Farmers National Banc Corp. Annual Report 2019

FY2019 Annual Report · Farmers National Banc Corp.

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Farmers National Banc Corp.

20 South Broad Street P.O. Box 555 Canfield, Ohio 44406

Corporate Profile

Farmers National Banc Corp. (the “Company”) is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. The Company provides full banking services
through its national bank subsidiary, The Farmers National Bank of Canfield (“Farmers National
Bank”), and provides trust services through its state-chartered trust company subsidiary,
Farmers Trust Company. The Company also provides retirement planning and consultancy
services through National Associates, Inc., a subsidiary of Farmers Trust Company, and
insurance services through Farmers National Insurance, LLC and Bowers Insurance Agency,
LLC, subsidiaries of Farmers National Bank.

Farmers National Bank, chartered in 1887, is a full-service financial services company engaged
in commercial and retail banking with a total of forty-one (41) locations and four (4) trust offices
located in the counties of Mahoning, Trumbull, Columbiana, Stark, Summit, Wayne, Medina,
Geauga and Cuyahoga in the State of Ohio and Beaver in Pennsylvania. In addition, Farmers
National Bank provides 24-hour access to a network of Automated Teller Machines and offers
online, mobile and telephone banking services. Farmers National Bank competes with state
and national banks, as well as with a large number of other financial institutions, such as thrifts,
insurance companies, consumer finance companies, credit unions and commercial finance
leasing companies for deposits, loans and other financial service businesses. The principal
methods by which Farmers National Bank competes are loan interest rates, the rates paid for
funds, the fees charged for services and the availability of services.

As a national banking association, Farmers National Bank is a member of the Federal Reserve
System, is subject to the supervision and regulation of the Office of the Comptroller of the
Currency, and deposits are insured by the Federal Deposit Insurance Corporation to the extent
provided by law.

Forward Looking Statements

Cautionary Note Regarding Forward Looking Statements: This report [and the following letter
from our President & Chief Executive Officer] contains “forward looking statements” within
the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act
of 1995. For a discussion of factors that could cause future results to differ from historical
performance or those forward-looking statements, see “Cautionary Note Regarding Forward
Looking Statements” on page 29, “Supervision and Regulation” on page 3, and “Item 1A. Risk
Factors” on page 12 of the attached Annual Report on Form 10-K for the year ended December
31, 2019 and recent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed
with the SEC, which are available on the SECs website at www.sec.gov.

Investor Information

Corporate Headquarters:

Farmers National Banc Corp.

20 South Broad Street, P.O. Box 555

Canfield, OH 44406

Phone 330-533-3341

Toll Free 1-888-988-3276

Website: www.farmersbankgroup.com

Dividend Payments: Subject to the approval of the

Board of Directors, quarterly cash dividends are

customarily payable on or about the 30th day of

March, June, September and December.

Transfer Agent: Computershare Investor Services

P.O. Box 30170, College Station, TX 77842

Dividend Reinvestment Plan (DRIP): Registered

shareholders can purchase additional common

shares through Farmers’ Dividend Reinvestment Plan.

Participation is voluntary and allows for automatic

reinvestment of cash dividends and the safekeeping

of share certificates. To obtain a prospectus, contact

the Computershare Investor Services at 877-581-5548.

Direct Deposit of Cash Dividends: The direct

deposit program, which is offered at no charge,

provides for automatic deposit of quarterly dividends

directly to a checking or savings account. For

information regarding this program, please contact

the Computershare Investor Services at 877-581-5548.

Annual Report on Form 10-K: A copy of the Annual

Report on Form 10-K filed with the Securities and

Exchange Commission will be provided to any

shareholder on request to the attention of: Mr. Carl D.

Culp, Farmers National Banc Corp., 20 South Broad

Street, P.O. Box 555, Canfield, OH 44406.

Common Stock Listing and Information as to

Stock Prices and Dividends:

The Company’s common shares trade on the

NASDAQ Capital Market under the symbol FMNB.

Set forth in the accompanying table are per share

prices at which common shares have actually been

purchased and sold in transactions during the

periods indicated, to the knowledge of the Company.

Also included in the table are dividends per share

paid on the outstanding Company’s common shares

and any shares dividends paid. As of December 31,

2019, there were 27,670,739 shares outstanding and

3,274 shareholders of record of common shares.

The following graph compares the cumulative five year total return

to shareholders on Farmers National Banc Corp.’s common shares

relative to the cumulative total returns of the NASDAQ Composite

index, the NASDAQ Bank index and the SNL Microcap Bank

index. The graph assumes that the value of the investment in the

Company’s common shares and in each of the indexes (including

reinvestment of dividends) was $100 on 12/31/2014 and tracks

it through 12/31/2019.

Total Return Performance

Farmers National Banc Corp.

NASDAQ Composite Index

SNL U.S. Bank NASDAQ Index

SNL Microcap Bank Index

250

200

150

100

12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

Period Ending

Index

12/31/14

12/31/15

12/31/16 12/31/17 12/31/18

12/31/19

Farmers National Banc Corp.

NASDAQ Composite Index

SNL U.S. Bank NASDAQ Index

SNL Microcap Bank Index

100.00

104.51

106.96

107.95

111.20

175.24

184.93

116.45

150.96

149.68

157.58

136.72

167.25

163.08

146.67

132.82

158.70

214.36

200.49

166.75

177.22

Source: S&P Global Market Intelligence

Quarter EndingHighLowDividendMarch 2019June 2019September 2019December 2019March 2018June 2018September 2018December 2018$15.90 $16.75 $16.90 $15.48 $12.80 $13.56 $14.95 $11.56 $0.07 $0.07 $0.08 $0.08 $14.98 $15.00 $15.13$16.50$11.57 $13.44$13.25$14.02$0.09 $0.09$0.10$0.10MARKET AND DIVIDEND SUMMARY

Financial Highlights

(Amounts in Thousands Except for Per Share Data)

For the Year
Net Income
Return on Average Assets
Return on Average Equity
Cash Dividends

Per Share
Net Income (Basic)
Net Income (Diluted)
Book Value at Year-end

Balances at Year-End
Total Assets
Earning Assets
Total Deposits
Net Loans
Total Stockholders’ Equity

2019
$35,760
1.50%
12.56%
10,538

2018
$32,569
1.46%
13.13%
8,315

2017
$22,711
1.09%
9.92%
6,012

$1.29
1.28
10.82

$1.18
1.16
9.44

$0.82
0.82
8.79

$2,449,158
2,268,440
2,008,964
1,797,052
299,309

$2,328,730
2,076,969
1,799,720
1,722,248
262,320

$2,159,069
1,998,245
1,604,719
1,565,066
242,074

Common Shares Outstanding

27,671

27,792

27,544

Annual Meeting Notice
The Annual Meeting of Shareholders will be held at 10:00 a.m. Eastern Time

on Thursday, April 16, 2020, via live webcast at www.meetingcenter.io/236769428.

You will need the control number located on your proxy card to participate.

Reaching new heights...exceeding expectations.

Dear Fellow Shareholders,

There are two forms
of competition with
which every company
must engage. First, in
the words of Michael
Jordan, “You have
competition every
day when you set
such high standards
for yourself that you
have to go out and live up to it.” Second, is
competition that comes from the marketplace.
And Uber’s Eric Allison reminds us that,
“Advancing technology encourages cross-
industry competition. Consequently, strategic
planning must consider who our future
competitors will be, not only who is here today.”

I am pleased to inform you that in 2019 your
company performed well relative to both forms
of competition – versus our own benchmarks
of performance, as well as traditional and
emerging marketplace competitors. Your
bank had its fourth consecutive record-setting
year in a number of key financial performance
indicators. The capstone for 2019 was our
recently completed acquisition of Geauga
Savings Bank, representing our fourth bank
acquisition since 2015.

Record Year
Once again, we achieved record financial
results as we continue to diversify sources
of income, effectively manage risk, increase
our market share and manage our expenses.
In addition, higher retained earnings helped
Farmers grow its net worth and we ended
2019 with record stockholders’ equity of $299.3
million, an increase of 14.1% over the prior year.
Net income for the year ended December 31,
2019, increased 9.8% to $35.8 million, from
$32.6 million last year, while earnings per diluted
share increased 10.3% to $1.28 per diluted

share, compared to $1.16 per diluted share for
the same period in 2018.

assets ratio was the best it has been in the last
decade.

Higher net income supports our organic growth
initiatives, our acquisition strategy, and dividend
policy. Farmers is pursuing several actions to
produce consistent earnings growth including
increasing noninterest income and investment
fee income, while we also focus on growing
our loan portfolio with high-quality loans and
managing expenses. I am pleased to report
2019’s financial results reflect continued
progress across these initiatives.

For many banks including Farmers, 2019
was also a year of strategic focus on growing
deposits. Total deposits increased 11.6%
over the prior year, and most importantly,
core-deposits increased 7.4%. Our loan-to-
deposit ratio was 90.17% at December 31,
2019, compared to 96.45% at December 31,
2018, and we have a strong balance sheet and
liquidity levels to fund our organic growth and
acquisition strategies.

Noninterest income was $28.6 million, a 12%
increase from $25.5 million during the prior
year as a result of accelerating fee income.
For example, mortgage fee income increased
61% year-over-year due to a greater emphasis
on mortgage originations and a favorable rate
environment. Fee income from the Farmers
National Investments division also produced
strong growth and was up 27.5% as a result
of strong market performance, new customer
growth and tapping into our lucrative Western
Ohio Market.

Despite the slight compression of our net
interest margin, our overall net interest income
for 2019 increased 4.9% to $82.4 million as a
result of loan growth and strong asset quality.
During 2019, our loan portfolio grew 4.4% to
$1.8 billion, which is the largest loan portfolio
we have had in our history. The increase in
loans occurred in the agricultural, commercial,
commercial real estate, and residential real
estate loan portfolios are a result of our talented
lending and credit team’s efforts. In addition,
we remain committed to a sound underwriting
discipline. Asset quality remains excellent and
our non-performing assets to total assets ratio
was 0.26% for 2019, compared to 0.33% last
year. In 2019, non-performing assets to total

As a result of our record 2019 results, strong
financial position, and optimism for the future
Farmers’ annual dividend payment increased
nearly 27% to $0.38 per share, from $0.30 per
share last year. During the year, our Board
authorized a new share repurchase program
and increased the size of the program to
1,500,000 shares reflecting our commitment to
creating value for shareholders.

Successful Acquisition and Integration
of Geauga Savings Bank
While organic growth is a paramount goal for
Farmers, strategic acquisition is also part of
our growth equation. Farmers completed its
fourth bank acquisition since 2015 by taking
our successful community banking model
to the new, attractive Geauga market and
expanding our profile in Cuyahoga County.
Farmers completed the transaction on January
7th and formally converted Geauga Savings
Bank customers to Farmers on January 21st.

This transaction enables Farmers to continue
building local scale and efficiencies throughout
Northeast Ohio. To frame the scale of this
strategic acquisition, as of September 30,
2019, Maple Leaf had total assets of $275.6
million, which included gross loans of $183.5

million, deposits of $183.4 million and equity
of $33.4 million.

Virtual Annual Meeting
Last year, Farmers followed many of its peers by
adopting a virtual format for our annual meeting.
Shareholders participated via the internet and
at our corporate headquarters. Due to the
success of last year’s meeting, this year Farmers
will transition to an online-only meeting on April
16, 2020. The use of technology-enhanced
shareholder communications is a goal of
regulators, public companies, shareholders,
and others invested in the corporate governance
process. I am proud that Farmers is one of the
early adopters of online-only annual meetings.

Enhancing Our Culture
Many reading this letter are likely familiar with
the refrain, “Culture trumps strategy.” This is
often the case because the best laid plans
are ineffective if the culture of an organization
cannot execute on the plan. I’m pleased to
conclude this letter by sharing three ways your
company has been actively enhancing its’s
already high-performing culture:

President’s Club
Farmers National Bank capped off the first
year of the President’s Club with the inaugural
President’s Club Awards, where 15 sales and

sales-support associates were recognized for
their past year’s achievements. The President’s
Club is designed to recognize our top performing
associates on a quarterly and annual basis.
We are preparing to host the second annual
President’s Club Awards in 2020 and we
are establishing this new tradition to reward
excellence and inspire associates toward even
higher levels of performance.

our organization, we took up the mission of
discovering what could authentically motivate
our employees to an even higher and sustained
level of excellence. We wanted to discover how
making a profit and having a sense of purpose
can be perfectly aligned at your Bank, each
driving the other.

We determined that not only do we have a
winning culture, but we also have something
rarer – we have a win-win culture. Our Customers,
Communities and colleagues’ well-being is at
the heart of our purpose. By creating Wins for
our stakeholders, Farmers wins will follow.

We have creatively articulated this
win-win mindset into a rallying cry:
IN IT TO WIN-WIN IT!

Best Employer Award
Farmers National Bank was named as one of
the 2019 Best Employers in Ohio, according
to the annual list of the Best Employers
in Ohio created by the Ohio SHRM State
Council, Crain’s Cleveland Business and Best
Companies Group. Peter Burke, President
of Best Companies Group states, “The Best
Employers companies have identified what
their core values and mission are, and have
been successful in creating environments where
employees love coming to work.”

A detailed and confidential employee survey
accounted for 75% of the total evaluation that
contributed to Farmers being named one of the
top 41 employers in Ohio. Our workforce spoke
and management listened. We believe that the
more an organization’s people identify with their
shared purpose, the better they perform.

Conclusion
Thank you for your continued support and
confidence in our 133-years-young company.
Your management team believes the best is yet
to come. As always, I am open to your calls,
letters and emails.

Sincerely,

Win-Win Culture
To further inspire the power of purpose into

Kevin J. Helmick
President & Chief Executive Officer

Top Row from Left to Right: Ralph D. Macali, Terry A. Moore, Anne Frederick Crawford, Gregory C. Bestic and David Z. Paull

Bottom Row from Left to Right: Edward W. Muransky, Kevin J. Helmick, Lance J. Ciroli and James R. Smail

Board of Directors

Lance J. Ciroli 1, 4, 5
Chairman of the Board
Co-founder of NBE Bank Consulting
Services. Retired Assistant Deputy
Comptroller in the Cleveland/Detroit
Field Office, Office of the Comptroller
of the Currency

James R. Smail 2, 4, 5
Vice Chairman of the Board
Chairman, Director and CEO
J.R. Smail, Inc.

Gregory C. Bestic 1, 3
CPA, CGMA, Certified Forensic Accountant,
DABFA, FACFEI
Principal with Schroedel, Scullin & Bestic,
LLC - Certified Public Accountants and
Strategic Advisors

Anne Frederick Crawford 2, 3
Attorney-at-Law
Self-employed/Sole Proprietor

Kevin J. Helmick 5
President and Chief Executive Officer
Farmers National Bank

Ralph D. Macali 1, 3
Vice President of Palmer J. Macali, Inc.
Partner in P.M.R.P. Partnership

Terry A. Moore 2, 3, 5
Managing Director of Krugliak, Wilkins,
Griffiths and Dougherty

David Z. Paull 2, 4
Retired Vice President, Human Resources
Operations and Labor Relations, RTI
International Metals, Inc.

Edward W. Muransky 1, 4
CEO, Chestnut Land Company

1 Audit Committee
2 Compensation Committee
3 Corporate Governance and Nominating Committee
4 Board Enterprise Risk Management Committee
5 Executive Committee

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(Mark One)
⌧⌧ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019
or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

Commission file number 001-35296

Farmers National Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization)

20 South Broad Street, Canfield, Ohio
(Address of principal executive offices)

34-1371693
(I.R.S. Employer
Identification No.)

44406
(Zip Code)

Registrant’s telephone number, including area code: 330-533-3341
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Shares, no par value

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes " No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes " No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ⌧ No "
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ⌧ No "
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer
Emerging growth company

"
"
"

Accelerated filer
Smaller reporting company

⌧
"

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. "
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes " No ⌧
As of June 30, 2019, the estimated aggregate market value of the registrant’s common shares, no par value (the only common equity of the registrant), held
by non-affiliates of the registrant was approximately $375.9 million based upon the last sales price as of June 28, 2019 reported on NASDAQ. (The
exclusion from such amount of the market value of the common shares owned by any person shall not be deemed as admission by the registrant that such
person is an affiliate of the registrant).
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, No Par Value

Trading Symbol
FMNB

Name of each exchange on which registered
The NASDAQ Stock Market

As of March 1, 2020, the registrant had outstanding 28,541,285 common shares, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

Document
Portions of the registrant’s definitive proxy statement for the 2020
Annual Meeting of Shareholders

Part of Form 10-K
into which
Document is Incorporated
III

FARMERS NATIONAL BANC CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

PART I

Item 1. Business ...................................................................................................................................................... 1
Item 1A. Risk Factors ................................................................................................................................................ 12
Item 1B. Unresolved Staff Comments ...................................................................................................................... 20
Properties .................................................................................................................................................... 20
Item 2.
Item 3.
Legal Proceedings....................................................................................................................................... 22
Item 4. Mine Safety Disclosures ............................................................................................................................. 22

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities..................................................................................................................................................... 23
Selected Financial Data............................................................................................................................... 24
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations..................... 28
Item 7A. Quantitative and Qualitative Disclosure about Market Risk ...................................................................... 44
Item 8.
Financial Statements and Supplementary Financial Data........................................................................... 45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................107
Item 9A. Controls and Procedures .............................................................................................................................107
Item 9B. Other Information .......................................................................................................................................108

Item 10. Directors, Executive Officers and Corporate Governance .........................................................................109
Item 11. Executive Compensation ............................................................................................................................111
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..111
Item 13. Certain Relationships and Related Transactions, and Director Independence ...........................................111
Item 14. Principal Accountant Fees and Services .....................................................................................................111

PART III

Item 15. Exhibits, Financial Statement Schedules. ...................................................................................................112
Item 16. Form 10-K Summary ..................................................................................................................................112

SIGNATURES

116

PART IV

PART I

Item 1. Business.

General

Farmers National Banc Corp.

Farmers National Banc Corp. (the “Company,” “Farmers,” “we,” “our” or “us”), is a financial holding
company and was organized as a one-bank holding company in 1983 under the laws of the State of Ohio and
registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Amendments to the BHCA
in 1999, allowed for a bank holding company to declare itself a financial holding company and thereby engage in
financial activities, including securities underwriting and dealing, insurance agency and underwriting activities, and
merchant banking activities. The Company made the declaration to become a financial holding company in 2016.
For a bank holding company to be eligible to declare itself a financial holding company, all of the depository
institution subsidiaries must be well-capitalized and well-managed and have satisfactory or better ratings under the
Community Reinvestment Act. The Company operates principally through its wholly-owned subsidiaries, The
Farmers National Bank of Canfield (the “Bank” or “Farmers Bank”), Farmers Trust Company (“Farmers Trust”),
and Farmers National Captive, Inc. (“Captive”). Farmers National Insurance, LLC (“Farmers Insurance”) and
Farmers of Canfield Investment Co. (“Investments or “Farmers Investments”) are wholly-owned subsidiaries of the
Bank. The Company and its subsidiaries operate in the domestic banking, trust, retirement consulting, insurance and
financial management industries.

The Company’s principal business consists of owning and supervising its subsidiaries. Although Farmers

directs the overall policies of its subsidiaries, including lending practices and financial resources, most day-to-day
affairs are managed by their respective officers. Farmers and its subsidiaries had 450 full-time equivalent
employees at December 31, 2019.

The Company’s principal executive offices are located at 20 South Broad Street, Canfield, Ohio 44406, and its

telephone number is (330) 533-3341. Farmers’ common shares, no par value, are listed on the NASDAQ Capital
Market (the “NASDAQ”) under the symbol “FMNB.” Farmers’ business activities are managed and financial
performance is primarily aggregated and reported in two lines of business, the Bank segment and the Trust segment.
For a discussion of Farmers’ financial performance for the fiscal year ended December 31, 2019, see the
Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this
Annual Report on Form 10-K.

The Farmers National Bank of Canfield

On January 7, 2020, the Company completed the acquisition of Maple Leaf Financial, Inc. (“Maple Leaf”), the

parent company of Geauga Savings Bank, with branches located in Cuyahoga and Geauga Counties in Ohio.
Additional discussion about the acquisition can be found in the Notes to Consolidated Financial Statements in Item 8
of this Annual Report on Form 10-K.

During 2017, the Company acquired all outstanding stock of Monitor Bancorp, Inc. (“Monitor”), the holding
company of Monitor Bank. Additional discussion about the acquisition can be found in the Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K. The Bank is a full-service national banking
association engaged in commercial and retail banking mainly in Mahoning, Trumbull, Columbiana, Wayne, Holmes,
Medina and Stark Counties in Ohio and two locations in Beaver County, Pennsylvania. The Bank’s commercial and
retail banking services include checking accounts, savings accounts, time deposit accounts, commercial, mortgage
and installment loans, home equity loans, home equity lines of credit, night depository, safe deposit boxes, money
orders, bank checks, automated teller machines, internet banking, travel cards, “E” Bond transactions, MasterCard
and Visa credit cards, brokerage services and other miscellaneous services normally offered by commercial banks.

A discussion of the general development of the Bank’s business and information regarding its financial
performance throughout 2019, is discussed in “Management Discussion and Analysis of Financial Condition and
Results of Operations” in Item 7 of this Annual Report on Form 10-K.

The Bank faces significant competition in offering financial services to customers. Ohio has a high density of

financial service providers, many of which are significantly larger institutions that have greater financial resources
than the Bank, and all of which are competitors to varying degrees. Competition for loans comes principally from
savings banks, savings and loan associations, commercial banks, mortgage banking companies, credit unions,
insurance companies and other financial service companies. The most direct competition for deposits has
historically come from savings and loan associations, savings banks, commercial banks and credit unions.
Additional competition for deposits comes from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies.

Farmers Trust Company

During 2009, the Company acquired the Farmers Trust. Farmers Trust offers a full complement of personal

and corporate trust services in the areas of estate settlement, trust administration, employee benefit plans and
retirement services. During 2019, National Associates Inc. was combined with the Farmers Trust entity. Farmers
Trust operates five offices located in Boardman, Canton, Howland, Wooster and Fairview Park, Ohio.

Farmers National Captive, Inc.

Captive was formed during 2016 and is a wholly-owned insurance subsidiary of the Company that provides
property and casualty insurance coverage to the Company and its subsidiaries. The Captive pools resources with
eleven similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among
themselves and to provide insurance where not currently available or economically feasible in today’s insurance
market place. The Captive does not account for a material portion of the revenue and, therefore, will not be
discussed individually, but as part of the Company.

Farmers National Insurance, LLC

Farmers Insurance was formed during 2009 and offers a variety of insurance products through licensed

representatives. During 2016, the Bank completed the acquisition of the Bowers Insurance Agency, Inc.
(“Bowers”). The transaction involved both cash and stock. All activity has been merged into Insurance. Farmers
Insurance is a subsidiary of Farmers Bank and does not account for a material portion of the revenue and, therefore,
will not be discussed individually, but as part of the Bank.

Farmers of Canfield Investment Company

Farmers Investments was formed during 2014, with the primary purpose of investing in municipal securities.

Farmers Investments is a subsidiary of Farmers Bank and does not account for a material portion of the revenue and,
therefore, will not be discussed individually, but as part of the Bank.

Investor Relations

The Company maintains an Internet site at http://www.farmersbankgroup.com, which contains an Investor

Relations section that provides access to the Company’s filings with the Securities and Exchange Commission (the
“Commission”). Farmers makes available free of charge on or through its website the Company’s annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such documents filed
or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as
reasonably practicable after the Company has filed these documents with the Commission. In addition, the
Company’s filings with the Commission may be read and copied at the Commission’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. These filings are also available on the Commission’s web site at
http://www.sec.gov free of charge as soon as reasonably practicable after the Company has filed the above
referenced reports.

Supervision and Regulation

Introduction

The Company and its subsidiaries are subject to extensive regulation by federal and state regulatory agencies.

The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of
consumers, depositors, borrowers, the Deposit Insurance Fund and the banking system as a whole and not for the
protection of shareholders. This intensive regulatory environment, among other things, may restrict the Company’s
ability to diversify into certain areas of financial services, acquire depository institutions in certain markets or pay
dividends on its common shares. It also may require the Company to provide financial support to its banking and
other subsidiaries, maintain capital balances in excess of those desired by management and pay higher deposit
insurance premiums as a result of the deterioration in the financial condition of depository institutions in general.

Significant aspects of the laws and regulations that have, or could have a material impact on Farmers and its

subsidiaries are described below. These descriptions are qualified in their entirety by reference to the full text of the
applicable statutes, legislation, regulations and policies, as they may be amended or revised by the U.S. Congress or
state legislatures and federal or state regulatory agencies, as the case may be. Changes in these statutes, legislation,
regulations and policies may have a material adverse effect on the Company and its business, financial condition or
results of operations.

Regulatory Agencies

Financial Holding Company. Farmers elected to be a financial holding company. A bank holding company

may elect to become a financial holding company if each of its subsidiary banks is well capitalized under the prompt
corrective action regulations of the FDIC, is well managed, and has at least a satisfactory rating under the
Community Reinvestment Act of 1977 (the “CRA”). Financial holding companies may engage in activities that are
financial in nature, including affiliating with securities firms and insurance companies, which are not otherwise
permissible for a bank holding company.

As a financial holding company, Farmers is subject to regulation under the BHCA and to inspection,

examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve
Board”). The Federal Reserve Board has extensive enforcement authority over financial and bank holding
companies and may initiate enforcement actions for violations of laws and regulations and unsafe or unsound
practices. The Federal Reserve Board may assess civil money penalties, issue cease and desist or removal orders
and may require that a bank holding company divest subsidiaries, including subsidiary banks. Farmers is also
required to file reports and other information with the Federal Reserve Board regarding its business operations and
those of its subsidiaries.

Subsidiary Bank. The Bank is subject to regulation and examination primarily by the Office of the
Comptroller of the Currency (the “OCC”) and secondarily by the Federal Deposit Insurance Corporation (the
“FDIC”). OCC regulations govern permissible activities, capital requirements, dividend limitations, investments,
loans and other matters. The OCC has extensive enforcement authority over Farmers Bank and may impose
sanctions on Farmers Bank and, under certain circumstances, may place Farmers Bank into receivership.

Farmers Bank is also subject to certain restrictions imposed by the Federal Reserve Act and Federal Reserve

Board regulations regarding such matters as the maintenance of reserves against deposits, extensions of credit to
Farmers or any of its subsidiaries, investments in the stock or other securities of Farmers or its subsidiaries and the
taking of such stock or securities as collateral for loans to any borrower.

Non-Banking Subsidiaries. Farmers’ non-banking subsidiaries are also subject to regulation by the Federal

Reserve Board and other applicable federal and state agencies. In particular, Farmers Insurance is subject to
regulation by the Ohio Department of Insurance, which requires, amongst other things, the education and licensing
of agencies and individual agents and imposes business conduct rules.

Securities and Exchange Commission and The NASDAQ Stock Market LLC. The Company is also under the

regulation and supervision of the Commission and certain state securities commissions for matters relating to the
offering and sale of its securities. The Company is subject to disclosure and regulatory requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the regulations promulgated
thereunder. Farmers common shares are listed on the NASDAQ under the symbol “FMNB” and the Company is
subject to the rules for NASDAQ listed companies.

Federal Home Loan Bank. Farmers Bank is a member of the Federal Home Loan Bank of Cincinnati (the
“FHLB”), which provides credit to its members in the form of advances. As a member of the FHLB, the Bank must
maintain an investment in the capital stock of the FHLB in a specified amount. Upon the origination or renewal of a
loan or advance, the FHLB is required by law to obtain and maintain a security interest in certain types of collateral.
The FHLB is required to establish standards of community investment or service that its members must maintain for
continued access to long-term advances from the FHLB. The standards take into account a member’s performance
under the CRA and its record of lending to first-time home buyers.

The Federal Deposit Insurance Corporation. The FDIC is an independent federal agency that insures the

deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the
safety and soundness of the financial institution industry. The Bank’s deposits are insured up to applicable limits by
the Deposit Insurance Fund of the FDIC and subject to deposit insurance assessments to maintain the Deposit
Insurance Fund.

The FDIC may terminate insurance coverage upon a finding that an insured depository institution has engaged

in unsafe or unsound practices, is in an unsafe or unsound condition, or has violated any applicable law, regulation,
rule, order or condition enacted or imposed by the institution’s regulatory agency.

Dodd-Frank Act - Basel III

In July 2013, the Federal banking regulators approved a final rule to implement the revised capital adequacy

standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant
provisions of the Dodd-Frank Act. The final rule strengthens the definition of regulatory capital, increases risk-
based capital requirements, makes selected changes to the calculation of risk-weighted assets and adjusts the prompt
corrective action thresholds. Community banking organizations, such as the Company and the Bank, became
subject to the new rule on January 1, 2015 and certain provisions of the new rule were phased in over the period of
2015 through 2019.

The final rule:

•

Permits banking organizations that had less than $15 billion in total consolidated assets as of December
31, 2009 to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock
that were issued and included in Tier 1 capital prior to May 19, 2010, subject to a limit of 25% of Tier 1
capital elements, excluding any non-qualifying capital instruments and after all regulatory capital
deductions and adjustments have been applied to Tier 1 capital.

Establishes new qualifying criteria for regulatory capital, including new limitations on the inclusion of
deferred tax assets and mortgage servicing rights.

Requires a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%.

Increases the minimum Tier 1 capital to risk-weighted assets ratio requirement from 4% to 6%.

Retains the minimum total capital to risk-weighted assets ratio requirement of 8%.

Establishes a minimum leverage ratio requirement of 4%.

Retains the existing regulatory capital framework for 1-4 family residential mortgage exposures.

Permits banking organizations that are not subject to the advanced approaches rule, such as the
Company and the Bank, to retain, through a one-time election, the existing treatment for most
accumulated other comprehensive income, such that unrealized gains and losses on securities available
for sale will not affect regulatory capital amounts and ratios.

•

Implements a new capital conservation buffer requirement for a banking organization to maintain a
common equity capital ratio more than 2.5% above the minimum common equity Tier 1 capital, Tier 1
capital and total risk-based capital ratios in order to avoid limitations on capital distributions, including
dividend payments, and certain discretionary bonus payments. The capital conservation buffer
requirement were phased in beginning on January 1, 2016 at 0.625% and was fully phased in at 2.50%
on January 1, 2019. A banking organization with a buffer of less than the required amount would be
subject to increasingly stringent limitations on such distributions and payments as the buffer approaches
zero. The new rule also generally prohibits a banking organization from making such distributions or
payments during any quarter if its eligible retained income is negative and its capital conservation buffer
ratio was 2.5% or less at the end of the previous quarter. The eligible retained income of a banking
organization is defined as its net income for the four calendar quarters preceding the current calendar
quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated
tax effects not already reflected in net income.

Increases capital requirements for past-due loans, high volatility commercial real estate exposures and
certain short-term commitments and securitization exposures.

Expands the recognition of collateral and guarantors in determining risk-weighted assets.

Removes references to credit ratings consistent with the Dodd Frank Act and establishes due diligence
requirements for securitization exposures.

Various legislation affecting financial institutions and the financial industry will likely continue to be
introduced in Congress, and such legislation may further change banking statutes and the operating environment of
the Company in substantial and unpredictable ways. It is likely that the Trump Administration and the U.S.
Congress will pursue and potentially implement legislative or regulatory changes affecting financial institutions and
the financial industry. In 2018, President Trump signed a bill reforming the Dodd-Frank Act and the Trump
Administration has indicated its intent to loosen additional regulations. Such legislation could change the operating
environment for Farmers and its subsidiaries in unpredictable ways, decrease the costs of doing business, expand
permissible activities or affect the competitive balance among financial institutions.

Also, such statutes, regulations and policies are continually under review by Congress and state legislatures

and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic
and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the
Company could have a material effect on the business of the Company.

Financial Holding Company Regulation

As a financial holding company, Farmers’ activities are subject to extensive regulation by the Federal Reserve

Board under the BHCA. Generally, in addition to the BHCA limits of banking, managing or controlling banks and
other activities that the Federal Reserve Board has determined to be closely related to banking, financial holding
company activities may include securities underwriting and dealing, insurance agency and underwriting activities
and merchant banking activities. Under Federal Reserve Board policy, a financial holding company is expected to
serve as a source of financial and managerial strength to each subsidiary and to commit resources to support those
subsidiaries. Under this policy, the Federal Reserve Board may require the company to contribute additional capital
to an undercapitalized subsidiary and may disapprove of the payment of dividends to the holding company’s
shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound
practice. The Dodd-Frank Act codified this policy as a statutory requirement.

The BHCA requires prior approval by the Federal Reserve Board for a bank holding company to directly or
indirectly acquire more than a 5.0% voting interest in any bank or its parent holding company. Factors taken into
consideration in making such a determination include the effect of the acquisition on competition, the public benefits
expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis and
the acquiring institution’s record of addressing the credit needs of the communities it serves.

The BHCA also governs interstate banking and restricts Farmers’ nonbanking activities to those determined

by the Federal Reserve Board to be financial in nature, or incidental or complementary to such financial activity,
without regard to territorial restrictions. Transactions among the Bank and its affiliates are also subject to certain
limitations and restrictions of the Federal Reserve Board, as described more fully under the caption “Dividends and
Transactions with Affiliates” in this Item 1.

The Gramm-Leach-Bliley Act of 1999 permits a qualifying bank holding company to elect to become a
financial holding company and thereby affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature and not otherwise permissible for a bank holding company. Farmers elected to
become a financial holding company during 2016.

Regulation of Nationally Chartered Banks

As a national banking association, Farmers Bank is subject to regulation under the National Banking Act and

is periodically examined by the OCC. OCC regulations govern permissible activities, capital requirements, dividend
limitations, investments, loans and other matters. Furthermore, Farmers Bank is subject, as a member bank, to
certain rules and regulations of the Federal Reserve Board, many of which restrict activities and prescribe
documentation to protect consumers. Under the Bank Merger Act, the prior approval of the OCC is required for a
national bank to merge with, or purchase the assets or assume the deposits of, another bank. In reviewing
applications to approve merger and other acquisition transactions, the OCC and other bank regulatory authorities
may include among their considerations the competitive effect and public benefits of the transactions, the capital
position of the combined organization, the applicant’s performance under the CRA and fair housing laws, and the
effectiveness of the entities in restricting money laundering activities. In addition, the establishment of branches by
Farmers Bank is subject to the prior approval of the OCC. The OCC has the authority to impose sanctions on the
Bank and, under certain circumstances, may place Farmers Bank into receivership.

The Bank is also an insured institution as a member of the Deposit Insurance Fund. As a result, it is subject to

regulation and deposit insurance assessments by the FDIC.

Dividends and Transactions with Affiliates

The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. The Company’s

principal source of funds to pay dividends on its common shares and service its debt is dividends from Farmers
Bank and its other subsidiaries. Various federal and state statutory provisions and regulations limit the amount of
dividends that Farmers Bank may pay to Farmers without regulatory approval. Farmers Bank generally may not,
without prior regulatory approval, pay a dividend in an amount greater than its undivided profits after deducting
statutory bad debt in excess of the Bank’s allowance for loan losses. In addition, prior approval of the OCC is
required for the payment of a dividend if the total of all dividends declared in a calendar year would exceed the total
of Farmers Bank’s net income for the year combined with its retained net income for the two preceding years.

In addition, Farmers and Farmers Bank are subject to other regulatory policies and requirements relating to the
payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The federal
banking agencies are authorized to determine under certain circumstances that the payment of dividends would be
an unsafe or unsound practice and to prohibit payment thereof. The federal banking agencies have stated that paying
dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice
and that banking organizations should generally pay dividends only out of current operating earnings. In addition, in
the current financial and economic environment, the Federal Reserve Board has indicated that financial holding
companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum
allowable levels, unless both asset quality and capital are very strong. Thus, the ability of Farmers to pay dividends
in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital
guidelines.

The Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value to

the Company and its nonbanking subsidiaries and affiliates, whether in the form of loans and other extensions of
credit, investments and asset purchases or other transactions involving the transfer of value from a subsidiary to an
affiliate or for the benefit of an affiliate. These regulations limit the types and amounts of transactions (including
loans due and extensions of credit) that may take place and generally require those transactions to be on an arm’s-
length basis. In general, these regulations require that any “covered transaction” by Farmers Bank with an affiliate
must be secured by designated amounts of specified collateral and must be limited, as to any one of Farmers or its
non-bank subsidiaries, to 10% of Farmers Bank’s capital stock and surplus, and, as to Farmers and all such non-bank
subsidiaries in the aggregate, to 20% of Farmers Bank’s capital stock and surplus. The Dodd-Frank Act
significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking

organization including, for example, the requirement that the 10% capital limit on covered transactions apply to
financial subsidiaries. “Covered transactions” are defined by statute to include a loan or extension of credit, as well
as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve Board) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the
acceptance of securities issued by the affiliate as collateral for a loan and the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate.

Capital loans from the Company to the Bank are subordinate in right of payment to deposits and certain other

indebtedness of the Bank. In the event of Farmers’ bankruptcy, any commitment by Farmers to a federal bank
regulatory agency to maintain the capital of Farmers Bank will be assumed by the bankruptcy trustee and entitled to
a priority of payment.

The Federal Deposit Insurance Act of 1950, as amended, provides that, in the event of the “liquidation or other

resolution” of an insured depository institution such as the Bank, the insured and uninsured depositors, along with
the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with
respect to any extensions of credit they have made to such insured depository institution.

Capital Adequacy

Both Farmers and Farmers Bank are subject to risk-based capital requirements imposed by their respective
primary federal banking regulator. The Federal Reserve Bank monitors the capital adequacy of Farmers and the
FDIC monitors the capital adequacy of Farmers Bank. The revised risk-based capital requirements applicable to
bank holding companies and insured depository institutions, including the Company and the Bank, to make them
consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”) became
effective for the Company and the Bank on January 1, 2015. The Basel III Rules require the maintenance of
minimum amounts and ratios of common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets,
and of tier 1 capital to adjusted quarterly average assets.

Under the Basel III Rules, common equity tier 1 capital consists of common stock and paid-in capital (net of

treasury stock) and retained earnings. Common equity tier 1 capital is reduced by goodwill, certain intangible
assets, net of associated deferred tax liabilities, deferred tax assets that arise from tax credit and net operating loss
carryforwards, net of any valuation allowance, and certain other items as specified by the Basel III Rules.

Tier 1 capital includes common equity tier 1 capital and certain additional tier 1 items as provided under the

Basel III Rules.

Basel III Rules allow for insured depository institutions to make a one-time election not to include most
elements of accumulated other comprehensive income in regulatory capital and instead effectively use the existing
treatment under the general risk-based capital rules. The Company and the Bank made this opt-out election in the
first quarter of 2015 to avoid significant variations in the level of capital depending upon the impact of interest rate
fluctuations on the fair value of our investment securities portfolio.

The Basel III Rules also changed the risk-weights of assets in an effort to better reflect credit risk and other

risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate
acquisition, development and construction loans and the unsecured portion of non-residential mortgage loans that
are 90 days past due or otherwise on nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused
portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250%
risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital;
and increased risk weights (from 0% to up to 600%) for equity exposures.

The Basel III Rules limit capital distributions and certain discretionary bonus payments if the banking
organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1
capital and total capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based
capital requirements. The capital conservation buffer began being phased in on January 1, 2016 and was fully
phased in on January 1, 2019. Basel III requires the Bank to maintain: (i) as a newly adopted international standard,
a minimum ratio of Common Equity Tier 1 (“CET1”) to risk-weighted assets of 4.5%, plus a 2.5% capital
conservation buffer (the “CCB”) (which is added to the 4.5% CET1 ratio as that buffer is phased in, which will
effectively result in a minimum ratio of CET1 to risk-weighted assets of 7.0%); (ii) a minimum ratio of Tier 1
capital to risk-weighted assets of 6.0%, plus the CCB (which is added to the 6.0% Tier 1 capital ratio as that buffer
is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% on full implementation); (iii) a minimum
ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the CCB (which is added to
the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5%
upon full implementation); and (iv) as a newly adopted international standard, a minimum leverage ratio of 3.0%,
calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures
(computed as the average for each quarter of the month-end ratios for the quarter).

The Basel III final framework provides for a number of new deductions from and adjustments to CET1,
including the deduction of mortgage servicing rights, deferred tax assets dependent upon future taxable income and
significant investments in non-consolidated financial entities if any one such category exceeds 10.0% of CET1 or if
all such categories in the aggregate exceed 15.0% of CET1.

The following is a summary of the other major changes from the current general risk-based capital rule:

•

replacement of the external credit ratings approach to standards of creditworthiness with a simplified
supervisory formula approach;

stricter limitations on the extent to which mortgage servicing assets, deferred tax assets and significant
investments in unconsolidated financial institutions may be included in common equity tier 1 capital and
the risk weight to be assigned to any amounts of such assets not deducted; and

increased risk weights for past-due loans, certain commercial real estate loans and some equity
exposures, and selected other changes in risk weights and credit conversion factors.

Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is
considering further amendments to Basel III, including imposition of additional capital surcharges on globally
systemically important financial institutions. In addition to Basel III, the Dodd-Frank Act requires or permits
federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including
potentially more stringent capital requirements for systemically important financial institutions. Accordingly, the
regulations ultimately applicable to the Company may differ substantially from the currently published final Basel
III framework. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the
Company’s net income and return on equity.

Volcker Rule

In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision

of the Dodd-Frank Act (the “Volcker Rule”). The Volcker Rule places limits on the trading activity of insured
depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading
activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such
instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule
exempts specified U.S. Government, agency and/or municipal obligations, and it exempts trading conducted in
certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a
fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending
agreements and risk-mitigating hedging activities.

The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships

with, a hedge fund or private equity fund, with a number of exceptions.

The Bank does not engage in any of the trading activities or own any of the types of funds prohibited by the

Volcker Rule.

Prompt Corrective Action

The federal banking agencies have established a system of prompt corrective action to resolve certain of the

problems of undercapitalized institutions. This system is based on five capital level categories for insured
depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized,” and “critically undercapitalized.”

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a
bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90
days after it becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the
concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise
may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well
capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher
than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must
guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

Federal law permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital

stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank’s capital stock.
This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank
to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock owned by any assessed
shareholder failing to pay the assessment. As the sole shareholder of Farmers Bank, the Company is subject to such
provisions.

Deposit Insurance

Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund

of the FDIC, and Farmers Bank is assessed deposit insurance premiums to maintain the Deposit Insurance Fund.
The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith
and credit of the United States Government. Insurance premiums for each insured institution are determined based
upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal
regulator and other information deemed by the FDIC to be relevant to the risk posed to the Deposit Insurance Fund
by the institution. The assessment rate is then applied to the amount of the institution’s deposits to determine the
institution’s insurance premium.

The FDIC assesses a quarterly deposit insurance premiums on each insured institution based on risk
characteristics of the institution and may also impose special assessments in emergency situations. The premiums
fund the Deposit Insurance Fund (“DIF”). Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the
designated reserve ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In
March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30,
2010, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on
institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the
former statutory minimum of 1.15%. Although the FDIC’s new rules reduced assessment rates on all banks, they
imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reaches 1.35%. The rules
also provide assessment credits to banks with assets of less than $1 billion for the portion of their assessments that
contribute to the increase of the DRR to 1.35%. The rules further changed the method of determining risk-based
assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on
greater risks pay more for deposit insurance than banks that take on less risk.

In addition, all FDIC-insured institutions are required to pay assessments to fund interest payments on bonds
issued by the Financing Corporation, which was established by the government to recapitalize a predecessor to the
DIF. These assessments were paid for the Financing Corporation bonds that matured in 2019.

As insurer, the FDIC is authorized to conduct examinations of and to require reporting by federally-insured

institutions. It also may prohibit any federally-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the Deposit Insurance Fund. The FDIC also has the
authority to take enforcement actions against insured institutions. Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe
or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC or written agreement entered into with the FDIC. The management of the Bank does not
know of any practice, condition or violation that might lead to termination of deposit insurance.

Fiscal and Monetary Policies

The Company’s business and earnings are affected significantly by the fiscal and monetary policies of the

federal government and its agencies. The Company is particularly affected by the policies of the Federal Reserve
Board, which regulates the supply of money and credit in the United States in order to influence general economic
conditions, primarily through open market operations in U.S. government securities, changes in the discount rate on
bank borrowings and changes in the reserve requirements against depository institutions’ deposits. These policies
and regulations significantly affect the overall growth and distribution of loans, investments and deposits, as well as
interest rates charged on loans and paid on deposits.

The monetary policies of the Federal Reserve board have had a significant effect on operations and results of

financial institutions in the past and are expected to have significant effects in the future. In view of the changing
conditions in the economy, the money markets and activities of monetary and fiscal authorities, Farmers can make
no predictions as to future changes in interest rates, credit availability or deposit levels.

Community Reinvestment Act

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent

with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit
needs of its market areas by, among other things, providing credit to low and moderate-income individuals and
communities. Depository institutions are periodically examined for compliance with the CRA and are assigned
ratings. In order for a bank holding company to commence any new activity permitted by the BHCA, or to acquire
any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of
the bank holding company must have received a rating of at least “satisfactory” in its most recent examination under
the CRA. Furthermore, banking regulators take into account CRA ratings when considering approval of a proposed
transaction. Farmers received a rating of “satisfactory” in its most recent CRA examination.

Customer Privacy

Farmers Bank is subject to regulations limiting the ability of financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies
to consumers and, in some circumstances, allow customers to prevent disclosure of certain personal information to a
nonaffiliated third party. These regulations affect how consumer information is transmitted and conveyed to outside
vendors.

Anti-Money Laundering and the USA Patriot Act

The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and

Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) and its related regulations require insured depository
institutions, broker-dealers and certain other financial institutions to have policies, procedures and controls to detect,
prevent, and report money laundering and terrorist financing. The USA Patriot Act and its regulations also provide
for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions,
as well as among financial institutions, for counter-terrorism purposes. Failure of a financial institution to maintain
and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the
relevant laws or regulations, could have serious legal and reputational consequences for the institution. In addition,
federal banking agencies are required, when reviewing bank holding company acquisition and bank merger
applications, to take into account the effectiveness of the anti-money laundering policies, procedures and controls of
the applicants.

Corporate Governance

The Sarbanes-Oxley Act of 2002 effected broad reforms to areas of corporate governance and financial

reporting for public companies under the jurisdiction of the Commission. The Company’s corporate governance
policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance and
Nominating Committee Charter and Code of Business Conduct and Ethics. The Board of Directors reviews the
Company’s corporate governance practices on a continuing basis. These and other corporate governance policies
have been provided previously to shareholders and are available, along with other information on Farmers’
corporate governance practices, on the Company’s website at www.farmersbankgroup.com.

As directed by Section 302(a) of the Sarbanes-Oxley Act, the Company’s chief executive officer and chief
financial officer are each required to certify that the Company’s Quarterly and Annual Reports do not contain any
untrue statement of a material fact. The rules have several requirements, including having these officers certify that:
they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the Company’s
internal controls, they have made certain disclosures about the Company’s internal controls to its auditors and the
audit committee of the Board of Directors and they have included information in the Company’s Quarterly and
Annual Reports about their evaluation and whether there have been significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the evaluation.

Executive and Incentive Compensation

In June 2010, the Federal Reserve Board, OCC and FDIC issued joint interagency guidance on incentive
compensation policies (the “Joint Guidance”) intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-
taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk
profile of an organization, either individually or as part of a group, is based upon the key principles that a banking
organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking
beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal
controls and risk management; and (iii) be supported by strong corporate governance, including active and effective
oversight by the organization’s board of directors.

Pursuant to the Joint Guidance, the Federal Reserve Board will review as part of a regular, risk-focused
examination process, the incentive compensation arrangements of financial institutions such as Farmers. Such
reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and
the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included
in reports of examination and deficiencies will be incorporated into the institution’s supervisory ratings, which can
affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against
an institution if its incentive compensation arrangements, or related risk-management control or governance
processes, pose a risk to the organization’s safety and soundness, and prompt and effective measures are not being
taken to correct the deficiencies.

On February 7, 2011, the federal banking agencies initially issued jointly proposed rules on incentive-based
compensation arrangements under applicable provisions of the Dodd-Frank Act (the “First Proposed Rules”). The
First Proposed Rules generally apply to financial institutions with $1.0 billion or more in assets that maintain
incentive-based compensation arrangements for certain covered employees.

The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive
compensation practices, imposes new executive compensation disclosure requirements, and contains additional
considerations of the independence of compensation advisors.

Future Legislation

Various and significant legislation affecting financial institutions and the financial industry is from time to

time introduced in the U.S. Congress and state legislatures, as well as by regulatory agencies. Such initiatives may
include proposals to expand or contract the powers of bank holding companies and depository institutions or
proposals to substantially change the financial institution regulatory system. It is likely that the Trump
Administration and the U.S. Congress will pursue and potentially implement legislative or regulatory changes
affecting financial institutions and the financial industry. For example, in 2018, President Trump signed a bill
reforming the Dodd-Frank Act. Additional legislation could change the operating environment for Farmers and its
subsidiaries in unpredictable ways. With the enactment and the continuing implementation of the Dodd-Frank Act
and regulations thereunder, the nature and extent of future legislative and regulatory changes affecting financial
institutions remains very unpredictable. Farmers cannot predict the scope and timing of any such future legislation
and, if enacted, the effect that it could have on its business, financial condition or results of operations.

Summary

To the extent that the foregoing information describes statutory and regulatory provisions applicable to the

Company or its subsidiaries, it is qualified in its entirety by reference to the full text of those provisions or
agreements. Also, such statutes, regulations and policies are continually under review by the U.S. Congress and
state legislatures as well as federal and state regulatory agencies and are subject to change at any time, particularly
in the current economic and regulatory environment. Any such change in applicable statutes, regulations or
regulatory policies could have a material effect on Farmers and its business, financial condition or results of
operations.

Item 1A. Risk Factors.

The following are certain risk factors that could materially and negatively affect our business, results of
operations, cash flows or financial condition. These risk factors should be considered in connection with evaluating
the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our
actual results or financial condition to differ materially from those projected in forward-looking statements. The
risks that are discussed below are not the only ones we face. If any of the following risks occur, our business,
financial condition or results of operations could be negatively affected. Additional risks that are not presently
known or that we presently deem to be immaterial could also have a material, adverse impact on our business,
financial condition or results of operations.

Risks Relating to Economic and Market Conditions

Changes in economic, political, and market conditions may adversely affect our industry and our business.

Our success depends in part on national and local economic, political, and market conditions as well as
governmental monetary and other financial policies. Conditions such as inflation, recession, unemployment,
changes in interest rates, money supply, governmental fiscal policies and other factors beyond our control may
adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. Because we have a
significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of
property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy
may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which
would have an adverse impact on our earnings. If during a period of reduced real estate values we are required to
liquidate the collateral securing loans to satisfy the debt or to increase our allowance for loan losses, it could
materially reduce our profitability and adversely affect our financial condition. Moreover, the Financial Accounting
Standards Board changed the requirements for establishing the loan loss allowance as detailed in the paragraph
describing ASU 2016 – 13 in NOTE 1. The majority of our loans are to individuals and businesses in Northeast
Ohio. Consequently, further significant declines in the economy in the area could have a material adverse effect on
our business, financial condition or results of operations. It is uncertain when the negative credit trends in our
market will reverse, and, therefore, future earnings are susceptible to further declining credit conditions in the
market in which we operate.

Changes in interest rates could adversely affect our income and financial condition.

Our earnings and cash flow are dependent upon our net interest income. Net interest income is the difference

between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser
extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of
deposits and wholesale borrowings). Our level of net interest income is primarily a function of the average balance
of our interest-earning assets, the average balance of our interest-bearing liabilities and the spread between the yield
on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our
interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by external factors, such as the
local economy, competition for loans and deposits, the monetary policy of the Federal Reserve Board and market
interest rates.

Interest rates are beyond our control, and they fluctuate in response to general economic conditions and the

policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in
monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of
investments, the generation of deposits and the rates received on loans and investment securities and paid on
deposits. While we have taken measures intended to manage the risks of operating in a changing interest rate
environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk. See
additional interest rate risk discussion under the Market Risk section found in Item 7A of this Annual Report on
Form 10-K.

Defaults by another larger financial institution could adversely affect financial markets generally.

The commercial soundness of many financial institutions may be closely interrelated as a result of credit,

trading, clearing or other relationships between institutions. As a result, concerns about, or a default or threatened
default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by
other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial
intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we and
our subsidiaries interact on a daily basis, and therefore could adversely affect our business, financial condition or
results of operations.

Risks Related to Our Business

We extend credit to a variety of customers based on internally set standards and judgment. We manage

credit risk through a program of underwriting standards, the review of certain credit decisions and an on-going
process of assessment of the quality of credit already extended. Our credit standards and on-going process of
credit assessment might not protect us from significant credit losses.

We take credit risk by virtue of making loans, extending loan commitments and letters of credit and, to a

lesser degree, purchasing non-governmental securities. Our exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize “in-market” lending, while avoiding highly leveraged transactions
as well as excessive industry and other concentrations. Our credit administration function employs risk management
techniques to ensure that loans adhere to corporate policy and problem loans are promptly identified. While these
procedures are designed to provide us with the information needed to implement policy adjustments where
necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in
avoiding undue credit risk.

We have significant exposure to risks associated with commercial real estate and residential real estate in

our primary markets.

As of December 31, 2019, approximately 61.6% of our loan portfolio consisted of commercial real estate and

residential real estate loans, including real estate development, construction and residential and commercial
mortgage loans. Consequently, real estate-related credit risks are a significant concern for us. The adverse
consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic
developments that are not controllable or entirely foreseeable by us or our borrowers.

Our business depends significantly on general economic conditions in the State of Ohio. Accordingly, the
ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly
affected by economic conditions in the regions we serve or by changes in the local real estate markets. A significant
decline in general economic conditions caused by inflation, recession, unemployment, acts of terrorism or other
factors beyond our control could have an adverse effect on our business, financial condition or results of operations.

Our indirect lending exposes us to increased credit risks.

A portion of our current lending involves the purchase of consumer automobile installment sales contracts

from automobile dealers located in Northeastern Ohio. These loans are for the purchase of new or late model used
cars. We serve customers over a broad range of creditworthiness, and the required terms and rates are reflective of
those risk profiles. While these loans have higher yields than many of our other loans, such loans involve significant
risks in addition to normal credit risk. Potential risk elements associated with indirect lending include the limited
personal contact with the borrower as a result of indirect lending through dealers, the absence of assured continued
employment of the borrower, the varying general creditworthiness of the borrower, changes in the local economy
and difficulty in monitoring collateral. While indirect automobile loans are secured, such loans are secured by
depreciating assets and characterized by loan to value ratios that could result in us not recovering the full value of an
outstanding loan upon default by the borrower. Delinquencies, charge-offs and repossessions of vehicles in this
portfolio are always concerns. If general economic conditions worsen, we may experience higher levels of
delinquencies, repossessions and charge-offs.

Commercial and industrial loans may expose us to greater financial and credit risk than other loans.

As of December 31, 2019, approximately 14.1% of our loan portfolio consisted of commercial and industrial

loans. Commercial and industrial loans generally carry larger loan balances and can involve a greater degree of
financial and credit risk than other loans. Any significant failure to pay on time by our customers would hurt our
earnings and cause a significant increase in non-performing loans. The increased financial and credit risk associated
with these types of loans are a result of several factors, including the concentration of principal in a limited number
of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing
properties and the increased difficulty of evaluating and monitoring these types of loans. In addition, when
underwriting a commercial or industrial loan, we may take a security interest in commercial real estate, and, in some
instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to
potential financial risks. An increase in non-performing loans could result in a net loss of earnings from these loans,
an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material
adverse effect on our business, financial condition or results of operations.

Our allowance for loan loss may not be adequate to cover actual future losses.

We maintain an allowance for loan losses to cover current, probable incurred loan losses. Every loan we

make carries a certain risk of non-repayment, and we make various assumptions and judgments about the
collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of loans. Through a periodic review and consideration of the
loan portfolio, management determines the amount of the allowance for loan losses by considering general market
conditions, credit quality of the loan portfolio, the collateral supporting the loans and performance of customers
relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic,
operating and other conditions, including changes in interest rates, which may be beyond our control, and these
losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the loss
allowance will be adequate in the future. If our assumptions prove to be incorrect, our allowance for loan losses
may not be sufficient to cover losses inherent in our loan portfolio, which will require additions to the allowance.
Excessive loan losses and significant additions to our allowance for loan losses could have a material adverse impact
on our business, financial condition or results of operations.

We are subject to certain risks with respect to liquidity.

“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our

obligations, including commitments to originate loans, to repay our wholesale borrowings and other liabilities and to
satisfy the withdrawal of deposits by our customers. Our primary source of liquidity is our core deposit base, which
is raised through our retail branch system. Core deposits – savings and money market accounts, time deposits less
than $250 thousand and demand deposits—comprised approximately 90.3% of total deposits at December 31, 2019.
Additional available unused wholesale sources of liquidity include advances from the FHLB, issuances through
dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further
provided by unencumbered, or unpledged, investment securities that totaled $179.2 million at December 31, 2019.
An inability to raise funds through deposits, borrowings, the sale or pledging as collateral of loans and other assets
could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to
finance our activities could be impaired by factors that affect us specifically or the financial services industry in
general. Factors that could negatively affect our access to liquidity sources include a decrease in the level of our
business activity due to a market downturn or negative regulatory action against us. Our ability to borrow could also
be impaired by factors that are not specific to us, such as severe disruption of the financial markets or negative news
and expectations about the prospects for the financial services industry as a whole, as evidenced by recent turmoil in
the domestic and worldwide credit markets.

Our business strategy includes continuing our growth plans. Our business, financial condition or results of

operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a profitable growth strategy both within our existing markets and in new
markets. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by
companies in significant growth stages of development. We cannot assure that we will be able to expand our market
presence in our existing markets or successfully enter new markets or that any such expansion will not adversely
affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on
our business, future prospects, financial condition or results of operations and could adversely affect our ability to
successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results
could be materially adversely affected.

We may experience difficulties in integrating acquired businesses, or acquisitions may not perform as

expected.

We completed the acquisition of Maple Leaf in January of 2020 and Monitor in 2017. The successful

integration of these acquisitions depends on our ability to manage the operations and personnel of the acquired
businesses. Integrating operations is complex and requires significant efforts and expenses. Potential difficulties we
may encounter as part of the integration process include the following:

•

employees may voluntarily or involuntarily exit the Company because of the acquisitions;

our management team may have its attention diverted while trying to integrate the acquired
companies;

we may encounter obstacles when incorporating the acquired operations into our operations;

differences in business backgrounds, corporate cultures and management philosophies;

potential unknown liabilities and unforeseen increased expenses;

previously undetected operational or other issues; and

the acquired operations may not otherwise perform as expected or provide expected results.

Any of these factors could adversely affect each company’s ability to maintain relationships with customers,
suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the acquisition or
could reduce each company’s earnings or otherwise adversely affect our business and financial results after the
acquisition.

We may fail to realize all of the anticipated benefits of acquisitions, which could reduce our anticipated

profitability.

We expect that our acquisitions will result in certain synergies, business opportunities and growth prospects,

although we may not fully realize these expectations. Our assumptions underlying estimates of expected cost
savings may be inaccurate or general industry and business conditions may deteriorate. In addition, our growth and
operating strategies for acquired businesses may be different from the strategies that the acquired companies pursued.
If these factors limit our ability to integrate or operate the acquired companies successfully or on a timely basis, our
expectations of future results of operations, including certain cost savings and synergies expected to result from
acquisitions, may not be met.

We may not be able to attract and retain skilled people.

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best

people in most activities in which we engage can be intense, and we may not be able to retain or hire the people we
want or need. In order to attract and retain qualified employees, we must compensate them at market levels. If we
are unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain our
competitive position, our performance, including our competitive position, could suffer, and, in turn, adversely
affect our business, financial condition or results of operations.

Strong competition within our markets could reduce our ability to attract and retain business.

We encounter significant competition from banks, savings and loan associations, credit unions, mortgage
banks, and other financial service companies in our markets. Some of our competitors offer a broader range of
products and services than we can offer as a result of their size and ability to achieve economies of scale. Such
competition includes major financial companies whose greater resources may afford them a marketplace advantage
by enabling them to maintain more numerous banking locations and support extensive promotional and advertising
campaigns. Our ability to maintain our history of strong financial performance and return on investment to
shareholders will depend in part on our continued ability to compete successfully in our market. Our financial
performance and return on investment to shareholders also depends on our ability to expand the scope of available
financial services to our customers. In addition to other banks, competitors include securities dealers, brokers,
investment advisors and finance and insurance companies. The increasingly competitive environment is, in part, a
result of changes in regulation, changes in technology and product delivery systems and the accelerating pace of
consolidation among financial service providers.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to utilize alternative methods to complete financial
transactions that historically have involved banks. For example, consumers can now maintain funds in brokerage
accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete
transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of
eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits
and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits
as a source of funds could have a material adverse effect on our business, financial condition or results of operations.

We are exposed to operational risk.

Similar to any large organization, we are exposed to many types of operational risk, including reputational
risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by
employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled
computer or telecommunications systems.

Negative public opinion can result from our actual or alleged conduct in any number of activities, including

lending practices, corporate governance and acquisitions and from actions taken by government regulators and
community organizations in response to those activities. Negative public opinion can adversely affect our ability to
attract and keep customers, and can expose us to litigation and regulatory action.

Given the volume of transactions we process, certain errors may be repeated or compounded before they are

discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our
transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation
of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our
operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses
or electrical or telecommunications outages), which may give rise to disruption of service to customers and to
financial loss of liability. We are further exposed to the risk that our external vendors may be unable to fulfill their
contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective
employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove
to be inadequate.

Unauthorized disclosure of sensitive or confidential customer information, whether through a data breach

of our computer systems by cyber-attack or otherwise, could severely harm our business.

As part of our financial institution business, we collect, process and retain sensitive and confidential client and
customer information on behalf of our subsidiaries and other third parties. Despite the security measures we have in
place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security
breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other
similar events. If information security is breached, information could be lost or misappropriated, resulting in
financial loss or costs to us or damages to others. Any security breach involving the misappropriation, loss or other

unauthorized disclosure of confidential customer information, whether by us or by our vendors, could severely
damage our reputation, expose us to the risks of litigation and liability, or disrupt our operations, and have a material
adverse effect on our business, financial condition or results of operations. We have not experienced any material
loss relating to a cyber-attack or other information security breach, but there can be no assurance that we will not
suffer such attacks or attempted breaches, or incur resulting losses, in the future. Our risks with respect to these
threats remains heightened due to the evolving sophistication and frequency of such threats. As cyber-attacks and
other attempted information security threats continue to evolve, we may be required to spend significant additional
resources in efforts to modify and enhance our protective measures or in investigating or remediating of security
breaches or vulnerabilities.

We depend on our subsidiaries for dividends, distributions and other payments.

As a financial holding company, we are a legal entity separate and distinct from our subsidiaries. Our
principal source of funds to pay dividends on our common shares is dividends from these subsidiaries. Federal and
state statutory provisions and regulations limit the amount of dividends that our banking and other subsidiaries may
pay to us without regulatory approval. In the event our subsidiaries become unable to pay dividends to us, we may
not be able to pay dividends on our outstanding common shares. Accordingly, our inability to receive dividends
from our subsidiaries could also have a material adverse effect on our business, financial condition and results of
operations. Further discussion of our ability to pay dividends can be found under the caption “Dividends and
Transactions with Affiliates” in Item 1 of this Annual Report on Form 10-K.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available

when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our

operations. Federal banking agencies have proposed extensive changes to their capital requirements; including
raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital. The
final form of such regulations and their impact on the Company is unknown at this time, but may require us to raise
additional capital. In addition, we may elect to raise capital to support our business or to finance acquisitions, if any,
or for other anticipated reasons. Our ability to raise additional capital, if needed, will depend on financial
performance, conditions in the capital markets, economic conditions and a number of other factors, including the
satisfaction or release of preemptive rights in the event of a common share offering, many of which are outside our
control. Therefore, there can be no assurance additional capital can be raised when needed or that capital can be
raised on acceptable terms. Impairment to our ability to raise capital may have a material adverse effect on our
business, financial condition or results of operations.

Risks Related to the Legal and Regulatory Environment

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

The FDIC maintains the Deposit Insurance Fund to resolve the cost of bank failures. Since late 2008, the FDIC

has taken various actions intended to maintain a strong funding position and restore reserve ratios of the Deposit
Insurance Fund. Those actions included increasing assessment rates for all insured institutions, requiring riskier
institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and
unsecured debt levels, and imposing special assessments. In addition, in 2011 the FDIC approved a final rule that
changed the deposit insurance assessment base and assessment rate schedule, adopted a new large-bank pricing
assessment scheme and set a target size for the Deposit Insurance Fund. The rule, as mandated by the Dodd-Frank
Act, finalized a target size for the Deposit Insurance Fund at 2 percent of insured deposits. The FDIC recently
adopted rules revising assessments in a manner that benefits banks with assets of less than $10 billion, although
there can be no assurance that such assessments will not change in the future.

We have a limited ability to control the amount of premiums we are required to pay for FDIC insurance. If

there are additional financial institution failures or other significant legislative or regulatory changes, the FDIC may
be required to increase assessment rates or take actions similar to those taken after 2008. Increases in FDIC
insurance assessment rates may materially adversely affect our results of operations and our ability to continue to
pay dividends on our common shares at the current rate or at all.

Legislative or regulatory changes or actions, or significant litigation, could adversely impact us or the

businesses in which we are engaged.

The financial services industry is extensively regulated. We are subject to extensive state and federal
regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may
change from time to time and are primarily intended for the protection of consumers, depositors and the Deposit
Insurance Fund, and not to benefit our shareholders. The impact of any changes to laws and regulations or other
actions by regulatory agencies may negatively impact us or our ability to increase the value of our business.
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities,
including the imposition of restrictions on the operation of an institution, the classification of assets by an institution
and the adequacy of an institution’s allowance for loan losses. Additionally, actions by regulatory agencies or
significant litigation against us could cause us to devote significant time and resources to defending our business and
may lead to penalties that materially affect our shareholders and us.

In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the
housing finance market consider winding down Fannie Mae and Freddie Mac, which could negatively affect our
sales of loans.

Even a reduction in regulatory restrictions could adversely affect our operations and our shareholders if less

restrictive regulation increases competition within the industry generally or within our markets.

Our results of operations, financial condition or liquidity may be adversely impacted by issues arising in

foreclosure practices, including delays in the foreclosure process, related to certain industry deficiencies, as well
as potential losses in connection with actual or projected repurchases and indemnification payments related to
mortgages sold into the secondary market.

Previous announcements of deficiencies in foreclosure documentation by several large seller/servicer financial
institutions have raised various concerns relating to mortgage foreclosure practices. The integrity of the foreclosure
process is important to our business, as an originator and servicer of residential mortgages. As a result of our
continued focus of concentrating our lending efforts in our primary markets in Ohio, as well as servicing loans for
the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac), we do not anticipate suspending any of our foreclosure activities. We previously reviewed our
foreclosure procedures and concluded they are generally conservative in nature and do not present the significant
documentation deficiencies underlying other industry foreclosure problems. Nevertheless, we could face delays and
challenges in the foreclosure process arising from claims relating to industry practices generally, which could
adversely affect recoveries and our financial results, whether through increased expenses of litigation and property
maintenance, deteriorating values of underlying mortgaged properties or unsuccessful litigation results generally.

In addition, in connection with the origination and sale of residential mortgages into the secondary market, we
make certain representations and warranties, which, if breached, may require us to repurchase such loans, substitute
other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. Although
we believe that our mortgage documentation and procedures have been appropriate and are generally conservative in
nature, it is possible that we will receive repurchase requests in the future and we may not be able to reach favorable
settlements with respect to such requests. It is therefore possible that we may increase our reserves or may sustain
losses associated with such loan repurchases and indemnification payments.

Environmental liability associated with commercial lending could have a material adverse effect on our

business, financial condition or results of operations.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business,
we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or
toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable
for remediation costs, as well as for personal injury and property damage. In addition, we own and operate certain
properties that may be subject to similar environmental liability risks.

Environmental laws may require us to incur substantial expenses and may materially reduce the affected

property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental
liability. Although we have policies and procedures requiring the performance of an environmental site assessment
before initiating any foreclosure action on real property, these assessments may not be sufficient to detect all
potential environmental hazards. The remediation costs and any other financial liabilities associated with an
environmental hazard could have a material adverse effect on our business, financial condition or results of
operations.

Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require

charges to earnings, which could result in a negative impact on our results of operations.

In assessing the impairment of investment securities, we consider the length of time and extent to which the fair
value has been less than cost, the financial condition and near-term prospects of the issuers, whether the market decline
was affected by macroeconomic conditions and whether we have the intent to sell the debt security or will be required
to sell the debt security before its anticipated recovery. Under current accounting standards, goodwill and certain other
intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically
or when impairment indicators are present. Assessment of goodwill and such other intangible assets could result in
circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such
circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period. Deferred tax
assets are only recognized to the extent it is more likely than not they will be realized. Should management determine
it is not more likely than not that the deferred tax assets will be realized, a valuation allowance with a change to
earnings would be reflected in the period. This was realized as a result of the enactment on December 22, 2017, of
H.R.1, known as the “Tax Cuts and Jobs Act” which, among other things, reduced the corporate income tax rate to
21% effective January 1, 2018. As a result of passage of the new tax law, Farmers completed a revaluation of its net
deferred tax assets. The Company’s deferred tax assets, net of deferred tax liabilities, represent corporate tax
benefits anticipated to be realized in the future. The reduction in the federal corporate tax rate, effective January 1,
2018, reduces these benefits. Farmers reduced its net deferred tax assets by approximately $1.8 million in the fourth
quarter of 2017, representing an impact on earnings per share of approximately $0.06 per diluted share based fourth
quarter weighted average diluted shares outstanding of approximately 27.5 million.

Changes and uncertainty in tax laws could adversely affect our performance.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll,
financial institutions tax, withholding and ad valorem taxes. Changes to our taxes could have a material adverse
effect on our results of operations and, as described in the above risk discussion and below, the fair value of net
deferred tax assets. In addition, our customers are subject to a wide variety of federal, state and local taxes.
Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products,
which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on
our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed
securities in which we have invested.

The Tax Cuts and Jobs Act, among other changes, imposes additional limitations on the federal income tax
deductions individual taxpayers may take for mortgage loan interest payments and for payments of state and local
taxes, including real property taxes. The Tax Cuts and Jobs Act also imposes additional limitations on the
deductibility of business interest expense and eliminates other deductions in their entirety, including deductions for
certain home equity loan interest payments. Such limits and eliminations may result in customer defaults on loans
we have made and decrease the value of mortgage-backed securities in which we have invested.

Anti-takeover provisions could delay or prevent an acquisition or change in control by a third party.

Provisions of the Ohio General Corporation Law, our Amended Articles of Incorporation, and our Amended

Code of Regulations, including a staggered board and supermajority voting requirements, could make it more
difficult for a third party to acquire control of us or could have the effect of discouraging a third party from
attempting to acquire control of us.

We may be a defendant from time to time in the future in a variety of litigation and other actions, which

could have a material adverse effect on our business, financial condition or results of operations.

Our subsidiaries and we may be involved from time to time in the future in a variety of litigation arising out of

our business. Our insurance may not cover all claims that may be asserted against us, and any claims asserted
against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or
settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our
business, financial condition or results of operations. In addition, we may not be able to obtain appropriate types or
levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms,
if at all.

Item 1B. Unresolved Staff Comments.

There are no matters of unresolved staff comments from the Commission staff.

Item 2. Properties.

Farmers National Banc Corp.’s Properties

The Company does not own any property. The Company’s operations are conducted at Farmers Bank’s main

office, which is located at 20 and 30 S. Broad St., Canfield, Ohio.

Farmers National Bank Property

The Bank’s main office is located at 20 and 30 S. Broad St., Canfield, Ohio. The other locations of Farmers

Bank are:

Office Building..................... 40 & 46 S. Broad St., Canfield, Ohio
Austintown Office ................ 22 N. Niles-Canfield Rd., Youngstown, Ohio
Lake Milton Office ............... 17817 Mahoning Avenue, Lake Milton, Ohio
Cornersburg Office............... 3619 S. Meridian Rd., Youngstown, Ohio
Colonial Plaza Office ........... 401 E. Main St., Canfield, Ohio
Western Reserve Office........ 102 W. Western Reserve Rd., Youngstown, Ohio
Salem Office......................... 2424 E. State St., Salem, Ohio
Columbiana Office ............... 340 State Rt. 14, Columbiana, Ohio
Damascus Office .................. 29053 State Rt. 62, Damascus, Ohio
Poland Office........................ 106 McKinley Way W., Poland, Ohio
Niles Office .......................... 1 S. Main St., Niles, Ohio
Niles Drive Up...................... 170 E. State St., Niles, Ohio
Girard Office ........................ 121 N. State St., Girard, Ohio
Eastwood Office ................... 5845 Youngstown-Warren Rd., Niles, Ohio
Niles Operation Center ......... 51 S. Main St., Niles, Ohio
Canton Office ....................... 4518 Fulton Dr. NW, Suite 100, Canton, Ohio
McClurg Road Office ........... 42 McClurg Rd., Boardman, Ohio
Howland Office .................... 1625 Niles-Cortland Rd., Warren, Ohio
Wealth Management Bldg.... 2 S. Broad St., Canfield, Ohio
Alliance Office ..................... 310 W. State St., Alliance, Ohio
Midway Office...................... 7227 E. Lincoln Way, Apple Creek, Ohio
Dalton Office ........................ 12 W. Main St., Dalton, Ohio
Calcutta Office...................... 15703 State Rt. 170, Calcutta, Ohio
East Liverpool Office ........... 617 Bradshaw Ave., East Liverpool, Ohio
Kidron Office........................ 4950 Kidron Rd., Kidron, Ohio
Lisbon Office........................ 131 E. Lincoln Way, Lisbon, Ohio
Lodi Office ........................... 106 Ainsworth St., Lodi, Ohio
Massillon Office ................... 211 Lincoln Way E., Massillon, Ohio
Mayflower Office ................. 2312 Lincoln Way NW, Massillon, Ohio
Mount Eaton Office.............. 15974 E. Main St., Mount Eaton, Ohio
Orrville Main Office............. 112 W. Market St., Orrville, Ohio
West High Street Office ....... 1320 W. High St., Orrville, Ohio
Seville Office........................ 4885 Atlantic Dr., Seville, Ohio
Smithville Office .................. 153 E. Main St., Smithville, Ohio
Burbank Road Office............ 4192 Burbank Rd., Wooster, Ohio
Downtown Wooster

Office ............................... 305 W. Liberty St., Wooster, Ohio

Midland Office ..................... 629 Midland Ave., Midland, Pennsylvania
Beachwood Lending

Office .............................. 27600 Chagrin Blvd., Suite 300, Woodmere, Ohio

Shreve Office........................ 201 N. Market St., Shreve, Ohio
Beaver Lending Office ......... 501 3rd St., Beaver, Pennsylvania

The Bank owns all locations except the Colonial Plaza, Canton, Alliance, East Liverpool, Fairlawn, and

Downtown Wooster offices, and the Beaver and Beachwood lending offices, which are leased.

Farmers Trust Company Property

Farmers Trust operates from five locations owned or leased by the Bank:

Boardman Office..................... 42 McClurg Rd., Boardman, Ohio
Howland Office....................... 1625 Niles-Cortland Rd., Warren, Ohio
Canton Office .......................... 4518 Fulton Dr. NW, Suite 100, Canton, Ohio
Downtown Wooster Office ..... 305 W. Liberty St., Wooster, Ohio
Fairview Park .......................... 22720 Fairview Center Dr., Suite 100, Fairview

Park, Ohio

The Bank owns the Boardman and Howland offices and leases space to Farmers Trust. The Canton, Wooster

and Fairview Park locations are leased from third parties.

Farmers National Insurance, LLC Property

Farmers Insurance operates from two locations, which are owned by the Bank:

Boardman Office .................... 42 McClurg Rd., Boardman, Ohio
Bowers Group Building ......... 339 N. High St., Cortland, Ohio

Item 3. Legal Proceedings.

In the normal course of business, the Company and its subsidiaries are at times subject to pending and
threatened legal actions, some for which the relief or damages sought are substantial. Although Farmers is not able
to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management
believes that, based on the information currently available, the legal contingency of the pending settlement described
in NOTE-24 is the only matter that requires an accrual be made at December 31, 2019. It is possible that the
ultimate resolution of other matters, if unfavorable, may be material to the results of operations in a particular future
period as the time and amount of any resolution of such actions and its relationship to the future results of operations
are not known.

Item 4. Mine Safety Disclosures

Not applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of
Equity Securities

Market Information regarding the Company’s Common Shares.

Farmers’ common shares currently trade under the symbol “FMNB” on the Nasdaq Capital Market. Farmers
had 28,541,285 common shares outstanding and approximately 3,278 holders of record of common shares at March
1, 2020. The following table sets forth price ranges and dividend information for Farmers’ common shares for the
calendar quarters indicated. Quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission, and may not represent actual transactions. Certain limitations and restrictions on the ability of Farmers
to continue to pay quarterly dividends are described under the caption “Capital Resources” in Item 7 of this Part II,
and under the caption “Dividends and Transactions with Affiliates” in Item 1 of Part I.

Quarter Ended
High........................................................................ $
Low......................................................................... $
Cash dividends paid per share ................................ $

Purchases of Common Shares by Farmers.

March 31,
2019

June 30,
2019

September 30,
2019

December 31,
2019

14.98
11.57
0.09

March 31,
2018

15.90
12.80
0.07

$
$
$

15.00
13.44
0.09

$
$
$

15.13
13.25
0.10

$
$
$

16.50
14.02
0.10

June 30,
2018

September 30,
2018

December 31,
2018

16.75
13.56
0.07

$
$
$

16.90
14.95
0.08

$
$
$

15.48
11.56
0.08

On July 30, 2019, the Company announced that its Board of Directors authorized the purchase of up to
1,500,000 shares of its common stock in the open market or in privately negotiated transactions, from time to time
and subject to market and other conditions. This 2019 Repurchase Program supersedes the Company’s prior share
repurchase program initially approved in 2012 authorizing the purchase of up to 920,000 shares of common stock.
The 2019 Repurchase Program may be modified, suspended or terminated by the Company at any time. There were
201,169 shares repurchased during the course of 2019, and no shares repurchased during 2018 and 2017.

Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA
(Table Dollar Amounts in Thousands except Per Share Data)

For the Years Ending December 31,
Summary of Earnings

Total Interest and Dividend Income

2019

2018

2017

2016

2015

(including fees on loans) ......................... $ 101,986
19,608
82,378
2,450
28,602
65,455
43,075
7,315
35,760

Total Interest Expense ................................
Net Interest Income ....................................
Provision for Loan Losses ..........................
Noninterest Income ....................................
Noninterest Expense...................................
Income Before Income Taxes.....................
Income Taxes .............................................
NET INCOME ........................................... $

Per Share Data

Basic Earnings Per Share ........................... $
Diluted Earnings Per Share ........................
Cash Dividends Paid ..................................
Book Value at Year-End ............................
Tangible Book Value (1) ............................

1.29
1.28
0.38
10.82
9.28

Balances at Year-End

91,766
13,265
78,501
3,000
25,499
62,717
38,283
5,714
32,569

1.18
1.16
0.30
9.44
7.86

80,527
6,881
73,646
3,350
24,051
61,567
32,780
10,069
22,711

0.82
0.82
0.22
8.79
7.14

72,498
4,378
68,120
3,870
23,244
59,452
28,042
7,485
20,557

0.76
0.76
0.16
7.88
6.21

53,827
4,090
49,737
3,510
18,306
53,979
10,554
2,499
8,055

0.36
0.36
0.12
7.35
5.76

Total Assets ................................................ $2,449,158
Earning Assets ............................................ 2,268,440
Total Deposits............................................. 2,008,964
77,050
Short-Term Borrowings .............................
45,147
Long-Term Borrowings..............................
Loans Held for Sale ....................................
2,600
Net Loans ................................................... 1,797,052
299,309
Total Stockholders' Equity .........................

$2,328,864
2,076,969
1,799,720
244,759
6,033
1,237
1,722,248
262,320

$2,159,069
1,998,245
1,604,719
289,565
6,994
272
1,565,066
242,074

$1,966,113
1,819,455
1,524,756
198,460
15,036
355
1,416,783
213,216

$1,869,902
1,735,843
1,409,047
225,832
22,153
1,769
1,287,887
198,047

Average Balances

Total Assets ................................................ $2,383,236
284,759
Total Stockholders' Equity .........................

$2,230,380
247,965

$2,082,447
228,963

$1,924,914
211,408

$1,482,527
162,086

Significant Ratios

Return on Average Assets (ROA) ..............
Return on Average Equity (ROE) ..............
Average Earning Assets/Average Assets ...
Average Equity/Average Assets.................
Loans/Deposits ...........................................
Allowance for Loan Losses/Total Loans....
Allowance for Loan

Losses/Nonperforming Loans .................
Efficiency Ratio (Tax equivalent basis)(2)
Net Interest Margin ....................................
Dividend Payout Rate.................................
Tangible Common Equity Ratio (3) ...........

1.50%

1.46%

12.56
92.83
11.95
90.17
0.80

228.32
56.59
3.82
29.47
10.67

13.13
93.01
11.12
96.20
0.78

175.81
57.93
3.87
25.53
9.56

1.09%
9.92
92.35
10.99
98.30
0.78

160.04
59.66
3.99
26.47
9.31

1.07%
9.72
91.49
10.98
93.63
0.76

132.83
61.59
4.01
21.03
8.75

0.54%
4.97
91.91
10.93
92.04
0.69

85.96
75.26
3.81
33.32
8.50

(1)

Tangible book value per share is a non GAAP measure used by management and others within the financial
services industry. Tangible book value per share is calculated by dividing tangible common equity by the
number of average shares outstanding.

(2)

(3)

The efficiency ratio is calculated by dividing total noninterest expense by net interest income plus noninterest
income.

The tangible common equity ratio is calculated by dividing total common stockholders’ equity by total assets,
after reducing both amounts by intangible assets. The tangible common equity ratio is not required by U.S.
GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the
adequacy of our capital levels. Since there is no authoritative requirement to calculate the tangible common
equity ratio, our tangible common equity ratio is not necessarily comparable to similar capital measures disclosed
or used by other companies in the financial services industry. Tangible common equity and tangible assets are
non U.S. GAAP financial measures and should be considered in addition to, not as a substitute for or superior to,
financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the actual
unaudited tangible common equity ratio as of December 31, 2019, reconciliations of tangible common equity to
U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets are set forth below:

Reconciliation of Common Stockholders’ Equity to Tangible Common Equity

December 31,
2019
Stockholders' Equity ................................................. $ 299,309
Less Goodwill and other intangibles.........................
42,645
Tangible Common Equity ......................................... $ 256,664

2018
$ 262,320
43,952
$ 218,368

2017
$ 242,074
45,369
$ 196,705

2016
$ 213,216
45,154
$ 168,062

2015
$ 198,047
42,911
$ 155,136

Reconciliation of Total Assets to Tangible Assets

December 31,
2015
Total Assets .............................................................. $2,449,158 $2,328,864 $2,159,069 $1,966,113 $1,869,902
42,911
Less Goodwill and other intangibles ........................
Tangible Assets ........................................................ $2,406,513 $2,284,912 $2,113,700 $1,920,959 $1,826,991

43,952

45,154

45,369

42,645

2019

2016

2017

2018

Acquisitions have occurred during the five year periods represented above that makes comparability difficult. See
Note 2 – Business Combinations and Note 18 – Income Taxes for additional details. Below are measures that are
non GAAP and are presented as additional information for the reader.

Reconciliation of Net Income, Excluding Merger Related Expenses and Deferred Tax Asset Adjustment

December 31,
2019
Net income ................................................................ $ 35,760
167
Acquisition related costs - tax equated .....................
0
Deferred tax asset adjustment ...................................
35,927
Net income - adjusted ...............................................
Average diluted shares outstanding ..........................
27,876
Diluted EPS excluding acquisition costs and

2018
$ 32,569
(158)
0
32,411
27,974

2017
$ 22,711
283
1,793
24,787
27,619

2016
$ 20,557
412
0
20,969
27,209

2015
8,055
4,831
0
12,886
22,684

deferred tax asset adjustment ................................. $

1.29

1.16

0.90

0.77

0.57

Reconciliation of Return on Average Assets and Average Equity, Excluding Merger Related Expenses and Deferred
Tax Asset Adjustment

December 31,
ROA excluding merger related expenses (4)............
ROE excluding merger related expenses (5) ............

2019
1.51%
12.62%

2018
1.45%
13.07%

2017
1.19%
10.83%

2016
1.09%
9.92%

2015
0.87%
7.95%

(4) Net income - adjusted divided by average assets

(5) Net income - adjusted divided by average equity

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(

RATE AND VOLUME ANALYSIS
(Table Dollar Amounts in Thousands except Per Share Data)

The following table analyzes by rate and volume the dollar amount of changes in the components of the interest
differential:

Tax Equivalent Interest Income

Loans .................................................................... $
Taxable securities .................................................
Tax-exempt securities...........................................
Equity securities ...................................................
Funds sold and other cash.....................................
Total interest income ................................................... $

Interest Expense

Time deposits........................................................ $
Brokered time deposits .........................................
Savings deposits ...................................................
Demand deposits ..................................................
Short term borrowings ..........................................
Long term borrowings ..........................................
Total interest expense .................................................. $

Increase (decrease) in tax equivalent

2019 change from 2018
Change Due
To Volume

Change Due
To Rate

Net
Change

2018 change from 2017
Change Due
To Volume

Change Due
To Rate

Net
Change

9,325
(88)
1,223
(25)
85
10,520

3,637
1,919
270
2,895
(2,686)
308
6,343

6,153
(276)
825
39
18
6,759

1,542
2,448
(119)
779
(3,248)
493
1,895

3,172
188
398
(64)
67
3,761

2,095
(529)
389
2,116
562
(185)
4,448

9,619
29
(98)
115
250
9,915

1,645
2
287
1,715
2,769
(34)
6,384

6,568
(4,434)
1,151
57
(40)
3,302

540
2
(78)
299
81
(75)
769

3,051
4,463
(1,249)
58
290
6,613

1,105
0
365
1,416
2,688
41
5,615

net interest income.................................................... $

4,177

4,864

(687) $

3,531

2,533

998

The amount of change not solely due to rate or volume changes was allocated between the change due to rate and
the change due to volume based on the relative size of the rate and volume changes.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following presents a discussion and analysis of Farmers’ financial condition and results of operations by

its management. The review highlights the principal factors affecting earnings and the significant changes in balance
sheet items for the years 2019, 2018 and 2017. Financial information for prior years is presented when appropriate.
The objective of this financial review is to enhance the reader’s understanding of the accompanying tables and
charts, the consolidated financial statements, notes to financial statements and financial statistics appearing
elsewhere in this Annual Report on Form 10-K. Where applicable, this discussion also reflects management’s
insights of known events and trends that have or may reasonably be expected to have a material effect on Farmers’
business, financial condition or results of operations.

Cautionary Note Regarding Forward Looking Statements

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.

Readers are cautioned not to put undue reliance on forward-looking statements, which speak only as of the

date thereof. The following list, which is not intended to be an all-encompassing list of risks and uncertainties
affecting the Company, summarizes several factors that could cause the Company’s actual results to differ
materially from those anticipated or expected in these forward-looking statements:

•

general economic conditions in market areas where Farmers conducts business, which could materially
impact credit quality trends;

business conditions in the banking industry;

the regulatory environment;

fluctuations in interest rates;

demand for loans in the market areas where Farmers conducts business;

rapidly changing technology and evolving banking industry standards;

competitive factors, including increased competition with regional and national financial institutions;

new service and product offerings by competitors and price pressures; and

other similar items.

Other factors not currently anticipated may also materially and adversely affect Farmers’ business, financial
condition, results of operations or cash flows. There can be no assurance that future results will meet expectations.
Farmers does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a
result of new information, future events or otherwise, except as may be required by applicable law.

Results of Operations

Comparison of Operating Results for the Years Ended December 31, 2019 and 2018.

The Company’s net income totaled $35.8 million during 2019, compared to $32.6 million for 2018. On a per
share basis, diluted earnings per share were $1.28 as compared to $1.16 diluted earnings per share for 2018. Return
on average assets and return on average equity were 1.50% and 12.56%, respectively, for the year ending December
31, 2019, compared to 1.46% and 13.13% for 2018. The return on average tangible equity, excluding acquisition
costs, is a non GAAP measure and decreased from 15.95% in 2018 to 14.88% in 2019.

On January 7, 2020, the Company completed the acquisition of Maple Leaf Financial, Inc. (“Maple Leaf”), the

parent company of Geauga Savings Bank, with branches located in Cuyahoga and Geauga Counties in Ohio. The
Company expects the acquisition to increase synergies and cost savings resulting from the combining of the two
companies. The transaction involved both cash and 1,398,229 shares of stock totaling $39.2 million. Pursuant to
the terms of the Merger Agreement, common shareholders of Maple Leaf had the right to receive $640.00 in cash or
45.5948 common shares, without par value, of the Company, subject to an overall limitation of 50% of the Maple
Leaf common shares being exchanged for Farmers common shares and 50% exchanged for cash. Holders of
outstanding and unexercised warrants to purchase Maple Leaf Common Shares received an amount in cash equal to
the excess of $640.00 over $370.00, the exercise price of such warrants. As of January 7, 2020, Maple Leaf had
total assets of $277.0 million, which included gross loans of $182.1 million, deposits of $183.1 million and equity of
$32.1 million.

On August 15, 2017, the Company completed the acquisition of Monitor, the holding company for Monitor
Bank. The transaction involved both cash and 465,787 shares of stock totaling $7.5 million. Pursuant to the terms
of the merger agreement, common shareholders of Monitor were entitled to elect to receive consideration in cash or
in common shares, without par value, of the Farmers National Banc Corp., subject to an overall limitation of 85% of
the Monitor common shares being exchanged for Farmers common shares and 15% exchanged for cash. The per
share cash consideration of $769.38 was equal to Monitor’s March 31 tangible book value multiplied by 1.25.
Based on the volume weighted average closing price of Farmers common shares for the 20 trading days ended
August 11, 2017 of $14.04, the final stock exchange ratio was 54.80, resulting in an implied value per Monitor
common share of $769.38.

Net Interest Income

Net interest income, the principal source of the Company’s earnings, represents the difference between

interest income on interest-earning assets and interest expense on interest-bearing liabilities. For 2019, taxable
equivalent net interest income increased $4.2 million, or 5.2%, from 2018. Interest-earning assets averaged $2.212
billion during 2019, increasing $137.8 million compared to 2018. The Company’s interest-bearing liabilities
increased 6.7% from $1.553 billion in 2018 to $1.656 billion in 2019.

The Company finances its earning assets with a combination of interest-bearing and interest-free funds. The

interest-bearing funds are composed of deposits, short-term borrowings and long-term debt. Interest paid for the use
of these funds is the second factor in the net interest income equation. Interest-free funds, such as demand deposits
and stockholders’ equity, require no interest expense and, therefore, contribute significantly to net interest income.

The profit margin, or spread, on invested funds is a key performance measure. The Company monitors two

key performance indicators - net interest spread and net interest margin. The net interest spread represents the
difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing
liabilities. The net interest spread in 2019 was 3.53%, decreasing from 3.66% in 2018. The net interest margin
represents the overall profit margin – net interest income as a percentage of total interest-earning assets. This
performance indicator gives effect to interest earned for all investable funds including the substantial volume of
interest-free funds. For 2019, the net interest margin, measured on a fully taxable equivalent basis, decreased to
3.82%, compared to 3.87% in 2018. The net interest margin, excluding the impact of amortization and accretion
from acquisitions, decreased 5 basis point to 3.78% for the year ended December 31, 2019. The accretion added
$75.9 thousand per month during 2019 and will continue over the next several years.

The decrease in net interest margin is mainly due to pressure on decreasing rates as the Federal Reserve Bank
continued to cut the federal funds interest rate in 2019. The federal funds interest rate decreased 3 times for a total
of 75 basis points during the year. Total taxable equivalent interest income was $104.1 million for 2019, which is
$10.5 million more than the $93.6 million reported in 2018. In comparing the years ending December 31, 2019 and
2018, yields on earning assets increased 20 basis points while the cost of interest bearing liabilities increased 33
basis points. Average loans increased $125.3 million, or 7.7%, in 2019, and the loan yield increased 18 basis points
to 5.09%. Tax equated income from securities, federal funds and other increased $1.2 million, or 8.9%, in 2019.
Farmers saw its yields on these assets increase from 3.04% in 2018 to 3.22% in 2019 and the average balance of
investment securities and federal funds sold also increased from $442.0 million in 2018 to $454.5 million in 2019.

The decrease in the federal funds interest rate as mentioned above reduced the cost of short-term borrowings and

interest-bearing deposits during 2019. Total interest expense amounted to $19.6 million for 2019, a 47.8% increase
from $13.3 million reported in 2018. Interest-bearing deposits increased $271.6 million or 21.5% and increases in
interest rates paid on deposits resulted in a $8.7 million or 107.1% increase in interest expense on deposit balances.
Other borrowings balances decreased $168.1 million or 58.4% and the interest expense related to these borrowings
decreased $2.4 million or 46.4%. The total cost of interest-bearing deposits and borrowings increased from 0.85% in
2018 to 1.18% in 2019.

Management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve

so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin.

Noninterest Income

Total noninterest income increased by $3.1 million or 12.2% in 2019. The increase in noninterest income is

due to several factors. Trust fee income increased from $7.1 million to $7.5 million, representing an increase of
$349 thousand or 4.9%, resulting from growth in new customers and an increase in market value of trust assets.
Commissions from the sale of investment products increased $303 thousand or 27.5% during 2019. Net gains on the
sale of loans increased from $2.7 million in 2018 to $4.4 million in 2019, or 63.0%, and insurance agency
commissions increased to $2.9 million compared to $2.6 million in 2018. These increases were offset by a decrease
in income from retirement plan consulting fees of $195 thousand and a decrease in security gains of $229 thousand.
The Bank and the Company expect noninterest income to increase during 2020 as management continues to focus
on growing the various sources of noninterest income.

Noninterest Expenses

Noninterest expense for 2019 was $65.5 million, compared to $62.7 million in 2018, representing an increase
of $2.7 million, or 4.4%. Most of the increase was from salaries and employee benefits, which grew $1.2 million or
3.3%, mainly due to merit increases in salaries. Other operating expenses increased by $628 thousand and merger
related expenses increased by $352 thousand. The Company also incurred $505 thousand in litigation expense that
is not expected in future years. These increases were offset by a drop in FDIC insurance of $568 thousand and
telephone and data expense of $113 thousand. Excluding expenses related to acquisition activities, noninterest
expenses measured as a percentage of average assets decreased from 2.82% in 2018 to 2.75% in 2019.

The Company’s tax equivalent efficiency ratio for the twelve-month period ended December 31, 2019 was

56.59%, compared to 57.93% for the same period in 2018. The main factors leading to the improvement in the
efficiency ratio was the increase in net interest income and noninterest income, along with the stabilized level of
noninterest expenses relative to average assets as explained in the preceding paragraph. The efficiency ratio is
calculated as follows: non-interest expense divided by the sum of tax equivalent net interest income plus non-
interest income, excluding security gains and losses and intangible amortization. This ratio is a measure of the
expense incurred to generate a dollar of revenue. Management will continue to closely monitor and keep the
increases in other expenses to a minimum.

Income Taxes

Income tax expense totaled $7.3 million for 2019 and $5.7 million in 2018. 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 17.0% for 2019 and
14.9% for 2018. The increased effective tax rate is due to income tax liability adjustments. We anticipate that the
effective rate in 2020 will be in the range of 15% to 17%. Refer to Note 18 to the consolidated financial statements
for additional information regarding the effective tax rate.

Comparison of Operating Results for the Years Ended December 31, 2018 and 2017.

The Company’s net income totaled $32.6 million during 2018, compared to $22.7 million for 2017. On a per
share basis, diluted earnings per share were $1.16 as compared to $0.82 diluted earnings per share for 2017. Return
on average assets and return on average equity were 1.46% and 13.13%, respectively, for the year ending December
31, 2018, compared to 1.09% and 9.92% for 2017. The return on average tangible equity increased from 13.48% in
2017 to 15.95% in 2018.

On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law. H.R.1, among
other things, reduced the corporate income tax rate to 21% effective January 1, 2018. As a result of passage of the
new tax law, Farmers’ effective tax rate decreased from 30.72% for the year ended December 31, 2017 to 14.92%
for the year ended December 31, 2018. It is important to note that also as a result of the new tax law, Farmers
determined that its net deferred tax assets needed to be reduced in the fourth quarter of 2017 by approximately $1.8
million, representing an impact on earnings per share of approximately $0.06 per diluted share for that fourth quarter,
based on that quarter’s weighted average diluted shares outstanding of approximately 28 million.

On August 15, 2017, the Company completed the acquisition of Monitor, the holding company for Monitor
Bank. The transaction involved both cash and 465,787 shares of stock totaling $7.5 million. Pursuant to the terms
of the merger agreement, common shareholders of Monitor were entitled to elect to receive consideration in cash or
in common shares, without par value, of the Farmers National Banc Corp., subject to an overall limitation of 85% of
the Monitor common shares being exchanged for Farmers common shares and 15% exchanged for cash. The per
share cash consideration of $769.38 is equal to Monitor’s March 31 tangible book value multiplied by 1.25. Based
on the volume weighted average closing price of Farmers common shares for the 20 trading days ended August 11,
2017 of $14.04, the final stock exchange ratio was 54.80, resulting in an implied value per Monitor common share
of $769.38.

Net Interest Income

Net interest income, the principal source of the Company’s earnings, represents the difference between

interest income on interest-earning assets and interest expense on interest-bearing liabilities. For 2018, taxable
equivalent net interest income increased $3.5 million, or 4.6%, from 2017. Interest-earning assets averaged $2.075
billion during 2018, increasing $151.3 million compared to 2017. The Company’s interest-bearing liabilities
increased 7.1% from $1.449 billion in 2017 to $1.553 billion in 2018.

The Company finances its earning assets with a combination of interest-bearing and interest-free funds. The

The profit margin, or spread, on invested funds is a key performance measure. The Company monitors two

key performance indicators - net interest spread and net interest margin. The net interest spread represents the
difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing
liabilities. The net interest spread in 2018 was 3.66%, decreasing from 3.88% in 2017. The net interest margin
represents the overall profit margin – net interest income as a percentage of total interest-earning assets. This
performance indicator gives effect to interest earned for all investable funds including the substantial volume of
interest-free funds. For 2018, the net interest margin, measured on a fully taxable equivalent basis, decreased to
3.87%, compared to 3.99% in 2017. The net interest margin, excluding the impact of amortization and accretion
from acquisitions, decreased 13 basis point to 3.83% for the year ended December 31, 2018. The accretion added
$69.5 thousand per month during 2018 and will continue over the next several years.

The decrease in net interest margin is mainly due to pressure on increasing deposit rates as the Federal
Reserve Bank continued to raise the federal funds interest rate in 2018. The federal funds interest rate increased 4
times for a total of 100 basis points during the year. Total taxable equivalent interest income was $93.6 million for
2018, which is $9.9 million more than the $83.7 million reported in 2017. In comparing the years ending December
31, 2018 and 2017, yields on earning assets increased 16 basis points while the cost of interest bearing liabilities
increased 38 basis points. Average loans increased $139.0 million, or 9.3%, in 2018, and the loan yield increased
eighteen basis points to 4.91%. Tax equated income from securities, federal funds and other increased $296
thousand, or 2.3%, in 2018. Farmers saw its yields on these assets decrease slightly from 3.05% in 2017 to 3.04% in
2018 and the average balance of investment securities and federal funds sold also increased from $429.6 million in
2017 to $442.0 million in 2018.

The increase in the federal funds interest rate as mentioned above impacted the cost of short-term borrowings and

interest-bearing deposits during 2018. Total interest expense amounted to $13.3 million for 2018, a 92.8% increase
from $6.9 million reported in 2017. Interest-bearing deposits increased $96.4 million or 8.2% and increases in interest
rates paid on deposits resulted in a $3.6 million or 81.3% increase in interest expense on deposit balances. Other
borrowings balances increased only $6.9 million or 2.5%, however the interest expense related to these borrowings
increased $2.7 million or 114%. The total cost of interest-bearing deposits and borrowings increased from 0.47% in
2017 to 0.85% in 2018.

Management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve

so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin.

Noninterest Income

Total noninterest income increased by $1.4 million or 6% in 2018. The increase in noninterest income is due

to several factors. Trust fee income increased from $6.4 million to $7.1 million, representing an increase of $695
thousand or 10.8%, resulting from growth in new customers and an increase in market value of trust assets.
Commissions from the sale of investment products increased $184 thousand or 20% during 2018. Debit card
interchange fees increased $262 thousand or 8.5% as customers continue to increase their use of debit cards to make
purchases of goods and services. Insurance agency commissions also increased to $2.6 million compared to $2.4
million in 2017 and service charges on deposit accounts increased from $4.1 million in 2017 to $4.3 million in 2018.
These increases were offset by a decrease in income from the sale of mortgage loans of $337 thousand and a
decrease in retirement plan consulting fees of $173 thousand. The Bank and the Company expect noninterest
income to increase during 2019 as management continues to focus on growing the various sources of noninterest
income.

Noninterest Expenses

Noninterest expense for 2018 was $62.7 million, compared to $61.6 million in 2017, representing an increase
of $1.1 million, or 1.8%. Most of the increase was from salaries and employee benefits, which grew $1.2 million or
3.5%, mainly due to merit increases in salaries and a 1.8% increase the number of full time equivalent employees
from 445 to 453. Other operating expenses increased by $309 thousand or 4.2%, and state and local taxes increased
by $224 thousand or 13.5%. These increases were offset by a drop in merger related expenses of $1 million.
Excluding expenses related to acquisition activities, noninterest expenses measured as a percentage of average assets
decreased from 2.93% in 2017 to 2.82% in 2018.

The Company’s tax equivalent efficiency ratio for the twelve-month period ended December 31, 2018 was

57.93%, compared to 59.66% for the same period in 2017. The main factors leading to the improvement in the
efficiency ratio was the increase in net interest income and noninterest income, along with the stabilized level of
noninterest expenses relative to average assets as explained in the preceding paragraph. The efficiency ratio is
calculated as follows: non-interest expense divided by the sum of tax equivalent net interest income plus non-
interest income, excluding security gains and losses and intangible amortization. This ratio is a measure of the
expense incurred to generate a dollar of revenue. Management will continue to closely monitor and keep the
increases in other expenses to a minimum.

Income Taxes

Income tax expense totaled $5.7 million for 2018 and $10.1 million in 2017. Income taxes are computed

using the appropriate effective tax rates for each period. The decrease in the current year tax expense is primarily
attributable to the previously mentioned reduction in the corporate income tax rate from 35% to 21% as a result of
the Tax Cuts and Jobs Act. The income tax expense of $10.1 million in 2017 was also impacted by the $1.8 million
adjustment increase to income tax expense as a result of the write-down of the Company’s deferred tax asset from
35% to 21%. 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 14.9% for 2018 and 30.7% for 2017. We anticipate that the
effective rate in 2019 will be in the range of 15% to 16%. Refer to Note 18 to the consolidated financial statements
for additional information regarding the effective tax rate.

Liquidity

Farmers 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.

Principal sources of liquidity include assets considered relatively liquid, such as short-term investment

securities, federal funds sold and cash and due from banks.

Along with its liquid assets, Farmers has additional sources of liquidity available which help to insure that
adequate funds are available as needed. These other sources include, but are not limited to, loan repayments, 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 two major domestic banks. At December 31, 2019, Farmers had not borrowed against
these lines of credit. Management feels that its liquidity position is more than adequate and will continue to monitor
the position on a monthly basis. The Company also has additional borrowing capacity with the FHLB, as well as
access to the Federal Reserve Discount Window, which provides an additional source of funds. The Company
views its membership in the FHLB as a solid source of liquidity. As of December 31, 2019, the Bank is eligible to
borrow an additional $460 million from the FHLB under various fixed rate and variable rate credit facilities.
Advances outstanding from the FHLB at December 31, 2019 amounted to $117.8 million.

Farmers’ primary investing activities are originating loans and purchasing securities. During 2019, net cash

used by investing activities amounted to $93.1 million, compared to $179.3 million used in 2018. The reduction
was mainly the result of less cash used for lending activities. Net increases in loans were $77.5 million in 2019,
compared to $160.2 million in 2018. The cash used by lending activities during 2019 can be attributed to the
activity in the commercial real estate, commercial and industrial, residential real estate, and agricultural loan
portfolios. Purchases of securities available for sale were $83.0 million in 2019, compared to $69.2 million in 2018,
and proceeds from maturities and sales of securities available for sale were $33.4 million in 2019, compared to
$16.2 million in 2018.

Farmers’ primary financing activities are obtaining deposits, repurchase agreements and other borrowings.

Net cash provided by financing activities amounted to $67.2 million for 2019, compared to $139.6 million in 2018.
The majority of this decrease can be attributed to the net change in short-term borrowings. The increase in deposits
was $209.2 million in 2019 compared to an increase of $195 million in 2018. Short-term borrowings decreased
$167.7 million in 2019 compared to $44.8 million in 2018. The decrease in short-term borrowings is mainly a result
of the growth in deposit balances, which allowed the Company to pay down short-term Federal Home Loan Bank
Advances during the year.

Loan Portfolio

Maturities and Sensitivities of Loans to Interest Rates

The following schedule shows the composition of loans and the percentage of loans in each category at the

dates indicated. Balances include unamortized loan origination fees and costs.

Years Ended December 31,
2019
Commercial Real Estate.................... $ 615,521
255,458
Commercial.......................................
499,301
Residential Real Estate .....................
214,998
Consumer ..........................................
Agricultural .......................................
226,261
Total Loans ....................................... $1,811,539 100.0% $1,735,840 100.0% $1,577,381 100.0% $1,427,635 100.0% $1,296,865 100.0%

2018
34.0% $ 578,181
244,742
14.1
492,133
27.6
221,795
11.9
198,989
12.4

2015
31.2% $ 408,534
199,457
14.3
394,582
30.1
185,077
15.3
109,215
9.1

2016
32.5% $ 445,966
204,359
13.9
430,195
29.7
218,100
13.5
129,015
10.4

2017
33.3% $ 512,502
219,973
14.1
468,884
28.4
212,935
12.8
163,087
11.4

31.5%
15.4
30.4
14.3
8.4

The following schedule sets forth maturities based on remaining scheduled repayments of principal for

commercial, commercial real estate and agricultural loans listed above as of December 31, 2019:

Types of Loans

Commercial ...................................................................
Commercial Real Estate ................................................
Agricultural....................................................................

1 Year or less
79,192
$
16,909
$
26,666
$

$
$
$

1 to 5 Years

135,844
181,938
38,778

Over 5 Years
40,422
$
416,674
$
160,817
$

The amounts of commercial, commercial real estate and agricultural loans as of December 31, 2019, based on

remaining scheduled repayments of principal, are shown in the following table:

Loan Sensitivities

Floating or Adjustable Rates of Interest ........................
Fixed Rates of Interest ...................................................
Total Loans ....................................................................

1 Year or less
90,617
$
32,150
122,767

Over 1 Year

616,570
357,903
974,473

Total

707,187
390,053
1,097,240

Total loans were $1.8 billion at year-end 2019, compared to $1.7 billion at year-end 2018. Loans grew 4.4%
organically during the past twelve months. The increase in loans is a direct result of Farmers’ focus on loan growth
utilizing a talented lending and credit team, while adhering to a sound underwriting discipline. Most of the increase
in loans has occurred in the commercial real estate, agricultural, residential real estate and commercial loan
portfolios. Loans comprised 79.5% of the Bank’s average earning assets in 2019, compared to 78.7% in 2018. The
product mix in the loan portfolio includes commercial loans comprising 14.1%, residential real estate loans 27.6%,
commercial real estate loans 34.0%, consumer loans 11.9% and agricultural loans 12.4% at December 31, 2019,
compared with 14.1%, 28.4%, 33.3%, 12.8% and 11.4%, respectively, at December 31, 2018.

Loans contributed 86.0% of total taxable equivalent interest income in 2019 and 85.7% in 2018. Loan yields
were 5.09% in 2019, 38 basis points greater than the average rate for total earning assets. Management recognizes
that while the loan portfolio holds some of the Bank’s’ highest yielding assets, it is inherently the most risky
portfolio. Accordingly, management attempts to balance credit risk versus return with conservative credit standards.
Management has developed and maintains comprehensive underwriting guidelines and a loan review function that
monitors credits during and after the approval process. To minimize risks associated with changes in the borrower’s
future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all
types of loans and normally requires collateral. Commercial loans at December 31, 2019 increased 4.4% from year-
end 2018 with outstanding balances of $255.5 million. 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.

Residential real estate mortgage loans increased 1.5% to $499.3 million at December 31, 2019, compared to
$492.1 million in 2018. Farmers originated both fixed rate and adjustable rate mortgages during 2019. Fixed rate
terms are generally limited to fifteen-year terms while adjustable rate products are offered with maturities up to
thirty years.

Commercial real estate loans increased from $578.2 million at December 31, 2018 to $615.5 million at
December 31, 2019, an increase of $37.3 million or 6.5%. 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.

The growth in the commercial and commercial real estate loan portfolios was consistent with the

improvements in the local economy. Several new projects announced in the Company’s market area, along with
relatively decreased levels of unemployment have led small business owners to expand or make additional
investments in their operations.

Agricultural loans increased from $199.0 million in 2018 to $226.3 million in 2019, an increase of $27.3

million or 13.7%. The Company’s agricultural loan portfolio contains a diverse mix of dairy, crops, land, poultry
and cattle loans.

Summary of Loan Loss Experience

The following is an analysis of the allowance for loan losses for the periods indicated:

Years Ended December 31,
Balance at Beginning of Year............................ $
Charge-Offs:

Recoveries on Previous Charge-Offs:

Commercial Real Estate...............................
Commercial..................................................
Residential Real Estate.................................
Consumer .....................................................
Total Recoveries ..........................................
Net Charge-Offs ................................................
Provision For Loan Losses ................................
Balance at End of Year...................................... $
Ratio of Net Charge-offs to Average

Loans Outstanding..........................................
Allowance for Loan Losses/Total Loans...........

2019
13,592

2018
12,315

2017
$ 10,852

2016
8,978

2015
7,632

(45)
(200)
(400)
(1,702)
(2,347)

4
13
58
717
792
(1,555)
2,450
14,487

0
(220)
(318)
(2,318)
(2,856)

126
190
148
669
1,133
(1,723)
3,000
13,592

(207)
(375)
(162)
(2,542)
(3,286)

592
66
100
641
1,399
(1,887)
3,350
$ 12,315

(349)
(245)
(188)
(2,019)
(2,801)

15
45
112
633
805
(1,996)
3,870
10,852

(536)
(290)
(320)
(2,058)
(3,204)

130
9
122
779
1,040
(2,164)
3,510
8,978

0.09%
0.80

0.10%
0.78

0.13%
0.78

0.15%
0.76

0.22%
0.69

Provisions charged to operations amounted to $2.5 million in 2019, compared to $3.0 million in 2018, a
decrease of $550 thousand. The smaller provision for the current year was mainly a result of higher loan loss
quarters rolling off the loss history period used in calculation and lower levels of net charge-offs in the current year.
In determining the estimate of the allowance for loan losses, management computes the historical loss percentage
based upon the loss history of the past 12 quarters. The Company believes that using a loss history of the previous
12 quarters helps mitigate volatility in the timing of charge-offs and better reflects probable incurred losses. Net
charge-offs for the year ended December 31, 2019 were $1.6 million, $168 thousand or 9.8% less than net charge-
offs for the year ended December 31, 2018. The allowance for loan losses to total loans increased to 0.80% at
December 31, 2019 compared to 0.78% at December 31, 2018. When the acquired loans from previous mergers are
excluded the ratio is 0.90% at December 31, 2019 and 0.92% at December 31, 2018, and compares similarly with
the periods prior to 2016 presented in the above table. Additionally, when loans collectively evaluated for
impairment, which excludes acquired loans, are compared to the allowance for loan losses for loans collectively
evaluated for impairment the ratio is 0.89% for the year ended December 31, 2019, compared to 0.96% for the year
ended December 31, 2018. Nonperforming loans to total loans decreased from 0.45% at December 31, 2018 to 0.35%
at December 31, 2019.

With the adoption of ASU 2016-13: Financial Instruments - Credit Losses (Topic 326): Measurement of

Credit Losses on Financial Instruments, on January 1, 2020 the Company had completed the process of
implementation and the process of testing the system. The Company then recorded the onetime adjustment to equity,
on January 1, 2020, to comply with the ASU adoption, in the amount of $2.5 million which increased the allowance
for loan losses by 17%. Management does not expect this amount to change during the first quarter of 2020 but
retains the option to make adjustments if new information becomes available.

The provision for loan losses charged to operating expense is based on management’s judgment after taking

into consideration all factors connected with the collectability of the existing loan portfolio. Management evaluates
the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry
standards and other relevant factors. Specific factors considered by management in determining the amounts
charged to operating expenses include previous charge-off experience, the status of past due interest and principal
payments, the quality of financial information supplied by loan customers and the general condition of the industries
in the community to which loans have been made.

The allowance for loan losses increased $895 thousand during the year. Aside from the various credit quality

metrics discussed above, another reason for the increase in the current year allowance for loan losses was an
increase in the size of the loan portfolio. Loan growth in 2019 amounted to 4.4%.

At December 31, 2019, commercial loans collectively evaluated for impairment totaled $290.0 million with an
allowance allocation of $2.3 million compared to commercial loans collectively evaluated for impairment of $264.2
million with an allowance for loan losses of $2.1 million at December 31, 2018. The commercial loan portfolio
experienced a provision of $417 thousand, compared to a $112 thousand provision in 2018. Impaired loans are
carried at the fair value of the underlying collateral, less estimated disposition costs, if repayment of the loan is
expected to be solely dependent on the sale of the collateral. Otherwise, impaired loans are carried at the present
value of expected cash flows.

Typically, commercial and commercial real estate loans are identified as impaired when they become ninety

days past due, or earlier if management believes it is probable that the Company will not collect all amounts due
under the terms of the loan agreement. When Farmers identifies a loan as impaired and concludes that the loan is
collateral dependent, Farmers performs an internal collateral valuation as an interim measure. Farmers typically
obtains an external appraisal to validate its internal collateral valuation as soon as is practical and adjusts the
associated specific loss reserve, if necessary.

The ratio of the allowance for loan losses to non-performing loans at December 31, 2019 improved to
228.32%, compared to 175.81% at December 31, 2018. Increases in nonaccrual loans in the commercial loan and
consumer loan portfolios were offset by decreases in the residential real estate, agricultural and commercial real
estate loan portfolios. The balance in the allowance for loan losses increased in 2019, with the increased loan
portfolio size, to $14.5 million compared to $13.6 million in 2018.

Nonperforming Assets
December 31,
Nonaccrual loans:

2019

2018

2017

2016

2015

Commercial Real Estate............................................ $
108
Commercial...............................................................
1,169
Residential Real Estate .............................................
2,801
Consumer ..................................................................
858
542
Agricultural ...............................................................
Total Nonaccrual Loans ............................................ $ 5,478
Loans Past Due 90 Days or More...................................
867
Total Nonperforming Loans ........................................... $ 6,345

422
946
4,166
495
736
$ 6,765
966
$ 7,731

717
1,192
4,038
660
56
$ 6,663
1,032
$ 7,695

$ 1,410
1,361
2,636
396
686
$ 6,489
1,681
$ 8,170

$ 3,803
1,609
3,116
457
73
$ 9,058
1,387
$10,445

Other Real Estate Owned ...............................................
19
Total Nonperforming Assets .......................................... $ 6,364

0
$ 7,731

171
$ 7,866

482
$ 8,652

942
$11,387

Loans modified in troubled debt restructurings.............. $ 4,597
TDRs included in Nonaccrual Loans ............................. $ 2,673
Percentage of Nonperforming Loans to Total Loans .....
Percentage of Nonperforming Assets to Total Assets....
Loans Delinquent 30-89 days......................................... 11,893
Percentage of Loans Delinquent 30-89 days to

0.35%
0.26%

$ 5,520
$ 2,997

$ 4,980
$ 2,624

$ 7,007
$ 3,113

$ 9,325
$ 4,733

0.45%
0.33%

0.49%
0.36%

0.57%
0.44%

0.81%
0.61%

8,877

10,191

12,746

9,129

Total Loans..................................................................

0.66%

0.51%

0.65%

0.89%

0.70%

The Company has forgone interest income of approximately $392 thousand from nonaccrual loans as of
December 31, 2019 that would have been earned, over the life of the loans, if all loans had performed in accordance
with their original terms.

Net charge-offs as a percentage of average loans outstanding decreased from 0.10% for 2018 to 0.09% for
2019 as a result of the larger loan portfolio and improved loan quality. Net charge-offs decreased from $1.7 million
in 2018 to $1.6 million in 2019. An increase in gross charge-offs was experienced in the residential real estate loan
and commercial real estate loan portfolios of $82 thousand and $45 thousand, but that was offset by decreases in the
commercial and consumer loan portfolios of $20 thousand and $616 thousand, respectively.

The following table summarizes the Company’s allocation of the allowance for loan losses for the past five

years:

December 31,

2019

Loans to

2018

2017

2016

2015

Loans to

Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans

Commercial Real Estate.. $ 5,843
2,323
Commercial.....................
2,875
Residential Real Estate ...
2,710
Consumer ........................
736
Unallocated .....................
$14,487

43.6% $ 5,036
2,093
16.9
2,837
27.6
2,963
11.9
663
0
100.0% $13,592

42.1% $ 4,260
2,011
16.8
2,521
28.3
2,848
12.8
675
0
100.0% $12,315

40.0% $ 3,577
1,874
16.8
2,205
29.7
2,766
13.5
430
0
100.0% $10,852

37.4% $ 3,127
1,373
17.2
1,845
30.1
2,160
15.3
473
0
100.0% $ 8,978

37.5%
17.8
30.4
14.3
0
100.0%

The allowance allocated to each of the four loan categories should not be interpreted as an indication that

charge-offs in 2019 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. In previous years, the indirect installment loan category has represented the largest percentage of loan
losses. The consumer loan category represents approximately 11.9% of total loans and in 2019, the gross charge-
offs accounted for 72.5% of the losses of the entire loan portfolio. For the commercial loan category, which
represents 14.1% 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, was
$200 thousand for 2019.

There were no loans other than those identified above, that management has known information about
possible credit problems of borrowers and their ability to comply with the loan repayment terms. Management is
actively monitoring certain borrowers’ financial condition and loans which management wants to more closely
monitor due to special circumstances. These loans and their potential loss exposure have been considered in
management’s analysis of the adequacy of the allowance for loan losses.

Loan Commitments and Lines of Credit

In the normal course of business, the Bank has extended various commitments for credit. Commitments for

mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one
year. Normally, no fees are charged on any unused portion, but an annual fee of two percent is charged for the
issuance of a letter of credit.

As of December 31, 2019, there were no concentrations of loans exceeding 10% of total loans that are not

disclosed as a category of loans. As of that date, there were also no other interest-earning assets that are either
nonaccrual, past due, restructured or non-performing.

Investment Securities

The investment securities portfolio increased $30.8 million in 2019. This increase is a result of asset growth

in 2019 and maintaining the security portfolio at a constant level, as a percentage of total assets. The Company’s
investment strategy is to maintain a diverse investment security portfolio with a higher concentration in tax-free
municipal securities and mortgage-backed securities that are issued by U.S. Government sponsored enterprises.
Farmers sold $33.4 million in securities in 2019, resulting in net security losses of $11 thousand. Farmers
recognized market appreciation on faster paying mortgage-backed securities and recognized losses on lower rated
municipal securities, and reinvested in new mortgage-backed securities and higher rated municipal securities to
further diversify the securities portfolio. During 2014, the Company created the Investment subsidiary to hold
municipal securities and take advantage of more favorable tax treatment. At December 31, 2019, the Investment
entity had a balance of $117.5 million in general market tax-free municipal securities.

Farmers’ objective in managing the investment portfolio is to preserve and enhance corporate liquidity

through investment in primarily short and intermediate term securities which are readily marketable and of the
highest credit quality. In general, investment in securities is limited to those funds the Bank feels it has in excess of
funds used to satisfy loan demand and operating considerations.

The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated

with a depository institution, subject to certain exceptions. The Bank does not engage in any of the trading activities
or own any of the types of funds regulated by the Volcker Rule.

Mortgage-backed securities are created by the pooling of mortgages and issuance of a security. Mortgage-
backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages.
Prepayment estimates for mortgage-backed securities are performed at purchase to ensure that prepayment
assumptions are reasonable considering the underlying collateral for the mortgage-backed securities at issue and
current mortgage interest rates and to determine the yield and estimated maturity of the mortgage-backed security
portfolio. Prepayments that are faster than anticipated may shorten the life of the security and may result in faster
amortization of any premiums paid and thereby reduce the net yield on such securities. During periods of increasing
mortgage interest rates, refinancing generally slows as do the prepayments of the underlying mortgages and the
related security. All holdings of mortgage-backed securities were issued by U.S. Government sponsored enterprises.

The following table shows the carrying value of investment securities by type of obligation at the dates

indicated:

Type

December 31,
U.S. Treasury securities...................................................................................... $
U.S. government sponsored enterprise debt securities .......................................
Mortgage-backed securities - residential and collateralized

mortgage obligations .......................................................................................
Small Business Administration...........................................................................
Obligations of states and political subdivisions..................................................
Corporate bonds..................................................................................................
Equity securities..................................................................................................
Other investments measured at net asset value...................................................

Total securities ................................................................................................. $

2019
1,297
2,514

159,257
6,480
261,425
1,260
594
7,315
440,142

2018
1,447
4,562

171,119
11,930
211,944
1,188
495
6,635
409,320

A summary of debt securities held at December 31, 2019 classified according to maturity and including

weighted average yield for each range of maturities is set forth below:

Type and Maturity Grouping

U.S. Treasury securities

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Total U.S. Treasury securities.....................................................................................................

U.S. government sponsored enterprise debt securities

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total U.S. government sponsored enterprise debt securities ......................................................

Mortgage-backed securities - residential and collateralized mortgage

obligations (2)
Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total mortgage-backed securities ...............................................................................................

Small Business Administration

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Total small business administration............................................................................................

Obligations of states and political subdivisions

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total obligations of states and political subdivisions .................................................................

Corporate bonds

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Total other securities...................................................................................................................

December 31, 2019

Fair Value

Weighted Average
Yield (1)

250
681
366
1,297

200
1,711
402
201
2,514

26,612
70,169
40,140
22,336
159,257

1
4,297
2,182
6,480

6,123
32,606
185,580
37,116
261,425

201
838
221
1,260

2.59%
1.92%
2.54%
2.35%

1.60%
1.81%
2.46%
3.15%
2.25%

2.51%
2.52%
2.60%
2.74%
2.59%

1.92%
2.19%
1.88%
1.99%

3.17%
2.95%
3.05%
3.11%
3.07%

1.99%
2.62%
2.82%
2.47%

(1)

The weighted average yield has been computed by dividing the total contractual interest income adjusted for
amortization of premium or accretion of discount over the life of the security by the par value of the securities
outstanding. The weighted average yield of tax-exempt obligations of states and political subdivisions has
been calculated on a fully taxable equivalent basis. The amounts of adjustments to interest which are based on
the statutory tax rate of 21% were $41 thousand, $202 thousand, $1.2 million and $242 thousand for the four
ranges of maturities.

(2)

Payments based on contractual maturity.

Premises and Equipment

Premises and equipment had a net increase of $2.6 million in 2019 as a result of additions of $1.5 million,

disposals of $488 thousand and depreciation of $1.5 million. In accordance with ASU 2016-02, $3.1 million in net
lease obligations were capitalized and added to premises and equipment as well.

Deposits

Deposits represent the Company’s principal source of funds. The deposit base consists of demand deposits,
savings, money market accounts and other time deposits, including $84.1 million in brokered time deposits which
were added for the first time in 2018. Brokered deposits were added as an additional way to control and reduce the
Company’s cost of funds. During the year, the Company’s average total deposits increased from $1.681 billion in
2018 to $1.966 billion in 2019, representing an increase of 16.9%. Noninterest demand deposits increased $13.3
million in 2019. Average interest bearing demand deposits increased $135.4 million, which was offset by a decrease
in savings deposits of $54.6 million since December 31, 2018. Average time deposits increased $107.6 million in
2019. The Company’s focus is on core deposit growth and Farmers will continue to price deposit rates to remain
competitive within the market and to retain customers. At December 31, 2019, core deposits – savings and money
market accounts, time deposits less than $250 thousand, demand deposits and interest bearing demand deposits
represented approximately 90.3% of total deposits.

Bank Owned Life Insurance

Farmers’ owns bank owned life insurance policies on the lives of certain members of management. The

purpose of this investment is to help fund the costs of employee benefit plans. The cash surrender value of these
policies was $35.5 million at December 31, 2019, compared to $34.8 million at December 31, 2018.

Borrowings

Average short-term borrowings decreased $184.9 million or 65.8% since December 31, 2018 as a result of

using brokered time deposits in place of more expensive FHLB borrowings. Additional organic deposits, as
discussed above, helped reduced the need for the short-term borrowings. Average long-term borrowings increased
$16.8 million as maturing short-term FHLB advances were refinanced to capitalize on the favorable long-term
interest rates. See Note 12 and 13 within Item 8 of this Annual report on Form 10-K for additional detail.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

The following table presents, as of December 31, 2019, the Company’s significant fixed and determinable
contractual obligations by payment date. The payment amounts represent those amounts contractually due to the
recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments.
Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial
statements.

Commitments
12/31/2019

Deposits without maturity ......
Certificates of deposit and

brokered time deposits.........
Repurchase agreements ..........
Short-term borrowed funds ....
Short-term FHLB advances....
Long-term borrowings............
Leases .....................................

Note
Ref.

11
12
12
12
13
9

2020
$ 1,514,344

288,872
1,698
350
75,000
922
590

2021

2022

2023

2024

Thereafter

126,032

15,057

17,686

41,526

5,447

792
592

729
474

398
419

0
248

42,306
1,416

There is also a $980 thousand additional commitment to SBIC investment funds over the next several years.
The payments have no predetermined due dates at year end 2019. Note 13 to the consolidated financial statements
discusses in greater detail other commitments and contingencies and the various obligations that exists under those
agreements. Examples of these commitments and contingencies include commitments to extend credit and standby
letters of credit.

At December 31, 2019, the Company did not engage in derivatives or hedging contracts that may expose the

Company to liabilities greater than the amounts recorded on the consolidated balance sheet. Management’s policy is
to not engage in derivatives contracts for speculative trading purposes. The Company does utilize interest-rate
swaps as a way of helping manage interest rate risk and not as derivatives for trading purposes. See Note 22 within
Item 8 of this Annual report on Form 10-K for additional detail.

Capital Resources

Total Stockholders’ Equity increased 14.1% from $262.3 million at December 31, 2018 to $299.3 million in

2019. The increase is due to the net income addition to retained earnings less the amount of dividends paid. During
the year, shareholders received a total of $0.38 per share cash dividends paid in the past four quarters, a 26.7%
increase compared to the $0.30 cash dividends per share paid in 2018. Book value increased 4.1% from $9.44 per
share at December 31, 2018 to $10.82 per share at December 31, 2019. The Company’s tangible book value also
increased from $7.86 per share at December 31, 2018 to $9.28 per share at December 31, 2019, an increase of
16.6%.

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, 2019, under the new
minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III),
Farmers Bank and Farmers are required to have minimum capital ratios. Actual and minimum ratios are detailed in
Note 16 of the Consolidated Financial Statements. Farmers Bank and Farmers had capital ratios above the
minimum levels at December 31, 2019 and 2018. At year-end 2019 and 2018, the most recent regulatory
notifications categorized Farmers Bank as well capitalized under the regulatory framework for prompt corrective
action.

During 2013, the Federal banking regulators approved a final rule to implement revised capital adequacy
standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant
provisions of the Dodd-Frank Act. The final rule strengthens the definition of regulatory capital, increases risk-
based capital requirements, makes selected changes to the calculation of risk-weighted assets, and adjusts the prompt
corrective action thresholds. Community banking organizations, such as the Company and the Bank, became
subject to the new rule on January 1, 2015 and certain provisions of the new rule will be phased in over the period of
2015 through 2019. The Bank has retained, through a one-time election, the prior treatment for most accumulated
other comprehensive income, such that unrealized gains and losses on securities available for sale that did not affect
regulatory capital amounts and ratios. As mentioned in the prior paragraph, the Bank falls within the new regulatory
capital ratio guidelines.

Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally
accepted accounting principles in the United States of America and conform to general practices within the banking
industry. Some of these accounting policies are considered to be critical accounting policies. Critical accounting
policies are those policies that require management’s most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has
identified three accounting policies that are critical accounting policies and an understanding of these policies is
necessary to understand the financial statements. These policies relate to determining the adequacy of the allowance
for loan losses, if there is any impairment of goodwill and other intangibles, and estimating the fair value of assets
acquired and liabilities assumed in connection with any merger activity. Additional information regarding these
policies is included in the notes to the consolidated financial statements, including Note 1 (Summary of Significant
Accounting Policies), Note 4 (Loans) and Note 2 (Business Combinations), and the section above captioned “Loan
Portfolio.” Management believes that the judgments, estimates and assumptions used in the preparation of the
consolidated financial statements are appropriate given the factual circumstances at the time.

Farmers maintains an allowance for loan losses. The allowance for loan losses is presented as a reserve

against loans on the balance sheets. Loan losses are charged off against the allowance for loan losses, while
recoveries of amounts previously charged off are credited to the allowance for loan losses. A provision for loan
losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance. The
provision for credit losses provides for probable losses on loans.

Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates

related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of
homogeneous loans based on historical loss experience, and consideration of current economic trends and
conditions, all of which may be susceptible to significant change. The loan portfolio represents the largest asset
category on the consolidated balance sheets. Management’s assessment of the adequacy of the allowance for loan
losses considers individually impaired loans, pools of homogeneous loans with similar risk characteristics and other
environmental risk factors.

Pools of homogeneous loans with similar risk characteristics are assessed for probable losses. Probable losses
are estimated through application of historical loss experience. Historical loss experience data used to establish loss
estimates may not precisely correspond to the current portfolio. As a result, the historical loss experience used in the
allowance analysis may not be representative of actual unrealized losses inherent in the portfolio.

Management also evaluates the impact of environmental factors which pose additional risks that may not

adequately be addressed in the analyses described above. Such environmental factors could include: levels of, and
trends in, delinquencies and impaired loans, charge-offs and recoveries; trends in volume and terms of loans; effects
of any changes in lending policies and procedures including those for underwriting, collection, charge-off and
recovery; experience, ability, and depth of lending management and staff; national and local economic trends and
conditions; industry and geographic conditions; concentrations of credit such as, but not limited to, local industries,
their employees and suppliers; or any other common risk factor that might affect loss experience across one or more
components of the portfolio. The determination of this component of the allowances requires considerable
management judgment. To the extent actual outcomes differ from management estimates, additional provision for
credit losses could be required that could adversely affect earnings or financial position in future periods. The
“Loan Portfolio” section of this financial review includes a discussion of the factors driving changes in the
allowance for loan losses during the current period.

Management believes that the accounting for goodwill and other intangible assets also involves a higher
degree of judgment than most other significant accounting policies. U.S. 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. U.S.
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,
2019, on a consolidated basis, Farmers had intangibles of $4.4 million subject to amortization and $38.2 million of
goodwill, which was not subject to periodic amortization.

Recent Accounting Pronouncements and Developments

Note 1 to the consolidated financial statements discusses new accounting policies adopted by Farmers during
2018 and 2019 and the expected impact of accounting policies recently issued or proposed but not yet required to be
adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of
operations or liquidity, the impacts are discussed in the applicable sections of this financial review and notes to the
consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Important considerations in asset/liability management are liquidity, the balance between interest rate sensitive

assets and liabilities and the adequacy of capital. Interest rate sensitive assets and liabilities are those which have
yields on rates subject to change within a future time period due to maturity of the instrument or changes in market
rates. While liquidity management involves meeting the funds flow requirements of the Company, the management
of interest rate sensitivity focuses on the structure of these assets and liabilities with respect to maturity and
repricing characteristics. Balancing interest rate sensitive assets and liabilities provides a means of tempering
fluctuating interest rates and maintaining net interest margins through periods of changing interest rates. The
Company monitors interest rate sensitive assets and liabilities to determine the overall interest rate position over
various time frames.

The Company considers the primary market exposure to be interest rate risk. Simulation analysis is used to

monitor the Company’s exposure to changes in interest rates, and the effect of the change to net interest income.
The following table shows the effect on net interest income and the net present value of equity in the event of a
sudden and sustained 300 basis point increase and 100 basis point decrease in market interest rates. The
assumptions and predictions include inputs to compute baseline net interest income, growth rates, expected changes
in rates on interest bearing deposit accounts and loans, competition and various other factors that are difficult to
accurately predict.

Changes In Interest Rate (basis points)
Net Interest Income Change

+300 .............................................................................................
+200 .............................................................................................
+100 .............................................................................................
-100..............................................................................................

Net Present Value Of Equity Change

2019
Result

2018
Result

ALCO
Guidelines

5.8%
4.0%
2.1%
-4.4%

21.6%
19.0%
12.6%
-19.7%

1.8%
1.6%
0.9%
-3.0%

15.2%
11.8%
8.2%
-16.6%

-15%
-10%
-5%
-5%

-20%
-15%
-10%
-10%

It should be noted that at December 31, 2019 and 2018, the change in the net present value of equity exceeded

policy when the simulation model assumed a sudden decrease in rates of 100 basis points (1%). This is primarily
due to the positive impact on the fair value of assets not being as great as the negative impact on the fair value of
certain liabilities. Specifically, because core deposits typically bear relatively low interest rates, their fair value
would be negatively impacted as the rates could not be adjusted by the full extent of the sudden decrease in rates.
Management will continue to monitor the policy exception and may consider changes to the asset/liability position
in the future. The remaining results of the simulations indicate that interest rate change results fall within internal
limits established by the Company at December 31, 2019 and 2018. A report on interest rate risk is presented to the
Board of Directors and the Asset/Liability Committee on a quarterly basis. The Company has no market risk
sensitive instruments held for trading purposes, nor does it hold derivative financial instruments, and does not plan
to purchase these instruments in the near future.

With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the

Company monitors this area most closely. Early withdrawal of deposits, prepayments of loans and loan
delinquencies are some of the factors that can impact actual results in comparison to our simulation analysis. In
addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change
in net interest margin.

Interest rate sensitivity management provides some degree of protection against net interest income volatility.

It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive
assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic
planning also have an effect on the desired balance sheet structure.

Item 8. Financial Statements and Supplementary Financial Data.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Farmers National Banc Corp. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-
15(1) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of;
our principal executive and principal financial officers and effected by the board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles and
includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) in the 2013 Internal Control-Integrated Framework. Based on that
assessment, we believe that, as of December 31, 2019, our internal control over financial reporting is effective based
on those criteria.

CliftonLarsonAllen LLP has audited the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2019, as stated in their report dated March 5, 2020.

Kevin J. Helmick
President and Chief Executive Officer

Carl D. Culp
Senior Executive Vice President and Treasurer

Report of Independent Registered Public Accounting Firm

Crowe LLP
Independent Member Crowe Global

Shareholders and the Board of Directors of
Farmers National Banc Corp.
Canfield, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Farmers National Banc Corp. (the
"Company") as of December 31, 2018, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the
related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and
the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018
in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we

plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud.

Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.

We served as the Company’s auditor from 2003 through 2018.

Crowe LLP

Cleveland, Ohio
March 5, 2019

CONSOLIDATED BALANCE SHEETS
(Table Dollar Amounts in Thousands except Per Share Data)

December 31,
ASSETS
Cash and due from banks...................................................................................................................
Federal funds sold and other ..............................................................................................................
TOTAL CASH AND CASH EQUIVALENTS ...................................................................

Securities available for sale ...............................................................................................................
Equity securities.................................................................................................................................
Loans held for sale .............................................................................................................................
Loans..................................................................................................................................................
Less allowance for loan losses...........................................................................................................
NET LOANS........................................................................................................................

Premises and equipment, net..............................................................................................................
Goodwill ............................................................................................................................................
Other intangibles, net .........................................................................................................................
Bank owned life insurance.................................................................................................................
Other assets ........................................................................................................................................
TOTAL ASSETS .................................................................................................................

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:

Noninterest-bearing.....................................................................................................................
Interest-bearing ...........................................................................................................................
Brokered time deposits................................................................................................................
TOTAL DEPOSITS .............................................................................................................

Short-term borrowings .......................................................................................................................
Long-term borrowings .......................................................................................................................
Other liabilities...................................................................................................................................
TOTAL LIABILITIES.........................................................................................................

Commitments and contingent liabilities (Note 14)

Stockholders' equity

Common Stock - Authorized 50,000,000 shares in 2019 and 2018;

issued 28,179,598 in 2019 and 2018........................................................................................
Retained earnings........................................................................................................................
Accumulated other comprehensive income (loss) ......................................................................
Treasury stock, at cost; 508,859 shares in 2019 and 387,697 shares in 2018.............................
TOTAL STOCKHOLDERS' EQUITY................................................................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..............................................

See accompanying notes

2019

23,229
47,531
70,760

432,233
7,909
2,600
1,811,539
14,487
1,797,052

23,817
38,201
4,444
35,527
36,615
2,449,158

434,126
1,490,763
84,075
2,008,964

77,050
45,147
18,688
2,149,849

2018

18,042
39,884
57,926

402,190
7,130
1,237
1,735,840
13,592
1,722,248

21,211
38,201
5,751
34,758
38,212
2,328,864

421,950
1,352,770
25,000
1,799,720

244,759
6,033
16,032
2,066,544

186,345
108,851
9,826
(5,713)
299,309
2,449,158

186,163
83,630
(4,030)
(3,443)
262,320
2,328,864

CONSOLIDATED STATEMENTS OF INCOME
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
INTEREST AND DIVIDEND INCOME

Loans, including fees ............................................................................................ $
Taxable securities..................................................................................................
Tax exempt securities............................................................................................
Dividends ..............................................................................................................
Federal funds sold and other interest income........................................................
TOTAL INTEREST AND DIVIDEND INCOME........................................

2019

89,103
4,840
6,687
627
729
101,986

INTEREST EXPENSE

Deposits.................................................................................................................
Short-term borrowings ..........................................................................................
Long-term borrowings ..........................................................................................
TOTAL INTEREST EXPENSE ....................................................................
NET INTEREST INCOME ...........................................................................
Provision for loan losses .......................................................................................
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ...

NONINTEREST INCOME

Service charges on deposit accounts.....................................................................
Bank owned life insurance income, including death benefits...............................
Trust fees...............................................................................................................
Insurance agency commissions.............................................................................
Security gains, including change in fair value for equity securities .....................
Retirement plan consulting fees............................................................................
Investment commissions .......................................................................................
Net gains on sale of loans .....................................................................................
Debit card and EFT fees........................................................................................
Other operating income.........................................................................................
TOTAL NONINTEREST INCOME .............................................................

NONINTEREST EXPENSE

Salaries and employee benefits .............................................................................
Occupancy and equipment ....................................................................................
State and local taxes..............................................................................................
Professional fees ...................................................................................................
Merger related costs (income)...............................................................................
Advertising............................................................................................................
FDIC insurance .....................................................................................................
Intangible amortization .........................................................................................
Core processing charges........................................................................................
Telephone and data ...............................................................................................
Other operating expenses ......................................................................................
TOTAL NONINTEREST EXPENSE............................................................
INCOME BEFORE INCOME TAXES .........................................................

INCOME TAXES ......................................................................................................

NET INCOME ............................................................................................... $

16,860
2,250
498
19,608
82,378
2,450
79,928

4,514
818
7,475
2,919
42
1,489
1,406
4,386
3,522
2,031
28,602

37,172
6,649
1,826
3,122
197
1,736
331
1,306
3,370
948
8,798
65,455
43,075

7,315
35,760

EARNINGS PER SHARE:

Basic...................................................................................................................... $
Diluted................................................................................................................... $

1.29
1.28

See accompanying notes.

$
$

2018

79,835
4,928
5,707
652
644
91,766

8,139
4,936
190
13,265
78,501
3,000
75,501

4,254
881
7,126
2,621
271
1,684
1,103
2,729
3,351
1,479
25,499

35,976
6,478
1,887
2,856
(155)
1,559
899
1,418
3,073
1,061
7,665
62,717
38,283

5,714
32,569

1.18
1.16

$
$

2017

69,934
4,899
4,763
537
394
80,527

4,490
2,167
224
6,881
73,646
3,350
70,296

4,077
831
6,431
2,407
4
1,857
919
3,066
3,089
1,370
24,051

34,759
6,292
1,663
2,891
888
1,527
869
1,494
2,880
973
6,950
61,186
33,161

10,450
22,711

0.82
0.82

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
NET INCOME ............................................................................................................. $

2019
35,760

2018
32,569

2017
22,711

Other comprehensive income:

Net unrealized holding gains (losses) on available for sale securities ...........
Reclassification adjustment for (gains) losses realized in income.................
Net unrealized holding gains (losses) ...................................................................
Income tax effect............................................................................................
Unrealized holding gains (losses), net of reclassification and tax ........................

Change in funded status of post-retirement health plan........................................
Income tax effect............................................................................................
Change in funded status of post-retirement health plan, net of tax.......................

17,513
11
17,524
(3,668)
13,856

0
0
0

(5,343)
(283)
(5,626)
1,169
(4,457)

0
0
0

5,107
(4)
5,103
(1,786)
3,317

(55)
19
(36)

Other comprehensive income (loss), net of tax.....................................................

13,856

(4,457)

3,281

TOTAL COMPREHENSIVE INCOME $

49,616

28,112

25,992

See accompanying notes.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
COMMON STOCK

2019

2018

2017

Balance at beginning of year ......................................................................................... $

186,163

186,903

178,317

Issued 80,007 in 2019, 247,853 in 2018 and 18,928 in 2017 treasury shares under
the Long Term Incentive Plan.................................................................................

Issued 465,787 in 2017 as part of a

business combination ..............................................................................................
Stock compensation expense for unvested shares .....................................................
Balance at end of year ...................................................................................................

RETAINED EARNINGS

Balance at beginning of year .........................................................................................
Cumulative effect adjustment upon adoption of ASU 2016-01.................................
Beginning balance adjusted ...........................................................................................
Net income .................................................................................................................
Decrease as a result of shares issued under the Long Term Incentive Plan ..............
Increase as a result of a contingent payment as part of a business combination .......
Reclassification of disproportionate tax effects.........................................................
Dividends declared: $0.38 cash dividends per share in 2019, $0.30 per share

in 2018 and $0.22 per share in 2017 .......................................................................
Balance at end of year ...................................................................................................

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Balance at beginning of year .........................................................................................
Cumulative effect adjustment upon adoption of ASU 2016-01.................................
Beginning balance adjusted ...........................................................................................
Reclassification of disproportionate tax effects.........................................................
Other comprehensive income (loss)...........................................................................
Balance at end of year ...................................................................................................

TREASURY STOCK, AT COST

Balance at beginning of year .........................................................................................
Issued 11,669 shares in contingent payments as part of a business combination......
Issued 125,517, 324,978 and 18,928 shares in 2019, 2018 and 2017 under the

Long Term Incentive Plan ......................................................................................
Purchased 201,169 shares in 2019 .............................................................................
Retained 45,510 and 77,125 shares in 2019 and 2018 to cover tax withholdings
under the

Long Term Incentive Plan ......................................................................................
Balance at end of year ...................................................................................................

TOTAL STOCKHOLDERS' EQUITY AT END OF YEAR $

See accompanying notes.

(1,203 )

(2,415 )

(133 )

0
1,385
186,345

83,630
0
83,630
35,760
0
0
0

(10,539 )
108,851

(4,030 )
0
(4,030 )
0
13,856
9,826

(3,443)
0

1,203
(2,842)

0
1,675
186,163

6,358
2,361
186,903

59,208
169
59,377
32,569
0
0
0

(8,316 )
83,630

596
(169 )
427
0
(4,457 )
(4,030 )

(4,633)
0

2,415
0

42,547
0
42,547
22,711
(5 )
73
(106 )

(6,012)
59,208

(2,791)
0
(2,791)
106
3,281
596

(4,857)
85

139
0

(631)
(5,713)
299,309

(1,225)
(3,443)
262,320

0
(4,633)
242,074

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES

Net income ..............................................................................................................................
Adjustments to reconcile net income to net cash from operating

activities:

2019

2018

2017

35,760

32,569

22,711

Provision for loan losses..................................................................................................
Depreciation and amortization ........................................................................................
Net amortization of securities..........................................................................................
Available for sale security loss (gains)............................................................................
Realized and unrealized (gains) losses on equity securities............................................
Loss on land and building sales, net................................................................................
Stock compensation expense...........................................................................................
Loss (gains) on sale of other real estate owned...............................................................
Earnings on bank owned life insurance...........................................................................
Loss on fixed asset disposal ............................................................................................
Origination of loans held for sale ....................................................................................
Proceeds from loans held for sale....................................................................................
Net gains on sale of loans................................................................................................
Net change in other assets and liabilities.........................................................................
NET CASH FROM OPERATING ACTIVITIES .....................................................

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from maturities and repayments of securities available for

sale................................................................................................................................
Proceeds from sales of securities available for sale ........................................................
Purchases of securities available for sale ........................................................................
Proceeds from sale of equity securities ...........................................................................
Purchases of equity securities..........................................................................................
Purchases of restricted stock ...........................................................................................
Redemption of restricted stock........................................................................................
Loan originations and payments, net...............................................................................
Proceeds from sale of other real estate owned ................................................................
Proceeds from BOLI death benefits ................................................................................
Purchase of bank owned life insurance ...........................................................................
Proceeds from land and building sales ............................................................................
Additions to premises and equipment .............................................................................
Net cash received in business combinations ...................................................................
NET CASH FROM INVESTING ACTIVITIES.......................................................

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in deposits.....................................................................................................
Net change in short-term borrowings ..............................................................................
Repayments of long-term borrowings .............................................................................
Proceeds from long term borrowings ..............................................................................
Cash dividends paid.........................................................................................................
Repurchase of common shares...........................................................................................
NET CASH FROM FINANCING ACTIVITIES.......................................................
NET CHANGE IN CASH AND CASH EQUIVALENTS ........................................

Beginning cash and cash equivalents ..............................................................................
Ending cash and cash equivalents ...................................................................................

Supplemental cash flow information:

Interest paid .....................................................................................................................
Income taxes paid ............................................................................................................

Supplemental noncash disclosures:

Transfer of loans and property to other real estate owned ..............................................
Issuance of stock for business combinations...................................................................
Issuance of stock awards .................................................................................................
Security purchases not settled .........................................................................................
Contingent consideration for business combination .......................................................

$
$

$
$
$
$
$

2,450
2,839
2,323
11
(53 )
26
1,385
45
(818 )
12
(75,568 )
78,591
(4,386 )
(3,856 )
38,761

35,583
33,424
(83,049 )
1,302
(1,939 )
0
8
(77,554 )
236
49
0
252
(1,458 )
0
(93,146 )

209,244
(167,709 )
(935 )
40,000
(10,539 )
(2,842 )
67,219
12,834

57,926
70,760

19,529
6,450

300
0
1,203
812
0

$
$

$
$
$
$
$

3,000
2,991
2,798
(283 )
12
0
1,675
(16 )
(881 )
0
(79,007 )
80,771
(2,729 )
(911 )
39,989

37,012
16,162
(69,241 )
79
(1,642 )
(1,246 )
0
(160,204 )
209
0
0
0
(450 )
0
(179,321 )

195,001
(44,806 )
(1,010 )
0
(8,316 )
(1,225 )
139,644
312

57,614
57,926

12,906
7,300

22
0
2,415
1,642
180

$
$

$
$
$
$
$

3,350
3,139
1,823
(4 )
0
53
2,361
20
(831 )
0
(56,810 )
59,959
(3,066 )
(2,139 )
30,566

43,104
54,497
(114,600 )
0
0
(842 )
0
(132,597 )
643
0
(3,000 )
439
(956 )
16,203
(137,109 )

45,377
91,105
(8,091 )
0
(6,012 )
0
122,379
15,836

41,778
57,614

6,754
8,800

279
6,358
139
0
85

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands except Per Share Data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Farmers National Banc
Corp. and its wholly-owned subsidiaries, The Farmers National Bank of Canfield (“Bank” or “Farmers Bank”),
Farmers Trust Company (“Farmers Trust”) and Farmers National Captive, Inc. (“Captive”). The consolidated
financial statements also include the accounts of the Bank’s subsidiaries; Farmers National Insurance, LLC
(“Farmers Insurance”) and Farmers of Canfield Investment Co. (“Farmers Investments”). The Company acquired
Monitor Bancorp, Inc. (“Monitor”), the holding company of Monitor Bank in 2017 and consolidated the activity
within the Bank. Together all entities are referred to as “the Company.” All significant intercompany balances and
transactions have been eliminated in consolidation.

Corporate Reorganization: During 2019, Trust acquired all shares of National Associates, Inc. (“NAI”) from the
Company through a corporate reorganization. The Company was the sole shareholder of Trust and NAI before the
reorganization. The entities were combined into one reporting unit and one operating segment and began reporting
as one unit, for both internal and external reports, during the third quarter of 2019. The combination is in concert
with the Company’s plan to increase efficiencies within the different business lines.

Nature of Operations: The Company provides full banking services, including wealth management services and
mortgage banking activity, through the Bank. As a national bank, the Bank is subject to regulation of the Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The primary area served by the
Bank is the northeastern region of Ohio through thirty nine (39) locations and two-branch locations in southwestern
Pennsylvania. The Company provides trust services and retirement consulting services through its Farmers Trust
subsidiary and insurance services through the Bank’s Insurance subsidiary. Farmers Trust has a state-chartered bank
license to conduct trust business from the Ohio Department of Commerce – Division of Financial Institutions. The
primary purpose of Farmers Investments is to invest in municipal securities. Captive provides property and casualty
insurance coverage to the Company and its subsidiaries. Captive pools resources with eleven similar insurance
subsidiaries of financial institutions to spread a limited amount of risk among the pool members and to provide
insurance where not currently available or economically feasible in today’s insurance market place.

Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Flows: Cash and cash equivalents include cash on hand, deposits with other financial institutions and federal
funds sold. Generally, federal funds are purchased and sold for one-day periods. Net cash flows are reported for
loan and deposit transactions, short-term borrowings and other assets and liabilities.

Securities: Debt securities are classified as available for sale when they might be sold before maturity. Securities
available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive
income, net of tax. Equity securities with readily determinable fair values are carried at fair value, with changes in
fair value reported in net income. Prior to 2018, equity securities with readily determinable fair values were
classified as available for sale, carried at fair value with unrealized holding gains and losses reported in other
comprehensive income, net of tax.

On January 1, 2018, the Company adopted the new accounting standard for Financial Instruments, which requires
equity investments to be measured at fair value with changes in fair value recognized in net income. The adoption
of this guidance resulted in a $169 thousand increase to beginning retained earnings and a $169 thousand decrease to
accumulated other comprehensive income.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are
amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where
prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the
specific identification method. Purchases are recorded on the trade date.

Management evaluates securities for other-than-temporary impairment (OTTI) on at least a quarterly basis, and
more frequently when economic or market conditions warrant. For securities in an unrealized loss position,
management considers the extent and duration of the unrealized loss, and the financial condition and near-term
prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will
be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of
the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value
is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the
amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be
recognized in the income statement and 2) OTTI related to other factors, which is recognized in other
comprehensive income. The credit loss is defined as the difference between the present value of the cash flows
expected to be collected and the amortized cost basis.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the
lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized
losses, if any, are charged to earnings.

Mortgage loans held for sale are sold with or without servicing rights released. Gains and losses on sales of
mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for
loan losses. Substantially all loans are secured by specific items of collateral including business assets, consumer
assets, and commercial and residential real estate.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination
costs, are deferred and recognized in interest income using the level yield method without anticipating prepayments.
Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless
the loan is well secured and in process of collection. Consumer loans are typically charged off no later than 120
days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual
loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired loans.

For all classes of loans, when interest accruals are discontinued, interest accrued but not received for loans placed on
non-accrual is reversed against interest income. Interest on such loans is thereafter recorded on a cash-basis or cost-
recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments are reasonably assured.

Purchased Credit Impaired Loans: The Company purchased loans that have shown evidence of credit deterioration
since origination. These loans were recorded at the amount paid, such that there is no carryover of the seller’s
allowance for loan losses. The Company estimates the amount and timing of expected cash flows for each loan, and
the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan.
The excess of the loan’s contractual principal and interest over expected cash flows is not recorded.

Over the life of the loan, expected cash flows continue to be estimated. If the present value of expected cash flows
is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected
cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The Company’s
derivatives are interest-rate swap agreements, which are used as part of its asset and liability management strategy to
help manage its interest rate risk position. The Company does not use derivatives for trading or balance sheet
hedging purposes. The derivative transactions are considered instruments with no hedging designation, otherwise
known as stand-alone derivatives. Changes in the fair value of the derivatives are reported currently in earnings, as
other noninterest income.

Concentration of Credit Risk: There are no significant concentrations of loans to any one industry or customer.
However, most of the Company’s business activity is with customers located within Northeastern Ohio. Therefore,
the Company’s exposure to credit risk is significantly affected by changes in the economy of a nine county area.
Loans secured by real estate represent 61.6% of the total portfolio and changes related to the real estate markets are
monitored by management.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred loan
losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. The allowance is
based on management’s judgment taking into consideration past loss experience, reviews of individual loans, current
economic conditions and other factors considered relevant by management at the financial statement date. While
management uses the best information available to establish the allowance, future adjustments to the allowance may
be necessary, which may be material, if economic conditions differ substantially from the assumptions used in
estimating the allowance. If additions to the original estimate of the allowance for loan losses are deemed
necessary, they will be reported in earnings in the period in which they become reasonably estimable and probable.
Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that,
in management’s judgment, should be charged-off.

Acquired loans are individually evaluated and for those purchased loans without evidence of credit deterioration,
management evaluates each reviewed loan using an internal grading system with a grade assigned to each loan at the
date of acquisition. To the extent that any purchased loan is not specifically reviewed, such loan is assumed to have
characteristics similar to the characteristics of the acquired portfolio of purchased loans. The grade for each
purchased loan without evidence of credit deterioration is reviewed subsequent to the date of acquisition any time a
loan is renewed or extended or at any time information becomes available to the Company that provides material
insight regarding the loan’s performance, the status of the borrower or the quality or value of the underlying
collateral. To the extent that current information indicates it is probable that the Company will collect all amounts
according to the contractual terms thereof, such loan is not considered impaired and is not individually considered in
the determination of the required allowance for loan losses. To the extent that current information indicates it is
probable that the Company will not be able to collect all amounts according to the contractual terms thereof, such
loan is considered impaired and is considered in the determination of the required level of allowance.

In determining the day one fair values of purchased loans without evidence of credit deterioration at the date of
acquisition, management includes (i) no carry-over of any previously recorded allowance for loan losses and (ii) an
adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and
grade assigned to each loan. This adjustment is accreted into earnings as a yield adjustment, using the effective
yield method, over the remaining life of each loan.

The allowance consists of specific and general components. The specific component relates to loans that are
individually classified as impaired. A loan is considered impaired when, based on the current information and
events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified,
and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and
classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis for commercial and commercial real estate loans over $750
thousand, individually or in the aggregate, by either the present value of expected future cash flows discounted at the
loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is
collateral dependent. Large groups of smaller balance homogeneous loans, such as consumer and residential real
estate loans are collectively evaluated for impairment and accordingly, they are not separately identified for
impairment disclosures. Non-real estate secured consumer loans in bankruptcy where debt has not been reaffirmed
are considered troubled debt restructurings and are evaluated individually to ensure that accurate accounting
treatment is in place.

The Company considers the guidance on troubled debt restructuring for individual consumer and residential loans
when evaluating for impairment disclosure. Troubled debt restructurings are measured at the present value of
estimated future cash flow using the loan’s effective rate at inception. If a troubled debt restructuring is considered
to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt
restructurings that subsequently default, the Company determines the amount of reserve in accordance with the
accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current
factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history
experienced for the most recent twelve quarters. The formula for calculating the allowance for loan losses requires
that the historical loss percentage be applied to homogeneous and all risk rated loans. This actual loss experience is
supplemented with other economic factors based on the risks present for each portfolio segment. These economic
factors include consideration of the following: levels of and trends in delinquencies and impaired loans; trends in
volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in
lending policies, procedures and practices; experience, ability and depth of lending management and other relevant
staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit
concentrations. The following portfolio segments have been identified:

Commercial Loans. Commercial credit is extended to commercial customers for use in normal business operations
to finance working capital needs, equipment purchases or other projects. The majority of these borrowers are
customers doing business within our geographic regions. These loans are generally underwritten individually and
secured with the assets of the company and the personal guarantee of the business owners. Commercial loans are
made based primarily on the historical and projected cash flow of the borrower and the underlying collateral
provided by the borrower.

Commercial Real Estate Loans. Commercial real estate loans are subject to underwriting standards and processes
similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans
is largely dependent on the successful operation of the property. Loan performance may be adversely affected by
factors impacting the general economy or conditions specific to the real estate market such as geographic location
and property type.

Consumer Loans. Consumer loans are primarily comprised of loans made directly to consumers and indirectly
through automobile dealerships. These loans have a specific matrix which consists of several factors including debt
to income, type of collateral and loan to collateral value, credit history and relationship with the borrower.
Consumer lending uses risk-based pricing in the underwriting process.

Residential Real Estate Loans. Residential mortgage loans represent loans to consumers for the purchase or
refinance of a residence. These loans are generally financed up to 15 years and in most cases, are extended to
borrowers to finance their primary residence. Real estate market values at the time of origination directly affect the
amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity
of losses.

Servicing Rights: When mortgage loans are sold and servicing rights are retained, the servicing rights are initially
recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on
market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation
model that calculates the present value of estimated future net servicing income. The valuation model incorporates
assumptions that market participants would use in estimating future net servicing income, such as the cost to service,
the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates
and losses. The Company compares the valuation model inputs and results to published industry data to validate the
model results and assumptions.

All classes of servicing assets are subsequently measured using the amortization method which requires servicing
rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net
servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of
the assets compared to carrying amount. Any impairment is reported as a valuation allowance, to the extent that fair
value is less than the capitalized amount for a grouping. There was no valuation allowance impairment against
servicing assets as of December 31, 2019 or 2018.

Servicing fee income is recorded when earned for servicing loans based on a contractual percentage of the
outstanding principal or a fixed amount per loan. The amortization of mortgage servicing rights is netted against
loan servicing fee income. Servicing fees, late fees and ancillary fees related to loan servicing are not considered
significant for financial reporting.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less
costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of
cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance
is recorded through expense. These assets are recorded in other assets on the balance sheets as other real estate
owned (“OREO”). OREO totaled $19 thousand at December 31, 2019 and $0 at December 31, 2018. Operating
costs after acquisition are expensed.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost, less accumulated
depreciation. Buildings and related components are depreciated using the straight-line method with useful lives
ranging from 5 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line method with
useful lives ranging from 3 to 10 years.

Restricted Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of
stock based on the level of borrowings and other factors, and may invest in additional amounts. The Bank is also a
member of and owns stock in the Federal Reserve Bank. These stocks are carried at cost, classified as restricted
securities included in other assets, and periodically evaluated for impairment based on ultimate recovery of par
value. Restricted stock totaled $11.7 million at December 31, 2019 and 2018. Both cash and stock dividends are
reported as income.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key officers. Bank
owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet
date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at
settlement.

Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets
are recorded at fair value.

Goodwill and Other Intangible Assets: Goodwill resulting from a business combination is generally determined as
the excess of the fair value of the consideration transferred over the fair value of the net assets acquired as of the
acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful
life is not amortized, but tested for impairment at least annually. The Company has selected September 30 as the
date to perform the annual goodwill impairment tests associated with the acquisition of the Farmers Trust, NAI, First
National Bank of Orrville, 1st National Community Bank, Bowers and Monitor. Intangible assets with definite
useful lives are amortized over their estimated useful lives. Goodwill is the only intangible asset with an indefinite
life on the balance sheet. Core deposit intangible assets arising from bank acquisitions are amortized over their
estimated useful lives of 7 to 8 years. Non-compete contracts are amortized on a straight line basis, over the term of
the agreements. Customer relationship and trade name intangibles are amortized over a range of 13 to 15 years on
an accelerated method.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing
needs. The face amount for these items represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.

Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees,
based on the fair value of these awards at the date of grant. The market price of the Company’s common stock at
the grant date is used for restricted stock awards. Compensation cost is recognized over the required service period,
generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a
straight-line basis over the requisite service period for the entire award.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax
rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Retirement Plans: Employee 401(k) and profit sharing plan expense is the amount of matching and discretionary
contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of
service.

Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share include the dilutive
effect of additional potential common shares issuable under stock equity awards. Earnings and dividends per share
are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss).
Other comprehensive income (loss) consists of unrealized gains and losses on securities available for sale and
changes in the funded status of the post-retirement health plan, which are recognized as separate components of
equity, net of tax effects.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. During 2019 the Company accrued a charge of $505 thousand relating to a pending
settlement of a legal contingency. Management does not believe there are any other matters currently that would
have a material effect on the financial statements. The pending settlement contingency is discussed further in Note
24.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank (“FRB”) was required to meet
regulatory reserve and clearing requirements. The Company had deposits with the FRB of $36.1 million at
December 31, 2019 and $34.2 million at December 31, 2018.

Equity: Treasury stock is carried at cost.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends
paid by the Bank and Farmers Trust to the holding company or by the holding company to shareholders.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market
information and other assumptions as more fully disclosed in Note 7. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly
affect these estimates.

Operating Segments: Operations are managed and financial performance is primarily aggregated and reported in
two lines of business, the Bank segment and Farmers Trust segment. During 2019 the Company merged the
Retirement Consulting segment into the Trust segment. In prior periods segment reporting was reported in three
segments and has been reclassified to two segments to be consistent with current year presentation. The Company
discloses segment information in Note 23.

Reclassification: Some items in the prior year financial statements were reclassified to conform to the current
presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

Adoption of New Accounting Standards and Newly Issued, Not Yet Effective Accounting Standards: In June
2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from nonemployees. The amendments in this ASU were
effective for the reporting periods after December 15, 2018. The Company adopted ASU No. 2018-07 effective
January 1, 2019. There was no impact to the consolidated financial statements as a result of the adoption of ASU
2018-07.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities. This ASU better aligns an entity’s risk management activities and financial
reporting for hedging relationships through changes to both the designation and measurement guidance for
qualifying hedging relationships and the presentation of hedge results. The amendments in this ASU were effective
for the reporting periods after December 15, 2018. The Company adopted ASU No. 2017-12 effective January 1,
2019. There was no significant impact to the consolidated financial statements as a result of the adoption of ASU
2017-12.

During April of 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic
310-20): Premium Amortization on Purchased Callable Debt Securities. Under current U.S. GAAP, a premium is
typically amortized to the maturity date when a callable debt security is purchased at a premium, even if the holder
is certain the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a
premium, the unamortized premium is recorded as a loss in earnings. The new standard shortens the amortization
period for the premium to the earliest call date to more closely align interest income recorded on bonds held at a
premium or a discount with the economics of the underlying instrument. The standard takes effect for public
business entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018.
The Company early adopted this ASU effective January 1, 2018 and there was no material impact on its
Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Instead, under the
new guidance, an entity is to perform its annual goodwill impairment test by comparing the fair value of a reporting
unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying
amount exceeds the reporting unit's fair value. The new guidance is effective for annual reporting periods, and
interim reporting periods within those annual periods, beginning after December 15, 2019. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The
Company does not plan on early adoption of this ASU. The adoption of this guidance is not expected to have an
impact on the Company's Consolidated Financial Statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13: Financial Instruments-
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an
organization to measure all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions and reasonable and supportable forecasts. Financial institutions and other
organizations will now use forward-looking information to better estimate their credit loss forecasts. Many of the
loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change
to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which
loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for
credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU
2016-13 is effective for public companies for annual periods beginning after December 15, 2019, including interim
periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company
completed the process of implementation and the process of testing the system. Adoption of ASU 2016-13
happened on January 1, 2020. The Company has recorded the onetime adjustment to equity, to comply with the
ASU adoption, which increased the allowance for loan losses between 15% and 20% as expected. Management
does not expect this amount to change during the first quarter of 2020 but retains the option to make adjustments if
new information becomes available.

In February 2016, FASB issued ASU 2016-02 (Topic 842): Leases. The main objective of ASU 2016-02 is to
provide users with useful, transparent and complete information about leasing transactions. ASU 2016-02 requires
the rights and obligations associated with leasing arrangements be reflected on the balance sheet to increase
transparency and comparability among organizations. Under the updated guidance, lessees will be required to
recognize a right-to-use asset and a liability to make a lease payment and disclose key information about leasing
arrangements. ASU 2016-02 is effective for public companies for interim and annual reporting periods beginning
after December 15, 2018, with early adoption permitted. The Company adopted this ASU on January 1, 2019. As
disclosed in footnote 9, certain leases that the Company has in place required the capitalization of $3.6 million on
the balance sheet as an asset and a related liability in the same amount with no income statement effect at January 1,
2019. The balance of the right-to-use asset and liability is $3.1 million at December 31, 2019.

In January 2016, FASB issued ASU 2016-01: Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. The main objective of ASU 2016-01 is to enhance the
reporting model for financial instruments to provide users of financial statements with more decision-useful
information. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of
financial instruments. Some of the amendments in ASU 2016-01 include the following: 1) require equity
investments (except those accounted for under the equity method of accounting or those that result in consolidation
of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplify the
impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
assessment to identify impairment; 3) require public business entities to use the exit price notion when measuring
the fair value of financial instruments for disclosure purposes; and 4) require an entity to present separately in other
comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the
instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. The
amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. The Company adopted this ASU 2016-01 on January 1, 2018 which resulted in a
$169 thousand increase to beginning retained earnings and a $169 thousand decrease to accumulated other
comprehensive income on the December 31, 2018 Consolidated Financial Statements.

In May 2014, FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606). The ASU creates a
new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with
customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core
principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative
information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers. The new guidance was effective for annual reporting periods, and interim reporting periods within
those annual periods, beginning after December 15, 2017. The new guidance was adopted as of January 1, 2018.
Refer to the Revenue from Contracts with Customers – Note 5 for further discussion on the Company’s accounting
for revenue sources within the scope of Accounting Standards Codification (“ASC”) 606.

NOTE 2 – BUSINESS COMBINATIONS

On January 7, 2020, the Company completed the acquisition of Maple Leaf Financial, Inc. (“Maple Leaf”), the
parent company of Geauga Savings Bank, with branches located in Cuyahoga and Geauga Counties in Ohio. The
Company expects the acquisition to increase synergies and cost savings resulting from the combining of the two
companies. The transaction involved both cash and 1,398,229 shares of stock totaling $39.2 million. Pursuant to
the terms of the Merger Agreement, common shareholders of Maple Leaf had the right to receive $640.00 in cash or
45.5948 common shares, without par value, of the Company. Holders of outstanding and unexercised warrants to
purchase Maple Leaf Common Shares received an amount in cash equal to the excess of $640.00 over $370.00, the
exercise price of such warrants. As of January 7, 2020, Maple Leaf had total assets of $277.0 million, which
included gross loans of $182.1 million, deposits of $183.1 million and equity of $32.1 million.

During August of 2017, the Company completed the acquisition of Monitor, the holding company of Monitor Bank.
The transaction involved both cash and 465,787 shares of stock totaling $7.5 million. Pursuant to the terms of the
merger agreement, common shareholders of Monitor were entitled to elect to receive consideration in cash or in
common shares, without par value, of the Company, subject to an overall limitation of 85% of the Monitor common
shares being exchanged for the Company’s common shares and 15% exchanged for cash. The per share cash
consideration of $769.38 was equal to Monitor’s March 31 tangible book value multiplied by 1.25. Based on the
volume weighted average closing price of the Company’s common shares for the 20 trading days ended August 11,
2017 of $14.04, the final stock exchange ratio was 54.80, resulting in an implied value per Monitor common share
of $769.38.

Goodwill of $1.0 million, which is recorded on the balance sheet, arising from the acquisition consisted largely of
synergies and the cost savings resulting from the combining of the companies. The goodwill was determined not to
be deductible for income tax purposes. The fair value of other intangible assets of $673 thousand is related to core
deposits.

The following table summarizes the consideration paid for Monitor and the amounts of the assets acquired and
liabilities assumed on the closing date of the acquisition.

Consideration

Cash ........................................................................................................................................ $
Stock .......................................................................................................................................
Fair value of total consideration transferred ................................................................................ $
Fair value of assets acquired

Cash and due from financial institutions ................................................................................ $
Securities available for sale ....................................................................................................
Loans, net ...............................................................................................................................
Premises and equipment .........................................................................................................
Core deposit intangible...........................................................................................................
Other assets.............................................................................................................................
Total assets acquired............................................................................................................

Fair value of liabilities assumed

Deposits ..................................................................................................................................
Accrued interest payable and other liabilities ........................................................................
Total liabilities .....................................................................................................................
Net assets acquired .............................................................................................................. $

Goodwill created ....................................................................................................................

Total net assets acquired...................................................................................................... $

1,154
6,358
7,512

17,673
3,057
19,315
192
673
272
41,182

34,586
121
34,707
6,475
1,037
7,512

The following table presents pro forma information as if the above acquisition that occurred during 2017 actually
took place at the beginning of 2017. The pro forma information includes adjustments for merger related costs,
amortization of intangibles arising from the transaction and the related income tax effects. The pro forma financial
information is not necessarily indicative of the results of operations that would have occurred had the transaction
been effective on the assume date.

Net interest income................................................................................................................. $

Net income ............................................................................................................................. $

Basic and diluted earnings per share ...................................................................................... $

2017
74,409

22,776

0.83

NOTE 3 – SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at
December 31, 2019 and 2018 and the corresponding amounts of gross unrealized gains and losses recognized in
accumulated other comprehensive income (loss) were as follows:

2019

U.S. Treasury and U.S. government sponsored

entities .......................................................................
State and political subdivisions....................................
Corporate bonds ...........................................................
Mortgage-backed securities - residential .....................
Collateralized mortgage obligations ............................
Small Business Administration....................................
Totals

2018

U.S. Treasury and U.S. government sponsored

Amortized
Cost

3,773
250,905
1,238
145,886
11,459
6,534
419,795

Amortized
Cost

6,111
211,762
1,206
154,130
21,775
12,292
407,276

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

41
10,944
22
2,396
101
0
13,504

(3) $

(424)
0
(372)
(213)
(54)
(1,066) $

3,811
261,425
1,260
147,910
11,347
6,480
432,233

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

0
2,075
0
84
72
0
2,231

(102) $

(1,893)
(18)
(4,167)
(775)
(362)
(7,317) $

6,009
211,944
1,188
150,047
21,072
11,930
402,190

The proceeds from sales of available-for-sale securities and the associated gains and losses were as follows:

Proceeds ................................................................................................ $
Gross gains ...........................................................................................
Gross losses ...........................................................................

2019
33,424
211
(222)

2018
16,162
408
(125)

2017
54,497
727
(723)

The tax provision (benefit) related to these net realized gains (losses) was $(2) thousand, $59 thousand and $2
thousand respectively.

The amortized cost and fair value of the debt securities portfolio are shown by expected maturity. Expected
maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or
without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

Available for sale

Maturity

December 31, 2019

Amortized
Cost

Fair Value
6,774
$
35,836
186,568
37,318

Within one year .......................................................................................... $
One to five years.........................................................................................
Five to ten years .........................................................................................
Beyond ten years ........................................................................................

6,729
34,765
178,286
36,136

Mortgage-backed securities, collateralized mortgage

obligations and Small Business Administration ..........................................................

Totals $

163,879
419,795

165,737
432,233

Securities with a carrying amount of $253 million at December 31, 2019 and $194 million at December 31, 2018
were pledged to secure public deposits and repurchase agreements. Farmers Trust had securities, with a carrying
amount of $100 thousand, at year-end 2019 and 2018, pledged to qualify as a fiduciary in the State of Ohio.

In each year, there were no holdings of any other issuer that exceeded 10% of stockholders’ equity, other than the
U.S. Government, its agencies and its sponsored entities.

The following table summarizes the investment securities with unrealized losses at December 31, 2019 and 2018
aggregated by major security type and length of time in a continuous unrealized loss position.

2019

Description of Securities

Less than 12 Months
Unrealized
Loss

Fair
Value

12 Months or More
Unrealized
Loss

Fair
Value

Total

Fair
Value

Unrealized
Loss

U.S. Treasury and U.S. government
sponsored entities ....................................... $
State and political subdivisions ..................
Corporate bonds .........................................
Mortgage-backed securities - residential....
Collateralized mortgage obligations...........
Small Business Administration ..................

30,887
0
14,435
1,198
6,479

Total temporarily impaired $ 52,999 $

0 $

622 $
0
100
22,381
7,935
1

(424)
0
(98)
(18)
(54)
(594) $ 31,039 $

(3) $
0
0
(274)
(195)
0

622 $

30,887
100
36,816
9,133
6,480

(472) $ 84,038 $

(3)
(424)
0
(372)
(213)
(54)
(1,066)

2018

Description of Securities

Less than 12 Months
Unrealized
Loss

Fair
Value

12 Months or More

Fair
Value

Unrealized
Loss

Total

Fair
Value

Unrealized
Loss

648 $

23,569
516
13,002
20
11

(2) $

(201)
(4)

5,065 $
64,174
672
(114) 126,200
14,003
11,919

(1)
0

(100) $

5,713 $

(1,692)
(14)

87,743
1,188
(4,053) 139,202
14,023
11,930

(774)
(362)

Total temporarily impaired $ 37,766 $

(322) $222,033 $

(6,995) $259,799 $

(102)
(1,893)
(18)
(4,167)
(775)
(362)
(7,317)

The Company’s equity securities include $7.3 million in Small Business Investment Company (“SBIC”) partnership
investments as well as $600 thousand in local and regional bank holdings and other miscellaneous equity funds.
Unrealized gains were recognized in income in 2018 and 2019 as a result of ASU 2016-01. No other-than-
temporary impairments were recognized during 2017. If an other-than-temporary impairment were to occur, the
amount of the impairment recognized in earnings depends on whether an entity intends to sell the security or it is
more likely than not it would be required to sell the security before recovery of its amortized cost basis. The
previous amortized cost basis less the impairment recognized in earnings becomes the new amortized cost basis of
the investment.

As of December 31, 2019, the Company’s security portfolio consisted of 596 securities, 83 of which were in an
unrealized loss position. The majority of unrealized losses are related to the Company’s holdings in securities
issued by state and political subdivisions, mortgage-backed securities - residential, collateralized mortgage
obligations and Small Business Administration, as discussed below:

Securities issued by State and Political subdivisions

Unrealized losses on debt securities issued by state and political subdivisions have not been recognized into income.
At December 31, 2019 and 2018 all securities issued by state and political subdivisions have investment grade
ratings and management does not have the intent and does not expect to be required to sell these securities before
their anticipated recovery. The fair value is expected to recover as the securities approach their maturity date.

Mortgage-backed securities - residential

All of the Company’s holdings of mortgage-backed securities—residential at year end 2019 and 2018 were issued
by U.S. Government sponsored enterprises. Unrealized losses on mortgage-backed securities—residential have not
been recognized into income. Because the decline in fair value is attributable to changes in interest rates and not
credit quality, and because the Company does not have the intent to sell these mortgage-backed securities—
residential and it is likely that it will not be required to sell the securities before their anticipated recovery, the
Company does not consider these securities to be other-than-temporarily impaired at December 31, 2019 and 2018.

Collateralized mortgage obligations

The Company’s portfolio includes collateralized mortgage obligations issued by U.S. Government sponsored
enterprises. The decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality.
The Company does not have the intent to sell these collateralized mortgage obligations and it is likely that it will not
be required to sell the securities before their anticipated recovery. The Company monitors all securities to ensure
adequate credit support and as of December 31, 2019 and 2018, the Company believes there is no other-than-
temporary impairment.

Small Business Administration

The Company’s holdings of Small Business Administration securities are issued and backed by the full faith and
credit of the U.S. Government. Unrealized losses on these Small Business Administration securities have not been
recognized into income. The Company does not consider these securities to be other-than-temporarily impaired at
December 31, 2019 and 2018 because the decline in fair value is attributable to changes in interest rates and
illiquidity, and not credit quality, and the Company does not have the intent to sell these securities and it is likely
that it will not be required to sell the securities before their anticipated recovery.

NOTE 4 – LOANS

Loans by class at year end were as follows:

Originated loans:
Commercial real estate

2019

2018

Owner occupied ................................................................................................... $
Non-owner occupied ............................................................................................
Farmland ..............................................................................................................
Other.....................................................................................................................

Commercial

Commercial and industrial ...................................................................................
Agricultural ..........................................................................................................

Residential real estate

1-4 family residential ...........................................................................................
Home equity lines of credit..................................................................................

184,311
287,160
138,702
93,501

244,172
46,207

324,964
91,958

Consumer

Indirect .................................................................................................................
Direct....................................................................................................................
Other.....................................................................................................................

Total originated loans .................................................................................. $

166,149
27,415
9,485
1,614,024

Acquired loans:
Commercial real estate

Commercial

Residential real estate

35,408
10,439
35,377
5,960

11,651
6,047

63,457
19,645

Consumer

158,947
256,124
110,881
94,527

227,031
37,623

307,794
82,690

164,509
30,277
11,894
1,482,297

44,872
16,920
40,983
8,091

18,141
9,526

78,786
23,617

Direct....................................................................................................................
Other.....................................................................................................................
Total acquired loans........................................................................................
Net deferred loan costs ..............................................................................................
Allowance for loan losses..........................................................................................

Net loans ................................................................................................... $

6,068
154
194,206
3,309
(14,487)
1,797,052

9,442
162
250,540
3,003
(13,592)
1,722,248

Purchased credit impaired loans

As part of the NBOH acquisition in 2015 the Company acquired various loans that displayed evidence of
deterioration of credit quality since origination and which was probable that all contractually required payments
would not be collected. The carrying amounts and contractually required payments of these loans which are
included in the loan balances above are summarized in the following tables:

Commercial real estate

Non-owner occupied ............................................................................................ $

225

Commercial

Commercial and industrial ...................................................................................

Total outstanding balance ............................................................................... $
Carrying amount, net of allowance of $0 in 2019 and 2018 ..................... $

725
950
690

$
$

2019

Accretable yield, or income expected to be collected, is shown in the table below:

Beginning balance ................................................................................................... $
New loans purchased .........................................................................................
Accretion of income...........................................................................................
Ending balance ........................................................................................................ $

2019
93
0
(28)
65

2018

292

899
1,191
903

2018
170
0
(77)
93

The key assumptions considered include probability of default and the amount of actual prepayments after the
acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income
and principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are
adjusted as necessary. There were no adjustments to forecasted cash flows that impacted the allowance for loan
losses for the years ended December 31, 2019 and 2018.

The following tables present the activity in the allowance for loan losses by portfolio segment for years ended
December 31, 2019, 2018 and 2017:

December 31, 2019
Allowance for loan losses

Commercial
Real Estate Commercial

Residential
Real Estate Consumer Unallocated Total

Beginning balance ............................... $
Provision for loan losses......................
Loans charged off ................................
Recoveries ...........................................
Total ending allowance balance ................ $

5,036 $
848
(45)
4
5,843 $

2,093 $
417
(200)
13
2,323 $

2,837 $
380
(400)
58
2,875 $

2,963 $
732
(1,702)
717
2,710 $

663 $13,592
2,450
73
(2,347)
0
792
0
736 $14,487

December 31, 2018
Allowance for loan losses

Commercial
Real Estate Commercial

Residential
Real Estate Consumer Unallocated Total

4,260 $
650
0
126
5,036 $

2,011 $
112
(220)
190
2,093 $

2,521 $
486
(318)
148
2,837 $

2,848 $
1,764
(2,318)
669
2,963 $

675 $12,315
3,000
(12)
(2,856)
0
1,133
0
663 $13,592

December 31, 2017
Allowance for loan losses

Commercial
Real Estate Commercial

Residential
Real Estate Consumer Unallocated Total

3,577 $
298
(207)
592
4,260 $

1,874 $
446
(375)
66
2,011 $

2,205 $
378
(162)
100
2,521 $

2,766 $
1,983
(2,542)
641
2,848 $

430 $10,852
3,350
245
(3,286)
0
1,399
0
675 $12,315

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by
portfolio segment, based on impairment method as of December 31, 2019 and 2018. The recorded investment in
loans includes the unpaid principal balance and unamortized loan origination fees and costs, but excludes accrued
interest receivable which is not considered to be material:

December 31, 2019
Allowance for loan losses:
Ending allowance balance attributable to

loans:

Individually evaluated for

impairment ........................................

Collectively evaluated for

impairment ........................................

Acquired loans collectively

Commercial
Real Estate Commercial

Residential
Real Estate Consumer Unallocated

Total

0 $

2 $

59 $

0 $

5,790

2,309

2,777

2,708

736

14,320

evaluated for impairment ..................

106

Acquired with deteriorated credit

quality................................................

Total ending allowance balance ................ $

Loans:

Loans individually evaluated for

0
5,843 $

0
2,323 $

0
2,875 $

0
2,710 $

0
736 $

0
14,487

impairment ........................................ $

561 $

205 $

3,240 $

247 $

0 $

4,253

Loans collectively evaluated for

impairment ........................................
Acquired loans .....................................
Acquired with deteriorated credit

quality................................................

Total ending loans balance ........................ $

702,226
86,431

290,017
17,110

413,446
82,615

208,578
6,173

195
789,413 $

495

307,827 $ 499,301 $ 214,998 $

0 1,614,267
192,329
0

0
690
0 $1,811,539

Commercial
Real Estate Commercial

Residential
Real Estate Consumer Unallocated

Total

December 31, 2018
Allowance for loan losses:
Ending allowance balance attributable to

loans:

Individually evaluated for

impairment ........................................ $

6 $

3 $

267 $

0 $

276

Collectively evaluated for

impairment ........................................

4,981

2,075

2,534

2,960

663

13,213

Acquired loans collectively

evaluated for impairment ..................

103

Acquired with deteriorated credit

quality................................................

Total ending allowance balance ................ $
Loans:

Loans individually evaluated for

0
5,036 $

0
2,093 $

0
2,837 $

0
2,963 $

0
663 $

0
13,592

impairment ........................................ $

790 $

223 $

4,627 $

83 $

0 $

5,723

Loans collectively evaluated for

impairment ........................................
Acquired loans .....................................
Acquired with deteriorated credit

quality................................................

Total ending loans balance ........................ $

618,729
110,143

264,208
26,916

385,702
101,804

212,130
9,582

262
729,924 $

641

291,988 $ 492,133 $ 221,795 $

0 1,480,769
248,445
0

0
903
0 $1,735,840

The following tables present information related to impaired loans by class of loans as of and for years ended
December 31, 2019 and 2018. The recorded investment in loans excludes accrued interest receivable due to
immateriality.

December 31, 2019
With no related allowance recorded:

Commercial real estate

Unpaid Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

Owner occupied............................................................... $
Non-owner occupied .......................................................
Farmland..........................................................................

Commercial

Commercial and industrial .................................................
Agricultural ........................................................................

Residential real estate

1-4 family residential.......................................................
Home equity lines of credit .............................................
Consumer ..............................................................................
Subtotal .................................................................................

With an allowance recorded:
Commercial real estate

Owner occupied...............................................................
Non-owner occupied .......................................................
Farmland..........................................................................

Commercial

Commercial and industrial ..............................................
Agricultural .....................................................................

Residential real estate

22
38
570

179
11

2,889
428
480
4,617

0
0
0

53
0

8
34
519

141
11

2,095
344
247
3,399

0
0
0

53
0

795
72
0
920
5,537

729
72
0
854
4,253

0
0
0

0
0

0
0
0
0

0
0
0

2
0

52
7
0
61
61

December 31, 2018
With no related allowance recorded:

Commercial real estate

Unpaid Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

Commercial

Commercial and industrial ..............................................
Agricultural .....................................................................

Residential real estate

With an allowance recorded:
Commercial real estate

Commercial

Commercial and industrial ..............................................
Agricultural .....................................................................

Residential real estate

524
40
0

191
0

3,451
379
174
4,759

0
0
258

61
0

494
38
0

162
0

2,759
326
83
3,862

0
0
258

61
0

0
0
0

0
0

0
0
0
0

0
0
6

3
0

1,354
224
0
1,897
6,656

1,343
199
0
1,861
5,723

188
79
0
276
276

The following tables present the average recorded investment in impaired loans by class and interest income
recognized by loan class for the years ended December 31, 2019, 2018 and 2017.

December 31, 2019

With no related allowance recorded:

Commercial real estate

Average Recorded
Investment

Interest Income
Recognized

Owner occupied ................................................................................. $
Non-owner occupied..........................................................................
Farmland ............................................................................................

Commercial

Commercial and industrial ...................................................................
Agricultural...........................................................................................

Residential real estate

1-4 family residential .........................................................................
Home equity lines of credit................................................................
Consumer ................................................................................................
Subtotal ...................................................................................................

With an allowance recorded:
Commercial real estate

Owner occupied .................................................................................
Non-owner occupied..........................................................................
Farmland ............................................................................................

Commercial

Commercial and industrial.................................................................
Agricultural........................................................................................

Residential real estate

273
36
270

152
7

2,368
355
178
3,639

0
0
173

57
0

1,096
130
11
1,467
5,106

13
1
1

11
0

162
23
22
233

0
0
0

4
0

31
6
0
41
274

December 31, 2018
With no related allowance recorded:

Commercial real estate

Average Recorded
Investment

Interest Income
Recognized

Commercial

Commercial and industrial.................................................................
Agricultural........................................................................................

Residential real estate

With an allowance recorded:
Commercial real estate

Commercial

Commercial and industrial.................................................................
Agricultural........................................................................................

Residential real estate

490
26
0

335
0

2,769
309
72
4,001

0
0
193

68
0

1,778
166
3
2,208
6,209

30
2
0

6
0

186
16
11
251

0
0
0

4
0

47
7
0
58
309

December 31, 2017
With no related allowance recorded:

Commercial real estate

Average Recorded
Investment

Interest Income
Recognized

Commercial

Commercial and industrial.................................................................
Agricultural........................................................................................

Residential real estate

With an allowance recorded:
Commercial real estate

Commercial

Commercial and industrial.................................................................
Agricultural........................................................................................

Residential real estate

767
68
12

184
10

2,343
299
74
3,757

134
640
63

71
50

837
95
2
1,892
5,649

10
2
0

4
0

138
15
11
180

6
28
0

4
0

29
3
0
70
250

Cash basis interest income recognized and interest income recognized was materially equal for 2019, 2018 and 2017.

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that
are collectively evaluated for impairment and individually classified impaired loans. The following table presents
the recorded investment in nonaccrual and loans past due 90 days or more still on accrual by class of loans as of
December 31, 2019 and 2018:

2019

Loans Past Due
90 Days or More

Nonaccrual

Still Accruing Nonaccrual

2018

Loans Past Due
90 Days or More
Still Accruing

Originated loans:
Commercial real estate

Owner occupied..................................................... $
Non-owner occupied .............................................
Farmland................................................................

Commercial

Commercial and industrial ....................................
Agricultural ...........................................................

Residential real estate

1-4 family residential.............................................
Home equity lines of credit ...................................

Consumer

Indirect...................................................................
Direct .....................................................................
Other ......................................................................

Total originated loans ...................................... $

Acquired loans:
Commercial real estate

Commercial

Commercial and industrial ....................................
Agricultural ...........................................................

Residential real estate

1-4 family residential.............................................
Home equity lines of credit ...................................

Consumer

6 $
0
14

567
0

1,234
669

568
139
0
3,197 $

0 $

102
519

602
9

659
239

Direct .....................................................................

Total acquired loans ......................................... $
Total loans .................................................. $

151
2,281 $
5,478 $

0 $
0
0

0
0

438
14

120
70
6
648 $

0 $
0
0

0
0

186
9

24
219 $
867 $

340 $
0
30

122
158

2,318
644

346
54
0
4,012 $

0 $

82
257

824
291

1,001
203

95
2,753 $
6,765 $

0
0
0

0
0

185
31

369
200
2
787

0
0
0

0
0

122
14

43
179
966

The following tables present the aging of the recorded investment in past due loans as of December 31, 2019 and
2018 by class of loans:

December 31, 2019
Originated loans:
Commercial real estate

30-59
Days
Past
Due

60-89
Days
Past
Due

90 Days or More
Past Due
and Nonaccrual

Total
Past
Due

Loans Not
Past Due

Total

Owner occupied.................................... $
Non-owner occupied ............................
Farmland...............................................
Other .....................................................

87 $
2
0
0

0 $
0
0
0

6 $
0
14
0

93 $ 183,830 $ 183,923
286,524
138,515
93,271

286,522
138,501
93,271

2
14
0

567
0

1,672
683

2,598
180

5,690
974

241,210
46,142

243,808
46,322

318,536
91,000

324,226
91,974

688
209
6

171,725
27,567
9,484
3,845 $ 13,574 $1,603,765 $1,617,339

168,905
26,549
9,299

2,820
1,018
185

0 $

102
519
0

602
9

845
248

102
519
69

650
17

2,452
312

35,424 $
10,317
34,858
5,891

11,000
6,030

61,004
19,333

35,424
10,419
35,377
5,960

11,650
6,047

63,456
19,645

175
0

543
0

6,068
154
2,500 $ 4,664 $ 189,536 $ 194,200
6,345 $ 18,238 $1,793,301 $1,811,539

5,525
154

Commercial

Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

1-4 family residential............................
Home equity lines of credit ..................

Consumer

Indirect..................................................
Direct ....................................................
Other .....................................................

1,458
103

3,811
270

1,599
537
153

573
77

207
21

533
272
26

Total originated loans: .................... $ 8,020 $ 1,709 $

Acquired loans:
Commercial real estate

Commercial

Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

0 $
0
0
69

47
0

0 $
0
0
0

1
8

1-4 family residential............................
Home equity lines of credit ..................

1,159
56

448
8

Consumer

Direct ....................................................
Other .....................................................

21
0
486 $
Total loans ................................. $ 9,698 $ 2,195 $

Total acquired loans ........................ $ 1,678 $

347
0

December 31, 2018
Originated loans:
Commercial real estate

30-59
Days
Past
Due

60-89
Days
Past
Due

90 Days or More
Past Due
and Nonaccrual

Total
Past
Due

Loans Not
Past Due

Total

82 $
22
184
0

0 $
0
0
0

Commercial

Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

1-4 family residential............................
Home equity lines of credit ..................

Consumer

Indirect..................................................
Direct ....................................................
Other .....................................................

159
69

1,964
64

1,714
714
33

0
10

424
14

755
340
14

Total originated loans: .................... $ 5,005 $ 1,557 $

Acquired loans:
Commercial real estate

321 $
0
0
0

0 $
0
102
0

Commercial

Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

1-4 family residential............................
Home equity lines of credit ..................

94
31

750
208

0
5

229
0

Consumer

Direct ....................................................
Other .....................................................

257
0
593 $
Total loans ................................. $ 6,727 $ 2,150 $

Total acquired loans ........................ $ 1,722 $

318
0

340 $
0
30
0

122
158

422 $ 158,161 $ 158,583
255,480
110,761
94,242

255,458
110,547
94,242

22
214
0

281
237

226,320
37,484

226,601
37,721

2,503
675

4,891
753

302,131
81,957

307,022
82,710

715
254
2

169,806
30,491
11,894
4,799 $ 11,361 $1,473,950 $1,485,311

166,622
29,183
11,845

3,184
1,308
49

0 $
82
257
0

824
291

321 $
82
359
0

918
327

1,123
217

2,102
425

44,618
16,764
40,623
8,091

17,223
9,198

76,682
23,192

44,939
16,846
40,982
8,091

18,141
9,525

78,784
23,617

713
0

138
0

9,442
162
2,932 $ 5,247 $ 245,282 $ 250,529
7,731 $ 16,608 $1,719,232 $1,735,840

8,729
162

Troubled Debt Restructurings:

Total troubled debt restructurings were $4.6 million and $5.5 million at December 31, 2019 and 2018 respectively.
The Company allocated $61 thousand and $72 thousand of specific reserves to customers whose loan terms have
been modified in troubled debt restructurings as of December 31, 2019 and 2018, respectively. There were no
commitments to lend additional amounts to borrowers with loans that were classified as troubled debt restructurings
at December 31, 2019 and 2018.

During the years ending December 31, 2019, 2018 and 2017, the terms of certain loans were modified as troubled
debt restructurings. The modification of the terms of such loans included one or a combination of the following: a
reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower
than the current market rate for new debt with similar risk; a permanent increase of the recorded investment in the
loan due to a protective advance to pay delinquent real estate taxes or advance new monies; an extension of an
interest only period; a deferral of principal payments; a capitalization of interest and/or escrow or a legal concession.

Troubled debt restructuring modifications involved a reduction of the notes stated interest rate in the range of 0.24%
to 3.49%. There were also extensions of the maturity dates on these and other troubled debt restructurings in the
range of two months to 132 months.

The following tables present loans by class modified as troubled debt restructurings that occurred during the years
ending December 31, 2019, 2018 and 2017:

December 31, 2019
Troubled Debt Restructurings:
Originated loans:
Commercial

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of

Loans

Commercial and industrial......................................................

Residential real estate

1-4 family residential..............................................................
Home equity lines of credit ....................................................
Indirect .........................................................................................
Consumer .....................................................................................
Total originated loans........................................................

Acquired loans:

Commercial real estate

Farmland.................................................................................

Commercial

Commercial and industrial......................................................

Residential real estate

1-4 family residential..............................................................
Home equity lines of credit ....................................................
Consumer .....................................................................................
Total acquired loans ..........................................................
Total loans ...................................................................

6
3
39
2
51

4
1
3
12
63

$
$

178
90
337
46
663

527

201
17
14
786
1,449

$
$

181
94
337
46
670

527

205
17
14
790
1,460

The troubled debt restructurings described above increased the allowance for loan losses by $126 thousand and
resulted in charge offs of $126 thousand during the year ended December 31, 2019.

December 31, 2018

Troubled Debt Restructurings:
Originated loans:

Commercial real estate

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of

Loans

Owner occupied......................................................................

Commercial

Commercial and industrial......................................................

Residential real estate

Acquired loans:

Commercial real estate

Non-owner occupied...............................................................
Farmland.................................................................................

Commercial

Commercial and industrial......................................................

Residential real estate

1-4 family residential..............................................................
Home equity lines of credit ....................................................
Consumer .....................................................................................
Total acquired loans ..........................................................
Total loans ...................................................................

7
6
23
2
40

1
1

7
1
2
19
59

360

348
91
118
19
955

42
258

115

321
32
24
792
1,747

$
$

360

348
91
118
19
955

42
258

115

337
32
24
808
1,763

The troubled debt restructurings described above increased the allowance for loan losses by $66 thousand and
resulted in charge offs of $66 thousand during the year ended December 31, 2018.

December 31, 2017

Troubled Debt Restructurings:
Originated loans:

Residential real estate

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of

Loans

1-4 family residential..............................................................
Home equity lines of credit ....................................................
Indirect .........................................................................................
Total originated loans........................................................

Acquired loans:
Commercial

Commercial and industrial......................................................

Residential real estate

1-4 family residential..............................................................
Home equity lines of credit ....................................................
Consumer .....................................................................................
Total acquired loans ..........................................................
Total loans ...................................................................

15
10
29
54

3
1
2
7
61

$
$

910
234
161
1,305

85
57
55
210
1,515

$
$

917
234
161
1,312

85
57
55
210
1,522

The troubled debt restructurings described above increased the allowance for loan losses by $75 thousand and
resulted in charge offs of $75 thousand during the year ended December 31, 2017.

There was one residential real estate loan for $19 thousand for which there were payment defaults within twelve
months following the modification of the troubled debt restructuring during the year ended December 31, 2019. The
loan was not past due at December 31, 2019. There was no effect on the provision for loan losses as a result of this
default during 2019. A loan is considered to be in payment default once it is 30 days contractually past due under
the modified terms.

There were two residential real estate loans for $146 thousand for which there were payment defaults within twelve
months following the modification of the troubled debt restructuring during the year ended December 31, 2018.
Both loans were past due at December 31, 2018. There was no effect on the provision for loan losses as a result of
this default during 2018.

There were no loans for which there were payment defaults within twelve months following the modification of the
troubled debt restructuring during the year ended December 31, 2017.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to
service their debt such as: current financial information, historical payment experience, credit documentation, public
information and current economic trends, among other factors. The Company establishes a risk rating at origination
for all commercial loan and commercial real estate relationships. For relationships over $750 thousand management
monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management
also affirms the risk ratings for the loans and leases in their respective portfolios on an annual basis. The Company
uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not
adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness
or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility
that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard,
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are
considered to be pass rated loans.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

December 31, 2019
Originated loans:
Commercial real estate

Pass

Special
Mention

Sub
standard

Total

Owner occupied....................................................... $
Non-owner occupied................................................
Farmland..................................................................
Other ........................................................................

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

Total originated loans......................................... $

177,540
279,103
136,674
93,082

238,351
46,283
971,033

Acquired loans:
Commercial real estate

34,707
10,246
32,112
5,891

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

10,570
5,617
99,143
Total loans .................................................... $ 1,070,176

Total acquired loans ........................................... $

$
$

5,357
7,374
1,457
0

1,673
6
15,867

110
54
0
0

0
317
481
16,348

$
$

1,026
47
384
189

3,784
33
5,463

607
119
3,265
69

183,923
286,524
138,515
93,271

243,808
46,322
992,363

35,424
10,419
35,377
5,960

1,080
113
5,253
10,716

11,650
6,047
$
104,877
$ 1,097,240

December 31, 2018
Originated loans:
Commercial real estate

Pass

Special
Mention

Sub
standard

Total

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

Total originated loans......................................... $

Acquired loans:
Commercial real estate

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

Total acquired loans ........................................... $
Total loans .................................................... $

156,892
251,240
109,391
92,669

219,938
37,158
867,288

43,763
16,601
36,565
7,434

16,407
8,612
129,382
996,670

$
$

945
4,139
1,301
1,325

4,207
81
11,998

430
58
668
0

170
346
1,672
13,670

$
$

746
101
69
248

2,456
482
4,102

746
187
3,749
657

158,583
255,480
110,761
94,242

226,601
37,721
883,388

44,939
16,846
40,982
8,091

1,564
567
7,470
11,572

18,141
9,525
$
138,524
$ 1,021,912

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For
residential, consumer and indirect loan classes, the Company also evaluates credit quality based on the aging status
of the loan, which was previously presented, and by payment activity.

The following table presents the recorded investment in residential, consumer and indirect auto loans based on
payment activity. Nonperforming loans are loans past due 90 days and still accruing interest and nonaccrual loans.

December 31, 2019
Originated loans:

Residential Real Estate

1-4 Family
Residential

Home Equity Lines
of Credit

Consumer

Indirect

Direct

Other

91,291 $ 171,037 $ 27,358 $
688
91,974 $ 171,725 $ 27,567 $

209

683

19,397
248
19,645 $

5,893
175
6,068 $
111,619 $ 171,725 $ 33,635 $

0
0
0 $

9,478
6
9,484

154
0
154
9,638

Performing.................................................... $ 322,554 $
Nonperforming .............................................

1,672

Total originated loans ............................. $ 324,226 $

Acquired loans:

Performing....................................................
Nonperforming .............................................

62,611
845
63,456 $
Total loans ......................................... $ 387,682 $

Total acquired loans ................................ $

December 31, 2018
Originated loans:

Residential Real Estate

1-4 Family
Residential

Home Equity Lines
of Credit

Consumer

Indirect

Direct

Other

Performing.................................................... $ 304,519 $
Nonperforming .............................................

2,503

Total originated loans ............................. $ 307,022 $

Acquired loans:

Performing....................................................
Nonperforming .............................................

77,661
1,123
78,784 $
Total loans ......................................... $ 385,806 $

Total acquired loans ................................ $

82,035 $ 169,091 $ 30,237 $
715
82,710 $ 169,806 $ 30,491 $

675

254

9,304
23,400
138
217
23,617 $
9,442 $
106,327 $ 169,806 $ 39,933 $

0
0
0 $

11,892
2
11,894

162
0
162
12,056

NOTE 5 – REVENUE FROM CONTRACTS WITH CUSTOMERS

All material revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest
income. The following table presents the Company’s noninterest income by revenue stream and reportable segment,
net of eliminations, for the years ended December 31, 2019 and 2018. Items outside the scope of ASC 606 are noted
as such.

(In Thousands of Dollars)
December 31, 2019
Service charges on deposit accounts........................................... $
Debit card and EFT fees .............................................................
Trust fees ....................................................................................
Insurance agency commissions...................................................
Retirement plan consulting fees..................................................
Investment commissions.............................................................
Other (outside the scope of ASC 606)........................................

Total noninterest income....................................................... $

(In Thousands of Dollars)
December 31, 2018
Service charges on deposit accounts........................................... $
Debit card and EFT fees .............................................................
Trust fees ....................................................................................
Insurance agency commissions...................................................
Retirement plan consulting fees..................................................
Investment commissions.............................................................
Other (outside the scope of ASC 606)........................................

Total noninterest income....................................................... $

Trust
Segment

Bank
Segment

Totals

0
0
7,475
0
1,489
0
0
8,964

Trust
Segment

0
0
7,126
0
1,684
0
0
8,810

4,514
3,522
0
2,919
0
1,406
7,277
19,638

Bank
Segment

4,254
3,351
0
2,621
0
1,103
5,360
16,689

4,514
3,522
7,475
2,919
1,489
1,406
7,277
28,602

Totals

4,254
3,351
7,126
2,621
1,684
1,103
5,360
25,499

A description of the Company’s revenue streams under ASC 606 follows:

Service charges on deposit accounts – The Company earns fees from its deposit customers for transaction-based,
account maintenance, and overdraft services. Management reviewed the deposit account agreements, and
determined that the agreements can be terminated at any time by either the Bank or the account holder. Transaction
fees, such as balance transfers, wires and overdraft charges are settled the day the performance obligation is satisfied.
The Bank’s monthly service charges and maintenance fees are for services provided to the customer on a monthly
basis are considered a series of services that have the same pattern of transfer each month. The review of service
charges assessed on deposit accounts, included the amount of variable consideration that is a part of the monthly
charges. It was found that the waiver of service charges due to insufficient funds and dormant account fees is
immaterial and would not require a change in the accounting treatment for these fees under the new revenue
standards.

Debit Card Interchange Fees – Customers and the Bank have an account agreement and maintain deposit balances
with the Bank. Customers use a bank issued debit card to purchase goods and services, and the Bank earns
interchange fees on those transactions, typically a percentage of the sale amount of the transaction. The Bank
records the amount due when it receives the settlement from the payment network. Payments from the payment
network are received and recorded into income on a daily basis. There are no contingent debit card interchange fees
recorded by the Company that could be subject to a clawback in future periods.

Trust fees – Services provided to Farmers Trust customers are a series of distinct services that have the same pattern
of transfer each month. Fees for trust accounts are billed and drafted from trust accounts monthly. The Company
records these fees on the income statement on a monthly basis. Fees are assessed based on the total investable assets
of the customer’s trust account. A signed contract between the Company and the customer is maintained for all
customer trust accounts with payment terms identified. It is probable that the fees will be collectible as funds being
managed are accessible by the asset manager. Past history of trust fee income recorded by the Company indicates
that it is highly unlikely that a significant reversal could occur. There are no contingent incentive fees recorded by
the Company that could be subject to a clawback in future periods.

Insurance Agency Commissions – Insurance agency commissions are received from insurance carriers for the
agency’s share of commissions from customer premium payments. These commissions are recorded into income
when checks are received from the insurance carriers, and there is no contingent portion associated with these
commission checks. There may be a short time-lag in recording revenue when cash is received instead of recording
the revenue when the policy is signed by the customer, but the time lag is insignificant and does not impact the
revenue recognition process.

Insurance also receives incentive checks from the insurance carriers for achieving specified levels of production
with particular carriers. These amounts are recorded into income when a check is received, and there are no
contingent amounts associated with these payments that may be clawed back by the carrier in the future. Similar to
the monthly commissions explained in the preceding paragraph, there may be a short time-lag in recording incentive
revenue on a cash basis as opposed to estimating the amount of incentive revenue expected to be earned, this does
not materially impact the recognition of Insurance revenue. If there were any amounts that would need to be
refunded for one specific Insurance customer, management believes the reversal would not be significant.

Other potential situations surrounding the recognition of Farmers Insurance revenue include the estimating potential
refunds due to the likely cancellation of a percentage of customers cancelling their policies and recording revenue at
the time of policy renewals. Management concluded that since Farmers Insurance agency commissions represent
only 2.2% of the Company’s total revenue, adjusting the current practice of recording insurance revenue for these
situations would not have a material impact on the reporting of total revenue.

Retirement Plan Consulting Fees – The fees earned from retirement plan consulting are generated by Farmers
Trust. Revenue is recognized based on the level of work performed for the client. Any payments that are received
for work to be performed in the future are recorded in a deferred revenue account, and recorded into income when
the fees are earned. Retirement plan consulting fees represent only 1.1% of the Company’s total revenue, and
therefore management has concluded that any adjustment of revenue for one particular customer for a refund or any
other reason would be insignificant and would not materially impact the Company’s total revenue.

Investment Commissions – Investment commissions are earned through the sales of non-deposit investment
products to customers of the Company. The sales are conducted through a third-party broker-dealer. When the
commissions are received and recorded into income on the Bank’s income statement, there is no contingent portion
that may need to be refunded back to the broker dealer. Investment commissions represent only 1.1% of the
Company’s total revenue, and therefore management has concluded that any adjustment of revenue for a particular
customer for a refund or any other reason would be insignificant and would not materially impact the Company’s
total revenue.

Other – Income items included in “Other” are Bank owned life insurance income, security gains, net gains on the
sale of loans and other operating income. Any amounts within the scope of ASC 606 are deemed immaterial.

NOTE 6 – LOAN SERVICING

The Company has retained servicing rights to Mortgage loans sold to the Federal Home Loan Mortgage Corporation.
Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year-end are
as follows:

Mortgage loan portfolio serviced for:

FHLMC ................................................................................................. $

276,863

226,389

2019

2018

Custodial escrow balances maintained in connection with serviced loans were $2.2 million at December 31, 2019
and $1.7 million at December 31, 2018.

Mortgage servicing rights is recorded on the balance sheets as other assets. Activity for mortgage servicing rights
for years ended December 31, 2019, 2018 and 2017 are as follows:

Servicing rights:

Beginning balance ................................................................... $
Additions .................................................................................
Amortization to expense..........................................................
Ending balance ........................................................................ $

2019

1,468
813
(560)
1,721

2018

1,242
627
(401)
1,468

2017

854
701
(313)
1,242

There was no valuation allowance required for mortgage servicing rights at December 31, 2019, 2018 and 2017.

NOTE 7 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the
ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a reporting entity’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of
financial instrument:

Investment Securities

The Company uses a third party service to estimate fair value on available for sale securities on a monthly basis.
ASU 2016-01, which was adopted by the Company as of January 1, 2018, requires the use of exit price notion when
measuring the fair value of financial instruments for disclosure purposes. The Company’s service provider is
considered a leading evaluation pricing service for U.S. domestic fixed income securities and complies fully with
ASU 2016-01’s exit pricing requirements. They subscribe to multiple third-party pricing vendors, and supplement
that information with matrix pricing methods. The fair values for investment securities, which consist of equity
securities that are recorded at fair market value to comply with ASU 2016-01, are determined by quoted market
prices in active markets, if available (Level 1). The equity securities change in fair market value is recorded in the
income statements. For securities where quoted prices are not available, fair values are calculated based on quoted
prices for similar assets in active markets, quoted prices for similar assets in markets that are not active or inputs
other than quoted prices, which provide a reasonable basis for fair value determination. Such inputs may include
interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates. Inputs used are derived
principally from observable market data (Level 2). For securities where quoted prices or market prices of similar
securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level
3). The fair values of Level 3 investment securities are determined by using unobservable inputs to measure fair
value of assets for which there is little, if any market activity at the measurement date, using reasonable inputs and
assumptions based on the best information at the time, to the extent that inputs are available without undue cost and
effort. For the years ended December 31, 2019 and 2018 the fair value of Level 3 investment securities was
immaterial.

Derivative Instruments

The fair values of derivative instruments are based on valuation models using observable market data as of the
measurement date (Level 2).

Impaired Loans

At the time loans are considered impaired, collateral dependent impaired loans are valued at the lower of cost or fair
value and non-collateral dependent loans are valued based on discounted cash flows. Impaired loans carried at fair
value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans fair
value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales and the income approach. Adjustments are routinely
made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income
data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs
for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the
borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical
knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge
of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a
quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value
less estimated costs to sell. Fair values are commonly based on recent real estate appraisals. These appraisals may
use a single valuation approach or a combination of approaches including comparable sales and the income
approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for
differences between the comparable sales and income data available. Such adjustments are usually significant and
typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified
general appraisers (for commercial and commercial real estate properties) or certified residential appraisers (for
residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once
received, a member of the Appraisal Department reviews the assumptions and approaches utilized in the appraisal as
well as the overall resulting fair value in comparison with independent data sources such as recent market data or
industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has
been sold to the most recent appraised value to determine what adjustments should be made to appraisals to arrive at
fair value.

Assets measured at fair value on a recurring basis are summarized below:

Fair Value Measurements at December 31, 2019 Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Investment securities available-for sale

U.S. Treasury and U.S. government sponsored entities ................ $
State and political subdivisions .....................................................
Corporate bonds.............................................................................
Mortgage-backed securities-residential .........................................
Collateralized mortgage obligations ..............................................
Small Business Administration......................................................

Equity securities

Equity securities at fair value ........................................................
Other equity investments measured at net asset value...................

Total investment securities ..................................................... $

Loan yield maintenance provisions ...................................................... $

3,811
261,425
1,260
147,910
11,347
6,480

594
7,315
440,142

1,898

Financial Liabilities

Interest rate swaps ................................................................................ $

1,898

0
0
0
0
0
0

594
n/a
594

3,811
261,425
1,260
147,905
11,347
6,480

0
n/a
432,228

1,898

0
0
0
5
0
0

0
n/a
5

Fair Value Measurements at December 31, 2018 Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Investment securities available-for sale

Equity securities

Equity securities at fair value ........................................................
Other equity investments measured at net asset value...................

Total investment securities ..................................................... $

Loan yield maintenance provisions ............................................... $

Financial Liabilities

Interest rate swaps ................................................................................ $

6,009
211,944
1,188
150,047
21,072
11,930

495
6,635
409,320

767

0
0
0
0
0
0

495
n/a
495

6,009
211,944
1,188
150,041
21,072
11,930

0
n/a
402,184

767

0
0
0
6
0
0

0
n/a
6

There were no significant transfers between Level 1 and Level 2 during 2019 or 2018.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the year ended December 31:

Investment Securities Available-for-sale (Level 3)
2018

2019

2017

Beginning Balance ....................................................................................................... $
Repayments, calls and maturities ..........................................................................
Acquired and/or purchased....................................................................................
Ending Balance............................................................................................................. $

6
(1)
0
5

8
(2)
0
6

12
(4)
0
8

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements
at December 31, 2019 Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Impaired loans

Commercial real estate

1–4 family residential ............................................................. $

Consumer.......................................................................................

183
12

0
0

183
12

Fair Value Measurements
at December 31, 2018 Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Impaired loans

Commercial real estate

Farmland ................................................................................. $
1–4 family residential .............................................................
Consumer.......................................................................................

251
640
7

0
0
0

251
640
7

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans,
had a principal balance of $208 thousand, with a valuation allowance of $13 thousand at December 31, 2019,
resulting in an additional provision for loan losses of $134 thousand for the year ending December 31, 2019. At
December 31, 2018, impaired loans had a principal balance of $1.1 million, with a valuation allowance of $227
thousand. Loans measured at fair value throughout the year resulted in an additional provision for loan losses of
$180 thousand for the year ending December 31, 2018. Excluded from the fair value of impaired loans, at
December 31, 2019 and 2018, discussed above are $583 thousand and $694 thousand of loans classified as troubled
debt restructurings and measured using the present value of cash flows, which is not considered an exit price.

Impaired commercial real estate loans, both owner occupied and non-owner occupied are valued by independent
external appraisals. These external appraisals are prepared using the sales comparison approach and income
approach valuation techniques. Management makes subsequent unobservable adjustments to the impaired loan
appraisals. Impaired loans other than commercial real estate and other real estate owned are not considered material.

At December 31, 2019, other real estate owned measured at fair value less costs to sell, had a zero net carrying
amount. During the year ended December 31, 2019, the Company had $68 thousand in write-downs related to other

real estate owned. The Company did not have any write-downs related to other real estate owned during the year
ended December 31, 2018.

The following table presents quantitative information about level 3 fair value measurements for financial
instruments measured at fair value on a non-recurring basis at year ended 2019 and 2018:

December 31, 2019
Impaired loans

Fair value

Valuation
Technique(s)

Unobservable
Input(s)

Range
Weighted Average

Residential .............................. $

183

Sales comparison

Consumer................................ $

Sales comparison

Adjustment for
differences
between
comparable sales
Adjustment for
differences
between
comparable sales

(24.26%) - 23.74%
14.53%

(12.95%) - 12.95%
(0.00%)

December 31, 2018
Impaired loans

Fair value

Valuation
Technique(s)

Unobservable
Input(s)

Range
Weighted Average

Commercial real estate ........... $

251

Sales comparison

Residential .............................. $

640

Sales comparison

Consumer................................ $

Sales comparison

Adjustment for
differences
between
comparable sales
Adjustment for
differences
between
comparable sales
Adjustment for
differences
between
comparable sales

(22.70%) - 16.16%
9.39%

(49.90%) - 45.99%
6.52%

(5.71%) - 5.71%
(0.00%)

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments measured on a recurring basis and not
previously presented, at December 31, 2019 and December 31, 2018 are as follows:

Fair Value Measurements at December 31, 2019 Using:

Carrying
Amount

Level 1

Level 2

Level 3

Total

Financial assets

70,760 $
Cash and cash equivalents ................................... $
11,729
Restricted stock....................................................
Loans held for sale...............................................
2,600
Loans, net............................................................. 1,797,052
7,552
Accrued interest receivable .................................

23,229 $ 47,531 $

0 $

n/a
0
0
0

n/a
2,678
0
2,578

n/a
0
1,760,062
4,974

Financial liabilities

Deposits ............................................................... 2,008,964
77,050
Short-term borrowings.........................................
45,147
Long-term borrowings.........................................
1,070
Accrued interest payable .....................................

1,514,346
0
0
61

495,222
77,050
45,998
1,009

0
0
0
0

70,760
n/a
2,678
1,760,062
7,552

2,009,568
77,050
45,998
1,070

Fair Value Measurements at December 31, 2018 Using:

Carrying
Amount

Level 1

Level 2

Level 3

Total

Financial assets

57,926 $
Cash and cash equivalents ................................... $
11,737
Restricted stock....................................................
Loans held for sale...............................................
1,237
Loans, net............................................................. 1,722,248
7,114
Accrued interest receivable .................................

18,042 $ 39,884 $

0 $

n/a
0
0
0

n/a
1,274
0
2,359

n/a
0
1,673,626
4,755

Financial liabilities

Deposits ............................................................... 1,799,720
244,759
Short-term borrowings.........................................
6,033
Long-term borrowings.........................................
990
Accrued interest payable .....................................

1,427,260
0
0
63

367,306
244,759
5,847
927

0
0
0
0

57,926
n/a
1,274
1,673,626
7,114

1,794,566
244,759
5,847
990

The methods and assumptions used to estimate fair value, not previously described, are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and
are classified as either Level 1 or Level 2. The Company has determined that cash on hand and non-interest bearing
due from bank accounts are Level 1 whereas interest bearing federal funds sold and other are Level 2.

Restricted Stock: It is not practical to determine the fair value of restricted stock due to restrictions placed on its
transferability.

Loans: Fair values of loans, excluding loans held for sale, are estimated using a third party firm that uses cash flow
analysis and current market interest rates along with adjustments for credit, liquidity and option risk to conform to
the ASU 2016-01 exit price requirement. Impaired loans are valued at the lower of cost or fair value as described
previously.

Loans held for sale: The fair value of loans held for sale is estimated based upon the average of binding contracts
and quotes from third party investors resulting in a Level 2 classification.

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest receivable and payable approximate
fair value resulting in a Level l, Level 2 or Level 3 classification. The classification is the result of the association
with securities, loans and deposits.

Deposits: The fair values disclosed for demand deposits – interest and non-interest checking, passbook savings and
money market accounts—are, by definition, equal to the amount payable on demand at the reporting date resulting
in a Level 1 classification. The carrying amounts of variable rate certificates of deposit approximate their fair values
at the reporting date resulting Level 2 classification. Fair value for fixed rate certificates of deposit are estimated
using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements,
and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a
Level 2 classification.

Long-term Borrowings: The fair values of the Company’s long-term borrowings are estimated using discounted cash
flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level
2 classification.

Off-balance Sheet Instruments: The fair value of commitments is not considered material.

NOTE 8 – PREMISES AND EQUIPMENT

Year-end premises and equipment owned and utilized in the operations of the Company were as follows:

Land .................................................................................................................... $
Buildings.............................................................................................................
Furniture, fixtures and equipment.......................................................................
Leasehold Improvements....................................................................................
Right of use assets ..............................................................................................

Less accumulated depreciation ...........................................................................
NET BOOK VALUE.......................................................................................... $

2019
4,737
24,752
10,304
482
3,121
43,396
(19,579)
23,817

2018
4,775
24,800
14,080
482
0
44,137
(22,926)
21,211

Depreciation expense was $1.5 million for years ended December 31, 2019 and 2018 and $1.6 million for year
ended December 31, 2017.

Year-end premises and equipment subject to lease agreements in which the Company acts as lessor were as follows.
See NOTE - 9 for additional lease disclosures:

Buildings ...................................................................................................................................... $
Equipment ....................................................................................................................................

Less: accumulated amortization...................................................................................................

TOTAL $

2019

2,854
794
3,648
(527)
3,121

NOTE 9 – LEASES

The Company has operating leases for branch office locations, vehicles and certain office equipment such as
printers, copiers and faxes. The leases have remaining lease terms of up to 10.5 years, some of which include
options to extend the lease for up to 10 years and some of which include options to terminate the lease in January of
2020.

The right of use asset and lease liability were $3.1 million and $3.2 million as of December 31, 2019.

Lease payments made for the year ended December 31, 2019 were $584 thousand. Interest expense and amortization
expense on finance leases for the year ended December 31, 2019 were $103 thousand and $355 thousand. The
weighted-average remaining lease term for all leases was 6.4 years as of December 31, 2019 and the weighted-
average discount rate was 3.4%.

Maturities of lease liabilities are as follows as of December 31, 2019:

2020.............................................................................................................................................. $
2021..............................................................................................................................................
2022..............................................................................................................................................
2023..............................................................................................................................................
2024..............................................................................................................................................
Thereafter.....................................................................................................................................
Total Payments..........................................................................................................................
Less: Imputed Interest ...............................................................................................................

Total........................................................................................................................................ $

590
592
474
419
248
1,416
3,739
(555)
3,184

NOTE 10 – GOODWILL AND INTANGIBLE ASSETS

Goodwill associated with the Company’s purchases of Monitor in August 2017 and other past acquisitions totaled
$38.2 million at December 31, 2019 and 2018. Impairment exists when a reporting unit’s carrying value of
goodwill exceeds its fair value, which is determined through a two-step impairment test. Management performs
goodwill impairment testing on an annual basis as of September 30. The fair value of the reporting unit is
determined based on a discounted cash flow model.

Acquired Intangible Assets

Acquired intangible assets were as follows:

2019

2018

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Other intangible:

Customer relationship intangibles .................................. $
Non-compete contracts...................................................
Trade Name ....................................................................
Core deposit intangible...................................................
Total ..................................................................................... $

7,210
430
520
6,254
14,414

(5,938) $
(384)
(277)
(3,371)
(9,970) $

7,210
430
520
6,254
14,414

(5,481)
(380)
(229)
(2,573)
(8,663)

Aggregate intangible amortization expense was $1.3 million for 2019, $1.4 million for 2018 and $1.5 million for
2017.

Estimated amortization expense for each of the next five years and thereafter:

TOTAL ................................................................................................................................... $

1,203
1,142
1,025
514
210
350
4,444

NOTE 11 - INTEREST BEARING DEPOSITS

Time deposits of $250 thousand or more were $108.2 million and $79.8 million at year-end 2019 and 2018.

Following is a summary of scheduled maturities of certificates of deposit and brokered time deposits during the
years following December 31, 2019:

2020...............................................................................................................................................
2021...............................................................................................................................................
2022...............................................................................................................................................
2023...............................................................................................................................................
2024...............................................................................................................................................
Thereafter ......................................................................................................................................

Following is a summary of year-end interest bearing deposits:

Demand......................................................................................................
Money market............................................................................................
Savings ......................................................................................................
Brokered time deposits ..............................................................................
Certificates of deposit................................................................................

TOTAL $

2019
678,465
177,381
224,373
84,075
410,544
1,574,838

288,872
126,032
15,057
17,686
41,526
5,446
494,619

2018
581,808
198,067
225,435
25,000
347,460
1,377,770

NOTE 12 – SHORT-TERM BORROWINGS

The Bank has short-term advances from the FHLB that had maturity dates of less than one year at the time of the
advance. All balances are due within one year and can be renewed at the time of maturity. FHLB advances are
secured by pledgings described in the following Long-Term Borrowings footnote. Balances at year end were as
follows:

2019

2018

Weighted
Average
Rate

Amount

Weighted
Average
Rate

Amount

Repurchase advance ............................................................ $
Fixed rate advances .............................................................
Total advances ..................................................................... $

50,000
25,000
75,000

1.63% $ 140,000
100,000
0.72%
1.33% $ 240,000

2.45%
2.54%
2.49%

Securities sold under repurchase agreements are secured by the Bank’s holdings of debt securities issued by U.S.
government sponsored entities and agencies. These pledged securities which are 105% of the repurchase agreement
balances, had a carrying amount of $1.8 million and $4.6 million at year ended 2019 and 2018.

Repurchase agreements are financing arrangements that mature within 89 days and usually overnight. Under the
agreements, customers agree to maintain funds on deposit with the Bank and in return acquire an interest in a pool of
securities pledged as collateral against the funds. The securities are held in segregated safekeeping accounts at the
Federal Reserve Bank, Farmers Trust and the FHLB. Information concerning securities sold under agreements to
repurchase is summarized as follows:

Average balance during the year ...................................................... $
Average interest rate during the year ...............................................
Maximum month-end balance during the year ................................ $
Weighted average year-end interest rate ..........................................
Balance at year-end .......................................................................... $

2019
3,343
1.36%
5,505

1.36%

1,700

2018
51,694

0.67%

87,163

0.67%

4,409

2017
82,627

0.13%

94,208

0.14%

74,215

The following table provides a disaggregation of the obligation by class of collateral pledged for short-term
financing obtained through the sales of repurchase agreements:

Overnight and continuous repurchase agreements

U.S. Treasury and U.S. government sponsored entities................................ $
State and political subdivisions .....................................................................
Mortgage-backed securities - residential.......................................................
Collateralized mortgage obligations..............................................................
Total borrowings................................................................................................. $

2019

55
627
948
70
1,700

2018

332
664
3,094
319
4,409

Management believes the risks associated with the agreements are minimal and in the case of collateral decline the
Company has additional investment securities available to adequately pledge as guarantees for the repurchase
agreements.

The Bank has access to lines of credit amounting to $35 million at two major domestic banks that are below prime
rate. The lines and terms are periodically reviewed by the lending banks and are generally subject to withdrawal at
their discretion. There were no borrowings under these lines at December 31, 2019 and 2018.

Farmers has two unsecured revolving lines of credit for $6.5 million. The lines can be renewed annually. The lines
have interest rates of prime with floors of 3.5% and 4.5%. The outstanding balance on the two lines was $350
thousand at December 31, 2019 and 2018. The interest rate on the outstanding balance at December 31, 2019 and
2018 was 4.75% and 5.5%.

NOTE 13 – LONG-TERM BORROWINGS

At year end, long-term advances from the FHLB were as follows:

2019

2018

Weighted
Average
Rate

Amount

Weighted
Average
Rate

Amount

Fixed-rate constant payment advance ................................. $
Convertible and putable fixed-rate advance ........................
Total advances ..................................................................... $

2,841
40,000
42,841

1.70% $
1.79%
1.78% $

3,775
0
3,775

1.70%
0.00%
1.70%

Long-term and short-term FHLB advances are secured by a blanket pledge of residential mortgage, commercial real
estate, and multi-family loans totaling $577.9 million and $552.6 million at year end 2019 and 2018. Based on this
collateral, the Bank is eligible to borrow an additional $460.0 million at year end 2019. Each advance is subject to a
prepayment penalty if paid prior to its maturity date.

Scheduled payments of long-term FHLB advances are as follows:

Maturing in:
2020.............................................................................................................................................. $
2021..............................................................................................................................................
2022..............................................................................................................................................
2023..............................................................................................................................................
2024..............................................................................................................................................
Thereafter.....................................................................................................................................

TOTAL $

922
792
729
398
0
40,000
42,841

The Company has a special purpose entity to hold $2.1 million in Trust Preferred Debenture. The debt has a floating
rate that is determined quarterly based on the three-month LIBOR. At December 31, 2019, the interest rate was
3.59%. These securities can be redeemed at any quarter-end. Final maturity of the Trust Preferred Debenture is
December 15, 2036. The balance of the outstanding Trust Preferred Debenture was $2.3 million at year end 2019
and 2018.

NOTE 14 – COMMITMENTS AND CONTINGENT LIABILITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are
issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire
without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make such commitments as are used for
loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk at year end were as follows:

Commitments and unused lines of credit ..... $

85,558

Fixed Rate

Variable Rate
286,876
$

Fixed Rate

86,952

Variable Rate
287,551
$

2019

2018

Commitments to make loans are generally made for periods of 30 days or less. Commitments and fixed rate unused
lines of credit have interest rates ranging from 2.99% to 21.90% at December 31, 2019 and 2.99% to 16.00% at
December 31, 2018.

Standby letters of credit are considered financial guarantees. The standby letters of credit have a contractual value
of $6.8 million at December 31, 2019 and $5.2 million at December 31, 2018. The carrying amount of these items
on the balance sheet is not material.

Additionally, the Company has committed up to a $8 million subscription in SBIC investment funds. At December
31, 2019, the Company had invested $6.7 million in these funds.

NOTE 15 – STOCK BASED COMPENSATION

During 2017, the Company, with the approval of shareholders, created the 2017 Equity Incentive Plan (the “2017
Plan”). The 2017 Plan permits the award of up to 800 thousand shares to the Company’s directors and employees to
attract and retain exceptional personnel, motivate performance and most importantly to help align the interests of

Farmers’ executives with those of the Company’s shareholders. There were 39,913 service time based shares and
67,651 performance based shares granted under the 2017 Plan during the year ended December 31, 2019, as shown
in the table below. The actual number of performance based shares issued will depend on the relative performance
of the Company’s average return on equity compared to a group of peer companies over a three year vesting period,
ending December 31, 2022. As of December 31, 2019, 475,547 shares are still available to be awarded from the
2017 Plan.

The restricted stock awards were granted with a fair value price equal to the market price of the Company’s common
stock at the date of grant. Expense recognized was $1.4 million for 2019, $1.7 million for 2018 and $2.4 million for
2017. As of December 31, 2019, there was $1.6 million of total unrecognized compensation expense related to the
non-vested shares granted under the Plan. The remaining cost is expected to be recognized over 2.4 years.

The following is the activity under the Plan during 2019:

Maximum
Awarded
Service Units

Weighted
Average
Grant Date
Fair Value

Maximum
Awarded
Performance
Units

Weighted
Average
Grant Date
Fair Value

Beginning balance - non-vested shares........................................
Granted.........................................................................................
Vested ..........................................................................................
Forfeited.......................................................................................
Ending balance - non-vested shares.............................................

87,955
39,913
(46,703)
0
81,165

13.04
14.06
11.93
0
14.17

203,828
67,651
(78,814)
0
192,665

11.96
13.50
8.98
0.00
13.72

The 125,517 shares that vested in 2019 had a weighted average fair value of $13.87 per share.

NOTE 16 – REGULATORY MATTERS

Banks and bank holding companies are subject to various regulatory capital requirements administered by the
federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under
regulatory accounting practices. The new minimum capital requirements associated with the Basel Committee on
capital and liquidity regulation (Basel III) were being phased in and began on January 1, 2015 and was fully
implemented on January 1, 2019. Capital amounts and classifications are also subject to qualitative judgments by
regulators. Failure to meet capital requirements can initiate regulatory action by regulators that, if undertaken, could
have a direct material effect on the financial statements. Management believes that as of December 31, 2019, the
Company and the Bank meet all capital adequacy requirements to which they are subject.

The FDIC and other federal banking regulators revised the risk-based capital requirements applicable to financial
holding companies and insured depository institutions, including the Company and the Bank, to make them
consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”).

The common equity tier 1 capital, tier 1 capital and total capital ratios are calculated by dividing the respective
capital amounts by risk-weighted assets. The leverage ratio is calculated by dividing tier 1 capital by adjusted
average total assets.

Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does not
hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total
capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital
requirements. The capital conservation buffer phased in beginning January 1, 2016 and increased each year until it
was fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is 2.5% for the year of 2019 and
was 1.875% during 2018. The buffer required an additional capital amount of $47.8 million at year end 2019 and an
additional $34.4 million at year end 2018. Excluding the additional buffer, Basel III requires the Company and the
Bank to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, (ii) a
minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, (iii) a minimum ratio of total capital to risk-
weighted assets of at least 8.0% and (iv) a minimum leverage ratio of at least 4.0%.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to
represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept
brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital
restoration plans are required. At year-end 2019 and 2018, the most recent regulatory notifications categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the institution’s category.

Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from
the Bank and Farmers Trust. The Bank and Farmers Trust are subject to the dividend restrictions set forth by the
Comptroller of the Currency and Ohio Department of Commerce – Division of Financial Institutions, respectively.
The respective regulatory agency 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. At the conclusion of 2019, the Bank could, without
prior approval, declare dividends of approximately $25.2 million plus any 2020 net profits retained to the date of the
dividend declaration. In order to practice trust powers, Farmers Trust must maintain a minimum capital of $3
million. Farmers Trust would also be able to, without prior approval, declare dividends of $273 thousand plus any
2020 net profits retained to the date of the dividend declaration.

Actual and required capital amounts (not including the capital conservation buffer) and ratios are presented below at
year-end:

Actual

Amount

Ratio

Requirement For Capital
Adequacy Purposes:
Ratio
Amount

To be Well Capitalized
Under Prompt Corrective
Action Provisions:
Ratio

Amount

2019
Common equity tier 1 capital ratio

Consolidated ......................................... $ 247,395
213,507
Bank......................................................

12.94% $ 86,039
85,854
11.19%

4.5% N/A
4.5% 124,011

N/A

6.5%

Total risk based capital ratio

Consolidated .........................................
Bank......................................................

264,188
227,994

13.82% 152,958
11.95% 152,629

8.0% N/A
8.0% 190,787

N/A

10.0%

Tier I risk based capital ratio

Consolidated .........................................
Bank......................................................

249,701
213,507

13.06% 114,719
11.19% 114,472

6.0% N/A
6.0% 152,629

N/A

8.0%

Tier I leverage ratio

Consolidated .........................................
Bank......................................................

249,701
213,507

10.69%
9.06%

93,406
94,304

4.0% N/A
4.0% 117,881

N/A

5.0%

2018
Common equity tier 1 capital ratio

Consolidated ......................................... $ 222,892
210,409
Bank......................................................

12.16% $ 82,478
82,242
11.51%

4.5% N/A
4.5% 118,795

N/A

6.5%

Total risk based capital ratio

Consolidated .........................................
Bank......................................................

238,742
224,001

13.03% 146,628
12.26% 146,209

8.0% N/A
8.0% 182,761

N/A

10.0%

Tier I risk based capital ratio

Consolidated .........................................
Bank......................................................

225,150
210,409

12.28% 109,971
11.51% 109,656

6.0% N/A
6.0% 146,209

N/A

8.0%

Tier I leverage ratio

Consolidated .........................................
Bank......................................................

225,150
210,409

9.91%
9.32%

90,900
90,324

4.0% N/A
4.0% 112,905

N/A

5.0%

NOTE 17 – EMPLOYEE BENEFIT PLANS

The Company has a qualified 401(k) deferred compensation Retirement Savings Plan (the “Savings Plan”). All
employees of the Company who have completed at least 90 days of service and meet certain other eligibility
requirements are eligible to participate in the Savings Plan. Under the terms of the Savings Plan, employees may
voluntarily defer a portion of their annual compensation pursuant to section 401(k) of the Internal Revenue Code.
The Company matches 50% of the participants’ voluntary contributions up to 6% of gross wages. In addition, at the
discretion of the Board of Directors, the Company may make an additional profit sharing contribution to the Savings
Plan. Total expense was $708 thousand, $573 thousand and $556 thousand for the years ended December 31, 2019,
2018 and 2017, respectively.

The Company has a profit sharing plan to provide associates not participating in a current incentive plan a vehicle
for sharing in the success of the Company outside of existing wages and non-monetary benefits. The Board of
Directors approved a profit sharing amount equal to 1% of annual compensation for associates in 2019, 2018 and
2017. The expense was $95 thousand, $78 thousand and $105 thousand for the years ended December 31, 2019,
2018 and 2017, respectively.

The Company maintains a deferred compensation plan for certain retirees. Expense under this plan was $7 thousand
for the year ended December 31, 2019 and $8 thousand for the years ended December 31, 2018 and 2017. The
liability under the deferred compensation plan at December 31, 2019 was $115 thousand and $124 thousand at
December 31, 2018.

During 2015, the Company established a nonqualified deferred compensation plan for a select group of management
or highly compensated eligible individuals. Under the terms of the plan, eligible individuals may elect to defer
receipt of their compensation to a later taxable year. The Company has recorded both an asset and liability of equal
amount that represents the amount of contributions and the payable due to the participants in the plan. The recorded
asset and liability was $1.3 million, $753 thousand and $566 thousand at December 31, 2019, 2018 and 2017,
respectively.

As part of the NBOH acquisition the Company has a director retirement and death benefit plan for the benefit of
prior members of the Board of Directors of NBOH. The plan is designed to provide an annual retirement benefit to
be paid to each director upon retirement from the Board and attaining age 70. There are no additional benefits or
participants being added to the plan and the liability recorded at December 31, 2019 and 2018 was $1.0 million and
$941 thousand, respectively. The benefit payment upon satisfying the plan’s requirements is a benefit to the
qualifying director until death or a maximum of 15 years. An expense under this plan of $136 thousand was
recorded in 2019. A benefit was recognized under the plan of $19 thousand in 2018, and an expense of $91
thousand was recorded in 2017.

The Company had a postretirement health care benefit plan that covered individuals retired from the Company that
met certain service and age requirements and certain other active employees that have met similar service
requirements. The Company terminated the plan during 2017. A benefit was recognized under the plan of $70
thousand at December 31, 2017. Due to the termination of the plan the accrued postretirement benefit liability at
December 31, 2019 and 2018 is $0. Due to the immateriality of the plan, the disclosures required under U.S.
generally accepted accounting principles have been omitted.

The provision for income taxes (credit) consists of the following:

NOTE 18 – INCOME TAXES

Current expense................................................................................. $
Deferred expense (benefit)................................................................

TOTALS $

2019
7,626
(311)
7,315

2018
6,123
(409)
5,714

2017
9,451
999
10,450

Effective tax rates differ from federal statutory rate of 21% in 2019 and 2018 and 35% in 2017 that were applied to
income before income taxes due to the following:

Statutory tax ...................................................................................... $
Effect of nontaxable interest........................................................
Bank owned life insurance, net....................................................
Tax credits ...................................................................................
Effect of nontaxable insurance premiums ...................................
Stock compensation.....................................................................
Impact of enactment of federal tax reform ..................................
Nondeductible acquisition costs ..................................................
Other ............................................................................................

ACTUAL TAX $

Deferred tax assets (liabilities) are comprised of the following:

2019
9,046
(1,655)
(171)
3
(204)
(100)
0
0
396
7,315

2018
8,039
(1,439)
(182)
24
(188)
(486)
0
0
(54)
5,714

Deferred tax assets:

Allowance for credit losses ........................................................................... $
Net unrealized loss on securities available for sale.......................................
Deferred and accrued compensation .............................................................
Deferred loan fees and costs..........................................................................
Nonaccrual loan interest income ...................................................................
Other-than-temporary impairment ................................................................
Restricted stock .............................................................................................
Lease liabilities..............................................................................................
Other..............................................................................................................

Gross deferred tax assets ......................................................................... $

Deferred tax liabilities:

Depreciation and amortization ...................................................................... $
Net unrealized gain on securities available for sale ......................................
Federal Home Loan Bank dividends.............................................................
Purchase accounting adjustments..................................................................
Mortgage servicing rights .............................................................................
Prepaid expenses ...........................................................................................
Lease right of use asset..................................................................................
Other..............................................................................................................
Gross deferred tax liabilities ....................................................................

NET DEFERRED TAX ASSET $

2019

3,032
0
1,194
584
429
0
456
669
46
6,410

(577) $

(2,612)
(658)
(359)
(363)
(224)
(655)
0
(5,448)
962

2017
11,606
(2,054)
(291)
(371)
(348)
0
1,793
70
45
10,450

2018

2,837
1,040
1,065
580
432
25
431
0
94
6,504

(467)
0
(658)
(552)
(308)
(204)
0
(12)
(2,201)
4,303

No valuation allowance for deferred tax assets was recorded at December 31, 2019 and 2018.

At December 31, 2019 and December 31, 2018, the Company had no unrecognized tax benefits recorded. The
Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve
months.

100

The Company is subject to U.S. federal income tax. The Company is no longer subject to examination by the federal
taxing authority for years prior to 2016. The tax years 2016—2018 remain open to examination by the U.S. taxing
authority.

In December of 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. The
Act included several provisions that affected the Company’s federal income tax expense, which reduced the federal
income tax rate to 21% effective January 1, 2018. As a result of the rate reduction, the Company was required to re-
measure, through income tax expense in the period of enactment, the deferred tax assets and liabilities using the
enacted rate at which these items are expected to be recovered or settled. The re-measurement of the Company’s net
deferred tax asset resulted in additional income tax expense of $1.8 million in 2017.

NOTE 19 – OTHER COMPREHENSIVE INCOME (LOSS)

The following table represents the detail of other comprehensive income (loss) for the years ended December 31,
2019, 2018 and 2017.

Unrealized holding gains (losses) on available-for-sale securities during the year ..... $
Reclassification adjustment for gains included in net income (1)................................
Net other comprehensive income (loss) ....................................................................... $

Unrealized holding gains (losses) on available-for-sale securities during the year ..... $
Reclassification adjustment for gains included in net income (1)................................
Net unrealized gains (losses) on available-for-sale securities......................................
Change in funded status of post-retirement health plan ...............................................
Net other comprehensive income (loss) ....................................................................... $

Pre-tax

17,513
11
17,524

Pre-tax

(5,343)
(283)
(5,626)

Pre-tax

5,107
(4)
5,103
(55)
5,048

2019
Tax

(3,666)
(2)
(3,668)

1,110
59
1,169

2018
Tax

2017
Tax

(1,788)
2
(1,786)
19
(1,767)

After-Tax

13,847
9
13,856

After-Tax

(4,233)
(224)
(4,457)

After-Tax

3,319
(2)
3,317
(36)
3,281

(1)

Pre-tax reclassification adjustments relating to available-for-sale securities are reported in security gains and
the tax impact is included in income tax expense on the consolidated statements of income.

NOTE 20 – RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2019 were as follows:

Beginning balance........................................................................................................................ $
New loans.....................................................................................................................................
Effect of changes in composition of related parties.....................................................................
Repayments..................................................................................................................................
Ending balance............................................................................................................................. $

16,308
2,447
0
(5,608)
13,147

Deposits from principal officers, directors, and their affiliates at year-end 2019 and 2018 were $11.6 million.

101

The factors used in the earnings per share computation follow:

NOTE 21 – EARNINGS PER SHARE

Basic EPS

Net income ............................................................................ $
Weighted average shares outstanding ...................................

Basic earnings per share ............................................... $

Diluted EPS

Net income ............................................................................ $
Weighted average shares for basic earnings per share..........
Average unvested restricted stock awards ............................
Weighted average shares for diluted earnings per share .......

Diluted earnings per share ............................................ $

2019

2018

2017

35,760
27,734,994
1.29

35,760
27,734,994
140,990
27,875,984
1.28

32,569
27,674,705
1.18

32,569
27,674,705
299,480
27,974,185
1.16

22,711
27,567,909
0.82

22,711
27,567,909
51,167
27,619,076
0.82

There were no restricted stock awards that were considered anti-dilutive at year end 2019, 2018 and 2017.

NOTE 22 – INTEREST RATE SWAPS

The Company uses a program that utilizes interest-rate swaps as part of its asset/liability management strategy. The
interest-rate swaps are used to help manage the Company’s interest rate risk position and not as derivatives for
trading purposes. The notional amount of the interest-rate swaps does not represent amounts exchanged by the
parties. The amount exchanged is determined by reference to the notional amount and the other terms of the
individual interest-rate swap agreements.

The objective of the interest-rate swaps is to protect the related fixed rate commercial real estate loans from changes
in fair value due to changes in interest rates. The Company has a program whereby it lends to its borrowers at a
fixed rate with the loan agreement containing a two-way yield maintenance provision, which will be invoked in the
event of prepayment of the loan, and is expected to exactly offset the fair value of unwinding the swap. The yield
maintenance provision represents an embedded derivative which is bifurcated from the host loan contract and, as
such, the swaps and embedded derivatives are not designated as hedges. Accordingly, both instruments are carried
at fair value and changes in fair value are reported in current period earnings.

Summary information about these interest-rate swaps as of year ended December 31, 2019, 2018 and 2017 is as
follows:

Notional amounts ............................................................... $
Weighted average pay rate on interest-rate swaps .............
Weighted average receive rate on interest-rate swaps........
Weighted average maturity (years) ....................................
Fair value of interest-rate swaps......................................... $
Fair value of loan yield maintenance provisions................ $

2019
42,178

4.60%
4.02%
4.2
(1,898)
1,898

$
$

2018
35,996

4.53%
4.78%
4.4
(767)
767

$
$

2017
38,481

4.46%
3.81%
3.2
(653)
653

The fair value of the yield maintenance provisions and interest-rate swaps is recorded in other assets and other
liabilities, respectively, in the consolidated balance sheet. Changes in the fair value of the yield maintenance
provisions and interest-rate swaps are reported in earnings, as other noninterest income in the consolidated income
statements. There were no net gains or losses recognized in earnings related to yield maintenance provisions for
years ended December 31, 2019, 2018 and 2017.

102

NOTE 23 – SEGMENT INFORMATION

The reportable segments are determined by the products and services offered, primarily distinguished between
banking and trust operations. The trust and retirement consulting segments were combined during 2019. The
segments are also distinguished by the level of information provided to the chief operating decision makers in the
Company, who use such information to review performance of various components of the business, which are then
aggregated. Loans, investments and deposits provide the revenues in the banking operation, trust service fees and
consulting fees provide the revenue in trust operations. All operations are domestic.

Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated
using operating income. Income taxes are calculated on operating income. Transactions among segments are made
at fair value.

Significant segment totals are reconciled to the financial statements as follows:

December 31, 2019
Assets
Goodwill and other intangibles ......................... $
Total assets ........................................................ $

December 31, 2018
Goodwill and other intangibles ......................... $
Total assets ........................................................ $

For year ended 2019
Net interest income............................................ $
Provision for loan losses....................................
Service fees, security gains and other

noninterest income..........................................
Noninterest expense...........................................
Amortization and depreciation expense ............
Income before taxes .....................................
Income tax .........................................................

Net Income................................................... $

For year ended 2018
Net interest income............................................ $
Provision for loan losses....................................
Service fees, security gains and other

Net Income................................................... $

Trust
Segment

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

$
$

37,141
2,430,784

$
$

(822) $
$
4,482

42,645
2,449,158

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

38,113
2,309,644

$
$

(822) $
$
4,670

43,952
2,328,864

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

82,301
2,450

19,769
55,621
2,425
41,574
7,170
34,404

(79) $
0

(264)
980
49
(1,372)
(459)
(913) $

82,378
2,450

28,602
62,616
2,839
43,075
7,315
35,760

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

78,446
3,000

16,887
52,635
2,494
37,204
5,653
31,551

(86) $
0

(330)
889
0
(1,305)
(443)
(862) $

78,501
3,000

25,499
59,775
2,942
38,283
5,714
32,569

6,326
13,892

Trust
Segment

6,661
14,550

Trust
Segment

156
0

9,097
6,015
365
2,873
604
2,269

Trust
Segment

141
0

8,942
6,251
448
2,384
504
1,880

103

For year ended 2017
Net interest income............................................ $
Provision for loan losses....................................
Service fees, security gains and other

Net Income................................................... $

Trust
Segment

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

109
0

73,618
3,350

8,405
6,164
532
1,818
432
1,386

15,986
50,903
2,558
32,793
10,890
21,903

(81) $
0

(340)
1,029
0
(1,450)
(872)
(578) $

73,646
3,350

24,051
58,096
3,090
33,161
10,450
22,711

Bank segment includes Farmers Insurance and Investment.

NOTE 24-CONTINGENCIES

The Company is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business.
Legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred,
although the Company establishes accruals where losses are deemed probable and reasonably estimable. The
Company’s assessment of the current exposure with respect to adverse claims in legal matters could change in the
event of the discovery of additional facts in such matters or upon determinations by judges, juries, administrative
agencies, or other finds or fact that are inconsistent with the Company’s evaluations of claims. During 2019, the
Company accrued a charge of $505 thousand relating to a pending settlement of a legal contingency. The Company
has insurance coverage for this contingency and expects to recover the amount of this estimated charge. No amount
for an expected insurance recovery has been recorded as of December 31, 2019.

NOTE 25 – QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter Ended 2019
Total interest income........................................................... $
Total interest expense..........................................................
Net interest income .............................................................
Provision for loan losses .....................................................
Noninterest income .............................................................
Merger related costs (income).............................................
Noninterest expense ............................................................
Income before income taxes ...............................................
Income taxes .......................................................................
Net income .......................................................................... $

March 31

24,679 $
4,714
19,965
550
6,520
0
15,977
9,958
1,570
8,388 $

June 30

September 30 December 31
25,847
4,682
21,165
600
7,647
104
16,247
11,861
2,186
9,675

25,931 $
5,174
20,757
550
7,441
112
16,311
11,225
2,071
9,154 $

25,529 $
5,038
20,491
750
6,994
(19)
16,723
10,031
1,488
8,543 $

Earnings per share - basic and diluted ................................ $

0.30 $

0.31 $

0.33 $

0.35

104

Quarter Ended 2018
Total interest income........................................................... $
Total interest expense..........................................................
Net interest income .............................................................
Provision for loan losses .....................................................
Noninterest income .............................................................
Merger related costs (income).............................................
Noninterest expense ............................................................
Income before income taxes ...............................................
Income taxes .......................................................................
Net income .......................................................................... $

March 31

21,282 $
2,336
18,946
775
6,010
25
15,071
9,085
1,359
7,726 $

June 30

September 30 December 31
24,447
4,373
20,074
525
6,705
(180)
16,163
10,271
1,585
8,686

23,563 $
3,644
19,919
950
6,478
0
16,180
9,267
1,183
8,084 $

22,474 $
2,912
19,562
750
6,306
0
15,458
9,660
1,587
8,073 $

Earnings per share - basic and diluted ................................ $

0.28 $

0.29 $

0.31

NOTE 26 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Below is condensed financial information of Farmers National Banc Corp. (parent company only). This information
should be read in conjunction with the consolidated financial statements and related notes.

December 31,
BALANCE SHEETS

Assets:
Cash............................................................................................................... $
Investment in subsidiaries

Bank ......................................................................................................
Farmers Trust ........................................................................................
Captive ..................................................................................................
Equity securities ............................................................................................
Other..............................................................................................................

TOTAL ASSETS $

Liabilities:

Other liabilities ........................................................................................ $
Note payable ............................................................................................
Subordinate debt ......................................................................................
TOTAL LIABILITIES
TOTAL STOCKHOLDERS' EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $

2019

2018

25,471

4,131

259,628
13,106
2,186
432
1,273
302,096

131
350
2,306
2,787
299,309
302,096

244,577
13,070
1,654
367
1,393
265,192

264
350
2,258
2,872
262,320
265,192

105

STATEMENTS OF INCOME
Years ended December 31,

Income:

Dividends from subsidiaries

2019

2018

2017

Bank.................................................................................. $
Farmers Trust....................................................................
Captive Insurance .............................................................
Interest and dividends on securities .......................................
Security gains/(losses)............................................................
TOTAL INCOME
Interest on borrowings............................................................
Other expenses ....................................................................

Income before income tax benefit and undistributed

subsidiary income................................................................
Income tax benefit ............................................................

Equity in undistributed net income of subsidiaries

(dividends in excess of net income)

Bank..................................................................................
Farmers Trust....................................................................
Captive..............................................................................

NET INCOME $

33,896
2,300
535
15
41
36,787
(154)
(2,352)

34,281
470

7,864
1,900
850
8
(20)
10,602
(133)
(2,087)

8,382
450

8,373
1,225
0
5
0
9,603
(103)
(2,294)

7,206
876

508
(31)
532
35,760

23,687
(20)
70
32,569

13,529
161
939
22,711

STATEMENTS OF CASH FLOWS
Years ended December 31,

Cash flows from operating activities:

2019

2018

2017

Net income ................................................................................ $

35,760

32,569

22,711

Adjustments to reconcile net income to net cash from

operating activities:

Dividends in excess of net income (Equity in

undistributed net income of subsidiary)..............................
Other .................................................................................
NET CASH FROM OPERATING ACTIVITIES

(1,009)
(30)
34,721

(23,737)
1
8,833

(14,629)
78
8,160

Cash flows from investing activities:

Net cash paid in business combinations.................................
NET CASH FROM INVESTING ACTIVITIES

0
0

Cash flows from financing activities:

Repurchase of common shares...............................................
Cash dividends paid ...............................................................
NET CASH FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS

(2,842)
(10,539)
(13,381)
21,340

0
0

0
(8,316)
(8,316)
517

Beginning cash and cash equivalents................................................
Ending cash and cash equivalents ..................................................... $

4,131
25,471

3,614
4,131

(1,154)
(1,154)

0
(6,012)
(6,012)
994

2,620
3,614

106

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

On January 30, 2019, the Company engaged CliftonLarsonAllen, LLP (“CLA”) to serve as the Company’s

independent registered public accounting firm for the fiscal year ending December 31, 2019, upon the
recommendation and approval of the Audit Committee (the “Audit Committee”) of the Board of Directors and the
approval by the Board of Directors. The engagement of CLA resulted from a competitive request for proposal
process undertaken by the Audit Committee pursuant to which the Audit Committee received proposals from CLA,
Crowe LLP (“Crowe”), and one other independent registered public accounting firm.

During the Company’s two fiscal years ended December 31, 2017 and 2018, and the subsequent interim
period through in 2019, neither the Company nor anyone on its behalf consulted with CLA regarding either (i) the
application of accounting principles to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice
was provided that CLA concluded was an important factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement”
or a “reportable event,” as those terms are defined in Item 304 of Regulation S-K and the related instructions.

On January 29, 2019, the Company notified Crowe that it has been dismissed as the Company’s independent

registered public accounting firm effective as of the completion of the audit of the Company’s consolidated financial
statements for the fiscal year ending December 31, 2018. Crowe has served as the Company’s independent public
accounting firm since 2003. Crowe continued to serve as the Company’s independent public accounting firm until
the completion of the audit of the Company’s consolidated financial statements for the fiscal year ending December
31, 2018.

Crowe’s reports on the Company’s consolidated financial statements for each of the two fiscal years ended
December 31, 2017 and 2018 did not contain any adverse opinion or disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s two fiscal
years ended December 31, 2017 and 2018, and the subsequent interim period of 2019, (i) there were no
disagreements between the Company and Crowe on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of
Crowe, would have caused Crowe to make reference to the subject matter of the disagreements in its report on the
consolidated financial statements for such years, and (ii) there were no “reportable events” as that term is defined in
Item 304 of Regulation S-K.

Item 9A. Controls and Procedures.

As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an

evaluation, under the supervision and with the participation of the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective
to ensure that the financial and nonfinancial information required to be disclosed by the Company in the reports that
it files or submits under the Securities Exchange Act of 1934, as amended, including this Annual Report on Form
10-K for the period ended December 31, 2019, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s responsibilities related to establishing and maintaining effective disclosure controls and

procedures include maintaining effective internal controls over financial reporting that are designed to produce
reliable financial statements in accordance with GAAP. As disclosed in the Report on Management’s Assessment of
Internal Control Over Financial Reporting in the Company’s 2019 Annual Report to Shareholders, management
assessed the Company’s system of internal control over financial reporting as of December 31, 2019, in relation to
criteria for effective internal control over financial reporting as described in the 2013 “Internal Control - Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission and found it to be
effective.

107

CLA, the Company’s registered public accounting firm, has audited the Company’s internal control over

financial reporting as of December 31, 2019. The audit report by CLA is located in Item 8 of this report.

There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a -

15(f) under the Exchange Act) that occurred during the year ended December 31, 2019, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There
have been no significant changes in the Company’s internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation or material weaknesses in such internal controls requiring
corrective actions.

Item 9B. Other Information.

None.

108

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by Item 401 of Regulation S-K concerning the directors of the Company and the
nominees for election as directors of the Company at the Annual Meeting of Shareholders to be held on April 16,
2020 (the “2020 Annual Meeting”) is incorporated herein by reference from the information to be included under the
caption “Proposal 1 – Election of Directors” in Farmers’ definitive proxy statement relating to the 2020 Annual
Meeting to be filed with the Commission (“2020 Proxy Statement”).

Executive Officers of the Registrant

The names, ages and positions of Farmers’ executive officers as of March 1, 2020:

Name
Carl D. Culp...........................

Age
56

Mark L. Graham ....................
Kevin J. Helmick ...................
Brian E. Jackson ....................
Mark A. Nicastro ...................

Michael Oberhaus ..................
Joseph W. Sabat.....................
Timothy Shaffer.....................
Amber Wallace Soukenik ......

Mark R. Witmer.....................

65
48
50
49

43
59
58
54

Title
Senior Executive Vice President, Secretary and Treasurer of Farmers and
Senior Executive Vice-President, Cashier and Chief Financial Officer of
Farmers Bank
Executive Vice President and Chief Credit Officer of Farmers Bank
President and Chief Executive Officer of Farmers and Farmers Bank
Senior Vice President and Chief Information Officer of Farmers Bank
Senior Vice President and Chief Human Resources Officer of Farmers
Bank
Senior Vice President and Chief Risk Officer of Farmers Bank
Vice President and Controller of Farmers Bank
Senior Vice President and Regional President of Farmers Bank
Executive Vice President and Chief Retail/Marketing Officer of Farmers
Bank
Senior Executive Vice President, Chief Banking Officer of Farmers Bank

Officers are generally elected annually by the Board of Directors. The term of office for all the above

executive officers is for the period ending with the next annual meeting.

Principal Occupation and Business Experience of Executive Officers

Mr. Culp has served as Senior Executive Vice President and Treasurer of Farmers and Senior Executive Vice

President and Chief Financial Officer of Farmers Bank since March 1996. Prior to that time, Mr. Culp was
Controller of Farmers and Farmers Bank from November 1995. Mr. Culp has 34 years of experience in finance and
accounting in the banking industry, and is a certified public accountant.

Mr. Graham has over 42 years of experience with Farmers Bank. During his tenure, Mr. Graham has held a

variety of positions in Farmers Bank’s commercial loan department. Mr. Graham has served as Executive Vice
President and Chief Credit Officer of Farmers Bank since January 2012; for the four years prior to that appointment,
Mr. Graham served as Senior Vice President and Senior Lending Officer of Farmers Bank.

Mr. Helmick is the President and Chief Executive Officer of Farmers and Farmers Bank, a position he has
held since November 2013. Prior to becoming President, Mr. Helmick was Secretary of Farmers and Executive
Vice President – Wealth Management and Retail Services of Farmers Bank since January 2012. Mr. Helmick has
been with the Company for 25 years and has a retail and investment background, including an MBA and CFP
designation. From 1997 through 2008, Mr. Helmick served as the Vice President and Program Manager for Farmers
Investments. In 2008, Mr. Helmick was promoted to Senior Vice President of Wealth Management and Retail
Services where he was responsible for the management and oversight of the retail investment area of Farmers Bank,
Farmers Insurance, and all branch sales and operational functions.

109

Mr. Jackson is the Senior Vice President and Chief Information Officer of Farmers Bank, a position he has

held since May 2009. Prior to coming to the Company, Mr. Jackson was Assistant Vice President and Information
Technology Manager with Home Savings Bank since 1993. He has over 27 years of experience in the IT field.
Mr. Jackson was appointed as an executive officer in 2012.

Mr. Nicastro is the Senior Vice President and Chief Human Resources Officer of Farmers Bank. Mr. Nicastro
was appointed to that position in 2017 and previously served as Director of Human Resources since joining Farmers
in July 2009. Prior to that, Mr. Nicastro served as Staffing and Compliance Manager for Huntington National Bank
(2007-2008) and Regional Human Resources Manager for Sky Bank from 2004 until 2007. Mr. Nicastro has an
MBA, and has more than 22 years of experience in Human Resource Management from both large multi-national
banks and regional community banks. He was appointed as an executive officer in 2012.

Mr. Oberhaus is currently the Senior Vice President and Chief Risk Officer of Farmers Bank. Mr. Oberhaus

joined Farmers National Bank as part of the merger with First National Bank of Orrville in June of 2015 as the
company’s Enterprise Risk Manager. Prior to the merger Mr. Oberhaus served as the SVP and Chief Risk Officer of
First National Bank of Orrville and brings more than 22 years of experience in banking.

Mr. Sabat has served as Vice President and Controller of Farmers Bank since April 2006. Prior to coming to

the Company, Mr. Sabat was with a regional public accounting firm. Mr. Sabat has 24 years of experience in the
accounting, finance and auditing fields. He is a certified public accountant and was appointed as an executive
officer in 2012.

Mr. Shaffer serves as Regional President and has held that title since July of 2015. Previously, Mr. Shaffer
served as the Director of Commercial Banking & Private Client Services. In October of 2011, Mr. Shaffer joined
Farmers Bank as the Commercial Lending Manager, overseeing commercial lending, small business lending and
treasury management. Mr. Shaffer has over 30 years of Banking and Lending experience in the Mahoning Valley
market. Mr. Shaffer was appointed as an executive officer in 2014.

Ms. Wallace Soukenik has served as Executive Vice President and Chief Retail/Marketing Officer for Farmers
Bank since November 2013. In August 2008, Ms. Wallace Soukenik joined Farmers Bank as Senior Vice President
and Director of Marketing. She has 30 years of experience in the marketing field. Prior to joining the Company,
Ms. Wallace Soukenik served as the Assistant Vice President of Marketing and Physician Relations at Trumbull
Memorial Hospital, where she managed a $14 million endowment, a $1.5 million marketing budget and all
physician contracts. She was appointed as an executive officer in 2012.

Mr. Witmer is the Senior Executive Vice President and Chief Banking Officer of Farmers National Bank. Mr.

Witmer joined Farmers National Bank as part of the merger with First National Bank of Orrville in June of 2015.
Prior to the merger, Mr. Witmer served as the Chief Executive Officer of First National Bank of Orrville. Mr.
Witmer has more than 28 years of leadership, community banking and lending experience.

Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended.

The information required by Item 405 of Regulation S-K is incorporated herein by reference from the

disclosure to be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2020
Proxy Statement.

Code of Business Conduct and Ethics.

The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that covers all
employees, including its principal executive, financial and accounting officers, and is posted on the Company’s
website www.farmersbankgroup.com. In the event of any amendment to, or waiver from, a provision of the Code of
Ethics that applies to its principal executive, financial or accounting officers, the Company intends to disclose such
amendment or waiver on its website.

110

Procedures for Recommending Directors Nominees.

Information concerning the procedures by which shareholders may recommend nominees to Farmers’ Board

of Directors is incorporated herein by reference from the information to be included under the caption “Director
Nominations” in 2020 Proxy Statement. These procedures have not materially changed from those described in
Farmers’ definitive proxy materials for the 2019 Annual Meeting of Shareholders.

Audit Committee.

The information required by Items 407(d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference
from the disclosure to be included under the caption “Committees of the Board of Directors – Audit Committee” in
the 2020 Proxy Statement.

Item 11. Executive Compensation.

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the

disclosure to be included under the captions “Compensation Discussion and Analysis” and “Executive
Compensation and Other Information” in the 2020 Proxy Statement.

The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “Compensation Committee Interlocks and Insider Participation” in the
2020 Proxy Statement.

The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “The Compensation Committee Report” in the 2020 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

The information required by Item 201(d) of Regulation S-K is incorporated herein by reference from the
disclosure included under the caption “Equity Compensation Plan Information” in the 2020 Proxy Statement of the
Company.

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the
disclosure included under the caption “Beneficial Ownership of Management and Certain Beneficial Owners” in the
2020 Proxy Statement of the Company.

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “Certain Relationships and Related Transactions” in the 2020 Proxy
Statement.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “The Board of Directors — Independence” in the 2020 Proxy Statement.

Item 14. Principal Accountant Fees and Services.

The information required by this Item 14 is incorporated herein by reference from the disclosure to be
included under the captions “Independent Registered Public Accounting Firm Fees” and “Pre-Approval of Fees” in
the 2020 Proxy Statement.

111

Item 15. Exhibits, Financial Statement Schedules.

PART IV

(a)(1) Financial Statements

Item 8 Reference is made to the Consolidated Financial Statements included in Item 8 of Part II
herein.

(2) Financial Statement Schedules

No financial statement schedules are presented because they are not applicable.

(3) Exhibits

The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are
listed in the Exhibit Index, which follows and is incorporated herein by reference.

(b)Exhibits

The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are
listed in the Exhibit Index, which follows and is incorporated herein by reference.

(c)Financial Statement Schedules

See subparagraph (a)(2) above.

Item 16. Form 10-K Summary.

None.

112

The following exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K:

INDEX TO EXHIBITS

Exhibit
Number

2.1

3.1

3.2

3.3

3.4

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

Description

Agreement and Plan of Merger by and among Farmers National Banc Corp., Maple Leaf Financial, Inc.,
and FMNB Merger Subsidiary III, LLC, dated as of August 29, 2019 (incorporated by reference from
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 5,
2019)

Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from
Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed with the Commission on
October 3, 2001 (File No. 333-70806)).

Amendment to Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by
reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on
May 1, 2013).

Amended Code of Regulations of Farmers National Banc Corp. (incorporated by reference from Exhibit
3.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 19, 2019).

Farmers National Banc Corp. Cash Incentive Plan (incorporated by reference from Exhibit 10.1 to
Farmers’ Current Report on Form 8-K filed with the Commission on June 24, 2011).

Farmers National Banc Corp. Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to
Farmers’ Current Report on Form 8-K filed with the Commission on June 29, 2011).

Farmers National Banc Corp. Nonqualified Deferred Compensation Plan (as amended and restated
effective January 1, 2016) (incorporated by reference from Exhibit 10.4 to Farmers’ Annual Report on
Form 10-K for the year ended December 31, 2016 filed with the Commission on March 7, 2017).

Farmers National Banc Corp. 2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1
to Farmers’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed with the
Commission on August 8, 2017).

Farmers National Banc Corp. 2017 Form of Notice of Grant of Long-term Incentive Plan Awards under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on August 8, 2017).

Farmers National Banc Corp. 2017 Form of Performance-Based Cash Award Agreement under 2017
Equity Incentive Plan. (incorporated by reference from Exhibit 10.3 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on August 8, 2017).

Farmers National Banc Corp. 2017 Form of Service-Based Restricted Stock Award Agreement under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.4 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on August 8, 2017).

Farmers National Banc Corp. 2017 Form of Performance-Based Equity Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.5 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on August 8, 2017).

Farmers National Banc Corp. 2018 Form of Notice of Grant of Long-term Incentive Plan Awards under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 9, 2018).

113

Exhibit
Number

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

Description

Farmers National Banc Corp. 2018 Form of Performance-Based Equity Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on May 9, 2018).

Farmers National Banc Corp. 2018 Form of Service-Based Restricted Stock Award Agreement under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.3 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 9, 2018).

Farmers National Banc Corp. 2018 Form of Performance-Based Cash Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.4 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on May 9, 2018).

Farmers National Banc Corp. 2019 Form of Notice of Grant of Long-term Incentive Plan Awards under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 8, 2019).

Nonemployee Director Compensation (incorporated by reference from Exhibit 10.18 to Farmers’
Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Commission on
March 5, 2019).

Farmers National Banc Corp. Form of Indemnification Agreement (incorporated by reference from
Exhibit 10.1 to Farmers’ Current Report on Form 8-K filed with the Commission on April 29, 2011).

Farmers National Banc Corp. Second Amended and Restated Executive Separation Policy (incorporated
by reference from Exhibit 10.20 to Farmers’ Annual Report on Form 10-K for the year ended December
31, 2018 filed with the Commission on March 5, 2019).

Change in Control Agreement with Kevin J. Helmick (incorporated by reference from Exhibit 10.2 to
Farmers’ Current Report on Form 8-K filed with the Commission on November 14, 2013).

Form of Change in Control Agreements for Executive Officers (incorporated by reference from Exhibit
10.3 to Farmers’ Current Report on Form 8-K filed with the Commission on November 14, 2013).

Subsidiaries of Farmers (filed herewith).

23.1

23.2

Consent of Independent Registered Public Accounting Firm (filed herewith).

Powers of Attorney of Directors and Executive Officers (filed herewith).

31.1

31.2

Rule 13a-14(a)/15d-14(a) Certification of Kevin J. Helmick, President and Chief Executive Officer of
Farmers (principal executive officer) (filed herewith).

Rule 13a-14(a)/15d-14(a) Certification of Carl D. Culp, Executive Vice President and Treasurer of
Farmers (principal financial officer) (filed herewith).

114

Exhibit
Number

32.1

32.2

101

104

Description

Certification pursuant to 18 U.S.C. Section 1350 of Kevin J. Helmick, President and Chief Executive
Officer of Farmers (principal executive officer) (filed herewith).

Certification pursuant to 18 U.S.C. Section 1350 of Carl D. Culp, Executive Vice President and
Treasurer of Farmers (principal financial officer) (filed herewith).

The following materials from the Company’s Quarterly Report on Form 10-K for the year ended
December 31, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language), filed
herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the
Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Stockholders’
Equity, (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial
Statements.

The cover page from the Company’s Annual report on Form 10-K for the year ended December 31,
2019, has been formatted in Inline XBRL.

Constitutes a management contract or compensatory plan or arrangement.

Copies of any exhibits will be furnished to shareholders upon written request. Request should be directed to Carl D.
Culp, Senior Executive Vice President and Treasurer, Farmers National Banc Corp., 20 S. Broad Street, Canfield,
Ohio 44406.

115

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the under signed, thereunto duly authorized.

SIGNATURES

FARMERS NATIONAL BANC CORP.

By /s/ Kevin J. Helmick

Kevin J. Helmick, President and Chief Executive Officer
March 5, 2020

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Kevin J. Helmick
Kevin J. Helmick

/s/ Carl D. Culp
Carl D. Culp

/s/ Joseph W. Sabat*
Joseph W. Sabat

/s/ Gregory C. Bestic*
Gregory C. Bestic

President, Chief Executive Officer and Director
(Principal Executive Officer)
Senior Executive Vice President, Secretary and
Treasurer
(Principal Financial Officer)

Controller
(Principal Accounting Officer)

Director

/s/ Anne Frederick Crawford* Director
Anne Frederick Crawford

Chairman of the Board

Director

/s/ Lance J. Ciroli*
Lance J. Ciroli

/s/ Ralph D. Macali*
Ralph D. Macali

/s/ Terry A. Moore*
Terry A. Moore

/s/ Edward W. Muransky*
Edward W. Muransky

/s/ David Z. Paull*
David Z. Paull

/s/ James R. Smail*
James R. Smail

March 5, 2020

Vice Chairman of the Board

March 5, 2020

The above-named directors and officers of the Registrant sign this Annual Report on Form 10-K by Kevin J.
Helmick and Carl D. Culp, their attorney-in-fact, pursuant to Powers of Attorney signed by the above-named
directors and officers, which Powers of Attorney are filed with this Annual Report on Form 10-K as exhibits,
in the capacities indicated.

116

By /s/ Kevin J. Helmick
Kevin J. Helmick
President, Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Carl D. Culp
Carl D. Culp
Senior Executive Vice President, Secretary and Treasurer
(Principal Financial Officer)

117

Corporate Profile

Farmers National Banc Corp. (the “Company”) is a bank holding company registered under the

Bank Holding Company Act of 1956, as amended. The Company provides full banking services

through its national bank subsidiary, The Farmers National Bank of Canfield (“Farmers National

Bank”), and provides trust services through its state-chartered trust company subsidiary,

Farmers Trust Company. The Company also provides retirement planning and consultancy

services through National Associates, Inc., a subsidiary of Farmers Trust Company, and

insurance services through Farmers National Insurance, LLC and Bowers Insurance Agency,

LLC, subsidiaries of Farmers National Bank.

Farmers National Bank, chartered in 1887, is a full-service financial services company engaged

in commercial and retail banking with a total of forty-one (41) locations and four (4) trust offices

located in the counties of Mahoning, Trumbull, Columbiana, Stark, Summit, Wayne, Medina,

Geauga and Cuyahoga in the State of Ohio and Beaver in Pennsylvania. In addition, Farmers

National Bank provides 24-hour access to a network of Automated Teller Machines and offers

online, mobile and telephone banking services. Farmers National Bank competes with state

and national banks, as well as with a large number of other financial institutions, such as thrifts,

insurance companies, consumer finance companies, credit unions and commercial finance

leasing companies for deposits, loans and other financial service businesses. The principal

methods by which Farmers National Bank competes are loan interest rates, the rates paid for

funds, the fees charged for services and the availability of services.

As a national banking association, Farmers National Bank is a member of the Federal Reserve

System, is subject to the supervision and regulation of the Office of the Comptroller of the

Currency, and deposits are insured by the Federal Deposit Insurance Corporation to the extent

provided by law.

Forward Looking Statements

Cautionary Note Regarding Forward Looking Statements: This report [and the following letter

from our President & Chief Executive Officer] contains “forward looking statements” within

the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act

of 1995. For a discussion of factors that could cause future results to differ from historical

performance or those forward-looking statements, see “Cautionary Note Regarding Forward

Looking Statements” on page 29, “Supervision and Regulation” on page 3, and “Item 1A. Risk

Factors” on page 12 of the attached Annual Report on Form 10-K for the year ended December

31, 2019 and recent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed

with the SEC, which are available on the SECs website at www.sec.gov.

Investor Information

Corporate Headquarters:
Farmers National Banc Corp.
20 South Broad Street, P.O. Box 555
Canfield, OH 44406
Phone 330-533-3341
Toll Free 1-888-988-3276
Website: www.farmersbankgroup.com

Dividend Payments: Subject to the approval of the
Board of Directors, quarterly cash dividends are
customarily payable on or about the 30th day of
March, June, September and December.

Transfer Agent: Computershare Investor Services
P.O. Box 30170, College Station, TX 77842

Dividend Reinvestment Plan (DRIP): Registered
shareholders can purchase additional common
shares through Farmers’ Dividend Reinvestment Plan.
Participation is voluntary and allows for automatic
reinvestment of cash dividends and the safekeeping
of share certificates. To obtain a prospectus, contact
the Computershare Investor Services at 877-581-5548.

Direct Deposit of Cash Dividends: The direct
deposit program, which is offered at no charge,
provides for automatic deposit of quarterly dividends
directly to a checking or savings account. For
information regarding this program, please contact
the Computershare Investor Services at 877-581-5548.

Annual Report on Form 10-K: A copy of the Annual
Report on Form 10-K filed with the Securities and
Exchange Commission will be provided to any
shareholder on request to the attention of: Mr. Carl D.
Culp, Farmers National Banc Corp., 20 South Broad
Street, P.O. Box 555, Canfield, OH 44406.

Common Stock Listing and Information as to
Stock Prices and Dividends:
The Company’s common shares trade on the
NASDAQ Capital Market under the symbol FMNB.
Set forth in the accompanying table are per share
prices at which common shares have actually been
purchased and sold in transactions during the
periods indicated, to the knowledge of the Company.
Also included in the table are dividends per share
paid on the outstanding Company’s common shares
and any shares dividends paid. As of December 31,
2019, there were 27,670,739 shares outstanding and
3,274 shareholders of record of common shares.

The following graph compares the cumulative five year total return
to shareholders on Farmers National Banc Corp.’s common shares
relative to the cumulative total returns of the NASDAQ Composite
index, the NASDAQ Bank index and the SNL Microcap Bank
index. The graph assumes that the value of the investment in the
Company’s common shares and in each of the indexes (including
reinvestment of dividends) was $100 on 12/31/2014 and tracks
it through 12/31/2019.

Total Return Performance

Farmers National Banc Corp.

NASDAQ Composite Index

SNL U.S. Bank NASDAQ Index

SNL Microcap Bank Index

250

200

e
u
l
a
V
x
e
d
n

150

100

50
12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

Period Ending

Index

12/31/14

12/31/15

12/31/16 12/31/17 12/31/18

12/31/19

Farmers National Banc Corp.
NASDAQ Composite Index
SNL U.S. Bank NASDAQ Index
SNL Microcap Bank Index

100.00
100.00
100.00
100.00

104.51
106.96
107.95
111.20

175.24
116.45
149.68
136.72

184.93
150.96
157.58
167.25

163.08
146.67
132.82
158.70

214.36
200.49
166.75
177.22

Source: S&P Global Market Intelligence

Farmers National Banc Corp.
20 South Broad Street P.O. Box 555 Canfield, Ohio 44406