• Earnings per diluted share of $0.18 ($0.50 excluding one-time items, non-GAAP) for 4^th quarter of 2021
• Completed the acquisition of Cortland Bancorp
• Issued $75.0 million of subordinated debt at a rate of 3.125%
• 156 consecutive quarters of profitability
• Efficiency ratio, (excluding one-time items, non-GAAP), of 47.4% for the fourth quarter of 2021
• Allowance for credit losses ratio of 1.26% at December 31, 2021
• Return on average assets, (excluding one-time items, non-GAAP), was 1.65% for the fourth quarter of 2021
• ROAE and ROATE, (excluding one-time items, non-GAAP), 14.8% and 18.5%, respectively, for fourth quarter of 2021

Farmers National Banc Corp. (“Farmers” or the “Company”) (NASDAQ: FMNB) today announced financial results for the three and twelve months ended December 31, 2021.

On a GAAP basis, net income for the fourth quarter of 2021 was $5.7 million, or $0.18 per diluted share, compared to $11.4 million, or $0.40 per diluted share, for the three months ended December 31, 2020. The results for the quarter included pretax items for acquisition related provision for credit loss expense of $4.9 million, $6.5 million for acquisition costs, $1.8 million for a prepayment penalty on an FHLB advance, security gains of $25,000, a loss of $195,000 on the sale of assets, and a one-time gain of $239,000 for the sale of Farmers’ credit card portfolio. Excluding these items (non-GAAP), core net income for the quarter ended December 31, 2021, would have been $16.2 million, or $0.50 per diluted share.

Net income for the twelve months ended December 31, 2021, totaled $51.8 million, or $1.77 per diluted share, compared to $41.9 million, or $1.47 per diluted share for the twelve months ended December 31, 2020. Results for the year ended December 31, 2021, included pre-tax items for acquisition related provision for credit loss expense of $4.9 million, acquisition costs of $7.1 million, prepayment penalties on FHLB advances of $2.1 million, security gains of $1.0 million, a loss of $247,000 on the sale of assets, and the one-time gain of $239,000 on the sale of the credit card portfolio. Net income for the twelve months ended December 31, 2021, excluding these items (non-GAAP), was $62.3 million, or $2.13 per share.

On November 1, 2021, Farmers and Cortland Bancorp (“Cortland”) completed the previously announced merger of Cortland into Farmers in a cash and stock transaction. Under the terms of the merger agreement, shareholders of Cortland were able to elect to receive either $28.00 per share in cash or 1.75 shares of Farmers’ common stock, subject to an overall limitation of 75% of the Cortland shares being exchanged for Farmers shares and 25% for cash. The merger combines two complementary banking institutions with similar culture and operating philosophies, and will further solidify Farmers’ market share in Trumbull and Mahoning counties while expanding Farmers’ presence in the greater Cleveland market. In February 2022, the systems integration of Farmers and Cortland will be completed, bringing the combined 48 branches together under one name.

At the closing of the merger, Farmers issued 5.6 million shares of its common stock along with cash of $29.6 million, which represented a transaction value of approximately $128.5 million based on its closing stock price of $17.82 on October 31, 2021. The transaction value has been allocated to assets acquired and liabilities assumed, including $482.2 million in loans and loans held for sale, $305.2 million in other tangible assets, $695.3 million in deposits, $17.9 million in other liabilities and $54.4 million in goodwill and other intangible assets. Prior to closing, Cortland incurred $3.3 million of merger-related costs. The year-over-year comparison of Farmers results is impacted by the Cortland merger, with 2021 including two months of combined operations from Cortland compared to none in the prior year.

Kevin J. Helmick, President and CEO, stated, “The last two years have brought unbelievable challenges to the world and our industry. Through it all, the Farmers team has continued to deliver record earnings and superior returns while catering to the needs of the communities we serve. I am extremely proud of our staff for all of their hard work. With the closing of the Cortland acquisition, I look forward to the possibilities in 2022.”

Balance Sheet

Total assets at December 31, 2021, grew to $4.14 billion compared to $3.32 billion at September 30, 2021 and $3.07 billion at December 31, 2020. The acquisition of Cortland added $841.7 million in assets to the balance sheet. Gross loans (excluding loans held for sale) were $2.33 billion at December 31, 2021, compared to $1.89 billion at September 30, 2021 and $2.08 billion at December 31, 2020. Gross loan growth for the quarter totaled $436.9 million and included $470.6 million in gross loans associated with the acquisition of Cortland (excluding Cortland’s PPP loans) offset by a decline in PPP loan balances of $26.3 million (inclusive of Cortland’s PPP loans) and a decline in other loan balances of $7.4 million which includes the sale of the Company’s credit card portfolio. The credit card portfolio had a balance of $3.0 million at the time of sale. At December 31, 2021, the Company has $37.5 million of PPP loans before deferred fees still to be forgiven and $1.3 million in net deferred fees associated with these loans still to be recognized into income.

Available for sale securities increased to $1.43 billion at December 31, 2021, an increase of $852.1 million from December 31, 2020. During 2021, the Company continued to deploy excess cash balances into securities. The Cortland acquisition in the fourth quarter was responsible for $130.6 million of the growth in the portfolio.

Total deposits at December 31, 2021, were $3.55 billion compared to $2.87 billion at September 30, 2021, and $2.61 billion at December 31, 2020. The growth, year over year, was due to $695.3 million in deposits obtained in the acquisition of Cortland and $241.1 million of organic growth, or 9.2% organically. After adjusting for Cortland in the fourth quarter, deposits shrank $14.5 million for the quarter.

Total stockholders’ equity increased to $472.4 million at December 31, 2021, compared to $377.5 million at September 30, 2021 and $350.1 million at December 31, 2020. The increase in stockholders’ equity was due to the Cortland acquisition and the Company’s earnings offset by dividends paid to common shareholders and changes in other comprehensive income.

Credit Quality

Non-performing loans to loans declined to 0.69% at December 31, 2021, compared to 0.78% at September 30, 2021. Early stage delinquencies, defined as 30-89 days past due, were $8.9 million, or 0.38% of total loans, at December 31, 2021, compared to $6.9 million, or 0.37% of total loans, for the prior quarter.

On January 1, 2021, Farmers adopted the Current Expected Credit Loss (“CECL”) model of accounting for credit losses. At adoption, Farmers recorded a $2.16 million increase to its allowance for loan losses and a $0.29 million increase to its reserve for off-balance sheet commitments for a combined $2.45 million, of which $1.94 million was recorded as a reduction to retained earnings with the remainder to deferred taxes. In connection with the Cortland acquisition, on November 1, 2021, Farmers recorded a $6.16 million increase to its allowance for loan losses, which was comprised of $4.87 million required to be recorded as a provision for credit losses related to non-purchased credit deteriorated loans and $1.29 million required to be recorded as a reduction of loan balances for purchased credit deteriorated loans.

Excluding the merger impact noted above, the fourth quarter 2021 results include net charge-offs of $313,000 and a provision for credit loss of $691,000 compared to net charge-offs of $197,000 and a provision expense of $3.0 million for the same period in 2020. As an overall percentage of loans, the allowance for credit losses increased to 1.26% at December 31, 2021, compared to 1.22% for the quarter ended September 30, 2021. Excluding the PPP loans, this allowance for credit losses to gross loans ratio increases to 1.28% (non-GAAP) as of December 31, 2021. Total net charge-offs as a percentage of average net loans outstanding was 6 basis points for the quarter ended December 31, 2021, compared to 4 basis points for the fourth quarter of 2020.

Net interest income

Net interest income was $29.7 million for the fourth quarter of 2021 compared to $25.8 million for the fourth quarter of 2020. The increase was due to growth in average interest earning assets, including the acquisition of Cortland, offset by a decline in net interest margin of 36 basis points. The net interest margin was 3.33% for the current quarter which is down from the 3.47% net interest margin reported in the third quarter of 2021 and lower than the 3.69% net interest margin reported in the fourth quarter of 2020. The decline in net interest margin in the fourth quarter of 2021 compared to the third quarter of 2021 was driven by the acquisition of Cortland and the issuance of subordinated debt, the proceeds of which were used to purchase securities. Excluding the impact of acquisition marks and related accretion and PPP interest and fees (non-GAAP), the net interest margin for the fourth quarter of 2021 was 3.21% compared to 3.37% for the third quarter of 2021 and 3.51% for the fourth quarter of 2020.

Noninterest income

Noninterest income declined to $9.5 million for the quarter ended December 31, 2021 compared to $10.5 million for the fourth quarter in 2020. Net gains on the sale of loans decreased to $1.7 million for the fourth quarter of 2021 compared to $3.6 million in the fourth quarter of 2020 due to lower origination volumes and tighter margins. In addition, security gains and other noninterest income were lower by $154,000 and $251,000, respectively, in the fourth quarter of 2021 compared to the same period in 2020. These declines have been partially offset by increases to service charges on deposit of $208,000, a 22.4% increase, trust fees of $559,000, a 28.7% increase, investment commissions of $161,000, a 35.8% increase, and an increase in bank owned life insurance (BOLI) income of $227,000 from the purchase of additional insurance in December 2020 and the addition of Cortland’s BOLI.

Noninterest expense

Total noninterest expense for the fourth quarter of 2021 increased to $27.7 million compared to $19.6 million in the fourth quarter of 2020. Excluding merger related costs and a $1.8 million prepayment penalty for the payoff of a $40 million FHLB advance, noninterest expense in the fourth quarter of 2021 was $19.3 million compared to $17.8 million of noninterest expense in the fourth quarter of 2020 after excluding merger related costs in that quarter. This increase in noninterest expense after adjusting for these items was primarily due to the acquisition of Cortland.

Covid Support Efforts

Farmers offered special financial assistance to support customers who were experiencing financial hardships related to the COVID-19 pandemic. The Company offered three month deferrals upon request by the borrowers, beginning in the middle of March, 2020 and concluding at the end of the three month deferral period. For those borrowers in industries that were greatly impacted by COVID-19, additional deferrals were considered and granted beyond the initial three month period. The range of deferred months for subsequent requests was three to nine months. The decline in deferred loans and balances was due to borrowers not requesting additional deferments and beginning to restart payments under the original terms of their loan. At December 31, 2021, Farmers had no customers still on deferral.

Farmers is also a preferred SBA lender and we dedicated significant additional staff and other resources to help our customers complete and submit their applications and supporting documentation for loans offered under the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, so that they could obtain SBA approval and receive funding as quickly as possible. During the initial 2020 period of the PPP program, the Company facilitated PPP assistance to 1,714 business customers totaling $199.8 million. The Company, on behalf of its customers, began processing borrower applications for PPP forgiveness at the beginning of September 2020. The SBA has up to ninety days to review an application for PPP forgiveness and provide a decision at the end of that review. Once forgiveness of the PPP loans has been communicated and payment is received from the SBA, the Company will record the cash received from the SBA, pay-off the loans based on the amount of forgiveness provided and accelerate the amount of net deferred loan fees/costs recognized for the portion of the PPP loans that are forgiven.

About Farmers National Banc Corp.

Founded in 1887, Farmers National Banc Corp. is a diversified financial services company headquartered in Canfield, Ohio, with $4.4 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 48 banking locations in Mahoning, Trumbull, Columbiana, Portage, Stark, Wayne, Medina, Geauga and Cuyahoga Counties in Ohio and Beaver County 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 December 31, 2021 are $3.1 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, net interest margin excluding acquisition marks and related accretion and PPP interest and fees, efficiency ratio less one-time expenses, and allowance for credit losses to gross loans, excluding PPP loans and acquired loans, 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.

Forward-Looking Statements

This earnings release contains 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 the forward-looking statements include impacts from the COVID-19 pandemic, including further resurgence in the spread of COVID-19, on local, national and global economic conditions; higher default rates on loans made to our customers related to COVID-19 and its impact on our customers’ operations and financial condition; unexpected changes in interest rates or disruptions in the mortgage markets related to COVID-19 or other responses to the health crisis; impacts of the upcoming U.S. elections on the regulatory landscape, capital markets, and response to and management of the COVID-19 pandemic including further economic stimulus from the federal government; Farmers’ failure to integrate Cortland and Cortland Bank with Farmers in accordance with expectations; deviations from performance expectations related to Cortland and Cortland Bank; and the other factors contained in Farmers’ Annual Report on Form 10-K for the year ended December 31, 2020 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.

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