# Farmers National Banc Corp: Form 10-Q for the period ended Mar 31, 2025

- Company: [Farmers National Banc Corp](/companies/fmnb.md) (CIK 709337)
- Form: 10-Q
- Filed: 2025-05-08
- Accepted by EDGAR: May 8, 2025, 12:42 ET
- Period: 2025-03-31
- Accession: 0001437749-25-015366
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/709337/000143774925015366/fmnb20250331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/709337/000143774925015366/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-01-01 to 2025-03-31 | $67.8m | us-gaap:Revenues |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | $13.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.36 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.36 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-01-01 to 2025-03-31 | 37,626,483 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | $15.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2025-01-01 to 2025-03-31 | $3.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2025-01-01 to 2025-03-31 | $6.4m | us-gaap:PaymentsOfDividends |
| Total assets | at 2025-03-31 | $5.16bn | us-gaap:Assets |
| Total liabilities | at 2025-03-31 | $4.73bn | us-gaap:Liabilities |
| Long-term debt | at 2025-03-31 | $86.3m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2025-03-31 | $102.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2025-03-31 | $429.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,627 characters.

### Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q 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 the Company’s 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 the Company’s filings with the Securities and Exchange Commission (the “Commission”), including without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s 2024 Form 10-K, as updated in Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q.

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;
- the length and extent of U.S. and foreign country tariff policies and their impact on global, national, and regional economic conditions.
- 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.

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, except as may be required by applicable law.

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

*(In Thousands, except Per Share Data)*

|  | At or for the Three Months Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Total assets | $5,157,040 | $5,080,010 |
| Net income | $13,578 | $11,240 |
| Diluted earnings per share | $0.36 | $0.30 |
| Return on average assets (annualized) | 1.06% | 0.90% |
| Return on average equity (annualized) | 13.12% | 11.47% |
| Dividends to net income | 47.10% | 56.65% |
| Net loans to assets | 62.36% | 61.97% |
| Loans to deposits | 72.55% | 75.78% |

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

Net Interest Income. The following schedule details the various components of net interest income for the periods indicated. All asset yields are calculated on a tax-equivalent basis where applicable. Security yields are based on amortized cost.

### Average Balance Sheets and Related Yields and Rates

(Dollar Amounts in Thousands)

| EARNING ASSETS | Three Months Ended March 31, 2025 AVERAGE BALANCE | INTEREST | RATE (1) | Three Months Ended March 31, 2024 AVERAGE BALANCE | INTEREST | RATE (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans (2) | $3,261,908 | $46,810 | 5.74% | $3,181,337 | $45,096 | 5.67% |
| Taxable securities | 1,135,580 | 7,096 | 2.50% | 1,101,347 | 6,415 | 2.33% |
| Tax-exempt securities (2) | 377,078 | 2,990 | 3.17% | 408,075 | 3,208 | 3.14% |
| Other investments | 44,170 | 541 | 4.90% | 34,406 | 362 | 4.21% |
| Federal funds sold and other | 73,575 | 510 | 2.77% | 71,757 | 626 | 3.49% |
| TOTAL EARNING ASSETS | 4,892,311 | 57,947 | 4.74% | 4,796,922 | 55,707 | 4.65% |
| Nonearning assets | 226,456 |  |  | 227,044 |  |  |
| TOTAL ASSETS | $5,118,767 |  |  | $5,023,966 |  |  |
| **INTEREST-BEARING LIABILITIES** |  |  |  |  |  |  |
| Time deposits | $733,406 | $6,632 | 3.62% | $736,932 | $7,048 | 3.83% |
| Brokered time deposits | 143,393 | 1,538 | 4.29% | 0 | 0 | 0.00% |
| Savings deposits | 1,115,259 | 4,012 | 1.44% | 1,084,579 | 3,598 | 1.33% |
| Demand deposits - interest bearing | 1,377,522 | 7,535 | 2.19% | 1,345,311 | 7,743 | 2.30% |
| Total interest-bearing deposits | 3,369,580 | 19,717 | 2.34% | 3,166,822 | 18,389 | 2.32% |
| Short term borrowings | 218,444 | 2,417 | 4.43% | 324,791 | 3,939 | 4.85% |
| Long term borrowings | 86,209 | 976 | 4.53% | 88,721 | 1,038 | 4.68% |
| Total borrowed funds | 304,653 | 3,393 | 4.45% | 413,512 | 4,977 | 4.81% |
| TOTAL INTEREST-BEARING LIABILITIES | 3,674,233 | 23,110 | 2.52% | 3,580,334 | 23,366 | 2.61% |
| **NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |  |  |  |  |
| Demand deposits - noninterest bearing | 977,619 |  |  | 995,168 |  |  |
| Other liabilities | 52,894 |  |  | 52,915 |  |  |
| Stockholders' equity | 414,021 |  |  | 395,549 |  |  |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $5,118,767 |  |  | $5,023,966 |  |  |
| Net interest income and interest rate spread |  | $34,837 | 2.22% |  | $32,341 | 2.04% |
| Net interest margin |  |  | 2.85% |  |  | 2.70% |

(1) Rates are calculated on an annualized basis.

(2) Interest on certain tax-exempt loans and tax-exempt securities in 2025 and 2024 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%

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

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

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

Noninterest Income. Noninterest income for the first quarter of 2025 was of $10.5 million compared to $8.4 million for the first quarter of 2024. This increase was due to improved profitability across all fee based lines of business and a lower level of losses on the sale of available for sale securities.

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

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

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

### Financial Condition

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

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

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

The following tables present the amortized cost basis of the Company's commercial real estate portfolio segment by industry as of March 31, 2025 and December 31, 2024:

*(In Thousands of Dollars)*

| March 31, 2025 Commercial real estate | Amortized Cost | % of Commercial Real Estate | % of Total Portfolio | Weighted Average Loan-to-Value | Weighted Average Occupancy |
| --- | ---: | ---: | ---: | ---: | ---: |
| Retail | $344,890 | 21.78% | 10.61% | 53.49% | 85.08% |
| Farmland | 214,028 | 13.51% | 6.58% | 49.07% | 100.00% |
| Warehouse/Industrial | 179,382 | 11.33% | 5.52% | 54.24% | 88.73% |
| Office | 198,101 | 12.51% | 6.09% | 52.38% | 74.51% |
| Multifamily | 157,504 | 9.95% | 4.84% | 59.77% | 85.74% |
| Medical | 141,839 | 8.96% | 4.36% | 44.65% | 92.59% |
| Hotel | 42,945 | 2.71% | 1.32% | 45.08% | 79.69% |
| Special Purpose | 81,924 | 5.17% | 2.52% | 51.21% | 98.85% |
| Restaurant | 50,015 | 3.16% | 1.54% | 50.19% | 100.00% |
| Multifamily - Construction | 79,431 | 5.02% | 2.44% | 49.58% | 29.96% |
| All Other | 93,614 | 5.90% | 2.88% | 48.25% | 95.00% |
| Total | $1,583,673 | 100.00% | 48.70% |  |  |

38

*(In Thousands of Dollars)*

| December 31, 2024 Commercial real estate | Amortized Cost | % of Commercial Real Estate | % of Total Portfolio | Weighted Average Loan-to-Value | Weighted Average Occupancy |
| --- | ---: | ---: | ---: | ---: | ---: |
| 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 | 6.15% | 2.99% | 48.05% | 94.97% |
| Total | $1,588,174 | 100.00% | 48.07% |  |  |

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

### Asset Quality History

(In Thousands of Dollars)

|  | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | 3/31/2024 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Nonperforming loans | $20,724 | $22,818 | $19,076 | $12,870 | $11,951 |
| Nonperforming loans as a % of total loans | 0.64% | 0.70% | 0.58% | 0.40% | 0.38% |
| Non-performing assets | $20,902 | $22,093 | $19,137 | $12,975 | $12,215 |
| Non-performing assets as a % of total assets | 0.41% | 0.45% | 0.37% | 0.25% | 0.24% |
| Loans delinquent 30-89 days | $11,192 | $13,032 | $15,562 | $18,546 | $14,069 |
| Loans delinquent 30-89 days as a % of total loans | 0.34% | 0.40% | 0.47% | 0.57% | 0.44% |
| Allowance for credit losses | $35,549 | $35,863 | $36,186 | $33,991 | $33,159 |
| Allowance for credit losses as a % of total loans | 1.09% | 1.10% | 1.10% | 1.05% | 1.04% |
| Allowance for credit losses as a % of nonperforming loans | 171.54% | 157.17% | 189.69% | 264.11% | 277.46% |
| Net charge-offs for the quarter | $336 | $635 | $4,612 | $563 | $1,011 |
| Annualized net charge-offs to average net loans outstanding | 0.04% | 0.08% | 0.58% | 0.07% | 0.13% |

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

Based on the evaluation of the adequacy of the allowance for credit losses, management believes that the allowance for credit losses at March 31, 2025 is adequate. 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 estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Specific factors considered by management in determining the amounts charged to operating expenses include previous credit loss 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.

Deposits. Total deposits increased to $4.48 billion at March 31, 2025 from $4.27 billion at December 31, 2024. This increase was primarily due to growth in interest-bearing deposits from seasonality of public funds and customers seeking higher yields on their deposit balances. In addition, the Company acquired $85.0 million of brokered time deposits which it used to pay down short-term borrowings.

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

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

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

Federal bank regulatory agencies finalized a rule that simplifies capital requirements for community banks by allowing them to adopt a simple leverage ratio to measure capital adequacy. The community bank leverage ratio framework removes requirements for calculating and reporting risk-based capital ratios for a qualifying community bank that opts into the framework. The Company has not elected to adopt this framework.

### Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with U.S. GAAP. These policies are presented in Note 1 of the consolidated audited financial statements in the Company’s Annual Report to Shareholders included in the Company’s 2024 Form 10-K. 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 two accounting policies that are critical accounting policies and an understanding of these policies is necessary to understand the Company’s financial statements. These policies relate to determining the adequacy of the allowance for credit losses and if there is any impairment of goodwill or other intangible. Additional information regarding these policies is included in the notes to the aforementioned 2024 consolidated financial statements, Note 1 (Summary of Significant Accounting Policies), Note 4 (Loans), and the sections captioned “Loan Portfolio.”

Farmers maintains an allowance for credit losses. The allowance for credit losses is presented as a reserve against loans on the balance sheets. Credit losses are charged off against the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses. A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance.

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 (“MEV”) 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.

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 1.70% from 4Q2024 to 4Q2025, U.S. PCE inflation of 2.70%, and U.S. unemployment of 4.40%, the Company’s relative adverse scenario assumes a four-quarter forecast with a contraction of U.S. real GDP, a PCE inflation between 5.00% and 7.00% and an elevated U.S. unemployment rate between 6.00% and 7.00%. This analysis is not intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including:

- 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 March 31, 2025, 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 $657 thousand for residential real estate loans and lending-related commitments
- An increase of approximately $1.15 million for commercial real estate 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 March 31, 2025.

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 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 March 31, 2025, on a consolidated basis, Farmers had intangibles of $20.0 million subject to amortization and $167.4 million in goodwill, which was not subject to periodic amortization.

### Liquidity

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

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

### Off-Balance Sheet Arrangements

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

### Recent Market and Regulatory Developments

Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in the U.S. Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system.

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

## Market risk

As filed, 6,129 characters.

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.

| Changes In Interest Rate (basis points) Net Interest Income Change | March 31, 2025 Result | December 31, 2024 Result | ALCO Guidelines |
| --- | ---: | ---: | ---: |
| +400 | -7.6% | -9.0% | -12.5% |
| +300 | -6.1% | -7.0% | -10.0% |
| +200 | -4.1% | -4.7% | -7.5% |
| +100 | -2.2% | -2.5% | -5.0% |
| -100 | 1.8% | 2.2% | -5.0% |
| -200 | 3.1% | 3.9% | -10.0% |
| -300 | 4.4% | 5.5% | -15.0% |
| -400 | 4.6% | 6.1% | -20.0% |
| Net Present Value Of Equity Change |  |  |  |
| +400 | -33.3% | -37.2% | -12.5% |
| +300 | -25.1% | -27.3% | -10.0% |
| +200 | -16.1% | -17.7% | -7.5% |
| +100 | -8.0% | -9.0% | -5.0% |
| -100 | 4.4% | 5.5% | -10.0% |
| -200 | 5.1% | 7.1% | -15.0% |
| -300 | 1.5% | 4.4% | -20.0% |
| -400 | -3.3% | 1.5% | -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 was set at a level that was intended to continue to bring down inflation without harming the job market or the economy. There have been no further changes to the discount rate in the first quarter of 2025.

The above table presents results in the up rate scenarios that exceed internal policy limits for the Economic Value of Equity (“EVE”) for both of the periods presented. This unprecedented outcome was created by the events occurring over the past five 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 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 March 31, 2025, and December 31, 2024. A report on interest rate risk is presented to the Board of Directors and the Asset/Liability Committee on a quarterly basis. The Company has no market risk sensitive instruments held for trading purposes.

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

Interest rate sensitivity management provides some degree of protection against net interest income volatility. It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure.

## Controls and procedures

As filed, 664 characters.

Based on their evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective. 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 fiscal quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 4,117 characters.

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 except as set forth below:

*Significant changes to the size, structure, powers and operations of the federal government, changes to U.S. economic policies, and uncertainties regarding these changes may cause economic disruptions which could adversely impact our business, results of operations and financial condition.*

The current U.S. administration has implemented significant changes in federal priorities in the operations, structure, and policy focus of various federal agencies, as well as regulatory priorities, policy approaches and interpretations of existing laws by those federal agencies. Moreover, leadership transitions at key federal agencies have impacted and may continue to impact rulemaking, supervision, enforcement, and examination priorities across the financial regulatory landscape. These developments may have varying and unpredictable effects on the banking and financial services industry that, which makes it difficult to anticipate and mitigate attendant risks. Compliance with changing federal and regulatory priorities could, among other things, increase the costs of operating our business, reduce the demand for our products and services, impact our ability to achieve our business goals, and increase our legal, operational and reputational risks, any or all of which could materially adversely affect our results of operations.

The current U.S. administration also has implemented rapid shifts in macroeconomic policies, such as those relating to trade restrictions and tariffs, which have created significant uncertainties regarding U.S. economic growth, the potential for recession, and concerns over inflation. In order to mitigate the impact of unpredictable U.S. actions, global companies and governments may reduce the use of the U.S. dollar in world trade and financial transactions, which could result in further volatility in the financial markets and U.S. economy. Slow economic growth, economic contraction or recession, or shifts in broader consumer and business trends in the U.S. generally and regions we serve could significantly impact our ability to originate loans, the ability of borrowers to repay loans, and the value of the collateral securing loans.

Other political and economic events within the United States, including changes in or disagreements over U.S. monetary policy and actions of the Federal Reserve, disagreements over long-term federal budget and deficit reduction plans, the threat of a U.S. government shutdown, disagreements over, or threats not to increase, the U.S. government’s borrowing limit, and risk of further downgrade of the ratings of U.S. government debt obligations, also may negatively impact financial markets and the U.S. and regional economy.

Further, the perception of the potential for additional, significant changes in federal regulatory or economic policy also has increased uncertainty and may exacerbate declines in investor and consumer confidence, which in turn may adversely impact financial markets and the broader economy of the U.S. and the economy of regions we serve, perhaps suddenly and to a significant degree.

Regional business and economic conditions are a major driver of our results of operations. Difficult conditions in the regional business and economic environment, including those caused by the lack of stability and predictability of U.S. policymaking, may materially adversely affect our operating expenses, the quality of our assets, credit losses, and the demand for our products and services.

For further discussion of risk factors related to the Company, refer to Part 1, Item 1A, “Risk Factors,” contained in the Company’s 2024 Annual Report on Form10-K. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition.

Additional risk factors not currently known to us or that we currently deem immaterial may also adversely affect us.

Filed May 8, 2025.
Source: SEC EDGAR, the filing index for accession 0001437749-25-015366. Last ingested by Listed: Oct 30, 2026, 11:47 ET. No prices; not investment advice.