FMNB 10-K & 10-Q changes, risk factors and insider trading
Farmers National Banc Corp. · Nasdaq · State Commercial Banks · CIK 709337 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “We may be unable to integrate the business of the Company and Middlefield successfully or realize the anticipated benefits of the Merger.”
New heading “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.”
Removed heading “Instability in geopolitical matters, as well as volatility in financial markets, may have a material adverse effect on our industry and our business.”
Removed heading “Changes to United States tariff and import/export regulations may have a negative effect on our industry and our business.”
Largest changes
“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. …”see in full comparison
“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. …”see in full comparison
“Changes to United States tariff and import/export regulations may have a negative effect on our industry and our business.”see in full comparison
“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. …”see in full comparison
“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. …”see in full comparison
“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.”see in full comparison
Full comparison: every changed paragraph (33)
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.
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 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.
During 2023, several high profile bank failures caused uncertainty in the investor community and negative confidence among bank customers generally.
We may be unable to integrate the business of the Company and Middlefield successfully or realize the anticipated benefits of the Merger.
The Merger of Middlefield into Farmers was completed on March 2, 2026. The combination of two independent businesses is complex, costly and time-consuming, and we anticipate devoting significant management attention and resources to integrating the business practices and operations of Middlefield into ours. Potential difficulties that we may encounter as part of the integration process include the following:
It is possible that the integration process could result in diversion of the attention of the Company’s management and the disruption of, or the loss of momentum in, the Company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.
Any of these issues could adversely affect our ability to maintain relationships with depositors, borrowers, employees and other constituencies or achieve the anticipated benefits of the Merger or could reduce our earnings or otherwise adversely affect our business, results of operations and financial condition.
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.
“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$250,000 and demand deposits—comprised approximately 91.6%93.0% of total deposits at December 31, 2024.2025. 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$498.5 million at December 31, 2024.2025. 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.
time and expense associated with identifying and evaluating potential acquisitions or expansions;
employees may voluntarily or involuntarily exit the Company because of the acquisitions;
our management team may have its attention diverted while trying to integrate the acquired companies;
we may encounter obstacles when incorporating the acquired operations into our operations;
differences in business backgrounds, corporate cultures and management philosophies;
potential unknown liabilities and unforeseen increased expenses;
previously undetected operational or other issues; and the acquired operations may not otherwise perform as expected or provide expected results.
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.
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, 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 the Financial Accounting Standards Board ("FASB") Current Expected Credit Losses ("CECL") standard, 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 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 recent years, several high profile bank failures caused uncertainty in the investor community and negative confidence among bank customers generally.
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.DIF. Those actions included increasing assessment rates for all insured institutions, requiring riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels, and imposing special assessments. In addition, in 2011 the FDIC approved a final rule that changed the deposit insurance assessment base and assessment rate schedule, adopted a new large-bank pricing assessment scheme and set a target size for the Deposit Insurance Fund. The rule, as mandated by the Dodd-Frank Act, finalized a target size for the Deposit Insurance Fund at 2 percent of insured deposits. The FDIC recently adopted rules revising assessments in a manner that benefits banks with assets of less than $10 billion, although there can be no assurance that such assessments will not change in the future.
We have a limited ability to control the amount of premiums we are required to pay for FDIC insurance. If there are additional financial institution failures or other significant legislative or regulatory changes, the FDIC may be required to increase assessment rates or take actions similar to those taken after 2008. Increases in FDIC insurance assessment rates may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all.
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,DIF, 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.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.
Management's Discussion & Analysis (MD&A)
New heading “Comparison of Operating Results for the Years Ended December 31, 2024 and 2023.”
Removed heading “Comparison of Operating Results for the Years Ended December 31, 2023 and 2022.”
Largest changes
“Comparison of Operating Results for the Years Ended December 31, 2024 and 2023.”see in full comparison
“Comparison of Operating Results for the Years Ended December 31, 2023 and 2022.”see in full comparison
“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;”see in full comparison
“actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply, market interest rates and inflation;”see in full comparison
Total deposits increased tosee in full comparison$4.3$4.34 billion at December 31, 2025, from $4.23 billion at December 31, 2024, an increase of $76.0 million. Noninterest bearing deposits increased $28.6 million during 2025 to $994.1 million from$4.2$965.5 million. Interest-bearing deposits increased $122.3 million to $3.35 billion at December 31,2023,2025,an increase of $89.4 million. Noninterest bearing deposits declined $61.1 million during 2024compared 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$3.23 billion at December 31,2024, compared to $3.15 billion at December 31, 2023.2024. The increase was primarily due totheanmigrationincrease in money market accounts ofnoninterest$113.1bearingmillion. The Company paid off its brokered depositsdiscussedinabove. Brokered time deposits increased $75.0 million for the year ended December 31, 2024, due2025 tothetakeCompanyadvantageusingofbrokeredlowertimecostdepositsfundingto pay off short-term borrowings.opportunities.
“Security losses decreased to $2.2 million during the year ended December 31, 2025, from $2.6 million for the year ended December 31, 2024. The losses in 2025 were due to the Company restructuring securities in order to reinvest the proceeds into securities with a higher yield than those sold.”see in full comparison
Full comparison: every changed paragraph (112)
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.
The Company recognized net interest income of $142.4 million for the year ended December 31, 2025, compared to $128.4 million for the year ended December 31, 2024, compared to $137.8 million for the year ended December 31, 2023.2024. The tax-equivalent net interest margin declinedincreased from 2.91% for 2023 to 2.69% for 2024.2024 to 2.95% for 2025. The increase in net interest margin declinedwas due to increasedhigher yields on interest earning assets and lower funding costs associatedon withinterest bearing liabilities. The Federal Reserve rate cuts late in 2024 and 2025 have benefited funding costs, while the Federallag Reserve'seffects aggressiveof rateassets increasesrepricing in 2022 and 2023 along with an inverted U.S treasury yield curve which caused deposit funding costscontinued to risedrive fasterearning than theasset yields being earned on loans and securities.higher.
The income on federal funds sold and other interest income increaseddecreased by $1.3$1.9 million in 20242025 to $1.8 million compared to $3.7 million compared to $2.5 million in 20232024 primarily due to a volume increasedecrease of $21.3$26.8 million in 20242025 and ana increasedecrease of 57128 basis points in the yield on the portfolio.
Interest expense increaseddeclined $23.8$8.0 million in 20242025 to $91.3 million from $99.4 million from $75.5 million in 2023.2024. The increasedecrease was primarily due to a 5915 basis point increasedecline in the yield on interest-bearing deposits and ana increasedecrease in the volume of average borrowed funds which increaseddecreased from $249.4 million in 2023 to $381.2 million in 2024.2024 Theto increase$260.6 million 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 2024.2025.
(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.
Noninterest income increased to $46.1 million for the year ended December 31, 2025 compared to $41.7 million for the year ended December 31, 2024. The major categories of noninterest income are discussed below.
Service charges on deposit accounts decreased to $7.2 million for 2025 compared to $7.3 million in 2024 as overdraft fees lagged levels seen in 2024.
Bank owned life insurance income increased by $726,000 in 2025 to $3.4 million, compared to $2.7 million for the twelve months ended December 31, 2024. The Company purchased $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 $11.1 million for the twelve months ended December 31, 2025, compared to $10.1 million for the twelve months ended December 31, 2024. The trust business continued to grow in 2025 as the value of assets under management increased.
Insurance agency commissions were $6.5 million in 2025 compared to $5.5 million in 2024. The Company shared in the commission from the purchase of the new BOLI policies which added $432,000 to insurance commissions for the year.
Retirement plan consulting fees increased to $3.7 million for 2025 compared to $2.6 million for 2024. The Company picked up additional business in 2025 with the acquisition of Crest in December of 2024. Revenue from this business is expected to continue to increase in 2026.
Security losses decreased to $2.2 million during the year ended December 31, 2025, from $2.6 million for the year ended December 31, 2024. The losses in 2025 were due to the Company restructuring securities in order to reinvest the proceeds into securities with a higher yield than those sold.
Net gains on the sale of loans increased by $148,000 rising from $1.5 million in 2024 to $1.7 million in 2025 driven by higher mortgage volume in 2025.
Other mortgage banking income increased by $37,000 in 2025 compared to 2024. The increase was driven by higher servicing income partially offset by higher impairment and slower amortization of the mortgage servicing rights.
Debit card fees increased to $7.9 million in 2025 compared to $7.5 million in 2024. The increase was primarily due to higher volumes.
Other operating income decreased to $3.9 million for the twelve months ended December 31, 2025, from $4.7 million for the twelve months ended December 31, 2024. Small Business Investment Company ("SBIC") income was $1.8 million for 2025 compared to $2.1 million in 2024. In addition, the Company recorded $565,000 in recoveries on loans that were charged off prior to acquisition in 2024 while the Company did not receive any recoveries in 2025.
Noninterest expense totaled $116.5 million for the year ended December 31, 2025 compared to $106.7 million for the year ended December 31, 2024. The increase was primarily driven by system conversion and Merger related costs which increased from $92,000 in 2024 to $4.0 million in 2025.
Salaries and employee benefits increased by $3.4 million to $62.3 million for the year ended December 31, 2025 from $58.9 million for the year ended December 31, 2024. The increase was primarily driven by annual raises, the acquisition of Crest in the fourth quarter of 2024 and higher commission expense from increased revenue in the fee-based businesses.
Occupancy and equipment expense increased to $17.1 million in 2025 from $15.6 million in 2024 due to increased maintenance and software costs in 2025.
FDIC insurance and state and local taxes decreased to $4.7 million in 2025 from $5.0 million in 2024. The decline was due to lower FDIC expense as the Company had higher capital levels in 2025 resulting in lower expense.
System conversion and acquisition related costs increased from $92,000 in 2024 to $4.0 million in 2025. The Company announced the plan to acquire Middlefield in October of 2025 along with its intention to convert its core system to Jack Henry. The acquisition expense incurred in 2024 was related to the Company’s acquisition of Crest.
Advertising costs increased to $1.8 million in 2025 from $1.5 million in 2024 for new marketing campaigns introduced in 2025.
Intangible amortization expense increased slightly by $38,000 to $2.9 million for the years ended December 31, 2025 and 2024.
Other operating expense was steady at $13.7 million in 2025 compared to $13.8 million in 2024. The slight decrease was spread across several categories of expense.
Income tax expense increased from $9.5 million for the year ended December 31, 2024, to $10.5 million for the year ended December 31, 2025. The increase was primarily due to higher pretax income partially offset by a lower effective tax rate due to increased tax credits investments. Income taxes are computed using the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective income tax rate was 16.1% in 2025 and 17.1% for 2024. Refer to Note 18 to the Consolidated Financial Statements for additional information regarding the effective tax rate.
Comparison of Operating Results for the Years Ended December 31, 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.
The Company recognized net interest income of $128.4 million for the twelve months ended December 31, 2024, compared to $137.8 million for the twelve months ended December 31, 2023. The tax-equivalent net interest margin declined from 2.91% for 2023 to 2.69% for the year ended December 31, 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 the twelve months ended December 31, 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 to 5.76% in 2024 from 5.46% in 2023.
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 to a lower level of brokered CDs utilized in 2024.
Service charges on deposit accounts increased tototaled $7.3 million forin 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,million for the twelve months ended December 31, 2024, 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 forin the2024 twelve months ended December 31, 2024, compared tofrom $9.0 million for the twelve months ended December 31,in 2023. The trust business continued to grow in 2024 as the value of assets under management increased.
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 2025.2024.
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 expense totaled $106.7 million for the yeartwelve months ended December 31, 2024 compared to $111.8 million for the yeartwelve months ended December 31, 2023. The decline was primarily driven by merger related costs which fell from $5.5 million in 2023 to $92 thousand$92,000 in 2024.
Salaries and employee benefits increased by $1.6 million to $58.9 million for the year ended December 31, 20242024, an increase of $1.6 million, from $57.4 million for the year ended December 31, 2023. This increase was primarily due to salary increases and greater incentive compensation.
Intangible amortization expense decreased by $573,000 in 2024 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.
Income tax expense increased to $9.5 million for the year ended December 31, 2024, from $8.8 million for the year ended December 31, 2023, to $9.5 million for the year ended December 31, 2024.2023. 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 consolidatedConsolidated financialFinancial statementsStatements for additional information regarding the effective tax rate.
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.
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.
What changed in the latest 10-Q
Risk Factors
For discussion of risk factors related to the Company, refer to Part 1, Item 1A, "Risk Factor," contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
Removed heading “Recent Market and Regulatory Developments”
Largest changes
“Service charges on deposit accounts increased $893,000 to $4.4 million for the first six months of 2026 compared to $3.5 million in the same period in 2025 primarily as a result of the Merger. BOLI income increased to $2.9 million during the first six months of 2026 compared to $1.6 million for the six months ended June 30, 2025. Death claims were higher by $527,000 in 2026 compared to 2025 and the addition of Middlefield was primarily responsible for the difference. Trust fees increased to $6.1 million at June 30, 2026, from $5.2 million at June 30, 2025. …”see in full comparison
Service charges on deposit accounts increasedsee in full comparison$208,000$685,000 to$2.0$2.4 million for thefirstsecond quarter of 2026 compared to$1.8$1.7 million for thefirstsecond quarter in 2025 primarily as a result of the Merger. Bank owned life insurance ("BOLI") income increased$682,000$569,000 during thefirstsecond quarter of 2026 to$1.5$1.4 million compared to$810,000$832,000 in thefirstsecond quarter of 2025. Death claims were higher by$416,000$271,000 in 2026 compared to 2025 and the addition of Middlefield was primarily responsible for theremainingdifference. Trust fees increased to$3.0$3.1 million atMarchJune31,30, 2026, from $2.6 million atMarchJune31,30, 2025. The increase was due to continued growth in the business unit. Insurance agency commissions were$1.7$1.5 millionbothfor the second quarter of 2026 compared to $1.8 million for the same period in 2025. During the second quarter of 2025, the Company recognized $329,000 in revenue sharing associated with its BOLI purchase in the first quarter of20262025.andThe2025.Company did not have a similar transaction in 2026. Losses on the sale of securities totaled$18,000$22,000 in thefirstsecond quarter of 2026 compared tolossesa gain on the sale of securities of$1.3 million$36,000 during thefirstsecond quarter of 2025.The Company restructured $23.8 million of securities at the end of the first quarter of 2025 resulting in the loss realized on the sale.Retirement plan consulting fees increasedslightlyto$886,000$954,000 in thefirstsecond quarter of 2026 from$798,000$783,000 in thefirstsecond quarter of 2025. Investment commissions grew$342,000$323,000 to$871,000$1.0 million in thefirstsecond quarter of 2026 compared to$529,000$721,000 in thefirstsecond quarter of 2025.TheIn addition to the Merger with Middlefield, the Company has a strong sales team in this line of business and is looking to grow with deeper penetration into newer markets. Other mortgage banking income was$477,000$199,000 in thefirstsecond quarter of 2026 compared to$147,000$27,000 in thefirstsecond quarter of 2025.This increase was primarily due to the Company recovering $303,000 of mortgage servicing rights impairment in the first quarter of 2026.Debit card income grew from$1.9$2.0 million in thefirstsecond quarter of 2025 to$2.0$2.6 million in thefirstsecond quarter of 2026 as better volumes were realized in the current period. Other noninterest income was$898,000$826,000 in thefirstsecond quarter of 2026 compared to $1.2 million in thefirstsecond quarter of 2025 primarily due to lower SBIC income in 2026.
“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.”see in full comparison
“Noninterest expense totaled $78.2 million for the six months ended June 30, 2026 compared to $55.7 million for the six months ended June 30, 2025. Salaries and employee benefits were $39.8 million in the six months of 2026 compared to $30.9 million in the six months of 2025. The increase was primarily driven by higher salaries associated with employee raises, the acquisition of Middlefield in the first quarter of 2026 and higher commission expense from increased revenue in the fee-based businesses. …”see in full comparison
“Provision for Credit Losses and Provision for Unfunded Loans. The provision for credit losses and unfunded loans was $2.4 million for the three months ended June 30, 2026 compared to $3.5 million for the three months ended June 30, 2025. Annualized net charge-offs as a percentage of average loans were 0.30% in the second quarter of 2026, compared to 0.07% in the second quarter of 2025. …”see in full comparison
Full comparison: every changed paragraph (37)
Results of Operations. The following is a comparison of selected financial ratios and other results at or for the three and six month periods ended MarchJune 31,30, 2026 and 2025:
Net Income. The Company reported net income of $16.3$23.0 million, or $0.36$0.39 per diluted share, for the quarter ended MarchJune 31,30, 2026 compared to $13.6$13.9 million, or $0.36$0.37 per diluted share, for the quarter ended MarchJune 31,30, 2025. Net income for the firstsecond quarter of 2026 included a charge of $4.0$1.7 million related to the Merger with Middlefield and the conversion of our core system to Jack Henry. The new core platform contract will save the Company approximately $2.0 million per year, or $0.04 in diluted earnings per share, once the conversion is complete in August of 2026.
The Company reported net income of $39.3 million, or $0.76 per diluted share, for the six months ended June 30, 2026, compared to $27.5 million, or $0.73 per diluted share, for the six months ended June 30, 2025. The year-to-date results were impacted by $5.7 million in costs related to the Merger with Middlefield and the core system conversion.
Net Interest Income. Net interest income for the three months ended MarchJune 31,30, 2026, was $42.6$56.0 million compared to $34.2$34.9 million for the three months ended MarchJune 31,30, 2025. The Merger with Middlefield and a 2753 basis point increase in the net interest margin were the primary reasons for this increase.
The net interest margin for the three-month period ended MarchJune 31,30, 2026, was 3.12%3.44% compared to 2.85%2.91% for the same period in 2025. Interest-earning asset yields increased 1548 basis points in the firstsecond quarter of 2026 compared to the firstsecond quarter of 2025 while the cost of interest-bearing liabilities decreased 175 basis points when comparing these two periods. This decrease in interest-bearing liabilities resulted from a reduction in deposit costs of 187 basis points and a 5643 basis point reduction in costs on borrowings rates in comparing the firstsecond quarter of 2025 to the firstsecond quarter of 2026.
Provision for Credit Losses and Provision for Unfunded Loans. The provision for credit losses and unfunded loans was a benefit of $1.0 million for the three months ended March 31, 2026, compared to a benefit of $204,000 for the three months ended March 31, 2025. The provision in the first quarter of 2026 was positively impacted by improvements in qualitative factors in the Company’s CECL model.
NoninterestNet Income. Noninterestinterest income for the firstsix quartermonths ofended 2026June 30, 2026, was $13.7$98.6 million compared to $10.5$69.1 million for the firstsix quartermonths ofended June 30, 2025. The increase in net interest income was primarily driven by the MiddlefieldMerger acquisition,with growth in the wealth lines of business and lower losses on the sale of securities.Middlefield.
The net interest margin for the six months ended June 30, 2026, was 3.29% compared to 2.88% for the same period in 2025. Interest-yielding assets increased 33 basis points while interest-bearing liabilities decreased 5 basis points for the six months ended June 30, 2026, compared to the same period in the prior year.
Provision for Credit Losses and Provision for Unfunded Loans. The provision for credit losses and unfunded loans was $2.4 million for the three months ended June 30, 2026 compared to $3.5 million for the three months ended June 30, 2025. Annualized net charge-offs as a percentage of average loans were 0.30% in the second quarter of 2026, compared to 0.07% in the second quarter of 2025. The increase in net charge-offs was associated with the resolution of non-performing loans, but most of the net charge-offs came from loans that carried specific reserves, the cost of which had been recognized in prior periods.
For the first six months of 2026, the Company recorded a provision for credit losses and unfunded loans of $1.4 million compared to a provision of credit losses and unfunded loans of $3.3 million for the first six months of 2025.
Noninterest Income. Noninterest income for the second quarter of 2026 was $14.4 million compared to $12.1 million for the second quarter of 2025. The increase was driven by the Middlefield acquisition and continued growth in the wealth line of business.
Service charges on deposit accounts increased $208,000$685,000 to $2.0$2.4 million for the firstsecond quarter of 2026 compared to $1.8$1.7 million for the firstsecond quarter in 2025 primarily as a result of the Merger. Bank owned life insurance ("BOLI") income increased $682,000$569,000 during the firstsecond quarter of 2026 to $1.5$1.4 million compared to $810,000$832,000 in the firstsecond quarter of 2025. Death claims were higher by $416,000$271,000 in 2026 compared to 2025 and the addition of Middlefield was primarily responsible for the remaining difference. Trust fees increased to $3.0$3.1 million at MarchJune 31,30, 2026, from $2.6 million at MarchJune 31,30, 2025. The increase was due to continued growth in the business unit. Insurance agency commissions were $1.7$1.5 million bothfor the second quarter of 2026 compared to $1.8 million for the same period in 2025. During the second quarter of 2025, the Company recognized $329,000 in revenue sharing associated with its BOLI purchase in the first quarter of 20262025. andThe 2025.Company did not have a similar transaction in 2026. Losses on the sale of securities totaled $18,000$22,000 in the firstsecond quarter of 2026 compared to lossesa gain on the sale of securities of $1.3 million$36,000 during the firstsecond quarter of 2025. The Company restructured $23.8 million of securities at the end of the first quarter of 2025 resulting in the loss realized on the sale. Retirement plan consulting fees increased slightly to $886,000$954,000 in the firstsecond quarter of 2026 from $798,000$783,000 in the firstsecond quarter of 2025. Investment commissions grew $342,000$323,000 to $871,000$1.0 million in the firstsecond quarter of 2026 compared to $529,000$721,000 in the firstsecond quarter of 2025. TheIn addition to the Merger with Middlefield, the Company has a strong sales team in this line of business and is looking to grow with deeper penetration into newer markets. Other mortgage banking income was $477,000$199,000 in the firstsecond quarter of 2026 compared to $147,000$27,000 in the firstsecond quarter of 2025. This increase was primarily due to the Company recovering $303,000 of mortgage servicing rights impairment in the first quarter of 2026. Debit card income grew from $1.9$2.0 million in the firstsecond quarter of 2025 to $2.0$2.6 million in the firstsecond quarter of 2026 as better volumes were realized in the current period. Other noninterest income was $898,000$826,000 in the firstsecond quarter of 2026 compared to $1.2 million in the firstsecond quarter of 2025 primarily due to lower SBIC income in 2026.
For the six months ended June 30, 2026, noninterest income increased by $5.5 million compared to the six months ended June 30, 2025. The increase was primarily due to the Merger with Middlefield, improved profitability in fee-based lines of business coupled with a lower level of losses on the sale of available for sale securities.
Service charges on deposit accounts increased $893,000 to $4.4 million for the first six months of 2026 compared to $3.5 million in the same period in 2025 primarily as a result of the Merger. BOLI income increased to $2.9 million during the first six months of 2026 compared to $1.6 million for the six months ended June 30, 2025. Death claims were higher by $527,000 in 2026 compared to 2025 and the addition of Middlefield was primarily responsible for the difference. Trust fees increased to $6.1 million at June 30, 2026, from $5.2 million at June 30, 2025. The increase was due to continued growth in the business unit. Insurance agency commissions were $3.2 and $3.6 million for the six months ended June 30, 2026 and 2025, respectively. Gains on the sale of securities totaled $4,000 in the first six months of 2026 compared to losses on the sale of securities of $1.3 million during the first six months of 2025. The Company restructured $23.8 million of securities at the end of the first quarter of 2025 resulting in the loss realized on the sale. Retirement plan consulting fees increased slightly to $1.8 million in the first six months of 2026 from $1.6 million in the first six months of 2025. Investment commissions increased to $1.9 million in the first half of 2026 compared to $1.3 million in the first half of 2025. The Company has a strong sales team in this line of business and is looking to grow with deeper penetration into newer markets. Other mortgage banking income was $676,000 in first half of 2026 compared to $174,000 in the first half of 2025. This increase was primarily due to the Company recovering $516,000 of mortgage servicing rights impairment in the first quarter of 2026. Debit card income grew from $3.9 million in the first six months of 2025 to $4.6 million in the first six months of 2026 as better volumes were realized in the current period. Other noninterest income was $1.7 million in the first six months of 2026 compared to $2.4 million in the first half of 2025, primarily due to lower SBIC income in 2026.
Noninterest Expense. Noninterest expense totaled $37.3$40.9 million for the quarter ended MarchJune 31,30, 2026 compared to $28.5$27.2 million for the quarter ended MarchJune 31,30, 2025. Salaries and employee benefits were $18.5$21.3 million in the firstsecond quarter of 2026 compared to $16.2$14.7 million in the firstsecond quarter of 2025. The increase was primarily driven by higher salaries associated with employee raises, the acquisition of Middlefield in the first quarter of 2026 and higher commission expense from increased revenue in the fee-based businesses. Occupancy and equipment expense increased to $5.1$5.9 million in the firstsecond quarter of 2026 from $4.1 million in the firstsecond quarter of 2025 due to the Merger and increased maintenance costs in 2026 due to more severe winter weather conditions. FDIC and state and local taxes increased by $341,000$671,000 to $1.6$1.9 million in the firstsecond quarter of 2026 compared to $1.3 million in the firstsecond quarter of 2025 due to the Merger and higher capital levels year-over-year. Expense related to the Merger and to convert our core processing system increased to $4.0$1.7 million. There were no expenses recognized for these activities in the firstsecond quarter of 2025. Core processing expense increased to $1.7$2.3 million in the firstsecond quarter of 2026 from $1.4 million in the firstsecond quarter of 2025. The increase was due to the Merger and a lower level of service credits in 2026. Other noninterest expense increased by $650,000$1.0 million to $3.8$4.5 million in the firstsecond quarter of 2026 primarily as a result of the acquisition and timing issues.differences.
Noninterest expense totaled $78.2 million for the six months ended June 30, 2026 compared to $55.7 million for the six months ended June 30, 2025. Salaries and employee benefits were $39.8 million in the six months of 2026 compared to $30.9 million in the six months of 2025. The increase was primarily driven by higher salaries associated with employee raises, the acquisition of Middlefield in the first quarter of 2026 and higher commission expense from increased revenue in the fee-based businesses. Occupancy and equipment expense increased to $11.1 million in the six months of 2026 from $8.3 million in the six months of 2025 due to the Merger and increased maintenance costs in 2026 due to more severe winter weather conditions. FDIC and state and local taxes increased by $1.0 million to $3.5 million in the first half of 2026 compared to $2.5 million in the first half of 2025 due to the Merger and higher capital levels year-over-year. Expense related to the Merger and to convert our core processing system increased to $5.7 million. There were no expenses recognized for these activities in the first six months of 2025. Core processing expense increased to $4.1 million in the first six months of 2026 from $2.8 million for the same period in 2025. The increase was due to the Merger and a lower level of service credits in 2026. Other noninterest expense increased by $1.7 million to $8.3 million in the first six months of 2026, primarily as a result of the acquisition and timing differences.
Income Taxes. Income tax expense was $3.7$4.1 million for the three months ended MarchJune 31,30, 2026 compared to $2.8$2.4 million for the three months ended MarchJune 31,30, 2025 due to higher pretax income in the first quarter of 2026.2025.
Income tax expense was $7.8 million for the six months ended compared to $5.2 million for the same period in 2025, due to higher pretax income in the first half of 2026.
Cash and Cash Equivalents. Cash and cash equivalents increased $93.7$72.4 million during the first threesix months of 2026 to $186.1$164.8 million from $92.4 million at December 31, 2025. The increase in the cash balances was primarily due to the Company intentionally holding more liquidity on its balance sheet at MarchJune 31,30, 2026 and the Merger with Middlefield.
Securities. The Company had securities available for sale totaling $1.48$1.47 billion as of MarchJune 31,30, 2026 compared to $1.34 billion as of December 31, 2025. The increase is a direct result of the Merger. Net unrealized losses on the portfolio totaled $189.7$185.6 million at MarchJune 31,30, 2026, compared to $181.8 million at December 31, 2025. The Company anticipates continued volatility in the bond market in 2026, which will continue to affect the value of the portfolio.
Loans. Net loans (excluding loans held for sale) increased to $4.75$4.72 billion at MarchJune 31,30, 2026 from $3.27 billion at December 31, 2025. The increase in 2026 is primarily due to the Merger.
The following tables present the amortized cost basis of the Company's commercial real estate portfolio segment by industry as of MarchJune 31,30, 2026 and December 31, 2025:
The Company's allowance for credit losses increased to $54.7$53.3 million for the period ended MarchJune 31,30, 2026, from $36.8 million for the period ended December 31, 2025. The increase in the allowance for credit losses was primarily driven by the Merger. The Company recorded a $4.0 million and $15.3 million increase to the allowance for credit losses for the Day 1 reserve for purchased financial assets with credit deterioration and purchased seasoned loans, respectively. 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 MarchJune 31,30, 2026 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 $5.9$5.83 billion at MarchJune 31,30, 2026 from $4.34 billion at December 31, 2025. Customer depositsDeposits grew $1.6$1.49 billion, including an increase of $282.7$215.7 million in public funds. The increase was primarily due to Middlefield, which added $1.49 billion in deposits, as well as seasonal growth in public funds.deposits.
Short-term Borrowings. Total short-term borrowing balances increased from $281.0 million at December 31, 2025 to $341.0$361.0 million at MarchJune 31,30, 2026. The Middlefield Merger added $145.0 million in short-term borrowings offset by payoffs.
Total Stockholders' Equity. Total stockholders’ equity increased to $766.9$784.0 million at MarchJune 31,30, 2026 from $485.7 million at December 31, 2025. The increase was primarily due to an increase in common stock of $276.2 million from the Merger coupled with growth in retained earnings of $9.8$22.8 million due to $16.3$39.3 million of net income recognized during the first threesix months of the year 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 MarchJune 31,30, 2026, 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 11.70%,12.64%, total risk-based capital ratio stood at 14.63%,13.69%, and the Tier 1 risk-based capital ratio and Tier 1 leverage ratio were at 12.19%12.64% and 11.21%,9.55%, respectively, at MarchJune 31,30, 2026. Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject, as of MarchJune 31,30, 2026.
For example, compared to the Company’s central scenario that is based on a four-quarter forecasted change in U.S. real GDP of 2.40%2.20% from 4Q2025 to 4Q2026, U.S. PCE inflation of 2.70%,3.60%, and U.S. unemployment of 4.40%,4.30%, the Company’s relative adverse scenario assumes a four-quarter forecast with a contraction of U.S. real GDP, a PCE inflation betweengreater 5.00% andthan 7.00% and an elevated U.S. unemployment rate between 6.00%5.00% and 7.00%.6.00%. This analysis is not intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including:
To demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of MarchJune 31,30, 2026, 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:
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 MarchJune 31,30, 2026.
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 MarchJune 31,30, 2026, on a consolidated basis, Farmers had intangibles of $36.8$35.6 million subject to amortization and $271.7$271.4 million in goodwill, which was not subject to periodic amortization.
Along with its liquid assets, the Bank has additional sources of liquidity available which help to ensure that adequate funds are available as needed. These other sources include, but are not limited to, access to funds in the wholesale arena, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at major domestic banks. The Bank has a line of credit totaling $25.0 million and there was no balance on this line at either MarchJune 31,30, 2026 or December 31, 2025. The Company also has access to borrow $11.5$11.3 million at the Federal Reserve Discount Window, however, there was no balance on this line at MarchJune 31,30, 2026 or December 31, 2025. The Federal Reserve Discount Window can be an additional source of funds with the posting of additional collateral. As of MarchJune 31,30, 2026, the Bank had $341.0$361.0 million in outstanding balances with the FHLB. Additional borrowing capacity at the FHLB was approximately $788.9$608.5 million at MarchJune 31,30, 2026. The Bank views its membership in the FHLB as a solid source of liquidity. Management feels that its liquidity position is adequate and will continue to monitor the position on a monthly basis.
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 $1.03$1.07 billion at MarchJune 31,30, 2026, and $710 million at December 31, 2025. Additionally, the Company has committed up to $21.2 million in subscriptions in SBIC investment funds and at MarchJune 31,30, 2026, the Company had invested $16.0$16.4 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.
FMNB insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 1 trade date, 1,430 shares, about $22.0K) and open-market sales in 2 filings (2 insiders, 2 trade dates, 28,309 shares, about $411.1K). Net open-market shares: -26,879 (purchases minus sales); net value about -$389.1K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-21 | Richardson Gina A |
Open-market purchase | 1,430 | $15.35 | $22.0K |
| 2026-08-06 | Wenick Mark J |
Open-market sale | 5,000 | $15.97 | $79.8K |
| 2026-06-22 | Voinovich Michael C |
Open-market sale | 23,309 | $14.21 | $331.2K |
| 2026-05-08 | Voinovich Michael C |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Varischetti Nicholas D |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Thornton Andre |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Richardson Gina A |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Paull David Z |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Muransky Edward |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Moore Terry A |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Monaco Frank J |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Kaback Neil J |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Digeronimo Kevin A |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Culp Carl D |
Grant/award | 1,606 | — | — |
| 2026-05-08 | Bestic Gregory C |
Grant/award | 1,606 | — | — |
Well-known investors holding FMNB (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Two Sigma Investments | 2026-06-30 | 490,698 | $7.2M | 0.01% | Added 88% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 423,186 | $6.2M | 0.0% | Added 19% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 357,225 | $5.2M | 0.0% | Added 150% |
| D. E. Shaw & Co. | 2026-06-30 | 60,898 | $889.1K | 0.0% | Reduced 51% |
| Renaissance Technologies | 2026-06-30 | 39,335 | $574.3K | 0.0% | Reduced 29% |
| Millennium Management (Israel Englander) | 2026-06-30 | 38,541 | $562.7K | 0.0% | Reduced 88% |