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Farmers National Banc(FMNB) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reporting period Item 1. Financial Statements (Unaudited) The unaudited financial statements for the quarter ended March 31, 2025, show an increase in total assets to $5.16 billion and net income of $13.6 million, up from $11.2 million in the prior year's quarter, reflecting changes in assets, liabilities, equity, income, and cash flows, with detailed notes providing further context Consolidated Condensed Balance Sheets The balance sheet reflects an increase in total assets driven by a rise in total deposits - Total assets increased to $5.157 billion as of March 31, 2025, from $5.119 billion at December 31, 2024, driven by a rise in total deposits7 Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $5,157,040 | $5,118,924 | | Net Loans | $3,215,842 | $3,232,483 | | Total Deposits | $4,481,288 | $4,266,779 | | Total Liabilities | $4,727,906 | $4,712,896 | | Total Stockholders' Equity | $429,134 | $406,028 | Consolidated Condensed Statements of Income Net income for Q1 2025 increased by 20.8% due to higher net interest and noninterest income - Net income for Q1 2025 was $13.58 million, a 20.8% increase from $11.24 million in Q1 2024, driven by higher net interest income and noninterest income8 Income Statement Summary (in thousands, except per share data) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $34,195 | $31,687 | | Total Noninterest Income | $10,481 | $8,357 | | Total Noninterest Expenses | $28,526 | $27,039 | | Net Income | $13,578 | $11,240 | | Diluted EPS | $0.36 | $0.30 | Consolidated Condensed Statements of Comprehensive Income (Loss) Total comprehensive income significantly improved in Q1 2025 due to unrealized gains on available-for-sale securities - Total comprehensive income was $29.5 million in Q1 2025, a significant improvement from a loss of $1.2 million in Q1 2024, primarily due to unrealized holding gains on available-for-sale securities in 2025 versus losses in 20249 Consolidated Condensed Statements of Stockholders' Equity Stockholders' equity increased due to net income and other comprehensive income, partially offset by dividends - Total stockholders' equity increased from $406.0 million at year-end 2024 to $429.1 million at March 31, 2025, driven by net income of $13.6 million and other comprehensive income of $16.0 million, partially offset by dividends of $6.4 million10 Consolidated Condensed Statements of Cash Flows The cash flow statement summarizes net cash from operating, investing, and financing activities Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $15,670 | $13,713 | | Net Cash from Investing Activities | $7,417 | $27,411 | | Net Cash from Financing Activities | $4,431 | $3,848 | | Net Change in Cash | $27,518 | $44,972 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, business segments, recent acquisitions, securities and loan portfolios, fair value measurements, regulatory capital, and new investments - The company operates through two main segments: the Bank segment and the Trust segment16 - On December 16, 2024, Farmers Trust acquired Crest Retirement Advisors, LLC, for $0.6 million, with $0.4 million in contingent consideration, resulting in recording $0.77 million in intangible assets and $0.004 million in goodwill23 - The available-for-sale securities portfolio totaled $1.28 billion at fair value as of March 31, 2025, with gross unrealized losses of $225.9 million, primarily due to changes in interest rates25 - The allowance for credit losses (ACL) was $35.5 million at March 31, 2025, down from $35.9 million at year-end 2024, mainly due to lower loan balances and adjustments to qualitative factors3364 - The company began investing in solar investment tax credits in Q1 2025, with a balance of $10.0 million and unfunded commitments of $9.3 million as of March 31, 2025144 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a net income of $13.6 million for Q1 2025, an increase from $11.2 million in Q1 2024, driven by a 15 basis point expansion in net interest margin to 2.85% and strong growth in noninterest income, while maintaining a solid financial condition with total assets at $5.16 billion and strong capital ratios Results of Operations Net income for Q1 2025 increased to $13.6 million ($0.36 per diluted share) from $11.2 million ($0.30 per diluted share) in Q1 2024, primarily due to a $2.5 million increase in net interest income and $2.1 million growth in noninterest income, partially offset by a $1.5 million rise in noninterest expense Key Performance Ratios | Ratio | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Return on average assets (annualized) | 1.06% | 0.90% | | Return on average equity (annualized) | 13.12% | 11.47% | | Net interest margin | 2.85% | 2.70% | - Net interest income increased to $34.2 million in Q1 2025 from $31.7 million in Q1 2024, attributed to a 15 basis point increase in the net interest margin155 - Noninterest income rose to $10.5 million in Q1 2025 from $8.4 million in Q1 2024, due to growth in service charges, trust fees, insurance commissions, and lower losses on security sales158159 - Noninterest expense increased to $28.5 million in Q1 2025 from $27.0 million in Q1 2024, primarily driven by a $1.1 million increase in salaries and employee benefits160 Financial Condition As of March 31, 2025, total assets stood at $5.16 billion, with a slight decrease in net loans to $3.25 billion and an increase in total deposits to $4.48 billion, while stockholders' equity rose to $429.1 million, maintaining a well-capitalized position - Net loans decreased to $3.25 billion at March 31, 2025, from $3.27 billion at year-end 2024, mainly due to reductions in commercial and construction loans164 - Total deposits increased to $4.48 billion from $4.27 billion at year-end 2024, driven by seasonality of public funds and the acquisition of $85.0 million in brokered time deposits170 Asset Quality Ratios | Ratio | 3/31/2025 | 3/31/2024 | | :--- | :--- | :--- | | Nonperforming loans as a % of total loans | 0.64% | 0.38% | | Allowance for credit losses as a % of total loans | 1.09% | 1.04% | | Annualized net charge-offs to average net loans | 0.04% | 0.13% | - Total stockholders' equity increased to $429.1 million from $406.0 million at year-end 2024, primarily due to net income and a $16.0 million decrease in accumulated other comprehensive loss172 Critical Accounting Policies The company's critical accounting policies involve significant management judgment in determining the adequacy of the allowance for credit losses (ACL) and assessing goodwill impairment, with ACL estimation relying on macroeconomic forecasts and sensitivity analysis - The two critical accounting policies are determining the adequacy of the allowance for credit losses (ACL) and assessing impairment of goodwill or other intangibles176 - The ACL estimation involves significant judgment, particularly regarding macroeconomic forecasts, using U.S. real GDP changes, U.S. PCE inflation, and the U.S. unemployment rate as key variables179184 - A sensitivity analysis comparing the central economic scenario to a relative adverse scenario indicated a potential increase in modeled credit loss estimates of $0.657 million for residential real estate loans and $1.15 million for commercial real estate non-owner occupied loans186 Liquidity and Off-Balance Sheet Arrangements The company maintains sufficient liquidity through liquid assets, cash flows, and wholesale funding, with $102.0 million in outstanding FHLB borrowings and $749.3 million in additional capacity, alongside $734.2 million in off-balance sheet loan commitments - The company maintains multiple sources of liquidity, including FHLB advances, a $25.0 million line of credit with a major domestic bank, and a $5.0 million revolving line of credit193 - At March 31, 2025, the Bank had $102.0 million in outstanding short-term FHLB borrowings and an additional borrowing capacity of approximately $749.3 million193 - Total unused commitments, including lines of credit and letters of credit, were $734.2 million at March 31, 2025195 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with simulation analysis showing that a +100 basis point rate shock would decrease Net Interest Income by 2.2%, and the Economic Value of Equity (EVE) sensitivity exceeds internal policy limits in rising rate scenarios, prompting strategies to shorten investment portfolio duration and pursue prudent loan growth Interest Rate Sensitivity Analysis (March 31, 2025) | Rate Change (bps) | Net Interest Income Change | Net Present Value of Equity Change | | :--- | :--- | :--- | | +400 | -7.6% | -33.3% | | +200 | -4.1% | -16.1% | | +100 | -2.2% | -8.0% | | -100 | 1.8% | 4.4% | | -200 | 3.1% | 5.1% | - The Economic Value of Equity (EVE) sensitivity exceeds internal policy limits in rising rate scenarios, attributed to the large influx of low-rate deposits in 2020-2021 invested at low rates, and the subsequent rise in market rates201 - Mitigation strategies include shrinking the longer-duration investment portfolio and replacing balances with shorter-duration assets, including pursuing measured and diversified loan growth202 Item 4. Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as of the end of the reporting period206 - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls206 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, other information, and a list of exhibits Item 1. Legal Proceedings The company is involved in various lawsuits in the ordinary course of business, with accruals for probable losses, though ultimate resolution remains uncertain and could be material - The Company is a defendant in lawsuits arising in the ordinary course of business, and while it accrues for probable losses, the ultimate outcome could be material to future results207 Item 1A. Risk Factors There are no material changes from the 2024 Form 10-K risk factors, except for a newly highlighted risk concerning significant changes in federal government operations, economic policies, and regulatory priorities that could cause economic disruptions and adversely impact the business - A new risk factor highlights that significant changes to U.S. government operations, economic policies (such as trade and tariffs), and regulatory priorities may cause economic disruptions that could adversely impact the business208209210 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the company's 2023 Repurchase Program during the first quarter of 2025, with 497,047 shares remaining available for repurchase - No shares were repurchased under the company's 2023 Repurchase Program during the first quarter of 2025218 - As of March 31, 2025, 497,047 shares remain available for repurchase under the authorized program218 Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during the first quarter of 2025 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or any other trading arrangement during the three months ended March 31, 2025221 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, compensatory plan forms, officer certifications, and iXBRL data files