Farmers National Banc Corp. Announces Earnings for Third Quarter of 2023

• Earnings per diluted share of $0.36 ($0.40 excluding certain items, non-GAAP) for the third quarter of 2023
• 163 consecutive quarters of profitability
• Purchased hedges to improve asset sensitivity
• Additional FHLB borrowing capacity of $892.6 million as of September 30, 2023
• Available for sale securities not pledged totaled $353.8 million at September 30, 2023
• Strong asset quality with non-performing asset to total assets of 0.58% as of September 30, 2023
• Return on average assets of 1.06% for the third quarter of 2023
• ROAE and ROATE (non-GAAP) of 14.5% and 30.3%, respectively, for the third quarter of 2023

Farmers National Banc Corp. ("Farmers" or the "Company") (NASDAQ:FMNB) today announced net income of $13.3 million, or $0.36 per diluted share, for the three months ended September 30, 2023, compared to $15.4 million, or $0.46 per diluted share, for the three months ended September 30, 2022. Net income for the third quarter of 2023 included pretax items of $268,000 for acquisition related costs, $785,000 for the settlement of a lawsuit and combined net losses of $764,000 on the sale of securities and the sale of other assets. Excluding these items (non-GAAP), net income for the third quarter of 2023 would have been $14.8 million, or $0.40 per diluted share.

Kevin J. Helmick, President and CEO, stated "Despite the rapid increase in interest rates over the past year and a half, Farmers produced solid third quarter financial results reflecting the benefits of our diverse business model as well as our focus on maintaining strong asset quality and controlling operating expenses. These core banking principals create a solid foundation for Farmers to navigate an increasingly uncertain near-term economic environment, while supporting our long-term growth strategies."

Balance Sheet

Total assets at September 30, 2023, were $4.97 billion compared to $5.07 billion at June 30, 2023 and $4.08 billion at December 31, 2022. The increase from December was primarily due to the acquisition of Emclaire Financial Corp. ("Emclaire") which added $1.05 billion in assets in the first quarter of 2023. Loans (excluding loans held for sale) have increased by $763.8 million since December 31, 2022 and $13.4 million, or 1.7% annualized, since June 30, 2023. Emclaire was responsible for $740.7 million of the increase in loans since December 31, 2022.

Securities available for sale have declined to $1.21 billion at September 30, 2023 from $1.32 billion at June 30, 2023 and $1.27 billion at December 31, 2022. The decrease since December is due to the gross amount of unrealized losses which totaled $266.5 million at December 31, 2022, compared to a gross unrealized loss of $320.0 million at September 30, 2023. The Company also had sales and runoff from the portfolio during the nine months ended September 30, 2023. These decreases were offset by the addition of $127.0 million in available for sale securities from Emclaire. Bond market volatility is expected to continue through 2023, and the Company expects that it will continue to allow the size of the securities portfolio to shrink to optimize profitability.

Total customer deposits (excluding brokered time deposits) were $4.26 billion at September 30, 2023, compared to $4.25 billion at June 30, 2023, and $3.42 billion at December 31, 2022. The increase from December was driven by $875.8 million in deposits assumed in the acquisition of Emclaire. Competition for deposits remains high and the Company expects this will continue to place pressure on funding costs and deposit volumes.

Total stockholders' equity equaled $316.0 million at September 30, 2023 compared to $367.0 million at June 30, 2023, and $292.3 million at December 31, 2022. The increase since December is primarily due to the acquisition of Emclaire and an increase in retained earnings offset by an increase in the unrealized loss from accumulated other comprehensive income. The accumulated other comprehensive loss has increased $41.7 million between December 31, 2022 and September 30, 2023 as market rates spiked sharply during the third quarter of 2023.

Liquidity

At September 30, 2023, the Company's loan to deposit ratio was 70.2% and the Company's average deposit balance per account (excluding collateralized deposits) was $27,646. The Company has access to an additional $892.6 million of FHLB borrowing capacity at September 30, 2023 along with $353.8 million of available for sale securities that are not pledged. With a deep and diverse deposit base and access to a large amount of additional funding capacity, the Company is well positioned to navigate the current banking landscape.

Credit Quality

The Company's non-performing loans totaled $18.4 million at September 30, 2023, compared to $18.0 million at June 30, 2023, and $14.8 million at December 31, 2022. The increase since December was primarily due to the addition of Emclaire. Non-performing loans to total loans ratio was 0.58% at September 30, 2023, 0.57% at June 30, 2023, and 0.62% at December 31, 2022. Non-performing assets to total assets was 0.37% at September 30, 2023, and 0.36% at both June 30, 2023, and December 31, 2022. The Company also continues to experience low levels of early stage delinquencies, defined as 30-89 days delinquent. At September 30, 2023, these delinquencies totaled $13.3 million, or 0.42% of total loans. They were $12.3 million, or 0.39% of total loans at June 30, 2023, compared to $9.6 million, or 0.40% of total loans, at December 31, 2022.

The provision for credit losses and unfunded commitments was $243,000 for the third quarter of 2023 compared to $25,000 for the second quarter of 2023 and $448,000 for the third quarter of 2022. Annualized net charge-offs as a percentage of average loans were 0.05% for the three months ended September 30, 2023, compared to 0.10% for the same period in 2022. The allowance for credit losses to total loans was 1.10% at September 30, 2023, compared to 1.11% at June 30, 2023, and 1.12% at December 31, 2022.

Net Interest Income

The Company reported net interest income of $33.8 million in the third quarter of 2023 compared to $34.6 million in the second quarter of 2023 and $31.8 million for the third quarter of 2022. Earning assets were greater in 2023 due to the acquisition of Emclaire but this was partially offset by a decline of 35 basis point in the net interest margin. The net interest margin was 2.86% in the third quarter of 2023 compared to 2.92% for the second quarter of 2023 and 3.21% for the third quarter of 2022. Excluding the impact of acquisition marks and related accretion and PPP interest and fees, the net interest margin (non-GAAP) for the third quarter of 2023 was 2.61% compared to 2.68% for the second quarter of 2023 and 3.19% for the third quarter of 2022. The decline in net interest margin between the third quarter of 2023 and the third quarter of 2022 was due to increases in funding costs outstripping the increase in yields on earning assets. This increase in funding costs has been due to the rapid increase in deposit rates due to intense competition for deposits, the continued Federal Reserve rate hiking cycle, and runoff of deposit balances which are being replaced by more costly wholesale funding. To help offset the continued compression in the Company's net interest margin, the Company purchased $100.0 million of pay-fixed/receive variable interest rate swaps during the quarter to improve asset sensitivity and net interest income. The hedges have a final maturity of three years and at inception had a pay rate of 4.35%. Based on rates at September 30, 2023, the swaps are expected to generate approximately $960,000 of annualized net interest income.

Noninterest Income

Noninterest income totaled $9.8 million for the three months ended September 30, 2023, compared to $8.8 million for the three months ended September 30, 2022. Service charges on deposit accounts increased to $1.7 million in the third quarter of 2023 compared to the same period in 2022 primarily due to the acquisition of Emclaire. Bank owned life insurance income, other mortgage banking fee income and debit card income have also increased in the third quarter of 2023 compared to the third quarter of 2022 due to the Emclaire acquisition. Insurance agency commissions are flat in the third quarter of 2023 compared to the second quarter of 2022 but growth for the year has been solid as growth in the insurance business and increased annuity sales have bolstered income. Security losses in the third quarter of 2023 totaled $624,000 compared to losses of $17,000 in the third quarter of 2022. The Company sold securities during the quarter to improve net interest margin in future periods. Investment commissions are up slightly for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022, as customers have been more interested in the annuities mentioned above as opposed to traditional investment products. Net gains on the sale of loans have increased but are still sluggish due to the high level of interest rates and lack of loan volume.

Noninterest Expense

Noninterest expense was $27.7 million for the quarter ended September 30, 2023, compared to $21.4 million for the quarter ended September 30, 2022. The increase in expense is primarily due to the acquisition of Emclaire. Salaries and employee benefits increased $3.5 million to $14.2 million in the third quarter of 2023 compared to the same period in 2022. The acquisition of Emclaire along with normal raise activity were the primary reasons for the increase. Occupancy and equipment expense increased $782,000 primarily due to the acquisition. FDIC and state and local taxes increased due to the acquisition and the increase in the rate paid for FDIC insurance in 2023. Intangible amortization expense and core processing charges increased due to the acquisition. Merger related costs were $268,000 for the third quarter of 2023 compared to $872,000 in the third quarter of 2022. Other noninterest expense increased due the acquisition and due to the recognition of $785,000 in expense related to the settlement of a lawsuit.

About Farmers National Banc Corp.

Founded in 1887, Farmers National Banc Corp. is a diversified financial services company headquartered in Canfield, Ohio, with $5.0 billion in banking assets. Farmers National Banc Corp.'s wholly-owned subsidiaries are comprised of The Farmers National Bank of Canfield, a full-service national bank engaged in commercial and retail banking with 64 banking locations in Mahoning, Trumbull, Columbiana, Portage, Stark, Wayne, Medina, Geauga and Cuyahoga Counties in Ohio and Beaver, Butler, Allegheny, Jefferson, Clarion, Venango, Clearfield, Mercer, Elk and Crawford Counties in Pennsylvania, and Farmers Trust Company, which operates five trust offices and offers services in the same geographic markets. Total wealth management assets under care at September 30, 2023 are $3.2 billion. Farmers National Insurance, LLC, a wholly-owned subsidiary of The Farmers National Bank of Canfield, offers a variety of insurance products.

Non-GAAP Disclosure

This press release includes disclosures of Farmers' tangible common equity ratio, return on average tangible assets, return on average tangible equity, net income excluding costs related to acquisition activities and certain items, return on average assets excluding merger costs and certain items, return on average equity excluding merger costs and certain items, net interest margin excluding acquisition marks and related accretion and PPP interest and fees and efficiency ratio less certain items, which are financial measures not prepared in accordance with generally accepted accounting principles in the United States (GAAP). A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed by GAAP. Farmers believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and Farmers' marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP. The reconciliations of non-GAAP financial measures to their GAAP equivalents are included in the tables following Consolidated Financial Highlights below.

Cautionary Statements Regarding Forward-Looking Statements

We make statements in this news release and our related investor conference call, and we may from time to time make other statements, that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Farmers' financial condition, results of operations, asset quality trends and profitability. Forward-looking statements are not historical facts but instead represent only management's current expectations and forecasts regarding future events, many of which, by their nature, are inherently uncertain and outside of Farmers' control. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions, as well as any statements related to future expectations of performance or conditional verbs, such as "will," "would," "should," "could" or "may." Farmers' actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Factors that could cause Farmers' actual results to differ materially from those described in certain forward-looking statements include significant changes in near-term local, regional, and U.S. economic conditions including those resulting from continued high rates of inflation, tightening monetary policy of the Board of Governors of the Federal Reserve, and possibility of a recession; Farmers' failure to integrate Emclaire with Farmers in accordance with expectations; deviations from performance expectations related to Emclaire; continuing impacts from the length and extent of the economic impacts of the COVID-19 pandemic; and the other factors contained in Farmers' Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (SEC) and available on Farmers' website (www.farmersbankgroup.com) and on the SEC's website (www.sec.gov). Forward-looking statements are not guarantees of future performance and should not be relied upon as representing management's views as of any subsequent date. Farmers does not undertake any obligation to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.