expanded automated services to their customers. While the Federal Deposit Insurance assessment rate remained unchanged from 1992 to 1993, increased deposit growth generated higher premium expense. In 1992, the increased premium expense was attributable to higher premium assessments and a larger deposit base. Other expenses, which includes advertising, supplies, communication, postage, legal and professional services and other miscellaneous items rose 4.7 percent in 1993 over the previous year due primarily to increased business volumes and higher supplier costs. TABLE 5 -- Noninterest Expense
CHANGE FROM PRIOR YEAR ----------------------------------- YEARS ENDED 1993/92 1992/91 ------------------------- ---------------- ---------------- 1993 1992 1991 AMOUNT PERCENT AMOUNT PERCENT - ---------------------------------------------------------------------------------------------- Salaries and employee benefits $ 9,435 $ 8,824 $ 8,600 $ 611 6.9% $ 224 2.6% Net occupancy expense 1,177 1,035 1,029 142 13.7 6 0.6 Equipment expense 1,277 1,136 1,241 141 12.4 (105 ) (8.5) FDIC insurance expense 1,354 1,284 1,014 70 5.5 270 26.6 Other expenses 3,874 3,701 3,365 173 4.7 336 10.0 - ---------------------------------------------------------------------------------------------- Total $17,117 $15,980 $15,249 $1,137 7.1% $ 731 4.8% - ----------------------------------------------------------------------------------------------
INCOME TAXES The Corporation's effective income tax rate for 1993 was 27.2 percent, a slight decrease from the 1992 rate of 29.7 percent. The reduction is attributable to an increase in tax exempt municipal bond income and the effect of the implementation of SFAS No. 109 on current earnings. This statement requires an asset and liability approach for financial accounting and reporting for income taxes. The objective of accounting for income taxes under this statement is to recognize the amount of taxes payable or refundable for the current year and the deferred tax assets and liabilities for future tax consequences of existing differences between the financial reporting and tax reporting bases. The statement requires that deferred tax assets and liabilities be adjusted whenever tax rates or other provisions of the tax law change. BALANCE SHEET REVIEW At December 31, 1993 Bancorp had total assets of $714 million compared to $690 million the previous year, and $651 million at year-end 1991. This reflects increases of 3.5 percent and 6.0 percent, respectively. Average total assets were $695 million in 1993 and $665 million and $600 million for the two previous years. The growth in assets was funded primarily from increased deposits which averaged $608 million, $583 million and $525 million for the last three years. The following section will discuss funding sources and application of the funds in the asset mix. INVESTMENT SECURITIES The investment security portfolio is used to furnish liquidity, supply securities to pledge as collateral for public monies and other borrowings, and to serve as a major source of revenue. Bancorp invests in high quality securities with relatively short maturities, thereby insulating the market value of the portfolio from interest rate volatility. Effective December 31, 1993, Bancorp adopted the Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115) which revised its accounting policy with respect to investment securities. As a result, Bancorp now classifies its investment portfolio in two 8 categories. Securities are classified as "Held to Maturity" if it is Bancorp's intent and ability to hold the investments until maturity and are carried on the books at amortized cost. The remaining portfolio is classified as "Available for Sale" and carried on the books at fair value. This classification is based in part on management's expectations of future interest rates, and includes those securities which are used as part of our asset/liability strategy. It also enables management to respond to changes in interest rates, prepayment risk and other interest rate related factors. Bancorp does not maintain a trading account for investment securities. At December 31, 1993, the total investment security portfolio was $317 million, compared to $307 million in 1992, an increase of $10 million or 3.3 percent. Due to weak loan demand and continued low federal funds rates, funds were employed in the investment portfolio to increase earnings while maintaining low risk, high credit quality and liquidity. Proceeds from maturities as well as new funds were invested in all classes of securities during the past year. Short term U.S. Treasury and Agency securities were purchased pending the availability of higher yielding alternatives as rates begin to rise in 1994. Tax-free municipal bonds were purchased in anticipation of increased tax rates in the future which would increase the effective yield on those investments. The remainder of funds were invested in mortgage-backed securities (MBSs) and collateralized mortgage obligations (CMOs) which are guaranteed by Federal agencies, and are generally purchased with relatively short average lives and provide liquidity through periodic principal repayments while generating slightly higher yields. The breakdown of Bancorp's total investment portfolio at December 31, 1993 by classification, maturity and yield is shown in Table 6. Estimated prepayment assumptions have been incorporated into the maturities for MBSs and CMOs based on historical trends. TABLE 6 -- Investment Securities
Available for Sale UNDER 1 1-5 5-10 NO STATED DECEMBER 31, 1993 YEAR YEARS YEARS MATURITY TOTAL - ------------------------------------------------------------------------------------------------------------ U.S. Treasury and Government agencies Carrying value $ 2,008 $51,017 $9,837 $ -- $62,862 Yield 4.95% 4.41% 5.50% --% 4.60% Mortgaged-backed securities Carrying value 4,727 25,677 547 -- 30,951 Yield 4.30 4.78 4.67 -- 4.70 Equity securities Carrying value -- -- -- 6,826 6,826 Yield -- -- -- 2.97 2.97 - ------------------------------------------------------------------------------------------------------------ Total carrying value $ 6,735 $76,694 $10,384 $ 6,826 $100,639 - ------------------------------------------------------------------------------------------------------------ Weighted average yield 4.49% 4.53% 5.46% 2.97% 4.52% - ------------------------------------------------------------------------------------------------------------ Held to Maturity UNDER 1 1-5 5-10 NO STATED DECEMBER 31, 1993 YEAR YEARS YEARS MATURITY TOTAL - ------------------------------------------------------------------------------------------------------------ U.S. Treasury and Government agencies Carrying value $55,548 $14,948 $ -- -- $70,496 Yield 5.17% 4.20% --% -- 4.96% States and political subdivisions Carrying value 13,052 39,520 24,250 -- 76,822 Yield 7.80 6.68 6.45 -- 6.80 Corporate securities Carrying value 8,040 2,522 -- -- 10,562 Yield 6.42 4.93 -- -- 6.06 Mortgage-backed securities Carrying value 41,617 13,838 2,902 -- 58,357 Yield 4.63 5.33 5.67 -- 4.85 - ------------------------------------------------------------------------------------------------------------ Total carrying value $118,257 $70,828 $27,152 -- $216,237 - ------------------------------------------------------------------------------------------------------------ Weighted average yield 5.36% 5.83% 6.37% -- 5.64% - ------------------------------------------------------------------------------------------------------------
9 LOANS The average level of loans outstanding during 1993 was $302 million, an increase of $5 million, or 1.7 percent, from the $297 million reported in 1992. The modest growth in the loan portfolio during 1993 was due in part to the current economic environment. The activity for new commercial and consumer loans was slow, while demand increased for new mortgage loans, both residential and commercial. The average loans outstanding in 1993 comprised 46.7 percent of average earnings assets, compared to 47.6 percent in 1992 and 48.6 percent in 1991. At December 31, 1993, total loans were $303 million, a 1.6 percent increase over the 1992 total of $299 million, which in turn was a 7.1 percent increase over the 1991 total of $279 million. At year-end 1993, the loan portfolio contained $244 million of loans secured by real estate, representing 79.9 percent of the total loans outstanding. However, a significant portion of the real estate loans consists of mortgages to individuals on their residences. Commercial mortgage loans represent primarily owner-occupied properties and income properties in our local trade areas. The decline in the sale of automobiles and other consumer-durable goods continues to have an adverse impact on the consumer loan portfolio, which decreased 14.2 percent in 1992 and 4.5 percent during the past year. The composition of the entire loan portfolio for the past five years is summarized in Table 7. The increase in average total loans in 1993 was insufficient to offset a decrease in the yields realized on loans, which decreased 50 basis points in 1993 to 9.1 percent, reflective of the lower overall interest rate environment. As a result, taxable equivalent interest income from loans in 1993 totaled $27.6 million, 3.4 percent below the $28.6 million realized in 1992. TABLE 7 -- Loan Portfolio
DECEMBER 31, 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Commercial and financial $ 35,859 $ 40,153 $ 42,400 $ 52,611 $ 52,601 Real estate - construction 19,807 18,489 24,168 25,007 14,807 Real estate - other 223,784 214,831 182,027 163,230 133,916 Consumer loans 25,546 26,753 31,175 34,115 30,024 - ------------------------------------------------------------------------------------------------------------------ Total loans 304,996 300,226 279,770 274,963 231,348 Less: unearned income 1,573 1,637 1,035 1,155 1,031 - ------------------------------------------------------------------------------------------------------------------ Total net loans $ 303,423 $ 298,589 $ 278,735 $ 273,808 $ 230,317 - ------------------------------------------------------------------------------------------------------------------
LOAN QUALITY Bancorp affiliates continued to maintain strong loan quality in 1993. The lending process is administered through a uniform loan policy which contains guidelines on lending limits, credit exposure limits, and loan administration. In addition, Bancorp has a centralized loan review function. Its responsibilities include reviewing credits, classifying them according to internal ratings and reporting information to management on an impartial and continuing basis. Each banking affiliate provides an allowance for possible loan losses which is maintained to absorb potential future losses. In order to evaluate the adequacy of this allowance, it is necessary to consider the growth and diversity of the loan portfolio, historical loan loss experience, current and future economic conditions, and the level of nonperforming and under-performing credits. These items are periodically reviewed by management to determine the adequacy of the allowance. At December 31, 1993, the percentage of the allowance for loan losses to net loans was 1.83 percent compared to 1.69 percent the previous year-end. The details of the allowance for possible loan losses are shown in Table 8. 10 TABLE 8 -- Allowance for Loan Losses
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- Average loans outstanding $302,455 $296,726 $273,944 $253,220 $221,004 - ----------------------------------------------------------------------------------------------------------------------- Allowance for loan losses: Balance at beginning of year $ 5,034 $ 3,955 $ 3,865 $ 3,021 $ 2,578 Loans charged-off: Commercial and financial 217 203 1,288 324 704 Real estate - construction -- -- -- -- -- Real estate - other 933 1,080 26 327 25 Consumer loans 223 182 165 204 78 - ----------------------------------------------------------------------------------------------------------------------- Total loans charged-off 1,373 1,465 1,479 855 807 - ----------------------------------------------------------------------------------------------------------------------- Recoveries on loans previously charged-off: Commercial and financial 37 35 58 2 10 Real estate - construction -- -- -- -- -- Real estate - other 18 6 88 -- -- Consumer loans 21 58 82 39 24 - ----------------------------------------------------------------------------------------------------------------------- Total recoveries 76 99 228 41 34 - ----------------------------------------------------------------------------------------------------------------------- Net loans charged-off 1,297 1,366 1,251 814 773 Provision for credit losses 1,821 2,445 1,341 1,658 1,216 - ----------------------------------------------------------------------------------------------------------------------- Balance at end of year $ 5,558 $ 5,034 $ 3,955 $ 3,865 $ 3,021 - ----------------------------------------------------------------------------------------------------------------------- Ratio of net charged-off loans to average loans outstanding 0.43% 0.46% 0.46% 0.32% 0.35% - ----------------------------------------------------------------------------------------------------------------------- Ratio of allowance to loans at year-end 1.83% 1.69% 1.42% 1.41% 1.31% - -----------------------------------------------------------------------------------------------------------------------
NONPERFORMING LOANS Nonperforming loans consist of nonaccrual loans and loans contractually past due 90 days or more. It is management's policy to place loans on a nonaccrual status when principal or interest payments become 90 days past due. Loans in excess of 90 days past due will remain accruing only if the loans are well secured and collection is in process. A loan may be put on nonaccrual status sooner than this standard if, in management's judgement, that loan may be uncollectible. A breakdown of Bancorp's nonperforming loans as of the end of each of the past five years is shown in Table 9. The increase in total nonperforming loans during previous years is reflective of the decline in general economic conditions, and especially the local real estate markets. As of December 31, 1993, total nonperforming loans decreased 18.0 percent from the previous year and now total .95 percent of total loans. TABLE 9 -- Nonperforming Loans
AT DECEMBER 31, 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------------- Loans not accruing interest $ 2,654 $ 3,176 $ -- $ 445 $ 886 Accruing loans 90 days past due 220 328 1,256 623 102 - --------------------------------------------------------------------------------------------------------------------------- Totals $ 2,874 $ 3,504 $ 1,256 $ 1,068 $ 988 - --------------------------------------------------------------------------------------------------------------------------- As a percent of loans .95% 1.17% .45% .39% .43% - ---------------------------------------------------------------------------------------------------------------------------
11 FUNDING SOURCES Deposits are the primary funding source for Bancorp's affiliate banks. At December 31, 1993, total deposits were $620 million compared to $607 million the prior year-end. Average deposits for 1993 were $608 million, an increase of $25 million or 4.3 percent over the previous year. Table 10 presents the composition of Bancorp's average deposit mix during the past five years. TABLE 10 -- Deposits
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Noninterest-bearing demand deposits $ 75,985 $ 68,457 $ 63,155 $ 67,199 $ 68,056 Interest-bearing demand deposits 204,521 191,029 152,136 111,132 103,096 Savings deposits 150,055 121,728 95,426 79,787 74,312 Time deposits 177,113 201,381 214,591 175,618 145,446 - ------------------------------------------------------------------------------------------------------------------ Total average deposits $ 607,674 $ 582,595 $ 525,308 $ 433,736 $ 390,910 - ------------------------------------------------------------------------------------------------------------------
Bancorp's affiliate banks rank high in financial soundness when compared to peers, which contributed to the continued growth in deposited funds. The substantial growth in both interest bearing demand and savings deposits more than offset the decline in time deposit balances. Declining certificates of deposit balances are due primarily to the low interest rate environment and customer preference for shorter maturities. In 1994, Bancorp expects continued moderate growth in deposits and will concentrate on pricing its core deposits relative to market rates. The affiliate banks do not rely on borrowed funds or large denomination time deposits to fund their earning assets. Time deposits in excess of $100,000 totaled $30.0 million at year-end 1993 and $33.7 million in 1992. A maturity distribution of time deposits over $100,000 at December 31, 1993 is shown in the accompanying table. Short-term borrowings at December 31, 1993 included $9.2 million in repurchase agreements and $6.8 million in U.S. Treasury tax and loan deposits. TABLE 11 -- Time Deposits Over $100,000
CERTIFICATES OTHER TIME DECEMBER 31, 1993 OF DEPOSIT DEPOSITS TOTAL - ------------------------------------------------------------------------------------------------------------------------ Three months or less $ 12,605 $ 127 $ 12,732 Over three months to six months 3,343 279 3,622 Over six months to twelve months 10,247 224 10,471 Over twelve months 3,039 101 3,140 - ------------------------------------------------------------------------------------------------------------------------ Total deposits greater than $100,000 $ 29,234 $ 731 $ 29,965 - ------------------------------------------------------------------------------------------------------------------------
ASSET/LIABILITY MANAGEMENT The principal objective of asset/liability management is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and to facilitate the funding needs of Bancorp. To achieve this objective, a combination of selected investments and funding sources with various maturity structures is utilized. Administration of this objective is the function of the Asset and Liability Management Committee ("ALCO"). The committee measures interest rate risk, liquidity and capital levels through regular review and analysis of deposit and loan trends, projections of cash flows in various categories of loans and investment securities, and management of interest rate spreads. It attempts to identify and control the potential impact that changes in market interest rates have on the net interest spread. LIQUIDITY A well structured balance sheet provides liquidity, which is the ability to manage assets and liabilities in a manner that most efficiently meets the cash flow requirements of customers, whether in the form of loan demand or deposit activity. Meeting the challenge of providing liquidity in a profitable manner is especially important in today's volatile money markets. Bancorp's financial obligations could be met either through the reduction or maturity of existing assets or by the acquisition of additional funding. ALCO formulates the funding and investment strategies necessary to maintain an appropriate balance between interest sensitive assets and liabilities, which is important to the maintenance of adequate liquidity. 12 Bancorp's excellent liquidity position is the result of a high percentage of core deposits and equity capital coupled with a short-term investment portfolio and a moderate-sized loan portfolio. At December 31, 1993, the loan to deposit ratio was 48.9 percent. During the year, excess funds attained from deposit growth were employed in the investment portfolio with relatively short term maturities and in overnight federal funds. In 1993 Farmers National Bank applied to join the Federal Home Loan Bank System, and received membership approval during the first quarter of 1994. Membership will provide a potential source of liquidity and interest rate risk management. INTEREST RATE SENSITIVITY Interest rate sensitivity is related to liquidity in that each is affected by maturing assets and sources of funds. However, interest sensitivity also recognizes that certain assets and liabilities have interest rates that are subject to change prior to maturity. Interest rate sensitivity refers to the net interest income volatility resulting from changes in interest rates, product spread variability and mismatches in the repricing between interest rate sensitive assets and liabilities. Bancorp is committed to avoidance of speculative interest rate positions and places primary focus on an appropriate balance of period gaps between rate sensitive assets and liabilities. Due to the continuing philosophy of maintaining liquidity while matching both rate sensitivity and maturities of assets and liabilities, ALCO believes the Company is reasonably well positioned for subsequent interest rate movements. Interest rate risk arises from mismatches between the repricing or maturity characteristics of assets and liabilities, and the impact of a rising or falling rate environment. A static repricing gap report provides a measure of interest rate risk as of a particular point in time. Risk factors not reflected in gap analysis include differences in the speed and amount of response by the specific types of assets and liabilities to a change in general market rates. The gap presented at any one point in time is one measure of the risk inherent in the existing balance sheet structure as it relates to potential changes in net interest income. Table 12 shows the estimated repricing gap position of Bancorp as of December 31, 1993. In all periods under one year there is a positive cumulative interest rate sensitivity gap, which positions the Company to maximize interest margins during a period of rising rates, as anticipated in 1994. The distribution in the table is based on a combination of maturities, call provisions, repricing frequencies and prepayment patterns. Interest-bearing demand and savings deposits are estimated to exhibit some interest rate sensitivity based on management's analysis of historical trends. As with all techniques for measuring interest rate risk, assumptions must be made about the repricing characteristics of certain assets and liabilities. Gap alone does not accurately measure the degree of change in net interest income since changes in interest rates do not alone affect all categories of assets and liabilities equally or simultaneously. TABLE 12 -- Interest Rate Sensitivity (RATE SENSITIVE ASSETS AND LIABILITIES)
1 TO 91 TO 181 TO 1 - 5 OVER DECEMBER 31, 1993 90 DAYS 180 DAYS 365 DAYS YEARS 5 YEARS TOTAL - ---------------------------------------------------------------------------------------------------------------------- ASSETS Federal funds sold and other short-term investments $ 42,400 $ -- $ 2,328 $ -- $ -- $44,728 Investment securities 66,840 38,371 44,114 132,808 34,049 316,182 Loans 111,663 11,717 22,109 128,977 28,957 303,423 - ---------------------------------------------------------------------------------------------------------------------- Total earning assets $220,903 $ 50,088 $68,551 $261,785 $ 63,006 $664,333 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES Interest-bearing deposits $167,519 $ 69,215 $58,760 $ 89,394 $ 150,389 $535,277 Borrowed funds 17,329 -- -- 128 -- 17,457 - ---------------------------------------------------------------------------------------------------------------------- Total interest sensitive liabilities $184,848 $ 69,215 $58,760 $ 89,522 $ 150,389 $552,734 - ---------------------------------------------------------------------------------------------------------------------- Interest rate sensitivity gap $ 36,055 $ (19,127) $ 9,791 $172,263 $(87,383) - ----------------------------------------------------------------------------------------------------------- Cumulative interest rate sensitivity gap $ 36,055 $ 16,928 $26,719 $198,982 $ 111,599 - ----------------------------------------------------------------------------------------------------------- Cumulative gap as a percentage of interest earning assets 5.4% 2.6% 4.0% 30.0% 16.8% - -----------------------------------------------------------------------------------------------------------
13 INFLATION The majority of the assets and liabilities of Bancorp are monetary in nature, and therefore differ greatly from those of companies that have sufficient investments in fixed assets or inventories. Financial institutions have greater exposure to losses from rapidly changing interest rates than from reductions in purchasing power. Management believes that the most significant impact on its financial results is Bancorp's ability to react to interest rate changes, rather than changes in the general level of prices. CAPITAL RESOURCES A strong capital base provides for growth and expansion activities, gives stability to current operations, and adds to public confidence in the Corporation. Capital resources are also very important to a financial institution because they provide a measure of protection against unanticipated declines in asset value and thereby help safeguard the funds of depositors. Management believes that given the quality of Bancorp's assets, the structure of its balance sheet, and its ability to generate and retain earnings, our capital is adequate and will provide for future growth. Minimum required levels of capital for financial institutions are determined by the Federal Reserve Board and appropriate regulatory agencies. Under current regulatory rules, risk-based capital ratios of 4% for tier 1 capital and 8% for total capital are required. As of December 31, 1993, Bancorp's tier 1 risk-adjusted capital ratio was 18.3 percent and the total capital ratio was 19.5 percent, both well above the regulatory requirements. Table 13 compares Bancorp's capital ratios to those required by current regulatory standards. TABLE 13 -- Capital Ratios
RISK-BASED RISK-BASED CAPITAL CAPITAL REGULATORY DECEMBER 31 1993 1992 REQUIREMENTS - ----------------------------------------------------------------------------- Tier 1 capital $ 68,841 $ 60,669 Tier 2 capital 4,707 4,525 - ----------------------------------------------------------------------------- Total capital $ 73,548 $ 65,194 Risk-adjusted assets $376,570 $362,009 Risk-based capital ratios: Tier 1 18.3% 16.8% 4.0% Total capital (Tier 1 plus Tier 2) 19.5% 18.0% 8.0% - ----------------------------------------------------------------------------- Tier 1 capital $ 68,841 $ 60,669 Total adjusted assets $701,592 $679,158 Leverage capital ratio 9.8% 8.9% 3.0% to 5.0% - -----------------------------------------------------------------------------
Total equity capital at year-end was $69.9 million, an $8.1 million increase over the prior year. This increase resulted from the net retention of earnings after all dividend distributions. Strong core earnings allowed for the continuation of annual dividend increases as well as continued growth in book value. During the fourth quarter of 1993, the Board of Directors voted to increase the quarterly dividend from $.25 to $.30 per share, which on an annualized basis represents a 20.0 percent increase. Book value per share at the end of 1993 was $25.91, an increase of 13.1 percent over the previous year. Table 14 shows dividends per share on a quarterly basis. The range of high and low quotations of per share market value supplied by local brokerage firms is also tabulated. Bancorp's common stock is traded lightly in the over-the-counter market. TABLE 14 -- Common Stock Price and Dividend History
CASH DIVIDENDS HIGH LOW DECLARED - ----------------------------------------------------------- 1991 First quarter $30 $27 $.20 Second quarter 30 1/2 27 1/2 .20 Third quarter 30 27 1/2 .20 Fourth quarter 29 26 .21 - ----------------------------------------------------------- 1992 First quarter $27 1/2 $27 $.21 Second quarter 29 1/2 28 .21 Third quarter 31 1/2 28 .21 Fourth quarter 30 29 .25 - ----------------------------------------------------------- 1993 First quarter $30 $30 $.25 Second quarter 31 1/4 30 .25 Third quarter 31 29 3/4 .25 Fourth quarter 32 30 .30 - -----------------------------------------------------------
14 CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1993 1992 - ------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 30,460 $ 30,282 Interest-bearing time deposits with banks 2,328 4,316 Federal funds sold 42,400 33,800 Investment securities: Available for sale 100,639 -- Held to maturity -- fair value of $217,779 (1993) and $309,342 (1992) 216,237 306,925 Loans 303,423 298,589 Less: allowance for loan losses (5,558) (5,034) - ------------------------------------------------------------------------------------ Net loans 297,865 293,555 Premises and equipment, net 9,182 8,128 Other real estate owned 2,100 2,100 Accrued income and other assets 12,998 11,104 - ------------------------------------------------------------------------------------ Total assets $ 714,209 $ 690,210 - ------------------------------------------------------------------------------------ LIABILITIES Deposits: Noninterest-bearing demand deposits $ 84,680 $ 78,268 Interest-bearing demand deposits 204,481 203,074 Savings deposits 162,175 138,576 Time deposits 168,621 187,185 - ------------------------------------------------------------------------------------ Total deposits 619,957 607,103 Short-term borrowings 17,329 14,019 Long-term debt 128 175 Accrued expenses and other liabilities 6,855 7,080 - ------------------------------------------------------------------------------------ Total liabilities 644,269 628,377 - ------------------------------------------------------------------------------------ Commitments and contingencies (Footnote 15) STOCKHOLDERS' EQUITY Common stock, par value $1.00 per share; shares authorized 10,000,000; shares issued 2,699,056 2,699 2,699 Surplus 29,728 29,728 Retained earnings 37,511 29,406 Net unrealized holding gains on investment securities available for sale 2 -- - ------------------------------------------------------------------------------------ Total stockholders' equity 69,940 61,833 - ------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 714,209 $ 690,210 - ------------------------------------------------------------------------------------ See accompanying notes.
15 CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1993 1992 1991 - -------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 27,485 $ 28,444 $ 29,795 Interest on time deposits with banks 139 339 421 Interest on federal funds sold 767 1,228 5,319 Interest and dividends on investment securities: Taxable interest and dividend income 13,182 14,540 12,243 Tax-exempt interest and dividend income 2,999 2,629 2,145 - -------------------------------------------------------------------------------------- Total interest income 44,572 47,180 49,923 - -------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 16,719 21,563 27,037 Interest on short-term borrowings 307 417 573 Interest on long-term debt 14 18 21 - -------------------------------------------------------------------------------------- Total interest expense 17,040 21,998 27,631 - -------------------------------------------------------------------------------------- Net interest income 27,532 25,182 22,292 Provision for loan losses 1,821 2,445 1,341 - -------------------------------------------------------------------------------------- Net interest income after provision for loan losses 25,711 22,737 20,951 - -------------------------------------------------------------------------------------- NONINTEREST INCOME Trust income 472 390 519 Service charges on deposit accounts 2,589 2,653 2,538 Other service charges and commissions 499 440 412 Gains on investment securities -- 11 22 Other income 912 837 846 - -------------------------------------------------------------------------------------- Total noninterest income 4,472 4,331 4,337 - -------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 9,435 8,824 8,600 Net occupancy expense 1,177 1,035 1,029 Furniture and equipment expense 1,277 1,136 1,241 FDIC insurance expense 1,354 1,284 1,014 Other expenses 3,874 3,701 3,365 - -------------------------------------------------------------------------------------- Total noninterest expense 17,117 15,980 15,249 - -------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change 13,066 11,088 10,039 Income taxes 3,558 3,294 3,089 - -------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 9,508 7,794 6,950 Cumulative effect of accounting change 1,431 -- -- - -------------------------------------------------------------------------------------- NET INCOME $ 10,939 $ 7,794 $ 6,950 - -------------------------------------------------------------------------------------- PER SHARE AMOUNTS Income before cumulative effect of accounting change $ 3.52 $ 2.89 $ 2.58 Cumulative effect of accounting change .53 -- -- - -------------------------------------------------------------------------------------- NET INCOME $ 4.05 $ 2.89 $ 2.58 - -------------------------------------------------------------------------------------- See accompanying notes.
16 CONSOLIDATED STATEMENTS OF CASH FLOWS ---------------------------- (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993 1992 1991 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 10,939 $ 7,794 $ 6,950 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change (1,431) -- -- Provision for loan losses 1,821 2,445 1,341 Depreciation and amortization 1,162 975 1,110 Provision for deferred income taxes (606) (576) (277) Decrease (increase) in accrued income and other assets 78 386 (1,177) Increase (decrease) in accrued expenses and other liabilities (225) (866) 437 Other, net 2,025 1,492 610 - -------------------------------------------------------------------------------- Net cash provided by operating activities 13,763 11,650 8,994 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES Net (increase) decrease in interest-bearing balances with banks 1,988 4,498 (5,207) Maturities, sales and principal payments of investment securities 149,811 138,377 66,828 Funds invested in investment securities (161,709) (188,796) (189,319) Net (increase) in loans (6,207) (23,442) (6,406) Expenditures for premises and equipment (2,151) (663) (591) Proceeds from sales of premises and equipment -- -- 32 - -------------------------------------------------------------------------------- Net cash (applied to) investing activities (18,268) (70,026) (134,663) - -------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase in deposits 12,854 38,026 95,215 Net increase (decrease) in short-term borrowings 3,310 (3,314) 5,235 Repayments of long-term debt (47) (43) (39) Cash dividends (2,834) (2,375) (2,186) - -------------------------------------------------------------------------------- Net cash provided by financing activities 13,283 32,294 98,225 - -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 8,778 (26,082) (27,444) Cash and cash equivalents at beginning of year 64,082 90,164 117,608 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 72,860 $ 64,082 $ 90,164 - -------------------------------------------------------------------------------- NONCASH INVESTING ACTIVITIES Transfer from loans to other real estate owned $ -- $ 2,100 $ -- Net unrealized holding gains on investment securities available for sale 2 -- -- - -------------------------------------------------------------------------------- See accompanying notes.
17 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NET UNREALIZED HOLDING GAINS ON SECURITIES YEARS ENDED DECEMBER 31, 1993, 1992 COMMON RETAINED AVAILABLE AND 1991 STOCK SURPLUS EARNINGS FOR SALE - -------------------------------------------------------------------------------- BALANCES AT JANUARY 1, 1991 $2,699 $29,728 $ 19,223 $ -- Net income -- -- 6,950 -- Cash dividends ($.81 per share) -- -- (2,186) -- - -------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1991 2,699 29,728 23,987 -- Net income -- -- 7,794 -- Cash dividends ($.88 per share) -- -- (2,375) -- - -------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1992 2,699 29,728 29,406 -- Net income -- -- 10,939 -- Cash dividends ($1.05 per share) -- -- (2,834) -- Cumulative effect, net of income taxes, of the initial application of Statement of Financial Accounting Standards No. 115 -- -- -- 2 - -------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1993 $2,699 $29,728 $ 37,511 $ 2 - -------------------------------------------------------------------------------- See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE_1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Farmers National Bancorp ("Bancorp"), its affiliated banks, Farmers National Bank of Maryland, The Caroline County Bank and Atlantic National Bank, and other affiliates Farmers National Land Corporation and Farmers National Mortgage Corporation, with all significant intercompany transactions eliminated. The investment in affiliates is recorded on the books of the holding company on the basis of its equity in the net assets of the affiliates. Bancorp and its affiliates use the accrual basis of accounting, except for trust income which is recorded on the cash basis. Assets (other than cash) held for others under fiduciary and agency relationships are not included in the accompanying consolidated balance sheets since they are not assets of Bancorp or its affiliates. Certain reclassifications have been made to amounts previously reported to conform with the classifications made in 1993. INVESTMENT SECURITIES Investment securities available for sale are stated at fair value based on quoted market prices. They represent those securities which management may sell as part of its asset/ liability strategy or which may be sold in response to changing interest rates, changes in prepayment risk or similar factors. Gains and losses on the disposition of investment securities available for sale are shown separately in the consolidated statements of income. The cost of securities sold is determined by the specific identification method. Investment securities held to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts. Bancorp has the ability and the intent to hold such investments to maturity. INTEREST AND FEES ON LOANS Interest income on loans is accrued at the contractual rate on the principal amount outstanding. When scheduled principal or interest payments are past due 90 days or more on any loan not fully secured by marketable collateral, the accrual of interest income is discontinued and recognized only as collected. The loan is restored to an accruing status when all amounts past due have been paid and the borrower has demonstrated the ability to continue such payments. Loan origination and commitment fees and 18 certain direct loan origination costs are being deferred and the net amount amortized over the contractual life of the loan as an adjustment to the loan's yield. ALLOWANCE FOR LOAN LOSSES The determination of the balance of allowance for loan losses is based on an analysis of the loan portfolio, past loan experience and current economic conditions and reflects an amount which, in management's judgment, is adequate to provide for potential loan losses. Provisions for loan losses are charged to operating expenses. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization computed predominantly by accelerated methods over the estimated useful lives of the properties. Expenditures for maintenance, repairs and minor renewals are charged to operations; expenditures for betterments are charged to the property accounts. Upon retirement or other disposition of the properties, the carrying value and the related accumulated depreciation are removed from the accounts. OTHER REAL ESTATE OWNED Assets acquired through foreclosure proceedings, acceptance of deed in lieu of foreclosure or transfer in exchange for an outstanding loan are carried at the lower of cost or fair value minus estimated costs to dispose. Cost includes loan principal, accrued interest and subsequent expenditures. Any excess of cost over the carrying value at the time of acquisition is charged to the allowance for loan losses. The estimated fair value is reviewed periodically by management and any valuation adjustments are reflected in the income statement. INCOME TAXES Income taxes are based on income and expense amounts in the statement of income. Under the liability method, deferred taxes are determined based on the differences between the tax and financial accounting bases of assets and liabilities and are measured at the enacted tax rates expected to be in effect at the time these differences are reversed. EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares outstanding of 2,699,056. CASH FLOWS Bancorp has defined cash and cash equivalents as those amounts included in the balance sheet captions "Cash and due from banks" and "Federal funds sold." For the years ended December 31, 1993, 1992, and 1991 Bancorp paid interest and income taxes as follows:
(DOLLARS IN THOUSANDS) DECEMBER 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------- Interest $17,532 $23,525 $27,546 Taxes $ 4,283 $ 3,651 $ 3,602 - -------------------------------------------------------------------------------------------
PROSPECTIVE ACCOUNTING CHANGES In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." Statement 112 establishes accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. This Statement is effective for fiscal years beginning after December 15, 1993. The adoption of statement No. 112 will have no effect on Bancorp's financial statements. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." Statement 114 applies to loans that are considered impaired, where it is probable that the creditor will not collect all principal and interest payments according to the loan's contractual terms. Under Statement 114, impaired loans must be measured by methods that consider the present value of the expected future cash flows discounted at the loan's effective interest rate, the observable market price of the loan, or the fair value of the collateral. If the measure of an impaired loan is less than the carrying value, a valuation allowance must be established. The Statement is effective for fiscal years beginning after December 15, 1994. The effect of adopting Statement 114 is currently under review. NOTE_2 ADOPTION OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective January 1, 1993, Bancorp adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement requires that deferred income taxes reflect the future years' tax consequences of differences between the tax and financial accounting bases of assets and liabilities. Prior to 1993, deferred income taxes were provided for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes. The cumulative effect at January 1, 1993 of adopting Statement No. 109 totaled $1,431,000 and is included in determining net income for 1993. On December 31, 1993, Bancorp adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires Bancorp to 19 identify and segregate its investment securities portfolio into those securities it intends to hold to maturity and those securities which are available for sale. Investment securities held to maturity are carried at amortized cost while investment securities available for sale are carried at fair value. Net unrealized holding gains and losses on securities available for sale are reported as a separate component of stockholders' equity, net of related income taxes. The initial application of Statement No. 115 resulted in recording a net unrealized gain of $2,000 (net of income taxes of $2,000) relating to Bancorp's investments securities available for sale. NOTE_3 RESTRICTIONS ON CASH AND DUE FROM BANKS The Federal Reserve requires banks to maintain certain minimum cash balances consisting of vault cash and deposits in the Federal Reserve Bank or in other commercial banks. The amounts of such reserves are based on percentages of certain deposit types and totaled $9,208,000 at December 31, 1993. At that date, compensating balances of $5,755,000 were being maintained with correspondent banks to cover the costs of services provided. NOTE_4 INVESTMENT SECURITIES -- AVAILABLE FOR SALE The amortized cost, gross unrealized holding gains and losses and fair values of investment securities available for sale were as follows:
GROSS UNREALIZED HOLDING (DOLLARS IN THOUSANDS) AMORTIZED -------------- FAIR DECEMBER 31, 1993 COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------- U.S. Treasury and Government agencies $ 62,854 $ 168 $ 160 $62,862 Mortgage-backed securities 31,021 71 141 30,951 - ------------------------------------------------------------------------------------------- Total debt securities 93,875 239 301 93,813 Equity securities 6,760 66 -- 6,826 - ------------------------------------------------------------------------------------------- Total $ 100,635 $ 305 $ 301 $100,639 - -------------------------------------------------------------------------------------------
The amortized cost and fair value of debt securities available for sale at December 31, 1993, by contractual maturity, are shown below. Expected maturities will differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The average life of mortgage-backed securities is estimated to be less than five years based on historical prepayment patterns; however, the actual maturity of the portfolio may be shorter or longer due to prepayment fluctuations.
AMORTIZED FAIR (DOLLARS IN THOUSANDS) COST VALUE - ------------------------------------------------------------------------------------------- Due in one year or less $ 2,000 $ 2,008 Due after one year through five years 51,071 51,017 Due after five years through ten years 9,783 9,837 - ------------------------------------------------------------------------------------------- Subtotal 62,854 62,862 Mortgage-backed securities 31,021 30,951 - ------------------------------------------------------------------------------------------- Total debt securities $ 93,875 $93,813 - -------------------------------------------------------------------------------------------
Securities available for sale with a book value of $3,250,000 were pledged at December 31, 1993 as collateral for borrowings and certain government deposits as required or permitted by law. NOTE_5 INVESTMENT SECURITIES -- HELD TO MATURITY The amortized cost, gross unrealized gains and losses and fair values of investment securities held to maturity were as follows:
GROSS GROSS (DOLLARS IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 1993 COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------- U.S. Treasury and Government agencies $ 70,496 $ 373 $ 53 $ 70,816 States and political subdivisions 76,822 1,070 172 77,720 Corporate securities 10,562 128 3 10,687 Mortgage-backed securities 58,357 315 116 58,556 - ------------------------------------------------------------------------------------------- Total $ 216,237 $ 1,886 $ 344 $217,779 - ------------------------------------------------------------------------------------------- GROSS GROSS (DOLLARS IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR DECEMBER 31, 1992 COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------- U.S. Treasury and Government agencies $ 155,300 $ 1,845 $ 296 $156,849 States and political subdivisions 53,431 929 115 54,245 Corporate securities 10,836 210 16 11,030 Mortgage-backed securities 77,189 236 381 77,044 - ------------------------------------------------------------------------------------------- Total debt securities 296,756 3,220 808 299,168 Equity securities 10,169 30 25 10,174 - ------------------------------------------------------------------------------------------- Total $ 306,925 $ 3,250 $ 833 $309,342 - -------------------------------------------------------------------------------------------
The amortized cost and fair value of debt securities held to maturity at December 31, 1993 and 1992, by contractual maturity, are shown below. Expected maturities will differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The average life of mortgage-backed securities is estimated to be less than five years based on historical prepayment patterns; however, the actual maturity of the portfolio may be shorter or longer due to prepayment fluctuations. 20
DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------- ------------------- AMORTIZED FAIR AMORTIZED FAIR (DOLLARS IN THOUSANDS) COST VALUE COST VALUE - ------------------------------------------------------------------------------------------- Due in one year or less $ 76,640 $ 77,281 $ 82,040 $ 83,373 Due after one year through five years 56,990 57,537 128,457 129,474 Due after five years through ten years 24,250 24,405 9,070 9,277 - ------------------------------------------------------------------------------------------- Subtotal 157,880 159,223 219,567 222,124 Mortgage-backed securities 58,357 58,556 77,189 77,044 - ------------------------------------------------------------------------------------------- Total debt securities $ 216,237 $217,779 $ 296,756 $299,168 - -------------------------------------------------------------------------------------------
There were no sales of debt securities during 1993, 1992 or 1991. Gains of $11,000 and $22,000 on debt securities were recognized in 1992 and 1991, respectively, as a result of premiums paid on called debt securities. Securities held to maturity with a book value of $29,713,000 and $48,265,000 were pledged at December 31, 1993 and 1992, respectively, as collateral for borrowings and certain government deposits as required or permitted by law. At December 31, 1993 and 1992, the carrying value of no single issuer exceeded ten percent of stockholders' equity. NOTE_6 LOANS AND ALLOWANCE FOR LOAN LOSSES Loans were classified as follows:
(DOLLARS IN THOUSANDS) DECEMBER 31, 1993 1992 - ------------------------------------------------------------------------------------------- Real estate loans: Construction $ 19,807 $ 18,489 Other 223,784 214,831 Commercial, financial and agricultural 35,859 40,153 Consumer loans 25,546 26,753 - ------------------------------------------------------------------------------------------- Total loans 304,996 300,226 Unearned income (1,573) (1,637) - ------------------------------------------------------------------------------------------- Total loans -- net of unearned income $303,423 $298,589 - -------------------------------------------------------------------------------------------
At December 31, 1993, $2,654,000 of loans were considered nonaccrual loans (loans on which interest income is recognized only as collected). At the end of 1992 there were $3,176,000 of loans classified nonaccrual. Changes in the allowance for loan losses were as follows:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Balance at January 1 $ 5,034 $ 3,955 $ 3,865 Provision charged to operating expenses 1,821 2,445 1,341 Recoveries 76 99 228 Loans charged off (1,373) (1,465) (1,479) - ------------------------------------------------------------------------------------------- Balance at December 31 $ 5,558 $ 5,034 $ 3,955 - -------------------------------------------------------------------------------------------
NOTE_7 PREMISES AND EQUIPMENT Premises and equipment consisted of the following:
(DOLLARS IN THOUSANDS) DECEMBER 31, 1993 1992 - ----------------------------------------------------------------------------------------------------- Land $ 2,096 $ 1,987 Buildings and leasehold improvements 8,120 7,922 Equipment 7,233 5,913 - ----------------------------------------------------------------------------------------------------- Total premises and equipment 17,449 15,822 Accumulated depreciation and amortization (8,267) (7,694) - ----------------------------------------------------------------------------------------------------- Premises and equipment, net $ 9,182 $ 8,128 - -----------------------------------------------------------------------------------------------------
Depreciation and amortization expense on premises, equipment and leasehold improvements amounted to $1,097,000 in 1993, $910,000 in 1992 and $1,037,000 in 1991. Bancorp's affiliates lease certain bank premises and equipment under various lease agreements. The initial terms of the branch banking leases range from 5 to 20 years. Most of the leases on premises contain options which enable the affiliates to renew the lease for periods of 5 to 20 years. In addition to minimum rentals, certain leases have escalation clauses based upon price indices and include provisions for additional payments to cover taxes, insurance and maintenance. Total rental expense for 1993, 1992 and 1991 was:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Premises $308 $303 $283 Equipment 16 13 14 - ------------------------------------------------------------------------------------------- Total rental expense $324 $316 $297 - -------------------------------------------------------------------------------------------
At December 31, 1993, required minimum annual rentals due on noncancelable operating leases having terms in excess of one year were $449,000. Minimum annual rentals for each of the years 1994 through 1998 are $188,000, $94,000, $38,000, $17,000 and $17,000, respectively. NOTE_8 DEPOSITS Included in interest-bearing deposits are certificates of deposit in denominations of $100,000 or more which totaled $29,234,000 and $33,664,000 at December 31, 1993 and 1992, respectively. Interest on deposits consists of the following:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Interest-bearing demand accounts $ 5,304 $ 6,671 $ 7,502 Savings accounts 4,541 4,525 4,603 Certificates of deposit ($100,000 or more) 1,159 1,613 2,458 Other time deposits 5,715 8,754 12,474 - ------------------------------------------------------------------------------------------- Total interest on deposits $16,719 $21,563 $27,037 - -------------------------------------------------------------------------------------------
21 NOTE_9 SHORT-TERM BORROWINGS Short-term borrowings, which consist primarily of securities sold under agreements to repurchase and the U.S. Treasury demand note, were as follows:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Amount outstanding at year-end $17,329 $14,019 $17,333 Weighted average interest rate at year-end 2.4% 2.2% 3.2% Maximum amount outstanding at any month-end $17,565 $17,474 $17,333 Average amount outstanding $13,537 $15,347 $12,114 Weighted average interest rate during the year 2.3% 2.7% 4.7% - -------------------------------------------------------------------------------------------
NOTE_10 LONG-TERM DEBT Long-term debt consists of the following:
(DOLLARS IN THOUSANDS) DECEMBER 31, 1993 1992 - ------------------------------------------------------------------------------------------- 8.0% Mortgage note due November 30, 1995 $ 43 $ 62 9.5% Mortgage note due July 1, 1996 85 113 - ------------------------------------------------------------------------------------------- Total long-term debt $ 128 $ 175 - -------------------------------------------------------------------------------------------
The 8% mortgage note, payable in monthly installments of $2,000, is secured by a first deed of trust on bank premises which had a net book value of $185,000 at December 31, 1993. The 9.5% mortgage note, payable in monthly installments of $3,000 is secured by a first deed of trust on real property. The property has a net book value of $334,000 at December 31, 1993. NOTE_11 PENSION AND PROFIT SHARING PLANS Bancorp's banking affiliates sponsor defined benefit pension plans covering substantially all employees. Benefits are based on years of service and the employee's compensation during the last five years of employment. The Banks' funding policies are to contribute the maximum amount deductible for federal income tax purposes. Contributions provide not only for benefits attributed for service to date, but also for those expected to be earned in the future. Net pension cost for 1993, 1992 and 1991 includes the following components:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Service cost-benefits earned during year $ 415 $ 402 $ 347 Interest cost on projected benefit obligation 364 304 340 Actual return on plan assets (403) (413) (851) Net amortization and deferral (42) (40) 457 - ------------------------------------------------------------------------------------------- Net pension cost $ 334 $ 253 $ 293 - -------------------------------------------------------------------------------------------
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.00% for 1993 and 7.75% for 1992 and 1991. The expected long-term rate of return on assets was 7.50% for 1993 and 8.00% for 1992 and 1991. The following table sets forth the plans' funded status and amounts recognized in Bancorp's financial position at December 31, 1993 and 1992:
(DOLLARS IN THOUSANDS) 1993 1992 - ------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $3,763 and $2,810 in 1993 and 1992, respectively $ 4,123 $ 3,056 - ------------------------------------------------------------------------------------------- Projected benefit obligation for services rendered to date $ 6,187 $ 5,159 Plan assets at fair value, primarily listed stocks and fixed income securities 5,729 5,426 - ------------------------------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligation (458) 267 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (599) (950) Prior service cost not yet recognized in net periodic pension cost -- -- Unrecognized net obligation at January 1, 1987 being recognized over 15 years (322) (362) - ------------------------------------------------------------------------------------------- Accrued pension cost at December 31 $(1,379) $(1,045) - -------------------------------------------------------------------------------------------
Farmers National Bank of Maryland has a qualified noncontributory profit sharing plan covering all employees who meet certain service requirements. Contributions made to the plan for the years ended December 31, 1993, 1992 and 1991, were $673,000, $555,000, and $555,000, respectively. NOTE_12 SUPPLEMENTAL RETIREMENT PLANS Farmers National Bank of Maryland has entered into agreements with certain of its executive officers to provide certain supplemental benefits upon their retirement, death, or disability. The present value of these benefits is being accrued over the number of years remaining to their respective retirement dates. The amounts included in operating expenses for 1993, 1992, and 1991 were $186,000, $134,000 and $211,000, respectively. NOTE_13 STOCK OPTION PLAN Bancorp's stockholders, at their meeting of April 28, 1992, approved a stock option plan under which 50,000 shares of common stock have been reserved for issuance to officers and key employees of Bancorp and its subsidiaries. Options to purchase shares of common stock are granted at a price not less than the fair market value of the stock at the date of grant and may extend for a period of up to 10 years from the date of grant. To date, no options were granted under this plan. 22 NOTE_14 INCOME TAXES The components of income tax expense are as follows:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Current: Federal $3,886 $3,684 $2,619 State 278 186 747 - ------------------------------------------------------------------------------------------- Total current income taxes 4,164 3,870 3,366 - ------------------------------------------------------------------------------------------- Deferred: Federal (496) (472) (227) State (110) (104) (50) - ------------------------------------------------------------------------------------------- Total deferred income taxes (606) (576) (277) - ------------------------------------------------------------------------------------------- Total income taxes $3,558 $3,294 $3,089 - -------------------------------------------------------------------------------------------
The components of deferred income tax expense (benefit) are as follows:
(DOLLARS IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------- Provision for loan losses $ (296) $ -- $ -- Deferred compensation (69) (60) (92) Loan fees and costs (21) (212) 41 Pension expense (129) (97) (113) Depreciation (11) (6) (5) Loan income (31) -- -- Discount accretion (20) (50) (41) Other, net (29) (151) (67) - ------------------------------------------------------------------------------------------- Total deferred tax (benefit) $ (606) $ (576) $ (277) - -------------------------------------------------------------------------------------------
A reconciliation of income taxes computed at the maximum statutory federal tax rate to total income taxes is as follows:
1993 1992 1991 (DOLLARS IN THOUSANDS) AMOUNT AMOUNT AMOUNT - ------------------------------------------------------------------------------------------- Tax computed at statutory rate (34.0%) $ 4,442 $ 3,770 $ 3,413 Tax exempt interest income (1,125) (1,005) (887) State income taxes, net of federal income tax benefit 111 54 460 Nondeductible provision for credit losses -- 367 22 Nondeductible interest expense 112 114 112 Other, net 18 (6) (31) - ------------------------------------------------------------------------------------------- Total income taxes $ 3,558 $ 3,294 $ 3,089 - ------------------------------------------------------------------------------------------- Effective tax rate 27.2% 29.7% 30.8% - -------------------------------------------------------------------------------------------
At December 31, 1993, net deferred tax assets total $3,832,000 and consist of the following:
DEFERRED TAX ----------------- (DOLLARS IN THOUSANDS) ASSET LIABILITY - ------------------------------------------------------------------------------------------- Provision for loan losses $2,052 $ -- Deferred compensation 655 -- Loan fees and costs 591 -- Pension expense 532 -- Depreciation -- 82 Loan income 76 -- Discount accretion -- 36 Net unrealized holding gains on securities available for sale -- 2 Other 46 -- - ------------------------------------------------------------------------------------------- Total deferred taxes $3,952 $ 120 - -------------------------------------------------------------------------------------------
NOTE_15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK Bancorp's affiliated banks are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. The exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of the instruments. The same credit policies are used in making commitments and conditional obligations as for on-balance-sheet instruments. The banking affiliates generally require collateral or other security to support financial instruments with credit risk on the same basis as it does for on-balance-sheet instruments. The amount of collateral or other security is determined based on management's credit evaluation of the counterparty. At December 31, 1993 and 1992 financial instruments whose contract amounts represented credit risk included $4,407,000 and $2,804,000 of standby letters of credit and $65,768,000 and $65,082,000 of commitments to extend credit. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to a customer. 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 amount does not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. NOTE_16 FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 (SFAS No. 107), "Disclosures about Fair Value of Financial Instruments," requires Bancorp to disclose fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Estimated fair values have been determined by Bancorp using the best available data and an estimation methodology suitable for each category of financial instruments. The methods and assumptions used to estimate the fair value of each class of financial instruments are discussed below. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In 23 that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of Bancorp. CASH AND DUE FROM BANKS, INTEREST-BEARING TIME DEPOSITS WITH BANKS AND FEDERAL FUNDS SOLD For these instruments, the carrying amount approximates the fair value. INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY For these instruments the fair value is based on quoted market prices or dealer quotes when available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The remainder of the loan portfolio has been valued using present value discounted cash flows. The rates used in these present value calculations are current rates at which similar loans would be made to borrowers with similar credit ratings. NON-INTEREST BEARING DEPOSITS The fair value of these instruments, by SFAS No. 107 definition, is the amount payable on demand at the reporting date. INTEREST-BEARING DEPOSITS The fair value of interest-bearing demand deposits, savings deposits and money market deposits with no defined maturity, by SFAS No. 107 definition, is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using a present value discounted cash flow with a discount rate approximating current market rates. SHORT-TERM BORROWINGS For these instruments, the carrying amount approximates the fair value. LONG-TERM DEBT For these instruments, estimates made by discounting the future cash flows using rates currently available to Bancorp for debt with similar terms and remaining maturities were used. COMMITMENTS TO EXTEND CREDIT AND STANDBY AND COMMERCIAL LETTERS OF CREDIT For these instruments the fair values are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The estimated fair values of Bancorp's financial instruments required to be disclosed under SFAS No. 107:
DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------ ------------------ CARRYING FAIR CARRYING FAIR (DOLLARS IN THOUSANDS) VALUE VALUE VALUE VALUE - ------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 30,460 $ 30,460 $ 30,282 $ 30,282 Interest-bearing time deposits with banks 2,328 2,328 4,316 4,316 Federal funds sold 42,400 42,400 33,800 33,800 Investment securities: Available for sale 100,639 100,639 -- -- Held to maturity 216,237 217,779 306,925 309,342 Loans 303,423 303,816 298,589 301,368 - ------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing demand deposits $ 84,680 $ 84,680 $ 78,268 $ 78,268 Interest-bearing demand deposits 204,481 204,481 203,074 203,074 Savings deposits 162,175 162,175 138,576 138,576 Time deposits 168,621 168,672 187,185 187,717 Short-term borrowings 17,329 17,329 14,019 14,019 Long-term debt 128 143 175 183 - ------------------------------------------------------------------------------------------- OFF-BALANCE-SHEET INSTRUMENTS Credit risk financial instruments $25 $16 - -------------------------------------------------------------------------------------------
NOTE_17 RELATED PARTY TRANSACTIONS In the ordinary course of business, loans are made to officers and directors of Bancorp and its affiliates. These loans are made on substantially the same terms and conditions as those prevailing at the time for comparable transactions with outsiders and are not considered to involve more than the normal risk of collectibility. Direct and indirect loans outstanding to directors, executive officers, principal shareholders, their associates and affiliates in excess of an aggregate total of $60,000 each totaled $14,958,000 as of December 31, 1992. During 1993 additions of $3,566,000, repayments of $4,163,000, and reductions of $1,364,000 as a result of changes in directors, brought the total to $12,997,000 at year end. 24 NOTE_18 PARENT COMPANY FINANCIAL INFORMATION Condensed financial information for Farmers National Bancorp (Parent Company only) is as follows: CONDENSED BALANCE SHEETS ---------------------------- (DOLLARS IN THOUSANDS)
DECEMBER 31, 1993 1992 - ------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 43 $ 31 Securities purchased under agreements to resell 2,091 1,181 Investment securities -- fair value of $453 (1993) and $391 (1992) 453 387 Investment in bank subsidiaries 64,070 57,129 Investment in nonbank subsidiaries 1,435 1,411 Advance to subsidiary 2,650 2,350 Other assets 40 38 - ------------------------------------------------------------------------------------------- Total Assets $70,782 $62,527 - ------------------------------------------------------------------------------------------- LIABILITIES Other liabilities $ 842 $ 694 - ------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock 2,699 2,699 Surplus 29,728 29,728 Retained earnings 37,511 29,406 Net unrealized holding gains on investment securities available for sale 2 -- - ------------------------------------------------------------------------------------------- Total Stockholders' Equity 69,940 61,833 - ------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $70,782 $62,527 - -------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME ----------------------------------- (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------- Income: Cash dividends from subsidiaries $ 3,995 $ 2,639 $ 2,371 Other income 16 19 28 - ------------------------------------------------------------------------------------------- Total Income 4,011 2,658 2,399 Interest and other expenses 108 114 97 - ------------------------------------------------------------------------------------------- Income before income tax benefit and equity in undistributed income of subsidiaries 3,903 2,544 2,302 Income tax benefit 33 34 25 - ------------------------------------------------------------------------------------------- Income before equity in undistributed income of subsidiaries 3,936 2,578 2,327 Equity in undistributed income of subsidiaries 5,572 5,216 4,623 - ------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 9,508 7,794 6,950 Cumulative effect of accounting change 1,431 -- -- - ------------------------------------------------------------------------------------------- Net Income $10,939 $ 7,794 $ 6,950 - -------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS --------------------------------------- (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $10,939 $ 7,794 $ 6,950 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change (1,431) -- -- Equity in undistributed income of subsidiaries (5,572) (5,216) (4,623) Net (increase) in advances to subsidiary (300) (300) -- Other, net 120 237 (9) - ------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,756 2,515 2,318 - ------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net (increase) in securities purchased under agreements to resell (910) (131) (125) - ------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Dividends (2,834) (2,375) (2,186) - ------------------------------------------------------------------------------------------- Net increase in cash 12 9 7 Cash January 1 31 22 15 - ------------------------------------------------------------------------------------------- Cash December 31 $ 43 $ 31 $ 22 - -------------------------------------------------------------------------------------------
The amount of dividends that Bancorp's affiliates could have paid to the holding company without approval from bank regulators was $18,440,000 at December 31, 1993. 25 REPORT OF MANAGEMENT The management of Farmers National Bancorp has the responsibility for preparing the accompanying financial statements, along with other information contained in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in all material respects to reflect events and transactions which have occurred and include amounts which have been based upon management's best estimates and judgements. The Board of Directors operating through its Audit Committee, which is composed entirely of directors who are not officers of the Company or its affiliates, provides oversight for the financial reporting process. The Audit Committee annually recommends the appointment of an independent public accountant and submits its recommendation to the Board of Directors, and to the shareholders of Bancorp, for approval. The Audit Committee meets on a scheduled basis with the independent public accountants and the internal auditor, approves the overall scope of audit work and reviews audit reports and findings. The independent public accountants and the internal auditor each have free access to the Audit Committee, without management present, to discuss the results of their audit work and their evaluations of the adequacy of internal control systems and the quality of financial reporting. The financial statements contained in this annual report have been audited by the Company's independent public accounting firm, Stegman and Company, which was given unrestricted access to all financial records and related data. The Company believes that all representations made to the independent public accountants during their audits were valid and appropriate. Their report on the financial statements is presented herewith. /s/ John M. Suit, II /s/ Louis A. Supanek John M. Suit, II Louis A. Supanek President and Vice President and Chief Executive Officer Chief Financial Officer INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Farmers National Bancorp We have audited the accompanying consolidated balance sheets of Farmers National Bancorp and Affiliates as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. 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 audit 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 financial position of Farmers National Bancorp and Affiliates as of December 31, 1993 and 1992, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, the Company adopted two new accounting standards in 1993, changing its methods of accounting for income taxes and investment securities. /s/ Stegman & Company Towson, Maryland February 11, 1994 26 DIRECTORS AND OFFICERS FARMERS NATIONAL BANCORP DIRECTORS Jesse L. Adams PRESIDENT Terrace Garden Building Corp. and Real Estate Investments James D. Edwards PRESIDENT J.D. Edwards, Inc. VICE PRESIDENT SUMAD, Inc. W. Calvin Gray, Jr. PRESIDENT Gray and Smith Builders, Inc. and Gray Developers, Inc. Louis Hyatt PRESIDENT Hyatt Real Estate Edward B. Lauer PRESIDENT Riviera Beach SuperMarket, Inc. and the Pasadena Investment Corp. L. Tayloe Lewis, Jr. DIRECTOR AND CHAIRMAN OF THE BOARD The Caroline County Bank RETIRED Johnson & Lewis Insurance Co. John B. Melvin RETIRED CHAIRMAN OF THE BOARD Coca-Cola Bottling Co. of Annapolis, Maryland, Inc. Cary L. Meredith, Jr. RETIRED VICE PRESIDENT Basil-Voges, Inc. (Insurance brokerage) M. Virginia Meredith RETIRED ADMINISTRATIVE ASSISTANT Anne Arundel County Department of Health W. Robert Newnam, Jr. RETIRED FARMER Joseph S. Quimby, Jr. FARMER Alexander V. Sandusky RETIRED FROM DEPARTMENT OF NATURAL RESOURCES Charles L. Schelberg CHAIRMAN OF THE BOARD Raymond C. Shockley DIRECTOR AND CHAIRMAN OF THE BOARD Atlantic National Bank ATTORNEY AT LAW Moore, Shockley & Harrison, P.A. William W. Simmons RETIRED DIRECTOR AND VICE PRESIDENT Fawcett Boat Supplies, Inc. John M. Suit, II PRESIDENT AND CHIEF EXECUTIVE OFFICER Donald S. Taylor ASSOCIATE John M. Taylor Funeral Home, Inc. OFFICERS Charles L. Schelberg CHAIRMAN OF THE BOARD John M. Suit, II PRESIDENT AND CHIEF EXECUTIVE OFFICER Frank T. Lowman, III VICE PRESIDENT Joseph B. Riddleberger VICE PRESIDENT Louis A. Supanek VICE PRESIDENT AND TREASURER Norma K. Behlke SECRETARY FARMERS NATIONAL LAND CORPORATION - -------------------- DIRECTORS Jesse L. Adams W. Calvin Gray, Jr. Louis Hyatt Charles L. Schelberg John M. Suit, II 27 PRINCIPAL AFFILIATES FARMERS NATIONAL BANK OF MARYLAND ESTABLISHED 1805 ANNAPOLIS 5 Church Circle 91 Main Street, City Dock Eastport Shopping Center 2015 West Street, Parole 101 Hillsmere Drive Compass Way, Heritage Harbour ARNOLD 2 Arnold Road at Ritchie Highway CENTREVILLE 102 Broadway EDGEWATER 52 W. Central Avenue Route 2 and Maryland Avenue MILLINGTON Cypress and Sassafras Streets PASADENA 3030 Mountain Road SEVERNA PARK Severna Park Shopping Village Benfield and Jumpers Hole Road WAYSON'S CORNER Routes 4 and 408, Lothian DIRECTORS: Jesse L. Adams James D. Edwards W. Calvin Gray, Jr. Louis Hyatt Edward B. Lauer John B. Melvin Cary L. Meredith, Jr. W. Robert Newnam, Jr. Alexander V. Sandusky Charles L. Schelberg William W. Simmons John M. Suit, II Donald S. Taylor DIRECTOR EMERITUS: Joseph N. Shumate EXECUTIVE OFFICERS: John M. Suit, II President and CEO Frank T. Lowman, III Executive Vice President Louis A. Supanek Executive Vice President, Cashier and Chief Financial Officer Carl O. Brudin, Jr. Senior Vice President and Senior Trust Officer Phillip R. Forman Senior Vice President, Branch Administration Karen B. Klingelhoeffer Senior Vice President and Controller Sharon L. Kreske Senior Vice President, Bank Operations Twaun D. Oakes Senior Vice President, Loan Administration Ross J. Selby Senior Vice President, Chief Lending Officer
BALANCE SHEET (DOLLARS IN THOUSANDS) DECEMBER 31, 1993 - ---------------------------------------------------------------------------------------------------- ASSETS LIABILITIES Cash and due from banks $ 31,209 Total deposits $ 544,870 Federal funds sold 37,400 Short-term borrowings 22,459 Investment securities 292,946 Other liabilities 5,351 Loans 255,797 Common stock 3,000 Allowance for credit loss (4,825) Surplus 3,716 Other assets 15,999 Retained earnings 49,130 --------- --------- Total assets $ 628,526 Total liabilities and equity $ 628,526 - ------------------------------------------------- ------------------------------------------------- Net income for year $ 9,873 -------------------------------------------------
28 THE CAROLINE COUNTY BANK ESTABLISHED 1902 Greensboro Sunset and Main Street DIRECTORS: Charles E. Emerson, Jr. Edgar B. Harman W. Lawrence Hignutt, Sr. L. Tayloe Lewis, Jr. Frank T. Lowman, III R. Irving Ober, Sr. Joseph B. Riddleberger EXECUTIVE OFFICERS: J. Richard Harris, Jr. President and CEO Peggy M. Butler Cashier Robert L. Ebling Loan Officer
BALANCE SHEET (DOLLARS IN THOUSANDS) DECEMBER 31, 1993 - ------------------------------------------------------------------------------------------------ ASSETS LIABILITIES Cash and due from banks $ 788 Total deposits $ 24,533 Federal funds sold 3,200 Short-term borrowings -- Investment securities 10,305 Other liabilities 127 Loans 14,013 Common stock 196 Allowance for credit loss (244) Surplus 1,000 Other assets 647 Retained earnings 2,853 --------- --------- Total assets $ 28,709 Total liabilities and equity $ 28,709 - ----------------------------------------------- ----------------------------------------------- Net income for year $ 512 -----------------------------------------------
ATLANTIC NATIONAL BANK ESTABLISHED 1973 OCEAN CITY 4604 Coastal Highway OCEAN PINES 11111 Racetrack Road SALISBURY 528 Riverside Drive 2400 N. Salisbury Blvd. DIRECTORS: C.A. Anthony John P. Charrier, Jr. Robert A. Eaton C. Terry Hough Philip A. Long John W. McCabe Alfred V. Melson Shirley Phillips James Y. Pigg R. Hursey Porter, Jr. Raymond C. Shockley Adam L. Showell D. Timothy Stoner EXECUTIVE OFFICERS: John P. Charrier, Jr. President and CEO Colleen W. Bunting Senior Vice President Donna M. Savko Senior Vice President/Cashier H. Stephen Price Senior Vice President
BALANCE SHEET (DOLLARS IN THOUSANDS) DECEMBER 31, 1993 - ------------------------------------------------------------------------------------------------ ASSETS LIABILITIES Cash and due from banks $ 3,226 Total deposits $ 53,045 Federal funds sold 4,545 Short-term borrowings 134 Investment securities 13,172 Other liabilities 407 Loans 34,987 Common stock 428 Allowance for credit loss (488) Surplus 886 Other assets 1,933 Retained earnings 2,475 --------- --------- Total assets $ 57,375 Total liabilities and equity $ 57,375 - ----------------------------------------------- ----------------------------------------------- Net income of year $ 588 -----------------------------------------------
SHAREHOLDER INFORMATION ANNUAL MEETING TRANSFER AGENT/DIVIDEND The annual shareholders DISBURSING AGENT meeting will be held Farmers National Bank of Tuesday, April 26, 1994, Maryland at 11:00 a.m. in the Bay Trust Department Ridge Inn, Herndon Ave., 5 Church Circle Annapolis, MD. All Annapolis, MD 21401 shareholders are invited to attend CERTIFIED PUBLIC ACCOUNTANTS FORM 10-K Stegman & Company A copy of the Professional Association Corporation's Form 10-K Towson, MD Annual Report as filed with the Securities and GENERAL INFORMATION Exchange Commission may For additional be obtained by information about contacting: Farmers National Bancorp Mr. Louis A. Supanek or its affiliates please Vice President and contact: Treasurer Ms. Cheryl Anderson-Neff Farmers National Bancorp Investor Relations 5 Church Circle Farmers National Bancorp Annapolis, MD 21401 5 Church Circle Phone (410) 626-2211 Annapolis, MD 21401 Phone (410) 626-2221 EX-22 3 EXHIBIT 22 Exhibit 22 SUBSIDIARIES OF THE REGISTRANT Name State of Incorporation Farmers National Bank of Maryland United States The Caroline County Bank Maryland Atlantic National Bank United States Farmers National Land Corporation Maryland Farmers National Mortgage Corporation Maryland EX-24 4 EXHIBIT 24 EXHIBIT 24 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Form 10-K of Farmers National Bancorp for the year ended December 31, 1993 of our report dated February 11, 1994 which appears on page 25 of the 1993 Annual Report to Stockholders. STEGMAN & COMPANY /s/ Stegman & Company TOWSON, MARYLAND March 28, 1994 EX-25 5 EXHIBIT 25 EXHIBIT 25 POWER OF ATTORNEY FARMERS NATIONAL BANCORP POWER OF ATTORNEY We, the undersigned Directors of Farmers National Bancorp, a Maryland corporation ("Bancorp"), hereby constitute and appoint Charles L. Schelberg our true and lawful agent and attorney-in-fact with the full power to sign for us, in our names and in the capacities indicated below, and Annual Report on Form 10-K, for the fiscal year ended December 31, 1993, for the purpose of filing an Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Signature Title Date \s\ L. Tayloe Lewis, Jr. _____________________________ Director March 8, 1994 L. Tayloe Lewis, Jr. \s\ Louis Hyatt _____________________________ Director March 8, 1994 Louis Hyatt \s\ Alexander V. Sandusky _____________________________ Director March 8, 1994 Alexander V. Sandusky \s\ John M. Suit, II _____________________________ Director March 8, 1994 John M. Suit II \s\ Raymond C. Shockley _____________________________ Director March 8, 1994 Raymond C. Shockley \s\ Joseph S. Quimby _____________________________ Director March 8, 1994 Joseph S. Quimby \s\ John B. Melvin _____________________________ Director March 8, 1994 John B. Melvin \s\ W. Robert Newnam _____________________________ Director March 8, 1994 W. Robert Newnam \s\ M. Virginia Meredith _____________________________ Director March 8, 1994 M. Virginia Meredith \s\ Donald S. Taylor _____________________________ Director March 8, 1994 Donald S. Taylor \s\ Cary L. Meredith _____________________________ Director March 8, 1994 Cary L. Meredith \s\ William W. Simmons _____________________________ Director March 8, 1994 William W. Simmons \s\ James D. Edwards _____________________________ Director March 8, 1994 James D. Edwards \s\W. Calvin Gray, Jr. _____________________________ Director March 8, 1994 W. Calvin Gray, Jr. -----END PRIVACY-ENHANCED MESSAGE-----