FMNB Farmers National Banc Corp.

Management Discussion

• Comparison of Operating Results for the Years Ended December 31, 2018 and 2017.
• The Company’s net income totaled $32.6 million during 2018, compared to $22.7 million for 2017.  On a per share basis, diluted earnings per share were $1.16 as compared to $0.82 diluted earnings per share for 2017.  Return on average assets and return on average equity were 1.46% and 13.13%, respectively, for the year ending December 31, 2018, compared to 1.09% and 9.92% for 2017.  The return on average tangible equity increased from 13.48% in 2017 to 15.95% in 2018.
• On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law.  H.R.1, among other things, reduced the corporate income tax rate to 21% effective January 1, 2018.  As a result of passage of the new tax law, Farmers’ effective tax rate decreased from 30.72% for the year ended December 31, 2017 to 14.92% for the year ended December 31, 2018.  It is important to note that also as a result of the new tax law, Farmers determined that its net deferred tax assets needed to be reduced in the fourth quarter of 2017 by approximately $1.8 million, representing an impact on earnings per share of approximately $0.06 per diluted share for that fourth quarter, based on that quarter’s weighted average diluted shares outstanding of approximately 28 million.