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, 2024
or
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-35296
Farmers National Banc Corp.
(Exact name of registrant as specified in its charter)
Ohio
34-1371693
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
20 South Broad Street, Canfield, Ohio
44406
(Address of principal executive offices)
(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
Name of each exchange on which registered
Common Shares, no par value
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
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery
period pursuant to §240.10D-1 (b). ☐
As of June 30, 2024, 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 $450.8
million based upon the last sales price as of June 28, 2024 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
Trading Symbol
Name of each exchange on which registered
Common Stock, No Par Value
FMNB
The NASDAQ Stock Market
As of March 1, 2025, the registrant had outstanding 37,614,636 common shares, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of Form 10-K
into which
Document is Incorporated
Portions of the registrant’s definitive proxy statement for the 2024
III
Annual Meeting of Shareholders
FARMERS NATIONAL BANC CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2024
TABLE OF CONTENTS
PART I
Item 1.
Business
1
Item 1A.
Risk Factors
14
Item 1B.
Unresolved Staff Comments
25
Item 2.
Properties
26
Item 3.
Legal Proceedings
26
Item 4.
Mine Safety Disclosures
26
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
27
Item 6.
Reserved
27
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A.
Quantitative and Qualitative Disclosure about Market Risk
48
Item 8.
Financial Statements and Supplementary Financial Data
50
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
118
Item 9A.
Controls and Procedures
118
Item 9B.
Other Information
118
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
118
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
118
Item 11.
Executive Compensation
119
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
120
Item 13.
Certain Relationships and Related Transactions, and Director Independence
120
Item 14.
Principal Accountant Fees and Services
120
PART IV
Item 15.
Exhibits, Financial Statement Schedules.
120
Item 16.
Form 10-K Summary
120
SIGNATURES
124
1
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 of 1977 (the
"CRA"). The Company operates principally through its wholly-owned subsidiaries, The Farmers National Bank of Canfield (the “Bank” or “Farmers Bank”) and
Farmers Trust Company (“Farmers Trust”). A third subsidiary, Farmers National Captive, Inc. (“Captive”), was dissolved in November of 2023. 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.
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, 2024, 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 1, 2023, Farmers National Banc Corp. (the “Company”) completed its previously announced merger with Emclaire Financial Corp., a
Pennsylvania corporation and registered financial holding company (“Emclaire”), pursuant to the Agreement and Plan of Merger dated as of March 23, 2022, by
and among the Company, FMNB Merger Subsidiary V, LLC, a wholly owned subsidiary of Farmers (“Merger Sub”), and Emclaire (the “Merger Agreement”).
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) Emclaire merged with and into Merger Sub (the
“Merger”), with Merger Sub as the surviving entity in the Merger. Promptly following the consummation of the Merger, Merger Sub was dissolved and
liquidated and The Farmers National Bank of Emlenton, the banking subsidiary of Emclaire, merged with and into The Farmers National Bank of Canfield, the
national banking subsidiary of the Company (“Farmers Bank”), with Farmers Bank as the surviving bank. Pursuant to the terms of the Merger Agreement, at the
Effective Time of the Merger, each common share, without par value, of Emclaire (“Emclaire Common Shares”) issued and outstanding immediately prior to the
Effective Time (except for certain Emclaire Common Shares held directly by Emclaire or the Company) was converted into the right to receive, without interest,
$40.00 in cash (the “Cash Consideration”) or 2.15 common shares, without par value, of the Company (“Company Common Shares”) (the “Stock
Consideration”), subject to an overall limitation of 70% of the Emclaire Common Shares being exchanged for the Stock Consideration and the remaining 30% of
Emclaire Common Shares being exchanged for the Cash Consideration. No fractional Company Common Shares were issued in the Merger, and Emclaire’s
shareholders became entitled to receive cash in lieu of fractional Company Common Shares. Emclaire operated 19 branches in ten counties throughout western
Pennsylvania.
2
The Bank is a full-service national banking association engaged in commercial and retail banking mainly in the northeastern region of Ohio and the
western region of 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, 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 2024, is discussed in
“Management’s 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 and Pennsylvania have 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 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 2024, Farmers Trust acquired substantially all of the assets, in a cash
transaction, of Crest Retirement Advisors, LLC ("Crest"). 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 operated until November 20, 2023 when the Company dissolved the entity. During its operation Captive was a
wholly-owned insurance subsidiary of the Company that provided property and casualty insurance coverage to the Company and its subsidiaries. The Captive
pooled resources with similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves and to provide
insurance where not available or economically feasible. Captive did not account for a material portion of 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 2022, Farmers Insurance
acquired substantially all of the assets, in a cash transaction, of Randy L. Jones Agency, Inc., doing business as Champion Insurance. Farmers Insurance is a
subsidiary of Farmers Bank and does not account for a material portion of 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 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
3
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.
Human Capital
Our core values of Integrity, Respect, Diligence, Stewardship, Commitment, Relationships and Performance represent our belief that our long-term
success is closely tied to having a dedicated and engaged workforce. We are committed to attracting, developing, and retaining associates who reflect the
communities in which we serve. As of December 31, 2024, Farmers and its subsidiaries had 682 full-time equivalent employees. The market for top talent is
highly competitive, and we recognize that workforce turnover is not only financially costly, but also is not aligned with our commitment to our team. Farmers is
committed to supporting a high performing, collaborative culture that provides the foundation to attract and retain the best associates in banking. By investing in
our team, we also invest in our financial future. We offer all of our associates a comprehensive benefits package that includes medical, dental and vision
insurance, a flexible spending plan, prescription drug coverage, group life insurance, short-term and long-term disability insurance, a traditional 401(k) Plan, a
Roth IRA plan, competitive paid time off/paid holidays, competitive incentives, an annual Profit Sharing Plan and an Employee Stock Purchase Plan.
We are committed to providing a safe and secure work environment in accordance with applicable labor, safety, health, anti-discrimination and other
workplace laws. We strive for all of our associates to feel safe and empowered at work. To that end, we maintain a whistleblower hotline that allows associates
and others to anonymously voice concerns. We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation.
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 (the “DIF”) 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. To the
extent that the following discussion describes legislation, statutes, regulations or policies applicable to the Company or its subsidiaries, the discussion is qualified
in its entirety by reference to the full text of the legislation, statutes, regulations and policies that are described herein, as they may be amended or revised by the
United States ("U.S"). Congress or state legislatures and federal or state regulatory agencies, as the case may be. Changes in these legislation, statutes,
regulations and policies may have a material adverse effect on the Company and its business, financial condition or results of operations. Such legislation,
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 legislation, statutes, regulations or
regulatory policies could have a material adverse effect on the Company and its business, financial condition or results of operations.
4
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 Federal Deposit Insurance Corporation (the
“FDIC”), is well managed, and has at least a satisfactory rating under 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 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 DIF of the FDIC and subject to deposit insurance assessments to maintain the DIF.
5
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.
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 Wall Street Reform and Consumer Protection
Act of 2010 (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 DIF. As a result, it is subject to regulation and deposit insurance assessments by the FDIC.
6
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.
7
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 (“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.
The Company and the Bank became subject to Basel III on January 1, 2015.
Under Basel III, 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 Basel III.
Tier 1 capital includes common equity tier 1 capital and certain additional tier 1 items as provided under Basel III. Tier 2 capital, which can be included in
the total capital ratio, generally consists of other preferred stock and subordinated debt meeting certain conditions plus limited amounts of the allowance for
credit losses, subject to specified eligibility criteria, less applicable deductions.
Basel III allows 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.
Basel III also changed the risk-weights of assets in an effort to better reflect credit risk and other risk exposures.
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. Basel III requires the Bank to maintain: (i) 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”) (effectively resulting 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 (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (iii) a minimum ratio of
Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the CCB (effectively resulting in a minimum total capital ratio of 10.5%); and (iv) a
minimum leverage ratio of 4.0%, 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).
Basel III provides for a number of 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.
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 Basel III. Requirements of higher capital levels or higher levels of liquid assets could adversely impact
the Company’s net income and return on equity.
In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the Current Expected
Credit Losses (“CECL”). The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model
are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on
regulatory capital that may result from the adoption of the CECL model. Due to COVID-19, federal banking agencies issued an interim final rule that delayed
the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL
prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the
prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-
year delay. On August 26, 2020, the federal
8
banking agencies issued a final rule that made certain technical changes to the interim final rule, including expanding the pool of eligible institutions. The
changes in the final rule applied only to those banking organizations that elected the CECL transition relief provided for under the rule. The Company did not
elect this transition relief.
Economic Growth, Regulatory Relief and Consumer Protection Act
On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted, which repealed or
modified certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest banks (those with consolidated assets in excess of $250 billion).
Bank holding companies with consolidated assets of less than $100 billion, including Farmers, are no longer subject to enhanced prudential standards. The
Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including Farmers, from certain record-
keeping, reporting and disclosure requirements.
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.
In July 2019, the federal bank regulatory agencies that adopted the Volcker Rule adopted a final rule to exempt certain community banks, including
Farmers, from such rule consistent with the Regulatory Relief Act. Under the final rule, community banks with $10 billion or less in total consolidated assets and
total trading assets and liabilities of 5.0% or less of total consolidated assets were excluded from the restrictions of the Volcker Rule. On June 25, 2020, the
federal bank regulatory agencies also finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds.
Such rule permits certain banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was originally
intended to address.
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 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.
9
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 DIF of the FDIC, and Farmers Bank is assessed deposit insurance
premiums to maintain the DIF. The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith and credit of
the U.S. 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 DIF 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 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 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 2016, the FDIC adopted final rules designed to meet the
statutory minimum DRR of 1.35%. 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. The DRR reached 1.40% on June 30, 2019, but as of June 30, 2020, the DRR fell below the statutory
minimum to 1.30%. This resulted in the FDIC adopting a restoration plan that requires the restoration of the DRR to 1.35% by September 30, 2028. The
restoration plan maintained the scheduled assessment rates for all insured institutions.
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 DIF. 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.
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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.
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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.
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.
A new compliant clawback policy was approved by the Board of Directors on September 26, 2023. See Exhibit 97.1 for the policy relating to recovery of
erroneously awarded compensation.
Cybersecurity
Federal banking regulators issued two related statements regarding cybersecurity in 2015. One statement indicates that financial institutions should design
multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by
compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution.
The second statement indicates that management of financial institutions are expected to maintain sufficient business continuity planning processes to ensure the
rapid recovery, resumption and maintenance of the financial institution’s operations after a cybersecurity attack involving destructive malware. A financial
institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and
restoring data if the financial institution or its critical service providers fall victim to this type of cybersecurity attack. If the Bank fails to observe the regulatory
guidance, it could be subject to various regulatory sanctions, including financial penalties.
In November 2021, the federal bank regulatory agencies issued a final rules that became effective in May 2022, requiring banking organizations that
experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality,
integrity or availability of information or the information system occurs, or there is a violation or imminent threat of a violation to banking security policies and
procedures. The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after
the bank determine a computer-security incident that rises to the level of a notification incident has occurred. These notifications are intended to promote early
awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank
service providers to notify their bank organization customers of a computer-security incident that has occurred, or is reasonably likely to cause, a material service
disruption or degradation for four or more hours.
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The Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, requires certain covered entities to report a covered incident to the
U.S. Department of Homeland Security's Cybersecurity & Infrastructure Security Agency ("CISA") within 72 hours after a covered entity reasonably believes an
incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
The SEC adopted a new rule on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure by Public Companies in 2023, which
applies to all public companies subject to the reporting requirements of the Exchange Act and requires disclosure of material cybersecurity incidents in Current
Reports on Form 8-K and periodic disclosure of cybersecurity risk management, strategy, and governance in annual reports in Annual Reports on Form 10-K.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations and many states have recently
implemented or modified their data breach notification and data privacy requirements. The Company expects this trend of state-level cybersecurity regulatory
activity to continue, and continues to monitor these developments.
In the ordinary course of its business, the Bank relies on electronic communications and information systems to conduct its operations and to store
sensitive data, and employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on
any suspected advanced persistent threats. Notwithstanding these defensive measures, the threat from cybersecurity attacks is severe, attacks are sophisticated
and increasing in volume, and attackers respond rapidly to changes in defensive measures. While the Bank has not, to date, detected a significant compromise,
significant data loss or any material financial losses related to cybersecurity attacks, the Bank’s systems and those of its customers and third-party service
providers are under constant threat and it is possible that we could experience a future significant event. The Bank expects risks and exposures related to
cybersecurity attacks to remain high for the foreseeable future. For further discussion of risks related to cybersecurity, see “Item 1A Risk Factors.” See also the
Company’s disclosures regarding risk management, strategy, governance and incident disclosure under “Item 1C.”
Future Legislation and Regulation
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, and such legislation may further change banking statutes and the operating environment of the Company in
substantial and unpredictable ways. 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. 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.
A change in legislation affecting financial institutions and the financial industry could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it
or any implementing regulations, would have on the financial condition or results of operations of the Company or any of its subsidiaries. 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.
Also, such statutes, regulations and policies are continually under review by the U.S. 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.
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Information About Our Executive Officers
The names, ages and positions of Farmers’ executive officers as of March 1, 2025:
Name
Age
Title
Troy Adair
58
Executive Vice President, Secretary, Treasurer and Chief Financial Officer of Farmers and Senior
Executive Vice President and Chief Financial Officer of Farmers Bank
Kevin J. Helmick
53
President and Chief Executive Officer of Farmers and Farmers Bank
Brian E. Jackson
55
Executive Vice President and Chief Information Officer of Farmers Bank
Michael E. Matuszak
57
Senior Executive Vice President and Chief Operating Officer of Farmers Bank
Mark A. Nicastro
54
Executive Vice President and Chief Human Resources Officer of Farmers Bank
Michael Oberhaus
48
Executive Vice President and Chief Risk Officer of Farmers Bank
Joseph W. Sabat
64
Senior Vice President and Chief Accounting Officer of Farmers Bank
Timothy F. Shaffer
63
Senior Executive Vice President and Chief Banking Officer of Farmers Bank
Amber Wallace Soukenik
59
Senior Executive Vice President and Chief Retail/Marketing Officer of Farmers Bank
Mark J. Wenick
65
Senior Executive Vice President and Chief Wealth Management 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. Adair has served as Executive Vice President, Secretary, Treasurer and Chief Financial Officer of Farmers and Senior Executive Vice President and
Chief Financial Officer of Farmers Bank since August 2021. Mr. Adair joined Farmers in June of 2021 as Executive Vice President of Finance. Prior to that
time, Mr. Adair was the treasurer of Home Savings Bank/Premier Bank from February 2016 through June of 2021 and Director of Risk Management from
February of 2002 to February of 2016. Mr. Adair has 37 years of experience in finance and accounting in the banking industry.
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 30 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.
Mr. Jackson is the Executive 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 31 years of
experience in the IT field. Mr. Jackson was appointed as an executive officer in 2012.
Mr. Nicastro is the Executive 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 26 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.
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Mr. Matuszak is the Senior Executive Vice President and Chief Operating Officer of Farmers Bank, a position he has held since December of 2022. Most
recently, Mr. Matuszak served as the Vice President, Cloud Services with Wellmark Blue Cross Blue Shield for 6 years, becoming Vice President, Cloud
Services and CISO in 2019. Mr. Matuszak has more than 26 years of experience in operations, facilities, cybersecurity and software development throughout the
financial services, insurance and healthcare industries. He also holds certifications in Six Sigma and ITIL and a master’s degree in technical communications.
Mr. Oberhaus is currently the Executive 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 26 years of experience in banking.
Mr. Sabat is the Senior Vice President and Chief Accounting Officer of Farmers Bank. Mr. Sabat was appointed to that position in June 2021 and
previously served as 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 29 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 Senior Executive Vice President and Chief Banking Officer and has held that title since January of 2025. Previously, Mr. Shaffer
served as Chief Credit Officer from 2021 through January 2025. He was previously Regional President and held that title from July of 2015 through 2020. Mr.
Shaffer also 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 35 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 Senior 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 34 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. She was appointed as an executive officer in 2012.
Mr. Wenick is Senior Executive Vice President and Chief Wealth Management Officer of Farmers Bank. Prior to coming to Farmers National Bank in
2017, Mr. Wenick was regional president of Chemical Bank for 3 years. Prior to that, Mr. Wenick spent 5 years in local bank investment and trust positions. He
brings more than 41 years of financial expertise in the area of wealth management.
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 General 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
15
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. 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 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. The continued impact on economic conditions caused by the
currently inflationary environment and increases in market interest rates could have an adverse effect on our asset quality, deposit levels and loan demand, and,
therefore, our financial condition and results of operations.
Instability in geopolitical matters, as well as volatility in financial markets, may have a material adverse effect on our industry and our business.
The macroeconomic environment in the U.S. is susceptible to global events and volatility in financial markets. The unrest in Israel and the Middle East
could escalate and cause financial market volatility. In addition, the ongoing invasion of Ukraine by Russian military forces that began in early 2022 resulted in
significant market and other disruptions, including volatility of commodity prices and supply of energy, food, and other commodities. Trade negotiations between
the U.S. and other nations remain uncertain as the extent and duration of this military conflict and resulting market disruptions could be significant and could
potentially have substantial impact on the global economy and our business for an unknown period of time.
Changes to United States tariff and import/export regulations may have a negative effect on our industry and our business.
There has been on-going discussion and commentary regarding potential significant changes to United States trade policies and tariffs, including imposing
higher tariffs or implementing more restrictive trade policies. The current administration has created significant uncertainty about the future relationship between
the United States and other countries with respect to the trade policies and tariffs. These tariffs or other trade restrictions on products and materials that our
customers import or export, or the perception that any of these tariffs or other trade restrictions could occur, could cause the prices of our customers’ products to
increase which could reduce demand for such products, or reduce our customer margins, and adversely impact their revenues, financial results and ability to
service debt. This could adversely affect our financial condition and results of operations. In addition, to the extent changes in the political environment have a
negative impact on us or on the markets in which we operate, our business, financial condition and results of operations could be materially and adversely
impacted in the future.
Adverse changes in the ability or willingness of our customers to meet their repayment obligations to the Company could adversely impact our
liquidity, financial condition and results of operations.
Our business consists mainly of making loans to salaried people or other wage earners who generally depend on their earnings to meet their repayment
obligations, and our ability to collect on loans depends on the willingness and repayment ability of our customers. Adverse changes in the ability or willingness
of a significant portion of our customers to repay their obligations to the Company, whether due to changes in general economic, political or social conditions
including the results of national, state or local elections, the cost of consumer goods, interest rates, natural disasters, acts of war or terrorism, prolonged public
health crisis or a pandemic, such as COVID-19, or other causes, or events affecting our customers such as unemployment, major medical expenses, bankruptcy,
divorce or death, could have a material effect on our liquidity, financial condition and results of operations.
We maintain an allowance for credit losses in our financial statements. Under CECL the credit loss estimation process involves procedures that consider
the unique characteristics of the Company’s loan portfolio segments, based on estimates and assumptions at that date. However, the amount of actual future
credit losses we may incur is susceptible to changes in economic, operating and other conditions within our various local markets, which may be beyond our
control, and such losses may exceed current estimates. Although Management believes that the Company’s allowance for credit losses is adequate to absorb
losses on any existing loans that may become
16
uncollectible, we cannot estimate loan losses with certainty, and we cannot provide any assurances that our allowance for loan losses will prove sufficient to
cover actual credit losses in the future. Credit losses in excess of our reserves may adversely affect our financial condition and results of operations.
In any event, any reduced liquidity could negatively impact our ability to be able to fund loans, or to pay the principal and interest on any of our
outstanding debt securities at any time, including when due.
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.
Inflation may adversely impact our business and our customers.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below
current market interest rates. There is no guarantee that the U.S. Treasury Department, FDIC and Federal Reserve Board will provide access to uninsured funds
in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion. In addition, inflation generally
increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a
negative impact on their ability to repay their loans with us.
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.
Our financial condition, results of operation, and stock price may be negatively impacted by unrelated bank failures and negative depositor confidence
in depository institutions.
During 2023, several high profile bank failures caused uncertainty in the investor community and negative confidence among bank customers generally.
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These failures and any additional failures that could occur may reduce customer confidence, affect sources of funding and liquidity, increase regulatory
requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the financial services industry, including us. These
bank failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions, which in turn led to a
greater focus by institutions, investors, and regulators on the on-balance sheet liquidity of and funding sources for financial institutions and the composition of its
deposits. Notwithstanding, our efforts to promote deposit insurance coverage with our customers and otherwise effectively manage our liquidity, deposit portfolio
retention, and other related matters, our financial condition, results of operation, and stock price may be adversely affected by future negative events within the
banking sector and adverse customer or investor responses to such events.
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, 2024, a majority 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 northeastern Ohio and western Pennsylvania. 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.
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Commercial and industrial loans may expose us to greater financial and credit risk than other loans.
As of December 31, 2024, approximately 10.8% 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 credit losses may not be adequate to cover the expected, lifetime losses in our loan portfolio.
We maintain an allowance for credit losses that we believe is a reasonable estimate of the expected losses within the CECL model, based on
management’s quarterly analysis of our loan portfolio. The determination of the allowance for credit losses requires management to make various assumptions
and judgments about the collectability of our loans, including the creditworthiness of our borrowers and the value of real estate and other assets serving as
collateral for the repayment of loans. Additional information regarding our allowance for credit losses methodology and the sensitivity of the estimates can be
found in the discussion of “CRITICAL ACCOUNTING POLICIES” included in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of this Annual Report on Form 10-K.
Our estimates of future credit losses is susceptible to changes in economic, operating and other conditions, including changes in regulations and interest
rates, which may be beyond our control, and the losses may exceed current estimates. We cannot be assured of the amount of timing of losses, nor whether the
allowance for credit losses will be adequate in the future.
If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover the expected losses from our loan portfolio,
resulting in the need for additions to the allowance for credit losses which could have a material adverse impact on our financial condition and results of
operations. In addition, bank regulators periodically review our allowance for credit losses as part of their examination process and may require management to
increase the allowance or recognize further loan charge-offs based on judgments different than those of management.
The accounting guidance under the CECL model requires banks to record, at the time of origination, credit losses expected throughout the life of financial
assets measured at amortized cost, including loan receivables, debt securities and reinsurance receivables, and off-balance sheet credit exposures not accounted
for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments in leases recognized by a
lessor. Under the CECL model, we are required to use historical information, current conditions and reasonable and supportable forecasts to estimate the
expected credit losses. If the methodologies and assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may
not be sufficient, resulting in the need for additional allowance for credit losses to be established, which could have a material adverse impact on our financial
condition and results of operations.
The adoption of the CECL model by the Company resulted in a onetime adjustment to equity in the amount of $1.9 million, net of tax. As a result of the
implementation of the CECL model, the time horizon over which we are required to estimate future credit losses expanded, which could result in increased
volatility in future provisions for credit losses. We may also experience a higher or more volatile provision for credit losses due to higher levels of
nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loan payments.
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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 91.6% of total deposits at December 31, 2024. 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 $414.0 million at December 31, 2024. 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.
In the future, we may acquire other financial institutions or assets of financial institution. The successful integration of these potential 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 acquisition and integration process include the following:
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time and expense associated with identifying and evaluating potential acquisitions or expansions;
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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;
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differences in business backgrounds, corporate cultures and management philosophies;
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potential unknown liabilities and unforeseen increased expenses;
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previously undetected operational or other issues; and
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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.
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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. Customers may
also move money out of bank deposits in favor of other investments, including digital or cryptocurrency. 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.
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Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and
acquisitions, social media and other marketing activities, the implementation of environmental, social, and governance practices, and from actions taken by
government regulators and community organizations in response to any of the foregoing. Negative public opinion could adversely affect our ability to attract and
keep customers, and could expose us to litigation and regulatory action, and could have a material adverse effect on our stock price or result in heightened
volatility.
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.
We depend on the accuracy and completeness of information about our customers.
In deciding whether to extend credit or enter into other transactions and in evaluating and monitoring our loan portfolio, we rely on information provided
to us by or on behalf of customers and other third parties, including financial statements, credit reports, and other financial information. We also rely on
representations from our customers, counterparties, and other third parties, such as independent auditors, as to the accuracy and completeness of that information.
Reliance on inaccurate, incomplete, fraudulent or misleading financial or business information could result in a material adverse effect on our business, financial
condition or results of operation.
Unauthorized disclosure of sensitive or confidential customer information, whether through a data breach of our computer systems, third-party
service providers’ 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 also depend on third-party vendors for components of our business infrastructure. While we have carefully selected these
third-party vendors, we do not control their operations. Further, the operations of our third-party vendors could fail or otherwise become delayed. As such, our
business and operations could be adversely affected in the event these vendors are unable to perform their various responsibilities and we are unable to timely and
cost-effectively identify acceptable substitute providers.
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.
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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.
We may not be able to adapt to technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and
services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs. Our future
success depends, in part, upon our ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as
well as to create additional efficiencies in our operations. This could include the development, implementation, and adaptation of digital or cryptocurrency,
blockchain, and other “fintech” technology. We may not be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to our customers.
In addition, our implementation of certain new technologies, such as those related to artificial intelligence and algorithms, in our business processes may
have unintended consequences due to their limitations, potential manipulation or our failure to use them effectively. Cloud technologies are also critical to the
operation of our systems, and our reliance on cloud technologies is growing. Failure to successfully keep pace with technological change affecting the financial
services industry, and failure to successfully manage the risks associated with the implementation of these new technologies, could negatively affect our growth,
revenue and net income.
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.
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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. Regulations affecting banks and financial services businesses are undergoing continuous
change, including the stimulus programs issued in connection with the COVID-19 pandemic, and management cannot predict the effect of these changes. 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 light of conditions in the global financial markets and the global economy that occurred in the last decade, regulators have increased their focus on the
regulation of the financial services industry. Most recently, the U.S. Congress and the federal agencies regulating the financial services industry have acted on an
unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by the U. S. Congress and regulations
promulgated by federal regulatory agencies subject us, and other financial institutions to which such laws and regulations apply, to additional restrictions,
oversight and costs that may have an impact on our business, results of operations or the trading price of our common shares.
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 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.
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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 and evolving regulation 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 and regulations or more stringent interpretations or enforcement policies with respect to
existing laws or regulations 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.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social
and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and
governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these
practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs
for us as well as among our third-party suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational
costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation,
ability to do business with certain partners, access to capital, and the price of our common shares.
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.
Quarterly, the Company evaluates its security portfolio to see if any security has a fair value less than its amortized cost. Once these securities are
identified, the Company performs additional analysis to determine whether the decline in fair value resulted from a credit loss or other factors. 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 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.
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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, imposed 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 imposed additional
limitations on the deductibility of business interest expense and eliminated 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 1C. Cybersecurity
Risk Management and Strategy
In the ordinary course of its business, the Bank relies on electronic communications and information systems to conduct its operations and to store
sensitive data, and employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on
any suspected advanced persistent threats. Notwithstanding these defensive measures, the threat from cybersecurity attacks is severe, attacks are sophisticated
and increasing in volume, and attackers respond rapidly to changes in defensive measures. While the Bank has not, to date, detected a significant compromise,
significant data loss or any material financial losses related to cybersecurity attacks, the Bank’s systems and those of its customers and third-party service
providers are under constant threat and it is possible that we could experience a future significant event. The Bank expects risks and exposures related to
cybersecurity attacks to remain high for the foreseeable future. For further discussion of risks related to cybersecurity, see “Item 1A Risk Factors.”
26
Governance
The Chief Risk Officer is responsible for overseeing the assessment and management of the Company's information security program. The Chief
Information Officer is responsible for execution, management, and administration of the information security tools and defenses of the program.
Item 2. Properties.
At December 31, 2024, the Company conducted its business from its main office at 30 South Broad Street, Canfield, Ohio and 62 full-service banking
centers and 2 stand-alone loan production offices located in northeast Ohio. Farmers Trust operates five offices in northeast Ohio and Farmers Insurance operates
two offices. Farmers also has a back-office operations facility located in Niles, Ohio. See Note 8 to the Consolidated Financial Statements for additional
information.
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 outcome of such actions, individually or in the aggregate, would not have a
material adverse effect on the results of operations or stockholders’ equity of the Company. However, it is possible that the ultimate resolution of these 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.
27
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 approximately 3,970 holders of record
of common shares at March 1, 2025. 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
March 31,
2024
June 30,
2024
September 30,
2024
December 31,
2024
High
$
14.75 $
13.36 $
16.32 $
16.29
Low
$
12.29 $
11.55 $
12.01 $
13.64
Cash dividends paid per share
$
0.17 $
0.17 $
0.17 $
0.17
Quarter Ended
March 31,
2023
June 30,
2023
September 30,
2023
December 31,
2023
High
$
15.08 $
13.31 $
14.25 $
14.72
Low
$
11.56 $
10.82 $
11.25 $
10.38
Cash dividends paid per share
$
0.17 $
0.17 $
0.17 $
0.17
The following table provides information regarding the Company's purchases of its common shares during the quarter ended December 31, 2024:
Period
Total
Number
of Shares
Purchased
Average
Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
Maximum
Number of Shares
that May Yet be
Purchased Under
the Program
Beginning balance
497,047
October
1,918 $
14.67
0
497,047
November
2,120
13.80
0
497,047
December
0
0
0
497,047
Ending balance
4,038 $
14.21
0
497,047
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. During the first two months of 2023, 347,846 shares
were repurchased under this plan.
On March 1, 2023, the Company announced that its Board of Directors authorized the purchase of up to 1,000,000 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 2023 Repurchase Program supersedes the
Company’s prior share repurchase program discussed above. The 2023 Repurchase Program may be modified, suspended or terminated by the Company at any
time. During 2024, no shares were repurchased under this plan. There were 497,047 shares left to repurchase under this plan at December 31, 2024.
Item 6. Reserved.
28
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 2024, 2023 and 2022. 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 Commission, including
without limitation the risk factors disclosed in Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Many of these factors are beyond the Company’s ability to control or predict, and readers are cautioned not to put undue reliance on those forward-
looking statements. The following, which is not intended to be an all-encompassing list, summarizes several factors that could cause the Company’s actual
results to differ materially from those anticipated or expected in any forward-looking statement:
•
general economic conditions in markets where the Company conducts business, which could materially impact credit quality trends;
•
the length and extent of the economic impacts of the ongoing conflict in Ukraine;
•
actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply, market interest
rates and inflation;
•
disruptions in the mortgage and lending markets and significant or unexpected fluctuations in interest rates related to governmental responses to
inflation, including financial stimulus packages and interest rate changes;
•
general business conditions in the banking industry;
•
the regulatory environment;
•
general fluctuations in interest rates;
•
demand for loans in the market areas where the Company conducts business;
•
rapidly changing technology and evolving banking industry standards;
•
competitive factors, including increased competition with regional and national financial institutions;
•
Farmers' ability to attract, recruit and retain skilled employees; and
•
new service and product offerings by competitors and price pressures.
29
Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position.
There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in the presentation are
reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Company
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,
expect as may be required by applicable law.
Results of Operations
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023.
The Company recorded net income of $45.9 million for the year ended December 31, 2024, compared to $49.9 million for the year ended December 31,
2023. The Company reported $1.22 per diluted common share in 2024 compared to $1.33 per diluted common share in 2023.
Net Interest Income
The Company recognized net interest income of $128.4 million for the year ended December 31, 2024, compared to $137.8 million for the year ended
December 31, 2023. The tax-equivalent net interest margin declined from 2.91% for 2023 to 2.69% for 2024. The margin declined due to increased funding
costs associated with the Federal Reserve's aggressive rate increases in 2022 and 2023 along with an inverted U.S treasury yield curve which caused deposit
funding costs to rise faster than the yields being earned on loans and securities.
Total interest income increased from $213.3 million in 2023 to $227.7 million for 2024. The increase was primarily due to an increase in the yield on
loans and securities associated with the higher interest rate environment.
Interest income on loans increased to $185.7 million for the year ended December 31, 2024, compared to $171.8 million for the year ended December 31,
2023. This increase was due to better yields on loans which increased from 5.46% in 2023 to 5.76% in 2024.
The income on federal funds sold and other interest income increased by $1.3 million in 2024 to $3.7 million compared to $2.5 million in 2023 primarily
due to a volume increase of $21.3 million in 2024 and an increase of 57 basis points in the yield on the portfolio.
Interest expense increased $23.8 million in 2024 to $99.4 million from $75.5 million in 2023. The increase was primarily due to a 59 basis point increase
in the yield on interest-bearing deposits and an increase in the volume of average borrowed funds which increased from $249.4 million in 2023 to $381.2 million
in 2024. The increase in deposit costs was driven by the movement of lower cost checking and savings deposits into certificates of deposit while the increase in
borrowed funds was due a lower level of brokered CDs utilized in 2024.
30
Average Balance Sheets and Related Yields and Rates
(Table Dollar Amounts in Thousands except Per Share Data)
Years ended December 31,
2024
2023
2022
AVERAGE
AVERAGE
AVERAGE
BALANCE
INTEREST
RATE
BALANCE
INTEREST
RATE
BALANCE
INTEREST
RATE
EARNING ASSETS
Loans (1) (2)
$
3,227,384 $
186,032
5.76 % $
3,155,858 $
172,161
5.46 % $
2,358,724 $
108,100
4.58 %
Taxable securities
1,110,905
26,838
2.42
1,143,547
26,231
2.29
1,081,966
20,843
1.93
Tax-exempt securities (1)
386,643
12,165
3.15
419,557
13,283
3.17
465,855
14,952
3.21
Other investments
35,402
1,450
4.10
39,559
1,986
5.02
33,153
871
2.63
Federal funds sold and other cash
96,288
3,727
3.87
74,950
2,476
3.30
76,253
684
0.90
Total earning assets
4,856,622
230,212
4.74
4,833,471
216,137
4.47
4,015,951
145,450
3.62
NONEARNING ASSETS
Noninterest-earning assets
234,297
205,683
128,757
Total Assets
$
5,090,919
$
5,039,154
$
4,144,708
INTEREST-BEARING LIABILITIES
Time deposits
$
745,945 $
29,329
3.93 % $
654,717 $
19,462
2.97 % $
360,687 $
3,044
0.84 %
Brokered time deposits
25,389
1,108
4.36
132,895
6,204
4.67
56,965
1,240
2.18
Savings deposits
1,095,470
16,144
1.47
1,113,561
9,899
0.89
846,418
1,352
0.16
Demand deposits - interest bearing
1,396,193
34,588
2.48
1,415,425
27,541
1.95
1,392,058
7,449
0.54
Total interest-bearing deposits
3,262,997
81,169
2.49
3,316,598
63,106
1.90
2,656,128
13,085
0.49
Short term borrowings
293,488
14,105
4.81
160,964
8,357
5.19
55,668
1,408
2.53
Long term borrowings
87,749
4,090
4.66
88,439
4,086
4.62
87,972
3,427
3.90
Total borrowed funds
381,237
18,195
4.77
249,403
12,443
4.99
143,640
4,835
3.37
Total Interest-Bearing Liabilities
3,644,234
99,364
2.73
3,566,001
75,549
2.12
2,799,768
17,920
0.64
NONINTEREST-BEARING LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand deposits - noninterest bearing
981,115
1,065,389
959,294
Other Liabilities
58,134
50,302
34,180
Stockholders' equity
407,436
357,462
351,466
Total Liabilities and
Stockholders' Equity
$
5,090,919
$
5,039,154
$
4,144,708
Net interest income and interest rate spread
$
130,848
2.01 %
$
140,588
2.35 %
$
127,530
2.98 %
Net interest margin
2.69 %
2.91 %
3.18 %
(1)
Interest on certain tax-exempt loans and tax-exempt securities in 2024, 2023 and 2022 is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these
assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21%.
(2)
Nonaccrual loans are included in the average balance totals.
31
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:
2024 change from 2023
2023 change from 2022
Net
Change Due
Change Due
Net
Change Due
Change Due
Change
To Volume
To Rate
Change
To Volume
To Rate
Tax Equivalent Interest Income
Loans
$
13,871 $
3,902 $
9,969 $
64,061 $
36,533 $
27,528
Taxable securities
607
(749 )
1,356
5,388
1,186
4,202
Tax-exempt securities
(1,118 )
(1,042 )
(76 )
(1,669 )
(1,486 )
(183 )
Other investments
(536 )
(209 )
(327 )
1,115
168
947
Funds sold and other cash
1,251
705
546
1,792
(12 )
1,804
Total interest income
$
14,075 $
2,607 $
11,468 $
70,687 $
36,389 $
34,298
Interest Expense
Time deposits
$
9,867 $
2,712 $
7,155 $
16,418 $
2,481 $
13,937
Brokered time deposits
(5,096 )
(5,019 )
(77 )
4,964
1,653
3,311
Savings deposits
6,245
(161 )
6,406
8,547
427
8,120
Demand deposits
7,047
(374 )
7,421
20,092
125
19,967
Short term borrowings
5,748
6,880
(1,132 )
6,949
2,663
4,286
Long term borrowings
4
(32 )
36
659
18
641
Total interest expense
$
23,815 $
4,006 $
19,809 $
57,629 $
7,367 $
50,262
Increase (decrease) in tax equivalent net interest income
$
(9,740 ) $
(1,399 ) $
(8,341 ) $
13,058 $
29,022 $
(15,964 )
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.
Noninterest Income
Noninterest income declined slightly to $41.7 million for the year ended December 31, 2024 compared to $41.9 million for the year ended December 31,
2023. The major categories of noninterest income are discussed below.
Service charges on deposit accounts increased to $7.3 million for 2024 compared to $6.3 million in 2023. The increase was primarily due to the Company
undertaking a review of all service charges in late 2023 and early 2024 and implementing fee increases across deposit product lines in the second quarter of 2024.
Bank owned life insurance income increased by $217,000 in 2024 to $2.7 million, compared to $2.4 million for the twelve months ended December 31,
2023. The increase was due to an increase of $241,000 from earnings on the policies offset by a decline in death benefits received from the policies.
Trust fees increased to $10.1 million for the twelve months ended December 31, 2024, compared to $9.0 million for the twelve months ended December
31, 2023. The trust business continued to grow in 2024 as the value of assets under management increased.
Insurance agency commissions were $5.5 million in 2024 compared to $5.4 million in 2023. The increase was driven by better income from fixed annuity
sales offset by declines in property and casualty commissions.
Retirement plan consulting fees increased to $2.6 million for 2024 compared to $2.5 million for 2023. The Company picked up additional business in
2024 and with the acquisition of Crest in December of 2024, revenue from this business should continue to increase in 2025.
32
Security losses increased to $2.6 million during the year ended December 31, 2024, from $471,000 for the year ended December 31, 2023. The losses
increased in 2024 due to the Company restructuring more securities in order to reinvest the proceeds into securities with a higher yield than those sold.
The net gains on the sale of loans declined by $889,000 from 2023 at $2.5 million to $1.5 million in 2024. The primary reason for this decrease was the
sale of nonaccrual commercial loans in 2023 that generated a gain of $915,000. There was no sale of commercial loans in 2024. Gains on the sale of loans
continues to be negatively impacted by a lower level of saleable mortgage volume due to the higher interest rate environment and the lack of supply of homes for
sale.
Other mortgage banking income declined by $276,000 in 2024 compared to 2023. The decrease was driven by lower servicing income and faster
amortization of the mortgage servicing rights.
Debit card fees increased to $7.5 million in 2024 compared to $7.1 million in 2023. The increase was primarily due to higher volumes.
Other operating income increased to $4.7 million for the twelve months ended December 31, 2024, from $4.5 million for the twelve months ended
December 31, 2023. This increase was primarily due to decreased losses on the sale of assets offset by higher Small Business Investment Company (“SBIC”)
income in 2024 compared to 2023.
Noninterest Expenses
Noninterest expense totaled $106.7 million for the year ended December 31, 2024 compared to $111.8 million for the year ended December 31, 2023.
The decline was primarily driven by merger related costs which fell from $5.5 million in 2023 to $92 thousand in 2024.
Salaries and employee benefits increased by $1.6 million to $58.9 million for the year ended December 31, 2024 from $57.4 million for the year ended
December 31, 2023. This increase was primarily due to salary increases and greater incentive compensation.
FDIC insurance and state and local taxes decreased to $5.0 million in 2024 from $5.8 million in 2023. The decline was due to lower FDIC expense as the
Company had higher capital levels in 2024 resulting in lower expense.
Advertising costs declined to $1.5 million in 2024 from $1.8 million in 2023. This decrease was due to a few marketing campaigns being reduced in
2024.
Intangible amortization expense decreased by $573,000 to $2.9 million for the year ended December 31, 2024 compared to $3.4 million for the year ended
December 31, 2023. The decline was primarily driven by the runoff of intangibles from older acquisitions.
Other operating expenses increased by $306,000 to $13.8 million in 2024 compared to $13.5 million in 2023. The increase was spread across several
categories of expense.
Income Taxes
Income tax expense increased from $8.8 million for the year ended December 31, 2023, to $9.5 million for the year ended December 31, 2024. The
increase was primarily due to a higher effective tax rate and less benefit from low income housing tax credits. Income taxes are computed using the appropriate
effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The
effective income tax rate was 17.1% in 2024 and 14.9% for 2023. Refer to Note 18 to the consolidated financial statements for additional information regarding
the effective tax rate.
33
Comparison of Operating Results for the Years Ended December 31, 2023 and 2022.
The Company recorded net income of $49.9 million for the year ended December 31, 2023, compared to $60.6 million for the year ended December 31,
2022. The Company reported $1.33 per diluted common share in 2023 compared to $1.79 per diluted common share in 2022. The results for 2023 include a full
year of income and expense from the Emclaire acquisition which closed on January 1, 2023.
Net Interest Income
The Company recognized net interest income of $137.8 million for the twelve months ended December 31, 2023, compared to $124.2 million for the
twelve months ended December 31, 2022. The tax-equivalent net interest margin declined from 3.18% for 2022 to 2.91% for the year ended December 31, 2023.
The margin declined due to increased funding costs associated with the Federal Reserve's aggressive rate increases in 2022 and 2023 along with an inverted U.S
treasury yield curve which caused deposit funding costs to rise faster than the yields being earned on loans and securities.
Total interest income increased $71.2 million from $142.1 million in 2022 to $213.3 million for the twelve months ended December 31, 2023. The
increase was primarily due to an increase in the average balance of loans and securities from the acquisition of Emclaire. In addition, the yields received on the
various categories of earning assets increased year over year due to rising rates being received.
Interest income on loans increased to $171.8 million for the year ended December 31, 2023, compared to $107.8 million for the year ended December 31,
2022. This increase was due to the average loan balances increasing $797.1 million in 2023 primarily due to the acquisition of Emclaire. The yield on loans
increased to 5.46% in 2023 from 4.58% in 2022.
Income on taxable securities increased by $5.4 million in 2023 due to the average balance being higher by $61.6 million. Yields on taxable securities
were also higher by 36 basis points ("bp") in 2023 compared to 2022. The increased balance was due to the Emclaire acquisition. Income on tax exempt
securities decreased $1.7 million in 2023 as the average balance of this category declined $46.3 million and the yield on the portfolio declined by 4 bp year over
year.
The income on federal funds sold and other interest income increased by $1.8 million in 2023 compared to 2022 primarily due to an increase of 239 bp in
the yield on the portfolio. This portfolio is heavily impacted by the actions of the Federal Reserve.
Interest expense increased $57.6 million in 2023 compared to 2022 due to an increase of $766.2 million in the volume of interest-bearing liabilities and an
increase in the rates paid on deposits and borrowings of 148 bp year over year. The increase in the volume of interest-bearing liabilities was due to the merger
with Emclaire while the increase in rates paid was due to the higher interest rate environment that existed in 2023 compared to 2022. The average balance of
interest-bearing deposits increased $660.5 million in 2023 primarily due to the Emclaire acquisition while the cost of interest-bearing deposits increased by 141
bp year over year. Interest expense related to interest-bearing deposits was $63.1 million in 2023 compared to $13.1 million in 2022.
Interest expense on short-term borrowings was $8.4 million in 2023 compared to $1.4 million in 2022. The increase was due to the increased usage of
short term borrowings and an increase in the cost of those borrowings due to the Federal Reserve increasing the fed funds rate. Interest on long-term borrowings
increased to $4.1 million in 2023 from $3.4 million in 2022. This increase was primarily due to the increased cost of some of the long term borrowings that are
tied to variable rates and which continued to increase in 2023.
Noninterest Income
Noninterest income declined to $41.9 million for the year ended December 31, 2023 compared to $44.2 million for the year ended December 31, 2022.
The major categories of noninterest income are discussed below.
34
Service charges on deposit accounts totaled $6.3 million in 2023 compared to $4.7 million in 2022. The increase was due to the acquisition of Emclaire.
Bank owned life insurance income increased by $632,000 to $2.4 million for the twelve months ended December 31, 2023, compared to $1.8 million for
the twelve months ended December 31, 2022. The increase was due to the addition of Emclaire offset by a decline of $79,000 on the proceeds from death
benefits received from the policies.
Trust fees increased to $9.0 million in 2023 from $8.5 million in 2022. The trust business continued to expand in 2023 as the Company added revenue
producers in the new Pennsylvania markets.
Insurance agency commissions increased by $1.0 million to $5.4 million in 2023 from $4.4 million in 2022. The increase was driven by better margins in
the insurance industry in 2023 along with increased sales of annuity products as rates on these products were very attractive to customers. Investment
commissions declined slightly to $2.0 million in 2023 from $2.2 million in 2022. This line of business was down due to the heavy demand for annuities in lieu of
traditional investment products.
The net gains on the sale of loans increased by $329,000 between 2022 and 2023. The primary reason for this increase was the sale of nonaccrual
commercial loans that generated a gain of $915,000 in 2023 offset by lower gain on sale figures on the sale of 1-4 family mortgage loans. Mortgage volume
continues to be negatively impacted by the higher interest rate environment and the lack of supply of homes for sale.
Other mortgage banking income was up $420,000 in 2023 compared to 2022. The increase was driven by slower prepayment speeds on the mortgage
servicing portfolio in 2023 due to the higher level of interest rates.
Debit card fees increased to $7.1 million in 2023 compared to $5.8 million in 2022. The increase was primarily due to the addition of Emclaire.
The Company recorded an $8.4 million gain related to a legal settlement in 2022. No gain was recorded in 2023.
Other operating income increased by $495,000 to $4.5 million for the twelve months ended December 31, 2023, from $4.0 million for the twelve months
ended December 31, 2022. This increase was primarily due to increased non-recurring income associated with recoveries on Emclaire and Cortland loans that
were charged off prior to acquisition. This increase was offset by lower SBIC income in 2023 compared to 2022.
Noninterest Expenses
Noninterest expense totaled $111.8 million for the twelve months ended December 31, 2023 compared to $94.4 million for the twelve months ended
December 31, 2022. The increase is primarily due to the merger with Emclaire and normal increases in operating expenses.
Salaries and employee benefits increased to $57.4 million for the year ended December 31, 2023, an increase of $12.4 million, from $45.0 million for the
year ended December 31, 2022. This increase was primarily due to the Company having a higher level of employees due to the addition of Emclaire along with
normal raise activity.
Occupancy and equipment expense increased by $4.0 million to $15.4 million for the twelve months ended December 31, 2023 compared to $11.4 million
for the twelve months ended December 31, 2022. The increase was due to the higher level of depreciation and facilities maintenance costs associated with the
additional Emclaire properties.
FDIC insurance and state and local taxes increased to $5.8 million in 2023 from $4.0 million in 2022. The Emclaire acquisition along with higher FDIC
assessment rates in 2023 drove the increase.
35
Professional fees decreased by $1.7 million in 2023 to $4.4 million from $6.1 million for the twelve months ended December 31, 2022. The decrease was
due to legal expenses associated with the legal settlement income in 2022 discussed above that did not reoccur in 2023. This amounted to approximately $2.1
million of additional expense in 2022 compared to 2023. Offsetting this somewhat was additional expense associated with the Emclaire acquisition.
Merger related costs increased to $5.5 million in 2023 from $4.1 million in 2022. This increase was due to the acquisition of Emclaire at the beginning of
2023.
Intangible amortization expense increased by $1.4 million in 2023 to $3.4 million compared to $2.0 million for the year ended December 31, 2022. The
increase was primarily driven by the acquisition of Emclaire.
Core processing charges increased to $4.6 million in 2023 compared to $3.3 million in 2022. The increase was due to the acquisition of Emclaire.
An additional, special charitable donation of $6.0 million was made during 2022 with no such contribution made in 2023. The donation was made
possible in 2022 by the $8.4 million legal settlement income discussed above.
Other operating expenses increased by $2.8 million to $13.4 million in 2023 compared to $10.6 million in 2022. The increase was primarily due to the
acquisition of Emclaire but 2023 also included $785,000 for the settlement of a lawsuit whereas 2022 did not have any of this expense.
Income Taxes
Income tax expense decreased to $8.8 million for the year ended December 31, 2023, from $12.2 million for the year ended December 31, 2022. The
decrease was primarily due to a $14.1 million decrease in income before income taxes. Income taxes are computed using the appropriate effective tax rates for
each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective income tax rate
was 14.9% in 2023 and 16.8% for 2022. Refer to Note 18 to the consolidated financial statements for additional information regarding the effective tax rate.
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,
2024
2023
2022
2021
2020
Commercial Real Estate
$
1,381,573
42.2 % $
1,334,600
41.6 % $
1,026,822
42.6 % $
1,010,674
43.3 % $
712,818
34.3 %
Commercial
351,533
10.8
347,819
10.9
294,406
12.2
312,532
13.4
401,003
19.3
Residential Real Estate
1,003,678
30.8
986,032
30.8
607,557
25.3
580,242
24.9
523,340
25.2
Consumer
268,533
8.2
267,875
8.4
228,794
9.5
195,343
8.4
208,842
10.0
Agricultural
263,029
8.0
261,801
8.2
247,171
10.3
232,291
10.0
232,041
11.1
Total Loans
$
3,268,346
100.0 % $
3,198,127
100.0 % $
2,404,750
100.0 % $
2,331,082
100.0 % $
2,078,044
100.0 %
36
The following schedule sets forth maturities based on remaining scheduled repayments of principal for loans listed above as of December 31, 2024:
Types of Loans
1 Year or less
1 to 5 Years
5 to 15 Years
Over 15 Years
Commercial
$
19,713
$
181,984
$
97,994
$
51,842
Commercial Real Estate
$
124,311
$
514,111
$
630,941
$
112,211
Residential Real Estate
$
9,782
$
48,963
$
215,293
$
729,639
Consumer
$
4,076
$
107,972
$
132,043
$
24,442
Agricultural
$
4,105
$
36,625
$
49,288
$
173,011
The amounts of loans as of December 31, 2024, based on remaining scheduled repayments of principal, are shown in the following table:
Loan Sensitivities
1 Year or less
Over 1 Year
Total
Floating or Adjustable Rates of Interest
$
99,059
$
1,524,346
$
1,623,405
Fixed Rates of Interest
62,928
1,582,013
1,644,941
Total Loans
$
161,987
$
3,106,359
$
3,268,346
Total loans were $3.27 billion at December 31, 2024, compared to $3.20 billion at December 31, 2023, an increase of $70.2 million. Loans comprised
66.5% of the Bank’s average earning assets in 2024, compared to 65.3% in 2023.
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 real estate loans increased to $1.38 billion at December 31, 2024 from $1.33 billion at December 31, 2023. The Company’s commercial real
estate loan portfolio includes loans for owner occupied and non-owner occupied real estate. These loans are made to finance properties such as office and
industrial buildings, hotels and retail shopping centers.
37
The following tables present the amortized cost basis of the Company's commercial real estate portfolio segment by industry, inclusive of farmland, as of
December 31, 2024 and 2023:
(In Thousands of Dollars)
Amortized Cost
% of Commercial
Real Estate
% of Total
Portfolio
Weighted
Average
Loan-to-
Value
Weighted
Average
Occupancy
December 31, 2024
Commercial real estate
Retail
$
345,354
21.75 %
10.57 %
53.93 %
85.07 %
Farmland
206,600
13.01 %
6.32 %
49.63 %
100.00 %
Warehouse/Industrial
186,316
11.73 %
5.70 %
54.26 %
72.23 %
Office
192,269
12.11 %
5.88 %
53.70 %
74.06 %
Multifamily
158,168
9.96 %
4.84 %
61.16 %
85.75 %
Medical
147,353
9.28 %
4.51 %
46.27 %
92.60 %
Hotel
44,301
2.79 %
1.36 %
45.24 %
79.65 %
Special Purpose
85,361
5.37 %
2.61 %
51.83 %
98.53 %
Restaurant
50,990
3.21 %
1.56 %
51.36 %
100.00 %
Multifamily - Construction
73,857
4.65 %
2.26 %
53.28 %
29.61 %
All Other
97,605
6.14 %
2.99 %
48.05 %
94.97 %
Total
$
1,588,174
100.00 %
48.60 %
(In Thousands of Dollars)
Amortized Cost
% of Commercial
Real Estate
% of Total
Portfolio
Weighted
Average
Loan-to-Value
Weighted
Average
Occupancy
December 31, 2023
Commercial real estate
Retail
$
354,953
23.09 %
11.10 %
55.16 %
85.26 %
Farmland
202,726
13.19 %
6.34 %
51.24 %
100.00 %
Warehouse/Industrial
166,291
10.82 %
5.20 %
56.04 %
70.99 %
Office
175,020
11.38 %
5.47 %
53.91 %
75.04 %
Multifamily
153,410
9.98 %
4.80 %
63.10 %
85.79 %
Medical
154,890
10.08 %
4.84 %
51.51 %
92.64 %
Hotel
49,695
3.23 %
1.55 %
48.64 %
79.59 %
Special Purpose
99,152
6.45 %
3.10 %
55.10 %
99.88 %
Restaurant
56,460
3.67 %
1.77 %
53.17 %
100.00 %
Multifamily - Construction
27,860
1.81 %
0.87 %
59.02 %
22.06 %
All Other
96,869
6.30 %
3.03 %
47.10 %
95.30 %
Total
$
1,537,326
100.00 %
48.07 %
Residential real estate mortgage loans increased to $1.00 billion at December 31, 2024, from $986.0 million at December 31, 2023. Farmers originated
both fixed rate and adjustable rate mortgages during 2024. Fixed rate terms are offered with terms between fifteen and thirty years while adjustable rate products
are offered with maturities up to thirty years. The Company sells all fixed rate loans that are secondary market eligible.
Commercial loans at December 31, 2024, totaled $351.5 million compared to $347.8 million at December 31, 2023. The Bank’s commercial loans are
granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local
municipalities. The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such
as equipment purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit.
38
Agricultural loans increased from $261.8 million in 2023 to $263.0 million in 2024. The Company’s agricultural loan portfolio contains a diverse mix of
dairy, crops, land, poultry and cattle loans.
Consumer loans increased to $268.5 million at December 31, 2024, from $267.9 million at December 31, 2023. The consumer loan portfolio includes
indirect auto loans and other consumer loan products.
Summary of Credit Loss Experience
The following is an analysis of the allowance for credit losses for the years 2020 through 2024. During the years 2021-2024, the Company used the
CECL methodology while the incurred loss methodology was used in 2020:
Years Ended December 31,
2024
2023
2022
2021
2020
Balance at Beginning of Year
$
34,440 $
26,978 $
29,386 $
22,144 $
14,487
Charge-Offs:
Commercial Real Estate
(4,619 )
(349 )
(300 )
(70 )
(122 )
Commercial
(1,742 )
(1,272 )
(2,042 )
(388 )
(412 )
Residential Real Estate
(155 )
(384 )
(92 )
(297 )
(172 )
Consumer
(1,471 )
(932 )
(870 )
(912 )
(1,347 )
Total Charge-Offs
(7,987 )
(2,937 )
(3,304 )
(1,667 )
(2,053 )
Recoveries on Previous Charge-Offs:
Commercial Real Estate
22
1
3
33
31
Commercial
520
103
75
199
11
Residential Real Estate
177
81
89
162
85
Consumer
447
496
479
411
483
Total Recoveries
1,166
681
646
805
610
Net Charge-Offs
(6,821 )
(2,256 )
(2,658 )
(862 )
(1,443 )
Impact of CECL adoption
0
0
0
2,160
0
Provision For Credit Losses and Day One
Purchase entry
8,244
9,718
250
5,944
9,100
Balance at End of Year
$
35,863 $
34,440 $
26,978 $
29,386 $
22,144
Ratio of Net Commercial Real Estate
Charge-offs To Average Loans Outstanding
0.14 %
0.01 %
0.01 %
0.00 %
0.00 %
Ratio of Net Commercial Charge-offs
To Average Loans Outstanding
0.04 %
0.04 %
0.08 %
0.01 %
0.02 %
Ratio of Net Residential Real Estate
Charge-offs To Average Loans Outstanding
0.00 %
0.01 %
0.00 %
0.01 %
0.00 %
Ratio of Net Consumer Charge-offs
To Average Loans Outstanding
0.03 %
0.01 %
0.02 %
0.02 %
0.04 %
Allowance for Credit Losses/Total Loans
1.10
1.08
1.12
1.26
1.07
The provision for credit losses, which includes the provision for unfunded commitments, declined to $8.0 million in 2024 compared to $9.2 million in
2023. In 2023, the Company recognized a day one purchase entry for the Emclaire loans of $7.7 million while there was no day one purchase entry recognized in
2024. Offsetting this was an increase in net charge-offs in 2024 of $4.6 million to $6.8 million compared to net charge-offs of $2.3 million in 2023. The
increased net charge-off figure in 2024 was driven by a charge-off of $4.4 million for a single commercial credit backed by office space.
The Company adopted ASU 2016-13 in 2021, to calculate the allowance for credit losses (“ACL”) which requires estimating credit losses over the life of
the credits. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans. Although the Company has a diversified loan
portfolio, the credit risk in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors
operate, and the resulting impact on the operations of borrowers or on the value of any underlying collateral.
39
The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s loan portfolio segments. These segments
are disaggregated into the loan pools for monitoring. A model of risk characteristics, such as loss history and delinquency experience, trends in past due and non-
performing loans, as well as existing economic conditions and supportable forecasts are used to determine credit loss assumptions.
The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the probability of default/loss given default method
(“PD/LGD”). Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked
over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when
evaluating loans on a collective basis. Those characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type,
collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly,
charged-off. Typically, a one-year time period is used to assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way
to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or
influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
The allowance for credit losses to total loans increased to 1.10% at December 31, 2024, compared to 1.08% at December 31, 2023. Nonperforming loans
to total loans increased from 0.47% at December 31, 2023 to 0.70% at December 31, 2024. Nonperforming loans to total loans increased in 2024 primarily due
to a single commercial real estate credit totaling $8.8 million moving into nonaccrual status.
The provision for credit losses 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 reasonable and supportable forecasts. 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 credit losses increased to $35.9 million at December 31, 2024, compared to $34.4 million at December 31, 2023. The increase was
primarily driven by growth in the loan portfolio.
Typically, commercial and commercial real estate loans are identified as collateral dependent 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 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 loss reserve, if necessary.
40
The following table summarizes the Company’s nonperforming loans and nonperforming assets for the years ending 2020 through 2024:
Nonperforming Assets
December 31,
2024
2023
2022
2021
2020
Nonaccrual loans:
Commercial Real Estate
$
10,642
$
5,852
$
4,057
$
3,004
$
389
Commercial
3,858
1,802
3,840
7,190
3,789
Residential Real Estate
4,983
3,807
3,438
4,280
5,783
Consumer
600
461
494
682
864
Agricultural
2,120
2,486
2,482
314
680
Total Nonaccrual Loans
$
22,203
$
14,408
$
14,311
$
15,470
$
11,505
Loans Past Due 90 Days or More
615
655
492
725
2,330
Total Nonperforming Loans
$
22,818
$
15,063
$
14,803
$
16,195
$
13,835
Repossessed assets
33
166
73
0
0
Total Nonperforming Assets
$
22,851
$
15,229
$
14,876
$
16,195
$
13,835
Percentage of Nonperforming Loans to Total Loans
0.70 %
0.47 %
0.62 %
0.69 %
0.67 %
Percentage of Nonperforming Assets to Total Assets
0.45 %
0.30 %
0.36 %
0.39 %
0.45 %
Loans Delinquent 30-89 days
$
13,032
$
16,705
$
9,605
$
8,891
$
9,297
Percentage of Loans Delinquent 30-89 days
to Total Loans
0.40 %
0.52 %
0.40 %
0.38 %
0.45 %
Percentage of Nonaccrual Loans to Total Loans
0.68 %
0.45 %
0.60 %
0.66 %
0.55 %
Percentage of Allowance for Credit Losses to Nonaccrual
Loans
161.52 %
239.03 %
188.51 %
189.94 %
192.49 %
The following table summarizes the Company’s allocation of the allowance for credit losses under CECL for the years 2021 through 2024 and the
allowance for loan losses in 2020:
December 31,
2024
2023
2022
2021
2020
Loans to
Loans to
Loans to
Loans to
Loans to
Amount
Total
Loans
Amount
Total
Loans
Amount
Total
Loans
Amount
Total
Loans
Amount
Total
Loans
Commercial Real Estate
$
19,259
48.6 % $
18,150
48.1 % $
14,840
50.5 % $
15,879
51.0 % $
10,775
43.1 %
Commercial
4,628
12.4
5,086
12.6
4,186
14.6
4,949
15.7
5,022
21.6
Residential Real Estate
7,271
30.7
6,917
30.8
4,374
25.3
4,870
24.9
3,684
25.2
Consumer
4,705
8.3
4,287
8.5
3,578
9.6
3,688
8.4
2,663
10.0
$
35,863
100.0 % $
34,440
100.0 % $
26,978
100.0 % $
29,386
100.0 % $
22,144
100.0 %
The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2024 occurred in the same
proportions or that the allocation indicates future charge-off trends. The allowance allocated to the one-to-four family real estate loan category and the consumer
loan category is based upon the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those portfolios. For
the commercial real estate and commercial categories, which represent 42.2% and 10.8% of the total loan portfolio in 2024, respectively, management relies on
the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The gross charge-offs in the commercial real estate portfolio,
were $4.6 million for 2024, which represented approximately 57.8% of the gross losses for the entire loan portfolio.
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 credit losses.
41
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, 2024, 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 debt securities available for sale decreased $33.1 million in 2024 to $1.27 billion at December 31, 2024, from $1.30 billion at December 31, 2023.
For additional information regarding Farmers’ investment securities see Note 3 to the Consolidated Financial Statements.
The following table shows the carrying value of investment securities by type of obligation at the dates indicated:
December 31,
2024
2023
U.S. Treasury securities
$
52,606 $
53,210
U.S. government sponsored enterprise debt securities
62,501
74,745
Mortgage-backed securities - residential and collateralized
mortgage obligations
626,643
594,385
Small Business Administration
2,475
2,917
Obligations of states and political subdivisions
504,880
556,169
Corporate bonds
17,448
18,275
Debt securities available for sale
$
1,266,553 $
1,299,701
Other investments
14,736
15,114
Total securities
$
1,281,289 $
1,314,815
42
A summary of debt securities held at December 31, 2024 classified according to maturity and including weighted average yield for each range of
maturities is set forth below:
December 31, 2024
Type and Maturity Grouping
Fair Value
Weighted Average
Yield
U.S. Treasury securities
Maturing within one year
$
99
2.18 %
Maturing after one year but within five years
35,629
1.04 %
Maturing after five years but within ten years
16,878
1.21 %
Maturing after ten years
0
0.00 %
Total U.S. Treasury securities
$
52,606
1.10 %
U.S. government sponsored enterprise debt securities
Maturing within one year
$
248
3.11 %
Maturing after one year but within five years
12,776
1.43 %
Maturing after five years but within ten years
48,154
2.71 %
Maturing after ten years
1,323
4.37 %
Total U.S. government sponsored enterprise debt securities
$
62,501
2.47 %
Mortgage-backed securities - residential and collateralized mortgage obligations (1)
Maturing within one year
$
0
0.00 %
Maturing after one year but within five years
6,518
2.45 %
Maturing after five years but within ten years
26,785
2.35 %
Maturing after ten years
593,340
2.50 %
Total mortgage-backed securities
$
626,643
2.49 %
Small Business Administration
Maturing within one year
$
0
0.00 %
Maturing after one year but within five years
0
0.00 %
Maturing after five years but within ten years
1,846
2.15 %
Maturing after ten years
629
1.98 %
Total small business administration
$
2,475
2.11 %
Obligations of states and political subdivisions
Maturing within one year
$
867
3.61 %
Maturing after one year but within five years
7,604
3.17 %
Maturing after five years but within ten years
81,557
3.10 %
Maturing after ten years
414,852
2.84 %
Total obligations of states and political subdivisions
$
504,880
2.89 %
Corporate bonds
Maturing within one year
$
1,163
9.25 %
Maturing after one year but within five years
4,882
6.72 %
Maturing after five years but within ten years
11,403
6.49 %
Maturing after ten years
0
0.00 %
Total corporate bonds
$
17,448
6.74 %
(1)
Payments based on contractual maturity.
Premises and Equipment
Premises and equipment increased $7.9 million from $44.4 million at December 31, 2023, to $52.3 million at December 31, 2024. This increase was
primarily due to the construction of additional office space at the Company's headquarters in Canfield, OH, partially offset by depreciation.
Bank Owned Life Insurance
The Company owns bank owned life insurance policies on the lives of certain members of management. The purpose of this investment is to help offset
the costs of employee benefit plans. The cash surrender value of these policies increased to $101.4 million at December 31, 2024, compared to $99.5 million at
December 31, 2023. The increase was due to earnings on the policies in 2024 offset slightly by proceeds from a death benefit.
43
Deposits
Total deposits increased to $4.3 billion at December 31, 2024, from $4.2 billion at December 31, 2023, an increase of $89.4 million. Noninterest bearing
deposits declined $61.1 million during 2024 to $965.5 million from $1.03 billion. This decline was primarily due to the migration of noninterest bearing deposits
into interest bearing deposits as customers looked to take advantage of the increase in interest rates. Interest-bearing deposits increased $75.5 million to $3.2
billion at December 31, 2024, compared to $3.15 billion at December 31, 2023. The increase was primarily due to the migration of noninterest bearing deposits
discussed above. Brokered time deposits increased $75.0 million for the year ended December 31, 2024, due to the Company using brokered time deposits to pay
off short-term borrowings.
Average balances and average rates paid on deposits are as follows:
Years Ended December 31
2024
2023
2022
Amount
Rate
Amount
Rate
Amount
Rate
Noninterest-bearing demand
$
981,115
0.00 % $
1,065,389
0.00 % $
959,294
0.00 %
Interest-bearing demand
1,396,193
2.48 %
1,415,425
1.95 %
1,392,058
0.54 %
Money market
659,807
2.43 %
602,445
1.62 %
389,036
0.14 %
Savings
435,663
0.03 %
511,116
0.03 %
457,382
0.02 %
Brokered time deposits
25,389
4.36 %
132,895
4.67 %
56,965
2.18 %
Certificates of deposit
745,945
3.93 %
654,717
2.97 %
360,687
0.84 %
Total
$
4,244,112
1.91 % $
4,381,987
1.44 % $
3,615,422
0.64 %
The following table sets forth the maturities of retail certificates of deposit having principal amounts $250,000 or greater at December 31, 2024 (in
thousands):
Retail certificates of deposit maturing in quarter ending:
March 31, 2025
$
136,533
June 30, 2025
112,131
September 30, 2025
12,207
December 31, 2025
13,115
After December 31, 2025
11,025
Total retail certificates of deposit with balances $250,000 or greater
$
285,011
Uninsured deposits for bank and savings and loan registrants are U.S. federally insured depository institutions as the portion of deposit accounts in U.S.
offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit account that are
classified as deposits and not subject to any federal or state deposit insurance regimes. Deposits in amounts in excess of the FDIC insurance limit were $1.42
billion at December 31, 2024.
Short-Term Borrowings
The Company's short-term borrowings decreased by $50.0 million from $355.0 million at December 31, 2023, to $305.0 million at December 31, 2024.
This decrease was due to proceeds from the issuance of brokered time deposits being used to pay down short term borrowings. The Company uses short term
borrowings to manage the ongoing fluctuations with loans and deposits, when necessary.
Long-Term Borrowings
Total long-term borrowings decreased $2.5 million to $86.2 million at December 31. 2024, from $88.7 million at December 31, 2023. The decline was
primarily due to the Company purchasing $3.0 million of its subordinated debt during 2024 and recording a gain of $444 thousand. See Note 13 within Item 8 of
this Annual report on Form 10-K for additional detail.
44
Stockholders’ Equity
Total stockholders’ equity increased $1.6 million from $404.4 million at December 31, 2023, to $406.0 million at December 31, 2024. The increase was
primarily due to net income of $45.9 million offset by an increase in accumulated other comprehensive loss of $20.7 million and dividends paid on common
stock of $25.5 million.
Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements
The following table presents, as of December 31, 2024, 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
12/31/2024
Note
Ref.
2025
2026
2027
2028
2029
Thereafter
Deposits without maturity
$
3,429,116
Certificates of deposit and
brokered time deposits
11
790,004 $
21,574 $
9,018 $
4,098 $
6,550 $
6,419
Long-term borrowings
13
0
0
0
0
0
90,000
Leases
9
1,393
1,279
1,198
1,214
1,110
5,652
There are also $17.1 million of commitments to various partnership investment funds. The Company invests in these funds, consisting of affordable
housing tax credit investments and SBIC funds, in efforts to comply with CRA regulations. The commitments have no predetermined due dates but are expected
to be funded sporadically over the next ten years. Note 14 to the consolidated financial statements discusses in greater detail other commitments and
contingencies and the various obligations that exist under those agreements. Examples of these commitments and contingencies include commitments to extend
credit and standby letters of credit.
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.
Liquidity
The principal sources of funds for the Bank are deposits, loan and security repayments, borrowings from financial institutions, repurchase agreements and
other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan prepayments are more influenced by interest rates, general economic conditions and competition. Investments
in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (1) the need for funds, (2) expected deposit flows, (3)
yields available on short-term liquid assets, and (4) objectives of the asset and liability management program.
The Bank’s Asset/Liability Committee (“ALCO”) is responsible for monitoring liquidity guidelines, policies and procedures. ALCO uses a variety of
methods to monitor the liquidity position of the Bank including a liquidity analysis that measures potential sources and uses of funds over future time periods.
ALCO also performs contingency funding analyses to determine the Bank’s ability to meet potential liquidity needs under stress scenarios that cover varying time
horizons ranging from immediate to long-term.
Capital Resources
The Bank, as a national chartered bank, is subject to the dividend restrictions set forth by the OCC. The OCC must approve declaration of any dividends
in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). Farmers and Farmers Bank are required to
maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators. At December 31, 2024, under the
45
minimum capital requirements associated with the Basel III, Farmers Bank and Farmers are required to have actual and minimum capital ratios, which are
detailed in Note 16 of the Consolidated Financial Statements. Farmers Bank and Farmers had capital ratios above the minimum levels at December 31, 2024 and
2023. At year-end 2024 and 2023, the most recent regulatory notifications categorized Farmers Bank as well capitalized under the regulatory framework for
prompt corrective action.
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.
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 credit 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 credit losses. The allowance for credit losses is presented as a reserve against loans on the balance sheet. Credit
losses are charged off against the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses.
A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance.
The Company’s allowance for credit losses represents management’s estimate of expected credit losses over the remaining expected life of the Company’s
financial assets measured at amortized cost and certain off-balance sheet lending-related commitments.
The allowance for credit losses involves significant judgment on a number of matters including the weighting of macroeconomic forecasts and
microeconomic statistics, incorporation of historical loss experience, assessment of risk characteristics, assignment of risk ratings, valuation of collateral, and the
determination of remaining expected life. Refer to Note 4 for further information on these judgments as well as the Company’s policies and methodologies used
to determine the Company’s allowance for credit losses.
A significant judgment involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate credit
losses over the four-quarter forecast period within the Company’s methodology. The four-quarter forecast incorporates three macroeconomic variables (“MEVs”)
that are relevant for exposures across the Company.
•
U.S. changes in real gross domestic product (GDP).
•
U.S. personal consumption expenditures (PCE) inflation.
•
U.S. civilian unemployment rate.
46
Changes in the Company’s assumptions and forecasts of economic conditions could significantly affect its estimate of expected credit losses in the
portfolio at the balance sheet date or lead to significant changes in the estimate from one reporting period to the next.
It is difficult to estimate how potential changes in any one factor or input might affect the overall allowance for credit losses because management
considers a wide variety of factors and inputs in estimating the allowance for credit losses. Changes in the factors and inputs considered may not occur at the
same rate and may not be consistent across all product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one
factor or input may offset deterioration in others.
To consider the impact of a hypothetical alternate macroeconomic forecast, the Company compared the modeled credit losses determined using its central
and relative adverse macroeconomic scenarios. The central and relative adverse scenarios each included the three MEVs, but differed in the levels, paths and
peaks/troughs of those variables over the four-quarter forecast period.
For example, compared to the Company’s central scenario that is based on a four-quarter forecasted change in U.S. real GDP of 2.10% from 4Q2024 to
4Q2025, U.S. PCE inflation of 2.50%, and U.S. unemployment of 4.30%, the Company’s relative adverse scenario assumes a four-quarter forecast with a
contraction of U.S. real GDP, a PCE inflation between 5.00% and 7.00% and an elevated U.S. unemployment rate between 6.00% and 7.00%. This analysis is not
intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including:
•
The impacts of changes in the MEVs are both interrelated and nonlinear, so the results of this analysis cannot be simply extrapolated for more
severe changes in macroeconomic variables.
•
Expectations of future changes in portfolio composition and borrower behavior can significantly affect the allowance for credit losses.
To demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of December 31, 2024, the Company compared the modeled
estimates under its relative adverse scenario for two of the Company’s largest loan pools to its central scenario for the same loan pools. Without considering
offsetting or correlated effects in other qualitative components of the Company’s allowance for credit losses, the comparison between these two scenarios for the
exposures below reflect the following differences:
•
An increase of approximately $650 thousand for residential real estate loans and lending-related commitments
•
An increase of approximately $1.16 million for commercial real non-owner occupied loans and lending-related commitments
This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall allowance for credit losses as it does
not reflect any potential changes in the other adjustments to the quantitative calculation, which would also be influenced by the judgment management applies to
the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these modeled lifetime loss estimates based on then-current circumstances and
conditions.
Recognizing that forecasts of macroeconomic conditions are inherently uncertain, the Company believes that its process to consider the available
information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for
the period ended December 31, 2024.
The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD method. Cohort relies on the creation of cohorts to
capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience.
The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include,
but are not limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical
location. The Company uses cohort primarily for consumer loan portfolios.
47
The PD portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly charged-off. Typically, a one-
year time period is used to assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. LGD is to
determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography.
The Company uses PD/LGD primarily for commercial loan portfolios.
Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant
accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising
from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Company’s goodwill relates to the
value inherent in the banking industry and that value is dependent upon the ability of the Company’s subsidiaries to provide quality, cost-effective services in a
competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings
resulting from a decline in the customer base or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill that
could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The fair value of the goodwill is estimated by reviewing the past and projected operating results for the
subsidiaries and comparable industry information. At December 31, 2024, on a consolidated basis, Farmers had intangibles of $20.8 million subject to
amortization and $167.5 million in goodwill, which was not subject to periodic amortization.
The Company accounts for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires
the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at the estimated fair value on
their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired
assets and assumed liabilities. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment based on information
available as of the acquisition date. Loans acquired in a business combination transaction are evaluated either individually or in pools of loans with similar
characteristics; including consideration of a credit component. A number of factors are considered in determining the estimated fair value of purchased loans
including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral,
estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.
Recent Accounting Pronouncements and Developments
Note 1 to the consolidated financial statements discusses new accounting policies adopted by Farmers during 2024 and 2023 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.
48
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 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. Managing 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 from a sudden and sustained 400 basis point increase to a 400 basis point decrease in market interest rates. The assumptions and predictions include inputs
to compute baseline net interest income, expected changes in rates on interest bearing deposit accounts and loans, competition and various other factors that are
difficult to accurately predict.
2024
2023
ALCO
Changes In Interest Rate (basis points)
Result
Result
Guideline
Net Interest Income Change
+400
-9.0%
-6.2%
-12.5%
+300
-7.0%
-5.0%
-10.0%
+200
-4.7%
-3.4%
-7.5%
+100
-2.5%
-1.9%
-5.0%
-100
2.2%
1.4%
-5.0%
-200
3.9%
2.3%
-10.0%
-300
5.5%
3.1%
-15.0%
-400
6.1%
2.7%
-20.0%
Net Present Value Of Equity Change
+400
-37.2%
-36.4%
-12.5%
+300
-27.3%
-26.8%
-10.0%
+200
-17.7%
-17.3%
-7.5%
+100
-9.0%
-8.7%
-5.0%
-100
5.5%
5.3%
-10.0%
-200
7.1%
7.2%
-15.0%
-300
4.4%
5.1%
-20.0%
-400
1.5%
3.5%
-25.0%
The yield curve has changed dramatically over the past three years. From March 2022 to July 2023, in an intense effort to diffuse inflation, the Federal
Open Market Committee raised the discount rate from 0.25% to 5.50%. The committee then held the discount rate at 5.50% until September 2024 when they cut
the discount rate by a total of 100 basis points over the last four months of 2024. These rate cuts were an attempt to guide the economy into a “soft landing”,
where the still comparatively elevated rate will continue to bring down inflation without harming the job market or the economy.
The above table presents results in the up rate scenarios that exceed internal policy limits for the Economic Value of Equity (“EVE”) for both year end
periods. This unprecedented outcome was created by the events occurring over the past four years, namely, the massive influx of liquidity in the form of deposits
in 2020 and 2021 from government assistance while interest rates were at their lowest; the deployment of these funds at the prevailing low rates; and now the
usage of the deposits as consumers utilize their deposits in an effort to maintain living standards in this highly inflationary economy, which prevents the
Company from investing in the higher rates that are now available. With the EVE model moving rates even higher than the current rates, it further exacerbates the
differential between market rates and book rates, thereby creating the out of internal policy consequence. To mitigate these results, the Company has prioritized
employing strategies to shrink the longer duration investment portfolio and replace the
49
balances with assets having a shorter duration, including loans, in an effort to close the gap between the book and market rates. Any growth in lending will be
done in a measured manner given the uncertain economic backdrop that exists today. The Company recognizes the risk that is inherent in growing loans but feels
that its historical record of prudent underwriting, its low loan to deposit ratio and its strong credit metrics provide the ability to pursue solid opportunities in the
marketplace. In addition, any loan growth will be broad based and will encompass consumer, indirect, 1-4 family, commercial and industrial and commercial real
estate, so as not to increase the risk in any one portfolio or sector.
The remaining results of the simulations in the table above indicate that interest rate change results fall within internal limits established by the Company
at both December 31, 2024, and December 31, 2023. A report on interest rate risk is presented to the Board of Directors and the ALCO on a quarterly basis. The
Company has no market risk sensitive instruments held for trading purposes.
A large amount of interest sensitive assets and liabilities mature within twelve months and the Company monitors this area 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.
50
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 Exchange Act 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 has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, based on criteria for effective
internal control over financial reporting established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organization of the
Treadway Commission (COSO). Management also conducted an assessment of requirements pertaining to Section 112 of the Federal Deposit Insurance
Corporation Improvement Act. This section relates to management’s evaluation of internal control over financial reporting, including controls over the
preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C)
and in compliance with laws and regulations. Our evaluation included a review of the documentation of controls, evaluations of the design of the internal control
system and tests of the effectiveness of internal controls. Based on this assessment, management has determined that the Company’s internal control over
financial reporting as of December 31, 2024, was effective.
Crowe LLP, the independent registered public accounting firm that audited the 2024 consolidated financial statements of the Company included in this Annual
Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. The
report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024 is
included under the heading “Report of Independent Registered Public Accounting Firm” In Part II, Item 8.
Kevin J. Helmick
Troy Adair
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
51
Crowe LLP
Independent Member Crowe Global
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Farmers National Banc Corp.
Canfield, Ohio
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Farmers National Banc Corp. (the "Company") as of December 31, 2024 and
2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and
the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial
reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
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, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013)
issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the
Company’s internal control over financial reporting 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, and whether
effective internal control over financial reporting was maintained in all material respects.
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
52
presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s 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. Also, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any
way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans-Qualitative Factors
The allowance for credit losses (the “ACL”) as described in Notes 1 and 4 is an accounting estimate of expected credit losses over the life of loans.
The Company’s loan portfolio is presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on
historical experience, current conditions and reasonable and supportable forecasts over the life of the loans.
The Company measures expected credit losses based on pooled loans when similar risk characteristics exist using the cohort and the probability
of default/loss given default (“PD/LGD”) models. The cohort model is used primarily for consumer loan portfolios and uses cohorts to capture loans
that qualify for a particular segment at a point in time. The loans are then tracked over their remaining lives to determine loss experience. The
PD/LGD model is primarily used for commercial loan portfolios. The PD is defined as 90 days past due, placed on nonaccrual, or is partially or
wholly charged-off. Risk rating is a common way to apply PDs. LGD can be driven or influenced by product type, industry or geography. The
Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects current conditions and
reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated.
53
Auditing the qualitative factors within the ACL was identified by us as a critical audit matter because of the extent of auditor judgment applied and
significant audit effort to evaluate the significant subjective and complex judgments made by management related to the determination of the
qualitative factors used in the calculation.
The primary procedures performed to address the critical audit matter included:
•
Testing the effectiveness of management’s controls addressing:
o
Evaluation of the ACL calculation, including development and reasonableness of the qualitative framework.
o
Evaluation of the appropriateness of the key assumptions and judgments used in the determination of qualitative factors and
the relevance and reliability of data used in the qualitative factors.
•
Substantive testing included evaluating the:
o
Appropriateness of the qualitative framework.
o
Reasonableness of the key assumptions and judgments applied in developing the qualitative factors.
o
Relevance and reliability of data used in the qualitative factors.
Crowe LLP
We have served as the Company's auditor since 2022.
Columbus, Ohio
March 6, 2025
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Farmers National Banc Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows of Farmers National Banc Corp. (the Company) for the year ended
December 31, 2022, 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 results
of the Company’s operations and its cash flows for the year ended December 31, 2022, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company’s management is responsible for these financial statements. Our responsibility is to
express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
Our audit 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 audit 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 audit provide a reasonable basis for our
opinion.
CliftonLarsonAllen LLP
We have served as the Company’s auditor from 2019 through 2022.
Maumee, Ohio
March 9, 2023
CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer.
55
CONSOLIDATED BALANCE SHEETS
(Table Dollar Amounts in Thousands except Per Share Data)
December 31,
2024
2023
ASSETS
Cash and due from banks
$
20,426
$
28,896
Federal funds sold and other
65,312
74,762
TOTAL CASH AND CASH EQUIVALENTS
85,738
103,658
Debt securities available for sale, at fair value (amortized cost $1,510,681 in 2024 and $1,516,841 in 2023)
1,266,553
1,299,701
Other investments
45,405
35,311
Loans held for sale, at fair value
5,005
3,711
Loans
3,268,346
3,198,127
Less allowance for credit losses
35,863
34,440
NET LOANS
3,232,483
3,163,687
Premises and equipment, net
52,274
44,364
Goodwill
167,450
167,446
Other intangibles, net
20,750
22,842
Bank owned life insurance
101,418
99,482
Affordable housing investments
22,000
17,893
Other assets
119,848
120,255
TOTAL ASSETS
$
5,118,924
$
5,078,350
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing
$
965,507
$
1,026,630
Interest-bearing
3,226,321
3,150,756
Brokered time deposits
74,951
0
TOTAL DEPOSITS
4,266,779
4,177,386
Short-term borrowings
305,000
355,000
Long-term borrowings
86,150
88,663
Other liabilities
54,967
52,886
TOTAL LIABILITIES
4,712,896
4,673,935
Commitments and contingent liabilities (Note 14)
Stockholders' equity
Common Stock, no par value; 50,000,000 shares authorized; 39,321,709 shares issued and 37,585,612 and 37,502,773 shares
outstanding, respectively
366,059
365,305
Retained earnings
257,173
236,757
Accumulated other comprehensive (loss)
(193,265 )
(172,554 )
Treasury stock, at cost; 1,736,097 and 1,818,936 shares, respectively
(23,939 )
(25,093 )
TOTAL STOCKHOLDERS' EQUITY
406,028
404,415
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
5,118,924
$
5,078,350
See accompanying notes
56
CONSOLIDATED STATEMENTS OF INCOME
(Table Dollar Amounts in Thousands except Per Share Data)
Years ended December 31,
2024
2023
2022
INTEREST AND DIVIDEND INCOME
Loans, including fees
$
185,710 $
171,808 $
107,790
Taxable securities
26,838
26,231
20,843
Tax exempt securities
10,007
10,834
11,898
Dividends
1,450
1,986
871
Federal funds sold and other interest income
3,727
2,476
684
TOTAL INTEREST AND DIVIDEND INCOME
227,732
213,335
142,086
INTEREST EXPENSE
Deposits
81,169
63,106
13,085
Short-term borrowings
14,105
8,357
1,408
Long-term borrowings
4,090
4,086
3,427
TOTAL INTEREST EXPENSE
99,364
75,549
17,920
NET INTEREST INCOME
128,368
137,786
124,166
Provision for credit losses
8,244
8,718
250
(Credit) provision for unfunded commitments
(278 )
435
872
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES AND UNFUNDED
COMMITMENTS
120,402
128,633
123,044
NONINTEREST INCOME
Service charges on deposit accounts
7,311
6,322
4,716
Bank owned life insurance income, including death benefits
2,659
2,442
1,810
Trust fees
10,099
9,047
8,460
Insurance agency commissions
5,472
5,444
4,402
Security (losses), including fair value changes for equity securities
(2,638 )
(471 )
(454 )
Retirement plan consulting fees
2,637
2,467
2,567
Investment commissions
2,007
1,978
2,183
Net gains on sale of loans
1,502
2,391
2,062
Other mortgage banking income, net
435
711
291
Debit card and EFT fees
7,484
7,059
5,814
Legal settlement
0
0
8,375
Other operating income
4,748
4,471
3,976
TOTAL NONINTEREST INCOME
41,716
41,861
44,202
NONINTEREST EXPENSE
Salaries and employee benefits
58,925
57,374
45,013
Occupancy and equipment
15,588
15,434
11,379
FDIC insurance and state and local taxes
5,029
5,848
3,951
Professional fees
4,317
4,351
6,114
Merger related costs
92
5,475
4,070
Advertising
1,503
1,793
1,947
Intangible amortization
2,861
3,434
1,973
Core processing charges
4,622
4,639
3,348
Charitable donation
0
0
6,000
Other operating expenses
13,754
13,448
10,616
TOTAL NONINTEREST EXPENSE
106,691
111,796
94,411
INCOME BEFORE INCOME TAXES
55,427
58,698
72,835
INCOME TAXES
9,478
8,766
12,238
NET INCOME
$
45,949 $
49,932 $
60,597
EARNINGS PER SHARE:
Basic
$
1.23 $
1.34 $
1.79
Diluted
$
1.22 $
1.33 $
1.79
See accompanying notes.
57
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Table Dollar Amounts in Thousands except Per Share Data)
Years ended December 31,
2024
2023
2022
NET INCOME
$
45,949 $
49,932 $
60,597
Other comprehensive income (loss):
Net unrealized holding (losses) gains on available for sale securities
(29,669 )
48,805
(278,620 )
Reclassification adjustment for losses realized in income on sales
2,681
498
415
Reclassification adjustment for losses (gains) realized in income on fair value hedge
772
(1,282 )
0
Net unrealized holding (losses) gains
(26,216 )
48,021
(278,205 )
Income tax effect
5,505
(10,084 )
58,423
Unrealized holding (losses) gains, net of reclassification and tax
(20,711 )
37,937
(219,782 )
Change in funded status of post-retirement plan, net of tax
0
(1 )
(3 )
Other comprehensive (loss) income, net of tax
(20,711 )
37,936
(219,785 )
TOTAL COMPREHENSIVE INCOME (LOSS)
$
25,238 $
87,868 $
(159,188 )
See accompanying notes.
58
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Table Dollar Amounts in Thousands except Per Share Data)
Accumulated
Other
Common
Retained
Comprehensive
Treasury
Stock
Earnings
(Loss) Income
Stock
Total
Balance December 31, 2021
$
306,123
$
173,896
$
9,295
$
(16,882 )
$
472,432
Net income
60,597
60,597
Other comprehensive loss
(219,785 )
(219,785 )
Restricted share issuance
(1,816 )
1,816
0
Restricted share forfeitures
42
(42 )
0
Stock based compensation expense
1,817
1,817
Vesting of Long Term Incentive Plan
(826 )
369
(457 )
Share forfeitures for taxes
(191 )
(191 )
Dividends paid at $0.47 per share
(22,118 )
(22,118 )
Balance December 31, 2022
305,340
212,375
(210,490 )
(14,930 )
292,295
Net income
49,932
49,932
Other comprehensive income
37,936
37,936
Share issuance as part of a business combination
59,202
59,202
Restricted share issuance
(1,470 )
1,482
12
Restricted share forfeitures
49
(46 )
3
Stock based compensation expense
2,612
2,612
Vesting of Long Term Incentive Plan
(428 )
431
3
Share forfeitures for taxes
(370 )
(370 )
Treasury share purchases
(11,660 )
(11,660 )
Dividends paid at $0.65 per share
(25,550 )
(25,550 )
Balance December 31, 2023
365,305
236,757
(172,554 )
(25,093 )
404,415
Net income
45,949
45,949
Other comprehensive loss
(20,711 )
(20,711 )
Restricted share issuance
(1,212 )
1,212
0
Restricted share forfeitures
507
(515 )
(8 )
Stock based compensation expense
2,643
2,643
Vesting of Long Term Incentive Plan
(1,184 )
1,184
0
Share forfeitures for taxes
(727 )
(727 )
Dividends paid at $0.68 per share
(25,533 )
(25,533 )
Balance December 31, 2024
$
366,059
$
257,173
$
(193,265 )
$
(23,939 )
$
406,028
See accompanying notes.
59
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Table Dollar Amounts in Thousands except Per Share Data)
Years ended December 31,
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
45,949
$
49,932
$
60,597
Adjustments to reconcile net income to net cash from operating
activities:
Provision for credit losses
8,244
8,718
250
(Credit) provision for unfunded commitments
(278 )
435
872
Depreciation and amortization
6,401
7,327
4,899
Net amortization of securities
554
925
4,817
Available for sale security losses
2,681
498
415
Realized (gains) losses on equity securities
(43 )
(27 )
39
(Gain) on debt extinguishment
(444 )
0
0
Losses (gains) on premises and equipment sales and disposals, net
490
316
(20 )
Stock compensation expense
2,643
2,612
1,817
Earnings on bank owned life insurance
(2,578 )
(2,337 )
(1,626 )
Income recognized from death benefit on bank owned life insurance
(81 )
(105 )
(184 )
Origination of loans held for sale
(74,522 )
(64,647 )
(102,150 )
Proceeds from loans held for sale
74,736
64,910
105,956
Net (gains) on sale of loans
(1,502 )
(2,391 )
(2,062 )
Net change in other assets and liabilities
4,365
(3,238 )
7,881
NET CASH FROM OPERATING ACTIVITIES
66,615
62,928
81,501
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and repayments of securities available
for sale
58,947
58,562
78,265
Proceeds from sales of securities available for sale
49,728
85,306
37,190
Purchases of securities available for sale
(105,750 )
(650 )
(239,240 )
Proceeds from sale of equity securities
61
69
72
Purchases of equity securities
(69 )
(70 )
(78 )
Proceeds from maturities and repayments of SBIC funds
2,605
2,030
2,740
Purchases of SBIC funds
(2,175 )
(1,870 )
(3,067 )
Purchases of regulatory stock
(21,270 )
(30,288 )
(5,833 )
Proceeds from redemption of regulatory stock
10,797
36,084
3,142
Loan originations and payments, net
(70,293 )
(61,919 )
(77,198 )
Purchase of portfolio loans
(8,069 )
0
0
Proceeds from loans held for sale previously classified as portfolio loans
1,594
6,785
0
Proceeds from BOLI death benefit
730
419
693
Proceeds from land and building sales
331
533
1,399
Additions to premises and equipment
(11,692 )
(3,880 )
(2,559 )
Net cash paid in business combinations
(600 )
(13,175 )
(1,033 )
NET CASH (USED IN) FROM INVESTING ACTIVITIES
(95,125 )
77,936
(205,507 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits
89,393
(260,195 )
14,533
Net change in short-term borrowings
(50,000 )
185,000
95,000
Redemption of subordinated debentures
(2,535 )
0
0
Cash dividends paid
(25,388 )
(25,396 )
(22,004 )
Cash paid for withholding taxes on share-based awards
(880 )
(622 )
(762 )
Repurchase of common shares
0
(11,544 )
0
NET CASH FROM (USED IN) FINANCING ACTIVITIES
10,590
(112,757 )
86,767
NET CHANGE IN CASH AND CASH EQUIVALENTS
(17,920 )
28,107
(37,239 )
Beginning cash and cash equivalents
103,658
75,551
112,790
Ending cash and cash equivalents
$
85,738
$
103,658
$
75,551
Supplemental cash flow information:
Interest paid
$
101,247
$
78,520
$
16,461
Supplemental noncash disclosures:
Issuance of stock for business combinations
$
0
$
59,202
$
0
Issuance of stock awards
$
2,397
$
1,913
$
2,184
Transfer of loans to loans held for sale
$
1,600
$
7,510
$
0
Lease liabilities assumed from obtaining right-of-use assets
$
2,201
$
1,289
$
1,628
See Note 2 regarding non-cash transactions included in the acquisition
See accompanying notes.
60
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. (“Company”) 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”). Captive was a wholly-owned insurance subsidiary of the Company that provided property and casualty insurance coverage to the Company and
its subsidiaries until November 2023 when the Company dissolved the entity. 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
completed its acquisition of Emclaire Financial Corp., (“Emclaire”) on January 1, 2023 and has since included its results of operations in the Consolidated
Statements of Income. Together all entities are referred to as “the Company.” All significant intercompany balances and transactions have been eliminated in
consolidation.
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 by 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 and the western region of Pennsylvania, through sixty-two (62) locations. 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. On November 20, 2023 the Captive entity was dissolved. Captive pooled 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
available or economically feasible.
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.
Business Combinations: Business combinations are accounted for by applying the acquisition method. As of acquisition date, the identifiable assets acquired
and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entities are included in the
consolidated statement of income from the date of acquisition.
Cash Flows: Cash and cash equivalents include cash on hand, deposits with other financial institutions with maturities fewer than ninety (90) days, 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 classified as available for sale are those that could be sold for liquidity, investment management, or similar reasons, even though
management has no present intentions to do so. 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.
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. Premiums are amortized to the earliest call date. Purchases
and sales are recorded on the trade date, with resulting gains and losses determined using the specific identification method.
61
A debt security is placed on non-accrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a
security placed on non-accrual is reversed against income.
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be
required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's
amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the
Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent
to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the
security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are
compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss
exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any
impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as credit loss expense. Losses are charged against the allowance when management believes the
uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of December 31,
2024 the Company has not recorded an allowance for credit losses on available-for-sale securities.
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding
commitments from investors.
Mortgage loans held for sale are sold with or without servicing rights. 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 credit 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 evaluated loans.
For all classes of loans, when interest accruals are discontinued, interest accrued but not received 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 Deteriorated Loans (PCD): The Company acquires loans individually and in groups or portfolios. At acquisition, the Company reviews each
loan to determine whether there is evidence of more than insignificant deterioration of credit quality since origination. Loans having an aggregate commitment of
$250 thousand or greater and exhibiting the following characteristics have evidence of more than insignificant deterioration.
•
The loan is 30 days past due or greater as of the acquisition date.
•
The loan originated as a pass rated credit and has since been downgraded to a criticized or classified credit as of the acquisition date.
•
The loan has a non-accrual status as of the acquisition date.
62
PCD loans are recorded at fair value. An allowance for credit losses ("ACL") is determined using the same methodology as other loans held for investment. The
sum of the purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and par value of the loan is a
noncredit discount or premium which is amortized into interest income over the life of the loan. These loans are assessed on a regular basis and subsequent
adjustments to the ACL are recorded on the statements of income.
Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The Company’s derivatives are interest-rate swaps for certain
commercial loan customers, mortgage banking derivatives and interest rate fair value hedges associated with the state and political subdivision municipal bond
portfolio. These are used as part of the Company's asset and liability management strategy to aid in managing its interest rate risk position. The Company uses
derivatives for balance sheet hedging purposes.
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 and Western Pennsylvania. Therefore, the Company’s exposure to credit risk is significantly affected
by changes in the economy of an nineteen county area. Loans secured by real estate represent 73.2% of the total portfolio and changes related to the real estate
markets are monitored by management.
Allowance for Credit Losses: The Company uses the current expected credit loss model (“CECL”). This methodology for calculating the allowance for credit
losses considers the expected loss over the life of the loan. It also considers historical loss rates and other qualitative adjustments, as well as a forward-looking
component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the ACL estimate under the current expected loss
model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements. The Company uses the cohort (“cohort”)
and the probability of default/loss given default (“PD/LGD”) methodologies as described in the Credit Quality Indicators section of the loan footnote. Under
ASC 326, if a loan does not share similar risk characteristics with loans in that pool, expected credit losses for that loan are evaluated individually. The Company
has established specific thresholds for the loan portfolio that trigger when loans need to be evaluated individually. Including but not limited to commercial loans
with an aggregate book balance of $500 thousand or greater, or consumer loans with book balance of $250 thousand or greater in which their payment of
contractual principal balance and or interest is in doubt (nonaccrual status). In addition, ASC 326 requires the Company to establish a separate liability for
anticipated credit losses for unfunded commitments.
Under CECL the credit loss estimation process involves procedures that consider the unique characteristics of the Company’s loan portfolio segments. These
segments are disaggregated into the loan pools for monitoring. A model of risk characteristics, such as loss history and delinquency experience, trends in past
due and non-performing loans, as well as existing economic conditions and supportable forecasts are used to determine credit loss assumptions.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following
portfolio segments and measures the ACL using the following methods:
Commercial Real Estate Owner-Occupied, nonfarm nonresidential properties – The Company originates mortgage loans to operating companies primarily in
the northeastern region of Ohio and western region of Pennsylvania. Owner-occupied real estate properties primarily include retail buildings, medical buildings
and industrial/warehouse space. Owner-occupied loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary
risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a
borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition,
regulatory changes, and general economic conditions.
Commercial Real Estate Non-Owner Occupied, nonfarm nonresidential properties – The Company originates mortgage loans for commercial real estate that is
managed as an investment property primarily in the northeastern region of Ohio and western region of Pennsylvania. Commercial real estate properties primarily
include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Increases in vacancy rates, interest rates or other
changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Commercial real estate loans are generally
considered to have a higher degree of credit
63
risk as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a
greater degree of exposure to economic conditions.
Farmland (including farm residential and other improvements) – The Company originates loans secured by farmland and improvements thereon, secured by
mortgages. Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production. Farmland also includes
grazing or pasture land, whether tillable or not and whether wooded or not. The primary risk characteristics are specific to the uncertainty on production, market,
financial, environmental and human resources.
Commercial Real Estate Other – The Company originates mortgage loans for multifamily properties primarily in the northeastern region of Ohio and western
region of Pennsylvania and construction loans to finance land development preparatory to erecting new structures or the on-site construction of industrial,
commercial, or multi-family buildings. Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of
rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service. Increases in vacancy rates, interest rates
or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Construction loans include not only
construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures.
Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be
completed according to the specifications and schedules. Factors that may influence the completion of construction may be customer specific, such as the quality
and depth of property management, or related to changes in general economic conditions.
Commercial and Industrial – The Company originates lines of credit and term loans to operating companies for business purposes. The loans are generally
secured by business assets such as accounts receivable, inventory, business vehicles and equipment. Commercial and Industrial loans are typically repaid first by
the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate
sustainable profitability and positive cash flow. Factors that may influence a borrower's ability to repay their loan include demand for the business’ products or
services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. The ability of the Company to
foreclose and realize sufficient value from business assets securing these loans is often uncertain. To mitigate the risk characteristics of commercial and industrial
loans, commercial real estate may be included as a secondary source of collateral. The Company will often require more frequent reporting requirements from the
borrower in order to better monitor its business performance. The Company also originates various types of loans made directly to municipalities and nonprofit
organizations. These loans are repaid through general cash flows or through specific revenue streams and charitable contributions. The primary risk
characteristics associated with municipal loans are the municipality's or nonprofit’s ability to manage cash flow, balance the fiscal budget, fixed asset and
infrastructure requirements. Additional risks include changes in demographics, as well as social and political conditions.
Agricultural Production –The Company originates loans secured or unsecured to farm owners and operators for the purpose of financing agricultural production,
including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof, and the breeding, raising, fattening, or
marketing of livestock, and for purchases of farm machinery, equipment, and implements. The primary risk characteristics are specific to the uncertainty on
production, market, financial, environmental and human resources.
1-4 Family Residential Real Estate – The Company originates 1-4 family residential mortgage and construction loans primarily within the northeastern region of
Ohio and western region of Pennsylvania. These loans are secured by first or second liens on a primary residence or investment property. The primary risk
characteristics associated with residential mortgage loans typically involve major changes to the borrower, including unemployment or other loss of income;
unexpected significant expenses, such as medical expenses, catastrophic events, divorce or death. Residential mortgage loans that have adjustable rates could
expose the borrower to higher payments in a rising rate environment. Real estate values could decrease and cause the value of the underlying property to fall
below the loan amount, creating additional potential loss exposure for the Company. Residential construction loans are exposed to uncertainty on whether the
construction will be completed according to the specifications and
64
schedules. Factors that may influence the completion of construction may be customer specific, or related to changes in general economic conditions.
Home Equity Lines of Credit – The primary risk characteristics associated with home equity lines of credit typically involve changes to the borrower, including
unemployment or other loss of income; unexpected significant expenses, such as major medical expenses, catastrophic events, divorce and death. Home equity
lines of credit are typically originated with variable or floating interest rates, which could expose the borrower to higher payments in a rising interest rate
environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss
exposure for the Company.
Indirect Loans – The Company originates consumer loans extended for the purpose of purchasing new and used passenger cars and other vehicles such as
minivans, vans, sport-utility vehicles, pickup trucks, recreational vehicles, and motorcycles for personal use. The primary risk characteristics associated with
automobile loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for
major medical expenses, catastrophic events, divorce or death.
Consumer Direct – The Company originates loans to individuals for household, family, and other personal expenditures. Consumer loans generally have higher
interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence
of collateral. The primary risk characteristics associated with other consumer loans typically involve major changes to the borrower, including unemployment or
other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.
Consumer Other – The Company originates lines of credit to individuals for household, family, and other personal expenditures. Consumer loans generally have
higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the
absence of collateral. The primary risk characteristics associated with other revolving loans typically involve major changes to the borrower, including
unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.
The Company uses two methodologies, the cohort and the PD/LGD, to analyze loan pools. Cohort relies on the creation of cohorts to capture loans that qualify
for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company
aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but aren’t limited
to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The
Company uses cohort primarily for consumer loan portfolios.
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or partially or wholly, charged-off.
Typically, a one-year time period is used to assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PD.
Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by
product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
A reassessment of the existing acquired loans occurred in 2021. This was to align with the calculation of the ACL being used under the CECL model. To the
extent that any purchased loan is not specifically reviewed, such loan is assumed to have characteristics similar to the characteristics of the originated risk pools.
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 individually considered in the determination of the required allowance for credit 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 in the determination of the required level of allowance as a loan individually evaluated.
65
The ACL represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. The Company estimates the
ACL based on the amortized cost basis of the underlying loan and has made an accounting policy election to exclude accrued interest from the loan’s amortized
cost basis and the related measurement of the ACL. Estimating the amount of the ACL is a function of a number of factors, including but not limited to changes
in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of potential problem loans, all of which may be susceptible to
significant change. 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 credit 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.
The Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan
or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of
contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions,
and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.
Any restructuring of a loan in which the borrower has experienced financial difficulty and the terms of the loan are more favorable than would generally be
considered for borrowers with the same credit characteristics would be individually evaluated. Otherwise, the restructured loan remains in the appropriate
segment in the ACL model.
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. The fair value of the mortgage servicing rights as of December 31, 2024 and 2023 was $5.20 million
and $5.39 million, respectively.
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. At December 31, 2024 and 2023, there was a valuation allowance totaling $89 thousand and $54 thousand, respectively.
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 in lieu of loan foreclosure are initially recorded at fair value less costs to sell, establishing a new cost basis.
Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure
or when the borrow conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or a similar legal agreement. 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”). Operating costs
after acquisition are expensed. The Company had $52 thousand and $92 thousand of OREO recorded at December 31, 2024 and 2023, respectively.
66
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.
Leases: Leases are classified as operating or finance leases at the lease commencement date. The Company leases certain locations and equipment. The
Company records leases on the balance sheet in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-
of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset. The
discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of
commencement or renewal.
Restricted Stock: The Bank is a member of the Federal Home Loan Bank (“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 investments, and periodically evaluated for impairment based on ultimate
recovery of par value. Restricted stock totaled $30.7 million at December 31, 2024 and $20.2 million in 2023. 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 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 acquisitions of Farmers Trust, Farmers Insurance and the recent Banking acquisitions. Intangible assets
with finite 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.
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.
67
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 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. Management does not believe there are any matters currently that
would have a material effect on the financial statements.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank (“FRB”) was required to meet regulatory reserve and clearing requirements.
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: While the chief operating decision maker monitors the revenue streams of the various products and services, operations are managed, and
financial performance is primarily aggregated and evaluated in two lines of business, the Bank segment and Farmers Trust segment. 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.
Newly Issued, Not Yet Effective Accounting Standards:
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures. The amendments in this update related
to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring consistent categories and greater
disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments of this update are effective for
fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the
Company’s operating results or financial condition.
68
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures. The amendments in this
update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The main new
provision requires significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of
segment profit or loss. The amendments of this update were effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024. The standard was adopted by the Company and footnote 23 - Segment Information has been updated per the ASU.
On March 29, 2024, the FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. ASU 2024-02
removes various references to the FASB’s Concepts Statements from the FASB’s Accounting Standards Codification (Codification or GAAP). The Concepts
Statements are non-authoritative guidance issued by the FASB that provide the objectives, qualitative characteristics and other concepts that govern the
development of accounting principles by the FASB. ASU 2024-02 applies to all reporting entities and updates the Codification by eliminating discrete references
to the Concepts Statements across a variety of defined terms and Topics within the Codification. The FASB does not expect these updates to have a significant
effect on current accounting practice. The amendments in ASU 2024-02 are effective for public business entities for fiscal years beginning after December 15,
2024. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial
condition.
NOTE 2 – BUSINESS COMBINATIONS
On January 1, 2023, the Company completed its previously announced merger with Emclaire Financial Corp., a Pennsylvania corporation and registered financial
holding company (“Emclaire”), pursuant to the Agreement and Plan of Merger dated as of March 23, 2022. The Farmers National Bank of Emlenton, the
banking subsidiary of Emclaire, merged with and into The Farmers National Bank of Canfield, the national banking subsidiary of the Company, with Farmers
Bank as the surviving bank. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) Emclaire merged with
and into Merger Sub (the “Merger”), with Merger Sub as the surviving entity in the Merger. Promptly following the consummation of the Merger, Merger Sub
was dissolved and liquidated and The Farmers National Bank of Emlenton, the banking subsidiary of Emclaire, merged with and into The Farmers National Bank
of Canfield, the national banking subsidiary of the Company, with Farmers Bank as the surviving bank. Pursuant to the terms of the Merger Agreement, at the
effective time of the merger, each common share, without par value, of Emclaire common shares issued and outstanding was converted into the right to receive,
without interest, $40.00 in cash or 2.15 common shares, without par value, of the Company's common shares, subject to an overall limitation of 70% of the
Emclaire common shares being exchanged and the remaining 30% of Emclaire common shares being exchanged for the cash. The transaction created expansion
for the Company in Pennsylvania and into the Pittsburgh market. The Company issued 4.2 million shares of its common stock along with cash of $33.4 million,
which represented a transaction value of approximately $92.6 million based on its closing stock price of $14.12 on December 31, 2022.
In accordance with ASC 805, the Company expensed approximately $5.5 million of merger related costs, for the Emclaire acquisition, during 2023, in addition to
$2.0 million expensed for the year of 2022. The Company recorded goodwill of $72.9 million as a result of the combination. Goodwill represents the future
economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies, including the
reduction of personnel and overlapping contracts, expected to be derived from the Company’s strategy to enhance and expand its presence in Pennsylvania. The
merger offered the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as added
new customers in the expanded market area. The goodwill was determined not to be deductible for income tax purposes.
69
The following table summarizes the consideration paid for Emclaire and the amounts of the assets acquired and liabilities assumed on the closing date of the
acquisition.
Consideration
Cash
$
33,440
Stock
59,202
Fair value of total consideration transferred
$
92,642
Fair value of assets acquired
Cash and cash equivalents
$
20,265
Securities available for sale
126,970
Other investments
7,795
Loans, net
740,659
Premises and equipment
14,808
Bank owned life insurance
22,485
Core deposit intangible
19,249
Current and deferred taxes
17,708
Other assets
7,682
Total assets acquired
977,621
Fair value of liabilities assumed
Deposits
875,813
Short-term borrowings
75,000
Accrued interest payable and other liabilities
7,104
Total liabilities
957,917
Net assets acquired
$
19,704
Goodwill created
72,938
Total net assets acquired
$
92,642
The fair value of net assets acquired includes fair value adjustments to certain receivables that were considered performing as of the acquisition date. The fair
value adjustments were determined using the income method, discounted cash flow approach. However, the Company believes that all contractual cash flows
related to these financial instruments will be collected. As such, these receivables were not considered PCD at the acquisition date and were not subject to the
guidance relating to PCD loans. Receivables acquired that were not subject to these requirements had a fair value and gross contractual amounts receivable of
$714.4 million and $764.8 million on the date of acquisition.
The fair value of purchased financial assets that were classified as PCD loans are discussed in the loan footnote.
70
The following table presents unaudited pro forma information as if the Emclaire acquisition that occurred on January 1, 2023 actually took place on January 1,
2022. The unaudited pro forma information for the period ended December 31, 2022 include adjustments of interest income on loans, amortization of core
deposit intangibles arising from the transaction, interest expense on deposits and borrowings acquired. The unaudited pro forma financial information is not
necessarily indicative of the results of operations that would have occurred had the transaction been effective on the assumed date.
2022
Net interest income
$
168,692
Provision for credit losses
17,246
Noninterest income
47,206
Noninterest expense
137,930
Income before income taxes
60,722
Income tax expense
10,007
Net income
$
50,715
Basic earnings per share
$
1.34
Diluted earnings per share
$
1.33
The above unaudited pro forma information excludes nonrecurring merger costs that totaled $4.4 million on an after-tax basis.
On December 16, 2024, Farmers Trust acquired substantially all of the assets of Crest Retirement Advisors, LLC, for $600 thousand, with an additional $400
thousand in contingent consideration payable over two years. Intangible assets of $770 thousand were recorded along with goodwill of $4 thousand.
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, 2024, and 2023, and the
corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss). No allowance for credit losses have
been recognized for the securities portfolio at December 31, 2024 or 2023.
Gross
Gross
Amortized
Unrealized
Unrealized
2024
Cost
Gains
Losses
Fair Value
U.S. Treasury and U.S. government sponsored
entities
$
132,292 $
0 $
(17,185 ) $
115,107
State and political subdivisions
609,950
1,294
(106,364 )
504,880
Corporate bonds
17,849
172
(573 )
17,448
Mortgage-backed securities
605,350
34
(112,517 )
492,867
Collateralized mortgage obligations
142,525
85
(8,834 )
133,776
Small Business Administration
2,715
0
(240 )
2,475
Totals
$
1,510,681 $
1,585 $
(245,713 ) $
1,266,553
71
Gross
Gross
Amortized
Unrealized
Unrealized
2023
Cost
Gains
Losses
Fair Value
U.S. Treasury and U.S. government sponsored
entities
$
145,439 $
113 $
(17,597 ) $
127,955
State and political subdivisions
644,880
4,792
(93,503 )
556,169
Corporate bonds
18,554
187
(466 )
18,275
Mortgage-backed securities
624,529
1
(104,144 )
520,386
Collateralized mortgage obligations
80,227
331
(6,559 )
73,999
Small Business Administration
3,212
0
(295 )
2,917
Totals
$
1,516,841 $
5,424 $
(222,564 ) $
1,299,701
The proceeds from sales of available-for-sale securities and the associated gains and losses were as follows:
2024
2023
2022
Proceeds
$
49,728 $
85,306 $
37,190
Gross gains
17
441
6
Gross losses
(2,698 )
(939 )
(421 )
The tax provision (benefit) related to these net realized gains (losses) was $(563) thousand, $(105) thousand, and $(87) 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 a call, or prepayment penalties. Securities not due at a single maturity date are shown
separately.
Available for sale
December 31, 2024
Amortized
Maturity
Cost
Fair Value
Within one year
$
2,382 $
2,377
One to five years
68,001
60,891
Five to ten years
175,756
157,992
Beyond ten years
513,952
416,175
Mortgage-backed Securities, Collateralized Mortgage
Obligations and Small Business Administration
750,590
629,118
Totals
$
1,510,681 $
1,266,553
Securities with a carrying amount of $852.4 million at December 31, 2024 were pledged to secure public deposits and an unused line of credit and securities with
a carrying amount of $1.1 billion at December 31, 2023, were pledged to secure public deposits and the term borrowings. Farmers Trust had securities with a
carrying amount of $117 thousand in place at both year-ends 2024 and 2023, as a pledge to qualify as a fiduciary in the State of Ohio.
In each year, there were no holdings of any issuer that exceeded 10% of stockholders’ equity, except for the U.S. Government, its agencies and its sponsored
entities.
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The following table summarizes the investment securities with unrealized losses for which an allowance for credit losses has not been recorded at December 31,
2024 and 2023, aggregated by major security type and length of time in a continuous unrealized loss position.
2024
Less than 12 Months
12 Months or More
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Description of Securities
Value
Loss
Value
Loss
Value
Loss
U.S. Treasury and U.S. government
sponsored entities
$
4,592 $
(320 ) $
110,515 $
(16,865 ) $
115,107 $
(17,185 )
State and political subdivisions
66,436
(4,946 )
400,911
(101,418 )
467,347
(106,364 )
Corporate bonds
4,303
(146 )
8,568
(427 )
12,871
(573 )
Mortgage-backed securities
30,143
(365 )
460,172
(112,152 )
490,315
(112,517 )
Collateralized mortgage obligations
65,046
(2,210 )
51,405
(6,624 )
116,451
(8,834 )
Small Business Administration
0
0
2,475
(240 )
2,475
(240 )
Total
$
170,520 $
(7,987 ) $
1,034,046 $
(237,726 ) $
1,204,566 $
(245,713 )
2023
Less than 12 Months
12 Months or More
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Description of Securities
Value
Loss
Value
Loss
Value
Loss
U.S. Treasury and U.S. government
sponsored entities
$
399 $
(1 ) $
122,361 $
(17,596 ) $
122,760 $
(17,597 )
State and political subdivisions
15,852
(1,684 )
428,416
(91,819 )
444,268
(93,503 )
Corporate bonds
8,463
(284 )
3,881
(182 )
12,344
(466 )
Mortgage-backed securities
5,113
(76 )
515,259
(104,068 )
520,372
(104,144 )
Collateralized mortgage obligations
20,019
(980 )
43,808
(5,579 )
63,827
(6,559 )
Small Business Administration
0
0
2,917
(295 )
2,917
(295 )
Total
$
49,846 $
(3,025 ) $
1,116,642 $
(219,539 ) $
1,166,488 $
(222,564 )
As of December 31, 2024, the Company’s security portfolio consisted of 946 securities, 842 of which were in an unrealized loss position. The treasury, agency,
mortgage-backed securities, collateralized mortgage obligations and small business administration securities that the Company owns are all issued by government
sponsored entities and therefore contain no potential for credit loss. The Company does not consider any of its available-for-sale securities with unrealized losses
to be attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in noncredit related factors such as changes in interest
rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The vast majority of the Company's state and political subdivisions
holdings are of high credit quality, and are rated AA or higher. In addition, management has both the ability and intent to hold the securities for a period of time
sufficient to allow for the recovery in fair value. As of December 31, 2024, the Company has not recorded an allowance for credit losses on available for sale
(“AFS”) securities.
At December 31, 2023, the Company’s security portfolio consisted of 978 securities, 743 of which were in an unrealized loss position. The majority of
unrealized losses on the Company’s securities were related to its holdings of mortgage-backed securities and state and political subdivisions. Furthermore, the
treasury, agency, mortgage-backed securities, collateralized mortgage obligations and small business administration securities that the Company owns are all
issued by government sponsored entities. At December 31, 2023 the Company did not consider any of its available for sale ("AFS") securities with unrealized
losses to be attributable to credit-related factors, as the unrealized losses that had occurred were a result of changes in noncredit related factors such as changes in
interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The vast majority of the Company's state and political
subdivisions holdings are of high credit quality, and are rated AA or higher. In addition, management has both the ability and intent to hold the securities for a
period of time sufficient to allow for the recovery in fair value. At December 31, 2023, the Company had not recorded an allowance for credit losses on AFS
securities.
73
Equity Securities
The Company also holds equity securities which include $14.5 million in Small Business Investment Company (“SBIC”) partnership investments as well as $277
thousand in local and regional bank holdings and other miscellaneous equity funds at December 31, 2024. At December 31, 2023, the Company held $14.9
million in SBIC investments and $226 thousand in local and regional bank holdings and other miscellaneous equity funds. These investments are held at
modified cost and any changes in modified cost are recognized in income in 2024 and 2023.
NOTE 4 – LOANS
Loan balances at year end were as follows:
2024
2023
(In Thousands of Dollars)
Commercial real estate
Owner occupied
$
391,302
$
399,273
Non-owner occupied
695,699
712,315
Farmland
206,786
202,950
Other
295,713
224,218
Commercial
Commercial and industrial
349,966
346,354
Agricultural
55,606
58,338
Residential real estate
1-4 family residential
845,081
843,697
Home equity lines of credit
158,014
142,441
Consumer
Indirect
232,822
226,815
Direct
19,143
23,805
Other
7,989
9,164
Total originated loans
$
3,258,121
$
3,189,370
Net deferred loan costs
10,225
8,757
Allowance for credit losses
(35,863 )
(34,440 )
Net loans
$
3,232,483
$
3,163,687
Allowance for credit loss activity
The following tables present the activity in the allowance for credit losses by portfolio segment for years ended December 31, 2024, 2023 and 2022:
December 31, 2024
Commercial
Real Estate
Commercial
Residential
Real Estate
Consumer
Total
(In Thousands of Dollars)
Allowance for credit losses
Beginning balance
$
18,150 $
5,087
$
6,916
$
4,287
$
34,440
Provision for credit losses
5,706
763
333
1,442
8,244
Loans charged off
(4,619 )
(1,742 )
(155 )
(1,471 )
(7,987 )
Recoveries
22
520
177
447
1,166
Total ending allowance balance
$
19,259 $
4,628
$
7,271
$
4,705
$
35,863
74
December 31, 2023
Commercial
Real Estate
Commercial
Residential
Real Estate
Consumer
Total
(In Thousands of Dollars)
Allowance for credit losses
Beginning balance
$
14,840 $
4,186
$
4,374
$
3,578
$
26,978
PCD ACL on loans acquired
850
138
11
0
999
Provision for credit losses
2,808
1,931
2,834
1,145
8,718
Loans charged off
(349 )
(1,272 )
(384 )
(932 )
(2,937 )
Recoveries
1
104
81
496
682
Total ending allowance balance
$
18,150 $
5,087
$
6,916
$
4,287
$
34,440
December 31, 2022
Commercial
Real Estate
Commercial
Residential
Real Estate
Consumer
Total
Allowance for credit losses
Beginning balance
$
15,879 $
4,949
$
4,870
$
3,688
$
29,386
Provision for credit losses
(742 )
1,204
(493 )
281
250
Loans charged off
(300 )
(2,042 )
(92 )
(870 )
(3,304 )
Recoveries
3
75
89
479
646
Total ending allowance balance
$
14,840 $
4,186
$
4,374
$
3,578
$
26,978
The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company's historical loss experience from December 31, 2011 to
December 31, 2024. As of December 31, 2024, the Company expects that the markets in which it operates will experience minimal changes to economic
conditions, with a stable trend in unemployment, and a level trend of delinquencies. Management adjusted historical loss experience for these expectations. No
reversion adjustments were necessary, as the starting point for the Company's estimate was a cumulative loss rate covering the expected contractual term of the
portfolio. While there are many factors that go into the calculation of the allowance for credit losses, the change in the balances from December 31, 2023 to
December 31, 2024 is largely attributed to an increase in the specific reserve related to the individual evaluation of a commercial real estate non-owner occupied
loan, adjustments made to the Portfolio Composition and Growth qualitative factor and increased loan balances. These factors were partially offset by the
reduction of the specific reserve related to a loan settlement, reduction of specific reserve related to payoff of another individually evaluated relationship, and
improved loss rates for certain loan pools under the PD/LGD methodology.
75
The following tables present the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2024 and
December 31, 2023:
(In Thousands of Dollars)
Nonaccrual with no
allowance for credit
loss
Nonaccrual with an
allowance for credit
loss
Loans past due over
89 days still accruing
December 31, 2024
Commercial real estate
Owner occupied
$
0 $
937 $
0
Non-owner occupied
0
8,105
0
Farmland
1,757
3
0
Other
0
0
525
Commercial
Commercial and industrial
145
3,713
0
Agricultural
177
183
0
Residential real estate
1-4 family residential
513
3,967
90
Home equity lines of credit
94
409
0
Consumer
Indirect
37
463
0
Direct
66
34
0
Other
0
0
0
Total loans
$
2,789 $
17,814 $
615
(In Thousands of Dollars)
Nonaccrual with no
allowance for credit
loss
Nonaccrual with an
allowance for credit
loss
Loans past due over
89 days still accruing
December 31, 2023
Commercial real estate
Owner occupied
$
1,804 $
830 $
0
Non-owner occupied
19
1,491
0
Farmland
1,957
9
0
Other
0
80
0
Commercial
Commercial and industrial
394
1,408
0
Agricultural
203
317
0
Residential real estate
1-4 family residential
348
3,009
460
Home equity lines of credit
240
210
69
Consumer
Indirect
22
300
125
Direct
65
69
1
Other
0
5
0
Total loans
$
5,052 $
7,728 $
655
The above table for the period ending December 31, 2024 does not include a $1.52 million owner occupied commercial real estate loan and a $77 thousand
commercial & industrial loan that are held-for-sale and in nonaccrual status. The above table for the period ending December 31, 2023 does not include a $1.63
million non-owner occupied commercial real estate loan that is held-for-sale and in nonaccrual status.
76
The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2024 and December 31, 2023:
(In Thousands of Dollars)
Real Estate
Business Assets
Vehicles
Cash
December 31, 2024
Commercial real estate
Owner occupied
$
0 $
0
$
0
$
0
Non-owner occupied
8,119
0
0
0
Farmland
1,757
0
0
0
Other
0
0
0
0
Commercial
Commercial and industrial
0
2,591
0
0
Agricultural
0
177
0
0
Residential real estate
1-4 family residential
3,573
0
0
0
Home equity lines of credit
264
0
0
0
Consumer
Indirect
0
0
70
0
Direct
0
0
9
66
Other
0
0
0
0
Total loans
$
13,713 $
2,768 $
79 $
66
(In Thousands of Dollars)
Real Estate
Business Assets
Vehicles
Cash
December 31, 2023
Commercial real estate
Owner occupied
$
1,804 $
0
$
0
$
0
Non-owner occupied
1,335
0
0
0
Farmland
1,957
0
0
0
Other
0
0
0
0
Commercial
Commercial and industrial
94
867
0
0
Agricultural
0
203
0
0
Residential real estate
1-4 family residential
3,352
0
0
0
Home equity lines of credit
294
0
0
0
Consumer
Indirect
0
0
53
0
Direct
0
0
19
66
Other
0
0
0
0
Total loans
$
8,836 $
1,070 $
72 $
66
77
The following tables present the aging of the amortized cost basis in past due loans as of December 31, 2024 and 2023 by class of loans:
December 31, 2024
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
(In Thousands of Dollars)
Commercial real estate
Owner occupied
$
95
$
446
$
937
$
1,478
$
389,630
$
391,108
Non-owner occupied
15
52
8,105
8,172
687,112
695,284
Farmland
53
0
1,760
1,813
204,787
206,600
Other
0
113
525
638
294,543
295,181
Commercial
Commercial and industrial
941
324
3,858
5,123
346,410
351,533
Agricultural
284
26
360
670
55,759
56,429
Residential real estate
1-4 family residential
6,688
1,943
4,570
13,201
832,338
845,539
Home equity lines of credit
104
0
503
607
157,532
158,139
Consumer
Indirect
1,385
473
500
2,358
238,997
241,355
Direct
59
30
100
189
18,996
19,185
Other
0
1
0
1
7,992
7,993
Total loans
$
9,624
$
3,408
$
21,218
$
34,250
$
3,234,096
$
3,268,346
December 31, 2023
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
Commercial real estate
Owner occupied
$
302
$
293
$
2,634
$
3,229
$
395,799
$
399,028
Non-owner occupied
90
0
1,510
1,600
710,195
711,795
Farmland
365
0
1,966
2,331
200,395
202,726
Other
0
0
80
80
223,697
223,777
Commercial
Commercial and industrial
540
199
1,802
2,541
345,278
347,819
Agricultural
292
40
520
852
58,223
59,075
Residential real estate
1-4 family residential
6,819
4,488
3,817
15,124
828,437
843,561
Home equity lines of credit
729
34
519
1,282
141,189
142,471
Consumer
Indirect
2,045
289
447
2,781
232,105
234,886
Direct
153
23
135
311
23,514
23,825
Other
4
0
5
9
9,155
9,164
Total loans:
$
11,339
$
5,366
$
13,435
$
30,140
$
3,167,987
$
3,198,127
Loan Restructurings:
The Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminates the recognition and measurement of
troubled debt restructurings ("TDRs"). Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting
guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers
experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal
forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the
disclosures related to loan restructurings are only for modifications that directly affect cash flows.
Any restructuring of a loan in which the borrower has experienced financial difficulty and the terms of the loan are more favorable than would generally be
considered for borrowers with the same credit characteristics would be individually evaluated. Otherwise, the restructured loan remains in the appropriate
segment in the ACL model.
78
The following tables present the amortized cost basis of loans that were both experiencing financial difficulty and modified during the twelve months ended
December 31, 2024 and December 31, 2023, by class and type of modification at December 31, 2024 and 2023. The percentage of the amortized cost basis of
loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:
December 31, 2024
Amortized Cost
(In Thousands of Dollars)
Term Extension
Interest Rate
Reduction
Combination Term
Extension and
Interest Rate
Reduction
Total
% of Total Class
of Financing
Receivable
Residential real estate
Home equity lines of credit
$
0 $
29 $
19 $
48
0.03%
Total modifications to borrowers experiencing
financial difficulty
$
0 $
29 $
19 $
48
0.00%
December 31, 2023
Amortized Cost
(In Thousands of Dollars)
Term Extension
Interest Rate
Reduction
Combination Term
Extension and
Interest Rate
Reduction
Total
% of Total Class
of Financing
Receivable
Residential real estate
1-4 family residential
$
48 $
30 $
132 $
210
0.03%
Total modifications to borrowers experiencing
financial difficulty
$
48 $
30 $
132 $
210
0.01%
As of December 31, 2024, the Company had no commitments to lend any additional funds to the borrowers included in the previous tables.
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its
modification efforts. The following tables present the performance of such loans that have been modified in the twelve months ended December 31, 2024 and
December 31, 2023:
December 31, 2024
Payment status (Amortized cost Basis)
(In Thousands of Dollars)
Current
30-89 Days past due
90+ Days past due
Accrual restructured loans
Residential real estate
Home equity lines of credit
$
0 $
19 $
0
Total accruing restructured loans
$
0 $
19
$
0
Nonaccrual restructured loans
Residential real estate
Home equity lines of credit
$
0 $
0 $
29
Total nonaccrual restructured loans
$
0
$
0
$
29
Total restructured loans
$
0 $
19
$
29
79
December 31, 2023
Payment status (Amortized cost Basis)
(In Thousands of Dollars)
Current
30-89 Days past due
90+ Days past due
Accrual restructured loans
Residential real estate
1-4 family residential
$
132 $
30 $
0
Total accruing restructured loans
$
132 $
30
$
0
Nonaccrual restructured loans
Residential real estate
1-4 family residential
$
48 $
0 $
0
Total nonaccrual restructured loans
$
48
$
0
$
0
Total restructured loans
$
180 $
30
$
0
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the twelve
months ended December 31, 2024 and December 31, 2023:
Payment Deferral
Interest Rate Reduction
Term Extension
Weighted-Average Years Added
to the Life
Weighted-Average Contractual
Interest Rate
Weighted-Average Years Added
to the Life
December 31, 2024
From
To
Residential real estate
Home equity lines of credit
10.45%
5.91%
10
Payment Deferral
Interest Rate Reduction
Term Extension
Weighted-Average Years Added
to the Life
Weighted-Average Contractual
Interest Rate
Weighted-Average Years Added
to the Life
December 31, 2023
From
To
Residential real estate
1-4 family residential
4.77%
3.38%
6.3
The following table presents the amortized cost basis of loans that had a payment default during the year ended December 31, 2024 and December 31, 2023 and
were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. For purposes of this disclosure a default occurs when
within 12 months of the original modification, a loan is 30 days contractually past due under the modified terms:
December 31, 2024
Amortized Cost
(In Thousands of Dollars)
Term Extension
Interest Rate
Reduction
Combination Term
Extension and Interest
Rate Reduction
Residential real estate
Home equity lines of credit
0
29
19
Total modifications to borrowers experiencing financial difficulty
$
0 $
29 $
19
80
December 31, 2023
Amortized Cost
(In Thousands of Dollars)
Term Extension
Interest Rate
Reduction
Combination Term
Extension and Interest
Rate Reduction
Residential real estate
1-4 family residential
$
0 $
30 $
0
Total modifications to borrowers experiencing financial difficulty
$
0 $
30 $
0
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is
written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance of credit losses is adjusted by the same
amount.
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 $3 million 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.
81
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
December 31, 2024
Pass
Special
Mention
Sub
standard
Doubtful
Total
(In Thousands of Dollars)
Commercial real estate
Owner occupied
$
383,556 $
4,865 $
2,687 $
0 $
391,108
Non-owner occupied
642,542
18,127
33,781
834
695,284
Farmland
204,348
0
2,252
0
206,600
Other
285,119
10,030
32
0
295,181
Commercial
Commercial and industrial
340,580
462
10,491
0
351,533
Agricultural
56,005
61
363
0
56,429
Total loans
$
1,912,150 $
33,545 $
49,606 $
834 $
1,996,135
December 31, 2023
Pass
Special
Mention
Sub
standard
Total
Commercial real estate
Owner occupied
$
386,015
$
9,628
$
3,385
$
399,028
Non-owner occupied
648,063
27,938
35,794
711,795
Farmland
200,240
0
2,486
202,726
Other
215,459
0
8,318
223,777
Commercial
Commercial and industrial
334,764
646
12,409
347,819
Agricultural
58,506
17
552
59,075
Total loans
$
1,843,047
$
38,229
$
62,944
$
1,944,220
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential, consumer and indirect loan
classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The above table for
the period ending December 31, 2024 does not include a $1.52 million owner occupied commercial real estate loan and a $77 thousand commercial & industrial
loan that are held-for-sale and risk-rated substandard. The above table for the period ending December 31, 2023 does not include a $1.63 million non-owner
occupied commercial real estate loan that is held-for-sale and risk-rated substandard. In the 1-4 family residential real estate portfolio at December 31, 2024,
other real estate owned and foreclosure properties were $52 thousand and $631 thousand, respectively. In the 1-4 family residential real estate portfolio at
December 31, 2023, other real estate owned and foreclosure properties were $92 thousand and $207 thousand, respectively.
82
The following table presents the amortized cost 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.
Residential Real Estate
Consumer
December 31, 2024
1-4 Family
Residential
Home Equity Lines
of Credit
Indirect
Direct
Other
(In Thousands of Dollars)
Performing
$
840,969 $
157,636 $
240,855 $
19,085 $
7,993
Nonperforming
4,570
503
500
100
0
Total loans
$
845,539 $
158,139 $
241,355 $
19,185 $
7,993
Residential Real Estate
Consumer
December 31, 2023
1-4 Family
Residential
Home Equity Lines
of Credit
Indirect
Direct
Other
Performing
$
839,744 $
141,952 $
234,439 $
23,690 $
9,159
Nonperforming
3,817
519
447
135
5
Total loans
$
843,561 $
142,471 $
234,886 $
23,825 $
9,164
83
The following tables present total loans by risk categories and year of origination.
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2024
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Total
Commercial real estate - Owner occupied:
Risk Rating
Pass
$
45,588
$
56,389
$
46,323
$
60,179
$
45,428
$
127,665
$
1,984
$
383,556
Special mention
0
3,228
0
1,118
0
519
0
4,865
Substandard
0
0
659
0
0
1,962
66
2,687
Total commercial real estate - Owner
occupied loans
$
45,588 $
59,617 $
46,982 $
61,297 $
45,428 $
130,146 $
2,050 $
391,108
Commercial real estate - Owner Occupied: Current
period gross write-offs
$
0
$
0
$
72
$
0
$
21
$
0
$
0
$
93
Commercial real estate - Non-owner occupied:
Risk Rating
Pass
$
61,974
$
44,323
$
125,547
$
78,933
$
71,322
$
251,465
$
8,978
$
642,542
Special mention
0
0
6,284
313
1,356
10,024
150
18,127
Substandard
7,065
407
0
11,249
7,129
7,931
0
33,781
Doubtful
0
0
0
834
0
0
0
834
Total commercial real estate - Non-
owner occupied loans
$
69,039 $
44,730 $
131,831 $
91,329 $
79,807 $
269,420 $
9,128 $
695,284
Commercial real estate - Non-owner occupied:
Current period gross write-offs
$
0
$
0
$
0
$
4,380
$
146
$
0
$
0
$
4,526
Commercial real estate - Farmland:
Risk Rating
Pass
$
19,832
$
20,803
$
39,126
$
18,734
$
31,620
$
71,162
$
3,071
$
204,348
Substandard
0
0
0
317
0
1,935
0
2,252
Total commercial real estate - Farmland
loans
$
19,832 $
20,803 $
39,126 $
19,051 $
31,620 $
73,097 $
3,071 $
206,600
Commercial real estate - Farmland: Current period
gross write-offs
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
Commercial real estate - Other:
Risk Rating
Pass
$
40,993
$
108,346
$
65,724
$
39,091
$
8,493
$
21,744
$
728
$
285,119
Special mention
0
990
7,480
112
0
1,448
0
10,030
Substandard
0
0
0
0
0
32
0
32
Total commercial real estate - Other
loans
$
40,993 $
109,336 $
73,204 $
39,203 $
8,493 $
23,224 $
728 $
295,181
Commercial real estate - Other: Current period
gross write-offs
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
84
Term Loans Amortized Cost Basis by Origination Year (Continued)
As of December 31, 2024
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Total
Commercial - Commercial and industrial:
Risk Rating
Pass
$
84,491 $
72,388
$
55,279
$
26,780
$
10,744
$
20,223
$
70,675
$
340,580
Special mention
0
0
0
167
165
46
84
462
Substandard
31
118
5,653
282
244
1,682
2,481
10,491
Total commercial - Commercial and
industrial loans
$
84,522 $
72,506 $
60,932 $
27,229 $
11,153 $
21,951 $
73,240 $
351,533
Commercial - Commercial and industrial: Current
period gross write-offs
$
48
$
273
$
389
$
125
$
228
$
257
$
313
$
1,633
Commercial - Agricultural:
Risk Rating
Pass
$
9,085
$
11,703
$
13,160
$
5,481
$
1,768
$
850
$
13,958
$
56,005
Special mention
0
0
0
0
0
0
61
61
Substandard
0
0
35
29
162
137
0
363
Total commercial - Agricultural loans
$
9,085 $
11,703 $
13,195 $
5,510 $
1,930 $
987 $
14,019 $
56,429
Commercial - Agricultural: Current period gross
write-offs
$
0
$
1
$
49
$
13
$
29
$
17
$
0
$
109
Residential real estate - 1-4 family residential:
Payment Performance
Performing
$
79,820 $
69,319
$
157,403
$
153,569
$
119,770
$
257,827
$
3,261
$
840,969
Nonperforming
0
0
473
278
1,626
2,193
0
4,570
Total residential real estate - 1-4 family
residential loans
$
79,820 $
69,319 $
157,876 $
153,847 $
121,396 $
260,020 $
3,261 $
845,539
Residential real estate - 1-4 family residential:
Current period gross write-offs
$
0
$
0
$
0
$
37
$
0
$
118
$
0
$
155
Residential real estate - Home equity lines of
credit:
Payment Performance
Performing
$
0 $
119
$
153
$
127
$
68
$
4,118
$
153,051
$
157,636
Nonperforming
0
0
29
0
0
376
98
503
Total residential real estate - Home
equity lines of credit loans
$
0 $
119 $
182 $
127 $
68 $
4,494 $
153,149 $
158,139
Residential real estate - Home equity lines of
credit: Current period gross write-offs
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
85
Term Loans Amortized Cost Basis by Origination Year (Continued)
As of December 31, 2024
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Total
Consumer - Indirect:
Payment Performance
Performing
$
78,306 $
55,525
$
49,548
$
23,331
$
14,183
$
19,962
$
0
$
240,855
Nonperforming
0
57
233
97
62
51
0
500
Total consumer - Indirect loans
$
78,306 $
55,582 $
49,781 $
23,428 $
14,245 $
20,013 $
0 $
241,355
Consumer - Indirect: Current period gross write-
offs
$
10
$
100
$
206
$
192
$
174
$
430
$
0
$
1,112
Consumer - Direct:
Payment Performance
Performing
$
2,735 $
2,319
$
2,406
$
1,075
$
792
$
9,432
$
326
$
19,085
Nonperforming
0
0
6
15
66
13
0
100
Total consumer - Direct loans
$
2,735 $
2,319 $
2,412 $
1,090 $
858 $
9,445 $
326 $
19,185
Consumer - Direct: Current period gross write-offs
$
0
$
7
$
38
$
6
$
5
$
120
$
0
$
176
Consumer - Other:
Payment Performance
Performing
$
0 $
0
$
0
$
60
$
0
$
409
$
7,524
$
7,993
Nonperforming
0
0
0
0
0
0
0
0
Total consumer - Other loans
$
0 $
0 $
0 $
60 $
0 $
409 $
7,524 $
7,993
Consumer - Other: Current period gross write-offs
$
0
$
0
$
1
$
0
$
0
$
182
$
0
$
183
86
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Total
Commercial real estate - Owner occupied:
Risk Rating
Pass
$
57,983
$
58,178
$
66,205
$
42,023
$
48,849
$
109,831
$
2,946
$
386,015
Special mention
0
293
0
8,779
0
556
0
9,628
Substandard
0
0
0
10
490
2,701
184
3,385
Total commercial real estate - Owner
occupied loans
$
57,983 $
58,471 $
66,205 $
50,812 $
49,339 $
113,088 $
3,130 $
399,028
Commercial real estate - Owner Occupied: Current
period gross write-offs
$
0
$
0
$
0
$
0
$
1
$
0
$
0
$
1
Commercial real estate - Non-owner occupied:
Risk Rating
Pass
$
49,177
$
135,433
$
88,188
$
77,713
$
81,079
$
205,729
$
10,744
$
648,063
Special mention
0
0
12,156
0
6,565
9,217
0
27,938
Substandard
0
0
3,972
10,037
3,492
17,794
499
35,794
Total commercial real estate - Non-
owner occupied loans
$
49,177 $
135,433 $
104,316 $
87,750 $
91,136 $
232,740 $
11,243 $
711,795
Commercial real estate - Non-owner occupied:
Current period gross write-offs
$
0
$
0
$
0
$
0
$
144
$
201
$
0
$
345
Commercial real estate - Farmland:
Risk Rating
Pass
$
22,576
$
40,101
$
20,890
$
34,036
$
18,634
$
59,900
$
4,103
$
200,240
Substandard
0
0
330
0
26
2,130
0
2,486
Total commercial real estate - Farmland
loans
$
22,576 $
40,101 $
21,220 $
34,036 $
18,660 $
62,030 $
4,103 $
202,726
Commercial real estate - Farmland: Current period
gross write-offs
$
0
$
0
$
0
$
0
$
0
$
3
$
0
$
3
Commercial real estate - Other:
Risk Rating
Pass
$
68,911
$
56,753
$
47,895
$
9,063
$
8,516
$
23,269
$
1,052
$
215,459
Substandard
0
0
0
8,186
0
132
0
8,318
Total commercial real estate - Other
loans
$
68,911 $
56,753 $
47,895 $
17,249 $
8,516 $
23,401 $
1,052 $
223,777
87
Term Loans Amortized Cost Basis by Origination Year (Continued)
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Total
Commercial - Commercial and industrial:
Risk Rating
Pass
$
90,807 $
85,255
$
40,444
$
21,794
$
9,736
$
23,030
$
63,698
$
334,764
Special mention
0
141
355
21
0
0
129
646
Substandard
195
3,551
980
404
1,077
699
5,503
12,409
Total commercial - Commercial and
industrial loans
$
91,002 $
88,947 $
41,779 $
22,219 $
10,813 $
23,729 $
69,330 $
347,819
Commercial - Commercial and industrial: Current
period gross write-offs
$
0
$
178
$
579
$
11
$
16
$
394
$
0
$
1,178
Commercial - Agricultural:
Risk Rating
Pass
$
13,738
$
17,368
$
8,917
$
3,584
$
1,386
$
1,133
$
12,380
$
58,506
Special mention
0
0
0
0
0
0
17
17
Substandard
0
33
118
225
24
152
0
552
Total commercial - Agricultural loans
$
13,738 $
17,401 $
9,035 $
3,809 $
1,410 $
1,285 $
12,397 $
59,075
Commercial - Agricultural: Current period gross
write-offs
$
0
$
15
$
70
$
3
$
0
$
6
$
0
$
94
Residential real estate - 1-4 family residential:
Payment Performance
Performing
$
63,365 $
171,862
$
164,469
$
132,989
$
49,380
$
254,027
$
3,652
$
839,744
Nonperforming
37
58
312
1,645
115
1,650
0
3,817
Total residential real estate - 1-4 family
residential loans
$
63,402 $
171,920 $
164,781 $
134,634 $
49,495 $
255,677 $
3,652 $
843,561
Residential real estate - 1-4 family residential:
Current period gross write-offs
$
52
$
0
$
49
$
130
$
0
$
129
$
0
$
360
Residential real estate - Home equity lines of
credit:
Payment Performance
Performing
$
0 $
19
$
14
$
111
$
51
$
3,302
$
138,455
$
141,952
Nonperforming
0
26
13
15
0
465
0
519
Total residential real estate - Home
equity lines of credit loans
$
0 $
45 $
27 $
126 $
51 $
3,767 $
138,455 $
142,471
Residential real estate - Home equity lines of
credit: Current period gross write-offs
$
0
$
0
$
0
$
8
$
0
$
16
$
0
$
24
88
Term Loans Amortized Cost Basis by Origination Year (Continued)
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Total
Consumer - Indirect:
Payment Performance
Performing
$
74,425 $
71,705
$
32,528
$
21,163
$
11,395
$
23,223
$
0
$
234,439
Nonperforming
54
108
138
85
26
36
0
447
Total consumer - Indirect loans
$
74,479 $
71,813 $
32,666 $
21,248 $
11,421 $
23,259 $
0 $
234,886
Consumer - Indirect: Current period gross write-
offs
$
33
$
138
$
71
$
35
$
23
$
232
$
0
$
532
Consumer - Direct:
Payment Performance
Performing
$
3,552 $
3,812
$
2,203
$
1,352
$
974
$
11,431
$
366
$
23,690
Nonperforming
0
17
0
65
0
53
0
135
Total consumer - Direct loans
$
3,552 $
3,829 $
2,203 $
1,417 $
974 $
11,484 $
366 $
23,825
Consumer - Direct: Current period gross write-offs
$
11
$
38
$
22
$
51
$
9
$
100
$
0
$
231
Consumer - Other:
Payment Performance
Performing
$
0 $
0
$
60
$
103
$
82
$
278
$
8,636
$
9,159
Nonperforming
0
0
0
0
0
5
0
5
Total consumer - Other loans
$
0 $
0 $
60 $
103 $
82 $
283 $
8,636 $
9,164
Consumer - Other: Current period gross write-offs
$
0
$
0
$
0
$
0
$
0
$
20
$
149
$
169
The Company follows ASU 2016-13 to calculate the allowance for credit losses which requires estimating credit losses over the lifetime of the credits. The ACL
is adjusted through the provision for credit losses and reduced by net charge offs of loans. Although the Company has a diversified loan portfolio, the credit risk
in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors operate, and the resulting
impact on the operations of borrowers or on the value of any underlying collateral.
The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s loan portfolio segments. These segments are
disaggregated into the loan pools for monitoring. A model of risk characteristics, such as loss history and delinquency experience, trends in past due and non-
performing loans, as well as existing economic conditions and supportable forecasts are used to determine credit loss assumptions.
The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD. Cohort relies on the creation of cohorts to capture loans that
qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company
aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but are not
limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The
Company uses cohort primarily for consumer loan portfolios.
The probability of default portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly, charged-off.
Typically, a one-year time period is used to assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply
PDs. Loss given default is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or
89
influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
The following table presents the loan pools and the associated methodology used during the calculation of the allowance for credit losses in 2024.
Portfolio Segments
Loan Pool
Methodology
Loss Drivers
Residential real estate
1-4 Family Residential Real Estate - 1st Liens
Cohort
Credit Loss History
1-4 Family Residential Real Estate - 2nd Liens
Cohort
Credit Loss History
Home Equity Lines of Credit
Home Equity Lines of Credit
Cohort
Credit Loss History
Consumer Finance
Cash Reserves
Cohort
Credit Loss History
Direct
Cohort
Credit Loss History
Indirect
Cohort
Credit Loss History
Commercial
Commercial and Industrial
PD/LGD
Credit Loss History
Agricultural
PD/LGD
Credit Loss History
Municipal
PD/LGD
Credit Loss History
Commercial real estate
Owner Occupied
PD/LGD
Credit Loss History
Non-Owner Occupied
PD/LGD
Credit Loss History
Multifamily
PD/LGD
Credit Loss History
Farmland
PD/LGD
Credit Loss History
Construction
PD/LGD
Credit Loss History
According to accounting standards, an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable
if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to
measure an allowance for credit losses for accrued interest receivables for all loan segments. Current policy dictates that a loan will be placed on nonaccrual
status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral
dependent and the collateral analysis shows insufficient collateral coverage based on a current assessment of the value of the collateral.
In addition, ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the
Company must first establish a loss expectation for extended (funded) commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is
then applied to the portion of unfunded commitments not considered unilaterally cancelable, and considered by the company’s management as likely to fund over
the life of the instrument. At December 31, 2024, the Company had $692 million in unfunded commitments and set aside $1.56 million in anticipated credit
losses. At December 31, 2023, the Company had $753 million in unfunded commitments and set aside $1.84 million in anticipated credit losses. The $61 million
decrease in unfunded commitments and $278 thousand decrease in the reserve for anticipated credit losses is attributed to existing construction loan projects
progressing with advances being made. This reserve is recorded in other liabilities as opposed to the ACL.
The determination of ACL is complex and the Company makes decisions on the effects of factors that are inherently uncertain. Evaluations of the loan portfolio
and individual credits require certain estimates, assumptions and judgments as to the facts and circumstances related to particular situations or credits. The ACL
was $35.9 million at December 31, 2024 and $34.4 million at December 31, 2023. The $1.4 million increase is attributed to an increase to the specific reserve
related to a non-owner occupied commercial real estate relationship, updates to the Company's delay periods that impacted the loss ratios of certain loan pools
under the Cohort methodology, and increased Portfolio Composition and Growth qualitative factors due to increasing loan balances. These factors were partially
offset by the reduction of the specific reserve related to a loan settlement, reduction of the specific reserve related to a payoff of another individually evaluated
relationship, and improved loss rates for certain loan pools under the PD/LGD methodology.
90
Purchased Loans
As a result of the Emclaire merger, the Company acquired $740.7 million in loans.
2023
Par value of acquired loans at acquisition
$
797,616
Net purchase discount
(55,958 )
Allowance for credit losses of PCD loans
(999 )
Purchase price of loans at acquisition
$
740,659
Under ASC Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as purchase credit
deteriorated ("PCD"). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the
ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the
income statement. During 2024, the Company has not acquired any additional PCD loans. The outstanding balance at December 31, 2024 and 2023 and related
allowance on PCD loans is as follows (in thousands):
2024
2023
December 31, 2024
Loan Balance
ACL Balance
Loan Balance
ACL Balance
Commercial real estate
Owner Occupied
$
333 $
11 $
430 $
19
Non-owner Occupied
26,890
420
30,653
914
Farmland
3
0
9
0
Commercial
Commercial and industrial
1,561
115
2,229
158
Agricultural
117
8
149
9
Residential real estate
1-4 family residential
1,264
7
1,211
7
Home equity lines of credit
3
0
3
0
Total
$
30,171 $
561 $
34,684 $
1,107
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. ASC 606 rules govern the disclosure of
revenue tied to contracts. The following table presents the Company’s noninterest income by revenue stream and reportable segment, net of eliminations, for the
years ended December 31, 2024, 2023 and 2022.
(In Thousands of Dollars)
Trust
Segment
Bank
Segment
Totals
December 31, 2024
Service charges on deposit accounts
$
0
$
7,311
$
7,311
Debit card and EFT fees
0
7,484
7,484
Trust fees
10,099
0
10,099
Insurance agency commissions
0
5,472
5,472
Retirement plan consulting fees
2,637
0
2,637
Investment commissions
0
2,007
2,007
Other (outside the scope of ASC 606)
0
6,706
6,706
Total noninterest income
$
12,736
$
28,980
$
41,716
91
(In Thousands of Dollars)
Trust
Segment
Bank
Segment
Totals
December 31, 2023
Service charges on deposit accounts
$
0
$
6,322
$
6,322
Debit card and EFT fees
0
7,059
7,059
Trust fees
9,047
0
9,047
Insurance agency commissions
0
5,444
5,444
Retirement plan consulting fees
2,467
0
2,467
Investment commissions
0
1,978
1,978
Other (outside the scope of ASC 606)
0
9,544
9,544
Total noninterest income
$
11,514
$
30,347
$
41,861
(In Thousands of Dollars)
Trust
Segment
Bank
Segment
Totals
December 31, 2022
Service charges on deposit accounts
$
0
$
4,716
$
4,716
Debit card and EFT fees
0
5,814
5,814
Trust fees
8,460
0
8,460
Insurance agency commissions
0
4,402
4,402
Retirement plan consulting fees
2,567
0
2,567
Investment commissions
0
2,183
2,183
Other (outside the scope of ASC 606)
8,375
7,685
16,060
Total noninterest income
$
19,402
$
24,800
$
44,202
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 and 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 and EFT 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 or EFT 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.
92
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 estimating potential refunds due to the likely cancellation of a
percentage of customers canceling their policies and recording revenue at the time of policy renewals.
Retirement Plan Consulting Fees – 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 on a deferred revenue account, and recorded into income when the fees are earned.
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.
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. There
was a one-time legal settlement of $8.4 million in 2022. 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 both the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan
Bank (FHLB) of Pittsburgh. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year-end are as follows:
2024
2023
Mortgage loan portfolios serviced for:
FHLMC
$
554,779
$
544,140
FHLB Pittsburgh
26,063
28,405
Ending balance
$
580,842
$
572,545
Custodial escrow balances maintained in connection with serviced loans were $5.3 million at December 31, 2024 and $4.8 million at December 31, 2023.
93
Mortgage servicing rights are recorded on the balance sheets as other assets. Activity for mortgage servicing rights for years ended December 31, 2024, 2023 and
2022 are as follows:
2024
2023
2022
Servicing rights:
Beginning balance
$
3,452
$
3,331
$
3,403
Additions
644
588
960
Acquired in merger
0
305
0
Amortization to expense
(968 )
(735 )
(1,015 )
Total servicing rights before valuation allowance
$
3,128
$
3,489
$
3,348
Change in valuation allowance
(35 )
(37 )
(17 )
Ending balance
$
3,093
$
3,452
$
3,331
Fair value at year end 2024 was determined using discount rates ranging from 9% to 11% and prepayment speeds ranging from 100 PSA to 870 PSA (Public
Securities Association Standard Prepayment Model), depending on the stratification of the specific mortgage servicing right. Fair value at year end 2023 was
determined using discount rates ranging from 9% to 11% and prepayment speeds ranging from 100 PSA to 418 PSA, depending on the stratification of the
specific mortgage servicing right.
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. The Company’s service provider uses a leading
evaluation pricing service for U.S. domestic fixed income securities and values securities using exit pricing requirements. The Company independently
corroborates the fair value received through this pricing service by obtaining the pricing through a second source. The fair values for investment securities, which
consist of equity securities that are recorded at fair value to comply with exit pricing, are determined by quoted market prices in active markets, if available
(Level 1). The equity securities change in fair value is recorded in the income statement. 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, prepayment speeds, credit risks and
default rates. The inputs used are principally derived 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
94
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.
At December 31, 2024, the Company determined that no securities had a fair value less than amortized cost that was as a result of credit deterioration as outlined
in ASU 2016-13.
Loans Held For Sale, at Fair Value
The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors (Level 2).
Mortgage Banking Derivatives
The fair value of mortgage banking derivatives are calculated using derivative valuation models that utilize quoted prices for similar assets adjusted for the
specific attributes of the commitments and other observable market data at the valuation date (Level 2).
Loan Servicing Rights
Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount at the end of each quarter. If the
carrying amount of an individual tranche exceeds the fair value then an impairment is recorded on that tranche so that the servicing asset is carried at fair value.
The calculation of the fair value is performed by an independent third party and the model uses factors such as the interest rate, prepayment speeds and other
default rate assumptions that market participants would use in estimating the future net servicing income that can be validated against available market data
(Level 2).
Interest Rate Swaps
The Company periodically enters into interest rate swap agreements with its commercial customers who desire a fixed rate loan term that is longer than the
Company is willing to extend. The Company enters into a reciprocal swap agreement with a third party that offsets the interest rate risk from the interest rate
extended to the customer. The fair value of these interest rate swap derivative instruments is calculated by an independent third party and are based upon
valuation models that use observable market data as of the measurement date. (Level 2).
The Company also entered into a fair value hedge to mitigate the risk of further interest rate increases and the subsequent impact on the valuation of the
company’s state and political subdivision municipal bond portfolio. The Company uses an independent third party to perform a market valuation analysis for this
derivative (Level 2).
Collateral Dependent Loans
Fair value estimates of collateral dependent loans that are individually reviewed are based on the fair value of the collateral, less estimated costs to sell. Loans
carried at fair value generally received individual allocations of the allowance for credit losses in 2024 and 2023. For collateral dependent loans, fair value is
commonly based on recent real estate appraisals or in quoted sales price in certain instances. 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. Adjustments to a quoted price are routinely made to factor in data that affect the
marketability of the collateral. Such adjustments, in both instances, 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. These loans are evaluated on a quarterly basis and adjusted
accordingly.
95
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 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, 2024 Using:
Carrying
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities
$
115,107 $
0
115,107 $
0
State and political subdivisions
504,880
0
504,880
0
Corporate bonds
17,448
0
16,039
1,409
Mortgage-backed securities
492,867
0
492,867
0
Collateralized mortgage obligations
133,776
0
133,776
0
Small Business Administration
2,475
0
2,475
0
Total investment securities
$
1,266,553
$
0
$
1,265,144
$
1,409
Equity securities
$
277
$
277
$
0
$
0
Loans held for sale
5,005
0
5,005
0
Interest rate swaps
3,766
0
3,766
0
Interest rate lock commitments
19
0
19
0
Mortgage banking derivative
17
0
17
0
Financial Liabilities
Interest rate swaps
$
3,766
$
0
$
3,766
$
0
Fair value hedge derivative
168
0
168
0
96
Fair Value Measurements at December 31, 2023 Using:
Carrying
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities
$
127,955 $
0
127,955 $
0
State and political subdivisions
556,169
0
556,169
0
Corporate bonds
18,275
0
16,935
1,340
Mortgage-backed securities
520,386
0
520,386
0
Collateralized mortgage obligations
73,999
0
73,999
0
Small Business Administration
2,917
0
2,917
0
Total investment securities
$
1,299,701
$
0
$
1,298,361
$
1,340
Equity securities
$
226
$
226
$
0
$
0
Loans held for sale
3,711
0
3,711
0
Interest rate swaps
4,191
0
4,191
0
Interest rate lock commitments
109
0
109
0
Financial Liabilities
Interest rate swaps
$
4,191
$
0
$
4,191
$
0
Fair value hedge derivative
836
0
836
0
Mortgage banking derivative
14
0
14
0
There were no significant transfers between Level 1 and Level 2 during 2024 or 2023.
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)
2024
2023
2022
Beginning Balance
$
1,340 $
1 $
3
Transfers between levels
0
0
0
Acquired and/or purchased
0
1,600
0
Discount accretion (premium amortization)
54
48
0
Repayments, calls and maturities
15
(401 )
(2 )
Changes to unrealized gains (losses)
0
92
0
Ending Balance
$
1,409
$
1,340
$
1
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, 2024 Using:
Carrying
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial Assets
Individually Evaluated loans
Commercial real estate
Non-Owner occupied
$
7,286
$
0
$
0
$
7,286
Commercial and industrial
2,418
0
0
2,418
1–4 family residential
1,132
0
0
1,132
Mortgage servicing rights
403
0
403
0
97
Fair Value Measurements
at December 31, 2023 Using:
Carrying
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial Assets
Individually Evaluated loans
Commercial real estate
Non-Owner occupied
$
838
$
0
$
0
$
838
Commercial and industrial
267
0
0
267
1–4 family residential
1547
0
0
1547
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 2024 and 2023:
December 31, 2024
Fair value
Valuation
Technique(s)
Unobservable
Input(s)
Range
Weighted Average
Individually Evaluated
Commercial real estate
$
7,286
Income approach
Adjustment for difference between cap
rates of comparable sales
(56.03%) - 69.02%
(40.71%)
Commercial
2,418
Quoted price for collateral
Offer price
6.67%
Residential
1,132
Sales comparison
Adjustment for differences between
comparable sales
(8.91%) - 6.22%
(7.16%)
December 31, 2023
Fair value
Valuation
Technique(s)
Unobservable
Input(s)
Range
Weighted Average
Individually Evaluated
Commercial real estate
$
838
Income approach
Adjustment for difference between cap
rates of comparable sales
(49.65%) - 46.77%
(16.63%)
Commercial
267
Quoted price for collateral
Offer price
64.38%
Residential
1,547
Sales comparison
Adjustment for differences between
comparable sales
(5.39%) - (2.11%)
(2.67%)
98
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments not previously presented, at December 31, 2024 and December 31, 2023 are as follows:
Fair Value Measurements at December 31, 2024 Using:
Carrying
Amount
Level 1
Level 2
Level 3
Total
Financial assets
Cash and cash equivalents
$
85,738
$
20,426
$
65,312
$
0 $
85,738
Regulatory stock
30,669
n/a
n/a
n/a
n/a
Loans, net
3,232,483
0
0
3,082,292
3,082,292
Financial liabilities
Deposits
4,266,779
3,429,116
835,967
0
4,265,083
Short-term borrowings
305,000
0
305,000
0
305,000
Long-term borrowings
86,150
0
78,721
0
78,721
Fair Value Measurements at December 31, 2023 Using:
Carrying
Amount
Level 1
Level 2
Level 3
Total
Financial assets
Cash and cash equivalents
$
103,658
$
28,896
$
74,762
$
0 $
103,658
Regulatory stock
20,197
n/a
n/a
n/a
n/a
Loans, net
3,163,687
0
0
3,015,732
3,015,732
Financial liabilities
Deposits
4,177,386
3,452,104
719,497
0
4,171,601
Short-term borrowings
355,000
0
355,000
0
355,000
Long-term borrowings
88,663
0
70,893
0
70,893
NOTE 8 – PREMISES AND EQUIPMENT
Year-end premises and equipment owned and utilized in the operations of the Company were as follows:
2024
2023
Land
$
9,514
$
10,134
Buildings
49,479
40,291
Furniture, fixtures and equipment
21,657
20,281
Leasehold Improvements
4,163
3,440
84,813
74,146
Less accumulated depreciation
(32,539)
(29,782)
Net book value
$
52,274
$
44,364
Depreciation expense was $3.1 million for year ended December 31, 2024, $3.4 million for the year ended December 31, 2023 and $2.5 million for the year
ended December 31, 2022.
99
NOTE 9 – LEASES
The Company has operating leases for branch office locations, vehicles and certain office equipment such as printers and copiers. The leases have remaining
lease terms of up to 16.6 years, some of which include options to extend the lease for up to 15 years, while other leases have the option to terminate in March of
2025. The Beachwood branch lease located at 24755 Chagrin Blvd. was terminated effective January, 31 2025, and the Branch was moved into a new location at
22835 Chagrin Blvd on February 3, 2025. This new lease location was effective in December of 2024, with an initial right of use asset and lease liability
recorded of $971 thousand.
The right of use asset and lease liability were $9.7 million and $9.9 million as of December 31, 2024, respectively, and $8.8 million and $9.0 million as of
December 31, 2023, respectively. The right of use asset is included in other assets and the lease liability is included in other liabilities on the balance sheet.
Lease expense for the years ended December 31, 2024, 2023 and 2022 was $1.4 million, $1.2 million and $1.0 million, respectively. The weighted-average
remaining lease term for all leases was 9.97 and 10.97 years as of December 31, 2024 and 2023. The weighted-average discount rate was 3.33% and 2.99% for
all leases as of December 31, 2024 and 2023.
On January 1, 2023, the Company performed a valuation of Emclaire’s leases to determine an initial right of use asset (ROU asset) and lease liability in
connection with the Merger. The Company recorded and initial ROU asset and lease liability of $1.3 million for these leases.
Maturities of lease liabilities are as follows as of December 31, 2024:
2025
$
1,393
2026
1,279
2027
1,198
2028
1,214
2029
1,110
Thereafter
5,652
Total Payments
11,846
Less: Imputed Interest
(1,904 )
Total
$
9,942
NOTE 10 – GOODWILL AND INTANGIBLE ASSETS
Goodwill associated with the Company’s purchases of Crest in December 2024, Emlenton in January 2023 and other past acquisitions totaled $167.5 million at
December 31, 2024 and $167.4 million at December 31, 2023. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which
is determined through an impairment test. Management performs goodwill impairment testing on an annual basis as of September 30, or whenever events or
changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. As of September 30, 2024, no events or changes in
circumstances indicated that the fair value of the reporting unit was below its carrying value. The Company will continue to monitor its goodwill for possible
impairment.
100
Acquired Intangible Assets
Acquired intangible assets were as follows:
2024
2023
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Other intangible:
Customer relationship intangibles
$
7,975 $
(7,088 ) $
7,210 $
(6,953 )
Non-compete contracts
457
(426 )
457
(413 )
Trade Name
1,131
(468 )
1,126
(440 )
Core deposit intangible
32,115
(12,946 )
32,115
(10,260 )
Total
$
41,678 $
(20,928 ) $
40,908 $
(18,066 )
Aggregate intangible amortization expense was $2.9 million for 2024, $3.4 million for 2023 and $2.0 million for 2022.
Estimated amortization expense for each of the next five years and thereafter:
2025
$
2,899
2026
2,798
2027
2,684
2028
2,674
2029
2,665
Thereafter
7,030
Total
$
20,750
NOTE 11 - DEPOSITS
Following is a summary of year-end deposits:
2024
2023
Noninterest-bearing demand
$
965,507
$
1,026,630
Interest-bearing demand
1,366,255
1,362,609
Money market
682,558
593,975
Savings
414,796
468,890
Brokered time deposits
74,951
0
Certificates of deposit
762,712
725,282
Total
$
4,266,779
$
4,177,386
Time deposits of $250 thousand or more were $290.3 million and $258.2 million at year-end 2024 and 2023, respectively.
101
Following is a summary of scheduled maturities of brokered deposits and certificates of deposit during the years following December 31, 2024:
2025
$
790,004
2026
21,574
2027
9,018
2028
4,098
2029
6,550
Thereafter
6,419
Total
$
837,663
NOTE 12 – SHORT-TERM BORROWINGS
The Bank had short-term advances from the Federal Home Loan Bank ("FHLB") of $305.0 million at December 31, 2024 and $70.0 million at December 31,
2023. The interest rate on these borrowings was 4.45% at December 31, 2024 and 5.41% at December 31, 2023. Both of these short-term borrowings were
borrowed using the FHLB's overnight repurchase advance program, as this product allows the most flexibility to meet the Bank's varying liquidity needs. These
FHLB advances are secured by pledged assets which are described in the following Long-Term Borrowings footnote.
In addition, at December 31, 2023 the Bank had $285.0 million in short-term borrowings, which were scheduled to mature in December 2024. The interest rate
on this borrowing was fixed at 4.83%. The borrowings were secured by securities with a par value of $298.1 million. The Bank did not have any of these
borrowings at December 31, 2024.
The Bank has access to a line of credit for $25.0 million at a major domestic bank that is below prime rate. The line and terms are periodically reviewed by the
lending bank and is generally subject to withdrawal at their discretion. There were no borrowings under this line at December 31, 2024 and 2023.
Farmers has one unsecured revolving line of credit for $5.0 million. This line can be renewed annually and has an interest rate of prime with a floor of 3.5%.
There was no outstanding balance on this line at both December 31, 2024 and 2023.
NOTE 13 – LONG-TERM BORROWINGS
There were no long-term advances from the FHLB at either December 31, 2024 or December 31, 2023.
Long-term and short-term FHLB advances are secured by a blanket pledge of residential mortgage, commercial real estate, and multi-family loans totaling $1.7
billion at December 31, 2024 and $1.6 billion at December 31, 2023. Based on this collateral, the Bank is eligible to borrow an additional $549.7 million at
December 31, 2024.
In November 2021, the Company completed the issuance of $75.0 million aggregate principal amount, fixed-to-floating rate subordinated notes due December
15, 2031, in a private offering exempt from the registration requirements under the Securities Act of 1933, as amended. The notes carry a fixed rate of 3.125% for
five years at which time they will convert to a floating rate based on the three-month term secured overnight funding rate, plus a spread of 220 basis points. The
net proceeds from the sale were approximately $73.8 million, after deducting the offering expenses. The Company’s intent was to use the proceeds from the sale
for general corporate purposes, which may include, without limitation, providing capital to support its growth organically or through acquisitions, in financing
investments, capital expenditures, repurchasing its common shares and for investments in the Bank as regulatory capital. The subordinated debentures are
included in Total Capital under current regulatory guidelines and interpretations.
102
In August 2024, the Company bought back and retired $3 million of the outstanding subordinated notes. The Company may, at its option, beginning December
15, 2026, redeem additional portions of the notes, in whole or in part, from time to time, subject to certain conditions.
On November 1, 2021, the Company completed its acquisition of Cortland, which included the assumption of Floating Rate Junior Subordinated Debt Securities
due in September 15, 2037 (the “junior subordinated debt securities”) at an acquisition-date fair value of $4.3 million, held in a wholly-owned statutory trust
whose common securities were wholly-owned by Cortland. The sole assets of the statutory trust are the junior subordinated debt securities and related payments.
The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the
statutory trust under the capital securities held by third-party investors. The securities bear interest at a rate of 1.45% over the 3-month term Secured Overnight
Financing Rate (“SOFR”) rate that includes an additional spread adjustment of 26 basis points. The rate at December 31, 2024 was 6.07% and at December 31,
2023 the rate was 7.10%.
On January 7, 2020, the Company completed its acquisition of Maple Leaf, which included the assumption of Floating Rate Junior Subordinated Debt Securities
due December 15, 2036 (the “junior subordinated debt securities”) held in a wholly-owned statutory trust whose common securities were wholly-owned by
Maple Leaf. The sole assets of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the
back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital securities held by
third-party investors. The securities bear interest at a rate of 1.70% over the 3-month term SOFR rate that includes an additional spread adjustment of 26 basis
points. The rate at December 31, 2024 was 6.42% and at December 31, 2023 the rate was 7.45%.
In 2015, the Company completed its acquisition of National Bancshares Corporation, which included the assumption of Floating Rate Junior Subordinated Debt
Securities due June 15, 2035 (the “junior subordinated debt securities”) held in a wholly-owned statutory trust, TSEO Statutory Trust I. The sole assets of the
statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the back-up obligations, in the
aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital securities held by third-party investors. The
securities bear interest at a rate of 1.80% over the 3-month term SOFR rate that includes an additional spread adjustment of 26 basis points. The rate at December
31, 2024 was 6.32% and at December 31, 2023 the rate was 7.35%.
In all three instances, the Company may redeem the junior subordinated debentures at any quarter-end, in whole, or in part, at par. This type of subordinated
debenture qualifies as Tier 1 capital for regulatory purposes in determining and evaluating the Company’s capital adequacy.
A summary of all junior subordinated debentures issued by the Company to affiliates and subordinated debentures follows. For the junior subordinated
debentures, these amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts along with any
unamortized fair value marks. For the subordinated debentures, these amounts represent the par value less the remaining deferred offering expense associated
with the issuance of the debentures. Balances were as follows at December 31, 2024 and 2023:
2024
2023
Amount
Amount
TSEO Statutory Trust I
$
2,570
$
2,521
Maple Leaf Financial Statutory Trust II
7,964
7,740
Cortland Statutory Trust I
4,437
4,382
Total junior subordinated debentures owed to unconsolidated subsidiary trusts
$
14,971
$
14,643
Subordinated debentures
71,179
74,020
Total long-term borrowings
$
86,150
$
88,663
103
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:
2024
2023
Fixed Rate
Variable Rate
Fixed Rate
Variable Rate
Commitments and unused lines of credit
$
114,603 $
622,379 $
150,697 $
647,843
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 2.5% to 21.90% at December 31, 2024 and 2023. Commitments and fixed rate unused lines of credit have a maturity range of January 16, 2025 through
May 5, 2056 as of December 31, 2024, and January 15, 2024 through May 1, 2055 as of December 31, 2023.
Standby letters of credit are considered financial guarantees. The standby letters of credit have a contractual value of $6.4 million at December 31, 2024 and $6.8
million at December 31, 2023. The carrying amount of these items is not material to the balance sheet.
Additionally, the Company has committed up to a $20.2 million subscription in SBIC investment funds. At December 31, 2024, the Company had invested $16.6
million in these funds.
NOTE 15 – STOCK BASED COMPENSATION
In April of 2022, the Company, with the approval of shareholders, created the 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan permits the award of
up to one million 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 the Company’s executives with those of the Company’s shareholders. The 2022 Plan has replaced the 2017 Plan. There were 87,925
service time based share awards and 99,253 performance based share awards granted under the 2022 Plan during the year ended December 31, 2024, 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, 2026. As of December 31, 2024, 547,681 shares are still available
to be awarded from the 2022 Plan. The 2017 Plan has been sunset.
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 the grant. Expense
recognized was $2.6 million for 2024 and 2023 and $1.8 million for 2022, respectively. As of December 31, 2024, there was $2.5 million of total unrecognized
compensation expense related to the nonvested shares granted under the Plan. The remaining cost is expected to be recognized over 2.2 years.
The following is the activity under the Plan during 2024:
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
253,776
$
14.97
209,484
$
15.01
Granted
87,925
13.28
99,253
13.81
Vested
(93,104 )
12.79
(66,192 )
13.79
Forfeited
(17,167 )
16.01
(19,625 )
15.05
Ending balance - non-vested shares
231,430
$
14.35
222,920
$
14.57
104
The following is the activity under the Plan during 2023:
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
193,015
$
16.69
137,369
$
15.85
Granted
105,891
10.63
102,750
14.16
Vested
(41,401 )
12.78
(30,635 )
14.35
Forfeited
(3,729 )
14.65
0
0.00
Ending balance - non-vested shares
253,776
$
14.97
209,484
$
15.01
The 159,296 shares that vested in 2024 had a weighted average fair value of $13.21 per share. The total fair value of shares vested during the years ended
December 31, 2024, 2023 and 2022 was $2.1 million, $969 thousand and $1.7 million, respectively.
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. 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. The net
unrealized gain or loss on available for sale securities is not included in computing of regulatory capital. Management believes that as of December 31, 2024, 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 is 2.5% for the years of 2024 and 2023. The buffer requires an additional capital amount of $93.3 million
at year-end 2024 and an additional $92.4 million at year-end 2023. 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 2024 and 2023, 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.
105
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 2024, the Bank could, without prior approval, declare dividends of approximately $83.6
million plus any 2025 net profits retained to the date of the dividend declaration. In order to practice trust powers, Farmers Trust must maintain minimum capital
of $3 million. Farmers Trust would also be able to, without prior approval, declare dividends of $2.0 million plus any 2025 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
Requirement For Capital
Adequacy Purposes:
To be Well Capitalized
Under Prompt Corrective
Action Provisions:
Amount
Ratio
Amount
Ratio
Amount
Ratio
2024
Common equity tier 1 capital ratio
Consolidated
$
415,825
11.14 % $
167,991
4.5 %
N/A
N/A
Bank
442,747
11.88 %
167,712
4.5 %
242,251
6.5 %
Total risk based capital ratio
Consolidated
543,250
14.55 %
298,651
8.0 %
N/A
N/A
Bank
480,173
12.88 %
298,155
8.0 %
372,694
10.0 %
Tier I risk based capital ratio
Consolidated
433,825
11.62 %
223,988
6.0 %
N/A
N/A
Bank
442,747
11.88 %
223,616
6.0 %
298,155
8.0 %
Tier I leverage ratio
Consolidated
433,825
8.36 %
207,544
4.0 %
N/A
N/A
Bank
442,747
8.55 %
207,066
4.0 %
258,832
5.0 %
2023
Common equity tier 1 capital ratio
Consolidated
$
392,244
10.61 % $
166,303
4.5 %
N/A
N/A
Bank
411,304
11.15 %
165,996
4.5 %
239,772
6.5 %
Total risk based capital ratio
Consolidated
519,684
14.06 %
295,650
8.0 %
N/A
N/A
Bank
447,584
12.13 %
295,104
8.0 %
368,881
10.0 %
Tier I risk based capital ratio
Consolidated
410,244
11.10 %
221,737
6.0 %
N/A
N/A
Bank
411,304
11.15 %
221,328
6.0 %
295,104
8.0 %
Tier I leverage ratio
Consolidated
410,244
8.02 %
204,598
4.0 %
N/A
N/A
Bank
411,304
8.07 %
203,989
4.0 %
254,986
5.0 %
106
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 $1.1 million, $1.0 million and $870 thousand for the years ended December 31, 2024, 2023
and 2022, 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 expense for the profit sharing program was $252 thousand for the year ended December 31, 2024, $0
for the year ended December 31, 2023 and $207 thousand for the year ended December 31, 2022.
The Company maintains a deferred compensation plan for certain retirees. Expense under the plan was $4 thousand for the year ended December 31, 2024. The
expense was $5 thousand and $6 thousand for the years ended December 31, 2023 and 2022, respectively. The liability under the deferred compensation plan at
December 31, 2024 was $59 thousand and $71 thousand at December 31, 2023.
The Company has 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 $4.2 million and
$3.4 million for the years ended December 31, 2024 and 2023, 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, 2024 and 2023 was $742 thousand and $751 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 the plan of $60 thousand and $36 thousand was recorded in 2024 and 2023, respectively. A benefit was recognized under this plan of $105
thousand in 2022.
As part of the Cortland acquisition, the Company has supplemental retirement benefit plans for the benefit of certain officers and non-officer directors. The plan
for officers is designed to provide post-retirement benefits to supplement other sources of retirement income such as social security and 401(k) benefits. The
benefits will be paid for a period of 15 years after retirement. Director Retirement Agreements provide for a benefit of $10 thousand annually on, or after, the
director reaches normal retirement age, which is based on a combination of age and years of service. Director retirement benefits are paid over a period of 10
years following retirement. The Company accrued the cost of these post-retirement benefits during the working careers of the officers and directors. At
December 31, 2024, the accumulated liability for these benefits totaled $972 thousand, with $818 thousand accrued for the officers’ plan and $154 thousand for
the directors’ plan. At December 31, 2023, the accumulated liability for these benefits totaled $1.0 million, with $870 thousand accrued for the officers’ plan and
$148 thousand for the directors’ plan. Expense recognized for these plans was $36 thousand in 2024, $37 thousand in 2023 and $87 thousand in 2022. Benefits
expected to be paid in 2025 are $81 thousand.
To fund the above obligations, the Company has insurance contracts on the lives of the participants and directors in the supplemental retirement benefit plans
with the Company as the beneficiary. In the case of directors and a small group of employee participants, postretirement split dollar life insurance coverage was
accrued for during the service years. The liability at December 31, 2024 and 2023 was $222 thousand and $231 thousand, respectively. The benefit recorded
was $9 thousand in 2024, $7 thousand in 2023 and $5 thousand in 2022.
107
As part of the Emclaire acquisition, the Company maintains a SERP to provide certain additional retirement benefits to participating officers. The SERP is
subject to certain vesting provisions and provides that the officers shall receive a supplemental retirement benefit if the officer’s employment is terminated after
reaching the normal retirement age of 65, with benefits also payable upon death, disability, a change of control or a termination of employment prior to normal
retirement age. At December 31, 2024, the accumulated liability for these plans totaled $807 thousand. At December 31, 2023, the accumulated liability for
these plans totaled $846 thousand. Expenses recognized for these plans was $23 thousand in 2024 and in 2023 the benefit recognized on these plans was $37
thousand. Benefits expected to be paid in 2025 are $62 thousand.
NOTE 18 – INCOME TAXES
The provision for income taxes (credit) consists of the following:
2024
2023
2022
Current expense
$
7,089 $
9,230 $
10,885
Deferred expense (benefit)
2,389
(464)
1,353
Totals
$
9,478 $
8,766 $
12,238
Effective tax rates differ from the federal statutory rate of 21% that were applied to income before income taxes due to the following:
2024
2023
2022
Statutory tax
$
11,640 $
12,327 $
15,295
Effect of nontaxable interest
(1,771)
(2,040)
(2,591)
Bank owned life insurance, net
(558)
(513)
(380)
Tax credit investments
(565)
(366)
(194)
Effect of nontaxable insurance premiums
0
(404)
(318)
Stock compensation
28
41
(63)
Other
704
(279)
489
Actual tax
$
9,478 $
8,766 $
12,238
108
Deferred tax assets (liabilities) are comprised of the following:
2024
2023
Deferred tax assets:
Allowance for credit losses
$
7,548
$
7,235
Net unrealized loss on securities available for sale
51,267
45,599
Net unrealized loss on swap derivative
107
269
Basis in investment securities
6,551
6,976
Purchase accounting adjustments
2,797
4,147
Deferred and accrued compensation
2,310
2,060
Nonaccrual loan interest income
358
659
Restricted stock
856
795
Lease liabilities
2,340
2,164
Other
0
198
Gross deferred tax assets
$
74,134
$
70,102
Deferred tax liabilities:
Depreciation and amortization
$
(1,738)
$
(1,701)
Mortgage servicing rights
(651)
(725)
Prepaid expenses
(45)
(41)
Lease right of use asset
(2,281)
(2,116)
Other
(783)
0
Gross deferred tax liabilities
(5,498)
(4,583)
Net deferred tax asset
$
68,636
$
65,519
No valuation allowance for deferred tax assets was recorded at December 31, 2024 and 2023.
At December 31, 2024 and December 31, 2023, 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.
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 2021.
The tax years 2021—2023 remain open to examination by the U.S. taxing authority.
109
NOTE 19 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table represents the changes in accumulated other comprehensive income (loss) by component, net of tax, for the years ended December 31, 2024
and 2023.
Net unrealized
holding (losses)
gains on
available for
sale securities
Reclassification
adjustment for
(gains) losses
realized in
income on fair
value hedge
Change in
funded status of
post-retirement
plan
Total
December 31, 2024
Beginning balance
$
(171,539 )
$
(1,013 )
$
(2 )
$
(172,554 )
Other comprehensive (loss) before reclassification
(23,439 )
0
0
(23,439 )
Amounts reclassified from accumulated other comprehensive income
2,118
610
0
2,728
Net current period other comprehensive (loss) income
(21,321 )
610
0
(20,711 )
Ending balance
$
(192,860 )
$
(403 )
$
(2 )
$
(193,265 )
December 31, 2023
Beginning balance
$
(210,489 )
$
0
$
(1 )
$
(210,490 )
Other comprehensive income (loss) before reclassification
38,557
0
(1 )
38,556
Amounts reclassified from accumulated other comprehensive income (loss)
393
(1,013 )
0
(620 )
Net current period other comprehensive income (loss)
38,950
(1,013 )
(1 )
37,936
Ending balance
$
(171,539 )
$
(1,013 )
$
(2 )
$
(172,554 )
Amounts reclassified out of each component of accumulated other comprehensive income (loss) were not material for the years ended December 31, 2024, 2023,
and 2022.
NOTE 20 – RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates during 2024 and 2023 were as follows:
2024
2023
Beginning balance
$
12,954 $
10,491
New loans
23,250
4,404
Repayments
(2,754)
(1,941)
Ending balance
$
33,450 $
12,954
Deposits from principal officers, directors, and their affiliates at year-end 2024 and 2023 were $13.6 million and $13.4 million.
110
NOTE 21 – EARNINGS PER SHARE
The factors used in the earnings per share computation follow:
2024
2023
2022
Basic EPS
Net income
$
45,949
$
49,932
$
60,597
Weighted average shares outstanding
37,327,848
37,384,122
33,844,945
Basic earnings per share
$
1.23
$
1.34
$
1.79
Diluted EPS
Net income
$
45,949
$
49,932
$
60,597
Weighted average shares for basic earnings per share
37,327,848
37,384,122
33,844,945
Average unvested restricted stock awards
184,037
114,147
83,994
Weighted average shares for diluted earnings per share
37,511,885
37,498,269
33,928,939
Diluted earnings per share
$
1.22
$
1.33 $
1.79
There were 41,884, 194,599 and 201,080 restricted stock awards that were considered anti-dilutive at year-end 2024, 2023 and 2022, respectively.
NOTE 22 – DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Swaps
The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a variable rate loan while
creating a fixed rate loan for the customer by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk
exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans
with a notional value of $65.7 million and fair value of $3.8 million in other assets and $3.8 million in other liabilities at December 31, 2024. At December 31,
2023 the Company had interest rate swaps associated with commercial loans with a notional value of $63.9 million and fair value of $4.2 million in other assets
and $4.2 million in other liabilities. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815. As the
interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not
result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact
earnings as required by FASB ASC 820.
There were no net gains or losses for interest rate swaps for the years ended December 31, 2024 and 2023.
111
Interest Rate Swap Designated as a Fair Value Hedge
The Company has one interest rate swap with a notional amount of $100.0 million that was in place for both of the years ended December 31, 2024 and 2023.
This swap is designated as a fair value hedge to mitigate the risk of further interest rate increases and the subsequent impact on the valuation of the company’s
state and political subdivision municipal bond portfolio. The gross aggregate fair value of the swap at December 31, 2024 was $(168) thousand and is recorded as
a $418 thousand mark to market adjustment in other liabilities, and $250 thousand recorded to other assets for the accrued interest receivable in the Consolidated
Balance Sheets. At December 31, 2023, the gross aggregate fair value of the swap of $(836) thousand was recorded as a $1.3 million mark to market adjustment
in other liabilities, and $425 thousand recorded to other assets for the accrued interest receivable. The Company expects the hedge to remain in effect for the
remaining term of the swap, which matures August 2026. A summary of the interest rate swap designated as a fair value hedge is presented below:
December 31, 2024
December 31, 2023
Notional amount fair value hedge
$
100,000 $
100,000
Fixed pay rates
4.35%
4.35%
Variable SOFR receive rates
4.49%
5.38%
Remaining maturity (in years)
1.6
2.6
Fair value
$
(168) $
(836)
Mortgage Banking Derivatives
Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of
mortgage loans to third-party investors are considered derivatives. The Company enters into forward commitments for the future delivery of residential mortgage
loans when the interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its
commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships.
The net gains (losses) relating to non-designated derivative instruments used for risk management are included in Net Gains on Sale of Loans on the Consolidated
Statements of Income and are summarized below for the years ended December 31:
2024
2023
2022
Forward sales contracts
$
31 $
(45) $
362
Interest rate lock commitments
(89)
87
21
The following table reflects the amount and fair value of mortgage banking derivatives included in the Consolidated Balance Sheets as on December 31:
2024
2023
Notional
Fair
Notional
Fair
Amount
Value
Amount
Value
Included in other assets:
Forward sales contracts
$
6,500
$
17
$
0
$
0
Interest rate lock commitments
4,896
19
7,400
109
Total included in other assets
$
11,396
$
36
$
7,400
$
109
Included in other liabilities:
Forward sales contracts
$
0
$
0
$
3,300
$
(14)
112
NOTE 23 – SEGMENT INFORMATION
The Company's reportable segments are determined by the Chief Financial Officer, who is the designated chief operating decision maker, based upon information
provided about the Company's products and services offered, primarily distinguished between the banking and trust operations. The segments are also
distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various
components of the business, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision
maker uses revenue streams to evaluate product pricing and significant expenses to assess performance of each segment to evaluate compensation of certain
employees. Segment pretax profit is used to assess the performance of the banking segment by monitoring the net interest margin and non-interest expenses.
Segment pretax profit is also used to assess the performance of the trust segment by monitoring trust service fees, retirement plan consulting fees and non-interest
expenses. Loans and investments provide the significant revenues in the banking operation, while trust service fees and retirement plan consulting fees provide
the significant revenues in trust operations. Interest expense, provisions for credit losses and payroll provide the significant expenses in the banking operation,
while payroll provides the significant expense in the trust segment. All operations are domestic.
Accounting policies for segments are the same as those described in Note 1. 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, 2024
Trust
Segment
Bank
Segment
Consolidated Segment
Totals
Total assets for reportable segments
$
17,204
$
5,104,012
$
5,121,216
Eliminations and other
(2,292 )
Total consolidated assets
$
5,118,924
December 31, 2023
Trust
Segment
Bank
Segment
Consolidated Segment
Totals
Total assets for reportable segments
$
15,845
$
5,065,150
$
5,080,995
Eliminations and other
(2,645 )
Total consolidated assets
$
5,078,350
113
For year ended 2024
Trust
Segment
Bank
Segment
Consolidated Segment
Totals
Interest income - loans including fees
$
0
$
185,710
$
185,710
Interest income - investments
0
36,675
36,675
Trust fees
10,099
0
10,099
Retirement plan consulting fees
2,637
0
2,637
Total consolidated segment revenues
12,736
222,385
235,121
Reconciliation of revenue
Other revenues
34,327
Total consolidated revenues
$
269,448
Interest expense - deposits
0
81,169
81,169
Interest expense - borrowings
0
18,195
18,195
Provision for credit losses and unfunded loans
0
7,966
7,966
Payroll expenses
5,398
53,467
58,865
Total consolidated segment expenses
5,398
160,797
166,195
Segment profit
7,338
61,588
68,926
Reconciliation of expenses
Other expenses *
47,826
Total consolidated expenses
$
214,021
Total consolidated income before taxes
$
55,427
Other segment disclosures
Occupancy and equipment
$
528
$
15,020
$
15,548
Intangible amortization
$
48
$
2,813
$
2,861
114
For year ended 2023
Trust
Segment
Bank
Segment
Consolidated Segment
Totals
Interest income - loans including fees
$
0
$
171,808
$
171,808
Interest income - investments
0
36,869
36,869
Trust fees
9,047
0
9,047
Retirement plan consulting fees
2,467
0
2,467
Total consolidated segment revenues
11,514
208,677
220,191
Reconciliation of revenue
Other revenues
35,005
Total consolidated revenues
$
255,196
Interest expense - deposits
0
63,106
63,106
Interest expense - borrowings
0
12,443
12,443
Provision for credit losses and unfunded loans
0
9,153
9,153
Payroll expenses
4,950
52,351
57,301
Total consolidated segment expenses
4,950
137,053
142,003
Segment profit
6,564
71,624
78,188
Reconciliation of expenses
Other expenses *
54,495
Total consolidated expenses
$
196,498
Total consolidated income before taxes
$
58,698
Other segment disclosures
Occupancy and equipment
$
434
$
14,973
$
15,407
Intangible amortization
$
60
$
3,374
$
3,434
115
For year ended 2022
Trust
Segment
Bank
Segment
Consolidated Segment
Totals
Interest income - loans including fees
$
0
$
107,790
$
107,790
Interest income - investments
0
32,565
32,565
Trust fees
8,460
0
8,460
Retirement plan consulting fees
2,567
0
2,567
Total consolidated segment revenues
11,027
140,355
151,382
Reconciliation of revenue
Other revenues
34,906
Total consolidated revenues
$
186,288
Interest expense - deposits
0
13,085
13,085
Interest expense - borrowings
0
4,835
4,835
Provision for credit losses and unfunded loans
0
1,122
1,122
Payroll expenses
4,746
39,913
44,659
Total consolidated segment expenses
4,746
58,955
63,701
Segment profit
6,281
81,400
87,681
Reconciliation of expenses
Other expenses *
49,752
Total consolidated expenses
$
113,453
Total consolidated income before taxes
$
72,835
Other segment disclosures
Occupancy and equipment
$
416
$
10,941
$
11,357
Intangible amortization
$
75
$
1,898
$
1,973
* Includes occupancy expenses, FDIC insurance, state and local taxes, professional fees, merger costs, advertising, intangible amortization, core processing
charges, charitable donations and other operating expenses.
Bank segment includes Farmers Insurance and Investment.
116
NOTE 24 – 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,
2024
2023
BALANCE SHEETS
Assets:
Cash
$
46,011
$
57,071
Investment in subsidiaries
Bank
432,271
424,393
Farmers Trust
15,131
13,431
Captive
0
0
Other investments
306
424
Total assets
$
493,719
$
495,319
Liabilities:
Other liabilities
$
1,541
$
2,241
Subordinated debt
86,150
88,663
Total liabilities
87,691
90,904
Total stockholders' equity
406,028
404,415
Total liabilities and stockholders' equity
$
493,719
$
495,319
STATEMENTS OF INCOME
Years ended December 31,
2024
2023
2022
Income:
Dividends from subsidiaries
Bank
$
20,000 $
20,000 $
30,000
Farmers Trust
3,000
4,000
8,000
Captive Insurance
0
0
1,400
Gain on debt extinguishment
444
0
0
Interest and dividends on securities
0
44
0
Total Income
23,444
24,044
39,400
Interest on borrowings
4,090
4,086
3,428
Other expenses
3,418
4,109
3,451
Income before income tax benefit and undistributed
subsidiary income
15,936
15,849
32,521
Income tax benefit
1,475
1,624
1,345
Equity in undistributed net income of subsidiaries
(dividends in excess of net income)
Bank
26,837
30,848
25,935
Farmers Trust
1,701
(320)
662
Captive
0
1,931
134
Net Income
$
45,949 $
49,932 $
60,597
Comprehensive Income
$
25,238 $
87,868 $
(159,188)
117
STATEMENTS OF CASH FLOWS
Years ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income
$
45,949 $
49,932 $
60,597
Adjustments to reconcile net income to net cash from
operating activities:
Dividends in excess of net income (Equity in
undistributed net income of subsidiaries)
(28,538)
(32,459)
(26,731)
(Gain) on debt extinguishment
(444)
0
0
Other
(104)
5,481
559
Net cash from operating activities
16,863
22,954
34,425
Cash flows from investing activities:
Net cash paid in business combinations
0
(33,440)
0
Net cash from investing activities
0
(33,440)
0
Cash flows from financing activities:
Repurchase of common shares
0
(11,544)
0
Redemption of subordinated debentures
(2,535)
0
0
Cash dividends paid
(25,388)
(25,396)
(22,004)
Net cash from financing activities
(27,923)
(36,940)
(22,004)
Net change in cash and cash equivalents
(11,060)
(47,426)
12,421
Beginning cash and cash equivalents
57,071
104,497
92,076
Ending cash and cash equivalents
$
46,011 $
57,071 $
104,497
NOTE 25 – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS
The Company invests in qualified affordable housing projects. At December 31, 2024 and 2023, the balance of the investment for qualified affordable housing
projects was $22.0 million and $17.9 million. Total unfunded commitments related to the investments in qualified affordable housing projects totaled $13.9
million and $12.3 million at December 31, 2024 and 2023. The Company expects to fulfill these commitments during the year ending 2038.
During the years ended December 31, 2024 and 2023, the Company recognized amortization expense of $1.9 million and $1.7 million, respectively, which was
included within income tax expense on the consolidated statements of income.
Additionally, during the years ended December 31, 2024 and 2023, the Company recognized tax credits and other benefits from its investment in affordable
housing tax credits of $2.3 million and $2.2 million, respectively. The qualified affordable housing investment credits are included in the net changes in other
assets and liabilities in the cash flows from operating activities in the consolidated statements of cash flows. During the years ended December 31, 2024 and
2023, the Company did not incur impairment losses related to its investment in affordable housing tax credits.
118
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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 Exchange Act, including this Annual Report on Form 10-K for the period ended
December 31, 2024, 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 2024 Annual Report to Shareholders, management assessed the
Company’s system of internal control over financial reporting as of December 31, 2024, 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.
Crowe LLP ("Crowe"), the Company’s registered public accounting firm (U.S. PCAOB Auditor Firm I.D.: 173), has audited the Company’s internal
control over financial reporting as of December 31, 2024. The audit report by Crowe 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, 2024, 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.
During the year ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or
terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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 17, 2025 (the “2025 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 2025 Annual Meeting to
be filed with the Commission (“2025 Proxy Statement”).
119
The information required by Item 401 of Regulation S-K concerning the executive officers of the Company is incorporated herein by reference from the
disclosure included under the caption “Information About Our Executive Officers” at the end of “Item 1. Business” in Part I of this Annual Report on Form 10-K.
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 2025 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. See Exhibit 14.1 for our Code of Ethics.
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 the 2025 Proxy Statement. These procedures have not materially
changed from those described in Farmers’ definitive proxy materials for the 2024 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 2025 Proxy Statement.
Insider Trading
Our executive officers and directors are prohibited under our Insider Trading Policy from pledging our Common Shares, purchasing our Common Shares
on margin, engaging in short sales, or engaging in any hedging transaction involving our Common Shares. See Exhibit 19.1 for our Insider Trading Policy.
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 2025 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 2025 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 2025 Proxy Statement.
120
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 2025 Proxy Statement.
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 2025 Proxy Statement.
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 2025 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 2025 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 2025 Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(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.
121
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K:
Exhibit
Number
Description
3.1
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)).
3.2
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).
3.3
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 April 20, 2018).
3.4
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 17, 2020).
4.1
Description of Capital Stock. (incorporated by reference from Exhibit 4.1 to Farmers' Annual Report on Form 10-K for year ended December 31,
2023 filed with the Commission on March 7, 2024).
4.2
Form of 3.125% Fixed to Floating Rate Subordinated Note Due 2031 (incorporated by reference from Exhibit 10.1 to Farmers’ Current Report
on Form 8-K filed with the Commission on November 17, 2021).
10.1*
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).
10.2*
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).
10.3*
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).
10.4*
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).
10.5*
Farmers National Banc Corp. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to Farmers’ Current Report on Form 8-K
filed with the Commission on April 22, 2022).
10.6*
Farmers National Banc Corp. 2022 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 5, 2022).
10.7*
Farmers National Banc Corp. 2022 Form of Performance-based Equity Award 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 5, 2022).
10.8*
Farmers National Banc Corp. 2022 Form of Service-based Restricted Stock Award 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 5, 2022).
10.9*
Farmers National Banc Corp. 2022 Form of Performance-based Cash Award 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 5, 2022).
122
Exhibit
Number
Description
10.10*
Farmers National Banc Corp. 2023 Form of Notice of Grant of Long-term Incentive Plan Awards under 2022 Equity Incentive Plan
(incorporated by reference from Exhibit 10.1 to Farmers’ Quarterly Report on Form 10-Q filed with the Commission on May 5, 2023).
10.11*
Farmers National Banc Corp. 2023 Form of Performance-based Equity Award under 2022 Equity Incentive Plan (incorporated by reference from
Exhibit 10.2 to Farmers’ Quarterly Report on Form 10-Q filed with the Commission on May 5, 2023).
10.12*
Farmers National Banc Corp. 2023 Form of Service-based Restricted Stock Award under 2022 Equity Incentive Plan (incorporated by reference
from Exhibit 10.3 to Farmers’ Quarterly Report on Form 10-Q filed with the Commission on May 5, 2023).
10.13*
Farmers National Banc Corp. 2023 Form of Performance-based Cash Award under 2022 Equity Incentive Plan (incorporated by reference from
Exhibit 10.4 to Farmers’ Quarterly Report on Form 10-Q filed with the Commission on May 5, 2023).
10.14*
Farmers National Banc Corp. 2024 Form of Notice of Grant of Long-term Incentive Plan Awards under 2022 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, 2024).
10.15*
Farmers National Banc Corp. 2024 Form of Performance-based Equity Award under 2022 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, 2024).
10.16*
Farmers National Banc Corp. 2024 Form of Service-based Restricted Stock Award under 2022 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, 2024).
10.17*
Farmers National Banc Corp. 2024 Form of Performance-based Cash Award under 2022 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, 2024).
10.18*
Nonemployee Director Compensation (filed herewith).
10.19*
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).
10.20*
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).
10.21*
Restricted Stock Award Agreement with Troy Adair (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed with the Commission on June 21, 2021).
10.22*
Change in Control Agreement with Troy Adair (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed with the Commission on June 21, 2021).
10.23*
Farmers National Banc Corp. Third Amended and Restated Executive Separation Policy, as amended (incorporated by reference from Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2024).
10.24*
Form of Senior Executive Change in Control Agreement (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed with the Commission on June 23, 2021).
10.25*
Form of Executive Change in Control Agreement (incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed with the Commission on June 23, 2021).
10.26*
Form of Subordinated Note Purchase Agreement by and between Farmers National Banc Corp. and the several Purchasers named therein, dated
November 17, 2021 (incorporated by reference from Exhibit 10.1 to Farmers’ Current Report on Form 8-K filed with the Commission on
November 17, 2021).
123
Exhibit
Number
Description
14.1
Farmers National Banc Corp. Code of Business Conduct and Ethics (filed herewith).
19.1
Farmers National Banc Corp. Insider Trading Policy (filed herewith).
21
Subsidiaries of Farmers (filed herewith).
23.1
Consent of Independent Registered Public Accounting Firm (filed herewith).
23.2
Consent of Independent Registered Public Accounting Firm (filed herewith).
24
Powers of Attorney of Directors and Executive Officers (filed herewith).
31.1
Rule 13a-14(a)/15d-14(a) Certification of Kevin J. Helmick, President and Chief Executive Officer of Farmers (principal executive officer) (filed
herewith).
31.2
Rule 13a-14(a)/15d-14(a) Certification of Troy Adair, Executive Vice President and Treasurer of Farmers (principal financial officer) (filed
herewith).
32.1
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).
32.2
Certification pursuant to 18 U.S.C. Section 1350 of Troy Adair, Executive Vice President and Treasurer of Farmers (principal financial officer)
(filed herewith).
97.1
Policy relating to recovery of erroneously awarded compensation. (filed herewith).
101
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, 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.
104
The cover page from the Company’s Annual report on Form 10-K for the year ended December 31, 2024, 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. Requests should be directed to Troy Adair, Executive Vice President, Secretary and
Chief Financial Officer, Farmers National Banc Corp., 20 S. Broad Street, Canfield, Ohio 44406.
124
SIGNATURES
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.
FARMERS NATIONAL BANC CORP.
By
/s/ Kevin J. Helmick
Kevin J. Helmick, President and Chief Executive Officer
March 6, 2025
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
President, Chief Executive Officer and Director
March 6, 2025
Kevin J. Helmick
(Principal Executive Officer)
/s/ Troy Adair
Executive Vice President, Secretary and Chief Financial Officer
March 6, 2025
Troy Adair
(Principal Financial Officer)
/s/ Joseph W. Sabat*
Chief Accounting Officer
March 6, 2025
Joseph W. Sabat
(Principal Accounting Officer)
/s/ Gregory C. Bestic*
Director
March 6, 2025
Gregory C. Bestic
/s/ Carl D. Culp*
Director
March 6, 2025
Carl D. Culp
/s/ Neil J. Kaback*
Director
March 6, 2025
Neil J. Kaback
/s/ Ralph D. Macali*
Director
March 6, 2025
Ralph D. Macali
/s/ Frank J. Monaco*
Director
March 6, 2025
Frank J. Monaco
/s/ Terry A. Moore*
Director and Board Chair
March 6, 2025
Terry A. Moore
/s/ Edward W. Muransky*
Director
March 6, 2025
Edward W. Muransky
/s/ David Z. Paull*
Director
March 6, 2025
David Z. Paull
/s/ Gina A. Richardson*
Director
March 6, 2025
Gina A. Richardson
/s/ Richard B. Thompson*
Director
March 6, 2025
Richard B. Thompson
/s/ André Thornton*
Director
March 6, 2025
André Thornton
/s/ Nicholas D. Varischetti*
Director
March 6, 2025
Nicholas D. Varischetti
* The above-named directors and officers of the Registrant sign this Annual Report on Form 10-K by Kevin J. Helmick and Troy Adair, 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.
125
By
/s/ Kevin J. Helmick
Kevin J. Helmick
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Troy Adair
Troy Adair
Executive Vice President, Secretary and Chief Financial Officer
(Principal Financial Officer)
1
Exhibit 10.18
Director Compensation
Each non-employee director of the Corporation shall receive for calendar year 2025 an annual retainer fee of $85,000, payable $62,500 in cash and
$22,500 in restricted stock units to be awarded on the day of the annual meeting of shareholders subject to vesting on the one-year anniversary of the grant date.
Non-employee directors with significant additional duties shall receive the following additional annual retainers: (i) $37,500 for the independent Chair of the
Board of Directors; (ii) $10,000 for the Chair of the Audit Committee, and (iii) $7,500 for each other Chair of a Board committee.
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Exhibit 14.1
CORPORATE POLICY
Policy Title: Code of Business Conduct and Ethics
Policy Number:
FNB-HR-POL-101
Functional Area/Department: Human Resources
Date Issued:
Owner: Chief Human Resources Officer
Approver: Bank Board / Board of Directors
Last Updated (Current Update):
03/11/2024
Review Frequency:
Annual
Table of Contents
I.
Policy Overview
2
II.
Scope and Coverage
2
IV.
Policy Governance
22
V.
Roles and Responsibilities
22
VI.
Policy Requirements
24
VII. Exhibits
24
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I. Policy Overview
The Code of Business Conduct Policy establishes the expectations, requirements and procedures associated with three (3) main
components:
I.
Behavioral guidance related to personal conduct, decisions and actions for all Directors, Officers and
Employees of Farmers National Banc Corp and its Subsidiaries
II.
Observance and Compliance with United States federal, state and foreign securities laws and regulations
regarding Insider Trading
III.
Observance and Compliance with United States federal and state laws pertaining to whistleblower and anti-
retaliation protections
II. Scope and Coverage
I.
Behavioral guidance related to personal conduct, decisions and actions for all Directors,
Officers and Employees of Farmers National Banc Corp and its Subsidiaries
A.
Conflicts of Interest - A “conflict of interest” occurs when private interest(s) interferes or appears to interfere in any
way with the interests of the Company. Employees, Officers and Directors are expected to avoid all situations that
might lead to a real or apparent material conflict between their respective self-interest and their duties and
responsibilities as an employee, Officer or Director of the Company. Any position or interest, financial or otherwise,
which could materially conflict with the performance of an Employee, Officer or Director, or which affects (or could
reasonably be expected to affect) an Employee, Officer or Director’s independence or judgment concerning transactions
between the Company, its customers, suppliers or competitors, or which otherwise reflects negatively on Farmers would
be considered a conflict of interest. Employees, Officers and Directors shall not represent Farmers in any transaction
with respect to which such person has any material connection or substantial financial interest*. Without limiting the
scope of the term, a “material connection” includes the involvement of any family member or close personal friend.
“Family members” include spouses, children, parents, siblings, grandparents, grandchildren, aunts, uncles, nieces,
nephews, father-in-law, mother-in-law, sister-in-law, brother-in-law, or any other members of a household who are not
otherwise included in this list of relatives. Transactions covered by this section include, but are not limited to, processing
of branch transactions (handling deposits, withdrawals, etc.), approval of overdrafts, authorizing or accepting checks on
uncollected funds, waiving charges or other nominal fees, making loans, waiving financial statements or similar
activities.
* This restriction applies to retail positions only and is not intended to include Investments, Insurance and Private Client
positions.
Management of estates, guardianships and trusts are an important part of the Trust business of Farmers, and a conflict
of interest could result if any Employee accepts appointment as an executor or trustee of a customer’s estate (other
than if the customer is a family member). Additionally, estate management may require substantial time and effort which
could interfere
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with normal duties and should therefore be considered carefully prior to accepting this responsibility. All Employees of
Farmers are required to obtain approval from a member of the Company’s Executive Management before agreeing to
serve personally as an executor or testamentary, trustee of an estate, guardian of an estate, or trustee of any other kind
of trust of a customer unless the customer is a relative of the employee. Employees cannot be named as a beneficiary
of a non-family client’s Trust or investments portfolio/account if that employee is the portfolio/account manager.
Employees of Farmers are not permitted to engage in any business or to accept any other employment for salary,
wages or commissions, either during or after working hours, without the approval of a member of Farmers’ Executive
Management. Permission for outside employment will not be granted in any case where such employment may interfere
with, compete with, or conflict with the business interests of Farmers. In addition, it is improper for employees of
Farmers to:
1.
Invest in a customer’s business unless the investment is made by the purchase of stock that is publically
traded and that Farmers has no access to confidential information relating to the business;
2.
Subscribe to new issues of stock in a customer’s business; or
3.
Invest in a customer’s business or enable others to do so as a result of material non-public information.
Employees are encouraged to participate in appropriate professional and community groups and responsible civic
organizations, provided such service does not interfere with their duties with Farmers. Employees or Officers who are
approached directly to serve on outside boards of a profit making organization are required, prior to acceptance, to
obtain approval from the Audit Committee, the CEO, Farmers Bank Board, Farmers Trust Board, NAI Board, or Farmers
Insurance Board. Employees will not be allowed to work for competitors as a consultant or board member. Employees
are requested to seek guidance from their immediate supervisor or a member of Farmers’ Executive Management
Team regarding interpretations or applicability of this policy prior to making any commitments to an outside organization.
B.
Confidentiality - Non-public information regarding Farmers and its business, employees, customers and suppliers is
confidential. Employees, Officers and Directors of Farmers are trusted with confidential information and must maintain
the confidentiality of such information, except when disclosure is specifically authorized by a member of the Company’s
Executive Management or required by laws, regulations or legal proceedings. Employees, Officers and Directors are
only to use such confidential information for the business purpose intended. Employees, Officers and Directors are not
to share confidential information with anyone outside of Farmers, including family and friends, or with other employees
who do not need the information to carry out their duties. Employees may be required to sign a specific confidentiality
agreement in the course of their employment with Farmers. Employees remain under an obligation to keep all
information confidential even after their employment
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with Farmers ends, for any reason. The following is a non-exclusive list of information that is confidential to Farmers:
1.
Trade secrets, which include any business or technical information, such as formulas, programs, methods,
techniques, compilations or information that is valuable because it is not generally known;
2.
All rights to any invention or process developed by an employee using the Company’s facilities or trade secret
information, resulting from any work for Farmers, or relating to the Company’s business, is considered to be
“work-for-hire” under the United States copyright laws and shall belong to Farmers; and
3.
Proprietary information such as customer lists and customer’s confidential information.
All public and media communication involving Farmers must have prior clearance by a member of the Company’s
Executive Management.
C.
Gifts - Employees, Officers and Directors have a duty to advance the Company’s legitimate business interests in an
ethical and appropriate manner when the opportunity to do so arises. In the course of developing and maintaining
strong business relationships, the exchange of gifts, tokens of appreciation, entertainment or invitations to attend
various events may occur. Below are guidelines to establish acceptable, appropriate and reasonable limitations when
offered gifts or entertainment opportunities. For this Policy, Farmers characterizes “gifts” as anything of value provided
to an Employee, Officer or Director for use by that Employee, Officer or Director without restriction or condition, and
“entertainment” as anything of value that is provided to an Employee, Officer or Director where there exists a valid
business purpose which is in the best interest of the Company, such as occasions where attendance with the provider is
a condition of use. No gift or entertainment should ever be offered by, given to or accepted by any Farmers’ Employee,
Officer, Director, or family member unless it:
•
Is not a cash gift
•
Is not excessive in value*
•
Cannot be construed as being provided in exchange for something from the Company not readily available to
other clients
•
Does not violate any laws or regulations
Additionally, it is a federal crime to attempt to compromise, corrupt or reward a Company official in connection with a
business transaction of the Company or for a Company official to solicit or accept anything of value in connection with a
business transaction. Any questions regarding the appropriateness of a gift or proposed gift should be asked as set
forth in Item L of this Section.
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There are certain situations in which Employees, Officers or Directors may accept a personal benefit from
someone with whom they transact business such as:
1.
Accepting a gift in recognition of a commonly recognized event or occasion (e.g., a promotion, new job,
wedding, retirement or holiday) if the gift, together with all other gifts received from any one entity or company,
does not exceed $1,500 in any calendar year;
2.
Accepting something of value if the benefit is available to the general public under the same conditions;
3.
Accepting meals, refreshments, travel arrangements and accommodations and entertainment of reasonable
value* in the course of a meeting or other occasion to conduct business or foster business relations if the
expense would be reimbursed by the Company as a business expense if the other party did not pay for it; or
4.
Paying for meals, refreshments, travel arrangements and accommodations and entertainment of reasonable
value* in the course of a meeting or other occasion to conduct business or foster business relations if the
expense is reimbursed by Farmers under its policy for reimbursement of business expenses
* The threshold for determining “reasonable value” or “excessive value”) as used herein is an expenditure with a
value of $1,500 including entertainment (e.g., concert tickets, sporting event tickets, etc.) which at any one time or
from any one entity within any calendar year.
Employees, Officers and Directors may not do indirectly what they are prohibited from doing directly. For example,
Employees, Officers or Directors shall not arrange to have a member of their family accept a gift from a customer that
they themselves would not otherwise be allowed to accept.
On a case-by-case basis, Farmers Executive Management may approve other circumstances not identified above, or
where the value is above $1,500 (in any calendar year), in which an Employee or Officer may accept something of value
in connection with the Company’s business. The Audit Committee may approve circumstances not identified above
when a Director is in a position to accept something of value in connection with the Company’s business. Approvals for
these case-by-case situations should only be granted following a thorough review of all relevant details and when
necessary, confirming with legal counsel that the transaction would not violate any regulatory requirements or laws.
D.
Opportunities - Employees, Officers and Directors should exercise caution and discretion when situations arise that
could be construed as inappropriate
1.
Taking for themselves personally opportunities that properly belong to Farmers’ or are discovered through the
use of Company property, information or position;
2.
Using Company property, information or position for personal gain;
3.
Competing with the Company;
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4.
Soliciting, demanding, accepting or agreeing to accept anything of value from any person in conjunction with
the performance of duties at Farmers;
5.
Acting on behalf of the Company in any transaction in which such Employee, Officer or Director or their
immediate family has a significant direct or indirect financial interest; and
6.
Offering something of value to someone with whom Farmers transacts business if such benefit is not otherwise
available to other similarly situated customers or suppliers of the Company under the same conditions.
Sometimes the line between personal and corporate opportunities is difficult to draw, and sometimes there are both
personal and corporate opportunities in certain activities. The only prudent course of conduct for Employees, Officers
and Directors is to make sure that any use of Farmers’ property or services that is not solely for the benefit of the
Company is approved beforehand by a member of Executive Management. If an employee is offered or receives
something of value from a customer beyond what is authorized above, or has a potential conflict of interest, including
those in which he or she has been inadvertently placed due to either business or personal relationships with customers,
suppliers, business associates or competitors of the Company, he or she must immediately disclose that fact to
Executive Management and/or the Audit Committee. Farmers Audit Committee and/or Executive Management will keep
written reports of any such disclosures.
E.
Extensions of Credit – Farmers may extend credit to any Executive Officer, Director, or principal shareholder of the
Company only on substantially the same terms as those prevailing for comparable transactions with other persons or
that may be available to Company employees generally as permitted by and in accordance with Regulation O of the
Board of Governors of the Federal Reserve System.
F.
Fair Dealing - Farmers’ seeks to outperform its competition fairly and honestly through superior performance and never
through unethical or illegal business practices. Stealing proprietary information, possessing or utilizing trade secret
information that was obtained without the owner’s consent or inducing such disclosures by past or present employees of
other companies is prohibited. Each employee, Officer and Director should undertake to deal fairly with Farmers’
customers, suppliers, competitors and employees. Additionally, no one should take advantage of another through
manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-
dealing practices. Employees must disclose prior to or at their time of hire the existence of any employment
agreement, non-compete or non -solicitation agreement, confidentiality agreement or similar agreement with a former
employer that in any way restricts or prohibits the performance of any duties or responsibilities of their positions with
Farmers. Copies of such agreement should be provided to Human Resources to permit evaluation of the agreement in
light of the employee’s position.
G.
Protection and Proper Use of Farmers’ Property - All Employees, Officers and Directors should protect Farmers’
assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on Farmers’ profitability. All
corporate assets should be used only for legitimate business purposes. Any suspected incident of fraud or theft should
be immediately reported for investigation. The obligation of Employees to protect Farmers’ assets includes the
safeguarding of proprietary information. Proprietary information includes employee and
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client information, intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business
and marketing plans, databases, records, salary information and/or any non-public financial data and reports.
Unauthorized use or distribution of this information would violate Farmers’ policy. It could also be illegal and result in
civil and/or even criminal penalties.
H.
Discrimination and Harassment - The diversity of Farmers’ employees is a tremendous asset. Farmers’ is firmly
committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or
harassment of any kind. Farmers’ strictly prohibits discrimination or harassment based upon age, gender, religion, race,
color, ethnicity, sexual orientation, disability, veteran’s status or genetic information. Examples include derogatory
comments based on racial or ethnic characteristics and unwelcome sexual advances. All Employees must
successfully complete annual training courses provided by the Company on Diversity, Discrimination and Harassment
Awareness/Prevention.
I.
Health and Safety - Farmers’ strives to provide each employee with a safe and healthful work environment. Each
employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and
health rules and practices and reporting unsafe practices or conditions. Violence and threatening behavior are not
permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or
alcohol. The use of alcohol or illegal drugs, or the abuse of prescription medication in the workplace will not be
tolerated.
J.
Financial Reporting - In compliance with the rules and regulations of the Commission and the NASDAQ, Farmers is
required to issue financial statements in conformity with generally accepted accounting principles and make public
disclosures regarding certain aspects of its business. It is expected that all Employees, Officers and Directors will keep
accurate and complete books, records and ac-counts that enable Farmers to meet its accounting and financial reporting
obligations. It is expected that any employee, Officer or Director involved in preparing Farmers’ disclosures, or any
employee, Officer or Director asked to provide information relevant to such disclosure, will work to ensure that the
Company’s public reports and communications are fair, accurate, certifiable, complete, objective, relevant, timely, and
understand-able. Any employee who, in good faith, believes that Farmers’ accounting method is inappropriate or not in
compliance with generally accepted accounting principles, or has concerns about any questionable accounting or
auditing matter or any other accounting, internal accounting control or auditing matter, should report this finding directly
to Farmers’ Treasurer and, if unsatisfied with the response, directly to the Audit Committee. The Audit Committee has
established a procedure for such reports that ensures the confidentiality of the reporting person. Employees may
report their findings by following Farmers’ whistleblower procedures set, which includes a method by which anonymous
communications may be made. In addition, any employee who becomes aware of a material event or fact involving
Farmers that has not been previously disclosed publicly by the Company should immediately report such material event
or fact to a member of Executive Management.
K.
Compliance with Laws, Rules and Regulations - It is Farmers’ policy to comply with all applicable laws, rules and
regulations. It is the personal responsibility of each employee, Officer and Director to adhere to the standards and
restrictions imposed by those laws, rules and regulations. Although not all Employees, Officers and Directors are
expected to know the details of these laws, it is important to know enough to determine when to seek advice
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from superiors, Executive Management or other appropriate personnel. Obeying the law both in letter and in spirit is the
foundation on which Farmers’ ethical standards are built. Included in this policy are the requirements related to Insider
Trading with respect to Employee, Officer and Director purchases and sales of the Company’s securities, and the
securities of any customers or any other company about which anyone at Farmers has inside or unpublished
knowledge. It is both unethical and illegal to buy, sell, trade or otherwise participate in transactions involving the
Farmers’ common shares or other security while in possession of material information concerning the Company that has
not been released to the general public, but which when released may have an impact on the market price of the
Company common stock or other security. It is also unethical and illegal to buy, sell or trade or otherwise participate in
transactions involving the common stock or other security of any other company while in possession of similar non-
public material information concerning such company. Any questions concerning the propriety of participating in a
transaction involving Farmers’ common shares or the stock of another company stock or any other security transaction
should be directed to a member of Executive Management. Additional Information about Insider Trading can be located
in Item II - Observance and Compliance with United States federal, state and foreign securities laws and regulations
regarding Insider Trading
L.
Compliance Standards and Enforcement - Farmers Executive Management and Board Audit Committee are
responsible for interpreting and applying this Code of Ethics in situations where questions may arise. Any Employee,
Officer or Director who is unsure of whether or not a situation violates this Policy should discuss the situation first with
his or her immediate supervisor or with a member of the Human Resources team. If the supervisor or Human
Resources is unsure if the situation violates this Policy, the supervisor or Human Resources member should consult a
member of Executive Management. A member of the Board with a question about this Code of Ethics should consult
with the Chairperson of the Audit Committee. Timely consultation with the appropriate persons is important to prevent
possible misunderstandings, violations and embarrassment at a later date.
Employees, Officers or Directors who violate the standards in this Code of Ethics are subject to disciplinary action, up to
and including termination. Any Employee, Officer or Director who becomes aware of an existing or potential violation of
this Code of Ethics is required to report such a violation by following Farmers’ whistleblower procedures. These
procedures include a method by which anonymous communications may be made. Farmers’ whistleblower procedures
are also to be followed for the reporting of employee complaints regarding accounting or auditing matters. Failure to
report a known violation of this Policy is itself a violation of the Code of Ethics. Directors must report any violation of this
Code of Ethics to the Audit Committee. Associates wishing to report violations or potential issues should speak with a
member of Senior Management, a member of the Board of Directors or use the Ethics Point program. Ethics Point is a
tool that allows any associate to confidentially report concerns or violations. Ethics Point is completely independent of
Farmers National Banc Corp. and is designed to help foster a respectful and enjoyable workplace. Ethics Point can be
accessed via phone by dialing 1-866-884-8627 or via the web at www.farmersbank.ethicspoint.com. The on-line link to
Ethics Point is also available from Farmers Forum (The Farmers National Banc Corp Intranet site).
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Farmers’ will not permit any retaliation against an employee, Officer or Director who properly reports (to the appropriate
personnel) a matter that he or she believes, in good faith, to be a violation of this Code of Ethics. A Human Resources
representative and/or The Audit Committee shall investigate any alleged violation of the Code of Ethics by any of
Farmers’ Employees, Officers or Directors. In the event that Human Resources and/or the Audit Committee determines
that a violation of this Code of Ethics has occurred, Human Resources, Executive Management or the Audit Committee
shall be authorized to take any action it deems appropriate. If the violation involves an Executive Officer or Director of
Farmers’, the Audit Committee shall notify the Board and the Board shall take such action as it deems appropriate. In
rare circumstances, situations may arise in which a waiver of a specific portion or provision of this Code of Ethics may
be deemed appropriate (All such waivers should be documented with supporting evidence detailing why a waiver has
been granted).
In the event that the Board recognizes that a violation by an Executive Officer or a Director has already occurred but
elects not to take any remedial or other action against the Executive Officer or Director, Farmers’ shall document the
facts and circumstances of the situation, as well as the reason(s) why the Board has elected not to take action, by
recording this information in the Board meeting minutes or by any other such means as may be required under
applicable laws, rules and regulations or the requirements of the U.S. Securities and Exchange Commission (the
“Commission”) or NASDAQ Stock Market LLC (the “NASDAQ”). Nothing in this Code of Ethics affects the general policy
of Farmers that employment is “at-will” and can be terminated by the Company at any time and for any or no reason.
There are many other policies that are very important to Farmers and its operations. Nothing herein shall relieve any
Employee, Officer or Director of Farmers from complying with all other applicable policies.
II. Observance and Compliance with United States federal, state and foreign securities laws
and regulations regarding Insider Trading
Background and Purpose
The Board of Directors (the “Board”) has adopted this Insider Trading Policy (this “Policy”) for the directors, officers and
employees of Farmers National Banc Corp. and its affiliates (collectively, “Farmers” or the “Company”) with respect to
transactions involving Farmers’ common shares, no par value (“Shares”) and other securities, and the handling of
confidential information about Farmers and the companies with which Farmers engages in transactions or does business.
The Company’s Board of Directors has adopted this Policy to promote compliance with U.S. federal, state and foreign
securities laws, including the securities laws and regulations enforced and promulgated by the United States Securities and
Exchange Commission (the “Commission”), that prohibit certain persons who are aware of material nonpublic information
about a company from: (i) trading in securities of that company; or (ii) providing material nonpublic information to other
persons who may trade on the basis of that information.
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Persons Subject to the Policy
This Policy applies to all officers of Farmers, all members of the Farmers Board of Directors, and all employees of Farmers.
Farmers may also determine that other persons should be subject to this Policy, such as contractors or consultants who
have access to material nonpublic information. This Policy also applies to family members, other members of a person’s
household and entities controlled by a person covered by this Policy, as described below.
Transactions Subject to the Policy
This Policy applies to all transactions in Farmers’ securities (collectively referred to in this Policy as “Company Securities”),
including the Shares, options to purchase Shares, or any other type of securities that the Company may issue, including but
not limited to preferred stock, convertible debentures and warrants, as well as derivative securities that are not issued by the
Company, such as exchange-traded put or call options or swaps relating to the Company’s Securities. Transactions subject
to this Policy include purchases, sales and bona fide gifts of Shares and other Company Securities.
Individual Responsibility
Persons subject to this Policy have ethical and legal obligations to maintain the confidentiality of information about Farmers
and to not engage in transactions in Company Securities while in possession of material nonpublic information. Persons
subject to this policy must not engage in illegal trading and must avoid the appearance of improper trading. Each individual
is responsible for making sure that he, she or they complies with this Policy, and that any family member, household
member or entity whose transactions are subject to this Policy, as discussed below, also comply with this Policy. In all
cases, the responsibility for determining whether an individual is in possession of material nonpublic information rests with
that individual, and any action on the part of the Company, the Compliance Officer or any other employee or director
pursuant to this Policy (or otherwise) does not in any way constitute legal advice or insulate an individual from liability under
applicable securities laws. You could be subject to severe legal penalties and disciplinary action by Farmers for any conduct
prohibited by this Policy or applicable securities laws, as described below in more detail under the heading “Consequences
of Violations.”
Administration
Farmers’ Chief Financial Officer shall serve as the Compliance Officer for the purposes of this Policy, and in his or her
absence, another employee designated by the Compliance Officer shall be responsible for administration of this Policy. All
determinations and interpretations by the Compliance Officer shall be final and not subject to further review.
Statement of Policy
It is the policy of Farmers the Company that no director, officer or other employee of the Company (or any other person
designated by this Policy or by the Compliance Officer as subject to this
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Policy) who is aware of material nonpublic information relating to the Company may, directly, or indirectly through family
members or other persons or entities:
•
Engage in transactions in Company Securities, except as otherwise specified in this Policy under the headings
“Transactions Under Company Plans” and “Rule 10b5-1 Plans;”
•
Recommend that others engage in transactions in any Company Securities;
•
Disclose material nonpublic information to persons within the Company whose jobs do not require them to have that
information, or outside of the Company to other persons, including, but not limited to, family, friends, business associates,
investors and expert consulting firms, unless any such disclosure is made in accordance with the Company’s policies
regarding the protection or authorized external disclosure of information regarding the Company; or
•
Assist anyone engaged in the above activities.
In addition, it is Farmers’ policy that no director, officer or other employee of Farmers (or any other person designated as
subject to this Policy) who, in the course of working for Farmers, learns of material nonpublic information about a company
(1) with which Farmers does business, such as Farmers’ distributors, vendors, customers and suppliers, or (2) that is
involved in a potential transaction or business relationship with Farmers, may engage in transactions in that company’s
securities until the information becomes public or is no longer material.
It is also Farmers’ policy to not engage in transactions in Company Securities while aware of material nonpublic information
relating to Farmers or any Company Securities.
There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable
for independent reasons (such as the need to raise money for an emergency expenditure), or small transactions, are not
excepted from this Policy. The securities laws do not recognize any mitigating circumstances, and, in any event, even the
appearance of an improper transaction must be avoided to preserve Farmers’ reputation for adhering to the highest
standards of conduct.
Definition of Material Nonpublic Information
Material Information. Information is considered “material” if a reasonable investor would consider that information
important in making a decision to buy, hold or sell securities. Any information that could be expected to affect a company’s
stock price, whether it is positive or negative, should be considered material. There is no bright-line standard for assessing
materiality; rather, materiality is based on an assessment of all of the facts and circumstances, and is often evaluated by
enforcement authorities with the benefit of hindsight. While it is not possible to define all categories of material information,
some examples of information that ordinarily would be regarded as material are:
•
projections of future earnings or losses or other earnings guidance;
•
a pending or proposed merger, acquisition or tender offer;
•
a significant sale of assets or the disposition of a subsidiary;
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•
changes in dividend policy;
•
the declaration of a stock split or the offering of additional Company Securities;
•
changes in management;
•
a corporate restructuring of Farmers;
•
impending bankruptcy or financial liquidity problems;
•
actual or threatened major litigation, or the resolution of such litigation;
•
new major contracts, customers or finance sources, or the loss thereof;
•
change in auditors or notification that the auditor’s reports may no longer be relied upon;
•
significant cybersecurity incident, such as a data breach, or any other significant disruption in Farmers’
operations or loss, potential loss, breach or unauthorized access of its property or assets, whether at its
facilities or through its information technology infrastructure; and
•
imposition of an event-specific restriction on trading in Company Securities or the securities of another
company or the extension or termination of such restriction.
When Information is Considered “Public” Information that has not been disclosed to the public is generally considered to
be nonpublic information. In order to establish that the information has been disclosed to the public, it may be necessary to
demonstrate that the information has been widely disseminated. Information generally would be considered widely
disseminated if it has been disclosed through the newswire services, a broadcast on widely-available radio or television
programs, publication in a widely-available newspaper, magazine or news website, or public disclosure documents filed with
the SEC that are available on the SEC’s website. By contrast, information would likely not be considered widely
disseminated if it is available only to Farmers’ employees, or if it is only available to a select group of analysts, brokers and
institutional investors.
Once information is widely disseminated, it is still necessary to provide the investing public with sufficient time to absorb and
evaluate the information. For purposes of this Policy, the close of business on the second business day after the release of
information is deemed to mark the passage of such time. If, for example, Farmers were to make an announcement on a
Monday, you should not trade in Shares until Thursday. At that point – and not before – the information is considered
“public.” Also, depending on the particular circumstances, Farmers may determine that a longer or shorter period should
apply to the release of specific material nonpublic information.
Transactions by Family Members and Others
This Policy applies to your family members who reside with you (including a spouse, a child, a child away at college,
stepchildren, grandchildren, parents, stepparents, grandparents, siblings and in-laws), anyone else who lives in your
household, and any family members who do not live in your household but whose transactions in Company Securities are
directed by you or are
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subject to your influence or control, such as parents or children who consult with you before they trade in Company
Securities (collectively referred to as “Family Members”). You are responsible for the transactions of these other persons
and therefore should make them aware of the need to confer with you before they trade in Company Securities, and you
should treat all such transactions for the purposes of this Policy and applicable securities laws as if the transactions were for
your own account. This Policy does not, however, apply to personal securities transactions of Family Members where the
purchase or sale decision is made by a third party not controlled by, influenced by or related to you or your Family Members.
Transactions by Entities that You Influence or Control
This Policy applies to any entities that you influence or control, including any corporations, partnerships or trusts (collectively
referred to as “Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this
Policy and applicable securities laws as if they were for your own account.
Transactions Under Company Plans
This Policy does not apply in the case of the following transactions, except as specifically noted:
Stock Option Exercises. This Policy does not apply to the exercise of an employee stock option acquired pursuant to the
Company’s plans, or to the exercise of a tax withholding right pursuant to which a person has elected to have the Company
withhold shares subject to an option to satisfy tax withholding requirements. This Policy does apply, however, to any sale of
stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the
cash needed to pay the exercise price of an option.
Restricted Stock Awards. This Policy does not apply to the vesting of restricted stock, or the exercise of a tax withholding
right pursuant to which you elect to have the Company withhold shares of stock to satisfy tax withholding requirements upon
the vesting of any restricted stock. The Policy does apply, however, to any market sale of restricted stock.
401(k) Plan. This Policy does not apply to purchases of Company Securities in the Company’s 401(k) plan resulting from
your periodic contribution of money to the plan pursuant to your payroll deduction election. This Policy does apply, however,
to certain elections you may make under the 401(k) plan, including: (a) an election to increase or decrease the percentage
of your periodic contributions that will be allocated to the Company Securities fund; (b) an election to make an intra-plan
transfer of an existing account balance into or out of the Company Securities fund; (c) an election to borrow money against
your 401(k) plan account if the loan will result in a liquidation of some or all of your Company Securities fund balance; and
(d) an election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the Company stock fund.
It should be noted that sales of Company Securities from a 401(k) account are also subject to Rule 144, and therefore
affiliates should ensure that a Form 144 is filed when required.
Employee Stock Purchase Plan. This Policy does not apply to purchases of Company Securities in the employee stock
purchase plan resulting from your periodic contribution of money to the plan pursuant to the election you made at the time of
your enrollment in the plan. This Policy also does not apply to purchases of Company Securities resulting from lump sum
contributions to the plan, provided that you elected to participate by lump sum payment at the beginning of the applicable
enrollment period. This Policy does apply, however, to your election
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to participate in the plan for any enrollment period, and to your sales of Company Securities purchased pursuant to the plan.
Dividend Reinvestment Plan. This Policy does not apply to purchases of Company Securities under the Company’s
dividend reinvestment plan resulting from your reinvestment of dividends paid on Company Securities. This Policy does
apply, however, to voluntary purchases of Company Securities resulting from additional contributions you choose to make to
the dividend reinvestment plan, and to your election to participate in the plan or increase your level of participation in the
plan. This Policy also applies to your sale of any Company Securities purchased pursuant to the plan.
Other Similar Transactions. Any other purchase of Company Securities from the Company or sales of Company
Securities to the Company are not subject to this Policy.
Special and Prohibited Transactions
The Company has determined that there is a heightened legal risk and/or the appearance of improper or inappropriate
conduct if the persons subject to this Policy engage in certain types of transactions. It therefore is the Company’s policy that
any persons covered by this Policy may not engage in any of the following transactions, or should otherwise consider the
Company’s preferences as described below:
Short-Term Trading. Short-term trading of Company Securities may be distracting to the person and may unduly focus the
person on the Company’s short-term stock market performance instead of the Company’s long-term business objectives.
For these reasons, any director, officer or other employee of the Company who purchases Company Securities in the open
market may not sell any Company Securities of the same class during the six months following the purchase (or vice versa).
Short Sales. Short sales of Company Securities (i.e., the sale of a security that the seller does not own) may evidence an
expectation on the part of the seller that the securities will decline in value, and therefore have the potential to signal to the
market that the seller lacks confidence in the Company’s prospects. In addition, short sales may reduce a seller’s incentive
to seek to improve the Company’s performance. For these reasons, short sales of Company Securities are prohibited. In
addition, Section 16(c) of the Exchange Act prohibits officers and directors from engaging in short sales. (Short sales arising
from certain types of hedging transactions are governed by the paragraph below captioned “Hedging Transactions.”)
Publicly-Traded Options. Given the relatively short term of publicly-traded options, transactions in options may create the
appearance that a director, officer or employee is trading based on material nonpublic information and focus a director’s,
officer’s or other employee’s attention on short-term performance at the expense of the Company’s long-term objectives.
Accordingly, transactions in put options, call options or other derivative securities, on an exchange or in any other organized
market, are prohibited by this Policy. (Option positions arising from certain types of hedging transactions are governed by
the next paragraph below.)
Hedging Transactions. Hedging or monetization transactions can be accomplished through a number of possible
mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and
exchange funds. Such transactions may permit a director, officer or employee to continue to own Company Securities
obtained through employee benefit plans or otherwise, but without the full risks and rewards of ownership. When that
occurs, the director, officer or employee may no longer have the same objectives as the
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Company’s other shareholders. Therefore, directors, officers and employees are prohibited from engaging in any such
transactions.
Margin Accounts and Pledged Securities. Securities held in a margin account as collateral for a margin loan may be sold
by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or
hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale
or foreclosure sale may occur at a time when the pledgor is aware of material nonpublic information or otherwise is not
permitted to trade in Company Securities, directors, officers and other employees are prohibited from holding Company
Securities in a margin account or otherwise pledging Company Securities as collateral for a loan. (Pledges of Company
Securities arising from certain types of hedging transactions are governed by the paragraph above captioned “Hedging
Transactions.”)
Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1
Plans, as described below) create heightened risks for insider trading violations similar to the use of margin accounts. There
is no control over the timing of purchases or sales that result from standing instructions to a broker, and as a result the
broker could execute a transaction when a director, officer or other employee is in possession of material nonpublic
information. The Company therefore discourages placing standing or limit orders on Company Securities. If a person
subject to this Policy determines that they must use a standing order or limit order, the order should be limited to short
duration and should otherwise comply with the restrictions and procedures outlined below under the heading “Additional
Procedures.”
Additional Procedures
Farmers has established additional procedures in order to assist in the administration of this Policy, to facilitate compliance
with laws prohibiting insider trading while in possession of material nonpublic information, and to avoid the appearance of
any impropriety. These additional procedures are set forth in the Supplemental Trading Restrictions attached to this Policy,
and apply only to those individuals described therein.
Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be
eligible to rely on this defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in
Company Securities that meets certain conditions specified in the Rule (a “Rule 10b5-1 Plan”) and in accordance with the
Company’s “Guidelines for Rule 10b5-1 Plans” attached to this Policy. If the plan meets the requirements of Rule 10b5-1,
transactions in Company Securities may occur even when the person who has entered into the plan is aware of material
nonpublic information.
To comply with the Policy, a Rule 10b5-1 Plan must be approved by the Compliance Officer and meet the requirements of
Rule 10b5-1 and the Company’s “Guidelines for Rule 10b5-1 Plans.” In general, a Rule 10b5-1 Plan must be entered into at
a time when the person entering into the plan is not aware of material nonpublic information. Once the plan is adopted, the
person must not exercise any influence over the amount of securities to be traded, the price at which they are to be traded
or the date of the trade. The plan must either specify the amount, pricing and timing of transactions in advance or delegate
discretion on these matters to an independent third party. The plan must include a cooling-off period before trading can
commence that, for directors or officers, ends on the later of 90 days after the adoption of the Rule 10b5-1 plan or two
business days following the disclosure of the Company’s financial results in an SEC periodic report for the fiscal quarter in
which the plan was adopted (but in any event, the required cooling-off period is
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subject to a maximum of 120 days after adoption of the plan), and for persons other than directors or officers, 30 days
following the adoption or modification of a Rule 10b5-1 plan. A person may not enter into overlapping Rule 10b5-1 plans
(subject to certain exceptions) and may only enter into one single-trade Rule 10b5-1 plans during any 12-month period.
Directors and officers must include a representation in their Rule 10b5-1 plan certifying that: (i) they are not aware of any
material nonpublic information; and (ii) they are adopting the plan in good faith and not as part of a plan or scheme to evade
the prohibitions in Rule 10b-5. All persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan.
Any Rule 10b5-1 Plan must be submitted for approval at least five days prior to the entry into the Rule 10b5-1 Plan. No
further pre-approval of transactions conducted pursuant to the Rule 10b5-1 Plan will be required.
Additional Guidance
Twenty-Twenty Hindsight. Remember, if securities transactions become the subject of scrutiny, they will be viewed after
the fact with the benefit of hindsight. As a result, before engaging in any transaction, directors, officers and employees
should carefully consider how regulators and others might view a transaction in hindsight.
Tipping Information to Others. Whether the information is proprietary information about Farmers or other non-public
information that could have an impact on the trading price of Shares, directors, officers and employees must not pass the
information on to others. Penalties for “tipping” information apply whether or not the “tipper” derives any benefit from
another’s actions. Please remember that information received in the capacity as a director, officer or employee of Farmers
is confidential.
Post-Termination Transactions. This Policy continues to apply to transactions even after a director, officer or employee
has terminated their employment with or service to Farmers. If such persons are in possession of material non-public
information when their employment or service terminates, they may not engage in transactions in Shares or other Company
Securities (or the securities of any other company about which they obtained material non-public information due to their
affiliation with Farmers) until that information has become public or is no longer material. The pre-clearance procedures
specified under “Supplemental Trading Restrictions”, however, will cease to apply to transactions in Company Securities
upon the expiration of any Restricted Period or other Company-imposed trading restrictions applicable at the time of the
termination of service.
Additional Guidance:
Unauthorized Disclosure. Directors, officers and employees may not discuss non-public information with the press,
analysts or other persons outside of Farmers. Public announcements or other public disclosures of information regarding
Farmers may only be made by persons specifically authorized by Farmers to make such announcements or disclosures.
Inquiries regarding information received from any third party should be directed to a member of Farmers’ executive
management.
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Internet Chat Rooms and Blogs. Directors, officers and employees may not participate in Internet chat rooms, message
boards, blogs or other on-line dialogues or discussions involving Farmers, its business or Shares or other Company
Securities.
Penalties for Non-Compliance
The purchase or sale of securities while in possession of material non-public information, or the disclosure of material non-
public information to others who then trade in Shares, is prohibited by the federal securities laws. Both the SEC and other
regulatory authorities investigate and are very effective at detecting insider trading. Insider trading violations are pursued
vigorously by the SEC and the United States Department of Justice and are punished severely. Cases have been
successfully prosecuted against trading by employees through foreign accounts, trading by family members and friends, and
trading involving only a small number of shares.
Civil and Criminal Penalties. FOR INDIVIDUALS who trade on inside information (or tip information to others who trade),
sanctions can include a civil penalty of up to three times the profit gained or loss avoided, a criminal fine (no matter how
small the profit) of up to $5 million, and a jail term of up to 20 years. FOR A CORPORATION (as well as possibly any
supervisory person) that fails to take appropriate steps to prevent insider trading, sanctions can include a civil penalty of the
greater of $1 million or three times the profit gained or loss avoided by the person as a result of the violation and criminal
fines of up to $25 million.
Controlling Person Liability. While regulatory authorities may concentrate their efforts on individuals who trade, or who tip
insider information to others who trade, the federal securities laws also impose potential liability on companies and other
“controlling persons” (e.g., directors, officers and other supervisory personnel) if they fail to take reasonable steps to prevent
insider trading by company personnel. Controlling persons can be subject to civil penalties of up to the greater of $1 million
and three times the profit gained or loss avoided, as well as a criminal penalty of up to $25 million.
Company Sanctions. An individual’s failure to comply with this Policy may subject the employee to Company-imposed
sanctions, including dismissal for cause, whether or not the employee’s failure to comply results in a violation of law.
Company Assistance
Any director, officer or employee who has general questions about this Policy or questions about specific transactions may
obtain guidance from the Compliance Officer. Remember, however, each director, officer and employee is ultimately
responsible for adhering to this Policy and avoiding improper transactions. In this regard, it is imperative that each director,
officer and employee use their best judgment.
Certifications:
Directors, officers and employees of Farmers subject to this Policy are required to certify their review and understanding of,
and intent to comply with, this Policy and may be required to certify compliance on an annual basis.
SUPPLEMENTAL TRADING RESTRICTIONS
FOR DIRECTORS, EXECUTIVE OFFICERS AND
OTHER DESIGNATED EMPLOYEES
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The Board of Directors (the “Board”) has adopted an Insider Trading Policy (the “Policy”) for the directors, officers and
employees of Farmers National Banc Corp. and its affiliates (collectively, “Farmers”) with respect to the trading of Farmers’
common shares, no par value (“Shares”) and other securities (“Company Securities”), as well as the securities of publicly
traded companies with whom Farmers has a business relationship. As noted in the Policy, directors, executive officers and
certain designated employees of Farmers (collectively, “Covered Persons”) who regularly have access to, or generate,
material non-public information, are subject to additional restrictions on transactions in Shares and other Company
Securities. As discussed in the Policy, claims of insider trading are investigated with twenty-twenty hindsight, and even the
appearance of impropriety can damage both Covered Persons and Farmers. These additional trading restrictions represent
an effort to guard against even the appearance of impropriety and to protect Covered Persons. Therefore, in addition to the
broad prohibitions on insider trading that apply to all personnel of Farmers, the following additional trading restrictions apply
to all Covered Persons:
1.
Quarterly Trading Restrictions. No Covered Person or any Family Member (as defined in the Insider Trading Policy)
may buy or sell Shares or engage in any other transaction involving Shares for a period commencing three business
days prior to the end of each fiscal quarter and ending at the close of business on the second business day following
the public release by Farmers of earnings for that quarter (the “Restricted Period”).
2.
Event-Specific Restricted Periods. From time to time, an event may occur that is material to Farmers and is known
by only a few directors, officers and/or employees. So long as the event remains material and nonpublic, the persons
designated by the Compliance Officer may not engage in transactions in Shares or other Company Securities. In
addition, Farmers’ financial results may be sufficiently material in a particular fiscal quarter that, in the judgment of the
Compliance Officer, designated persons should refrain from engaging in transactions in Shares or other Company
Securities even sooner than the quarterly Restricted Period described above. In that situation, the Compliance Officer
may notify these persons that they should not trade in Shares, without disclosing the reason for the restriction. The
existence of an Event-Specific Restricted Period or the extension of a quarterly Restricted Period will not be announced
to Farmers as a whole, and should not be communicated to any other person. Even if the Compliance Officer has not
designated you as a person who should not engage in transactions in Shares due to an Event-Specific Restricted
Period, you should not trade while aware of material nonpublic information. Exceptions will not be granted during an
Event-Specific Restricted Period.
3.
Pre-clearance Procedures. All transactions involving Shares or other Company Securities (including option
transactions) by a Covered Person or any Family Member must be pre-cleared by the Insider Trading Compliance
Officer. Pre-clearance is required for all purchases and sales. Each proposed transaction will be evaluated to
determine if it raises insider trading concerns or other concerns under the federal or state securities laws and
regulations. Any advice will relate solely to the restraints imposed by law and will not constitute advice regarding the
investment aspects of any transaction. If a transaction is contemplated, Covered Persons must request pre-clearance
from the Insider Trader Compliance Officer in advance of the executing the subject transaction. Clearance of a
transaction is valid only for a 48-hour period. Accordingly, “Good until Cancelled” orders are not permitted, and trade
orders must be effected within 48 hours. If the transaction is not placed within that 48-hour period, clearance of the
transaction must be re-requested. If clearance is denied, the fact of such denial must be kept confidential by the
Covered Person requesting such clearance.
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4.
Controlled Entities. These additional trading restrictions also apply to transactions by a family trust, partnership,
foundation or similar entity over which any Covered Person or a Family Member has control, or whose assets are held
for the benefit of a Covered Person or a Family Member.
5.
The quarterly and event-specific trading restrictions do not apply to the limited exceptions to the Policy for certain
employee benefit plan transactions and transactions conducted pursuant to approved Rule 10b5-1 plans as described,
under the “Transactions under Company Plans” and “Guidelines for Rule 10b5-1 Plans” headings in the Policy.
Guidelines for Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be
eligible to rely on this defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in
Company Securities (as defined in the [Insider Trading Policy]) that meets certain conditions specified in the Rule (a “Rule
10b5-1 Plan”). If the plan meets the requirements of Rule 10b5-1, transactions in Company Securities may occur without
regard to certain insider trading restrictions. In general, a Rule 10b5-1 Plan must be entered into at a time when the person
entering into the plan is not aware of material nonpublic information. Once the plan is adopted, the person must not
exercise any influence over the amount of securities to be traded, the price at which they are to be traded or the date of the
trade. The plan must either specify the amount, pricing and timing of transactions in advance or delegate discretion on
these matters to an independent third party.
A Rule 10b5-1 plan must include a cooling-off period before trading can commence that, for directors or officers, ends on the
later of 90 days after the adoption of the Rule 10b5-1 plan or two business days following the disclosure of Farmers’
financial results in an SEC periodic report for the fiscal quarter in which the plan was adopted (but in any event, the required
cooling-off period is subject to a maximum of 120 days after adoption of the plan), and for persons other than directors or
officers, 30 days following the adoption or modification of a Rule 10b5-1 plan. A person may not enter into overlapping Rule
10b5-1 plans (subject to certain exceptions) and may only enter into one single-trade Rule 10b5-1 plans during any 12-
month period (subject to certain exceptions). Directors and officers must include a representation in their Rule 10b5-1 plan
certifying that: (i) they are not aware of any material nonpublic information; and (ii) they are adopting the plan in good faith
and not as part of a plan or scheme to evade the prohibitions in Rule 10b-5. All persons entering into a Rule 10b5-1 plan
must act in good faith with respect to that plan.
As specified in Farmers’ Insider Trading Policy, a Rule 10b5-1 Plan must be approved by the Compliance Officer and meet
the requirements of Rule 10b5-1 and these guidelines. Any Rule 10b5-1 Plan must be submitted for approval at least five
days prior to the entry into the Rule 10b5-1 Plan. No further pre-approval of transactions conducted pursuant to the Rule
10b5-1 Plan will be required.
The following guidelines apply to all Rule 10b5-1 Plans:
•
You may not enter into, modify or terminate a trading program during a Restricted Period, and Event-Specific
Restricted Period or otherwise while you are aware of material nonpublic information.
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•
All Rule 10b5-1 Plans must have a duration of at least six months and no more than two years.
•
For officers and directors, no transaction may take place under a Rule 10b5-1 Plan until the later of (a) 90 days
after adoption or modification of the Rule 10b5-1 Plan or (b) two business days following the disclosure of the
Company’s financial results in a Form 10-Q or Form 10-K for the fiscal quarter (the Company’s fourth fiscal
quarter in the case of a Form 10-K) in which the Rule 10b5-1 Plan was adopted or modified (but in any event,
the cooling-off period is subject to a maximum of 120 days after adoption of the plan).
•
For persons other than officers and directors, no transaction may take place under a Rule 10b5-1 Plan until 30
days following the adoption or modification of a Rule 10b5-1 plan.
•
Subject to certain limited exceptions specified in Rule 10b5-1, you may not enter into more than one Rule
10b5-1 Plan at the same time;
•
Subject to certain limited exceptions specified in Rule 10b5-1, you are limited to only one Rule 10b5-1
designed to effect an open market purchase or sale of the total amount of securities subject to the Rule 10b-1
Plan as a single transaction in any 12-month period;
•
You must act in good faith with respect to a Rule 10b5-1 Plan. A Rule 10b5-1 Plan cannot be entered into as
part of a plan or scheme to evade the prohibition of Rule 10b-5. Therefore, although modifications to an
existing Rule 10b5-1 Plan are not prohibited, a Rule 10b5-1 Plan should be adopted with the intention that it
will not be amended or terminated prior to its expiration.
•
Officer and directors must include a representation to the Company at the time of adoption or modification of a
Rule 10b5-1 Plan that (i) the person is not aware of material nonpublic information about the Company or
Company Securities and (ii) the person is adopting the plan in good faith and not as part of plan or scheme to
evade the prohibitions of Rule 10b-5.
•
You should not enter into any transaction in Company Securities while the Rule 10b5-1 Plan is in effect.
Farmers and its officers and directors must make certain disclosures in SEC filings concerning Rule 10b5-1 Plans. Officers
and directors must undertake to provide any information requested by Farmers regarding Rule 10b5-1 Plans for the purpose
of providing the required disclosures or any other disclosures that Farmers deems to be appropriate under the
circumstances.
Each director, officer and other Section 16 insider understands that the approval or adoption of a pre-planned selling
program in no way reduces or eliminates such person’s obligations under Section 16 of the Exchange Act, including such
person’s disclosure and short-swing trading liabilities thereunder. If any questions arise, such person should consult with
their own counsel in implementing a Rule 10b5-1 Plan.
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III. Observance and Compliance with United States federal and state laws pertaining to
whistleblower and anti-retaliation protections
The purpose of the Whistleblower and Anti-Retaliation Protections guidance is to establish the procedures for the
submission of complaints or concerns regarding suspected occurrences of illegal, unethical or inappropriate behaviors or
practices regarding financial statement disclosures, accounting practices, internal auditing controls, auditing matters or any
other violation of the Farmers National Banc Corp Code of Business Conduct and Ethics.
This guidance requires Board members, Executives and employees to report complaints or concerns relating to accounting,
accounting controls, auditing, fraud and/or violations of the Code of Business Conduct and Ethics. Additionally, it is intended
to prevent illegal activity and/or inappropriate business conduct that may damage Farmers National Banc Corp’s name,
franchise, business interests and/or relationships with shareholders, customers and the community.
Farmers’ is proud of its long tradition of serving its communities in an honest, open and fair manner. This guidance is part of
the Company’s desire to maintain this culture by providing employees the means to report misconduct so that corrective
action may be taken when appropriate.
Reporting:
1.
Any employee of Farmers (including any of its affiliates) who has a concern regarding financial statement
disclosures, accounting practices, internal accounting controls, auditing matters or violations of the Company
Code of Business Conduct and Ethics should promptly report the suspected or actual event(s) to his/her
supervisor.
2.
If the employee is uncomfortable or otherwise reluctant for any reason to report the concern to his/her
supervisor, the employee should use the Ethics Point program to document and report his/her concerns. The
Ethics Point program is available to all employees via the intranet (Farmers Forum) on the Company
homepage, externally through the internet at: www.farmersbank.EthicsPoint.com or via the Ethics Point hotline
phone number at 1-866-884-8627.
3.
Supervisors and Managers who receive a report as outlined in section 1 above, from any associate should
immediately report the concern(s) to Human Resources directly or by using the Ethics Point Manager Report
Form at: Farmers National Bank Corp. | Manager Report Form (navexone.com).
4.
Reports may be submitted with the employee’s identity or anonymously.
5.
Although the Company encourages employee to report allegations of misconduct or wrongdoing directly to a
supervisor, Farmers’ Chief Audit Executive, the Chair of the Audit Committee, a Human Resources
representative or the CEO, concerns may be reported directly to appropriate outside agencies, such as the
Securities and Exchange Commission (SEC).
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Verification of Claim:
1.
Although the reporting person is not expected to prove the truth of an allegation or claim, the reporting person
needs to be able to demonstrate that there are reasonable grounds for his/her concern that a violation has
occurred, may have occurred, or is about to occur and that such concern is most appropriately handled through
the procedure provided for under this Policy.
2.
Persons who knowingly make false allegations, or who file claims with reckless disregard as to the truth of the
claim(s) may be subject to disciplinary action by Farmers and/or legal claims by persons accused of such
conduct.
Investigation:
1.
All reports will be taken seriously by the Company
2.
All reports regarding illegal, unethical or inappropriate behaviors or practices regarding financial statement
disclosures, accounting practices, internal auditing controls, auditing matters will be promptly reviewed and
investigated by the Company’s Audit Committee.
3.
The Audit Committee may enlist the assistance of employees of the Company and/or outside legal, accounting
or other advisors, as appropriate, to conduct investigations. During the course of any investigation, the Audit
Committee will use all reasonable efforts to protect the confidentiality and anonymity of the complainant. The
amount of contact between the reporting person and the Audit Committee will depend on the nature of the
issue and the clarity of information provided.
4.
Subject to legal constraints and/or what is determined to be in the best interests of the Company, the reporting
person may receive information from the Audit Committee about the outcome of any investigation in response
to information submitted by the reporting person
5.
If, during the investigation, the Audit Committee discovers credible evidence of misconduct, it will promptly
report the existence of such misconduct to the Board of Directors
Safeguards:
1.
All reporting persons are encouraged to include their names with complaints or allegations made pursuant to
this Policy because appropriate follow-up questions and investigation may not be possible unless the source of
the information is identified. Concerns expressed anonymously will be investigated, but consideration may be
given to (a) the seriousness of the issue raised; (2) the credibility of the person who is the subject of the
complaint or concern; and (3) the likelihood of confirming the allegation from documentation and/or other
sources available
2.
The Company does not permit harassment or retaliation of any kind against reporting persons for reports that
are submitted in good faith. Anyone who retaliates against a person who reported an event in good faith will be
subject to disciplinary action up to and including termination
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3.
The Company also recognizes that reports containing intentionally untruthful, malicious, erroneous or
harassing allegations may be damaging to the mission, integrity or morale of Farmers, as well as the reputation
of Farmers, its managers and employees. The safeguards stated in this Policy do not apply to individuals who
submit reports with such bad faith allegations. Such bad faith allegations may result in disciplinary action of the
reporting person, up to and including termination of employment.
4.
The Company will retain as part of its records any reported concerns (including investigation notes and
documents) for a period of at least three (3) years.
5.
Each employee will be required to sign the attached Employee Certification Form or sign the electronic policy
acknowledgement form online annually.
IV.Policy Governance
Human Resources owns this Policy and is responsible for reviewing and recommending revisions to the Policy at least annually
and submitting it to Senior Management (Bank Board) and The Board of Directors. The policy is reviewed and approved
annually.
V. Roles and Responsibilities
The Board of Directors
The primary responsibilities and duties of the Board as they pertain to the Code of Business Conduct and Ethics Policy are as
follows:
•
Ensuring that the Bank has a current and accurate policy related to Business Conduct, Ethics, Insider Trading
and appropriate Whistleblower and Anti-Retaliation administration and reporting;
•
Reviewing and approving policies requiring Board approval at least annually;
Senior Management (Bank Board)
The primary responsibilities and duties of the Bank’s senior management as they pertain to the Bank’s Code of Business
Conduct and Ethics are carried out as follows:
•
Overseeing the effectiveness of Policy Owners’ policy implementation; and
•
Maintaining a culture of compliance with policies and procedures.
•
Ensuring that the Bank has a robust set of policies to manage risk and compliance with The Code of Business
Conduct and Ethics, and to guide its business activities;
•
Reviewing and approving policies requiring Board approval at least annually.
•
Delegating the approval of certain policies to committees of itself.
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Policy Owners:
The primary responsibilities and duties of the Policy Owners are as follows:
•
Developing, maintaining, and presenting policies for review and approval to the appropriate oversight body in accordance
with this Policy;
•
Communicating the content and requirements of the policies they own to business management and all impacted
functional groups;
•
Interpreting policies as necessary to support implementation;
•
Ensuring relevant staff receive training on policies as needed and that the Bank documents training and attendance;
•
Monitoring policy implementation and policy compliance across the Bank;
•
Approving exceptions to policies, maintaining a written record of exceptions, including reasons for granting them, and
reporting exceptions on a periodic basis;
•
Responding to questions or inquiries from internal or external parties regarding policies for which they are responsible;
and
•
Reviewing policies at least annually and proposing revisions as appropriate.
Internal Audit periodically performs independent audits of the Bank’s functional groups and programs using a risk-based
approach and assesses the adequacy and effectiveness of the relate business processes and controls. Results of the audits are
reported to the Audit Committee of the Board of Directors and executive management.
VI.Policy Requirements
The following sub-sections describe the requirements for developing, approving, and maintaining policies:
Policy Owner. Every policy must identify a Policy Owner. The Policy Owner is responsible for developing, maintaining,
communicating, and ensuring compliance with the policy. Therefore, a Policy Owner shall be a manager with the necessary
expertise and stature to effectively formulate, gain acceptance for, and ensure implementation of the policy and its controls.
Policy Development. Policies may be initiated by any functional group, however, every policy must be sponsored by a manager
from the functional group which ultimately owns the policy. The Policy Owner is responsible for analyzing the issues and drafting
the initial policy document with content and formatting (specifically, the header and footer) consistent with this Policy.
When developing or updating policy content, the Policy Owner shall solicit feedback from key stakeholders, including any
relevant risk. After taking into account the feedback received, the designee shall revise the policy as appropriate. Revisions to
existing policies shall be submitted in redline format in order to allow for ease of reference, accompanies by an executive
summary detaining changes to the policy.
CODE OF BUSINESS CONDUCT AND ETHICS
Page 25 of NUMPAGES 28
Policy Approval. The term “policy” in a document title is general reserved throughout the Bank for documents that comply with
this Policy and are approved as such. Policies require formal review and approval by the Board or a designated committee of
the Board.
All Policies shall be reviewed by appropriate executives, functional group leads, and, as applicable, an appropriate management
committee. The designee is ultimately responsible for determining if any individual policy has been properly approved and is in
effect.
Subsidiary Policies. The subsidiaries of Farmers National Banc Corp. may require policies that are specific to their respective
activities and therefore they may tailor the principles and requirements of this Policy to their specific legal entity business
activities and organizational structure. A subsidiary policy may not conflict with a Bank Policy.
Policy Content. Policies may be supported by Standards, Guidelines/Plans, and Procedures/Manuals, as appropriate. A policy
must be readily understood by all personnel, regardless of experience level, who need to follow it.
Reviews/Location/Publication of Policies. To ensure ready access to current policies, they shall be maintained on the Bank
intranet site with links to the most current approved version of all policies. A designee will assist in notifying policy owners of
policy reviews that are coming due, maintains the current version of all policies and ensures that relevant Bank documents or
intranet site references are updated to reflect the current version of policies.
VII.Exhibits
CODE OF BUSINESS CONDUCT AND ETHICS
Page 26 of NUMPAGES 28
Certification for Directors, Executive Officers and Other Designated Employees
TO: Directors, Executive Officers and Other Designated Employees
FROM:
Kevin J. Helmick, President and Chief Executive Officer
DATE:
________ ___, 20___
SUBJECT:
Insider Trading Policy
Enclosed is a copy of the Insider Trading Policy (the “Policy”) and the Supplemental Trading Restrictions for Directors,
Executive Officers and Other Designated Employees (collectively, “Covered Persons”) of Farmers National Banc Corp. and its
affiliates (collectively, “Farmers”). The Policy outlines the confidential nature of information regarding Farmers and governs securities
trading by Farmers’ personnel. If you have any questions regarding the Policy, please contact Troy Adair or myself for clarification.
Please carefully review the enclosed Policy and the Supplemental Trading Restrictions and then sign and return the
Certification below to Troy Adair.
CERTIFICATION
The undersigned hereby certifies that he/she has read and understands, and agrees to comply with, the Insider Trading
Policy and the Supplemental Trading Restrictions for Directors, Executive Officers and Other Designated Employees, a copy of which
was distributed with this memorandum.
Date:
Signature
Print Name
CODE OF BUSINESS CONDUCT AND ETHICS
Page 27 of NUMPAGES 28
Certification for Employees
TO: All Employees
FROM:
Kevin J. Helmick, President and Chief Executive Officer
DATE:
________ ___, 20___
SUBJECT:
Insider Trading Policy
Enclosed is a copy of the Insider Trading Policy (the “Policy”) for Farmers National Banc Corp. and its affiliates (collectively,
“Farmers”). The Policy outlines the confidential nature of information regarding Farmers and governs securities trading by Farmers’
personnel. If you have any questions regarding the Policy, please contact Troy Adair or myself for clarification.
Please carefully review the enclosed Policy then sign and return the Certification below to Troy Adair.
CERTIFICATION
The undersigned hereby certifies that he/she has read and understands, and agrees to comply with, the Insider Trading
Policy, a copy of which was distributed with this memorandum.
Date:
Signature
Print Name
CODE OF BUSINESS CONDUCT AND ETHICS
Page 28 of NUMPAGES 28
WHISTLEBLOWER POLICY
Employee Certification Form
I understand that it is part of my employment responsibility to report any suspected wrongdoing, illegal activity or any activity that
involves questionable practices regarding accounting, internal accounting controls or audit matters involving Farmers National Banc
Corp. or any of its affiliates. I have received, read and understand the Farmers Whistleblower Policy.
As an employee who may need to report such matters, I understand that I have a process for reporting such matters, anonymously if
I prefer, and that I will not be subject to retaliation as explained in the Policy.
As a supervisor who may receive such a complaint from an employee, I understand and agree to comply with the Policy.
Signature
Name
Location/Department
Date
Exhibit 19.1
FARMERS NATIONAL BANC CORP.
INSIDER TRADING POLICY
Background and Purpose
The Board of Directors (the “Board”) has adopted this Insider Trading Policy (this “Policy”) for the directors, officers and employees
of Farmers National Banc Corp. and its affiliates (collectively, “Farmers” or the “Company”) with respect to transactions involving
Farmers’ common shares, no par value (“Shares”) and other securities, and the handling of confidential information about Farmers and
the companies with which Farmers engages in transactions or does business.
The Company’s Board of Directors has adopted this Policy to promote compliance with U.S. federal, state and foreign securities laws,
including the securities laws and regulations enforced and promulgated by the United States Securities and Exchange Commission (the
“Commission”), that prohibit certain persons who are aware of material nonpublic information about a company from: (i) trading in
securities of that company; or (ii) providing material nonpublic information to other persons who may trade on the basis of that
information.
Persons Subject to the Policy
This Policy applies to all officers of Farmers, all members of the Farmers Board of Directors, and all employees of Farmers. Farmers
may also determine that other persons should be subject to this Policy, such as contractors or consultants who have access to material
nonpublic information. This Policy also applies to family members, other members of a person’s household and entities controlled by
a person covered by this Policy, as described below.
Transactions Subject to the Policy
This Policy applies to all transactions in Farmers’ securities (collectively referred to in this Policy as “Company Securities”), including
the Shares, options to purchase Shares, or any other type of securities that the Company may issue, including but not limited to
preferred stock, convertible debentures and warrants, as well as derivative securities that are not issued by the Company, such as
exchange-traded put or call options or swaps relating to the Company’s Securities. Transactions subject to this Policy include
purchases, sales and bona fide gifts of Shares and other Company Securities.
Individual Responsibility
Persons subject to this Policy have ethical and legal obligations to maintain the confidentiality of information about Farmers and to not
engage in transactions in Company Securities while in possession of material nonpublic information. Persons subject to this policy
must not engage in illegal trading and must avoid the appearance of improper trading. Each individual is responsible for making sure
that he, she or they complies with this Policy, and that any family member, household member or entity whose transactions are subject
to this Policy, as discussed below, also
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comply with this Policy. In all cases, the responsibility for determining whether an individual is in possession of material nonpublic
information rests with that individual, and any action on the part of the Company, the Compliance Officer or any other employee or
director pursuant to this Policy (or otherwise) does not in any way constitute legal advice or insulate an individual from liability under
applicable securities laws. You could be subject to severe legal penalties and disciplinary action by Farmers for any conduct
prohibited by this Policy or applicable securities laws, as described below in more detail under the heading “Consequences of
Violations.”
Administration of the Policy
Farmers’ Chief Financial Officer shall serve as the Compliance Officer for the purposes of this Policy, and in his or her absence,
another employee designated by the Compliance Officer shall be responsible for administration of this Policy. All determinations and
interpretations by the Compliance Officer shall be final and not subject to further review.
Statement of Policy
It is the policy of Farmers the Company that no director, officer or other employee of the Company (or any other person designated by
this Policy or by the Compliance Officer as subject to this Policy) who is aware of material nonpublic information relating to the
Company may, directly, or indirectly through family members or other persons or entities:
•
Engage in transactions in Company Securities, except as otherwise specified in this Policy under the headings
“Transactions Under Company Plans” and “Rule 10b5-1 Plans;”
•
Recommend that others engage in transactions in any Company Securities;
•
Disclose material nonpublic information to persons within the Company whose jobs do not require them to have that
information, or outside of the Company to other persons, including, but not limited to, family, friends, business
associates, investors and expert consulting firms, unless any such disclosure is made in accordance with the Company’s
policies regarding the protection or authorized external disclosure of information regarding the Company; or
•
Assist anyone engaged in the above activities.
In addition, it is Farmers’ policy that no director, officer or other employee of Farmers (or any other person designated as subject to
this Policy) who, in the course of working for Farmers, learns of material nonpublic information about a company (1) with which
Farmers does business, such as Farmers’ distributors, vendors, customers and suppliers, or (2) that is involved in a potential
transaction or business relationship with Farmers, may engage in transactions in that company’s securities until the information
becomes public or is no longer material.
It is also Farmers’ policy to not engage in transactions in Company Securities while aware of material nonpublic information relating
to Farmers or any Company Securities.
There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable for
independent reasons (such as the need to raise money for an
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emergency expenditure), or small transactions, are not excepted from this Policy. The securities laws do not recognize any mitigating
circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve Farmers’ reputation for
adhering to the highest standards of conduct.
Definition of Material Nonpublic Information
Material Information. Information is considered “material” if a reasonable investor would consider that information important in
making a decision to buy, hold or sell securities. Any information that could be expected to affect a company’s stock price, whether it
is positive or negative, should be considered material. There is no bright-line standard for assessing materiality; rather, materiality is
based on an assessment of all of the facts and circumstances, and is often evaluated by enforcement authorities with the benefit of
hindsight. While it is not possible to define all categories of material information, some examples of information that ordinarily would
be regarded as material are:
•
projections of future earnings or losses or other earnings guidance;
•
a pending or proposed merger, acquisition or tender offer;
•
a significant sale of assets or the disposition of a subsidiary;
•
changes in dividend policy;
•
the declaration of a stock split or the offering of additional Company Securities;
•
changes in management;
•
a corporate restructuring of Farmers;
•
impending bankruptcy or financial liquidity problems;
•
actual or threatened major litigation, or the resolution of such litigation;
•
new major contracts, customers or finance sources, or the loss thereof;
•
change in auditors or notification that the auditor’s reports may no longer be relied upon;
•
significant cybersecurity incident, such as a data breach, or any other significant disruption in Farmers’ operations or
loss, potential loss, breach or unauthorized access of its property or assets, whether at its facilities or through its
information technology infrastructure; and
•
imposition of an event-specific restriction on trading in Company Securities or the securities of another company or the
extension or termination of such restriction.
When Information is Considered “Public.” Information that has not been disclosed to the public is generally considered to be
nonpublic information. In order to establish that the information has been disclosed to the public, it may be necessary to demonstrate
that the information has been widely disseminated. Information generally would be considered widely disseminated if it has been
disclosed through the newswire services, a broadcast on widely-available radio or television programs, publication in a widely-
available newspaper, magazine or news website, or public
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disclosure documents filed with the SEC that are available on the SEC’s website. By contrast, information would likely not be
considered widely disseminated if it is available only to Farmers’ employees, or if it is only available to a select group of analysts,
brokers and institutional investors.
Once information is widely disseminated, it is still necessary to provide the investing public with sufficient time to absorb and
evaluate the information. For purposes of this Policy, the close of business on the second business day after the release of information
is deemed to mark the passage of such time. If, for example, Farmers were to make an announcement on a Monday, you should not
trade in Shares until Thursday. At that point – and not before – the information is considered “public.” Also, depending on the
particular circumstances, Farmers may determine that a longer or shorter period should apply to the release of specific material
nonpublic information.
Transactions by Family Members and Others
This Policy applies to your family members who reside with you (including a spouse, a child, a child away at college, stepchildren,
grandchildren, parents, stepparents, grandparents, siblings and in-laws), anyone else who lives in your household, and any family
members who do not live in your household but whose transactions in Company Securities are directed by you or are subject to your
influence or control, such as parents or children who consult with you before they trade in Company Securities (collectively referred to
as “Family Members”). You are responsible for the transactions of these other persons and therefore should make them aware of the
need to confer with you before they trade in Company Securities, and you should treat all such transactions for the purposes of this
Policy and applicable securities laws as if the transactions were for your own account. This Policy does not, however, apply to
personal securities transactions of Family Members where the purchase or sale decision is made by a third party not controlled by,
influenced by or related to you or your Family Members.
Transactions by Entities that You Influence or Control
This Policy applies to any entities that you influence or control, including any corporations, partnerships or trusts (collectively referred
to as “Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this Policy and
applicable securities laws as if they were for your own account.
Transactions Under Company Plans
This Policy does not apply in the case of the following transactions, except as specifically noted:
Stock Option Exercises. This Policy does not apply to the exercise of an employee stock option acquired pursuant to the
Company’s plans, or to the exercise of a tax withholding right pursuant to which a person has elected to have the Company
withhold shares subject to an option to satisfy tax withholding requirements. This Policy does apply, however, to any sale of
stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the
cash needed to pay the exercise price of an option.
Restricted Stock Awards. This Policy does not apply to the vesting of restricted stock, or the exercise of a tax withholding
right pursuant to which you elect to have the Company
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withhold shares of stock to satisfy tax withholding requirements upon the vesting of any restricted stock. The Policy does
apply, however, to any market sale of restricted stock.
401(k) Plan. This Policy does not apply to purchases of Company Securities in the Company’s 401(k) plan resulting from
your periodic contribution of money to the plan pursuant to your payroll deduction election. This Policy does apply,
however, to certain elections you may make under the 401(k) plan, including: (a) an election to increase or decrease the
percentage of your periodic contributions that will be allocated to the Company Securities fund; (b) an election to make an
intra-plan transfer of an existing account balance into or out of the Company Securities fund; (c) an election to borrow money
against your 401(k) plan account if the loan will result in a liquidation of some or all of your Company Securities fund
balance; and (d) an election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the
Company stock fund. It should be noted that sales of Company Securities from a 401(k) account are also subject to Rule 144,
and therefore affiliates should ensure that a Form 144 is filed when required.
Employee Stock Purchase Plan. This Policy does not apply to purchases of Company Securities in the employee stock
purchase plan resulting from your periodic contribution of money to the plan pursuant to the election you made at the time of
your enrollment in the plan. This Policy also does not apply to purchases of Company Securities resulting from lump sum
contributions to the plan, provided that you elected to participate by lump sum payment at the beginning of the applicable
enrollment period. This Policy does apply, however, to your election to participate in the plan for any enrollment period, and
to your sales of Company Securities purchased pursuant to the plan.
Dividend Reinvestment Plan. This Policy does not apply to purchases of Company Securities under the Company’s dividend
reinvestment plan resulting from your reinvestment of dividends paid on Company Securities. This Policy does apply,
however, to voluntary purchases of Company Securities resulting from additional contributions you choose to make to the
dividend reinvestment plan, and to your election to participate in the plan or increase your level of participation in the plan.
This Policy also applies to your sale of any Company Securities purchased pursuant to the plan.
Other Similar Transactions. Any other purchase of Company Securities from the Company or sales of Company Securities to
the Company are not subject to this Policy.
Special and Prohibited Transactions
The Company has determined that there is a heightened legal risk and/or the appearance of improper or inappropriate conduct if the
persons subject to this Policy engage in certain types of transactions. It therefore is the Company’s policy that any persons covered by
this Policy may not engage in any of the following transactions, or should otherwise consider the Company’s preferences as described
below:
Short-Term Trading. Short-term trading of Company Securities may be distracting to the person and may unduly focus the
person on the Company’s short-term stock market performance instead of the Company’s long-term business objectives. For
these reasons,
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any director, officer or other employee of the Company who purchases Company Securities in the open market may not sell
any Company Securities of the same class during the six months following the purchase (or vice versa).
Short Sales. Short sales of Company Securities (i.e., the sale of a security that the seller does not own) may evidence an
expectation on the part of the seller that the securities will decline in value, and therefore have the potential to signal to the
market that the seller lacks confidence in the Company’s prospects. In addition, short sales may reduce a seller’s incentive to
seek to improve the Company’s performance. For these reasons, short sales of Company Securities are prohibited. In
addition, Section 16(c) of the Exchange Act prohibits officers and directors from engaging in short sales. (Short sales arising
from certain types of hedging transactions are governed by the paragraph below captioned “Hedging Transactions.”)
Publicly-Traded Options. Given the relatively short term of publicly-traded options, transactions in options may create the
appearance that a director, officer or employee is trading based on material nonpublic information and focus a director’s,
officer’s or other employee’s attention on short-term performance at the expense of the Company’s long-term objectives.
Accordingly, transactions in put options, call options or other derivative securities, on an exchange or in any other organized
market, are prohibited by this Policy. (Option positions arising from certain types of hedging transactions are governed by
the next paragraph below.)
Hedging Transactions. Hedging or monetization transactions can be accomplished through a number of possible
mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and
exchange funds. Such transactions may permit a director, officer or employee to continue to own Company Securities
obtained through employee benefit plans or otherwise, but without the full risks and rewards of ownership. When that
occurs, the director, officer or employee may no longer have the same objectives as the Company’s other shareholders.
Therefore, directors, officers and employees are prohibited from engaging in any such transactions.
Margin Accounts and Pledged Securities. Securities held in a margin account as collateral for a margin loan may be sold by
the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or
hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale
or foreclosure sale may occur at a time when the pledgor is aware of material nonpublic information or otherwise is not
permitted to trade in Company Securities, directors, officers and other employees are prohibited from holding Company
Securities in a margin account or otherwise pledging Company Securities as collateral for a loan. (Pledges of Company
Securities arising from certain types of hedging transactions are governed by the paragraph above captioned “Hedging
Transactions.”)
Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1 Plans,
as described below) create heightened risks for insider trading violations similar to the use of margin accounts. There is no
control over the timing of purchases or sales that result from standing instructions to a broker, and as a result the
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broker could execute a transaction when a director, officer or other employee is in possession of material nonpublic
information. The Company therefore discourages placing standing or limit orders on Company Securities. If a person
subject to this Policy determines that they must use a standing order or limit order, the order should be limited to short
duration and should otherwise comply with the restrictions and procedures outlined below under the heading “Additional
Procedures.”
Additional Procedures
Farmers has established additional procedures in order to assist in the administration of this Policy, to facilitate compliance with laws
prohibiting insider trading while in possession of material nonpublic information, and to avoid the appearance of any impropriety.
These additional procedures are set forth in the Supplemental Trading Restrictions attached to this Policy, and apply only to those
individuals described therein.
Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be eligible to rely
on this defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company Securities that meets
certain conditions specified in the Rule (a “Rule 10b5-1 Plan”) and in accordance with the Company’s “Guidelines for Rule 10b5-1
Plans” attached to this Policy. If the plan meets the requirements of Rule 10b5-1, transactions in Company Securities may occur even
when the person who has entered into the plan is aware of material nonpublic information.
To comply with the Policy, a Rule 10b5-1 Plan must be approved by the Compliance Officer and meet the requirements of Rule 10b5-
1 and the Company’s “Guidelines for Rule 10b5-1 Plans.” In general, a Rule 10b5-1 Plan must be entered into at a time when the
person entering into the plan is not aware of material nonpublic information. Once the plan is adopted, the person must not exercise
any influence over the amount of securities to be traded, the price at which they are to be traded or the date of the trade. The plan must
either specify the amount, pricing and timing of transactions in advance or delegate discretion on these matters to an independent third
party. The plan must include a cooling-off period before trading can commence that, for directors or officers, ends on the later of 90
days after the adoption of the Rule 10b5-1 plan or two business days following the disclosure of the Company’s financial results in an
SEC periodic report for the fiscal quarter in which the plan was adopted (but in any event, the required cooling-off period is subject to
a maximum of 120 days after adoption of the plan), and for persons other than directors or officers, 30 days following the adoption or
modification of a Rule 10b5-1 plan. A person may not enter into overlapping Rule 10b5-1 plans (subject to certain exceptions) and
may only enter into one single-trade Rule 10b5-1 plans during any 12-month period. Directors and officers must include a
representation in their Rule 10b5-1 plan certifying that: (i) they are not aware of any material nonpublic information; and (ii) they are
adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions in Rule 10b-5. All persons entering into a
Rule 10b5-1 plan must act in good faith with respect to that plan.
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Any Rule 10b5-1 Plan must be submitted for approval at least five days prior to the entry into the Rule 10b5-1 Plan. No further pre-
approval of transactions conducted pursuant to the Rule 10b5-1 Plan will be required.
Additional Guidance
Twenty-Twenty Hindsight. Remember, if securities transactions become the subject of scrutiny, they will be viewed after the fact
with the benefit of hindsight. As a result, before engaging in any transaction, directors, officers and employees should carefully
consider how regulators and others might view a transaction in hindsight.
Tipping Information to Others. Whether the information is proprietary information about Farmers or other non-public information that
could have an impact on the trading price of Shares, directors, officers and employees must not pass the information on to others.
Penalties for “tipping” information apply whether or not the “tipper” derives any benefit from another’s actions. Please remember that
information received in the capacity as a director, officer or employee of Farmers is confidential.
Post-Termination Transactions. This Policy continues to apply to transactions even after a director, officer or employee has
terminated their employment with or service to Farmers. If such persons are in possession of material non-public information when
their employment or service terminates, they may not engage in transactions in Shares or other Company Securities (or the securities
of any other company about which they obtained material non-public information due to their affiliation with Farmers) until that
information has become public or is no longer material. The pre-clearance procedures specified under “Supplemental Trading
Restrictions”, however, will cease to apply to transactions in Company Securities upon the expiration of any Restricted Period or other
Company-imposed trading restrictions applicable at the time of the termination of service.
Additional Policies
Unauthorized Disclosure. Directors, officers and employees may not discuss non-public information with the press, analysts or other
persons outside of Farmers. Public announcements or other public disclosures of information regarding Farmers may only be made by
persons specifically authorized by Farmers to make such announcements or disclosures. Inquiries regarding information received
from any third party should be directed to a member of Farmers’ executive management.
Internet Chat Rooms and Blogs. Directors, officers and employees may not participate in Internet chat rooms, message boards, blogs
or other on-line dialogues or discussions involving Farmers, its business or Shares or other Company Securities.
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Penalties for Non-Compliance
The purchase or sale of securities while in possession of material non-public information, or the disclosure of material non-public
information to others who then trade in Shares, is prohibited by the federal securities laws. Both the SEC and other regulatory
authorities investigate and are very effective at detecting insider trading. Insider trading violations are pursued vigorously by the SEC
and the United States Department of Justice and are punished severely. Cases have been successfully prosecuted against trading by
employees through foreign accounts, trading by family members and friends, and trading involving only a small number of shares.
Civil and Criminal Penalties. FOR INDIVIDUALS who trade on inside information (or tip information to others who trade),
sanctions can include a civil penalty of up to three times the profit gained or loss avoided, a criminal fine (no matter how small the
profit) of up to $5 million, and a jail term of up to 20 years. FOR A CORPORATION (as well as possibly any supervisory person)
that fails to take appropriate steps to prevent insider trading, sanctions can include a civil penalty of the greater of $1 million or three
times the profit gained or loss avoided by the person as a result of the violation and criminal fines of up to $25 million.
Controlling Person Liability. While regulatory authorities may concentrate their efforts on individuals who trade, or who tip insider
information to others who trade, the federal securities laws also impose potential liability on companies and other “controlling
persons” (e.g., directors, officers and other supervisory personnel) if they fail to take reasonable steps to prevent insider trading by
company personnel. Controlling persons can be subject to civil penalties of up to the greater of $1 million and three times the profit
gained or loss avoided, as well as a criminal penalty of up to $25 million.
Company Sanctions. An individual’s failure to comply with this Policy may subject the employee to Company-imposed sanctions,
including dismissal for cause, whether or not the employee’s failure to comply results in a violation of law.
Company Assistance
Any director, officer or employee who has general questions about this Policy or questions about specific transactions may obtain
guidance from the Compliance Officer. Remember, however, each director, officer and employee is ultimately responsible for
adhering to this Policy and avoiding improper transactions. In this regard, it is imperative that each director, officer and employee use
their best judgment.
Certifications
Directors, officers and employees of Farmers subject to this Policy are required to certify their review and understanding of, and intent
to comply with, this Policy and may be required to certify compliance on an annual basis.
SUPPLEMENTAL TRADING RESTRICTIONS
FOR DIRECTORS, EXECUTIVE OFFICERS AND
OTHER DESIGNATED EMPLOYEES
The Board of Directors (the “Board”) has adopted an Insider Trading Policy (the “Policy”) for the directors, officers and employees of
Farmers National Banc Corp. and its affiliates (collectively, “Farmers”) with respect to the trading of Farmers’ common shares, no par
value (“Shares”) and other securities (“Company Securities”), as well as the securities of publicly traded companies with whom
Farmers has a business relationship. As noted in the Policy, directors, executive officers and certain designated employees of Farmers
(collectively, “Covered Persons”) who regularly have access to, or generate, material non-public information, are subject to additional
restrictions on transactions in Shares and other Company Securities. As discussed in the Policy, claims of insider trading are
investigated with twenty-twenty hindsight, and even the appearance of impropriety can damage both Covered Persons and Farmers.
These additional trading restrictions represent an effort to guard against even the appearance of impropriety and to protect Covered
Persons. Therefore, in addition to the broad prohibitions on insider trading that apply to all personnel of Farmers, the following
additional trading restrictions apply to all Covered Persons:
1.
Quarterly Trading Restrictions. No Covered Person or any Family Member (as defined in the Insider Trading Policy) may
buy or sell Shares or engage in any other transaction involving Shares for a period commencing three business days prior to
the end of each fiscal quarter and ending at the close of business on the second business day following the public release by
Farmers of earnings for that quarter (the “Restricted Period”).
2.
Event-Specific Restricted Periods. From time to time, an event may occur that is material to Farmers and is known by only a
few directors, officers and/or employees. So long as the event remains material and nonpublic, the persons designated by the
Compliance Officer may not engage in transactions in Shares or other Company Securities. In addition, Farmers’ financial
results may be sufficiently material in a particular fiscal quarter that, in the judgment of the Compliance Officer, designated
persons should refrain from engaging in transactions in Shares or other Company Securities even sooner than the quarterly
Restricted Period described above. In that situation, the Compliance Officer may notify these persons that they should not
trade in Shares, without disclosing the reason for the restriction. The existence of an Event-Specific Restricted Period or the
extension of a quarterly Restricted Period will not be announced to Farmers as a whole, and should not be communicated to
any other person. Even if the Compliance Officer has not designated you as a person who should not engage in transactions
in Shares due to an Event-Specific Restricted Period, you should not trade while aware of material nonpublic information.
Exceptions will not be granted during an Event-Specific Restricted Period.
3.
Pre-clearance Procedures. All transactions involving Shares or other Company Securities (including option transactions) by a
Covered Person or any Family Member must be pre-cleared by the Insider Trading Compliance Officer. Pre-clearance is
required for all purchases and sales. Each proposed transaction will be evaluated to determine if it raises insider trading
concerns or other concerns under the federal or state securities laws and regulations. Any advice will relate solely to the
restraints imposed by law and will not constitute advice regarding the investment aspects of any transaction. If a transaction
is
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Reviewed/Revised/Adopted April 20, 2023
contemplated, Covered Persons must request pre-clearance from the Insider Trader Compliance Officer in advance of the
executing the subject transaction. Clearance of a transaction is valid only for a 48-hour period. Accordingly, “Good until
Cancelled” orders are not permitted, and trade orders must be effected within 48 hours. If the transaction is not placed within
that 48-hour period, clearance of the transaction must be re-requested. If clearance is denied, the fact of such denial must be
kept confidential by the Covered Person requesting such clearance.
4.
Controlled Entities. These additional trading restrictions also apply to transactions by a family trust, partnership, foundation
or similar entity over which any Covered Person or a Family Member has control, or whose assets are held for the benefit of a
Covered Person or a Family Member.
5.
Exceptions. The quarterly and event-specific trading restrictions do not apply to the limited exceptions to the Policy for
certain employee benefit plan transactions and transactions conducted pursuant to approved Rule 10b5-1 plans as described,
under the “Transactions under Company Plans” and “Rule 10b5-1 Plans” headings in the Policy.
3
Reviewed/Revised/Adopted April 20, 2023
Certification for Directors, Executive Officers and Other Designated Employees
TO:
Directors, Executive Officers and Other Designated Employees
FROM:
Kevin J. Helmick, President and Chief Executive Officer
DATE:
________ ___, 20___
SUBJECT:
Insider Trading Policy
Enclosed is a copy of the Insider Trading Policy (the “Policy”) and the Supplemental Trading Restrictions for Directors, Executive
Officers and Other Designated Employees (collectively, “Covered Persons”) of Farmers National Banc Corp. and its affiliates
(collectively, “Farmers”). The Policy outlines the confidential nature of information regarding Farmers and governs securities trading
by Farmers’ personnel. If you have any questions regarding the Policy, please contact Troy Adair or myself for clarification.
Please carefully review the enclosed Policy and the Supplemental Trading Restrictions and then sign and return the Certification
below to Troy Adair.
CERTIFICATION
The undersigned hereby certifies that he/she has read and understands, and agrees to comply with, the Insider Trading Policy and the
Supplemental Trading Restrictions for Directors, Executive Officers and Other Designated Employees, a copy of which was
distributed with this memorandum.
Date:
Signature
Print Name
4
Reviewed/Revised/Adopted April 20, 2023
Certification for Employees
TO:
All Employees
FROM:
Kevin J. Helmick, President and Chief Executive Officer
DATE:
________ ___, 20___
SUBJECT:
Insider Trading Policy
Enclosed is a copy of the Insider Trading Policy (the “Policy”) for Farmers National Banc Corp. and its affiliates (collectively,
“Farmers”). The Policy outlines the confidential nature of information regarding Farmers and governs securities trading by Farmers’
personnel. If you have any questions regarding the Policy, please contact Troy Adair or myself for clarification.
Please carefully review the enclosed Policy then sign and return the Certification below to Troy Adair.
CERTIFICATION
The undersigned hereby certifies that he/she has read and understands, and agrees to comply with, the Insider Trading Policy, a copy
of which was distributed with this memorandum.
Date:
Signature
Print Name
5
Reviewed/Revised/Adopted April 20, 2023
Guidelines for Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be eligible to rely
on this defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company Securities (as defined
in the Insider Trading Policy) that meets certain conditions specified in the Rule (a “Rule 10b5-1 Plan”). If the plan meets the
requirements of Rule 10b5-1, transactions in Company Securities may occur without regard to certain insider trading restrictions. In
general, a Rule 10b5-1 Plan must be entered into at a time when the person entering into the plan is not aware of material nonpublic
information. Once the plan is adopted, the person must not exercise any influence over the amount of securities to be traded, the price
at which they are to be traded or the date of the trade. The plan must either specify the amount, pricing and timing of transactions in
advance or delegate discretion on these matters to an independent third party.
A Rule 10b5-1 plan must include a cooling-off period before trading can commence that, for directors or officers, ends on the later of
90 days after the adoption of the Rule 10b5-1 plan or two business days following the disclosure of Farmers’ financial results in an
SEC periodic report for the fiscal quarter in which the plan was adopted (but in any event, the required cooling-off period is subject to
a maximum of 120 days after adoption of the plan), and for persons other than directors or officers, 30 days following the adoption or
modification of a Rule 10b5-1 plan. A person may not enter into overlapping Rule 10b5-1 plans (subject to certain exceptions) and
may only enter into one single-trade Rule 10b5-1 plans during any 12-month period (subject to certain exceptions). Directors and
officers must include a representation in their Rule 10b5-1 plan certifying that: (i) they are not aware of any material nonpublic
information; and (ii) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions in Rule 10b-
5. All persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan.
As specified in Farmers’ Insider Trading Policy, a Rule 10b5-1 Plan must be approved by the Compliance Officer and meet the
requirements of Rule 10b5-1 and these guidelines. Any Rule 10b5-1 Plan must be submitted for approval at least five days prior to the
entry into the Rule 10b5-1 Plan. No further pre-approval of transactions conducted pursuant to the Rule 10b5-1 Plan will be required.
The following guidelines apply to all Rule 10b5-1 Plans:
•
You may not enter into, modify or terminate a trading program during a Restricted Period, and Event-Specific Restricted
Period or otherwise while you are aware of material nonpublic information.
•
All Rule 10b5-1 Plans must have a duration of at least six months and no more than two years.
•
For officers and directors, no transaction may take place under a Rule 10b5-1 Plan until the later of (a) 90 days after
adoption or modification of the Rule 10b5-1 Plan or (b) two business days following the disclosure of the Company’s
financial results in a Form 10-Q or Form 10-K for the fiscal quarter (the Company’s fourth fiscal quarter in the case of a
Form 10-K) in which the Rule 10b5-1 Plan was adopted or modified (but in
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Reviewed/Revised/Adopted April 20, 2023
any event, the cooling-off period is subject to a maximum of 120 days after adoption of the plan).
•
For persons other than officers and directors, no transaction may take place under a Rule 10b5-1 Plan until 30 days
following the adoption or modification of a Rule 10b5-1 plan.
•
Subject to certain limited exceptions specified in Rule 10b5-1, you may not enter into more than one Rule 10b5-1 Plan at
the same time;
•
Subject to certain limited exceptions specified in Rule 10b5-1, you are limited to only one Rule 10b5-1 designed to effect
an open market purchase or sale of the total amount of securities subject to the Rule 10b-1 Plan as a single transaction in
any 12-month period;
•
You must act in good faith with respect to a Rule 10b5-1 Plan. A Rule 10b5-1 Plan cannot be entered into as part of a
plan or scheme to evade the prohibition of Rule 10b-5. Therefore, although modifications to an existing Rule 10b5-1
Plan are not prohibited, a Rule 10b5-1 Plan should be adopted with the intention that it will not be amended or
terminated prior to its expiration.
•
Officer and directors must include a representation to the Company at the time of adoption or modification of a Rule
10b5-1 Plan that (i) the person is not aware of material nonpublic information about the Company or Company Securities
and (ii) the person is adopting the plan in good faith and not as part of plan or scheme to evade the prohibitions of Rule
10b-5.
•
You should not enter into any transaction in Company Securities while the Rule 10b5-1 Plan is in effect.
Farmers and its officers and directors must make certain disclosures in SEC filings concerning Rule 10b5-1 Plans. Officers and
directors must undertake to provide any information requested by Farmers regarding Rule 10b5-1 Plans for the purpose of providing
the required disclosures or any other disclosures that Farmers deems to be appropriate under the circumstances.
Each director, officer and other Section 16 insider understands that the approval or adoption of a pre-planned selling program in no
way reduces or eliminates such person’s obligations under Section 16 of the Exchange Act, including such person’s disclosure and
short-swing trading liabilities thereunder. If any questions arise, such person should consult with their own counsel in implementing a
Rule 10b5-1 Plan.
Exhibit 21
Direct and Indirect Subsidiaries of Farmers National Banc Corp.
Farmers National Banc Corp.
- The Farmers National Bank of Canfield
- Farmers National Insurance LLC
- Farmers of Canfield Investment Co.
- Farmers Trust Company
- National Associates, Inc.
- Farmers National Captive Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements of Farmers National Banc Corp.:
Form S-3D No. 333-180649
Form S-8 No. 333-217925
Form S-8 No. 333-188570
Form S-8 No. 333-176399
Form S-8 No. 333-264763
of our report dated March 06, 2025, relating to the consolidated financial statements and effectiveness of internal control over financial reporting,
appearing in this Annual Report on Form 10-K.
Crowe LLP
Columbus, Ohio
March 6, 2025
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement No. 333-180649 on Form
S-3D and Nos. 333-217925, 333-188570, 333-176399, and 333-264763 on Form S-8 of Farmers
National Banc Corp. of our report dated March 9, 2023, relating to the consolidated statements of
income, comprehensive income, stockholders’ equity, and cash flows for the year ended December 31,
2022, appearing in the 2024 Annual Report on Form 10-K of Farmers National Banc Corp.
CliftonLarsonAllen LLP
Maumee, Ohio
March 6, 2025
Exhibit 24
POWER OF ATTORNEY
Each director and/or officer of Farmers National Banc Corp. (the “Corporation”) whose signature appears below hereby appoints KEVIN J.
HELMICK and A. TROY ADAIR, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned and in
his or her name, place and stead, and in any and all capacities stated below, and to cause to be filed with the Securities and Exchange Commission (the
“Commission”), the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and likewise to sign and file with the Commission
any and all amendments (on Form 10-K/A) and exhibits thereto, and any and all applications and documents to be filed with the Commission pertaining to such
Annual Report, with full power and authority to do and perform any and all acts and things whatsoever requisite, necessary or advisable to be done in the
premises, as fully and for all intents and purposes as each of the undersigned could so if personally present, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
IN WITNESS WHEREOF, we have hereunto set our hands effective as of the 25th day of February, 2025.
/s/ Kevin J. Helmick
/s/ A. Troy Adair
/s/ Joseph W. Sabat
Kevin J. Helmick
A. Troy Adair
Joseph W. Sabat
President & CEO
Executive VP, CFO and Treasurer
Chief Accounting Officer
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
February 25, 2025
February 25, 2025
February 25, 2025
/s/ Gregory C. Bestic
Director
Gregory C. Bestic
/s/ Carl D. Culp
Director
Carl D. Culp
/s/ Neil J. Kaback
Director
Neil J. Kaback
/s/ Ralph D. Macali
Director
Ralph D. Macali
/s/ Frank J. Monaco
Director
Frank J. Monaco
/s/ Terry A. Moore
Director and Board Chair
Terry A. Moore
/s/ Edward W. Muransky
Director
Edward W. Muransky
/s/ David Z. Paull
Director
David Z. Paull
/s/ Gina A. Richardson
Director
Gina A. Richardson
/s/ Richard B. Thompson
Director
Richard B. Thompson
/s/ André Thornton
Director
André Thornton
/s/ Nicholas D. Varischetti
Director
Nicholas D. Varischetti
Exhibit 31.1
CERTIFICATION
CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K
I, Kevin J. Helmick, certify that:
1) I have reviewed this annual report on Form 10-K of Farmers National Banc Corp. (the “Company”);
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
/s/ Kevin J. Helmick
Kevin J. Helmick
President and Chief Executive Officer
(Principal Executive Officer)
March 6, 2025
Exhibit 31.2
CERTIFICATION
CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K
I, Troy Adair, certify that:
1) I have reviewed this annual report on Form 10-K of Farmers National Banc Corp. (the “Company”);
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
/s/ Troy Adair
Troy Adair
Executive Vice President and Treasurer
(Principal Financial Officer)
March 6, 2025
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Farmers National Banc Corp. (the “Company”) on Form 10-K for the period ending December 31, 2024 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I Kevin J. Helmick, principal executive officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Kevin J. Helmick
Kevin J. Helmick
President and Chief Executive Officer
(Principal Executive Officer)
March 6, 2025
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Farmers National Banc Corp. (the “Company”) on Form 10-K for the period ending December 31, 2024 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I Troy Adair, principal financial officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Troy Adair
Troy Adair
Executive Vice President and Treasurer
(Principal Financial Officer)
March 6, 2025
1
Exhibit 97.1
CLAWBACK POLICY
as Amended and Restated September 26, 2023
1. Purpose. The purpose of this Policy is to describe the circumstances in which Executive Officers will be required to repay or return
Erroneously Awarded Compensation to members of the Company Group. Each Executive Officer shall be required to sign and return
to the Company the Acknowledgement Form attached hereto as Exhibit A pursuant to which such Executive Officer will agree to be
bound by the terms and comply with this Policy.
2. Administration. This Policy shall be administered by the Committee. Any determinations made by the Committee shall be final
and binding on all affected individuals.
3. Definitions. For purposes of this Policy, the following capitalized terms shall have the meanings set forth below:
(a) “Accounting Restatement” shall mean an accounting restatement (i) due to the material noncompliance of the Company
with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in
previously issued financial restatements that is material to the previously issued financial statements (a “Big R” restatement), or (ii)
that corrects an error that is not material to previously issued financial statements, but would result in a material misstatement if the
error were not corrected the current period or left uncorrected in the current period (a “little r” restatement).
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Clawback Eligible Incentive Compensation” shall mean, in connection with an Accounting Restatement and with
respect to each individual who served as an Executive Officer at any time during the applicable performance period for any Incentive-
based Compensation (whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required
to be repaid to the Company Group), all Incentive-based Compensation Received by such Executive Officer (i) on or after the
Effective Date, (ii) after beginning service as an Executive Officer, (iii) while the Company has a class of securities listed on a
national securities exchange or a national securities association, and (iv) during the applicable Clawback Period.
(d) “Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of the
Company immediately preceding the Restatement Date and any transition period (that results from a change in the Company’s fiscal
year) of less than nine months within or immediately following those three completed fiscal years.
(e) “Committee” shall mean the Compensation Committee of the Board.
2
(f) “Company” shall mean Farmers National Banc Corp., an Ohio corporation.
(g) “Company Group” shall mean the Company, together with each of its direct and indirect subsidiaries.
(h) “Effective Date” shall mean September 26, 2023.
(i) “Erroneously Awarded Compensation” shall mean, with respect to each Executive Officer in connection with an
Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based
Compensation that otherwise would have been Received had it been determined based on the restated amounts, computed without
regard to any taxes paid.
(j) “Executive Officer” shall mean the Company’s president, principal financial officer, principal accounting officer (or if
there is no such accounting officer, the Company’s controller), any vice president of the Company in charge of a principal business
unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any
other person who performs similar policy-making functions for the Company. Executive officers of the Company’s subsidiaries are
deemed executive officer of the Company if they perform such policy-making functions for the Company. Policy-making function, for
purposes of this definition, is not intended to include policy-making functions that are not significant. Identification of an executive
officer for purposes of this Policy would include at a minimum executive officers identified pursuant to 17 C.F.R. 229.401(b).
(k) “Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part
from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or
total shareholder return) shall for purposes of this Policy be considered Financial Reporting Measures. For the avoidance of doubt, a
Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
(l) “Incentive-based Compensation” shall mean any compensation that is granted, earned or vested based wholly or in part
upon the attainment of a Financial Reporting Measure.
(m) “Nasdaq” shall mean The Nasdaq Stock Market.
(n) “Policy” shall mean this Policy for the Recovery of Erroneously Awarded Compensation, as the same may be amended
and/or restated from time to time.
(o) “Received” shall, with respect to any Incentive-based Compensation, mean actual or deemed receipt, and Incentive-based
Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the
Incentive-based Compensation award is attained, even if payment or grant of the Incentive-based Compensation occurs after the end
of that period.
(p) “Restatement Date” shall mean the earlier to occur of (i) the date the Board, a committee of the Board or the officers of
the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the
Company is
3
required to prepare an Accounting Restatement, or (ii) the date of court, regulator or other legally authorized body directs the
Company to prepare an Accounting Restatement.
(q) “SEC” shall mean the U.S. Securities and Exchange Commission.
4. Repayment of Erroneously Awarded Compensation.
(a) In the event of an Accounting Restatement, the Committee shall promptly (and in all events within ninety (90) days after
the Restatement Date) determine the amount of any Erroneously Awarded Compensation for each Executive Officer in connection
with such Accounting Restatement and shall promptly thereafter provide each Executive Officer with a written notice containing the
amount of Erroneously Awarded Compensation and a demand for repayment or return, as applicable. For Incentive-based
Compensation based on (or derived from) stock price or total shareholder return where the amount of Erroneously Awarded
Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement, the
amount shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the stock
price or total shareholder return upon which the Incentive-based Compensation was Received (in which case, the Company shall
maintain documentation of such determination of that reasonable estimate and provide such documentation to Nasdaq).
(b) The Committee shall have broad discretion to determine the appropriate means of recovery of Erroneously Awarded
Compensation based on all applicable facts and circumstances and taking into account the time value of money and the cost to
shareholders of delaying recovery. To the extent that the Committee determines that any method of recovery (other than repayment by
the Executive Officer in a lump sum in cash or property) is appropriate, the Company shall offer to enter into a repayment agreement
(in a form reasonable acceptable to the Committee) with effective dateagreement within thirty (30) days after such offer is extended,
the Company shall countersign such repayment agreement. If the Executive Officer fails to sign the repayment agreement within thirty
(30) days after such offer is extended, the Executive Officer will be required to repay the Erroneously Awarded Compensation in a
lump sum in cash (or such property as the Committee agrees to accept with a value equal to such Erroneously Awarded
Compensation) on or prior to the date that is one hundred twenty (120) days following the Restatement Date. For the avoidance of
doubt, except as set forth in Section 4(d) below, in no event may the Company Group accept an amount that is less than the amount of
Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.
(c) To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company Group
when due (as determined in accordance with Section 4(b) above), the Company shall, or shall cause one or more other members of the
Company Group to, take all actions reasonable and appropriate to recover such Erroneously Awarded Compensation from the
applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company Group for any and all
expenses reasonably incurred (including legal fees) by the Company Group in recovering such Erroneously Awarded Compensation in
accordance with the immediately preceding sentence.
(d) Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by
Section 4(b) above if the following conditions are met and the Committee determines that recovery would be impracticable:
4
(i) The direct expenses paid to a third party to assist in enforcing the Policy against an Executive Officer would
exceed the amount to be recovered, after the Company has made a reasonable attempt to recover the applicable Erroneously
Awarded Compensation, documented such reasonable attempt(s) to recover and provided such documentation to Nasdaq;
(ii) Recovery would violate home country law where that law was adopted prior to November 28, 2022, provided
that, before determining that it would be impracticable to recover any amount of Erroneously Awarded Compensation based
on violation of home country law, the Company has obtained an opinion of home country counsel, acceptable to Nasdaq, that
recovery would result in such a violation and a copy of such opinion is provided to Nasdaq; or
(iii) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly
available to employees of the Company Group, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a)
and regulations thereunder.
5. Reporting and Disclosure. The Company shall file all disclosures with respect to this Policy in accordance with the requirement of
the federal securities laws, including the disclosure required by the applicable SEC filings.
6. Indemnification Prohibition. No member of the Company Group shall be permitted to indemnify any Executive Officer against (a)
the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (b)
any claims relating to the Company Group’s enforcement of its rights under this Policy. Further, no member of the Company Group
shall enter into any agreement that exempts any Incentive-based Compensation from the application of this Policy or that waives the
Company Group’s right to recovery of any Erroneously Awarded Compensation and this Policy shall supersede any such agreement
(whether entered into before, on or after the Effective Date).
7. Interpretation. The Committee is authorized to interpret and construe this Policy and to make all determinations necessary,
appropriate, or advisable for the administration of this Policy.
8. Effective Date. This Policy shall be effective as of the Effective Date.
9. Amendment; Termination. The Committee may amend this Policy from time to time in its discretion and shall amend this Policy
as the Committee deems necessary, including as and when the Committee determines that it is legally required by any federal
securities laws, SEC rule or the rules of any national securities exchange or national securities association on which the Company’s
securities are listed. The Committee may terminate this Policy at any time. Notwithstanding anything in this Section 9 to the contrary,
no amendment or termination of this Policy shall be effective if such amendment or termination would (after taking into account any
actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal
securities laws, SEC rule or the rules of any national securities exchange or national securities association on which the Company’s
securities are listed.
10. Other Recoupment Rights; No Additional Payments. The Committee intends that this Policy will be applied to the fullest extent
of the law. The Committee may require that any employment agreement, equity award agreement, or any other agreement entered into
on or after
5
the Effective Date shall, as a condition to the grant of any benefit thereunder, require an Executive Officer to agree to abide by the
terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of
recoupment that may be available to the Company Group under applicable law, regulation or rule or pursuant to the terms of any
similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to
the Company Group.
11. Successors. This Policy shall be binding and enforceable against all Executive Officers and their beneficiaries, heirs, executors,
administrators or other legal representatives.
* * *
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Exhibit A
POLICY FOR THE RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
ACKNOWLEDGEMENT FORM
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the Farmers
National Banc Corp. Policy for the Recovery of Erroneously Awarded Compensation (the “Policy”). Capitalized terms used but not
otherwise defined in this Acknowledgement Form (this “Acknowledgement Form”) shall have the meanings ascribed to such terms in
the Policy.
By signing this Acknowledgement Form, the undersigned acknowledges and agrees that the undersigned is and will continue to be
subject to the Policy and that the Policy will apply both during and after the undersigned’s employment with the Company Group.
Further, by signing below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by returning any
Erroneously Awarded Compensation (as defined in the Policy) to the Company Group to the extent required by, and in a manner
permitted by, the Policy.
________________________________ Signature
________________________________ Printed Name
________________________________
Date