Farmers National Banc(FMNB) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the comprehensive financial information, including statements, notes, and management's discussion and analysis Item 1 Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Farmers National Banc Corp. and its subsidiaries, including balance sheets, income statements, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instrument details, and segment information for the periods ended June 30, 2025, and December 31, 2024 Consolidated Condensed Balance Sheets (Unaudited) Presents the company's financial position with key asset, liability, and equity figures at specific dates Consolidated Condensed Balance Sheets (Unaudited) - Key Figures (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | ASSETS | | | | TOTAL CASH AND CASH EQUIVALENTS | $90,740 | $85,738 | | Securities available for sale | $1,274,899 | $1,266,553 | | NET LOANS | $3,264,796 | $3,232,483 | | TOTAL ASSETS | $5,178,428 | $5,118,924 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | TOTAL DEPOSITS | $4,396,417 | $4,266,779 | | Short-term borrowings | $203,000 | $305,000 | | TOTAL LIABILITIES | $4,740,680 | $4,712,896 | | TOTAL STOCKHOLDERS' EQUITY | $437,748 | $406,028 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $5,178,428 | $5,118,924 | Consolidated Condensed Statements of Income (Unaudited) Details the company's financial performance over periods, including interest income, expenses, and net income Consolidated Condensed Statements of Income (Unaudited) - Key Figures (in Thousands except Per Share Data): | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | TOTAL INTEREST AND DIVIDEND INCOME | $57,702 | $56,846 | | TOTAL INTEREST EXPENSE | $22,781 | $24,780 | | NET INTEREST INCOME | $34,921 | $32,066 | | Provision for credit losses | $3,586 | $1,395 | | TOTAL NONINTEREST INCOME | $12,122 | $9,606 | | TOTAL NONINTEREST EXPENSES | $27,175 | $26,403 | | NET INCOME | $13,910 | $11,783 | | EARNINGS PER SHARE - diluted | $0.37 | $0.31 | | Metric | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------------- | :------------------------------------- | | TOTAL INTEREST AND DIVIDEND INCOME | $115,008 | $111,900 | | TOTAL INTEREST EXPENSE | $45,891 | $48,147 | | NET INTEREST INCOME | $69,117 | $63,753 | | Provision for credit losses | $3,608 | $1,125 | | TOTAL NONINTEREST INCOME | $22,603 | $17,963 | | TOTAL NONINTEREST EXPENSES | $55,701 | $53,442 | | NET INCOME | $27,488 | $23,023 | | EARNINGS PER SHARE - diluted | $0.73 | $0.61 | Consolidated Condensed Statements of Comprehensive Income (Unaudited) Reports net income and other comprehensive income components, such as unrealized gains/losses on securities Consolidated Condensed Statements of Comprehensive Income (Unaudited) - Key Figures (in Thousands of Dollars): | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | | :------------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | NET INCOME | $13,910 | $11,783 | | Unrealized holding gains (losses), net of reclassification and tax | $563 | $(6,279) | | TOTAL COMPREHENSIVE INCOME | $14,473 | $5,504 | | Metric | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------------- | :------------------------------------- | | NET INCOME | $27,488 | $23,023 | | Unrealized holding gains (losses), net of reclassification and tax | $16,527 | $(18,679) | | TOTAL COMPREHENSIVE INCOME | $44,015 | $4,344 | Consolidated Condensed Statements of Stockholders' Equity (Unaudited) Outlines changes in stockholders' equity, including net income, other comprehensive income, and dividends paid Consolidated Condensed Statements of Stockholders' Equity (Unaudited) - Key Figures (in Thousands of Dollars): | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------------- | :---------------- | :------------ | | Balance | $406,028 | $437,748 | | Net income (6 months) | $27,488 | $27,488 | | Other comprehensive income (6 months) | $16,527 | $16,527 | | Dividends paid (6 months) | $(12,792) | $(12,792) | Consolidated Condensed Statements of Cash Flows (Unaudited) Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Condensed Statements of Cash Flows (Unaudited) - Key Figures (in Thousands of Dollars): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | NET CASH FROM OPERATING ACTIVITIES | $29,688 | $30,306 | | NET CASH FROM INVESTING ACTIVITIES | $(38,742) | $(19,074) | | NET CASH FROM FINANCING ACTIVITIES | $14,056 | $66,097 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $5,002 | $77,329 | | Ending cash and cash equivalents | $90,740 | $180,987 | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Principles of Consolidation and Basis of Presentation Farmers National Banc Corp. operates as a Financial Holding Company, providing banking, trust, and insurance services through its subsidiaries. The unaudited consolidated financial statements are prepared in accordance with Form 10-Q and U.S. GAAP, including normal recurring adjustments, and should be read with the 2024 Form 10-K - Farmers National Banc Corp. is a Financial Holding Company providing full banking, trust, and insurance services through its subsidiaries (The Farmers National Bank of Canfield, Farmers National Insurance, LLC, Farmers of Canfield Investment Co., and Farmers Trust Company)[12] - The unaudited consolidated financial statements conform to Form 10-Q and Article 10 of Regulation S-X, including normal recurring adjustments, and should be read in conjunction with the 2024 Form 10-K[13] Estimates and Segments Financial statement preparation involves management estimates and assumptions, which may differ from actual results. The Company manages and reports operations primarily through two segments: the Bank segment and the Trust segment, serving northeastern Ohio and western Pennsylvania - Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, and actual results could differ from these estimates[14] - The Company's operations are managed and financial performance is primarily aggregated and reported in two lines of business: the Bank segment and the Trust segment, serving northeastern Ohio and western Pennsylvania[15] Equity and Comprehensive Income The Company has 50 million authorized shares, with 37.64 million outstanding as of June 30, 2025. Comprehensive income includes net income and other comprehensive income (loss), primarily unrealized gains/losses on available-for-sale securities and post-retirement plan changes, net of tax - As of June 30, 2025, there are 50,000,000 shares authorized and 37,641,666 shares outstanding[16] - Comprehensive income consists of net income and other comprehensive income (loss), which includes unrealized gains and losses on available-for-sale securities and changes in the funded status of the post-retirement plan, net of tax effect[17] Updates to Significant Accounting Policies The Company adopted ASU 2023-07 (Segment Reporting) effective for fiscal years beginning after December 15, 2023, updating footnote 16. Other new ASUs (2024-02 and 2023-09) are not expected to materially impact operating results or financial condition upon their effective dates in fiscal years beginning after December 15, 2024 - ASU 2024-02 (Codification Improvements) is effective for public business entities for fiscal years beginning after December 15, 2024, and is not expected to have a material effect on the Company's operating results or financial condition[18] - ASU 2023-09 (Income Taxes Disclosures) is effective for fiscal years beginning after December 15, 2024, and is not expected to have a material effect on the Company's operating results or financial condition[19] - ASU 2023-07 (Segment Reporting) was adopted by the Company for fiscal years beginning after December 15, 2023, resulting in updates to footnote 16 - Segment information with enhanced disclosures about significant segment expenses[20] Business Combinations On December 16, 2024, Farmers Trust acquired substantially all assets of Crest Retirement Advisors, LLC for $600,000, with an additional $400,000 in contingent consideration, recording $770,000 in intangible assets and $4,000 in goodwill - On December 16, 2024, Farmers Trust acquired substantially all assets of Crest Retirement Advisors, LLC for $600,000, with an additional $400,000 in contingent consideration payable over two years[22] - The acquisition resulted in the recording of $770,000 in intangible assets and $4,000 in goodwill[22] Securities The available-for-sale securities portfolio had an amortized cost of $1.498 billion and a fair value of $1.275 billion at June 30, 2025, with total unrealized losses of $225.3 million. The Company does not consider these unrealized losses to be credit-related, attributing them to interest rate changes, and intends to hold securities for recovery. Equity securities, including SBIC investments, are held at modified cost Available-for-Sale Securities Portfolio (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Amortized Cost | $1,497,929 | $1,510,681 | | Fair Value | $1,274,899 | $1,266,553 | | Gross Unrealized Gains | $2,278 | $1,585 | | Gross Unrealized Losses | $(225,308) | $(245,713) | - The Company does not consider any of its available-for-sale securities with unrealized losses to be attributable to credit-related factors, but rather to changes in noncredit related factors such as interest rates, market spreads, and market conditions[28][29] - Management has both the ability and intent to hold the securities for a period sufficient to allow for the recovery in fair value[28][29] - Equity securities include $16.0 million in Small Business Investment Company ("SBIC") partnership investments at June 30, 2025, held at modified cost[30] Loans and Allowance for Credit Losses Total loans increased to $3.29 billion at June 30, 2025, from $3.26 billion at December 31, 2024, primarily in commercial real estate and commercial loans. The allowance for credit losses increased to $38.56 million from $35.86 million, mainly due to specific reserves on three commercial real estate non-owner occupied relationships and increased loan balances. Nonaccrual loans and past due loans over 89 days also increased Loan Balances (in Thousands of Dollars): | Loan Type | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Commercial real estate | $1,601,067 | $1,599,799 | | Commercial | $416,703 | $405,572 | | Residential real estate | $1,020,755 | $1,003,095 | | Consumer | $253,363 | $259,954 | | Total loans | $3,292,888 | $3,258,121 | | Allowance for credit losses | $(38,563) | $(35,863) | | NET LOANS | $3,264,796 | $3,232,483 | Allowance for Credit Losses Activity (in Thousands of Dollars) - Six Months Ended June 30, 2025: | Metric | Commercial Real Estate | Commercial | Residential Real Estate | Consumer | Total | | :-------------------------------- | :--------------------- | :--------- | :---------------------- | :------- | :---- | | Beginning balance | $19,259 | $4,628 | $7,271 | $4,705 | $35,863 | | Provision (Credit) for credit losses | $2,412 | $776 | $(43) | $463 | $3,608 | | Loans charged off | $(66) | $(654) | $(77) | $(649) | $(1,446) | | Recoveries | $22 | $223 | $59 | $234 | $538 | | Total ending allowance balance | $21,627 | $4,973 | $7,210 | $4,753 | $38,563 | - The increase in the allowance for credit losses from June 30, 2024, to June 30, 2025, is largely attributed to specific reserves for three commercial real estate non-owner occupied relationships, increased loss ratio trends in that segment, and increased loan balances[35] Nonaccrual and Past Due Loans (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Nonaccrual Loans | $27,819 | $17,814 | | Loans past due over 89 days still accruing | $0 | $615 | Loan Restructurings The Company modified $11.36 million in loans for borrowers experiencing financial difficulty during the three months ended June 30, 2025, primarily through term extensions for non-owner occupied commercial real estate. Most restructured loans remained current, with a small portion becoming nonaccrual. No additional commitments to lend on restructured loans existed as of June 30, 2025 Loan Modifications to Borrowers Experiencing Financial Difficulty (in Thousands of Dollars) - Three Months Ended June 30, 2025: | Loan Class | Payment Deferral | Term Extension | Interest Rate Reduction | Combination Term Extension and Interest Rate Reduction | Total | | :-------------------------- | :--------------- | :------------- | :---------------------- | :--------------------------------------------------- | :------ | | Commercial real estate - Non-owner occupied | $0 | $11,128 | $0 | $0 | $11,128 | | Commercial - Commercial and industrial | $0 | $0 | $0 | $58 | $58 | | Residential real estate - 1-4 family residential | $0 | $0 | $0 | $0 | $103 | | Residential real estate - Home equity lines of credit | $0 | $0 | $0 | $75 | $75 | | Total modifications | $103 | $11,128 | $0 | $133 | $11,364 | Payment Status of Restructured Loans (in Thousands of Dollars) - Three Months Ended June 30, 2025: | Loan Class | Current | 30-89 Days Past Due | 90+ Days Past Due | | :-------------------------- | :------ | :------------------ | :---------------- | | Total Accruing Restructured Loans | $11,306 | $0 | $0 | | Total Nonaccrual Restructured Loans | $58 | $0 | $0 | | Total Restructured Loans | $11,364 | $0 | $0 | - As of June 30, 2025, the Company had no commitments to lend any additional funds on restructured loans[50] Credit Quality Indicators The Company categorizes commercial loans by risk ratings (Special Mention, Substandard, Doubtful) and residential/consumer loans by aging status. As of June 30, 2025, nonperforming loans increased to $27.8 million (0.84% of total loans) from $22.8 million (0.70%) at December 31, 2024. The allowance for credit losses increased to $38.6 million, covering 138.62% of nonperforming loans. The Company uses cohort and PD/LGD methodologies for ACL calculation, adjusting for economic conditions - The Company categorizes commercial loans into risk categories (Special Mention, Substandard, Doubtful) and evaluates residential, consumer indirect, and direct loan classes based on aging status and payment activity[52][53][54][55] Asset Quality Ratios (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Nonperforming loans | $27,819 | $22,818 | | Nonperforming loans as a % of total loans | 0.84% | 0.70% | | Allowance for credit losses | $38,563 | $35,863 | | Allowance for credit losses as a % of total loans | 1.17% | 1.10% | | Allowance for credit losses as a % of nonperforming loans | 138.62% | 157.17% | Loan Pool Methodologies for Allowance for Credit Losses Calculation: | Portfolio Segments | Methodology | | :---------------------- | :---------- | | Residential real estate | Cohort | | Home Equity Lines of Credit | Cohort | | Consumer Finance | Cohort | | Commercial | PD/LGD | | Commercial real estate | PD/LGD | - The $2.7 million increase in ACL was due to individual evaluation of three commercial real estate non-owner occupied relationships, increased loss ratio trends of commercial real estate non-owner occupied, and increased loan balances, partially offset by adjustments to maximum loss rates and portfolio composition factors[71] Purchased Loans The Company did not acquire any additional Purchase Credit Deteriorated (PCD) loans in 2025. The outstanding balance of PCD loans was $28.03 million with an ACL of $1.55 million at June 30, 2025, showing a decrease in loan balance and an increase in ACL compared to December 31, 2024 - The Company has not acquired any additional Purchase Credit Deteriorated (PCD) loans during 2025[72] PCD Loan Balances and ACL (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Loan Balance | $28,027 | $30,171 | | ACL Balance | $1,550 | $561 | Revenue from Contracts with Customers Noninterest income, recognized under ASC 606, increased for both the three and six months ended June 30, 2025, across various fee-based services like trust fees, insurance agency commissions, retirement plan consulting fees, and investment commissions, reflecting business growth and acquisitions Total Noninterest Income (in Thousands of Dollars): | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $12,122 | $9,606 | | Six Months Ended June 30 | $22,603 | $17,963 | Key Noninterest Income Streams (in Thousands of Dollars) - Three Months Ended June 30: | Revenue Stream | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Trust fees | $2,596 | $2,345 | | Insurance agency commissions | $1,828 | $1,255 | | Retirement plan consulting fees | $783 | $623 | | Investment commissions | $721 | $478 | - The increase in noninterest income was due to improved profitability across all fee-based lines of business and a lower level of losses on the sale of available-for-sale securities[181] Fair Value Measurements The Company measures financial instruments at fair value using a three-level hierarchy. Investment securities available-for-sale are primarily Level 2, while individually evaluated loans and other real estate owned are typically Level 3 due to significant unobservable inputs. The fair value of investment securities available-for-sale increased slightly to $1.275 billion at June 30, 2025, from $1.267 billion at December 31, 2024 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[86][87] Fair Value of Investment Securities Available-for-Sale (in Thousands of Dollars): | Date | Fair Value | | :---------------- | :----------- | | June 30, 2025 | $1,274,899 | | December 31, 2024 | $1,266,553 | - Individually evaluated loans and other real estate owned are typically classified as Level 3 due to significant unobservable inputs, such as adjustments for differences between comparable sales or income data in appraisals[95][96][100][102] Goodwill and Intangible Assets Goodwill remained at $167.4 million at June 30, 2025, with no impairment indicated. Amortized intangible assets totaled $41.68 million gross carrying amount, with accumulated amortization of $22.40 million, resulting in a net of $19.28 million. Amortization expense for the three and six months ended June 30, 2025, was $735,000 and $1.5 million, respectively - Goodwill totaled $167.4 million at June 30, 2025, and December 31, 2024, with no events or changes indicating impairment[105] Acquired Intangible Assets (in Thousands of Dollars) - June 30, 2025: | Metric | Gross Carrying Amount | Accumulated Amortization | | :-------------------------- | :-------------------- | :----------------------- | | Customer relationship intangibles | $7,975 | $(7,170) | | Non-compete contracts | $457 | $(433) | | Trade name | $1,131 | $(481) | | Core deposit intangible | $32,115 | $(14,313) | | Total | $41,678 | $(22,397) | Aggregate Amortization Expense (in Thousands of Dollars): | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $735 | $630 | | Six Months Ended June 30 | $1,500 | $1,300 | Leases The Company holds operating leases for various assets, with right-of-use assets and lease liabilities at $7.8 million and $8.0 million, respectively, as of June 30, 2025. Lease expense for the three and six months ended June 30, 2025, was $351,000 and $644,000, respectively. The weighted-average remaining lease term is 8.93 years Lease Balances (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Right of use assets | $7,800 | $9,700 | | Lease liabilities | $8,000 | $9,900 | Lease Expense (in Thousands of Dollars): | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $351 | $327 | | Six Months Ended June 30 | $644 | $658 | - The weighted-average remaining lease term for all leases was 8.93 years as of June 30, 2025[110] Derivative Financial Instruments The Company uses interest rate swaps for commercial loan customers and a fair value hedge for its municipal bond portfolio. Commercial loan swaps had a notional value of $66.8 million at June 30, 2025, with offsetting fair values. A $100 million notional fair value hedge swap had a fair value of $(571,000) at June 30, 2025. Mortgage banking derivatives, including interest rate lock commitments, are also used for risk management - Interest rate swaps associated with commercial loans had a notional value of $66.8 million and fair value of $1.8 million in other assets and $1.8 million in other liabilities at June 30, 2025[113] Interest Rate Swap Designated as a Fair Value Hedge (in Thousands of Dollars): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Notional amount | $100,000 | $100,000 | | Fair value | $(571) | $(168) | | Remaining maturity (in years) | 1.1 | 1.6 | Mortgage Banking Derivatives (in Thousands of Dollars) - June 30, 2025: | Metric | Notional Amount | Fair Value | | :-------------------------- | :-------------- | :--------- | | Interest rate lock commitments | $10,664 | $87 | | Forward sales contracts (included in other liabilities) | $11,000 | $68 | Earnings Per Share Basic EPS for the three and six months ended June 30, 2025, was $0.37 and $0.73, respectively. Diluted EPS was $0.37 and $0.73 for the same periods. The weighted average shares outstanding for diluted EPS increased to 37.62 million for the six months ended June 30, 2025, from 37.48 million in the prior year Earnings Per Share (EPS) Data: | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Basic earnings per share | $0.37 | $0.32 | | Diluted earnings per share | $0.37 | $0.31 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Basic earnings per share | $0.73 | $0.62 | | Diluted earnings per share | $0.73 | $0.61 | Weighted Average Shares Outstanding for Diluted EPS: | Period | 2025 | 2024 | | :----------------------------- | :----------- | :----------- | | Six Months Ended June 30 | 37,622,159 | 37,479,586 | Stock Based Compensation The Company's 2022 Equity Incentive Plan allows for up to one million share awards. For the six months ended June 30, 2025, 66,080 service-based and 102,336 performance-based share awards were granted. Total unrecognized compensation expense was $3.5 million, expected to be recognized over 2.7 years - The 2022 Equity Incentive Plan permits the award of up to one million shares to directors and employees[120] Stock Based Compensation Activity (Six Months Ended June 30, 2025): | Metric | Service Units | Performance Units | | :-------------------------- | :------------ | :---------------- | | Granted | 66,080 | 102,336 | | Vested | (101,333) | (47,514) | | Forfeited | (1,762) | (8,085) | | Ending balance - non-vested shares | 194,415 | 269,657 | - As of June 30, 2025, there was $3.5 million of total unrecognized compensation expense related to nonvested shares, expected to be recognized over 2.7 years[121] Other Comprehensive Income (Loss) Accumulated other comprehensive loss improved from $(193.27) million at December 31, 2024, to $(176.74) million at June 30, 2025, primarily due to net unrealized holding gains on available-for-sale securities Accumulated Other Comprehensive Income (Loss) (in Thousands of Dollars): | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------------- | :---------------- | :------------ | | Balance | $(193,265) | $(176,738) | | Net current period other comprehensive income (6 months) | $15,964 | $15,964 | Regulatory Capital Matters The Company and its Bank subsidiary meet all Basel III capital adequacy requirements, including common equity tier 1, tier 1 risk-based, total risk-based, and tier 1 leverage ratios, exceeding minimum thresholds. The Bank is categorized as "well capitalized" under prompt corrective action regulations - Management believes that as of June 30, 2025, the Company and the Bank meet all capital adequacy requirements to which they are subject under Basel III[128][132] Consolidated Capital Ratios (June 30, 2025): | Ratio | Actual | Requirement For Capital Adequacy Purposes | | :-------------------------- | :----- | :---------------------------------------- | | Common equity tier 1 capital ratio | 11.56% | 4.5% | | Total risk based capital ratio | 15.04% | 8.0% | | Tier 1 risk based capital ratio | 12.05% | 6.0% | | Tier 1 leverage ratio | 8.67% | 4.0% | - The Bank was categorized as well capitalized under the regulatory framework for prompt corrective action at June 30, 2025, and December 31, 2024[133] Segment Information The Company operates in two reportable segments: Bank and Trust. Both segments showed increased revenues and profits for the three and six months ended June 30, 2025, compared to the prior year, with the Bank segment generating the majority of interest income and the Trust segment contributing significantly through fees - The Company's reportable segments are the Bank segment and the Trust segment, distinguished by products/services and information provided to the chief operating decision maker[135] Total Consolidated Segment Revenues (in Thousands of Dollars): | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30 | $60,158 | $58,703 | | Six Months Ended June 30 | $119,819 | $115,850 | Segment Profit (in Thousands of Dollars): | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three Months Ended June 30 | $19,130 | $18,269 | | Six Months Ended June 30 | $39,730 | $37,442 | Short-term Borrowings Short-term borrowings decreased to $203.0 million at June 30, 2025, from $305.0 million at December 31, 2024, primarily due to using increased deposits to pay down Federal Home Loan Bank (FHLB) advances. The Bank also has access to unused lines of credit Short-term Advances from FHLB (in Thousands of Dollars): | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $203,000 | | December 31, 2024 | $305,000 | - The decrease in short-term borrowings was due to the Company using proceeds from deposits to pay down FHLB advances[198] - The Bank has access to a $25.0 million line of credit at a major domestic bank and Farmers has an unsecured revolving line of credit for $5.0 million, with no outstanding balances on either at June 30, 2025[143][144] Long-term Borrowings Total long-term borrowings were $86.43 million at June 30, 2025, primarily consisting of subordinated notes and junior subordinated debt securities from past acquisitions. These borrowings qualify as Tier 1 capital for regulatory purposes Total Long-term Borrowings (in Thousands of Dollars): | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $86,428 | | December 31, 2024 | $86,150 | - Long-term borrowings include $75.0 million aggregate principal amount of fixed-to-floating rate subordinated notes due December 15, 2031, with $3 million bought back and retired in August 2024[146][147] - The Company also assumed Floating Rate Junior Subordinated Debt Securities from acquisitions (Cortland, Maple Leaf, National Bancshares), which qualify as Tier 1 capital for regulatory purposes[148][149][150][151] Tax Credit Investments The Company invests in qualified affordable housing projects and solar investment tax credits. Affordable housing investments totaled $27.0 million at June 30, 2025, with $17.7 million in unfunded commitments. Solar investment tax credits, initiated in Q1 2025, totaled $7.3 million with $6.3 million in unfunded commitments. Amortization expense and tax credits from these investments are recognized in income tax expense and cash flows Tax Credit Investments (in Thousands of Dollars): | Investment Type | June 30, 2025 Balance | December 31, 2024 Balance | Unfunded Commitments (June 30, 2025) | | :-------------------------- | :-------------------- | :------------------------ | :----------------------------------- | | Qualified affordable housing projects | $27,000 | $22,000 | $17,700 | | Solar investment tax credits | $7,300 | $0 | $6,300 | - Solar investment tax credits were initiated in the first quarter of 2025[157] - Amortization expense from solar investment tax credits for the six months ended June 30, 2025, was $2.4 million, included in income tax expense[158] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting key trends, significant changes, and future outlook. It covers results of operations, financial condition, critical accounting policies, liquidity, and off-balance sheet arrangements, emphasizing the impact of market and regulatory developments Cautionary Note Regarding Forward Looking Statements The report contains forward-looking statements subject to inherent uncertainties and risks, including general economic conditions, regulatory actions, interest rate fluctuations, and competition. Readers are cautioned not to place undue reliance on these statements, and the Company disclaims any obligation to update them - This report contains forward-looking statements based on current expectations, beliefs, and assumptions, which are not statements of historical fact[160] - Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances, including general economic conditions, regulatory environment, interest rate fluctuations, and competitive factors[160][161][165] - The Company does not undertake, and expressly disclaims, any obligation to update or alter any forward-looking statements, except as required by applicable law[162] Recent Market and Regulatory Developments Recent legislation, such as the "One Big Beautiful Bill Act" (OBBBA) signed July 4, 2025, is being evaluated for its impact on the Company, though no material effects are currently expected for Q2 2025. The financial industry remains subject to continuous review and potential changes in statutes, regulations, and policies, which could materially affect the business - The "One Big Beautiful Bill Act" (OBBBA) was signed into law on July 4, 2025, effective after the close of the calendar quarter, and its impacts are still being evaluated but are not expected to be material to the Company or its financial results for Q2 2025[164][166] - Statutes, regulations, and policies affecting the financial industry are continually under review and subject to change, which could have a material effect on the Company's business[167] Results of Operations Net income increased for both the three and six months ended June 30, 2025, driven by higher net interest income and noninterest income, despite an increase in the provision for credit losses. The net interest margin improved due to stable asset yields and decreased funding costs. Noninterest income growth was broad-based across fee-based businesses, while noninterest expenses saw increases in salaries, occupancy, and core processing Selected Financial Ratios and Results (in Thousands, except Per Share Data): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net income | $13,910 | $11,783 | | Diluted earnings per share | $0.37 | $0.31 | | Return on average assets (annualized) | 1.08% | 0.93% | | Return on average equity (annualized) | 13.08% | 12.15% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net income | $27,488 | $23,023 | | Diluted earnings per share | $0.73 | $0.61 | | Return on average assets (annualized) | 1.07% | 0.91% | | Return on average equity (annualized) | 13.10% | 11.76% | - Net interest income for the three months ended June 30, 2025, was $34.9 million, up from $32.1 million in the prior year, driven by a 20 basis point increase in net interest margin and a higher earning asset base[176] - The net interest margin for the three-month period ended June 30, 2025, was 2.91%, up from 2.71% in the prior year, due to stable interest-earning asset yields and a 24 basis point decrease in the cost of interest-bearing liabilities[177] - The provision for credit losses and unfunded loans increased to $3.5 million for the three months ended June 30, 2025, from $1.1 million in the prior year, primarily due to $2.6 million in specific reserves on two nonperforming loans[179] - Noninterest income for the second quarter of 2025 increased to $12.1 million from $9.6 million in the prior year, driven by improved profitability across all fee-based lines of business and lower losses on the sale of available-for-sale securities[181] - Noninterest expense totaled $27.2 million for the quarter ended June 30, 2025, up from $26.4 million in the prior year, primarily due to higher salaries, occupancy and equipment costs, and core processing charges[186] Financial Condition Cash and cash equivalents increased to $90.7 million, reflecting a strategic increase in liquidity. Securities available for sale remained stable at $1.27 billion, with net unrealized losses decreasing. Net loans grew to $3.30 billion, primarily in commercial and commercial real estate. The allowance for credit losses increased due to specific reserves. Total deposits rose to $4.40 billion, used to reduce short-term borrowings. Stockholders' equity increased to $437.7 million, bolstered by net income and reduced comprehensive loss - Cash and cash equivalents increased by $5.0 million to $90.7 million at June 30, 2025, from $85.7 million at December 31, 2024, due to the Company intentionally holding more liquidity[190] - Securities available for sale totaled $1.27 billion at June 30, 2025, with net unrealized losses decreasing to $223.0 million from $244.1 million at December 31, 2024[191] - Net loans increased to $3.30 billion at June 30, 2025, from $3.27 billion at December 31, 2024, primarily driven by increases in commercial and commercial real estate loans[192] - The allowance for credit losses increased to $38.6 million at June 30, 2025, from $35.9 million at December 31, 2024, mainly due to $2.6 million in specific reserves on two nonperforming loans[195] - Total deposits increased to $4.40 billion at June 30, 2025, from $4.27 billion at December 31, 2024, with customer deposits growing $129.6 million, which were used to pay down borrowings[197][198] - Total stockholders' equity increased to $437.7 million at June 30, 2025, from $406.0 million at December 31, 2024, primarily due to a $16.5 million decrease in accumulated other comprehensive loss and $14.7 million growth in retained earnings[199] Critical Accounting Policies The Company's critical accounting policies involve significant judgment in estimating the allowance for credit losses (ACL) and assessing goodwill impairment. ACL estimation uses macroeconomic forecasts (GDP, PCE inflation, unemployment) and two methodologies (cohort and PD/LGD). Goodwill impairment is annually assessed by reviewing past and projected operating results - The Company's critical accounting policies include determining the adequacy of the allowance for credit losses (ACL) and assessing the impairment of goodwill and other intangibles[203] - ACL estimation involves significant judgment, incorporating macroeconomic forecasts (U.S. real GDP, PCE inflation, U.S. civilian unemployment rate) and using cohort and PD/LGD methodologies for different loan portfolios[205][206][211][216][217] - Goodwill impairment testing is performed annually by reviewing past and projected operating results for subsidiaries and comparable industry information[218] Liquidity The Company maintains sufficient liquidity through liquid assets, deposit growth, and access to wholesale funds and credit lines. As of June 30, 2025, it had $203.0 million in FHLB advances with an additional borrowing capacity of $596.9 million, and unused lines of credit totaling $30.0 million - The Company maintains sufficient liquidity to satisfy depositors' requirements and meet customer credit needs, relying on liquid assets, market share of deposits, and potential new funds[219] - Additional liquidity sources include access to wholesale funds, ability to obtain deposits through interest rate adjustments, and approved lines of credit at major domestic banks[220] - As of June 30, 2025, the Bank had $203.0 million in outstanding FHLB advances with an additional borrowing capacity of approximately $596.9 million, and unused lines of credit totaling $30.0 million ($25.0 million Bank, $5.0 million Company)[220] Off-Balance Sheet Arrangements The Company engages in off-balance sheet arrangements, primarily commitments to originate loans and financial standby letters of credit, which involve credit and interest rate risk. Total unused commitments were $736.6 million at June 30, 2025, and the Company also has $20.2 million in subscriptions to SBIC investment funds, with $15.2 million invested - The Company is a party to financial instruments with off-balance sheet risk, including commitments to originate mortgage, commercial, and consumer loans, and financial standby letters of credit[221] Total Unused Commitments (in Millions of Dollars): | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $736.6 | | December 31, 2024 | $692.4 | - The Company has committed up to $20.2 million in subscriptions in SBIC investment funds, with $15.2 million invested at June 30, 2025[222] Item 3 Quantitative and Qualitative Disclosures About Market Risk The Company's primary market exposure is interest rate risk, monitored through simulation analysis. While net interest income changes generally fall within internal limits, the net present value of equity in up-rate scenarios exceeds policy limits due to historical market conditions. Strategies are being implemented to mitigate this by shortening the duration of the investment portfolio and pursuing measured loan growth - The Company's primary market exposure is interest rate risk, monitored using simulation analysis to determine the effect of changes on net interest income and net present value of equity[225][226] Impact of Interest Rate Changes on Net Interest Income and Net Present Value of Equity (June 30, 2025): | Changes In Interest Rate (basis points) | Net Interest Income Change | Net Present Value Of Equity Change | | :------------------------------------ | :------------------------- | :--------------------------------- | | +400 | -7.4% | -31.0% | | +300 | -5.8% | -23.2% | | +200 | -3.9% | -14.8% | | +100 | -2.1% | -7.4% | | -100 | 1.6% | 4.1% | | -200 | 2.9% | 4.6% | | -300 | 4.0% | 1.0% | | -400 | 4.3% | -3.9% | - The results for the Net Present Value of Equity in up-rate scenarios exceed internal policy limits, an outcome attributed to the massive influx of low-rate deposits in 2020-2021 and subsequent market rate increases[228] - To mitigate these results, the Company is prioritizing strategies to shrink the longer-duration investment portfolio, replace balances with shorter-duration assets (including loans), and pursue measured loan growth[229] Item 4 Controls and Procedures The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025. No material changes to internal controls over financial reporting occurred during the quarter - The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[233] - There were no changes in the Company's internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended June 30, 2025[233] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other relevant disclosures Item 1 Legal Proceedings The Company is involved in various lawsuits and adversary proceedings in the ordinary course of business. While legal costs are generally expensed, accruals are made for probable and estimable losses. The ultimate resolution of these matters, if unfavorable, could be material to future operating results - The Company is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business[234] - Legal costs are generally expensed as incurred, but accruals are established where losses are deemed probable and reasonably estimable[234] - The ultimate resolution of matters, if unfavorable, may be material to the results of operations in a particular future period[234] Item 1A Risk Factors No material changes to risk factors from the 2024 Form 10-K, except for new discussions on significant changes in federal government size, structure, powers, and U.S. economic policies. These changes, including shifts in macroeconomic policies and regulatory priorities, could cause economic disruptions, adversely impacting the Company's business, results, and financial condition - There are no material changes from the risk factors set forth in the Company's 2024 Annual Report on Form 10-K, except for new discussions on significant changes to the size, structure, powers, and operations of the federal government and U.S. economic policies[235] - Changes in federal priorities, regulatory policies, and macroeconomic policies (e.g., trade restrictions, tariffs) could cause economic disruptions, increasing operating costs, reducing demand, and impacting business goals[236][237] - Difficult regional business and economic conditions, including those caused by U.S. policymaking instability, may materially adversely affect operating expenses, asset quality, credit losses, and demand for products and services[240] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The Company's 2023 Repurchase Program authorizes the purchase of up to 1,000,000 shares. During the three months ended June 30, 2025, the Company purchased 9,988 shares at an average price of $12.85 per share, leaving 497,047 shares yet to be purchased under the program - The 2023 Repurchase Program authorizes the purchase of up to 1,000,000 shares of common stock[244] Share Repurchase Activity (Three Months Ended June 30, 2025): | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------- | :----------------------------- | :--------------------------- | | April 1 - 30 | 7,895 | $12.72 | | May 1 - 31 | 2,093 | $13.36 | | June 1 - 30 | 0 | $0.00 | | Total | 9,988 | $12.85 | Note: Average price calculated from provided data. - As of June 30, 2025, 497,047 shares may yet be purchased under the 2023 Repurchase Program[245] Item 3 Defaults Upon Senior Securities Not applicable - Not applicable[246] Item 4 Mine Safety Disclosures Not applicable - Not applicable[247] Item 5 Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - During the three months ended June 30, 2025, none of the Company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or "non-Rule 10b5-1 trading arrangement"[248] Item 6 Exhibits This section lists all exhibits filed or incorporated by reference as part of the report, including Articles of Incorporation, Executive Officer Change in Control Agreements, and various certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350). It also specifies the filing of iXBRL formatted financial statements - The section lists exhibits filed or incorporated by reference, including Articles of Incorporation, Executive Officer Change in Control Agreements, and various certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350)[249] - The Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Unaudited Consolidated Financial Statements are filed in iXBRL format[249] SIGNATURES Confirms the official signing and dating of the report by authorized executives Signatures The report is duly signed on behalf of Farmers National Banc Corp. by Kevin J. Helmick, President and Chief Executive Officer, and A. Troy Adair, Senior Executive Vice President, Chief Financial Officer and Secretary, on August 7, 2025 - The report is signed by Kevin J. Helmick, President and Chief Executive Officer, and A. Troy Adair, Senior Executive Vice President, Chief Financial Officer and Secretary[253] - The report is dated August 7, 2025[253]