FARMERS NATIONAL BANC CORP /OH/

Previous wording

**Results of Operations.**The following is a comparison of selected financial ratios and other results at or for the three month periods ended March 31, 2025 and 2024:

Current wording

**Results of Operations.**The following is a comparison of selected financial ratios and other results at or for the three and six month periods ended June 30, 2025 and 2024:

Previous wording

Net Income. The Company reported net income of $13.6 million, or $0.36 per diluted share, for the quarter ended March 31, 2025 compared to $11.2 million, or $0.30 per diluted share, for the quarter ended March 31, 2024. The results for the first quarter of 2025 were impacted by pretax losses on the sale of investment securities and other assets totaling $1.3 million.

Current wording

Net Income. The Company reported net income of $13.9 million, or $0.37 per diluted share, for the quarter ended June 30, 2025 compared to $11.8 million, or $0.31 per diluted share, for the quarter ended June 30, 2024. The results for the second quarter of 2025 were impacted by pretax gains on the sale of investment securities and other assets totaling $173,000.

Previous wording

Net Interest Income. Net interest income for the three months ended March 31, 2025, was $34.2 million compared to $31.7 million for the three months ended March 31, 2024. A 15 basis point increase in the net interest margin was the primary reason for this increase.

Current wording

Net Interest Income. Net interest income for the three months ended June 30, 2025, was $34.9 million compared to $32.1 million for the three months ended June 30, 2024. A 20 basis point increase in the net interest margin along with a higher earning asset base were the primary reasons for this increase.

Previous wording

The net interest margin for the three month period ended March 31, 2025, was 2.85% compared to 2.70% for the same period in 2024. Interest-earning asset yields increased 9 basis points in thefirst quarter of 2025 compared to thefirst quarter of 2024 while the cost of interest-bearing liabilities decreased 9 basis points when comparing these two periods. This decrease in funding costs has been due to the reduction in the Fed Funds rate in the fourth quarter of 2024. Deposit costs have declined as a result of this action.

Current wording

The net interest margin for the three-month period ended June 30, 2025, was 2.91% compared to 2.71% for the same period in 2024. Interest-earning asset yields increased 1 basis point in thesecond quarter of 2025 compared to thesecond quarter of 2024 while the cost of interest-bearing liabilities decreased 24 basis points when comparing these two periods. This decrease in funding costs has been due to the reduction in the Fed Funds rate in the fourth quarter of 2024. Deposit costs have declined as a result of this action.

Previous wording

Provision for Credit Losses and Provision for Unfunded Loans. The provision for credit losses and unfunded commitments was a benefit of $204 thousand for the three months ended March 31, 2025, compared to a benefit of $449 thousand for the three months ended March 31, 2024. The benefit is primarily related to lower loan balances in 2025 and changes in loss factors.

Current wording

Provision for Credit Losses and Provision for Unfunded Loans. The provision for credit losses and unfunded loans was $3.5 million for the three months ended June 30, 2025, compared to $1.1 million for the three months ended June 30, 2024. The provision in the second quarter of 2025 was driven primarily by $2.6 million in specific reserves placed on two nonperforming loans.

Previous wording

Noninterest Income. Noninterest income for thefirst quarter of 2025 was of $10.5 million compared to $8.4 million for thefirst quarter of 2024. This increase 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.

Current wording

Noninterest Income. Noninterest income for thesecond quarter of 2025 was of $12.1 million compared to $9.6 million for thesecond quarter of 2024. This increase 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.

Previous wording

Service charges on deposit accounts increased $175 thousand to $1.8 million for thefirst quarter of 2025 compared to $1.6 million for thefirst quarter in 2024. The Company undertook a review of all service charges in late 2023 and early 2024 and implemented fee increases across deposit product lines in the second quarter of 2024. Bank owned life insurance income increased $103 thousand during the first quarter of 2025 to $810 thousand compared to $707 thousand in the first quarter of 2024. The Company purchased an additional $15.0 million in policies during the first quarter of 2025 and policy crediting rates have increased over the last twelve months. Trust fees increased to $2.6 million at March 31, 2025, from $2.5 million at March 31, 2024. The increase was due to continued growth in the business unit. Insurance agency commissions grew to $1.7 million in thefirst quarter of 2025 from $1.5 million in thefirst quarter of 2024. The increase has been driven by growth in fixed annuity sales. Losses on the sale of securities totaled $1.3 million in thefirst quarter of 2025 compared to losses on the sale of securities of $2.1 million during thefirst quarter of 2024. The bank restructured $23.9 million at the end of the first quarter of 2025 resulting in the loss realized on the sale. Retirement plan consulting fees increased to $798 thousand in the first quarter of 2025 from $617 thousand in the first quarter of 2024 primarily due to the acquisition of Crest Retirement Advisors LLC in late December of 2024. Net gains on the sale of loans increased to $326 thousand in thefirst quarter of 2025 compared to $297 thousand in thefirst quarter of 2024. Greater saleable volume drove this increase. Other mortgage banking fee income was $147 thousand for thefirst quarter of 2025 compared to income of $125 thousand during thefirst quarter of 2024. Debit card income grew to $1.9 million in thefirst quarter of 2025 from $1.6 million in thefirst quarter of 2024 as better volumes were realized in the current period. Other noninterest income increased from $1.1 million in thefirst quarter of 2024 to $1.2 million in thefirst quarter of 2025.

Current wording

Service charges on deposit accounts declined $97,000 to $1.7 million for thesecond quarter of 2025 compared to $1.8 million for thesecond quarter in 2024. Bank owned life insurance income increased $180,000 during the second quarter of 2025 to $832,000 compared to $652,000 in the second quarter of 2024 as policy crediting rates have increased over the last twelve months. Trust fees increased to $2.6 million at June 30, 2025, from $2.3 million at June 30, 2024. The increase was due to continued growth in the business unit. Insurance agency commissions grew to $1.8 million in thesecond quarter of 2025 from $1.3 million in thesecond quarter of 2024. The Company shared in the commission from the purchase of the new BOLI policies which added $329,000 to insurance commissions for the quarter. Annuity sales also continue to drive growth. Gain on the sale of securities totaled $36,000 in thesecond quarter of 2025 compared to losses on the sale of securities of $124,000 during thesecond quarter of 2024. Retirement plan consulting fees increased to $783,000 in the second quarter of 2025 from $330,000 in the second quarter of 2024 primarily due to the acquisition of Crest Retirement Advisors LLC in late December of 2024. Investment commissions grew $243,000 in the second quarter of 2025 compared to the second quarter of 2024. The Company has a strong sales team in this line of business and is looking to grow with deeper penetration into newer markets. Debit card income grew from $1.8 million in the second quarter of 2024 to $2.0 million in the second quarter of 2025 as better volumes were realized in the current period. Other noninterest income was $1.2 million in the second quarter of 2025 compared to $162,000 in the second quarter of 2024. SBIC income was $587,000 in the second quarter of 2025 compared to a loss of $1,000 in the second quarter of 2025. The Company also realized gains on the sale of assets of $137,000 in the second quarter of 2025 compared to losses on the sale of assets of $391,000 in the second quarter of 2024.

Previous wording

Noninterest Expense. Noninterest expense totaled $28.5 million for the quarter ended March 31, 2025 compared to $27.0 million for the quarter ended March 31, 2024. Salaries and employee benefits were $16.2 million in thefirst quarter of 2025 compared to $15.1 million in thefirst quarter of 2024. The increase was primarily driven by higher salaries associated with employee raises, the acquisition of Crest Retirement in the fourth quarter of 2024 and higher commission expense from increased revenue in the fee-based businesses. Occupancy and equipment expense increased to $4.1 million in the first quarter of 2025 from $3.7 million in the first quarter of 2024 due to increased maintenance costs in 2025, the result of more severe winter weather. Core processing expense increased $262 thousand from the first quarter of 2024 to $1.4 million in the first quarter of 2025. All other noninterest expenses decreased $200 thousand as the Company continues to implement various cost saving initiatives.

Current wording

Noninterest Expense. Noninterest expense totaled $27.2 million for the quarter ended June 30, 2025 compared to $26.4 million for the quarter ended June 30, 2024. Salaries and employee benefits were $14.7 million in thesecond quarter of 2025 compared to $14.6 million in thesecond quarter of 2024. The increase was primarily driven by higher salaries associated with employee raises, the acquisition of Crest Retirement in the fourth quarter of 2024 and higher commission expense from increased revenue in the fee-based businesses offset by lower healthcare expense. Occupancy and equipment expense increased to $4.1 million in the second quarter of 2025 from $3.8 million in the second quarter of 2024 due to increased maintenance costs in 2025, the result of more severe winter weather. Professional fess declined to $1.0 million in the second quarter of 2025 from $1.2 million in the second quarter of 2024 due primarily to lower legal expenses in 2025. Core processing expense increased to $1.4 million in the second quarter of 2025 from $1.1 million in the second quarter of 2024. The increase was due to annual increases and timing differences.

Previous wording

Income Taxes. Income tax expense was $2.8 million for the three months ended March 31, 2025 compared to $2.2 million for the three months ended March 31, 2024. The increase in tax expense was primarily due to higher income before income taxes in 2025.

Current wording

Income tax expense was $5.2 million for the six months ended June 30, 2025 compared to $4.6 million for the same period in 2024 due to higher pretax income in 2025.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents increased $27.5 million during the first three months of 2025 to $113.3 million from $85.7 million at December 31, 2024. The increase in the cash balances was primarily due to the Company intentionally holding more liquidity on its balance sheet at March 31, 2025.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased $5.0 million during the first six months of 2025 to $90.7 million from $85.7 million at December 31, 2024. The increase in the cash balances was primarily due to the Company intentionally holding more liquidity on its balance sheet at June 30, 2025.

Previous wording

Securities. The Company had securities available for sale totaling $1.28 billion as of March 31, 2025, compared to $1.27 billion at December 31, 2024. Net unrealized losses on the portfolio totaled $223.7 million at March 31, 2025, compared to $244.1 million at December 31, 2024. The Company also restructured $23.9 million of available for sale securities and reinvested the proceeds into securities with yields approximately 260 basis points higher than those sold. The earn back on the $1.3 million loss that was incurred on the sale is approximately 2.2 years. The Company anticipates continued volatility in the bond market in 2025.

Current wording

Securities. The Company had securities available for sale totaling $1.27 billion as of June 30, 2025 and December 31, 2024. Net unrealized losses on the portfolio totaled $223.0 million at June 30, 2025, compared to $244.1 million at December 31, 2024. The Company also restructured $23.9 million of available for sale securities and reinvested the proceeds into securities with yields approximately 260 basis points higher than those sold. The earn back on the $1.3 million loss that was incurred on the sale is approximately 2.2 years. The Company anticipates continued volatility in the bond market in 2025.

Previous wording

Loans. Net loans (excluding loans held for sale) decreased to $3.25 billion at March 31, 2025 from $3.27 billion at December 31, 2024. The decrease in 2025 is primarily due to reductions in commercial and construction loans.

Current wording

Loans. Net loans (excluding loans held for sale) increased to $3.30 billion at June 30, 2025 from $3.27 billion at December 31, 2024. The increase in 2025 is primarily due to increases in commercial and commercial real estate loans.

Previous wording

Allowance for Credit Losses. The following table indicates key asset quality ratios that management evaluates on an ongoing basis. The recorded investment balances were used in the calculations.

Current wording

Allowance for Credit Losses. The following table indicates key asset quality ratios that management evaluates on an ongoing basis. The amortized cost balances were used in the calculations.

Previous wording

The Company's allowance for credit losses decreased to $35.5 million for the period ended March 31, 2025, from $35.9 million for the period ended December 31, 2024. This decline was primarily driven by a reduction in loan growth. The Company estimates the ACL based on the amortized cost basis of the underlying loan and has made an accounting policy election to exclude accrued interest from the loan’s amortized cost basis and the related measurement of the ACL. Estimating the amount of the ACL is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of potential problem loans, all of which may be susceptible to significant change.

Current wording

The Company's allowance for credit losses increased to $38.6 million for the period ended June 30, 2025, from $35.9 million for the period ended December 31, 2024. The increase in provision was primarily driven by $2.6 million in specific reserves placed on two nonperforming loans. The Company estimates the ACL based on the amortized cost basis of the underlying loan and has made an accounting policy election to exclude accrued interest from the loan’s amortized cost basis and the related measurement of the ACL. Estimating the amount of the ACL is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of potential problem loans, all of which may be susceptible to significant change.

Previous wording

Short-term Borrowings. Total short-term borrowing balances decreased from $305.0 million at December 31, 2024 to $102.0 million at March 31, 2025. This decrease was due to the Company using the proceeds from deposits to pay down short-term borrowings.

Current wording

Short-term Borrowings. Total short-term borrowing balances decreased from $305.0 million at December 31, 2024 to $203.0 million at June 30, 2025. This decrease was due to the Company using the proceeds from deposits to pay down short-term borrowings.

Previous wording

Total Stockholders' Equity. Total stockholders’ equity increased to $429.1 million at March 31, 2025 from $406.0 million at December 31, 2024. The increase was primarily due to a $16.0 million decrease in the accumulated other comprehensive loss coupled with growth in retained earnings of $7.2 million due to $13.6 million of net income recognized during the quarter partially offset by dividends paid on outstanding common shares.

Current wording

Total Stockholders' Equity. Total stockholders’ equity increased to $437.7 million at June 30, 2025 from $406.0 million at December 31, 2024. The increase was primarily due to a $16.5 million decrease in the accumulated other comprehensive loss coupled with growth in retained earnings of $14.7 million due to $27.5 million of net income recognized during the first half of the year partially offset by dividends paid on outstanding common shares.

Previous wording

The capital management function is a regular process that consists of providing capital for both the current financial position and the anticipated future growth of the Company. At March 31, 2025, the Company is required to maintain 4.5% common equity tier 1 to risk weighted assets excluding the conservation buffer to be adequately capitalized. The Company’s common equity tier 1 to risk weighted assets was 11.44%, total risk-based capital ratio stood at 14.87%, and the Tier 1 risk-based capital ratio and Tier 1 leverage ratio were at 11.92% and 8.52%, respectively, at March 31, 2025. Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject, as of March 31, 2025.

Current wording

The capital management function is a regular process that consists of providing capital for both the current financial position and the anticipated future growth of the Company. At June 30, 2025, the Company is required to maintain 4.5% common equity tier 1 to risk weighted assets excluding the conservation buffer to be adequately capitalized. The Company’s common equity tier 1 to risk weighted assets was 11.56%, total risk-based capital ratio stood at 15.04%, and the Tier 1 risk-based capital ratio and Tier 1 leverage ratio were at 12.05% and 8.67%, respectively, at June 30, 2025. Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject, as of June 30, 2025.

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 1.70% from 4Q2024 to 4Q2025, U.S. PCE inflation of 2.70%, and U.S. unemployment of 4.40%, 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 1.40% from 4Q2024 to 4Q2025, U.S. PCE inflation of 3.00%, and U.S. unemployment of 4.50%, 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

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 March 31, 2025, on a consolidated basis, Farmers had intangibles of $20.0 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 June 30, 2025, on a consolidated basis, Farmers had intangibles of $19.3 million subject to amortization and $167.5 million in goodwill, which was not subject to periodic amortization.

Previous wording

The Company maintains, in the opinion of management, liquidity sufficient to satisfy depositors’ requirements and meet the credit needs of customers. The Company depends on its ability to maintain its market share of deposits as well as acquiring new funds. The Company’s ability to attract deposits and borrow funds depends in large measure on its profitability, capitalization and overall financial condition. The Company’s objective in liquidity management is to maintain the ability to meet loan commitments, purchase securities or to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. Principal sources of liquidity for the Company include assets considered relatively liquid, such as federal funds sold, cash-due from banks, as well as cash flows from maturities and repayments of loans, and to a lesser extent securities.

Current wording

The Company maintains, in the opinion of management, liquidity sufficient to satisfy depositors’ requirements and meet the credit needs of customers. The Company depends on its ability to maintain its market share of deposits as well as its potential of acquiring new funds. The Company’s ability to attract deposits and borrow funds depends in large measure on its profitability, capitalization and overall financial condition. The Company’s objective in liquidity management is to maintain the ability to meet loan commitments, purchase securities or to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. Principal sources of liquidity for the Company include assets considered relatively liquid, such as federal funds sold, cash-due from banks, as well as cash flows from maturities and repayments of loans, and to a lesser extent securities.

Previous wording

Along with its liquid assets, the Bank has additional sources of liquidity available which help to ensure that adequate funds are available as needed. These other sources include, but are not limited to, access to funds in the wholesale arena, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at major domestic banks. At March 31, 2025, this line of credit totaled $25.0 million of which the Bank had not borrowed against. In addition, the Company has a revolving line of credit with a correspondent bank totaling $5.0 million. There was no balance on this line at March 31, 2025 and December 31, 2024. Management feels that its liquidity position is adequate and will continue to monitor the position on a monthly basis. As of March 31, 2025, the Bank had $102.0 million in outstanding balances with the FHLB. Additional borrowing capacity at the FHLB was approximately $749.3 million at March 31, 2025. The Company also has access to the Federal Reserve Discount Window, which provides an additional source of funds with the posting of collateral. The Bank views its membership in the FHLB as a solid source of liquidity.

Current wording

Along with its liquid assets, the Bank has additional sources of liquidity available which help to ensure that adequate funds are available as needed. These other sources include, but are not limited to, access to funds in the wholesale arena, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at major domestic banks. The Bank has aline of credit totaling $25.0 million and the Company has a revolving line of credit with a correspondent bank totaling $5.0 million. There was no balance on either of these lines at June 30, 2025 or December 31, 2024. The Company also has access to borrow $12.1 million at the Federal Reserve Discount Window, however, there was no balance on this line at June 30, 2025 or December 31, 2024. The Federal Reserve Discount Window can be an additional source of funds with the posting of additional collateral. As of June 30, 2025, the Bank had $203.0 million in outstanding balances with the FHLB. Additional borrowing capacity at the FHLB was approximately $596.9 million at June 30, 2025. The Bank views its membership in the FHLB as a solid source of liquidity. Management feels that its liquidity position is adequate and will continue to monitor the position on a monthly basis.

Previous wording

In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The Bank’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Because some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments. Collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for, home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were $734.2 million at March 31, 2025, and $692.4 million at December 31, 2024. Additionally, the Company has committed up to $20.2 million in subscriptions in SBIC investment funds. At March 31, 2025, the Company had invested $14.8 million in these funds.

Current wording

In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The Bank’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Because some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments. Collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for, home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were $736.6 million at June 30, 2025, and $692.4 million at December 31, 2024. Additionally, the Company has committed up to $20.2 million in subscriptions in SBIC investment funds. At June 30, 2025, the Company had invested $15.2 million in these funds.