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What changed in FARMERS NATIONAL BANC CORP /OH/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FARMERS NATIONAL BANC CORP /OH/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+291 added−288 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in FARMERS NATIONAL BANC CORP /OH/'s 2023 10-K

291 paragraphs added · 288 removed · 211 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

63 edited+11 added−13 removed136 unchanged
Biggest changeMatuszak has more than 25 years of experience in operations, facilities, cybersecurity and software development throughout the financial services, insurance and healthcare industries. He also holds certifications in Six Sigma and ITIL and a master’s degree in technical communications. Mr. Oberhaus is currently the Senior Vice President and Chief Risk Officer of Farmers Bank. Mr.
Biggest changeHe also holds certifications in Six Sigma and ITIL and a master’s degree in technical communications. Mr. Oberhaus is currently the Executive Vice President and Chief Risk Officer of Farmers Bank. Mr. Oberhaus joined Farmers National Bank as part of the merger with First National Bank of Orrville in June of 2015 as the company’s Enterprise Risk Manager.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) codified this policy as a statutory requirement. 5 The BHCA requires prior approval by the Federal Reserve Board for a bank holding company to directly or indirectly acquire more than a 5.0% voting interest in any bank or its parent holding company.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) codified this policy as a statutory requirement. The BHCA requires prior approval by the Federal Reserve Board for a bank holding company to directly or indirectly acquire more than a 5.0% voting interest in any bank or its parent holding company.
We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation. 3 Our Company has taken workplace safety very seriously throughout the COVID-19 pandemic (“COVID-19”). As the scope of the pandemic broadened, Farmers implemented specific protocols in our Disaster Recovery Plan designed to safeguard our employees and clients.
We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation. Our Company has taken workplace safety very seriously throughout the COVID-19 pandemic (“COVID-19”). As the scope of the pandemic broadened, Farmers implemented specific protocols in our Disaster Recovery Plan designed to safeguard our employees and clients.
Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and Farmers Bank. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.
Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and Farmers Bank. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect 11 to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.
Anti-Money Laundering and the USA Patriot Act The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) and its related regulations require insured depository institutions, 10 broker-dealers and certain other financial institutions to have policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing.
Anti-Money Laundering and the USA Patriot Act The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) and its related regulations require insured depository institutions, broker-dealers and certain other financial institutions to have policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing.
In reviewing applications to approve merger and other acquisition transactions, the OCC and other bank regulatory authorities may include among their considerations the competitive effect and public benefits of the transactions, the capital position of the combined organization, the applicant’s performance under the CRA and fair housing laws, and the effectiveness of the entities in restricting money laundering activities.
In reviewing applications to approve merger and other acquisition transactions, the OCC and other bank regulatory authorities may include among their considerations the competitive effect and public benefits of the transactions, the capital position of the combined organization, the applicant’s performance under the CRA and fair housing laws, and the effectiveness of the entities 5 in restricting money laundering activities.
Upon the origination or renewal of a loan or advance, the FHLB is required by law to obtain and maintain a security interest in certain types of collateral. The FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB.
Upon the origination or renewal of a loan or advance, the FHLB is required by law to obtain and maintain a security interest in certain types of collateral. 4 The FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB.
For a discussion of Farmers’ financial performance for the fiscal year ended December 31, 2022, see the Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K. The Farmers National Bank of Canfield On January 1, 2023, Farmers National Banc Corp.
For a discussion of Farmers’ financial performance for the fiscal year ended December 31, 2023, see the Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K. The Farmers National Bank of Canfield On January 1, 2023, Farmers National Banc Corp.
Farmers of Canfield Investment Company Farmers Investments was formed during 2014, with the primary purpose of investing in municipal securities. Farmers Investments is a subsidiary of Farmers Bank and does not account for a material portion of the revenue and, therefore, will not be discussed individually, but as part of the Bank.
Farmers Insurance is a subsidiary of Farmers Bank and does not account for a material portion of revenue and, therefore, will not be discussed individually, but as part of the Bank. Farmers of Canfield Investment Company Farmers Investments was formed during 2014, with the primary purpose of investing in municipal securities.
Farmers is also required to file reports and other information with the Federal Reserve Board regarding its business operations and those of its subsidiaries. 4 Subsidiary Bank . The Bank is subject to regulation and examination primarily by the Office of the Comptroller of the Currency (the “OCC”) and secondarily by the FDIC.
Farmers is also required to file reports and other information with the Federal Reserve Board regarding its business operations and those of its subsidiaries. Subsidiary Bank . The Bank is subject to regulation and examination primarily by the Office of the Comptroller of the Currency (the “OCC”) and secondarily by the FDIC.
The Bank does not engage in any of the trading activities or own any of the types of funds prohibited by the Volcker Rule. Prompt Corrective Action The federal banking agencies have established a system of prompt corrective action to resolve certain problems of undercapitalized institutions.
The Bank does not engage in any of the trading activities or own any of the types of funds prohibited by the Volcker Rule. 8 Prompt Corrective Action The federal banking agencies have established a system of prompt corrective action to resolve certain problems of undercapitalized institutions.
Jackson was appointed as an executive officer in 2012. Mr. Nicastro is the Senior Vice President and Chief Human Resources Officer of Farmers Bank. Mr. Nicastro was appointed to that position in 2017 and previously served as Director of Human Resources since joining Farmers in July 2009. Prior to that, Mr.
Jackson was appointed as an executive officer in 2012. Mr. Nicastro is the Executive Vice President and Chief Human Resources Officer of Farmers Bank. Mr. Nicastro was appointed to that position in 2017 and previously served as Director of Human Resources since joining Farmers in July 2009. Prior to that, Mr.
Investor Relations The Company maintains an Internet site at http://www.farmersbankgroup.com , which contains an Investor Relations section that provides access to the Company’s filings with the Securities and Exchange Commission (the “Commission”).
Investor Relations The Company maintains an Internet site at http://www.farmersbankgroup.com , which contains an Investor Relations section that provides access to the Company’s filings with the Securities and Exchange Commission (the 2 “Commission”).
The rules 9 also provide assessment credits to banks with assets of less than $1 billion for the portion of their assessments that contribute to the increase of the DRR to 1.35%.
The rules also provide assessment credits to banks with assets of less than $1 billion for the portion of their assessments that contribute to the increase of the DRR to 1.35%.
These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In November 2021, the federal bank regulatory agencies issued a final rule, that became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities.
These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In November 2021, the federal bank regulatory agencies issued a final rules, that became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities.
A discussion of the general development of the Bank’s business and information regarding its financial performance throughout 2022, is discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K. The Bank faces significant competition in offering financial services to customers.
A discussion of the general development of the Bank’s business and information regarding its financial performance throughout 2023, is discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K. The Bank faces significant competition in offering financial services to customers.
Jackson is the Senior Vice President and Chief Information Officer of Farmers Bank, a position he has held since May 2009. Prior to coming to the Company, Mr. Jackson was Assistant Vice President and Information Technology Manager with Home Savings Bank since 1993. He has over 30 years of experience in the IT field. Mr.
Jackson is the Executive Vice President and Chief Information Officer of Farmers Bank, a position he has held since May 2009. Prior to coming to the Company, Mr. Jackson was Assistant Vice President and Information Technology Manager with Home Savings Bank since 1993. He has over 30 years of experience in the IT field. Mr.
The Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require certain covered entities to report a covered incident to the U.S. Department of Homeland Security's Cybersecurity & Infrastructure Security Agency ("CISA") within 72 hours after a covered entity reasonably believes an incident has occurred.
The Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, requires certain covered entities to report a covered incident to the U.S. Department of Homeland Security's Cybersecurity & Infrastructure Security Agency ("CISA") within 72 hours after a covered entity reasonably believes an incident has occurred.
We are committed to attracting, developing, and retaining associates who reflect the communities in which we serve. As of December 31, 2022, Farmers and its subsidiaries had 546 full-time equivalent employees.
We are committed to attracting, developing, and retaining associates who reflect the communities in which we serve. As of December 31, 2023, Farmers and its subsidiaries had 666 full-time equivalent employees.
Adair has served as Executive Vice President, Secretary, Treasurer and Chief Financial Officer of Farmers and Executive Vice President and Chief Financial Officer of Farmers Bank since August 2021 when he replaced Carl Culp, the former Chief Financial Officer, who retired. Mr. Adair joined Farmers in June of 2021 as Executive Vice President of Finance. Prior to that time, Mr.
Adair has served as Executive Vice President, Secretary, Treasurer and Chief Financial Officer of Farmers and Senior Executive Vice President and Chief Financial Officer of Farmers Bank since August 2021 when he replaced Carl Culp, the former Chief Financial Officer, who retired. Mr. Adair joined Farmers in June of 2021 as Executive Vice President of Finance.
Prior to coming to Farmers National Bank in 2017, Mr. Wenick was regional president of Chemical Bank for 3 years. Prior to that, Mr. Wenick spent 5 years in local bank investment and trust positions. He brings more than 40 years of financial expertise in the area of wealth management. 15
Wenick was regional president of Chemical Bank for 3 years. Prior to that, Mr. Wenick spent 5 years in local bank investment and trust positions. He brings more than 40 years of financial expertise in the area of wealth management.
The Company operates principally through its wholly-owned subsidiaries, The Farmers National Bank of Canfield (the “Bank” or “Farmers Bank”), Farmers Trust Company (“Farmers Trust”), and Farmers National Captive, Inc. (“Captive”). Farmers National Insurance, LLC (“Farmers Insurance”) and Farmers of Canfield Investment Co. (“Investments or “Farmers Investments”) are wholly-owned subsidiaries of the Bank.
The Company operates principally through its wholly-owned subsidiaries, The Farmers National Bank of Canfield (the “Bank” or “Farmers Bank”), Farmers Trust Company (“Farmers Trust”), and Farmers National Captive, Inc. (“Captive”). The Captive was dissolved in November of 2023. Farmers National Insurance, LLC (“Farmers Insurance”) and Farmers of Canfield Investment Co. (“Investments or “Farmers Investments”) are wholly-owned subsidiaries of the Bank.
Nicastro served as Staffing and Compliance Manager for Huntington National Bank (2007-2008) and Regional Human Resources Manager for Sky Bank from 2004 until 2007. Mr. Nicastro has an MBA, and has more than 25 years of experience in Human Resource Management from both large multi-national banks and regional community banks. He was appointed as an executive officer in 2012. Mr.
Nicastro served as Staffing and Compliance Manager for Huntington National Bank (2007-2008) and Regional Human Resources Manager for Sky Bank from 2004 until 2007. Mr. Nicastro has an MBA, and has more than 25 years of experience in Human Resource Management from both large multi-national banks and regional community banks.
Adair was the treasurer of Home Savings Bank/Premier Bank from February 2016 through June of 2021 and Director of Risk Management from February of 2002 to February of 2016. Mr. Adair has 35 years of experience in finance and accounting in the banking industry. Mr.
Prior to that time, Mr. Adair was the treasurer of Home Savings Bank/Premier Bank from February 2016 through June of 2021 and Director of Risk Management from February of 2002 to February of 2016. Mr. Adair has 36 years of experience in finance and accounting in the banking industry. Mr.
Shaffer 61 Executive Vice President and Chief Credit Officer of Farmers Bank Amber Wallace Soukenik 57 Executive Vice President and Chief Retail/Marketing Officer of Farmers Bank Mark J. Wenick 63 Senior Vice President and Chief Wealth Management Officer of Farmers Bank Officers are generally elected annually by the Board of Directors.
Shaffer 62 Senior Executive Vice President and Chief Credit Officer of Farmers Bank Amber Wallace Soukenik 58 Senior Executive Vice President and Chief Retail/Marketing Officer of Farmers Bank Mark J. Wenick 64 Senior Executive Vice President and Chief Wealth Management Officer of Farmers Bank Officers are generally elected annually by the Board of Directors.
Any such change in statutes, regulations or regulatory policies applicable to the Company could have a material effect on the business of the Company. 13 Information About Our Executive Officers The names, ages and positions of Farmers’ executive officers as of March 1, 2023: Name Age Title Troy Adair 56 Executive Vice President, Secretary and Treasurer of Farmers and Senior Executive Vice President and Chief Financial Officer of Farmers Bank Timothy Carney 57 Senior Executive Vice President and Chief Banking Officer of Farmers Bank James M.
Any such change in statutes, regulations or regulatory policies applicable to the Company could have a material effect on the business of the Company. 13 Information About Our Executive Officers The names, ages and positions of Farmers’ executive officers as of March 1, 2024: Name Age Title Troy Adair 57 Executive Vice President, Secretary and Treasurer of Farmers and Senior Executive Vice President and Chief Financial Officer of Farmers Bank Kevin J.
Helmick served as the Vice President and Program Manager for Farmers Investments. In 2008, Mr. Helmick was promoted to Senior Vice President of Wealth Management and Retail Services where he was responsible for the management and oversight of the retail investment area of Farmers Bank, Farmers Insurance, and all branch sales and operational functions. Mr.
Helmick was promoted to Senior Vice President of Wealth Management and Retail Services where he was responsible for the management and oversight of the retail investment area of Farmers Bank, Farmers Insurance, and all branch sales and operational functions. Mr.
The DRR reached 1.40% on June 30, 2019, but as of June 30, 2020, the DRR fell below the statutory minimum to 1.30%. This resulted in the FDIC adopting a restoration plan that requires the restoration of the DRR to 1.35% by September 30, 2028. The restoration plan maintained the scheduled assessment rates for all insured institutions.
The DRR reached 1.40% on June 30, 2019, but as of June 30, 2020, the DRR fell below the statutory minimum to 1.30%. This resulted in the FDIC adopting a restoration plan that requires the restoration of the DRR to 1.35% by September 30, 2028.
The Board of Directors reviews the Company’s corporate governance practices on a continuing basis. These and other corporate governance policies have been provided previously to shareholders and are available, along with other information on Farmers’ corporate governance practices, on the Company’s website at www.farmersbankgroup.com .
These and other corporate governance policies have been provided previously to shareholders and are available, along with other information on Farmers’ corporate governance practices, on the Company’s website at www.farmersbankgroup.com .
Basel III also changed the risk-weights of assets in an effort to better reflect credit risk and other risk exposures. 7 Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements.
Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements.
The Federal Deposit Insurance Act of 1950, as amended, provides that, in the event of the “liquidation or other resolution” of an insured depository institution such as the Bank, the insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with respect to any extensions of credit they have made to such insured depository institution.
In the event of Farmers’ bankruptcy, any commitment by Farmers to a federal bank regulatory agency to maintain the capital of Farmers Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. 6 The Federal Deposit Insurance Act of 1950, as amended, provides that, in the event of the “liquidation or other resolution” of an insured depository institution such as the Bank, the insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with respect to any extensions of credit they have made to such insured depository institution.
Nicastro 52 Senior Vice President and Chief Human Resources Officer of Farmers Bank Michael Oberhaus 46 Senior Vice President and Chief Risk Officer of Farmers Bank Joseph W. Sabat 62 Vice President and Chief Accounting Officer of Farmers Bank Timothy F.
Nicastro 53 Executive Vice President and Chief Human Resources Officer of Farmers Bank Michael Oberhaus 47 Executive Vice President and Chief Risk Officer of Farmers Bank Joseph W. Sabat 63 Senior Vice President and Chief Accounting Officer of Farmers Bank Timothy F.
Shaffer has over 33 years of Banking and Lending experience in the Mahoning Valley market. Mr. Shaffer was appointed as an executive officer in 2014. Ms. Wallace Soukenik has served as Executive Vice President and Chief Retail/Marketing Officer for Farmers Bank since November 2013. In August 2008, Ms.
Shaffer was appointed as an executive officer in 2014. Ms. Wallace Soukenik has served as Senior Executive Vice President and Chief Retail/Marketing Officer for Farmers Bank since November 2013. In August 2008, Ms. Wallace Soukenik joined Farmers Bank as Senior Vice President and Director of Marketing. She has 33 years of experience in the marketing field.
Sabat is the Vice President and Chief Accounting Officer of Farmers Bank. Mr. Sabat was appointed to that position in June 2021 and previously served as Controller of Farmers Bank since April 2006. Prior to coming to the Company, Mr. Sabat was with a regional public accounting firm. Mr.
Sabat was appointed to that position in June 2021 and previously served as Controller of Farmers Bank since April 2006. Prior to coming to the Company, Mr. Sabat was with a regional public accounting firm. Mr. Sabat has 28 years of experience in the accounting, finance and auditing fields.
Thus, the ability of Farmers to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines. 6 The Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value to the Company and its nonbanking subsidiaries and affiliates, whether in the form of loans and other extensions of credit, investments and asset purchases or other transactions involving the transfer of value from a subsidiary to an affiliate or for the benefit of an affiliate.
The Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value to the Company and its nonbanking subsidiaries and affiliates, whether in the form of loans and other extensions of credit, investments and asset purchases or other transactions involving the transfer of value from a subsidiary to an affiliate or for the benefit of an affiliate.
As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, federally-insured institutions. It also may prohibit any federally-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take enforcement actions against insured institutions.
The restoration plan maintained the scheduled assessment rates for all insured institutions. 9 As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, federally-insured institutions. It also may prohibit any federally-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF.
It also may require the Company to provide financial support to its banking and other subsidiaries, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in general.
It also may require the Company to provide financial support to its banking and other subsidiaries, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in general. 3 Significant aspects of the laws and regulations that have, or could have a material impact on Farmers and its subsidiaries are described below.
Basel III provides for a number of deductions from and adjustments to CET1, including the deduction of mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities if any one such category exceeds 10.0% of CET1 or if all such categories in the aggregate exceed 15.0% of CET1.
Basel III provides for a number of deductions from and adjustments to CET1, including the deduction of mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities if any one such category exceeds 10.0% of CET1 or if all such categories in the aggregate exceed 15.0% of CET1. 7 In addition to Basel III, the Dodd-Frank Act requires or permits federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions.
Government, agency and/or municipal obligations, and it exempts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities. 8 The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, with a number of exceptions.
Government, agency and/or municipal obligations, and it exempts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities.
Oberhaus joined Farmers National Bank as part of the merger with First National Bank of Orrville in June of 2015 as the company’s Enterprise Risk Manager. Prior to the merger Mr. Oberhaus served as the SVP and Chief Risk Officer of First National Bank of Orrville and brings more than 25 years of experience in banking. Mr.
Prior to the merger Mr. Oberhaus served as the SVP and Chief Risk Officer of First National Bank of Orrville and brings more than 25 years of experience in banking. Mr. Sabat is the Senior Vice President and Chief Accounting Officer of Farmers Bank. Mr.
Sabat has 27 years of experience in the accounting, finance and auditing fields. He is a certified public accountant and was appointed as an executive officer in 2012. Mr. Shaffer serves as Executive Vice President and Chief Credit Officer and has held that title since February of 2021. Previously, Mr.
He is a certified public accountant and was appointed as an executive officer in 2012. Mr. Shaffer serves as Senior Executive Vice President and Chief Credit Officer and has held that title since February of 2021. Previously, Mr. Shaffer served as Regional President and held that title from July of 2015 through 2020. Mr.
The transaction involved both cash and stock. All activity has been merged into Farmers Insurance. Farmers Insurance is a subsidiary of Farmers Bank and does not account for a material portion of the revenue and, therefore, will not be discussed individually, but as part of the Bank.
Farmers Investments is a subsidiary of Farmers Bank and does not account for a material portion of revenue and, therefore, will not be discussed individually, but as part of the Bank.
The Bank expects risks and exposures related to cybersecurity attacks to remain high for the foreseeable future. For further discussion of risks related to cybersecurity, see “Item 1A Risk Factors.” Future Legislation and Regulation Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in the U.S.
For further discussion of risks related to cybersecurity, see “Item 1A Risk Factors.” See also the Company’s disclosures regarding risk management, strategy, governance and incident disclosure under Item 1C." Future Legislation and Regulation Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in the U.S.
Gasior 63 Senior Executive Vice President and Corporate Development Officer of Farmers Bank Kevin J. Helmick 51 President and Chief Executive Officer of Farmers and Farmers Bank Brian E. Jackson 53 Senior Vice President and Chief Information Officer of Farmers Bank Michael E. Matuszak 55 Executive Vice President and Chief Operating Officer of Farmers Bank Mark A.
Helmick 52 President and Chief Executive Officer of Farmers and Farmers Bank Brian E. Jackson 54 Executive Vice President and Chief Information Officer of Farmers Bank Michael E. Matuszak 56 Senior Executive Vice President and Chief Operating Officer of Farmers Bank Mark A.
Wallace Soukenik served as the Assistant Vice President of Marketing and Physician Relations at Trumbull Memorial Hospital, where she managed a $14 million endowment, a $1.5 million marketing budget and all physician contracts. She was appointed as an executive officer in 2012. Mr. Wenick is Executive Vice President and Chief Wealth Management Officer of Farmers Bank.
Prior to joining the Company, Ms. Wallace Soukenik served as the Assistant Vice President of Marketing and Physician Relations at Trumbull Memorial Hospital. She was appointed as an executive officer in 2012. Mr. Wenick is Senior Executive Vice President and Chief Wealth Management Officer of Farmers Bank. Prior to coming to Farmers National Bank in 2017, Mr.
Captive does not account for a material portion of the revenue and, therefore, will not be discussed individually, but as part of the Company. 2 Farmers National Insurance, LLC Farmers Insurance was formed during 2009 and offers a variety of insurance products through licensed representatives. During 2016, the Bank completed the acquisition of the Bowers Insurance Agency, Inc. (“Bowers”).
Captive did not account for a material portion of revenue and, therefore, will not be discussed individually, but as part of the Company. Farmers National Insurance, LLC Farmers Insurance was formed during 2009 and offers a variety of insurance products through licensed representatives. During 2022, Farmers Insurance acquired substantially all of the assets, in a cash transaction, of Randy L.
In addition, federal banking agencies are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering policies, procedures and controls of the applicants.
In addition, federal banking agencies are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering policies, procedures and controls of the applicants. 10 Corporate Governance The Sarbanes-Oxley Act of 2002 effected broad reforms to areas of corporate governance and financial reporting for public companies under the jurisdiction of the Commission.
Shaffer served as Regional President and held that title from July of 2015 through 2020. Mr. Shaffer also served as the Director of Commercial Banking & Private Client Services. In October of 2011, Mr. Shaffer joined Farmers Bank as the Commercial Lending Manager, overseeing commercial lending, small business lending and treasury management. Mr.
Shaffer also served as the Director of Commercial Banking & Private Client Services. In October of 2011, Mr. Shaffer joined Farmers Bank as the Commercial Lending Manager, overseeing commercial lending, small business lending and treasury management. Mr. Shaffer has over 34 years of Banking and Lending experience in the Mahoning Valley market. Mr.
The Captive pools resources with similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves and to provide insurance where not currently available or economically feasible in today’s insurance market place.
During its operation Captive was a wholly-owned insurance subsidiary of the Company that provided property and casualty insurance coverage to the Company and its subsidiaries. The Captive pooled resources with similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves and to provide insurance where not available or economically feasible.
Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Company’s net income and return on equity. In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the Current Expected Credit Losses (“CECL”).
In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the Current Expected Credit Losses (“CECL”).
Ohio has a high density of financial service providers, many of which are significantly larger institutions that have greater financial resources than the Bank, and all of which are competitors to varying degrees. Competition for loans comes principally from savings banks, savings and loan associations, commercial banks, mortgage banking companies, credit unions, insurance companies and other financial service companies.
Ohio and Pennsylvania have a high density of financial service providers, many of which are significantly larger institutions that have greater financial resources than the Bank, and all of which are competitors to varying degrees.
Helmick was Secretary of Farmers and Executive Vice 14 President – Wealth Management and Retail Services of Farmers Bank since January 2012. Mr. Helmick has been with the Company for 28 years and has a retail and investment background, including an MBA and CFP designation. From 1997 through 2008, Mr.
Helmick has been with the Company for 29 years and has a retail and investment background, including an MBA and CFP designation. From 1997 through 2008, Mr. Helmick served as the Vice President and Program Manager for Farmers Investments. In 2008, Mr.
Gasior is a Certified Public Accountant, a member of the American Institute of CPAs and a member of the Ohio Society of CPAs. Mr. Helmick is the President and Chief Executive Officer of Farmers and Farmers Bank, a position he has held since November 2013. Prior to becoming President, Mr.
Helmick is the President and Chief Executive Officer of Farmers and Farmers Bank, a position he has held since November 2013. Prior to becoming President, Mr. Helmick was Secretary of Farmers and Executive Vice President – Wealth Management and Retail Services of Farmers Bank since January 2012. Mr.
No fractional Company Common Shares were issued in the Merger, and Emclaire’s shareholders became entitled to receive cash in lieu of fractional Company Common Shares. Emclaire operated 19 branches in ten counties throughout western Pennsylvania. 1 On November 1, 2021, the Company completed the merger with Cortland Bancorp Inc.
No fractional Company Common Shares were issued in the Merger, and Emclaire’s shareholders became entitled to receive cash in lieu of fractional Company Common Shares.
Farmers Trust offers a full complement of personal and corporate trust services in the areas of estate settlement, trust administration, employee benefit plans and retirement services. During 2019, National Associates Inc. was combined with the Farmers Trust entity. Farmers Trust operates five offices located in Boardman, Canton, Howland, Wooster and Fairview Park, Ohio. Farmers National Captive, Inc.
During 2019, National Associates Inc. was combined with the Farmers Trust entity. Farmers Trust operates five offices located in Boardman, Canton, Howland, Wooster and Fairview Park, Ohio. Farmers National Captive, Inc. Captive was formed during 2016 and operated until November 20, 2023 when the Company dissolved the entity.
Capital loans from the Company to the Bank are subordinate in right of payment to deposits and certain other indebtedness of the Bank. In the event of Farmers’ bankruptcy, any commitment by Farmers to a federal bank regulatory agency to maintain the capital of Farmers Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Capital loans from the Company to the Bank are subordinate in right of payment to deposits and certain other indebtedness of the Bank.
Matuszak is the Executive Vice President, Chief Operating Officer of Farmers Bank, a position he has held since December of 2022. Most recently, Matuszak served as the Vice President, Cloud Services with Wellmark Blue Cross Blue Shield for 6 years, becoming Vice President, Cloud Services and CISO n 2019.
He was appointed as an executive officer in 2012. 14 Mr. Matuszak is the Senior Executive Vice President, Chief Operating Officer of Farmers Bank, a position he has held since December of 2022. Most recently, Mr.
The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive compensation practices, imposes new executive compensation disclosure requirements, and contains additional considerations of the independence of compensation advisors. 11 The Coronavirus Aid, Relief, and Economic Security Act of 2020 In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures.
See Exhibit 97.1 for the policy relating to recovery of erroneously awarded compensation. The Coronavirus Aid, Relief, and Economic Security Act of 2020 In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures.
The most direct competition for deposits has historically come from savings and loan associations, savings banks, commercial banks and credit unions. Additional competition for deposits comes from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies. Farmers Trust Company During 2009, the Company acquired the Farmers Trust.
Additional competition for deposits comes from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies. Farmers Trust Company During 2009, the Company acquired the Farmers Trust. Farmers Trust offers a full complement of personal and corporate trust services in the areas of estate settlement, trust administration, employee benefit plans and retirement services.
Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack. 12 State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations and many states have recently implemented or modified their data breach notification and data privacy requirements.
Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
Corporate Governance The Sarbanes-Oxley Act of 2002 effected broad reforms to areas of corporate governance and financial reporting for public companies under the jurisdiction of the Commission. The Company’s corporate governance policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance and Nominating Committee Charter and Code of Business Conduct and Ethics.
The Company’s corporate governance policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance and Nominating Committee Charter and Code of Business Conduct and Ethics. The Board of Directors reviews the Company’s corporate governance practices on a continuing basis.
The Company expects this trend of state-level cybersecurity regulatory activity to continue, and continues to monitor these developments.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations and many states have recently implemented or modified their data breach notification and data privacy 12 requirements. The Company expects this trend of state-level cybersecurity regulatory activity to continue, and continues to monitor these developments.
The Bank is a full-service national banking association engaged in commercial and retail banking mainly in Mahoning, Trumbull, Columbiana, Wayne, Holmes, Geauga, Cuyahoga, Medina, Summit, Portage and Stark Counties in Ohio and a location in Beaver County, Pennsylvania.
Emclaire operated 19 branches in ten counties throughout western Pennsylvania. 1 The Bank is a full-service national banking association engaged in commercial and retail banking mainly in the northeastern region of Ohio and the western region of Pennsylvania.
Removed
(“Cortland”), the parent company of The Cortland Savings and Banking Company (“Cortland Bank”), pursuant to the Agreement and Plan of Merger, dated as of June 22, 2021, as amended by that certain Amendment to Agreement and Plan of Merger, dated October 12, 2021 (collectively, the “Merger Agreement”), by and among the Company, Cortland, and FMNB Merger Subsidiary IV, LLC, a wholly-owned subsidiary of the Company (“Merger Sub”).
Added
Competition for loans comes principally from savings banks, savings and loan associations, commercial banks, mortgage banking companies, credit unions, insurance companies and other financial service companies. The most direct competition for deposits has historically come from savings and loan associations, savings banks, commercial banks and credit unions.
Removed
Pursuant to the terms of the Merger Agreement, on November 1, 2021, Cortland merged with and into Merger Sub (the “Merger”), with Merger Sub as the surviving entity in the Merger.
Added
Jones Agency, Inc., doing business as Champion Insurance. During 2016, the Bank completed the acquisition of the Bowers Insurance Agency, Inc. (“Bowers”). The transaction involved both cash and stock. All activity has been merged into Farmers Insurance.
Removed
Promptly following the consummation of the Merger, Merger Sub was dissolved and liquidated and Cortland Bank merged with and into the Bank (the “Bank Merger”), with the Bank as the surviving bank in the Bank Merger. The transaction received the approval of Cortland’s shareholders and all customary regulatory approvals.
Added
Thus, the ability of Farmers to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines.
Removed
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each common share, without par value, of Cortland issued and outstanding immediately prior to the effective time (except for certain Cortland common shares held directly by Cortland or the Company) was converted into the right to receive, without interest, $28.00 per share in cash or 1.75 shares of the Company’s common stock, subject to an overall limitation of 75% of the Cortland shares being exchanged for the Company’s shares and the remaining 25% being exchanged for cash.
Added
Basel III also changed the risk-weights of assets in an effort to better reflect credit risk and other risk exposures.
Removed
Cortland Bank had branches located in Cuyahoga, Portage, Mahoning, Summit and Trumbull Counties in Ohio. Additional discussion about the acquisitions can be found in Note 2 to the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Added
Accordingly, the regulations ultimately applicable to the Company may differ substantially from Basel III. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Company’s net income and return on equity.
Removed
Captive was formed during 2016 and is a wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company and its subsidiaries.
Added
The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, with a number of exceptions.
Removed
Significant aspects of the laws and regulations that have, or could have a material impact on Farmers and its subsidiaries are described below.
Added
The FDIC also has the authority to take enforcement actions against insured institutions.
Removed
In addition to Basel III, the Dodd-Frank Act requires or permits federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions. Accordingly, the regulations ultimately applicable to the Company may differ substantially from Basel III.
Added
The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive compensation practices, imposes new executive compensation disclosure requirements, and contains additional considerations of the independence of compensation advisors. A new compliant clawback policy was approved by the Board of Directors on September 26, 2023.
Removed
Carney was appointed Senior Executive Vice President and Chief Banking Officer of Farmers Bank in November 2021 after the completion of the Merger with Cortland. Prior to joining Farmers, Mr. Carney, served as Senior Vice President, Chief Operations Officer and Secretary of Cortland since November 2009. In addition, Mr.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

48 edited+15 added−18 removed116 unchanged
Biggest changeQuarterly, the Company evaluates its security portfolio to see if any security has a fair value less that its amortized cost. Once these securities are identified, the Company performs additional analysis to determine whether the decline in fair value resulted from a credit loss or other factors.
Biggest changeOnce these securities are identified, the Company performs additional analysis to determine whether the decline in fair value resulted from a credit loss or other factors. Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present.
The new accounting guidance under the CECL model requires banks to record, at the time of origination, credit losses expected throughout the life of financial assets measured at amortized cost, including loan receivables, debt securities and reinsurance receivables, and off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments in leases recognized by a lessor.
The accounting guidance under the CECL model requires banks to record, at the time of origination, credit losses expected throughout the life of financial assets measured at amortized cost, including loan receivables, debt securities and reinsurance receivables, and off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments in leases recognized by a lessor.
There are operational issues, 18 which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry. These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, derivatives over loans and other financial obligations or extensions of credit.
There are operational issues, which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry. These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, derivatives over loans and other financial obligations or extensions of credit.
We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove to be inadequate.
We are further exposed to the risk that our external vendors may be unable to fulfill their contractual 22 obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove to be inadequate.
Although Management believes that the Company’s allowance for credit losses is adequate to absorb losses on any existing loans that may become 17 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.
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.
Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, 23 acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.
Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.
In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market consider winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.
In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market consider winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans. 24 In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market consider winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.
Because we have a significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure.
Because we have a significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of property used as 15 collateral and our ability to sell the collateral upon foreclosure.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.
Investor advocacy groups, 25 investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.
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.
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.
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, 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.
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.
Small and mid-sized businesses make up a significant portion of our commercial loan portfolio and are particularly vulnerable to adverse financial effects of the COVID-19 pandemic due to their increased reliance on continuing cash flow to fund day-to-day operations.
Small and mid-sized businesses make up a significant portion of our commercial loan portfolio and are particularly vulnerable to adverse financial effects of a pandemic due to their increased reliance on continuing cash flow to fund day-to-day operations.
Our business, financial condition or results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. We intend to continue pursuing a profitable growth strategy both within our existing markets and in new markets.
Our business strategy includes continuing our growth plans. Our business, financial condition or results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. We intend to continue pursuing a profitable growth strategy both within our existing markets and in new markets.
We have limited exposure to LIBOR, with total exposure as of December 31, 2022 of approximately $109.1 million. We do not believe the change to a benchmark like SOFR will have a material impact on our financial condition, results of operations or cash flows.
We have limited exposure to LIBOR, with total exposure as of December 31, 2023 of approximately $1.5 million. We do not believe the change to a benchmark like SOFR will have a material impact on our financial condition, results of operations or cash flows.
Although federal government programs such as the Paycheck Protection Program (“PPP”) that were designed to support individuals, households and businesses impacted by the economic disruptions caused by the COVID-19 pandemic, have sought, and may further seek, to provide relief to these types of businesses, there can be no assurance that these programs will succeed.
Although federal government programs such as the Paycheck Protection Program (“PPP”) that were designed to support individuals, households and businesses impacted by the economic disruptions caused by the COVID-19 pandemic were to provide relief to these types of businesses, there can be no assurance that these programs will succeed.
The adverse consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic developments that are not controllable or entirely foreseeable by us or our borrowers. Our business depends significantly on general economic conditions in the State of Ohio.
The adverse consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic developments that are not controllable or entirely foreseeable by us or our borrowers. Our business depends significantly on general economic conditions in northeastern Ohio and western Pennsylvania.
Risks Relating to General Economic and Market Conditions, including COVID-19 Pandemic Changes in economic, political, and market conditions may adversely affect our industry and our business. Our success depends in part on national and local economic, political, and market conditions as well as governmental monetary and other financial policies.
Risks Relating to General Economic and Market Conditions Changes in economic, political, and market conditions may adversely affect our industry and our business. Our success depends in part on national and local economic, political, and market conditions as well as governmental monetary and other financial policies.
Core deposits – savings and money market accounts, time deposits less than $250 thousand and demand deposits—comprised approximately 92.4% of total deposits at December 31, 2022. 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.
Core deposits – savings and money market accounts, time deposits less than $250 thousand and demand deposits—comprised approximately 93.3% of total deposits at December 31, 2023. 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 $782.9 million at December 31, 2022. 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.
Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $214.3 million at December 31, 2023. 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.
Therefore, there can be no assurance additional capital can be raised when needed or that capital can be raised on acceptable terms. Impairment to our ability to raise capital may have a material adverse effect on our business, financial condition or results of operations. We may not be able to adapt to technological change.
Therefore, there can be no assurance additional capital can be raised when needed or that capital can be raised on acceptable terms. Impairment to our ability to raise capital may have a material adverse effect on our business, financial condition or results of operations.
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. 21 Our business strategy includes continuing our growth plans.
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 20 prospects for the financial services industry as a whole, as evidenced by recent turmoil in the domestic and worldwide credit markets.
The economic impact of COVID-19 or any other pandemic could adversely affect our business, financial condition and results of operations. Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions.
The economic impact of a pandemic could adversely affect our business, financial condition and results of operations. Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions.
If general economic conditions worsen, we may experience higher levels of delinquencies, repossessions and charge-offs. 19 Commercial and industrial loans may expose us to greater financial and credit risk than other loans. As of December 31, 2022, approximately 14.6% of our loan portfolio consisted of commercial and industrial loans.
If general economic conditions worsen, we may experience higher levels of delinquencies, repossessions and charge-offs. Commercial and industrial loans may expose us to greater financial and credit risk than other loans. As of December 31, 2023, approximately 12.7% of our loan portfolio consisted of commercial and industrial loans.
Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed or operate at reduced capacities, the impact on the national economy continues to worsen, or more clients draw on their lines of credit or seek additional loans to help finance their businesses.
Furthermore, a pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses are forced to close or operate at reduced capacities, the impact on the national economy could worsen, or more clients draw on their lines of credit or seek additional loans to help finance their businesses.
Net interest income is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings).
Our earnings and cash flow are dependent upon our net interest income. Net interest income is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings).
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs.
We may not be able to adapt to technological change. 23 The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs.
As of December 31, 2022, approximately 75.8% of our loan portfolio consisted of commercial real estate and residential real estate loans, including real estate development, construction and residential and commercial mortgage loans. Consequently, real estate-related credit risks are a significant concern for us.
As of December 31, 2023, a majority of our loan portfolio consisted of commercial real estate and residential real estate loans, including real estate development, construction and residential and commercial mortgage loans. 18 Consequently, real estate-related credit risks are a significant concern for us.
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.
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.
If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover the expected losses from our loan portfolio, resulting in the need for additions to the allowance for credit losses which could have a material adverse impact on our financial condition and results of operations.
We cannot be assured of the amount of timing of losses, nor whether the allowance for credit losses will be adequate in the future. 19 If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover the expected losses from our loan portfolio, resulting in the need for additions to the allowance for credit losses which could have a material adverse impact on our financial condition and results of operations.
Credit losses in excess of our reserves may adversely affect our financial condition and results of operations. In any event, any reduced liquidity could negatively impact our ability to be able to fund loans, or to pay the principal and interest on any of our outstanding debt securities at any time, including when due.
In any event, any reduced liquidity could negatively impact our ability to be able to fund loans, or to pay the principal and interest on any of our outstanding debt securities at any time, including when due. 16 Changes in Interest rates could adversely affect our income and financial condition.
If the methodologies and assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not be sufficient, resulting in the need for additional allowance for credit losses to be established, which could have a material adverse impact on our financial condition and results of operations. 20 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.
If the methodologies and assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not be sufficient, resulting in the need for additional allowance for credit losses to be established, which could have a material adverse impact on our financial condition and results of operations.
We may experience difficulties in integrating acquired businesses, or acquisitions may not perform as expected. We completed the acquisition of Cortland Bancorp in November of 2021 and the acquisition of Emclaire on January 1, 2023. The successful integration of these acquisitions depends on our ability to manage the operations and personnel of the acquired businesses.
We may experience difficulties in integrating acquired businesses, or acquisitions may not perform as expected. We completed the acquisition of Emclaire on January 1, 2023. The successful integration of this acquisition depends on our ability to manage the operations and personnel of the acquired businesses. Integrating operations is complex and requires significant efforts and expenses.
Our estimates of future credit losses is susceptible to changes in economic, operating and other conditions, including changes in regulations and interest rates, which may be beyond our control, and the losses may exceed current estimates. We cannot be assured of the amount of timing of losses, nor whether the allowance for credit losses will be adequate in the future.
Our estimates of future credit losses is susceptible to changes in economic, operating and other conditions, including changes in regulations and interest rates, which may be beyond our control, and the losses may exceed current estimates.
If we are unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain our competitive position, our performance, including our competitive position, could suffer, and, in turn, adversely affect our business, financial condition or results of operations. 22 Strong competition within our markets could reduce our ability to attract and retain business.
In order to attract and retain qualified employees, we must compensate them at market levels. If we 21 are unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain our competitive position, our performance, including our competitive position, could suffer, and, in turn, adversely affect our business, financial condition or results of operations.
Even a reduction in regulatory restrictions could adversely affect our operations and our shareholders if less restrictive regulation increases competition within the industry generally or within our markets. 25 Our results of operations, financial condition or liquidity may be adversely impacted by issues arising in foreclosure practices, including delays in the foreclosure process, 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.
Our results of operations, financial condition or liquidity may be adversely impacted by issues arising in foreclosure practices, including delays in the foreclosure process, 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.
Should management determine it is not more likely than not that the deferred tax assets will be realized, a valuation allowance with a change to earnings would be reflected in the period. Changes and uncertainty in tax laws could adversely affect our performance.
Deferred tax assets are only recognized to the extent it is more likely than not they will be realized. Should management determine it is not more likely than not that the deferred tax assets will be realized, a valuation allowance with a change to earnings would be reflected in the period.
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, financial institutions tax, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations and, as described in the above risk discussion and below, the fair value of net deferred tax assets.
Changes to our taxes could have a material adverse effect on our results of operations and, as described in the above risk discussion and below, the fair value of net deferred tax assets. In addition, our customers are subject to a wide variety of federal, state and local taxes.
In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.
In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all. 26 Item 1B. Unresolve d Staff Comments. There are no matters of unresolved staff comments from the Commission staff.
As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions.
The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions.
As of December 31, 2022, we hold and service PPP loans.
As of December 31, 2023, we hold and service a non material balance of PPP loans.
Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and net income. 24 Risks Related to the Legal and Regulatory Environment Increases in FDIC insurance premiums may have a material adverse effect on our earnings. The FDIC maintains the Deposit Insurance Fund to resolve the cost of bank failures.
Risks Related to the Legal and Regulatory Environment Increases in FDIC insurance premiums may have a material adverse effect on our earnings. The FDIC maintains the Deposit Insurance Fund to resolve the cost of bank failures.
Such competition includes major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain more numerous banking locations and support extensive promotional and advertising campaigns.
Some of our competitors offer a broader range of products and services than we can offer as a result of their size and ability to achieve economies of scale. Such competition includes major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain more numerous banking locations and support extensive promotional and advertising campaigns.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our common shares. 26 Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our common shares.
In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.
Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.
The spread of a highly infectious or contagious disease, such as COVlD-19, negatively impacted global, national and local economies, which in turn disrupted the businesses, activities, and operations of our customers, as well as our business and operations. 16 Given the ongoing and potentially dynamic nature of COVID-19, it is difficult to predict the full impact of COVID-19, including new variants thereof, on our business, financial condition, and result of operations.
The spread of a highly infectious or contagious disease, such as COVlD-19, may negatively impact global, national and local economies, which in turn may disrupt the businesses, activities, and operations of our customers, as well as our business and operations.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and net income.
Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present. Assessment of goodwill and such other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes.
Assessment of goodwill and such other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period.
We encounter significant competition from banks, savings and loan associations, credit unions, mortgage banks, and other financial service companies in our markets. Some of our competitors offer a broader range of products and services than we can offer as a result of their size and ability to achieve economies of scale.
Strong competition within our markets could reduce our ability to attract and retain business. We encounter significant competition from banks, savings and loan associations, credit unions, mortgage banks, and other financial service companies in our markets.
Removed
The extent of such future impact will depend on future developments, which remain uncertain.
Added
Credit losses in excess of our reserves may adversely affect our financial condition and results of operations.
Removed
Among the factors outside of our control that may result in a significant and/or sustained decrease in business and/or cause our customers to be unable to meet existing payment or other obligations to us include: • the outbreak, duration and severity of variants; • the efficacy and deployment of vaccines and the potential development of more contagious or vaccine-resistant variants; • the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, consumer spending and real estate market values; • declines in collateral values for loans; • further political, legal and regulatory actions and policies in response to the pandemic; and • the ability of our employees and third-party vendors to continue to work effectively during the course of the pandemic.
Added
Inflation may adversely impact our business and our customers. Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S.
Removed
The COVID-19 pandemic, caused us to modify certain of our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences during the pandemic.
Added
Treasury Department, FDIC and Federal Reserve Board have announced a program to provide up to $25.0 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program.
Removed
The continuation of work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.
Added
There is no guarantee that the U.S. Treasury Department, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
Removed
Although the economy has made a slight recovery and the impact to our lines of business has been less than material to date, the spread of new variants of COVID-19 could further impact our lines of business or negatively impact the business and operations of third-party service providers who perform critical services for us.
Added
In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses.
Removed
Further, even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover, the length of which is unknown and during which the United States may experience a recession or market correction. Our business could be materially and adversely affected by such recession or market correction.
Added
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Defaults by another larger financial institution could adversely affect financial markets generally.
Removed
We continue to closely monitor COVID-19 and related risks as they evolve. To the extent the effects of COVID-19 adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this Item.
Added
Our financial condition, results of operation, and stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.
Removed
The impact of the U.S. elections on the regulatory landscape, capital markets, and the response to the COVID-19 pandemic, including whether there will be any further economic stimulus from the federal government, could negatively impact our financial results.
Added
The bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California, and the decision of Silvergate Bank in California to voluntarily liquidate its assets and wind down operations, each of which occurred during the first and second quarters of 2023, caused uncertainty in the investor community and negative confidence among bank customers generally.
Removed
Changes in interest rates could adversely affect our income and financial condition. Our earnings and cash flow are dependent upon our net interest income.
Added
While we do not believe that the circumstances of these banks' failures and liquidations are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the financial services industry, including us.
Removed
Defaults by another larger financial institution could adversely affect financial markets generally. The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between institutions.
Added
These bank failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions, which in turn led to a 17 greater focus by institutions, investors, and regulators on the on-balance sheet liquidity of and funding sources for financial institutions and the composition of its deposits.
Removed
On June 16, 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13 “Financial Instruments – Credit Losses,” which replaced the incurred loss model with the CECL model, an expected loss model. The new accounting guidance was to have been adopted by the Company as of January 1, 2020.
Added
Notwithstanding, our efforts to promote deposit insurance coverage with our customers and otherwise effectively manage our liquidity, deposit portfolio retention, and other related matters, our financial condition, results of operation, and stock price may be adversely affected by future negative events within the banking sector and adverse customer or investor responses to such events.
Removed
However, Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with the CECL methodology which would have expired on December 31, 2020, and Section 540 of the Consolidated Appropriations Act, 2021, further extended the relief period to the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.
Added
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.
Removed
Following the approval of the CARES Act and Consolidated Appropriations Act, 2021, the Company elected to delay the implementation of CECL until January 1, 2021.
Added
Even a reduction in regulatory restrictions could adversely affect our operations and our shareholders if less restrictive regulation increases competition within the industry generally or within our markets.
Removed
Integrating operations is complex and requires significant efforts and expenses.
Added
Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations. Quarterly, the Company evaluates its security portfolio to see if any security has a fair value less that its amortized cost.
Removed
In order to attract and retain qualified employees, we must compensate them at market levels.
Added
Changes and uncertainty in tax laws could adversely affect our performance. We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, financial institutions tax, withholding and ad valorem taxes.
Removed
In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market consider winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.
Removed
Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period. Deferred tax assets are only recognized to the extent it is more likely than not they will be realized.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Pr operties. At December 31, 2022, the Company conducted its business from its main office at 20 and 30 South Broad Street, Canfield, Ohio and 46 full-service banking centers and 3 stand-alone loan production offices located in northeast Ohio and western Pennsylvania. Farmers Trust operates five offices in northeast Ohio and Farmers Insurance operates two offices.
Biggest changeItem 2. Pr operties. At December 31, 2023, the Company conducted its business from its main office at 20 and 30 South Broad Street, Canfield, Ohio and 64 full-service banking centers and 3 stand-alone loan production offices located in northeast Ohio and western Pennsylvania. Farmers Trust operates five offices in northeast Ohio and Farmers Insurance operates two offices.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeHowever, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not known. Item 4. Mine Safe ty Disclosures Not applicable. 28 Part II
Biggest changeHowever, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not known. Item 4. Mine Safe ty Disclosures Not applicable. 27 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 2023 Repurchase Program may be modified, suspended or terminated by the Company at any time. Item 6. R eserved. 29
Biggest changeThe 2023 Repurchase Program may be modified, suspended or terminated by the Company at any time. During 2023, shares totaling 502,953 were repurchased under this plan. There were 497,047 shares left to repurchase under this plan at December 31, 2023. Item 6. R eserved. 28
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuers Purchases of Equity Securities Market Information regarding the Company’s Common Shares. Farmers’ common shares currently trade under the symbol “FMNB” on the Nasdaq Capital Market. Farmers had 37,944,511 common shares outstanding and approximately 4,177 holders of record of common shares at March 1, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuers Purchases of Equity Securities Market Information regarding the Company’s Common Shares. Farmers’ common shares currently trade under the symbol “FMNB” on the Nasdaq Capital Market. Farmers had approximately 4,097 holders of record of common shares at March 1, 2024.
Shares totaling 10,851 were repurchased during 2021. There were 546,182 shares left to be repurchased under this plan at December 31, 2022.
No shares were repurchased in 2022. Shares totaling 10,851 were repurchased during 2021. During the first two months of 2023, 347,846 shares were repurchased under this plan.
Removed
Quarter Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 High $ 20.00 $ 17.28 $ 15.69 $ 15.46 Low $ 16.19 $ 14.47 $ 13.06 $ 12.41 Cash dividends paid per share $ 0.16 $ 0.16 $ 0.16 $ 0.17 Quarter Ended March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 High $ 18.26 $ 17.99 $ 16.03 $ 18.99 Low $ 13.03 $ 15.37 $ 14.57 $ 15.69 Cash dividends paid per share $ 0.11 $ 0.11 $ 0.11 $ 0.14 Purchases of Common Shares by Farmers.
Added
Quarter Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 High $ 15.08 $ 13.31 $ 14.25 $ 14.72 Low $ 11.56 $ 10.82 $ 11.25 $ 10.38 Cash dividends paid per share $ 0.17 $ 0.17 $ 0.17 $ 0.17 Quarter Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 High $ 20.00 $ 17.28 $ 15.69 $ 15.46 Low $ 16.19 $ 14.47 $ 13.06 $ 12.41 Cash dividends paid per share $ 0.16 $ 0.16 $ 0.16 $ 0.17 The following table provides information regarding the Company's purchases of its common shares during the quarter ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number of Shares that May Yet be Purchased Under the Program Beginning balance 497,047 October 0 $ 0 0 497,047 November 4,766 12.16 0 497,047 December 437 14.09 0 497,047 Ending balance 5,203 $ 12.32 0 497,047 On July 30, 2019, the Company announced that its Board of Directors authorized the purchase of up to 1,500,000 shares of its common stock in the open market or in privately negotiated transactions, from time to time and subject to market and other conditions.
Removed
On July 30, 2019, the Company announced that its Board of Directors authorized the purchase of up to 1,500,000 shares of its common stock in the open market or in privately negotiated transactions, from time to time and subject to market and other conditions.
Removed
This 2019 Repurchase Program supersedes the Company’s prior share repurchase program initially approved in 2012 authorizing the purchase of up to 920,000 shares of common stock. The 2019 Repurchase Program may be modified, suspended or terminated by the Company at any time. No shares were repurchased in 2022. No shares were repurchased in 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNonperforming Assets December 31, 2022 2021 2020 2019 2018 Nonaccrual loans: Commercial Real Estate $ 4,057 $ 3,004 $ 389 $ 108 $ 422 Commercial 3,840 7,190 3,789 1,169 946 Residential Real Estate 3,438 4,280 5,783 2,801 4,166 Consumer 494 682 864 858 495 Agricultural 2,482 314 680 542 736 Total Nonaccrual Loans $ 14,311 $ 15,470 $ 11,505 $ 5,478 $ 6,765 Loans Past Due 90 Days or More 492 725 2,330 867 966 Total Nonperforming Loans $ 14,803 $ 16,195 $ 13,835 $ 6,345 $ 7,731 Total Nonperforming Assets $ 14,876 $ 16,195 $ 13,835 $ 6,364 $ 7,731 Loans modified in troubled debt restructurings $ 5,559 $ 3,862 $ 4,105 $ 4,597 $ 5,520 TDRs included in Nonaccrual Loans $ 3,455 $ 1,962 $ 2,366 $ 2,673 $ 2,997 Percentage of Nonperforming Loans to Total Loans 0.62 % 0.69 % 0.67 % 0.35 % 0.45 % Percentage of Nonperforming Assets to Total Assets 0.36 % 0.39 % 0.45 % 0.26 % 0.33 % Loans Delinquent 30-89 days $ 9,605 $ 8,891 $ 9,297 $ 11,893 $ 8,877 Percentage of Loans Delinquent 30-89 days to Total Loans 0.40 % 0.38 % 0.45 % 0.66 % 0.51 % The Company has forgone interest income of approximately $548 thousand from nonaccrual loans as of December 31, 2022 that would have been earned, over the life of the loans, if all loans had performed in accordance with their original terms.
Biggest changeFarmers typically obtains an external appraisal to validate its internal collateral valuation as soon as is practical and adjusts the associated loss reserve, if necessary. 39 The following table summarizes the Company’s nonperforming loans and nonperforming assets for the years ending 2019 through 2023: Nonperforming Assets December 31, 2023 2022 2021 2020 2019 Nonaccrual loans: Commercial Real Estate $ 5,852 $ 4,057 $ 3,004 $ 389 $ 108 Commercial 1,802 3,840 7,190 3,789 1,169 Residential Real Estate 3,807 3,438 4,280 5,783 2,801 Consumer 461 494 682 864 858 Agricultural 2,486 2,482 314 680 542 Total Nonaccrual Loans $ 14,408 $ 14,311 $ 15,470 $ 11,505 $ 5,478 Loans Past Due 90 Days or More 655 492 725 2,330 867 Total Nonperforming Loans $ 15,063 $ 14,803 $ 16,195 $ 13,835 $ 6,345 Repossessed assets 166 73 0 0 0 Total Nonperforming Assets $ 15,229 $ 14,876 $ 16,195 $ 13,835 $ 6,345 Percentage of Nonperforming Loans to Total Loans 0.47 % 0.62 % 0.69 % 0.67 % 0.35 % Percentage of Nonperforming Assets to Total Assets 0.30 % 0.36 % 0.39 % 0.45 % 0.26 % Loans Delinquent 30-89 days $ 16,705 $ 9,605 $ 8,891 $ 9,297 $ 11,893 Percentage of Loans Delinquent 30-89 days to Total Loans 0.52 % 0.40 % 0.38 % 0.45 % 0.66 % Percentage of Nonaccrual Loans to Total Loans 0.45 % 0.60 % 0.66 % 0.55 % 0.30 % Percentage of Allowance for Credit Losses to Nonaccrual Loans 239.03 % 188.51 % 189.94 % 192.49 % 264.41 % The following table summarizes the Company’s allocation of the allowance for credit losses for under CECL for 2023, 2022 and 2021 and the allowance for loan losses for prior years: December 31, 2023 2022 2021 2020 2019 Loans to Loans to Loans to Loans to Loans to Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Commercial Real Estate $ 18,150 48.1 % $ 14,840 50.5 % $ 15,879 51.0 % $ 10,775 43.1 % $ 6,127 43.6 % Commercial 5,086 12.6 4,186 14.6 4,949 15.7 5,022 21.6 2,443 16.9 Residential Real Estate 6,917 30.8 4,374 25.3 4,870 24.9 3,684 25.2 3,032 27.6 Consumer 4,287 8.5 3,578 9.6 3,688 8.4 2,663 10.0 2,885 11.9 $ 34,440 100.0 % $ 26,978 100.0 % $ 29,386 100.0 % $ 22,144 100.0 % $ 14,487 100.0 % The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2023 occurred in the same proportions or that the allocation indicates future charge-off trends.
The following, which is not intended to be an all-encompassing list, summarizes several factors that could cause the Company’s actual results to differ materially from those anticipated or expected in any forward-looking statement: • 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 COVID-19 pandemic; • the length and extent of the economic impacts of the ongoing conflict in Ukraine; • actions by the Federal Reserve Board, U.S.
The following, which is not intended to be an all-encompassing list, summarizes several factors that could cause the Company’s actual results to differ materially from those anticipated or expected in any forward-looking statement: • general economic conditions in markets where the Company conducts business, which could materially impact credit quality trends; • the length and extent of the continued economic impacts of the COVID-19 pandemic; • the length and extent of the economic impacts of the ongoing conflict in Ukraine; • actions by the Federal Reserve Board, U.S.
Investments in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (1) the need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets, and (4) objectives of the asset and liability management program. The Bank’s Asset/Liability Committee (ALCO) is responsible for monitoring liquidity guidelines, policies and procedures.
Investments in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (1) the need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets, and (4) objectives of the asset and liability management program. 44 The Bank’s Asset/Liability Committee (ALCO) is responsible for monitoring liquidity guidelines, policies and procedures.
Management finalized the fair values of acquired assets and assumed liabilities within this 12-month period and management currently considers such values to be the Day 1 Fair Values for the acquisition transactions. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment 47 based on information available as of the acquisition date.
Management finalized the fair values of acquired assets and assumed liabilities within this 12-month period and management currently considers such values to be the Day 1 Fair Values for the acquisition transactions. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment based on information available as of the acquisition date.
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; 30 • Farmers' ability to attract, recruit and retain skilled employees; and • new service and product offerings by competitors and price pressures.
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; 29 • Farmers' ability to attract, recruit and retain skilled employees; and • new service and product offerings by competitors and price pressures.
These policies relate to determining the adequacy of the allowance for credit 46 losses, if there is any impairment of goodwill and other intangibles, and estimating the fair value of assets acquired and liabilities assumed in connection with any merger activity.
These policies relate to determining the adequacy of the allowance for credit losses, if there is any impairment of goodwill and other intangibles, and estimating the fair value of assets acquired and liabilities assumed in connection with any merger activity.
The allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those 41 portfolios.
The allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those portfolios.
Interest expense related to interest-bearing deposits was $13.1 million in 2022 compared to $6.8 million in 2021. 31 Interest expense on short-term borrowings increased from $11 thousand in 2021 to $1.4 million in 2022.
Interest expense related to interest-bearing deposits was $13.1 million in 2022 compared to $6.8 million in 2021. Interest expense on short-term borrowings increased from $11 thousand in 2021 to $1.4 million in 2022.
A model of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans, as well as existing economic conditions and supportable forecasts used to determine credit loss assumptions. The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the probability of default/loss given default (“PD/LGD”).
A model of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans, as well as existing economic conditions and supportable forecasts are used to determine credit loss assumptions. 38 The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the probability of default/loss given default (“PD/LGD”).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following presents a discussion and analysis of Farmers’ financial condition and results of operations by its management. The review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2022, 2021 and 2020.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following presents a discussion and analysis of Farmers’ financial condition and results of operations by its management. The review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2023, 2022 and 2021.
At December 31, 2022, under the minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III), Farmers Bank and Farmers are required to have actual and minimum capital ratios, which are detailed in Note 16 of the Consolidated Financial Statements.
At December 31, 2023, under the minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III), Farmers Bank and Farmers are required to have actual and minimum capital ratios, which are detailed in Note 16 of the Consolidated Financial Statements.
Farmers Bank and Farmers had capital ratios above the minimum levels at December 31, 2022 and 2021. At year-end 2022 and 2021, the most recent regulatory notifications categorized Farmers Bank as well capitalized under the regulatory framework for prompt corrective action.
Farmers Bank and Farmers had capital ratios above the minimum levels at December 31, 2023 and 2022. At year-end 2023 and 2022, the most recent regulatory notifications categorized Farmers Bank as well capitalized under the regulatory framework for prompt corrective action.
The Company invests in these funds, consisting of low-income housing tax credit investments and SBIC funds, in efforts to comply with Community Reinvestment Act regulations. The commitments have no predetermined due dates but are expected to be funded sporadically over the next ten years.
The Company invests in these funds, consisting of affordable housing tax credit investments and SBIC funds, in efforts to comply with Community Reinvestment Act regulations. The commitments have no predetermined due dates but are expected to be funded sporadically over the next ten years.
No gain was recorded in 2021. Other operating income increased to $4.0 million for the year ended December 31, 2022 from $2.3 million for the year ended December 31, 2021. This increase was due to the addition of Cortland and higher SBIC/SBA fund income in 2022 compared to 2021.
Other operating income increased to $4.0 million for the year ended December 31, 2022 from $2.3 million for the year ended December 31, 2021. This increase was due to the addition of Cortland and higher SBIC/SBA fund income in 2022 compared to 2021.
Recent Accounting Pronouncements and Developments Note 1 to the consolidated financial statements discusses new accounting policies adopted by Farmers during 2022 and 2021 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted.
Recent Accounting Pronouncements and Developments 47 Note 1 to the consolidated financial statements discusses new accounting policies adopted by Farmers during 2023 and 2022 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted.
The provision for credit losses charged to operating expense is based on management’s judgment after taking into consideration all factors connected with the collectability of the existing loan portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry standards and other relevant reasonable and supportable forecasts.
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 evaluates the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry standards and other relevant reasonable and supportable forecasts.
This increase was primarily due to the increased cost of some of the long term borrowings that are tied to variable rates and which increased in 2022.
This increase was primarily due to the increased cost of some of the long term borrowings that are tied to variable rates and which continued to increase in 2023.
The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit. Agricultural loans increased from $232.3 million in 2021 to $247.2 million in 2022, an increase of $14.9 million.
The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit. Agricultural loans increased from $247.2 million in 2022 to $261.8 million in 2023, an increase of $14.6 million.
The increase was due to an $11.8 million increase in income before income taxes. 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 16.5% for 2021 and 16.7% for 2020.
The increase was due to a $10.7 million increase in income before income taxes. 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 16.8% for 2022 and 16.5% in 2021.
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria.
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly, charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs.
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria.
The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, or is partially or wholly charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs.
Risk rating is one common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Risk rating is one common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.
For the consumer loan category, which represents approximately 9.6% of total loans and in 2022, the gross charge-offs accounted for 26.3% of the losses of the entire loan portfolio. There were no loans other than those identified above, that management has known information about possible credit problems of borrowers and their ability to comply with the loan repayment terms.
For the consumer loan category, which represents approximately 8.5% of total loans and in 2023, the gross charge-offs accounted for 31.7% of the losses of the entire loan portfolio. There were no loans other than those identified above, that management has known information about possible credit problems of borrowers and their ability to comply with the loan repayment terms.
Management’s policy is to not engage in derivatives contracts for speculative trading purposes. The Company does utilize interest-rate swaps as a way of helping manage interest rate risk and not as derivatives for trading purposes. See Note 22 within Item 8 of this Annual report on Form 10-K for additional detail.
The Company does utilize interest-rate swaps as a way of helping manage interest rate risk and not as derivatives for trading purposes. See Note 22 within Item 8 of this Annual report on Form 10-K for additional detail.
At December 31, 2022, on a consolidated basis, Farmers had intangibles of $7.0 million subject to amortization and $94.6 million in goodwill, which was not subject to periodic amortization. The Company accounts for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting.
At December 31, 2023, on a consolidated basis, Farmers had intangibles of $22.8 million subject to amortization and $167.4 million in goodwill, which was not subject to periodic amortization. The Company accounts for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting.
Farmers originated both fixed rate and adjustable rate mortgages during 2022. Fixed rate terms are offered with terms between to fifteen and 30 years while adjustable rate products are offered with maturities up to thirty years. The Company sells all fixed rate loans that are secondary market eligible.
Fixed rate terms are offered with terms between fifteen and thirty years while adjustable rate products are offered with maturities up to thirty years. The Company sells all fixed rate loans that are secondary market eligible.
To minimize risks associated with changes in the borrower’s future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all types 38 of loans and normally requires collateral. Commercial real estate loans increased from $1.01 billion at December 31, 2021 to $1.03 billion at December 31, 2022, an increase of $16.1 million or 1.6%.
To minimize risks associated with changes in the borrower’s future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral. Commercial real estate loans increased to $1.33 billion at December 31, 2023 from $1.03 billion at December 31, 2022.
In addition, the Company recognized a gain of $239 thousand in 2021 for the sale of the Company’s credit card portfolio. Debit card fees increased to $5.8 million in 2022 compared to $5.1 million in 2021. The increase was primarily due to the addition of Cortland. The Company recorded an $8.4 million gain related to a legal settlement in 2022.
Debit card fees increased to $5.8 million in 2022 compared to $5.1 million in 2021. The increase was primarily due to the addition of Cortland. The Company recorded an $8.4 million gain related to a legal settlement in 2022. No gain was recorded in 2021.
During 2022 and 2021 the Company used the CECL methodology while the incurred loss methodology was used in prior years: Years Ended December 31, 2022 2021 2020 2019 2018 Balance at Beginning of Year $ 29,386 $ 22,144 $ 14,487 $ 13,592 $ 12,315 Charge-Offs: Commercial Real Estate (300 ) (70 ) (122 ) (45 ) 0 Commercial (2,042 ) (388 ) (412 ) (200 ) (220 ) Residential Real Estate (92 ) (297 ) (172 ) (400 ) (318 ) Consumer (870 ) (912 ) (1,347 ) (1,702 ) (2,318 ) Total Charge-Offs (3,304 ) (1,667 ) (2,053 ) (2,347 ) (2,856 ) Recoveries on Previous Charge-Offs: Commercial Real Estate 3 33 31 4 126 Commercial 75 199 11 13 190 Residential Real Estate 89 162 85 58 148 Consumer 479 411 483 717 669 Total Recoveries 646 805 610 792 1,133 Net Charge-Offs (2,658 ) (862 ) (1,443 ) (1,555 ) (1,723 ) Impact of CECL adoption 0 2,160 0 0 0 Provision For Credit Losses and Day One Purchase entry 250 5,944 9,100 2,450 3,000 Balance at End of Year $ 26,978 $ 29,386 $ 22,144 $ 14,487 $ 13,592 Ratio of Net Charge-offs to Average Loans Outstanding 0.11 % 0.04 % 0.07 % 0.09 % 0.10 % Allowance for Credit Losses/Total Loans 1.12 1.26 1.07 0.80 0.78 Provisions charged to operations, which includes the provision for unfunded commitments, amounted to $1.1 million in 2022, compared to $4.9 million in 2021, a decrease of $3.8 million.
During 2023, 2022 and 2021 the Company used the CECL methodology while the incurred loss methodology was used in prior years: Years Ended December 31, 2023 2022 2021 2020 2019 Balance at Beginning of Year $ 26,978 $ 29,386 $ 22,144 $ 14,487 $ 13,592 Charge-Offs: Commercial Real Estate (349 ) (300 ) (70 ) (122 ) (45 ) Commercial (1,272 ) (2,042 ) (388 ) (412 ) (200 ) Residential Real Estate (384 ) (92 ) (297 ) (172 ) (400 ) Consumer (932 ) (870 ) (912 ) (1,347 ) (1,702 ) Total Charge-Offs (2,937 ) (3,304 ) (1,667 ) (2,053 ) (2,347 ) Recoveries on Previous Charge-Offs: Commercial Real Estate 1 3 33 31 4 Commercial 103 75 199 11 13 Residential Real Estate 81 89 162 85 58 Consumer 496 479 411 483 717 Total Recoveries 681 646 805 610 792 Net Charge-Offs (2,256 ) (2,658 ) (862 ) (1,443 ) (1,555 ) Impact of CECL adoption 0 0 2,160 0 0 Provision For Credit Losses and Day One Purchase entry 9,718 250 5,944 9,100 2,450 Balance at End of Year $ 34,440 $ 26,978 $ 29,386 $ 22,144 $ 14,487 Ratio of Net Commercial Real Estate Charge-offs To Average Loans Outstanding 0.01 % 0.01 % 0.00 % 0.00 % 0.00 % Ratio of Net Commercial Charge-offs To Average Loans Outstanding 0.04 % 0.08 % 0.01 % 0.02 % 0.01 % Ratio of Net Residential Real Estate Charge-offs To Average Loans Outstanding 0.01 % 0.00 % 0.01 % 0.00 % 0.02 % Ratio of Net Consumer Charge-offs To Average Loans Outstanding 0.01 % 0.02 % 0.02 % 0.04 % 0.06 % Allowance for Credit Losses/Total Loans 1.08 1.12 1.26 1.07 0.80 The provision for credit losses, which includes the provision for unfunded commitments, and the day one purchase entry for the Emclaire loans amounted to $9.2 million in 2023, compared to $1.1 million in 2022.
Nonperforming loans to total loans decreased from 0.69% at December 31, 2021 to 0.62% at December 31, 2022.
Nonperforming loans to total loans decreased from 0.62% at December 31, 2022 to 0.47% at December 31, 2023.
These balances generally have a lower yield than loans, which, in turn, negatively impacts the net interest margin. Total interest income increased from $116.5 million in 2021 to $142.1 million for the year ended December 31, 2022.
In addition, the balance of securities available for sale as a percentage of interest earning assets is higher in 2022 than in 2021. These balances generally have a lower yield than loans, which, in turn, negatively impacts the net interest margin. Total interest income increased from $116.5 million in 2021 to $142.1 million for the year ended December 31, 2022.
Net charge-offs for the year ended December 31, 2022 were $2.7 million, $1.8 million, or 208.3% more than net charge-offs for the year ended December 31, 2021. The allowance for credit losses to total loans decreased to 1.12% at December 31, 2022 compared to 1.26% at December 31, 2021.
Net charge-offs for the year ended December 31, 2023, were $2.3 million, compared to $2.7 million for the year ended December 31, 2022. The allowance for credit losses to total loans decreased to 1.08% at December 31, 2023, compared to 1.12% at December 31, 2022.
The increase was due to the higher level of facilities maintenance associated with the additional Cortland properties. Professional fees increased to $6.1 million in 2022 from $4.2 million in 2021. The increase was due to Cortland and a higher level of consulting expense in 2022. Merger related costs decreased to $4.1 million in 2022 compared to $7.1 million in 2021.
The increase was due to the higher level of facilities maintenance associated with the additional Cortland properties. Professional fees increased to $6.1 million in 2022 from $4.2 million in 2021.
Those characteristics include, but aren’t limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios.
Commercial loans at December 31, 2022 decreased 5.8% from year-end 2021 with outstanding balances of $294.4 million. The Bank’s commercial loans are granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local municipalities.
Commercial loans at December 31, 2022, were $294.4 million compared to $347.8 million at December 31, 2023 with the increase due to the Emclaire acquisition. The Bank’s commercial loans are granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local municipalities.
Average balances and average rates paid on deposits are as follows: Years Ended December 31 2022 2021 2020 Amount Rate Amount Rate Amount Rate Noninterest-bearing demand $ 959,294 0.00 % $ 714,978 0.00 % $ 546,177 0.00 % Interest-bearing demand 1,392,058 0.54 % 1,240,014 0.19 % 856,462 0.49 % Money market 389,036 0.14 % 246,900 0.24 % 213,455 0.46 % Savings 457,382 0.02 % 322,279 0.04 % 248,566 0.04 % Brokered time deposits 56,965 2.18 % 11,737 0.64 % 72,472 1.46 % Certificates of deposit 360,687 0.84 % 393,039 0.93 % 480,302 1.68 % Total $ 3,615,422 0.64 % $ 2,928,947 0.34 % $ 2,417,434 0.69 % The following table sets forth the maturities of retail certificates of deposit having principal amounts $250 thousand or greater at December 31, 2022 (in thousands): Retail certificates of deposit maturing in quarter ending: March 31, 2023 $ 37,942 June 30, 2023 32,287 September 30, 2023 7,227 December 31, 2023 36,243 After December 31, 2023 21,967 Total retail certificates of deposit with balances $250,000 or greater $ 135,666 Uninsured deposits for bank and savings and loan registrants are U.S. federally insured depository institutions as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit account that are classified as deposits and not subject to any federal or state deposit insurance regimes.
Average balances and average rates paid on deposits are as follows: Years Ended December 31 2023 2022 2021 Amount Rate Amount Rate Amount Rate Noninterest-bearing demand $ 1,065,389 0.00 % $ 959,294 0.00 % $ 714,978 0.00 % Interest-bearing demand 1,415,425 1.95 % 1,392,058 0.54 % 1,240,014 0.19 % Money market 602,445 1.62 % 389,036 0.14 % 246,900 0.24 % Savings 511,116 0.03 % 457,382 0.02 % 322,279 0.04 % Brokered time deposits 132,895 4.67 % 56,965 2.18 % 11,737 0.64 % Certificates of deposit 654,717 2.97 % 360,687 0.84 % 393,039 0.93 % Total $ 4,381,987 1.44 % $ 3,615,422 0.64 % $ 2,928,947 0.34 % The following table sets forth the maturities of retail certificates of deposit having principal amounts $250 thousand or greater at December 31, 2023 (in thousands): Retail certificates of deposit maturing in quarter ending: March 31, 2024 $ 113,393 June 30, 2024 95,571 September 30, 2024 11,771 December 31, 2024 27,224 After December 31, 2024 10,199 Total retail certificates of deposit with balances $250,000 or greater $ 258,158 Uninsured deposits for bank and savings and loan registrants are U.S. federally insured depository institutions as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit account that are classified as deposits and not subject to any federal or state deposit insurance regimes.
The Company recognized net interest income of $124.2 million for the year ended December 31, 2022, compared to $108.0 million for the year ended December 31, 2021. The tax-equivalent net interest margin declined to 3.18% for 2022 compared to 3.45% for the year ended December 31, 2021.
Net Interest Income 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.
Loan Portfolio Maturities and Sensitivities of Loans to Interest Rates The following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated. Balances include unamortized loan origination fees and costs.
Refer to Note 18 to the consolidated financial statements for additional information regarding the effective tax rate. Loan Portfolio Maturities and Sensitivities of Loans to Interest Rates The following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated. Balances include unamortized loan origination fees and costs.
Net income contributed $60.6 million and was offset by the dividends paid on common stock during 2022. Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements The following table presents, as of December 31, 2022, the Company’s significant fixed and determinable contractual obligations by payment date.
This was partially offset by dividends paid on common stock of $25.6 million and changes in treasury stock balances of $11.7 million. Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements The following table presents, as of December 31, 2023, the Company’s significant fixed and determinable contractual obligations by payment date.
Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis.
The cohort method and the PD/LGD. Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience.
The commercial loan category, which represents 14.6% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The gross charge-offs in the commercial loan portfolio, was $2.0 million for 2022.
For the commercial loan category, which represents 12.6% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The gross charge-offs in the commercial loan portfolio, were $1.3 million for 2023, which represented approximately 43.3% of the losses for the entire loan portfolio.
Noninterest Income The Company's total noninterest income increased to $44.2 million for the year ended December 31, 2022 compared to $38.2 million for the year ended December 31, 2021. Major categories of noninterest income are discussed below. Service charges on deposit accounts increased to $4.7 million in 2022 from $3.7 million for the year ended December 31, 2021.
Major categories of noninterest income are discussed below. Service charges on deposit accounts increased to $4.7 million in 2022 from $3.7 million for the year ended December 31, 2021. The increase was due to acquisition of Cortland and an increased level of overdraft fee income.
The Company elected to restructure a portion of its investment portfolio in 2022 that resulted in the loss. 34 The net gains on the sale of loans declined by $6.2 million in 2022 to $2.1 million from $8.3 million in 2021. The decline was due to a decline in margins as well as the volume of loans sold.
The net gains on the sale of loans declined by $6.2 million in 2022 to $2.1 million from $8.3 million in 2021. The decline was due to a decline in margins as well as the volume of loans sold. In addition, the Company recognized a gain of $239 thousand in 2021 for the sale of the Company’s credit card portfolio.
Treasury securities $ 52,280 $ 61,662 U.S. government sponsored enterprise debt securities 75,816 29,169 Mortgage-backed securities - residential and collateralized mortgage obligations 602,496 668,571 Small Business Administration 3,474 5,430 Obligations of states and political subdivisions 530,080 658,815 Corporate bonds 3,879 4,030 Equity securities 196 228 Other investments measured at net asset value 15,048 14,721 Total securities $ 1,283,269 $ 1,442,626 42 A summary of debt securities held at December 31, 2022 classified according to maturity and including weighted average yield for each range of maturities is set forth below: Type and Maturity Grouping December 31, 2022 Fair Value Weighted Average Yield (1) U.S.
Treasury securities $ 53,210 $ 52,280 U.S. government sponsored enterprise debt securities 74,745 75,816 Mortgage-backed securities - residential and collateralized mortgage obligations 594,385 602,496 Small Business Administration 2,917 3,474 Obligations of states and political subdivisions 556,169 530,080 Corporate bonds 18,275 3,879 Debt securities available for sale $ 1,299,701 $ 1,268,025 Other investments 15,114 15,244 Total securities $ 1,314,815 $ 1,283,269 41 A summary of debt securities held at December 31, 2023 classified according to maturity and including weighted average yield for each range of maturities is set forth below: December 31, 2023 Type and Maturity Grouping Fair Value Weighted Average Yield U.S.
The increase was due to acquisition of Cortland and an increased level of overdraft fee income. Bank owned life insurance income increased to $1.8 million for the year ended December 31, 2022 from $1.3 million for the year ended December 31, 2021.
Bank owned life insurance income increased to $1.8 million for the year ended December 31, 2022 from $1.3 million for the year ended December 31, 2021. This increase was due to the addition of Cortland as well as proceeds from death benefits of $184,000 received from the policies.
Average Balance Sheets and Related Yields and Rates (Table Dollar Amounts in Thousands except Per Share Data) 32 Years ended December 31, 2022 2021 2020 AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE EARNING ASSETS Loans (1) (3) $ 2,358,724 $ 108,100 4.58 % $ 2,041,347 $ 95,180 4.66 % $ 2,062,936 $ 98,779 4.79 % Taxable securities (2) 1,081,966 20,843 1.93 617,475 11,399 1.85 209,817 5,423 2.58 Tax-exempt securities (2) (3) 465,855 14,952 3.21 348,627 12,027 3.45 250,394 9,675 3.86 Other investments 33,153 871 2.63 21,912 498 2.27 16,073 543 3.38 Federal funds sold and other cash 76,253 684 0.90 180,718 200 0.11 124,447 298 0.24 Total earning assets 4,015,951 145,450 3.62 3,210,079 119,304 3.72 2,663,667 114,718 4.31 NONEARNING ASSETS Cash and due from banks 27,360 23,204 35,647 Premises and equipment 38,278 28,227 25,563 Allowance for Loan Losses (27,739 ) (25,187 ) (17,454 ) Unrealized gains on securities (170,617 ) 19,589 20,067 Other assets 261,475 149,972 141,904 Total Assets $ 4,144,708 $ 3,405,884 $ 2,869,394 INTEREST-BEARING LIABILITIES Time deposits $ 360,687 $ 3,044 0.84 % $ 393,039 $ 3,652 0.93 % $ 480,302 $ 8,083 1.68 % Brokered time deposits 56,965 1,240 2.18 11,737 75 0.64 72,472 1,057 1.46 Savings deposits 846,418 1,352 0.16 569,179 712 0.13 462,021 1,080 0.23 Demand deposits - interest bearing 1,392,058 7,449 0.54 1,240,014 2,336 0.19 856,462 4,161 0.49 Short term borrowings 55,668 1,408 2.53 3,957 11 0.28 20,764 359 1.73 Long term borrowings 87,972 3,427 3.90 70,057 1,683 2.40 82,451 1,396 1.69 Total Interest-Bearing Liabilities 2,799,768 17,920 0.64 2,287,983 8,469 0.37 1,974,472 16,136 0.82 NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY Demand deposits - noninterest bearing 959,294 714,978 546,177 Other Liabilities 34,180 23,498 21,570 Stockholders' equity 351,466 379,425 327,175 Total Liabilities and Stockholders' Equity $ 4,144,708 $ 3,405,884 $ 2,869,394 Net interest income and interest rate spread $ 127,530 2.98 % $ 110,835 3.35 % $ 98,582 3.49 % Net interest margin 3.18 % 3.45 % 3.70 % (1) Interest on loans includes fee income of $4.5 million, $10.3 million and $8.3 million for 2022, 2021 and 2020, respectively, and is reduced by amortization of $3.0 million, $2.6 million and $2.7 million for 2022, 2021 and 2020, respectively.
Average Balance Sheets and Related Yields and Rates (Table Dollar Amounts in Thousands except Per Share Data) Years ended December 31, 2023 2022 2021 AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE EARNING ASSETS Loans (1) (2) $ 3,155,858 $ 172,161 5.46 % $ 2,358,724 $ 108,100 4.58 % $ 2,041,347 $ 95,180 4.66 % Taxable securities 1,143,547 26,231 2.29 1,081,966 20,843 1.93 617,475 11,399 1.85 Tax-exempt securities (1) 419,557 13,283 3.17 465,855 14,952 3.21 348,627 12,027 3.45 Other investments 39,559 1,986 5.02 33,153 871 2.63 21,912 498 2.27 Federal funds sold and other cash 74,950 2,476 3.30 76,253 684 0.90 180,718 200 0.11 Total earning assets 4,833,471 216,137 4.47 4,015,951 145,450 3.62 3,210,079 119,304 3.72 NONEARNING ASSETS Noninterest-earning assets 205,683 128,757 195,805 195,805 Total Assets $ 5,039,154 $ 4,144,708 $ 3,405,884 INTEREST-BEARING LIABILITIES Time deposits $ 654,717 $ 19,462 2.97 % $ 360,687 $ 3,044 0.84 % $ 393,039 $ 3,652 0.93 % Brokered time deposits 132,895 6,204 4.67 56,965 1,240 2.18 11,737 75 0.64 Savings deposits 1,113,561 9,899 0.89 846,418 1,352 0.16 569,179 712 0.13 Demand deposits - interest bearing 1,415,425 27,541 1.95 1,392,058 7,449 0.54 1,240,014 2,336 0.19 Short term borrowings 160,964 8,357 5.19 55,668 1,408 2.53 3,957 11 0.28 Long term borrowings 88,439 4,086 4.62 87,972 3,427 3.90 70,057 1,683 2.40 Total Interest-Bearing Liabilities 3,566,001 75,549 2.12 2,799,768 17,920 0.64 2,287,983 8,469 0.37 NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY Demand deposits - noninterest bearing 1,065,389 959,294 714,978 Other Liabilities 50,302 34,180 23,498 Stockholders' equity 357,462 351,466 379,425 Total Liabilities and Stockholders' Equity $ 5,039,154 $ 4,144,708 $ 3,405,884 Net interest income and interest rate spread $ 140,588 2.35 % $ 127,530 2.98 % $ 110,835 3.35 % Net interest margin 2.91 % 3.18 % 3.45 % (1) Interest on certain tax-exempt loans and tax-exempt securities in 2023, 2022 and 2021 is not taxable for Federal income tax purposes.
Results of Operations Comparison of Operating Results for the Years Ended December 31, 2022 and 2021. The Company reported net income of $60.6 million for the year ended December 31, 2022, compared to $51.8 million for the year ended December 31, 2021. The Company reported $1.79 per diluted common share in 2022 compared $1.77 per diluted common share in 2021.
Results of Operations 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 product mix in the loan portfolio includes commercial real estate loans 42.6%, commercial loans comprising 12.2%, residential real estate loans 25.3%, consumer loans 9.5% and agricultural loans 10.3% at December 31, 2022, compared with 43.3%, 13.4%, 24.9%, 8.4% and 10.0%, respectively, at December 31, 2021.
The product mix in the loan portfolio includes commercial real estate loans 41.6%, commercial loans comprising 10.9%, residential real estate loans 30.8%, consumer loans 8.4% and agricultural loans 8.2% at December 31, 2023, compared with 42.6%, 12.2%, 25.3%, 9.5% and 10.3%, respectively, at December 31, 2022. 36 Management recognizes that while the loan portfolio holds some of the Bank’s’ highest yielding assets, it is inherently the most risky portfolio.
The margin declined due to a lower level of PPP interest income and fees in 2022 compared to 2021 and increased funding costs associated with the Federal Reserve's aggressive rate increases in 2022. In addition, the balance of securities available for sale as a percentage of interest earning assets is higher in 2022 than in 2021.
The tax-equivalent net interest margin declined to 3.18% for 2022 compared to 3.45% for the year ended December 31, 2021. The margin declined due to a lower level of PPP interest income and fees in 2022 compared to 2021 and increased funding costs associated with the Federal Reserve's aggressive rate increases in 2022.
Deposits in amounts in excess of the FDIC insurance limit were $1.31 billion at December 31, 2022. 44 Short-Term Borrowings Total short-term borrowings increased from zero at December 31, 2021 to $95.0 million at December 31, 2022. The borrowings helped to offset the runoff in noninterest bearing and interest bearing demand deposits, excluding brokered time deposits.
Deposits in amounts in excess of the FDIC insurance limit were $1.37 billion at December 31, 2023. Short-Term Borrowings The Company's short-term borrowings increased from $95.0 million at December 31, 2022, to $355.0 million at December 31, 2023.
The Company’s commercial real estate loan portfolio includes loans for owner occupied and non-owner occupied real estate. These loans are made to finance properties such as office and industrial buildings, hotels and retail shopping centers. Residential real estate mortgage loans increased 4.7% to $607.6 million at December 31, 2022, compared to $580.2 million in 2021.
The acquisition of Emclaire was responsible for approximately $262.2 million of this increase. The Company’s commercial real estate loan portfolio includes loans for owner occupied and non-owner occupied real estate. These loans are made to finance properties such as office and industrial buildings, hotels and retail shopping centers.
RATE AND VOLUME ANALYSIS (Table Dollar Amounts in Thousands except Per Share Data) The following table analyzes by rate and volume the dollar amount of changes in the components of the interest differential: 2022 change from 2021 2021 change from 2020 Net Change Due Change Due Net Change Due Change Due Change To Volume To Rate Change To Volume To Rate Tax Equivalent Interest Income Loans $ 12,920 $ 14,798 $ (1,878 ) $ (3,599 ) $ (1,034 ) $ (2,565 ) Taxable securities 9,444 8,575 869 5,976 10,536 (4,560 ) Tax-exempt securities 2,925 4,044 (1,119 ) 2,352 3,796 (1,444 ) Other investments 373 255 118 (45 ) 197 (242 ) Funds sold and other cash 484 (116 ) 600 (97 ) 135 (232 ) Total interest income $ 26,146 $ 27,556 $ (1,410 ) $ 4,587 $ 13,630 $ (9,043 ) Interest Expense Time deposits $ (608 ) $ (301 ) $ (307 ) $ (4,431 ) $ (1,469 ) $ (2,962 ) Brokered time deposits 1,165 289 876 (982 ) (886 ) (96 ) Savings deposits 640 347 293 (368 ) 250 (618 ) Demand deposits 5,113 286 4,827 (1,825 ) 1,863 (3,688 ) Short term borrowings 1,397 144 1,253 (348 ) (291 ) (57 ) Long term borrowings 1,744 430 1,314 287 (210 ) 497 Total interest expense $ 9,451 $ 1,195 $ 8,256 $ (7,667 ) $ (743 ) $ (6,924 ) Increase (decrease) in tax equivalent net interest income $ 16,695 $ 26,361 $ (9,666 ) $ 12,254 $ 14,373 $ (2,119 ) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes.
(2) Nonaccrual loans are included in the average balance totals. 31 RATE AND VOLUME ANALYSIS (Table Dollar Amounts in Thousands except Per Share Data) The following table analyzes by rate and volume the dollar amount of changes in the components of the interest differential: 2023 change from 2022 2022 change from 2021 Net Change Due Change Due Net Change Due Change Due Change To Volume To Rate Change To Volume To Rate Tax Equivalent Interest Income Loans $ 64,061 $ 36,533 $ 27,528 $ 12,920 $ 14,798 $ (1,878 ) Taxable securities 5,388 1,186 4,202 9,444 8,575 869 Tax-exempt securities (1,669 ) (1,486 ) (183 ) 2,925 4,044 (1,119 ) Other investments 1,115 168 947 373 255 118 Funds sold and other cash 1,792 (12 ) 1,804 484 (116 ) 600 Total interest income $ 70,687 $ 36,389 $ 34,298 $ 26,146 $ 27,556 $ (1,410 ) Interest Expense Time deposits $ 16,418 $ 2,481 $ 13,937 $ (608 ) $ (301 ) $ (307 ) Brokered time deposits 4,964 1,653 3,311 1,165 289 876 Savings deposits 8,547 427 8,120 640 347 293 Demand deposits 20,092 125 19,967 5,113 286 4,827 Short term borrowings 6,949 2,663 4,286 1,397 144 1,253 Long term borrowings 659 18 641 1,744 430 1,314 Total interest expense $ 57,629 $ 7,367 $ 50,262 $ 9,451 $ 1,195 $ 8,256 Increase (decrease) in tax equivalent net interest income $ 13,058 $ 29,022 $ (15,964 ) $ 16,695 $ 26,361 $ (9,666 ) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes.
The trust business continued to grow in 2022 even with the uncertain economic environment and volatile markets. The investment commissions declined primarily due to volatile equity markets. Insurance agency commissions increased from $3.5 million in 2021 to $4.4 million in 2022, an increase of 27.4%. This growth was driven by increased business volume along with the acquisition of Champion Insurance.
Trust fees increased to $9.6 million in 2022 from $9.4 million in 2021 while investment commissions decreased from $2.3 million in 2021 to $2.2 million in 2022. The trust business continued to grow in 2022 even with the uncertain economic environment and volatile markets. The investment commissions declined primarily due to volatile equity markets.
The results for 2022 include a full year of income and expense from Cortland compared to ten months in 2021. Net Interest Income The Company’s net interest income represents the difference between the interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities.
Net Interest Income The Company’s net interest income represents the difference between the interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. The Company recognized net interest income of $124.2 million for the year ended December 31, 2022, compared to $108.0 million for the year ended December 31, 2021.
The OCC must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). Farmers and Farmers Bank are required to maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators.
Capital Resources The Bank, as a national chartered bank, is subject to the dividend restrictions set forth by the OCC. The OCC must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined).
Treasury securities Maturing within one year $ 222 1.71 % Maturing after one year but within five years 287 2.12 % Maturing after five years but within ten years 51,771 1.10 % Total U.S.
Treasury securities Maturing within one year $ 195 2.09 % Maturing after one year but within five years 96 2.18 % Maturing after five years but within ten years 52,919 1.10 % Maturing after ten years 0 0.00 % Total U.S.
The Company’s agricultural loan portfolio contains a diverse mix of dairy, crops, land, poultry and cattle loans. Consumer loans increased from $195.3 million in 2021 to $228.8 million in 2022. Summary of Credit Loss Experience The following is an analysis of the allowance for credit losses for 2022.
The Company’s agricultural loan portfolio contains a diverse mix of dairy, crops, land, poultry and cattle loans. Consumer loans increased from $228.8 million at December 31, 2022, to $267.9 million at December 31, 2023.
Note 14 to the consolidated financial statements discusses in greater detail other commitments and contingencies and the various obligations that exist under those agreements.
Note 14 to the consolidated financial statements discusses in greater detail other commitments and contingencies and the various obligations that exist under those agreements. Examples of these commitments and contingencies include commitments to extend credit and standby letters of credit. Management’s policy is to not engage in derivatives contracts for speculative trading purposes.
Years Ended December 31, 2022 2021 2020 2019 2018 Commercial Real Estate $ 1,026,822 42.6 % $ 1,010,674 43.3 % $ 712,818 34.3 % $ 615,521 34.0 % $ 578,181 33.3 % Commercial 294,406 12.2 312,532 13.4 401,003 19.3 255,458 14.1 244,742 14.1 Residential Real Estate 607,557 25.3 580,242 24.9 523,340 25.2 499,301 27.6 492,133 28.4 Consumer 228,794 9.5 195,343 8.4 208,842 10.0 214,998 11.9 221,795 12.8 Agricultural 247,171 10.3 232,291 10.0 232,041 11.2 226,261 12.4 198,989 11.4 Total Loans $ 2,404,750 100.0 % $ 2,331,082 100.0 % $ 2,078,044 100.0 % $ 1,811,539 100.0 % $ 1,735,840 100.0 % The following schedule sets forth maturities based on remaining scheduled repayments of principal for loans listed above as of December 31, 2022: Types of Loans 1 Year or less 1 to 5 Years 5 to 15 Years Over 15 Years Commercial $ 22,755 $ 147,091 $ 81,616 $ 42,944 Commercial Real Estate $ 57,131 $ 286,471 $ 604,796 $ 78,424 Residential Real Estate $ 6,732 $ 35,409 $ 143,217 $ 422,199 Consumer $ 3,107 $ 89,741 $ 124,831 $ 11,115 Agricultural $ 2,297 $ 32,576 $ 49,370 $ 162,928 The amounts of loans as of December 31, 2022, based on remaining scheduled repayments of principal, are shown in the following table: Loan Sensitivities 1 Year or less Over 1 Year Total Floating or Adjustable Rates of Interest $ 44,200 $ 1,207,563 $ 1,251,763 Fixed Rates of Interest 47,822 1,105,165 1,152,987 Total Loans $ 92,022 $ 2,312,728 $ 2,404,750 Total loans were $2.4 billion at year-end 2022, compared to $2.3 billion at year-end 2021 representing an increase of 3.2%.
Years Ended December 31, 2023 2022 2021 2020 2019 Commercial Real Estate $ 1,334,600 41.6 % $ 1,026,822 42.6 % $ 1,010,674 43.3 % $ 712,818 34.3 % $ 615,521 34.0 % Commercial 347,819 10.9 294,406 12.2 312,532 13.4 401,003 19.3 255,458 14.1 Residential Real Estate 986,032 30.8 607,557 25.3 580,242 24.9 523,340 25.2 499,301 27.6 Consumer 267,875 8.4 228,794 9.5 195,343 8.4 208,842 10.0 214,998 11.9 Agricultural 261,801 8.2 247,171 10.3 232,291 10.0 232,041 11.1 226,261 12.4 Total Loans $ 3,198,127 100.0 % $ 2,404,750 100.0 % $ 2,331,082 100.0 % $ 2,078,044 100.0 % $ 1,811,539 100.0 % The following schedule sets forth maturities based on remaining scheduled repayments of principal for loans listed above as of December 31, 2023: Types of Loans 1 Year or less 1 to 5 Years 5 to 15 Years Over 15 Years Commercial $ 40,494 $ 162,646 $ 92,343 $ 52,336 Commercial Real Estate $ 104,853 $ 416,506 $ 695,711 $ 117,530 Residential Real Estate $ 4,413 $ 53,654 $ 239,594 $ 688,371 Consumer $ 4,030 $ 105,730 $ 125,574 $ 32,541 Agricultural $ 3,204 $ 32,813 $ 54,089 $ 171,695 The amounts of loans as of December 31, 2023, based on remaining scheduled repayments of principal, are shown in the following table: Loan Sensitivities 1 Year or less Over 1 Year Total Floating or Adjustable Rates of Interest $ 74,389 $ 1,455,807 $ 1,530,196 Fixed Rates of Interest 82,605 1,585,326 1,667,931 Total Loans $ 156,994 $ 3,041,133 $ 3,198,127 Total loans were $3.20 billion at year-end 2023, compared to $2.40 billion at year-end 2022, an increase of $793.4 million.
Commitments 12/31/2022 Note Ref. 2023 2024 2025 2026 2027 Thereafter Deposits without maturity $ 2,999,188 Certificates of deposit and brokered time deposits 11 475,826 $ 32,412 $ 25,686 $ 17,214 $ 7,240 $ 4,202 Long-term borrowings 13 0 0 0 0 0 93,000 Leases 9 1,074 905 865 831 821 5,992 There are also $13.1 million of commitments to various partnership investment funds.
Commitments 12/31/2023 Note Ref. 2024 2025 2026 2027 2028 Thereafter Deposits without maturity $ 3,452,104 Certificates of deposit and brokered time deposits 11 656,154 $ 32,302 $ 20,007 $ 5,569 $ 4,302 $ 6,948 Long-term borrowings 13 0 0 0 0 0 93,000 Leases 9 1,175 1,092 975 898 917 5,659 There are also $13.1 million of commitments to various partnership investment funds.
Security gains, including fair value changes on equity securities, decreased by $1.5 million in 2022. The Company recorded a loss on the sale of securities of $454,000 in 2022 compared to a gain of $1.0 million in 2021.
The Company recorded a loss on the sale of securities of $454,000 in 2022 compared to a gain of $1.0 million in 2021. The Company elected to restructure a portion of its investment portfolio in 2022 that resulted in the loss.
The increase was due to Cortland and a higher level of consulting expense in 2021. Merger related costs increased to $7.1 million in 2021 compared to $3.2 million in 2020. This increase was due to the acquisition of Cortland in 2021, which was a larger acquisition than the acquisition of Maple Leaf in 2020.
The increase was due to Cortland and a higher level of consulting expense in 2022. 35 Merger related costs decreased to $4.1 million in 2022 compared to $7.1 million in 2021. This increase was due to the acquisition of Cortland in 2021, while 2022 costs were from the Emclaire acquisition that was completed on January 1, 2023.
Management is actively monitoring certain borrowers’ financial condition and loans which management wants to more closely monitor due to special circumstances. These loans and their potential loss exposure have been considered in management’s analysis of the adequacy of the allowance for credit losses.
Management is actively monitoring certain borrowers’ financial condition and loans which management wants to more closely monitor due to special circumstances.
The reduced provision for the current year was mainly a result of current economic conditions resulting from the improvement in the COVID-19 pandemic. 39 The Company adopted ASU 2016-13 in 2021, to calculate the allowance for credit losses (“ACL”) which requires projecting credit losses over the lifetime of the credits.
The increased figure for the current year was mainly a result of the day one purchase entry associated with the acquisition of Emclaire. The Company adopted ASU 2016-13 in 2021, to calculate the allowance for credit losses (“ACL”) which requires estimating credit losses over the life of the credits.
This increase was due to the acquisition of Cortland in 2021, while 2022 costs were from the Emclaire acquisition that was completed on January 1, 2023. An additional special charitable donation of $6.0 million was made during 2022 compared to no additional donation in 2021. The donation was made possible by the $8.4 million legal settlement income discussed above.
An additional special charitable donation of $6.0 million was made during 2022 compared to no additional donation in 2021. The donation was made possible by the $8.4 million legal settlement income discussed above. Income Taxes Income tax expense increased from $10.3 million for the year ended December 31, 2021 to $12.2 million for the year ended December 31, 2022.
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 16.8% for 2022 and 16.5% in 2021. Refer to Note 18 to the consolidated financial statements for additional information regarding the effective tax rate.
The decrease was primarily due to a $14.1 million decrease in income before income taxes. 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 14.9% in 2023 and 16.8% for 2022.
Both of these categories benefitted from growth as well as the strong performance of the equity markets in 2021. Insurance agency commissions increased to $3.5 million in 2021 from $3.1 million in 2020, an increase of 10.6%. This growth was driven by increased business volume.
Insurance agency commissions increased from $3.5 million in 2021 to $4.4 million in 2022, an increase of 27.4%. This growth was driven by increased business volume along with the acquisition of Champion Insurance. Security gains, including fair value changes on equity securities, decreased by $1.5 million in 2022.
The Company uses short term FHLB advances to manage the ongoing fluctuations with loans and deposits when necessary. Long-Term Borrowings Total long-term borrowings increased $453 thousand to $88.2 million at December 31, 2022, from $87.8 million at December 31, 2021. During 2021, the Company assumed $4.3 million of junior subordinated debt securities in the merger with Cortland.
The Company uses short term borrowings to manage the ongoing fluctuations with loans and deposits, when necessary. 43 Long-Term Borrowings Total long-term borrowings increased $452 thousand from $88.2 million at December 31. 2022, to $88.7 million at December 31, 2023. See Note 13 within Item 8 of this Annual report on Form 10-K for additional detail.
A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance. The provision for credit losses provides for probable losses on loans. The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s loan portfolio segments. These segments are disaggregated into the loan pools for monitoring.
A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance.
Stockholders’ Equity Total stockholders’ equity decreased to $292.3 million at December 31, 2022 from $472.4 million at December 31, 2021. The decrease is mainly due to the decline in accumulated other comprehensive income of $219.8 million between December 31, 2021 and December 31, 2022, due to unrealized losses associated with the investment securities portfolio.
Stockholders’ Equity Total stockholders’ equity increased from $292.3 million at December 31, 2022, to $404.4 million at December 31, 2023. The increase is due to the merger with Emclaire which added $59.2 million to stockholders' equity along with net income of $49.9 million and a decline in the accumulated other comprehensive loss of $37.9 million.
Comparison of Operating Results for the Years Ended December 31, 2021 and 2020. The Company reported net income of $51.8 million for the year ended December 31, 2021, compared to $41.9 million for the year ended December 31, 2020. On a diluted per common share basis, the Company reported $1.77 in 2021 and $1.47 in 2020.
The Company reported $1.79 per diluted common share in 2022 compared $1.77 per diluted common share in 2021. The results for 2022 include a full year of income and expense from Cortland compared to two months in 2021.
Loan Commitments and Lines of Credit In the normal course of business, the Bank has extended various commitments for credit. Commitments for mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one year.
Commitments for mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one year. Normally, no fees are charged on any unused portion, but an annual fee of two percent is charged for the issuance of a letter of credit.
Loans comprised 58.7% of the Bank’s average earning assets in 2022, compared to 64.0% in 2021.
The acquisition of Emclaire accounted for $740.7 million of the increase with organic growth representing the remainder. Loans comprised 65.3% of the Bank’s average earning assets in 2023, compared to 58.7% in 2022.
Interest expense related to interest-bearing deposits was $6.8 million in 2021 compared to $14.4 million in 2020. Interest on short-term borrowings declined to $7 thousand in 2021 compared to $359 thousand in 2020 as the Company paid off these borrowings in 2021. Interest on long-term borrowings increased to $1.7 million in 2021 from $1.4 million in 2020.
Interest expense related to interest-bearing deposits was $63.1 million in 2023 compared to $13.1 million in 2022. 30 Interest expense on short-term borrowings was $8.4 million in 2023 compared to $1.4 million in 2022.
The portfolio had an unrealized loss of $266.5 million in 2022 compared to an unrealized gain of $11.7 million in 2021. For additional information regarding Farmers’ investment securities see Note 3 to the Consolidated Financial Statements. The following table shows the carrying value of investment securities by type of obligation at the dates indicated: December 31, 2022 2021 U.S.
The following table shows the carrying value of investment securities by type of obligation at the dates indicated: December 31, 2023 2022 U.S.
Noninterest Expenses Noninterest expense was $79.2 million for the year ended December 31, 2021, compared to $73.0 million in 2020, which was an increase of $6.2 million, or 8.5%. The increase is primarily due to the merger and merger-related costs. Salaries and employee benefits declined by $433 thousand to $39.4 million in 2021 compared to $39.8 million in 2020.
Merger related costs increased to $5.5 million in 2023 from $4.1 million in 2022. This increase was due to the acquisition of Emclaire at the beginning of 2023. Intangible amortization expense increased by $1.4 million in 2023 to $3.4 million compared to $2.0 million for the year ended December 31, 2022.
As of that date, there were also no other interest-earning assets that are either nonaccrual, past due, restructured or non-performing. Investment Securities The investment securities portfolio decreased $159.7 million in 2022 to $1.3 billion at December 31, 2022 from $1.4 billion at December 31, 2021. This decrease is primarily the result of the changes in fair value.
As of December 31, 2023, there were no concentrations of loans exceeding 10% of total loans that are not disclosed as a category of loans. As of that date, there were also no other interest-earning assets that are either nonaccrual, past due, restructured or non-performing.
The cash surrender value of these policies was $75.0 million at December 31, 2022, compared to $73.9 million at December 31, 2021. The increase was primarily due to positive changes in the fair value of the policies. Deposits Total deposits at December 31, 2022, were $3.6 billion compared to $3.5 billion at December 31, 2021, an increase of $14.5 million.
Deposits Total deposits increased to $4.2 billion at December 31, 2023, compared to $3.6 billion at December 31, 2022, an increase of $615.6 million. Noninterest bearing deposits increased $129.7 million during 2023 to $1.0 billion due to the acquisition of Emclaire which added $219.9 million in balances.
This increase was primarily due to normal additions to furniture and fixtures and right if use assets, related to leases, throughout the year. 43 Bank Owned Life Insurance Farmers owns bank owned life insurance policies on the lives of certain members of management. The purpose of this investment is to help fund the costs of employee benefit plans.
Bank Owned Life Insurance The Company owns bank owned life insurance policies on the lives of certain members of management. The purpose of this investment is to help offset the costs of employee benefit plans. The cash surrender value of these 42 policies increased to $99.5 million at December 31, 2023, compared to $75.0 million at December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+1 added−2 removed4 unchanged
Biggest changeThe assumptions and predictions include inputs to compute baseline net interest income, expected changes in rates on interest bearing deposit accounts and loans, competition and various other factors that are difficult to accurately predict. 2022 2021 ALCO Changes In Interest Rate (basis points) Result Result Guidelines Net Interest Income Change +300 -5.4 % 4.5 % -10.0 % +200 -3.6 % 3.2 % -7.5 % +100 -1.8 % 1.5 % -5.0 % -100 1.1 % -4.1 % -5.0 % -200 1.5 % * -10.0 % -300 1.6 % * -15.0 % Net Present Value Of Equity Change +300 -20.9 % 6.2 % -10.0 % +200 -13.4 % 7.6 % -7.5 % +100 -6.4 % 6.1 % -5.0 % -100 3.9 % -12.4 % -10.0 % -200 5.5 % * -15.0 % -300 4.4 % * -20.0 % * Not calculated for December 31, 2021 The yield curve at December 31, 2022 is dramatically different than that of a year ago.
Biggest changeThe assumptions and predictions include inputs to compute baseline net interest income, expected changes in rates on interest bearing deposit accounts and loans, competition and various other factors that are difficult to accurately predict. 2023 2022 ALCO Changes In Interest Rate (basis points) Result Result Guideline Net Interest Income Change +400 -6.2 % * -12.5 % +300 -5.0 % -5.4 % -10.0 % +200 -3.4 % -3.6 % -7.5 % +100 -1.9 % -1.8 % -5.0 % -100 1.4 % 1.1 % -5.0 % -200 2.3 % 1.5 % -10.0 % -300 3.1 % 1.6 % -15.0 % -400 2.7 % * -20.0 % Net Present Value Of Equity Change +400 -36.4 % * -12.5 % +300 -26.8 % -20.9 % -10.0 % +200 -17.3 % -13.4 % -7.5 % +100 -8.7 % -6.4 % -5.0 % -100 5.3 % 3.9 % -10.0 % -200 7.2 % 5.5 % -15.0 % -300 5.1 % 4.4 % -20.0 % -400 3.5 % * -25.0 % * Not calculated for December 31, 2022 The yield curve at December 31, 2023, has changed dramatically over the past two years.
The following table shows the effect on net interest income and the net present value of equity from a sudden and sustained 300 basis point increase to a 300 basis point decrease in market interest rates.
The following table shows the effect on net interest income and the net present value of equity from a sudden and sustained 400 basis point increase to a 400 basis point decrease in market interest rates.
The remaining results of the simulations indicate that interest rate change results fall within internal limits established by the Company at December 31, 2022 and 2021. A report on interest rate risk is presented to the Board of Directors and the Asset/Liability Committee on a quarterly basis.
The remaining results of the simulations in the table above indicate that interest rate change results fall within internal limits established by the Company at both December 31, 2023, and December 31, 2022. A report on interest rate risk is presented to the Board of Directors and the Asset/Liability Committee on a quarterly basis.
This unprecedented outcome was created by the events occurring over the past two years, namely, the massive influx of liquidity in the form of deposits in 2020 and 2021 from government assistance while interest rates were at their lowest; the deployment of those funds at those low rates; and now the usage of those deposits as consumers drain their accounts in this highly inflationary economy and limit the Company's ability to invest in the higher rates now available.
This unprecedented outcome was created by the events occurring over the past two years, namely, the massive influx of liquidity in the form of deposits in 2020 and 2021 from government assistance while interest rates were at their lowest; the deployment of those funds at those low rates; and now the usage of those deposits as consumers drain their accounts in this highly inflationary economy, which prevents the Company from investing in the higher rates now available.
With the entire curve highly elevated, asset valuation has declined substantially as evidenced by the 17% valuation reserve on the investment portfolio. For interest rate risk modeling purposes, although further rate increases are probable, movement beyond 150 more basis points is doubtful.
With the entire curve highly elevated, asset valuation has declined substantially, as evidenced by the 14.3% valuation reserve on the investment portfolio. For interest rate risk modeling purposes, although further rate increases are possible, movement beyond 25 more basis points is doubtful.
With the EVE model moving rates even higher, it further exacerbates the differential between market rates and book rates, thereby creating the out of policy consequence. To mitigate these results, the Company has prioritized loan growth, while shrinking the investment portfolio, thereby attempting to close the gap between the book rates and market rates.
With the EVE model moving rates even higher, it further exacerbates the differential between market rates and book rates, thereby creating the out of internal policy consequence. To mitigate these results, the Company has prioritized loan growth, while employing strategies to shrink the investment portfolio, in an effort to close the gap between the book rates and market rates.
The Federal Open Market Committee, in its intense efforts to diffuse inflation, has raised the discount rate 4.5% throughout 2022, the fastest pace on record. These movements have inverted the yield curve whereby the two-year treasury yield exceeds the ten-year treasury yield by 55 basis points, versus the prior year end’s ten-year exceeding the two-year by over 139 basis points.
The Federal Open Market Committee, in an intense efforts to diffuse inflation, has raised the discount rate 5.25% over the past eight quarters, the fastest pace on record. These movements have inverted the yield curve, whereby the two-year treasury yield now exceeds the ten-year treasury yield by 35 basis points at year end 2023.
The Company has no market risk sensitive instruments held for trading purposes, nor does it hold derivative financial instruments, and does not plan to purchase these instruments in the near future. With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the Company monitors this area most closely.
The Company has no market risk sensitive instruments held for trading purposes. With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the Company monitors this area most closely. Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that can impact actual results in comparison to our simulation analysis.
Interest rate sensitivity management provides some degree of protection against net interest income volatility. It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure. 50
In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net interest margin. Interest rate sensitivity management provides some degree of protection against net interest income volatility. It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive assets and liabilities.
The Company has also utilized wholesale funding in response to deposit shrinkage so as not to incur cost increases on its core deposits. 49 Note that at December 31, 2021 the change in the net present value of equity exceeded policy when the simulation model assumed a sudden decrease in rates of 100 basis points (1%).
The Company 49 has also utilized short term wholesale funding in response to deposit shrinkage so as not to incur long term cost increases on its core deposits.
Due to the very low rate environments the past couple years, modeling has excluded the down 200 and 300 basis point scenarios. Those are now back in play, and in fact, a probability in the medium-term horizon. The above table presents results in the up rate scenarios that exceed policy limits for the Economic Value of Equity (“EVE”).
However, the elevated rates do bring back into play the 400 basis point scenarios, which have not been modeled in recent years. The above table presents results in the up rate scenarios that exceed internal policy limits for the Economic Value of Equity (“EVE”).
Removed
This occurred while rates were at their lows. Specifically, because core deposits typically bear relatively low interest rates, their fair value would be negatively impacted as the rates could not be adjusted by the full extent of the sudden decrease in rates.
Added
Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure. 50
Removed
Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that can impact actual results in comparison to our simulation analysis. In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net interest margin.

Other FMNB 10-K year-over-year comparisons