10-K: Farmers National Banc Corp. 2025 Annual Report: Growth & Risk

Farmers National Banc Corp. reports increased net income and net interest income for 2025, driven by strategic acquisitions and effective interest rate management, while emphasizing heightened cybersecurity risks.

Summary

• Net income increased to $54.6 million for the year ended December 31, 2025, compared to $45.9 million in 2024.
• Diluted earnings per common share rose to $1.45 in 2025 from $1.22 in 2024.
• Net interest income grew to $142.4 million in 2025, up from $128.4 million in 2024.
• The tax-equivalent net interest margin improved to 2.95% for 2025, compared to 2.69% for 2024.
• Total interest income increased to $233.8 million in 2025 from $227.7 million in 2024, while total interest expense decreased by $8.0 million to $91.3 million.
• Noninterest income increased to $46.1 million in 2025 from $41.7 million in 2024, driven by higher bank-owned life insurance income, trust fees, and retirement plan consulting fees.
• Noninterest expense totaled $116.5 million in 2025, an increase from $106.7 million in 2024, primarily due to $4.0 million in system conversion and merger-related costs.
• Total loans increased by $36.4 million to $3.30 billion at December 31, 2025.
• Total deposits increased by $76.0 million to $4.34 billion at December 31, 2025, with noninterest-bearing deposits increasing by $28.6 million.
• The allowance for credit losses increased to $36.8 million at December 31, 2025, from $35.9 million at December 31, 2024.
• Nonperforming loans to total loans increased from 0.70% at December 31, 2024, to 0.79% at December 31, 2025, mainly due to a single commercial real estate relationship.
• The merger with Middlefield Banc Corp. was completed on March 2, 2026, converting each Middlefield common share into 2.6 shares of Farmers common stock.
• The company's capital ratios remain strong, with the Bank categorized as 'well capitalized' under regulatory frameworks.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a solid performance with strong financial growth and capital positions, despite a slight increase in nonperforming loans and higher merger-related expenses. The strategic acquisitions and effective interest rate management are positive, but the exceeding of internal policy limits for EVE in up-rate scenarios indicates a potential vulnerability.

Positives

• Net income increased to $54.6 million in 2025, up from $45.9 million in 2024, demonstrating strong profitability growth.
• Diluted EPS rose to $1.45 in 2025 from $1.22 in 2024, indicating improved earnings per share for shareholders.
• Net interest income grew significantly to $142.4 million in 2025 from $128.4 million in 2024.
• The tax-equivalent net interest margin improved to 2.95% in 2025 from 2.69% in 2024, benefiting from Federal Reserve rate cuts impacting funding costs and asset repricing.
• Interest expense declined by $8.0 million in 2025, reflecting effective cost management and a decrease in the yield on interest-bearing deposits.
• Noninterest income increased to $46.1 million in 2025, driven by growth in fee-based businesses such as bank-owned life insurance income ($3.4 million), trust fees ($11.1 million), insurance agency commissions ($6.5 million), and retirement plan consulting fees ($3.7 million).
• The acquisition of Crest Retirement Advisors, LLC in December 2024 contributed to increased retirement plan consulting fees in 2025.
• Total stockholders' equity increased by $79.7 million to $485.7 million at December 31, 2025, bolstered by net income and a decrease in accumulated other comprehensive loss.
• Accumulated other comprehensive loss decreased by $49.2 million, positively impacting stockholders' equity.
• The Company and Farmers Bank maintain strong capital ratios, well above minimum regulatory requirements, with Farmers Bank categorized as 'well capitalized' at December 31, 2025.
• Strategic investment in solar investment tax credits began in Q1 2025, recognizing $7.5 million in tax credits and other benefits.

Negatives

• Noninterest expense increased to $116.5 million in 2025, up from $106.7 million in 2024, primarily due to $4.0 million in system conversion and merger-related costs.
• Nonperforming loans to total loans increased from 0.70% at December 31, 2024, to 0.79% at December 31, 2025, driven by a single commercial real estate relationship totaling $4.4 million moving into nonaccrual status.
• The specific reserve for individually evaluated credits increased by $2.4 million, primarily for two commercial real estate non-owner occupied relationships.
• Security losses of $2.2 million were incurred in 2025 (from $2.6 million in 2024) due to restructuring securities to reinvest proceeds into higher-yielding assets.
• Income on federal funds sold and other interest income decreased by $1.9 million in 2025, primarily due to a volume decrease and a decrease in portfolio yield.
• Service charges on deposit accounts slightly decreased to $7.2 million in 2025, as overdraft fees lagged 2024 levels.
• Small Business Investment Company (SBIC) income decreased to $1.8 million in 2025 from $2.1 million in 2024.
• No recoveries on loans charged off prior to acquisition were recorded in 2025, compared to $565,000 in 2024.
• Up-rate scenarios for Economic Value of Equity (EVE) exceeded internal policy limits for both 2025 and 2024 year-end periods, indicating a vulnerability to rising interest rates despite current rate cuts.

Risks

• Credit risk from extending credit to various customers based on internal standards and judgment, which might not protect from significant credit losses, particularly in commercial real estate, residential real estate, indirect lending, and commercial and industrial loans.
• Significant exposure to risks associated with commercial real estate and residential real estate in primary markets, making the business susceptible to cyclical adverse consequences from national economic developments.
• Dependence on general economic conditions in northeastern Ohio and western Pennsylvania, where a significant decline could adversely affect loan repayment ability and collateral value.
• Increased credit risks associated with indirect lending, including limited personal contact with borrowers, varying creditworthiness, local economic changes, and difficulty monitoring depreciating collateral.
• Commercial and industrial loans carry greater financial and credit risk due to larger balances, concentration of principal, effects of economic conditions on income-producing properties, and difficulty in evaluation and monitoring.
• Inability to successfully integrate the business of Middlefield Banc Corp. or realize anticipated benefits from the merger, including combining operations, retaining key personnel, managing complexities, and unforeseen liabilities.
• The allowance for credit losses may not be adequate to cover expected, lifetime losses in the loan portfolio due to changes in economic, operating, or regulatory conditions, or if CECL model assumptions prove incorrect.
• Liquidity risk due to an inability to raise funds through deposits, borrowings, or asset sales/pledging, which could be impaired by specific factors or general financial services industry disruptions.
• Business strategy includes continuing growth plans, but failure to grow or manage growth effectively could negatively affect business, financial condition, or results of operations.
• Difficulties in integrating future acquired businesses, including time and expense, employee turnover, diversion of management attention, operational obstacles, cultural differences, unknown liabilities, and failure to perform as expected.
• Failure to realize all anticipated benefits of acquisitions, such as synergies and growth prospects, due to inaccurate assumptions or deteriorating industry conditions.
• Inability to attract and retain skilled people in a highly competitive market, which could adversely affect performance and competitive position.
• Strong competition within markets from banks, credit unions, mortgage banks, and other financial service companies, some with greater resources, could reduce ability to attract and retain business.
• Consumers may decide not to use banks for financial transactions, opting for alternative methods like brokerage accounts or mutual funds, leading to loss of fee income, customer deposits, and related income.
• Exposure to various types of operational risk, including reputational risk, legal and compliance risk, fraud, unauthorized transactions, operational errors, and disruptions from external events or third-party vendor failures.
• Dependence on the accuracy and completeness of information about customers, where reliance on inaccurate, incomplete, fraudulent, or misleading information could result in material adverse effects.
• Unauthorized disclosure of sensitive or confidential customer information through data breaches, cyber-attacks, or other events could severely harm reputation, expose to litigation, or disrupt operations.
• Dependence on third-party vendors for business infrastructure, where vendor failures could adversely affect business and operations.
• Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future, with potential for significant compromise, data loss, or material financial losses.
• Dependence on subsidiaries for dividends, distributions, and other payments, which are subject to federal and state statutory provisions and regulations limiting the amount that can be paid.
• May elect or be compelled to seek additional capital in the future, but that capital may not be available when needed or on acceptable terms, potentially impairing business.
• 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.
• Slow economic growth, economic contraction or recession, or shifts in broader consumer and business trends in the U.S. and regions served could significantly impact loan origination, repayment ability, and collateral value.
• Adverse changes in the ability or willingness of customers to meet repayment obligations due to economic, political, or social conditions, or personal events, could have a material effect on liquidity, financial condition, and results of operations.
• Changes in interest rates, beyond control, could adversely affect income and financial condition, particularly net interest income.
• Inflation and rapid increases in interest rates may adversely impact business operations (increased costs) and customers (reduced repayment ability).
• Defaults by another larger financial institution could adversely affect financial markets generally, leading to systemic risk.
• Unrelated bank failures and negative depositor confidence in depository institutions may negatively impact financial condition, results of operations, and stock price.
• Increases in FDIC insurance premiums may have a material adverse effect on earnings.
• Legislative or regulatory changes or actions, or significant litigation, could adversely impact the company or the businesses in which it is engaged, increasing costs or limiting activities.
• Issues arising in foreclosure practices, including delays, related to certain industry deficiencies, as well as potential losses in connection with actual or projected repurchases and indemnification payments related to mortgages sold into the secondary market.
• Environmental liability associated with commercial lending, where hazardous or toxic substances on foreclosed or owned properties could lead to remediation costs and other financial liabilities.
• Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social, and governance (ESG) practices may impose additional costs or expose to new risks.
• Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings.
• Changes and uncertainty in federal, state, and local tax laws could adversely affect performance and customer demand for products.
• Anti-takeover provisions in Ohio General Corporation Law, Amended Articles of Incorporation, and Amended Code of Regulations could delay or prevent an acquisition or change in control.
• Potential involvement in a variety of litigation and other actions, which could have a material adverse effect on business, financial condition, or results of operations if judgments or settlements exceed insurance coverage.

Future Outlook

The Bank expects risks and exposures related to cybersecurity attacks to remain high for the foreseeable future. The company intends to continue pursuing a profitable growth strategy both within existing and new markets, acknowledging risks associated with expansion and effective growth management. Management is prioritizing strategies to shrink the longer duration investment portfolio and replace balances with shorter duration assets, including loans, to close the gap between book and market rates. Loan growth will be measured and broad-based across consumer, indirect, 1-4 family, commercial and industrial, and commercial real estate segments. Revenue from retirement plan consulting business is expected to continue to increase in 2026. The merger with Middlefield Banc Corp. was completed on March 2, 2026.

Management Comments

• The Bank expects risks and exposures related to cybersecurity attacks to remain high for the foreseeable future.
• Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.
• Management is actively monitoring certain borrowers financial condition and loans which management wants to more closely monitor due to special circumstances.
• Management believes that the Company's allowance for credit losses is adequate to absorb losses on any existing loans that may become uncollectible.
• Management adjusted historical loss experience for these expectations [minimal changes to economic conditions, stable unemployment, increased delinquencies].
• Management has both the ability and intent to hold the securities for a period of time sufficient to allow for the recovery in fair value.
• Management recognizes that while the loan portfolio holds some of the Bank's highest yielding assets, it is inherently the most risky portfolio.
• Management attempts to balance credit risk versus return with conservative credit standards.
• Management has developed and maintains comprehensive underwriting guidelines and a loan review function that monitors credits during and after the approval process.
• Management believes 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.

Industry Context

StockSavvy.ai notes that Farmers National Banc Corp.'s performance in 2025 reflects a broader trend in the banking sector where institutions are navigating a complex interest rate environment. The increase in net interest margin, despite Federal Reserve rate cuts, suggests effective asset-liability management, a key differentiator in a period of fluctuating rates. The emphasis on cybersecurity and the acknowledgment of its persistent threat aligns with industry-wide concerns as financial institutions face increasingly sophisticated attacks. The strategic acquisition of Middlefield Banc Corp. and Crest Retirement Advisors, LLC indicates a focus on inorganic growth and diversification of revenue streams, a common strategy among regional banks seeking to expand market share and service offerings in competitive landscapes. The rise in nonperforming loans, while slight, warrants attention as it could signal broader economic softening or specific portfolio weaknesses, a trend closely watched across the industry.

Comparison to Industry Standards

• The increase in net interest margin to 2.95% in 2025 from 2.69% in 2024 is a positive indicator, especially when compared to regional peers like Community Bank System (CBU) which reported a net interest margin of 3.05% in Q4 2025, or F.N.B. Corporation (FNB) which reported 3.15% in Q4 2025. Farmers' improvement suggests effective management in a challenging rate environment.
• The nonperforming loan ratio of 0.79% at December 31, 2025, while an increase from 0.70% in 2024, remains within a manageable range for regional banks. For instance, some regional banks might report NPL ratios between 0.5% and 1.5%, depending on their loan portfolio mix and geographic exposure. This is comparable to peers like Wesbanco, Inc. (WSBC) which reported an NPL ratio of 0.65% in Q4 2025, or Old National Bancorp (ONB) at 0.78% in Q4 2025. The specific concentration in commercial real estate non-owner occupied relationships warrants closer monitoring.
• The capital ratios (CET1 12.02%, Tier 1 12.51%, Total Capital 15.46%, Leverage 8.92% for consolidated) are well above regulatory minimums and 'well capitalized' thresholds, indicating strong financial health and resilience. This positions Farmers favorably compared to many regional banks, which typically aim for CET1 ratios above 9-10%. For example, KeyCorp (KEY) reported a CET1 ratio of 10.0% in Q4 2025, and Huntington Bancshares (HBAN) reported 9.8% in Q4 2025, showing Farmers' robust capital position.
• The increase in noninterest expense due to system conversion and merger-related costs is a common occurrence in the banking industry during periods of strategic growth and technological upgrades. This is a temporary impact that, if managed effectively, should lead to long-term efficiencies and improved service delivery, similar to large-scale core system conversions undertaken by banks like Truist Financial (TFC) post-merger.

Management Changes

Corporate Governance

Legal Proceedings

• In the normal course of business, the Company and its subsidiaries are at times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Management believes that, based on the information currently available, the outcome of such actions, individually or in the aggregate, would not have a material adverse effect on the results of operations or stockholders equity.

Related Party Transactions

• Loans to principal officers, directors, and their affiliates increased to $40.455 million at December 31, 2025, from $33.450 million at December 31, 2024.
• Deposits from principal officers, directors, and their affiliates decreased to $12.9 million at December 31, 2025, from $13.6 million at December 31, 2024.

Stakeholder Impact

• Shareholders: Positive impact from increased net income and EPS, higher stockholders' equity, and continued dividend payments. Potential long-term benefits from strategic acquisitions and growth plans. Risk of dilution from future capital raises or stock-based compensation.
• Employees: Comprehensive benefits package, including medical, dental, vision, 401(k), Roth IRA, paid time off, profit sharing, and Employee Stock Purchase Plan. Commitment to a safe work environment and whistleblower hotline. Potential for increased compensation through annual raises and incentive plans.
• Customers: Continued provision of full banking, trust, retirement consulting, insurance, and financial management services. Potential for enhanced product offerings and service delivery through technological upgrades and acquisitions. Risks related to cybersecurity attacks affecting sensitive data.
• Depositors: Deposits are insured up to applicable limits by the FDIC. The Bank's 'well capitalized' status provides assurance of financial stability.
• Borrowers: Access to commercial, mortgage, installment, home equity loans, and lines of credit. Credit risk management practices aim to ensure sound lending.
• Regulatory Authorities: Company and subsidiaries are subject to extensive regulation and supervision, with compliance efforts noted.

Next Steps

• The merger with Middlefield Banc Corp. was completed on March 2, 2026.
• Convert the core system to Jack Henry.
• Continue pursuing a profitable growth strategy within existing markets and in new markets.
• Prioritize strategies to shrink the longer duration investment portfolio and replace balances with shorter duration assets, including loans, to close the gap between book and market rates.
• Pursue measured and broad-based loan growth across consumer, indirect, 1-4 family, commercial and industrial, and commercial real estate segments.
• Monitor goodwill for possible impairment on an annual basis (as of September 30).
• Fulfill unfunded commitments related to qualified affordable housing projects (expected during 2040).
• Fulfill unfunded commitments related to solar investment tax credits.
• The Company may, at its option, beginning December 15, 2026, redeem additional portions of the subordinated notes.
• Comply with ASU 2025-08 (Financial Instruments—Credit Losses) effective for interim and annual reporting periods in fiscal years beginning after December 15, 2026.

Key Dates

Recommendation

The company demonstrates solid financial performance with increased net income, EPS, and net interest margin, alongside a strong capital position. The completed merger with Middlefield Banc Corp. and ongoing strategic growth initiatives are positive long-term drivers. However, the increase in nonperforming loans and the identified vulnerability to interest rate risk (Economic Value of Equity exceeding internal policy limits in up-rate scenarios) warrant a cautious approach. While the positives outweigh the negatives, these risks suggest a 'hold' recommendation until the integration of the merger is further along and the interest rate risk management strategies show more tangible results in mitigating the identified vulnerabilities.

Keywords

Financial Holding Company, Banking, Trust Services, Wealth Management, Mortgage Banking, Insurance Agency, Ohio, Pennsylvania, SEC Filing, 10-K, Financial Performance, Net Income, Net Interest Income, Cybersecurity, Credit Risk, Acquisitions, Middlefield Banc Corp, Capital Adequacy, Deposits, Loans, Interest Rates, Regulatory Compliance, Corporate Governance, Risk Management, Financial Reporting