• Record net income of $16.0 million for the quarter
• Earnings per diluted share of $0.56 ($0.58 excluding merger costs) up 47% per share from the third quarter of 2020
• 155 consecutive quarters of profitability
• Average deposit costs were 19 basis points for third quarter of 2021 down 7 basis points from second quarter 2021
• 3.2% growth in deposits in the current quarter compared to the second quarter 2021
• Strong net interest margin of 3.47%, or 3.37% excluding the impact of PPP loans and acquisition marks
• Efficiency ratio of 46.0% for the third quarter of 2021
• Allowance for credit losses ratio of 1.22%, or 1.26% excluding PPP loans for the third quarter of 2021
• Return on average assets was 1.92% for the third quarter of 2021
• ROAE and ROATE (non-GAAP) was 16.9% and 19.6%, respectively, for the third quarter of 2021

Farmers National Banc Corp. (“Farmers” or the “Company”) (NASDAQ: FMNB) today announced financial results for the three and nine months ended September 30, 2021.

Net income for the third quarter of 2021 was $16.0 million, or $0.56 per diluted share, which compares to $10.9 million, or $0.38 per diluted share, for the three months ended September 30, 2020. The results for the quarter were positively impacted by a negative provision for credit losses totaling $948,000 pre-tax which was primarily due to a release of reserves for credit losses. Net income excluding acquisition costs (non-GAAP) for the quarter ended September 30, 2021 was $16.5 million or $0.58 per diluted share, compared to $10.9 million or $0.39 per diluted share for the same quarter in 2020.

Net income for the nine months ended September 30, 2021, totaled $46.1 million, or $1.63 per diluted share, compared to $30.5 million, or $1.07 per diluted share for the nine months ended September 30, 2020. Net income excluding acquisition costs (non-GAAP) for the nine months ended September 30, 2021 was $46.6 million, or $1.65 per share, compared to $31.7 million, or $1.11 per share for the same period in 2020.

On June 22, 2021, Farmers entered into an agreement and plan of merger with Cortland Bancorp Inc. (“Cortland”), the parent company of Cortland Savings and Banking Company (“Cortland Bank”). The transaction has received the approval of Cortland’s shareholders and all customary regulatory approvals. The transaction is expected to close on November 1, 2021 and will enable Farmers to continue building local scale throughout Northeast Ohio as Farmers’ market share increases in Trumbull, Mahoning and Cuyahoga Counties. As of September 30, 2021, Cortland had total assets of $799.2 million, which included gross loans of $500.0 million, deposits of $693.0 million and equity of $83.0 million.

Kevin J. Helmick, President and CEO, stated, “We are pleased with our ability to post record earnings and find ways to win even as the impact from PPP loans begins to wane. Our strong net interest margin and fee businesses, outstanding credit quality and tight expense control have contributed to this record performance. With the closing of the Cortland Bank acquisition in November, we are poised to realize additional economies of scale which should allow us to continue our momentum into 2022.”

Balance Sheet

Total assets at September 30, 2021, were $3.32 billion compared to $3.07 billion at December 31, 2020. Total loans were $1.89 billion at September 30, 2021, compared to $1.96 billion at June 30, 2021 and $2.08 billion at December 31, 2020. Through the nine months ended September 30, 2021, total loans have declined $183.8 million due to a $71.8 million decrease in PPP loans, a decline of $36.9 million in 1-4 family residential loans due to the continued level of refinance activity in 2021 and declines in commercial and commercial real estate due to a high degree of liquidity in the system that has resulted in a greater level of payoffs. Securities have grown to $1.18 billion at September 30, 2021, compared to $996.3 million at June 30, 2021 and $575.6 million at December 31, 2020.

Total deposits grew to $2.87 billion at September 30, 2021, which represents growth of $87.6 million from June 30, 2021 and $255.5 million in growth, or 9.8%, compared to December 31, 2020. Growth has come from increases in both noninterest-bearing and interest-bearing deposits as customers continue to carry higher balances in their accounts.

Total stockholders’ equity was $377.5 million at September 30, 2021, compared to $366.9 million at June 30, 2021 and $350.1 million at December 31, 2020. The Company has not been able to repurchase any of its common shares in the third quarter due to the announcement of the Cortland transaction but still has 548,913 common shares remaining to be repurchased under the Company’s existing authorization.

Credit Quality

Due to a decline in loan balances, a decrease in a specific reserve on one loan, and a continued decline in historical loss ratios, the Company recorded a negative provision for credit losses of $948,000 for the quarter ended September 30, 2021, compared to the $2.6 million of loan loss provision recorded in the third quarter of 2020. Net charge-offs for the current quarter were $286,000, compared to $219,000 in the same quarter in 2020. Total net charge-offs as a percentage of average net loans outstanding was 0.06% for the quarter ended September 30, 2021, compared to 0.04% for the same quarter in 2020. As an overall percentage of loans, the allowance for credit losses decreased to 1.22% for the current quarter compared to 1.27% for the quarter ended June 30, 2021. Excluding the PPP loans, this allowance for credit losses to gross loans ratio increased to 1.26% (non-GAAP) as of September 30, 2021, and the ratio of the allowance for credit losses to gross loans, excluding PPP loans and acquired loans is 1.42% (non-GAAP).

Non-performing loans to loans ticked up to 0.78% at June 30, 2021, compared to 0.71% at June 30, 2021. This increase was primarily driven by the nonperformance of one credit. Early stage delinquencies, defined as 30-89 days past due, were $6.9 million, or 0.37% of total loans, at September 30, 2021, compared to $7.6 million, or 0.39% of total loans, for the prior quarter.

Net interest income

Net interest income was $26.5 million for the third quarter of 2021 compared to $24.2 million for the third quarter of 2020. The increase was due to growth in average interest earning assets and the impact of PPP fees offset by a decline in the net interest margin of 8 basis points. The net interest margin was 3.47% for the current quarter which is down from the 3.52% net interest margin reported in the second quarter of 2021 and lower than the 3.55% net interest margin reported in the third quarter of 2020. Excluding the impact of acquisition marks and PPP interest and fees (non-GAAP), the net interest margin for the third quarter of 2021 was 3.37% compared to 3.35% for the second quarter of 2021 and 3.60% for the third quarter of 2020.

Noninterest income

Noninterest income was down slightly to $9.0 million for the quarter ended September 30, 2021 compared to $9.2 million in the same quarter in 2020. Net gains on the sale of loans was down $1.7 million for the third quarter of 2021 compared to the third quarter of 2020 due to lower origination volumes. This decline was offset by an increase in trust fees of $362,000, or 18.4%, investment commissions of $285,000, or 80.7%, security gains of $389,000 and bank owned life insurance income of $144,000.

Noninterest expense

Total noninterest expense for the third quarter of 2021 decreased to $17.1 million compared to $17.5 million in the same quarter in 2020. Excluding merger related costs and a $326,000 prepayment penalty for the payoff of a $25 million FHLB advance, noninterest expense declined $1.1 million from the third quarter of 2020 to the third quarter of 2021. The $342,000 decline in noninterest expense from the third quarter of 2020 to the third quarter of 2021 was primarily due to a $923,000 decline in salaries and employee benefits offset by an increase of $180,000 in occupancy and equipment, $256,000 in professional fees and $414,000 in merger related expenses. The drop in salary and employee benefits was due to lower health insurance costs compared to the same quarter in 2020 along with lower incentive compensation expense and a greater amount of contra salary expense related deferred loan costs.

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 September 30, 2021, Farmers had one customer with a loan balance of $5.0 million still on deferral. This customer is expected to come off of deferral in the 4^th quarter of 2021.

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 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. During the period ended September 30, 2021, the Company has received life to date payments from the SBA for forgiveness of loans totaling $198.4 million, or approximately 99.2% of the PPP loans originated in 2020. The Company has processed $84.0 million in new loans for PPP loan funding during 2021. The Company has also received payments from the SBA for forgiveness of loans totaling $29.2 million, or approximately 34.7% of PPP loans originated in 2021.

About Farmers National Banc Corp.

Founded in 1887, Farmers National Banc Corp. is a diversified financial services company headquartered in Canfield, Ohio, with $3.3 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 41 banking locations in Mahoning, Trumbull, Columbiana, 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 September 30, 2021 are $3.0 billion. Farmers National Insurance, LLC and Bowers Insurance Agency, Inc., wholly-owned subsidiaries of The Farmers National Bank of Canfield, offer 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 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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