FARMERS NATIONAL BANC CORP OH
For the period ended Dec 31, 2024. Filed Mar 6, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 6, 2025
FMNB$15.42-0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-07.
0000950170-24-027780
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-06.
0000950170-25-034480
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 174 previous paragraphs and 173 current paragraphs.
112 unchanged; 39 reworded; 20 added; 18 removed; 5 previous and 2 current paragraphs rearranged.
Tables are not compared: 13 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (20)
Current report
Interest income on loans increased to $185.7 million for the year ended December 31, 2024, compared to $171.8 million for the year ended December 31, 2023. This increase was due to better yields on loans which increased from 5.46% in 2023 to 5.76% in 2024.
Current report
The income on federal funds sold and other interest income increased by $1.3 million in 2024 to $3.7 million compared to $2.5 million in 2023 primarily due to a volume increase of $21.3 million in 2024 and an increase of 57 basis points in the yield on the portfolio.
Current report
Interest expense increased $23.8 million in 2024 to $99.4 million from $75.5 million in 2023. The increase was primarily due to a 59 basis point increase in the yield on interest-bearing deposits and an increase in the volume of average borrowed funds which increased from $249.4 million in 2023 to $381.2 million in 2024. The increase in deposit costs was driven by the movement of lower cost checking and savings deposits into certificates of deposit while the increase in borrowed funds was due a lower level of brokered CDs utilized in 2024.
Current report
Service charges on deposit accounts increased to $7.3 million for 2024 compared to $6.3 million in 2023. The increase was primarily due to the Company undertaking a review of all service charges in late 2023 and early 2024 and implementing fee increases across deposit product lines in the second quarter of 2024.
Current report
Insurance agency commissions were $5.5 million in 2024 compared to $5.4 million in 2023. The increase was driven by better income from fixed annuity sales offset by declines in property and casualty commissions.
Current report
Retirement plan consulting fees increased to $2.6 million for 2024 compared to $2.5 million for 2023. The Company picked up additional business in 2024 and with the acquisition of Crest in December of 2024, revenue from this business should continue to increase in 2025.
Current report
Security losses increased to $2.6 million during the year ended December 31, 2024, from $471,000 for the year ended December 31, 2023. The losses increased in 2024 due to the Company restructuring more securities in order to reinvest the proceeds into securities with a higher yield than those sold.
Current report
Other mortgage banking income declined by $276,000 in 2024 compared to 2023. The decrease was driven by lower servicing income and faster amortization of the mortgage servicing rights.
Current report
Other operating income increased to $4.7 million for the twelve months ended December 31, 2024, from $4.5 million for the twelve months ended December 31, 2023. This increase was primarily due to decreased losses on the sale of assets offset by higher Small Business Investment Company (“SBIC”) income in 2024 compared to 2023.
Current report
Noninterest expense totaled $106.7 million for the year ended December 31, 2024 compared to $111.8 million for the year ended December 31, 2023. The decline was primarily driven by merger related costs which fell from $5.5 million in 2023 to $92 thousand in 2024.
Current report
Salaries and employee benefits increased by $1.6 million to $58.9 million for the year ended December 31, 2024 from $57.4 million for the year ended December 31, 2023. This increase was primarily due to salary increases and greater incentive compensation.
Current report
FDIC insurance and state and local taxes decreased to $5.0 million in 2024 from $5.8 million in 2023. The decline was due to lower FDIC expense as the Company had higher capital levels in 2024 resulting in lower expense.
Current report
Advertising costs declined to $1.5 million in 2024 from $1.8 million in 2023. This decrease was due to a few marketing campaigns being reduced in 2024.
Current report
Intangible amortization expense decreased by $573,000 to $2.9 million for the year ended December 31, 2024 compared to $3.4 million for the year ended December 31, 2023. The decline was primarily driven by the runoff of intangibles from older acquisitions.
Current report
Other operating expenses increased by $306,000 to $13.8 million in 2024 compared to $13.5 million in 2023. The increase was spread across several categories of expense.
Current report
Total loans were $3.27 billion at December 31, 2024, compared to $3.20 billion at December 31, 2023, an increase of $70.2 million. Loans comprised 66.5% of the Bank’s average earning assets in 2024, compared to 65.3% in 2023.
Current report
The following tables present the amortized cost basis of the Company's commercial real estate portfolio segment by industry, inclusive of farmland, as of December 31, 2024 and 2023:
Current report
The allowance for credit losses to total loans increased to 1.10% at December 31, 2024, compared to 1.08% at December 31, 2023. Nonperforming loans to total loans increased from 0.47% at December 31, 2023 to 0.70% at December 31, 2024. Nonperforming loans to total loans increased in 2024 primarily due to a single commercial real estate credit totaling $8.8 million moving into nonaccrual status.
Current report
Premises and equipment increased $7.9 million from $44.4 million at December 31, 2023, to $52.3 million at December 31, 2024. This increase was primarily due to the construction of additional office space at the Company's headquarters in Canfield, OH, partially offset by depreciation.
Current report
Total deposits increased to $4.3 billion at December 31, 2024, from $4.2 billion at December 31, 2023, an increase of $89.4 million. Noninterest bearing deposits declined $61.1 million during 2024 to $965.5 million from $1.03 billion. This decline was primarily due to the migration of noninterest bearing deposits into interest bearing deposits as customers looked to take advantage of the increase in interest rates. Interest-bearing deposits increased $75.5 million to $3.2 billion at December 31, 2024, compared to $3.15 billion at December 31, 2023. The increase was primarily due to the migration of noninterest bearing deposits discussed above. Brokered time deposits increased $75.0 million for the year ended December 31, 2024, due to the Company using brokered time deposits to pay off short-term borrowings.
Removed paragraphs (18)
Previous report
The Company’s net interest income represents the difference between the interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. The Company recognized net interest income of $124.2 million for the year ended December 31, 2022, compared to $108.0 million for the year ended December 31, 2021. The tax-equivalent net interest margin declined to 3.18% for 2022 compared to 3.45% for the year ended December 31, 2021. The margin declined due to a lower level of PPP interest income and fees in 2022 compared to 2021 and increased funding costs associated with the Federal Reserve's aggressive rate increases in 2022. In addition, the balance of securities available for sale as a percentage of interest earning assets is higher in 2022 than in 2021. These balances generally have a lower yield than loans, which, in turn, negatively impacts the net interest margin.
Previous report
Interest income on loans increased to $107.8 million for the year ended December 31, 2022 compared to $94.8 million for the year ended December 31, 2021. This increase was due to the average loan balances increasing $317.4 million from the year ended December 31, 2021 to December 31, 2022. The increase was mainly a result of twelve months of acquired Cortland loans in 2022, compared to two months in 2021. The yield on loans declined to 4.58% in 2022 from 4.66% in 2021.
Previous report
Income on taxable securities increased by $9.4 million in 2022 due to greater average balances of $464.5 million in 2022 and higher yields on the securities. The increased balance was due to the Cortland acquisition and purchases of securities. Income on tax exempt securities increased $2.4 million in 2022. The increase in income on tax-exempt securities was due to an increase in the average balance of $117.2 million offset by a decline in the yield on these securities of 24 basis points ("bp").
Previous report
Interest expense increased $9.4 million to $17.9 million in 2022 from $8.5 million in 2021. The increase was due to a larger volume of interest-bearing liabilities and higher rates on deposits and borrowings. The average balance of interest-bearing deposits increased $442.2 million to $2.7 billion at December 31, 2022 primarily due to the Cortland acquisition while the cost of interest-bearing deposits increased by 19 bp year over year. Interest expense related to interest-bearing deposits was $13.1 million in 2022 compared to $6.8 million in 2021.
Previous report
Service charges on deposit accounts increased to $4.7 million in 2022 from $3.7 million for the year ended December 31, 2021. The increase was due to acquisition of Cortland and an increased level of overdraft fee income.
Previous report
Insurance agency commissions increased from $3.5 million in 2021 to $4.4 million in 2022, an increase of 27.4%. This growth was driven by increased business volume along with the acquisition of Champion Insurance.
Previous report
Security gains, including fair value changes on equity securities, decreased by $1.5 million in 2022. The Company recorded a loss on the sale of securities of $454,000 in 2022 compared to a gain of $1.0 million in 2021. The Company elected to restructure a portion of its investment portfolio in 2022 that resulted in the loss.
Previous report
The net gains on the sale of loans declined by $6.2 million in 2022 to $2.1 million from $8.3 million in 2021. The decline was due to a decline in margins as well as the volume of loans sold. In addition, the Company recognized a gain of $239 thousand in 2021 for the sale of the Company’s credit card portfolio.
Previous report
Other operating income increased to $4.0 million for the year ended December 31, 2022 from $2.3 million for the year ended December 31, 2021. This increase was due to the addition of Cortland and higher SBIC/SBA fund income in 2022 compared to 2021.
Previous report
Noninterest expense was $94.4 million for the year ended December 31, 2022, compared to $79.2 million in 2021, which was an increase of $15.2 million, or 19.2%. The increase is primarily due to the merger with Cortland with the added employees and operating costs associated with a larger bank.
Previous report
Occupancy and equipment expense increased $2.9 million to $11.4 million in 2022 from $8.5 million in 2021. The increase was due to the higher level of facilities maintenance associated with the additional Cortland properties.
Previous report
Professional fees increased to $6.1 million in 2022 from $4.2 million in 2021. The increase was due to Cortland and a higher level of consulting expense in 2022.
Previous report
Merger related costs decreased to $4.1 million in 2022 compared to $7.1 million in 2021. This increase was due to the acquisition of Cortland in 2021, while 2022 costs were from the Emclaire acquisition that was completed on January 1, 2023.
Previous report
Total loans were $3.20 billion at year-end 2023, compared to $2.40 billion at year-end 2022, an increase of $793.4 million. The acquisition of Emclaire accounted for $740.7 million of the increase with organic growth representing the remainder. Loans comprised 65.3% of the Bank’s average earning assets in 2023, compared to 58.7% in 2022. The product mix in the loan portfolio includes commercial real estate loans 41.6%, commercial loans comprising 10.9%, residential real estate loans 30.8%, consumer loans 8.4% and agricultural loans 8.2% at December 31, 2023, compared with 42.6%, 12.2%, 25.3%, 9.5% and 10.3%, respectively, at December 31, 2022.
Previous report
Net charge-offs for the year ended December 31, 2023, were $2.3 million, compared to $2.7 million for the year ended December 31, 2022. The allowance for credit losses to total loans decreased to 1.08% at December 31, 2023, compared to 1.12% at December 31, 2022. Nonperforming loans to total loans decreased from 0.62% at December 31, 2022 to 0.47% at December 31, 2023.
Previous report
In accordance with the accounting relief provisions of CARES and subsequent provisions of the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Acts, the Bank postponed the adoption of the current expected credit losses (“CECL”) accounting standard, in 2020, primarily due to the impact that the COVID-19 pandemic was having on the economy and the lack of reasonable and supportable economic forecasts. The Company adopted ASU 2016-13 on January 1, 2021. The Company recorded the one-time adjustment to equity, to comply with the ASU adoption, which increased the allowance for credit losses by $1.9 million, net of tax.
Previous report
Premises and equipment increased $13.6 million to $44.4 million at December 31, 2023, compared to $30.8 million at December 31, 2022. This increase was primarily due to acquisition of Emclaire which added $14.8 million. Additions to furniture and fixtures offset by depreciation throughout the year accounted for the remainder of the difference.
Previous report
Total deposits increased to $4.2 billion at December 31, 2023, compared to $3.6 billion at December 31, 2022, an increase of $615.6 million. Noninterest bearing deposits increased $129.7 million during 2023 to $1.0 billion due to the acquisition of Emclaire which added $219.9 million in balances. This was offset by runoff of $90.2 million due to balances migrating to interest-bearing deposits and some balances leaving the Company. Interest-bearing deposits increased $624.0 million to $3.2 billion at December 31, 2023, compared to December 31, 2022. The increase was due to $655.9 million in growth from the acquisition of Emclaire and migration of balances from noninterest bearing deposits offset by balances leaving the Company. Brokered time deposits declined $138.1 million to zero at December 31, 2023, due to the Company using short-term borrowings to pay them off.
Reworded paragraphs (39)
Previous wording
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of historical fact, but rather statements based on Farmers’ current expectations, beliefs and assumptions regarding the future of Farmers’ business, future plans and strategies, projections, anticipated events and trends, its intended results and future performance, the economy and other future conditions. Forward-looking statements are preceded by terms such as “will,” “would,” “should,” “could,” “may,” “expect,” “estimate,” “believe,” “anticipate,” “intend,” “plan” “project,” or variations of these words, or similar expressions. Forward-looking statements are not a guarantee of future performance, and actual future results could differ materially from those contained in forward-looking information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Numerous uncertainties, risks, and changes could cause or contribute to Farmers’ actual results, performance, and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in Farmers’ filings with the Securities and Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Current wording
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of historical fact, but rather statements based on Farmers’ current expectations, beliefs and assumptions regarding the future of Farmers’ business, future plans and strategies, projections, anticipated events and trends, its intended results and future performance, the economy and other future conditions. Forward-looking statements are preceded by terms such as “will,” “would,” “should,” “could,” “may,” “expect,” “estimate,” “believe,” “anticipate,” “intend,” “plan” “project,” or variations of these words, or similar expressions. Forward-looking statements are not a guarantee of future performance, and actual future results could differ materially from those contained in forward-looking information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Numerous uncertainties, risks, and changes could cause or contribute to Farmers’ actual results, performance, and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in Farmers’ filings with the Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Previous wording
The Company reported net income of $60.6 million for the year ended December 31, 2022, compared to $51.8 million for the year ended December 31, 2021. The Company reported $1.79 per diluted common share in 2022 compared $1.77 per diluted common share in 2021. The results for 2022 include a full year of income and expense from Cortland compared to two months in 2021.
Current wording
The Company recorded net income of $45.9 million for the year ended December 31, 2024, compared to $49.9 million for the year ended December 31, 2023. The Company reported $1.22 per diluted common share in 2024 compared to $1.33 per diluted common share in 2023.
Previous wording
Total interest income increased from $116.5 million in 2021 to $142.1 million for the year ended December 31, 2022. The increase was primarily due to an increase in the average balance of loans and securities offset by a decline in the yields received on loans and tax exempt securities.
Current wording
Total interest income increased from $213.3 million in 2023 to $227.7 million for 2024. The increase was primarily due to an increase in the yield on loans and securities associated with the higher interest rate environment.
Previous wording
The Company's total noninterest income increased to $44.2 million for the year ended December 31, 2022 compared to $38.2 million for the year ended December 31, 2021. Major categories of noninterest income are discussed below.
Current wording
Noninterest income declined slightly to $41.7 million for the year ended December 31, 2024 compared to $41.9 million for the year ended December 31, 2023. The major categories of noninterest income are discussed below.
Previous wording
Bank owned life insurance income increased to $1.8 million for the year ended December 31, 2022 from $1.3 million for the year ended December 31, 2021. This increase was due to the addition of Cortland as well as proceeds from death benefits of $184,000 received from the policies.
Current wording
Bank owned life insurance income increased by $217,000 in 2024 to $2.7 million, compared to $2.4 million for the twelve months ended December 31, 2023. The increase was due to an increase of $241,000 from earnings on the policies offset by a decline in death benefits received from the policies.
Previous wording
Trust fees increased to $9.6 million in 2022 from $9.4 million in 2021 while investment commissions decreased from $2.3 million in 2021 to $2.2 million in 2022. The trust business continued to grow in 2022 even with the uncertain economic environment and volatile markets. The investment commissions declined primarily due to volatile equity markets.
Current wording
Trust fees increased to $10.1 million for the twelve months ended December 31, 2024, compared to $9.0 million for the twelve months ended December 31, 2023. The trust business continued to grow in 2024 as the value of assets under management increased.
Previous wording
Debit card fees increased to $5.8 million in 2022 compared to $5.1 million in 2021. The increase was primarily due to the addition of Cortland.
Current wording
Debit card fees increased to $7.5 million in 2024 compared to $7.1 million in 2023. The increase was primarily due to higher volumes.
Previous wording
Income tax expense increased from $10.3 million for the year ended December 31, 2021 to $12.2 million for the year ended December 31, 2022. The increase was due to a $10.7 million increase in income before income taxes. Income taxes are computed using the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective income tax rate was 16.8% for 2022 and 16.5% in 2021. Refer to Note 18 to the consolidated financial statements for additional information regarding the effective tax rate.
Current wording
Income tax expense increased from $8.8 million for the year ended December 31, 2023, to $9.5 million for the year ended December 31, 2024. The increase was primarily due to a higher effective tax rate and less benefit from low income housing tax credits. Income taxes are computed using the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective income tax rate was 17.1% in 2024 and 14.9% for 2023. Refer to Note 18 to the consolidated financial statements for additional information regarding the effective tax rate.
Previous wording
Interest income on loans increased to $171.8 million for the year ended December 31, 2023, compared to $107.8 million for the year ended December 31, 2022. This increase was due to the average loan balances increasing $797.1 in 2023 primarily due to the acquisition of Emclaire. The yield on loans increased to 5.46% in 2023 from 4.58% in 2022.
Current wording
Interest income on loans increased to $171.8 million for the year ended December 31, 2023, compared to $107.8 million for the year ended December 31, 2022. This increase was due to the average loan balances increasing $797.1 million in 2023 primarily due to the acquisition of Emclaire. The yield on loans increased to 5.46% in 2023 from 4.58% in 2022.
Previous wording
Trust fees increased to $10.1 million in 2023 from $9.6 million in 2022. The trust business continued to expand in 2023 as the Company added revenue producers in the new Pennsylvania markets.
Current wording
Trust fees increased to $9.0 million in 2023 from $8.5 million in 2022. The trust business continued to expand in 2023 as the Company added revenue producers in the new Pennsylvania markets.
Previous wording
Commercial real estate loans increased to $1.33 billion at December 31, 2023 from $1.03 billion at December 31, 2022. The acquisition of Emclaire was responsible for approximately $262.2 million of this increase. The Company’s commercial real estate loan portfolio includes loans for owner occupied and non-owner occupied real estate. These loans are made to finance properties such as office and industrial buildings, hotels and retail shopping centers.
Current wording
Commercial real estate loans increased to $1.38 billion at December 31, 2024 from $1.33 billion at December 31, 2023. The Company’s commercial real estate loan portfolio includes loans for owner occupied and non-owner occupied real estate. These loans are made to finance properties such as office and industrial buildings, hotels and retail shopping centers.
Previous wording
Residential real estate mortgage loans increased from $607.6 million at December 31, 2022, to $986.0 million at December 31, 2023. The majority of this increase was due to the acquisition of Emclaire. Farmers originated both fixed rate and adjustable rate mortgages during 2023. Fixed rate terms are offered with terms between fifteen and thirty years while adjustable rate products are offered with maturities up to thirty years. The Company sells all fixed rate loans that are secondary market eligible.
Current wording
Residential real estate mortgage loans increased to $1.00 billion at December 31, 2024, from $986.0 million at December 31, 2023. Farmers originated both fixed rate and adjustable rate mortgages during 2024. Fixed rate terms are offered with terms between fifteen and thirty years while adjustable rate products are offered with maturities up to thirty years. The Company sells all fixed rate loans that are secondary market eligible.
Previous wording
Commercial loans at December 31, 2022, were $294.4 million compared to $347.8 million at December 31, 2023 with the increase due to the Emclaire acquisition. The Bank’s commercial loans are granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local municipalities. The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit.
Current wording
Commercial loans at December 31, 2024, totaled $351.5 million compared to $347.8 million at December 31, 2023. The Bank’s commercial loans are granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local municipalities. The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit.
Previous wording
Agricultural loans increased from $247.2 million in 2022 to $261.8 million in 2023, an increase of $14.6 million. The Company’s agricultural loan portfolio contains a diverse mix of dairy, crops, land, poultry and cattle loans.
Current wording
Agricultural loans increased from $261.8 million in 2023 to $263.0 million in 2024. The Company’s agricultural loan portfolio contains a diverse mix of dairy, crops, land, poultry and cattle loans.
Previous wording
Consumer loans increased from $228.8 million at December 31, 2022, to $267.9 million at December 31, 2023. The consumer loan portfolio includes indirect auto loans, 1-4 family home equity lines of credit and other consumer loan products.
Current wording
Consumer loans increased to $268.5 million at December 31, 2024, from $267.9 million at December 31, 2023. The consumer loan portfolio includes indirect auto loans and other consumer loan products.
Previous wording
The following is an analysis of the allowance for credit losses for 2023. During 2023, 2022 and 2021 the Company used the CECL methodology while the incurred loss methodology was used in prior years:
Current wording
The following is an analysis of the allowance for credit losses for the years 2020 through 2024. During the years 2021-2024, the Company used the CECL methodology while the incurred loss methodology was used in 2020:
Previous wording
The provision for credit losses, which includes the provision for unfunded commitments, and the day one purchase entry for the Emclaire loans amounted to $9.2 million in 2023, compared to $1.1 million in 2022. The increased figure for the current year was mainly a result of the day one purchase entry associated with the acquisition of Emclaire.
Current wording
The provision for credit losses, which includes the provision for unfunded commitments, declined to $8.0 million in 2024 compared to $9.2 million in 2023. In 2023, the Company recognized a day one purchase entry for the Emclaire loans of $7.7 million while there was no day one purchase entry recognized in 2024. Offsetting this was an increase in net charge-offs in 2024 of $4.6 million to $6.8 million compared to net charge-offs of $2.3 million in 2023. The increased net charge-off figure in 2024 was driven by a charge-off of $4.4 million for a single commercial credit backed by office space.
Previous wording
The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the probability of default/loss given default (“PD/LGD”). Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
Current wording
The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the probability of default/loss given default method (“PD/LGD”). Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
Previous wording
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly, charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Current wording
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly, charged-off. Typically, a one-year time period is used to assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Previous wording
The allowance for credit losses increased to $34.4 million at December 31, 2023, compared to $27.0 million at December 31, 2022. The increase was primarily due to the day one purchase entry for the acquisition of Emclaire's loans.
Current wording
The allowance for credit losses increased to $35.9 million at December 31, 2024, compared to $34.4 million at December 31, 2023. The increase was primarily driven by growth in the loan portfolio.
Previous wording
The following table summarizes the Company’s allocation of the allowance for credit losses for under CECL for 2023, 2022 and 2021 and the allowance for loan losses for prior years:
Current wording
The following table summarizes the Company’s allocation of the allowance for credit losses under CECL for the years 2021 through 2024 and the allowance for loan losses in 2020:
Previous wording
The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2023 occurred in the same proportions or that the allocation indicates future charge-off trends. The allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those portfolios. For the commercial loan category, which represents 12.6% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The gross charge-offs in the commercial loan portfolio, were $1.3 million for 2023, which represented approximately 43.3% of the losses for the entire loan portfolio. For the consumer loan category, which represents approximately 8.5% of total loans and in 2023, the gross charge-offs accounted for 31.7% of the losses of the entire loan portfolio.
Current wording
The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2024 occurred in the same proportions or that the allocation indicates future charge-off trends. The allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those portfolios. For the commercial real estate and commercial categories, which represent 42.2% and 10.8% of the total loan portfolio in 2024, respectively, management relies on the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The gross charge-offs in the commercial real estate portfolio, were $4.6 million for 2024, which represented approximately 57.8% of the gross losses for the entire loan portfolio.
Previous wording
The debt securities available for sale increased $31.7 million in 2023 to $1.30 billion at December 31, 2023, from $1.27 billion at December 31, 2022. For additional information regarding Farmers’ investment securities see Note 3 to the Consolidated Financial Statements.
Current wording
The debt securities available for sale decreased $33.1 million in 2024 to $1.27 billion at December 31, 2024, from $1.30 billion at December 31, 2023. For additional information regarding Farmers’ investment securities see Note 3 to the Consolidated Financial Statements.
Previous wording
The Company owns bank owned life insurance policies on the lives of certain members of management. The purpose of this investment is to help offset the costs of employee benefit plans. The cash surrender value of these policies increased to $99.5 million at December 31, 2023, compared to $75.0 million at December 31, 2022. The increase was primarily due to the acquisition of Emclaire which added $22.5 million to the balance. The Company also had earnings of $2.4 million on the policies in 2023 offset slightly by proceeds from a death benefit.
Current wording
The Company owns bank owned life insurance policies on the lives of certain members of management. The purpose of this investment is to help offset the costs of employee benefit plans. The cash surrender value of these policies increased to $101.4 million at December 31, 2024, compared to $99.5 million at December 31, 2023. The increase was due to earnings on the policies in 2024 offset slightly by proceeds from a death benefit.
Previous wording
The following table sets forth the maturities of retail certificates of deposit having principal amounts $250 thousand or greater at December 31, 2023 (in thousands):
Current wording
The following table sets forth the maturities of retail certificates of deposit having principal amounts $250,000 or greater at December 31, 2024 (in thousands):
Previous wording
Uninsured deposits for bank and savings and loan registrants are U.S. federally insured depository institutions as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit account that are classified as deposits and not subject to any federal or state deposit insurance regimes. Deposits in amounts in excess of the FDIC insurance limit were $1.37 billion at December 31, 2023.
Current wording
Uninsured deposits for bank and savings and loan registrants are U.S. federally insured depository institutions as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit account that are classified as deposits and not subject to any federal or state deposit insurance regimes. Deposits in amounts in excess of the FDIC insurance limit were $1.42 billion at December 31, 2024.
Previous wording
The Company's short-term borrowings increased from $95.0 million at December 31, 2022, to $355.0 million at December 31, 2023. This increase was due to $75.0 million of short-term borrowings acquired in the Emclaire merger and short-term borrowings being used to offset the decline in brokered time deposits and declines in other deposit sources. The Company uses short term borrowings to manage the ongoing fluctuations with loans and deposits, when necessary.
Current wording
The Company's short-term borrowings decreased by $50.0 million from $355.0 million at December 31, 2023, to $305.0 million at December 31, 2024. This decrease was due to proceeds from the issuance of brokered time deposits being used to pay down short term borrowings. The Company uses short term borrowings to manage the ongoing fluctuations with loans and deposits, when necessary.
Previous wording
Total long-term borrowings increased $452 thousand from $88.2 million at December 31. 2022, to $88.7 million at December 31, 2023. See Note 13 within Item 8 of this Annual report on Form 10-K for additional detail.
Current wording
Total long-term borrowings decreased $2.5 million to $86.2 million at December 31. 2024, from $88.7 million at December 31, 2023. The decline was primarily due to the Company purchasing $3.0 million of its subordinated debt during 2024 and recording a gain of $444 thousand. See Note 13 within Item 8 of this Annual report on Form 10-K for additional detail.
Previous wording
Total stockholders’ equity increased from $292.3 million at December 31, 2022, to $404.4 million at December 31, 2023. The increase is due to the merger with Emclaire which added $59.2 million to stockholders' equity along with net income of $49.9 million and a decline in the accumulated other comprehensive loss of $37.9 million. This was partially offset by dividends paid on common stock of $25.6 million and changes in treasury stock balances of $11.7 million.
Current wording
Total stockholders’ equity increased $1.6 million from $404.4 million at December 31, 2023, to $406.0 million at December 31, 2024. The increase was primarily due to net income of $45.9 million offset by an increase in accumulated other comprehensive loss of $20.7 million and dividends paid on common stock of $25.5 million.
Previous wording
There are also $13.1 million of commitments to various partnership investment funds. The Company invests in these funds, consisting of affordable housing tax credit investments and SBIC funds, in efforts to comply with Community Reinvestment Act regulations. The commitments have no predetermined due dates but are expected to be funded sporadically over the next ten years. Note 14 to the consolidated financial statements discusses in greater detail other commitments and contingencies and the various obligations that exist under those agreements. Examples of these commitments and contingencies include commitments to extend credit and standby letters of credit.
Current wording
There are also $17.1 million of commitments to various partnership investment funds. The Company invests in these funds, consisting of affordable housing tax credit investments and SBIC funds, in efforts to comply with CRA regulations. The commitments have no predetermined due dates but are expected to be funded sporadically over the next ten years. Note 14 to the consolidated financial statements discusses in greater detail other commitments and contingencies and the various obligations that exist under those agreements. Examples of these commitments and contingencies include commitments to extend credit and standby letters of credit.
Previous wording
The Bank, as a national chartered bank, is subject to the dividend restrictions set forth by the OCC. The OCC must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). Farmers and Farmers Bank are required to maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators. At December 31, 2023, under the minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III), Farmers Bank and Farmers are required to have actual and minimum capital ratios, which are detailed in Note 16 of the Consolidated Financial Statements. Farmers Bank and Farmers had capital ratios above the minimum levels at December 31, 2023 and 2022. At year-end 2023 and 2022, the most recent regulatory notifications categorized Farmers Bank as well capitalized under the regulatory framework for prompt corrective action.
Current wording
The Bank, as a national chartered bank, is subject to the dividend restrictions set forth by the OCC. The OCC must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). Farmers and Farmers Bank are required to maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators. At December 31, 2024, under the minimum capital requirements associated with the Basel III, Farmers Bank and Farmers are required to have actual and minimum capital ratios, which are detailed in Note 16 of the Consolidated Financial Statements. Farmers Bank and Farmers had capital ratios above the minimum levels at December 31, 2024 and 2023. At year-end 2024 and 2023, the most recent regulatory notifications categorized Farmers Bank as well capitalized under the regulatory framework for prompt corrective action.
Previous wording
Farmers maintains an allowance for credit losses. The allowance for credit losses is presented as a reserve against loans on the balance sheets. Credit losses are charged off against the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses. A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance.
Current wording
Farmers maintains an allowance for credit losses. The allowance for credit losses is presented as a reserve against loans on the balance sheet. Credit losses are charged off against the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses. A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance.
Previous wording
For example, compared to the Company’s central scenario that is based on a four-quarter forecasted change in U.S. real GDP of 1.40% from 4Q2023 to 4Q2024, U.S. PCE inflation of 2.40%, and U.S. unemployment of 4.10%, the Company’s relative adverse scenario assumes a four-quarter forecast with a contraction of U.S. real GDP, a PCE inflation between 5.00% and 7.00% and an elevated U.S. unemployment rate between 6.00% and 7.00%. This analysis is not intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including:
Current wording
For example, compared to the Company’s central scenario that is based on a four-quarter forecasted change in U.S. real GDP of 2.10% from 4Q2024 to 4Q2025, U.S. PCE inflation of 2.50%, and U.S. unemployment of 4.30%, the Company’s relative adverse scenario assumes a four-quarter forecast with a contraction of U.S. real GDP, a PCE inflation between 5.00% and 7.00% and an elevated U.S. unemployment rate between 6.00% and 7.00%. This analysis is not intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including:
Previous wording
An increase of approximately $686 thousand for residential real estate loans and lending-related commitments
Current wording
An increase of approximately $650 thousand for residential real estate loans and lending-related commitments
Previous wording
An increase of approximately $1.12 million for commercial real non-owner occupied loans and lending-related commitments
Current wording
An increase of approximately $1.16 million for commercial real non-owner occupied loans and lending-related commitments
Previous wording
The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD. Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
Current wording
The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD method. Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
Previous wording
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Current wording
The PD portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly charged-off. Typically, a one-year time period is used to assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. LGD is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Previous wording
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Company’s subsidiaries to provide quality, cost-effective services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The fair value of the goodwill is estimated by reviewing the past and projected operating results for the subsidiaries and comparable industry information. At December 31, 2023, on a consolidated basis, Farmers had intangibles of $22.8 million subject to amortization and $167.4 million in goodwill, which was not subject to periodic amortization.
Current wording
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Company’s subsidiaries to provide quality, cost-effective services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The fair value of the goodwill is estimated by reviewing the past and projected operating results for the subsidiaries and comparable industry information. At December 31, 2024, on a consolidated basis, Farmers had intangibles of $20.8 million subject to amortization and $167.5 million in goodwill, which was not subject to periodic amortization.
Previous wording
The Company accounts for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at the estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities, where it was not possible to estimate the acquisition date fair value upon consummation. Management finalized the fair values of acquired assets and assumed liabilities within this 12-month period and management currently considers such values to be the Day 1 Fair Values for the acquisition transactions. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment based on information available as of the acquisition date. Loans acquired in a business combination transaction are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component. A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.
Current wording
The Company accounts for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at the estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment based on information available as of the acquisition date. Loans acquired in a business combination transaction are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component. A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
The Company recognized net interest income of $128.4 million for the year ended December 31, 2024, compared to $137.8 million for the year ended December 31, 2023. The tax-equivalent net interest margin declined from 2.91% for 2023 to 2.69% for 2024. The margin declined due to increased funding costs associated with the Federal Reserve's aggressive rate increases in 2022 and 2023 along with an inverted U.S treasury yield curve which caused deposit funding costs to rise faster than the yields being earned on loans and securities.
Current report — wording carried from elsewhere
The net gains on the sale of loans declined by $889,000 from 2023 at $2.5 million to $1.5 million in 2024. The primary reason for this decrease was the sale of nonaccrual commercial loans in 2023 that generated a gain of $915,000. There was no sale of commercial loans in 2024. Gains on the sale of loans continues to be negatively impacted by a lower level of saleable mortgage volume due to the higher interest rate environment and the lack of supply of homes for sale.
Rearranged previous paragraphs (5)
Previous report — wording carried elsewhere
the length and extent of the continued economic impacts of the COVID-19 pandemic;
Previous report — wording carried elsewhere
Interest expense on short-term borrowings increased from $11 thousand in 2021 to $1.4 million in 2022. This increase was due to the increased usage of short term borrowings and an increase in the cost of those borrowings due to the Federal Reserve increasing the fed funds rate 425 bp in 2022. Interest on long-term borrowings increased to $3.4 million in 2022 from $1.7 million in 2021. This increase was primarily due to the increased cost of some of the long term borrowings that are tied to variable rates and which increased in 2022.
Previous report — wording carried elsewhere
The Company recorded an $8.4 million gain related to a legal settlement in 2022. No gain was recorded in 2021.
Previous report — wording carried elsewhere
Salaries and employee benefits increased by $5.6 million to $45.0 million in 2022 compared to $39.4 million in 2021. This increase was primarily due to the Company having a higher level of employees due to the addition of Cortland.
Previous report — wording carried elsewhere
An additional special charitable donation of $6.0 million was made during 2022 compared to no additional donation in 2021. The donation was made possible by the $8.4 million legal settlement income discussed above.