CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

 

 

See accompanying notes

 

 

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

 

 

See accompanying notes

 

 

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

 

 

See accompanying notes

 

 

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

(Table Dollar Amounts in Thousands except Per Share Data)

 

 

 

See accompanying notes.

 

 

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

 

 

See Note 2 regarding non-cash transactions included in the acquisition.  

See accompanying notes

 

 

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

Principles of Consolidation:

 

Farmers National Banc Corp. (“Company” or “Farmers”) is a Financial Holding Company registered under the Bank Holding Company Act of 1956, as amended. The Company provides full banking services through its nationally chartered subsidiary, The Farmers National Bank of Canfield (“Bank”). The consolidated financial statements also include the accounts of the Bank’s subsidiaries: Farmers National Insurance, LLC (“Insurance”) and Farmers of Canfield Investment Co. (“Investments”). The Company provides trust and retirement consulting services through its subsidiary, Farmers Trust Company (“Trust”), and insurance services through the Bank’s subsidiary, Insurance. The consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries, along with the Trust company. All significant intercompany balances and transactions have been eliminated in the consolidation.

 

Basis of Presentation:

 

The unaudited consolidated condensed financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2025 Annual Report to Shareholders included in the Company’s Annual Report on Form 10-K for the year ended  December 31, 2025 (“2025 Form 10-K”). The interim consolidated financial statements include all adjustments (consisting of only normal recurring items) that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year. Certain items included in the prior period financial statements were reclassified to conform to the current period presentation. There was no effect on net income or total stockholders’ equity.

 

Estimates:

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Segments:

 

The Company provides a broad range of financial services to individuals and companies in northeastern Ohio and western Pennsylvania. Operations are managed and financial performance is primarily aggregated and reported in two lines of business, the Bank segment and the Trust segment.

 

Equity:

 

There are 75,000,000 shares authorized and available for issuance as of March 31, 2026. Outstanding shares at  March 31, 2026 were 59,191,712.

 

Comprehensive Income:

 

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on securities available for sale and changes in the funded status of the post-retirement plan, which are recognized as components of stockholders’ equity, net of tax effect.

 

Updates to Significant Accounting Policies:

 

New Accounting Standard:

 

In November 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326). ASU 2025-08 expands the use of the gross up method to certain acquired loans beyond purchased financial assets with credit deterioration. The ASU applies the gross-up method to acquired non-PCD assets that are purchased seasoned loans ultimately eliminating the Day 1 credit loss expense and reducing interest income recognized in subsequent periods. The ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2026, and is applied on a prospective basis. Early adoption is permitted. This update was adopted by the Company during the first quarter of 2026.  

 

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Business Combinations:

 

 

On March 2, 2026, the Company completed its previously announced merger with Middlefield Banc Corp., an Ohio corporation (“Middlefield”), pursuant to the Agreement and Plan of Merger dated as of October 22, 2025, between the Company and Middlefield (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) Middlefield merged with and into the Company (the “Merger”), with the Company as the surviving entity in the Merger. Promptly following the consummation of the Merger, The Middlefield Banking Company, the banking subsidiary of Middlefield, merged with and into The Farmers National Bank of Canfield, the national banking subsidiary of the Company (“Farmers Bank”), with Farmers Bank as the surviving bank.

 

Pursuant to the terms of the Merger Agreement, at the Effective Time of the Merger, each common share, without par value, of Middlefield (“Middlefield Common Shares”) issued and outstanding immediately prior to the Effective Time was converted into the right to receive 2.6 common shares, without par value, of the Company (“Company Common Shares”). No fractional Company Common Shares were issued in the Merger, and Middlefield’s shareholders became entitled to receive cash in lieu of fractional Company Common Shares, which represented a transaction value of approximately $277.4 million based on its closing stock price of $12.93 on February 27, 2026.  

 

In accordance with ASC 805, the Company expensed $3.7 million of merger related costs during the three months ended March 31, 2026.  There were no merger related expenses recorded during the three months ended March 31, 2025.  The Company recorded goodwill of $104.2 million as a result of the Merger.  Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies, including the reduction of personnel and overlapping contracts, expected to be derived from the Company’s strategy to enhance and expand its presence.  The Merger offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded market area.  The goodwill was determined not to be deductible for income tax purposes.

 

The following table summarizes the consideration paid for Middlefield and the amounts of the assets acquired and liabilities assumed on the closing date of the Merger.

 

 

(In Thousands of Dollars)
Consideration
Cash		$	8
Stock			277,355
Fair value of total consideration transferred		$	277,363
Fair value of assets acquired
Cash and cash equivalents		$	64,759
Securities available for sale			152,767
Loans, net			1,490,843
Premises and equipment			22,609
Bank owned life insurance			35,715
Core deposit intangible			19,826
Current and deferred taxes			7,473
Other assets			29,821
Total assets acquired			1,823,813
Fair value of liabilities assumed
Deposits			1,485,792
Short-term borrowings			145,000
Long-term borrowings			7,223
Accrued interest payable and other liabilities			12,636
Total liabilities			1,650,651
Net assets acquired		$	173,162
Goodwill created			104,201
Total net assets acquired		$	277,363

 

The fair value of net assets acquired includes fair value adjustments to certain receivables that were considered performing as of the effective date of the Merger.  The fair value adjustments were determined using the income method, discounted cash flow approach.  However, the Company believes that all contractual cash flows related to these financial instruments will be collected.  As such, these receivables were not considered purchase credit deteriorated (“PCD”) at the Merger effective date and were not subject to the guidance relating to PCD loans.  Receivables acquired that were not subject to these requirements had a fair value and gross contractual amounts receivable of $1.46 billion and $1.48 billion on the date of acquisition.

 

The fair value of purchased financial assets that were classified as PCD loans are discussed in the Purchased Loans footnote. 

 

The following table presents unaudited pro forma information as if the Merger had occurred on January 1, 2025. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount associated with the fair value adjustments to acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired interest-bearing deposits and long-term debt and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2025.  The pro forma information is not indicative of what would have occurred had the Merger occurred as of the beginning of the year prior to the Merger effective date. The pro forma amounts below do not reflect any adjustments to the provision for credit losses for acquired loans, or the Company's expectations as of the date of the pro forma information of further operating cost savings and other business synergies expected to be achieved, including revenue growth as a result of the Merger.  As a result, actual amount differed from the unaudited pro forma information presented. 

 

 

		Three months ended
(In Thousands of Dollars)		March 31, 2026				March 31, 2025
Net interest income		$	58,413			$	51,422
Noninterest income			14,751				12,425
Noninterest expense (1)			48,268				40,208
Net income (1)(2)			21,069				19,543

 

(1) Excludes $14.5 million in merger expense for the three months ended March 31, 2026.  No merger costs were recorded for the three months ended March 31, 2025.  

(2) Excludes $14.8 million in allowance for credit losses booked in the first quarter of 2026.  There was not a similar entry for the first quarter of 2025. 

 

Securities:

 

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at  March 31, 2026 and December 31, 2025, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss). No allowance for credit losses have been recognized for the securities portfolio at March 31, 2026 or December 31, 2025.

 

						Gross				Gross
		Amortized				Unrealized				Unrealized
(In Thousands of Dollars)		Cost				Gains				Losses				Fair Value
March 31, 2026
U.S. Treasury and U.S. government sponsored entities		$	104,720			$	29			$	(9,851	)		$	94,898
State and political subdivisions			716,934				1,710				(92,688	)			625,956
Corporate bonds			32,213				140				(280	)			32,073
Mortgage-backed securities			635,441				610				(83,320	)			552,731
Collateralized mortgage obligations			182,586				617				(6,543	)			176,660
Small Business Administration			2,009				0				(129	)			1,880
Totals		$	1,673,903			$	3,106			$	(192,811	)		$	1,484,198

 

						Gross				Gross
		Amortized				Unrealized				Unrealized
(In Thousands of Dollars)		Cost				Gains				Losses				Fair Value
December 31, 2025
U.S. Treasury and U.S. government sponsored entities		$	104,737			$	45			$	(9,487	)		$	95,295
State and political subdivisions			589,236				2,632				(88,171	)			503,697
Corporate bonds			13,171				163				(289	)			13,045
Mortgage-backed securities			629,376				731				(82,973	)			547,134
Collateralized mortgage obligations			186,494				1,461				(5,739	)			182,216
Small Business Administration			2,210				0				(140	)			2,070
Totals		$	1,525,224			$	5,032			$	(186,799	)		$	1,343,457

 

The proceeds from sales of available-for-sale securities and the associated gains and losses are as follows:

 

		Three Months Ended
		March 31,
(In Thousands of Dollars)		2026				2025
Proceeds		$	0			$	23,901
Gross gains			0				0
Gross losses			0				(1,334	)

 

The amortized cost and fair value of the debt securities portfolio are shown in the table below by expected maturity. Expected maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or without call, or prepayment penalties. Securities not due at a single maturity date are shown separately.

 

		March 31, 2026
(In Thousands of Dollars)		Amortized Cost				Fair Value
Maturity
Within one year		$	4,668			$	4,644
One to five years			77,267				72,915
Five to ten years			209,826				194,283
Beyond ten years			562,106				481,085
Mortgage-backed, collateralized mortgage obligations and Small Business Administration securities			820,036				731,271
Total		$	1,673,903			$	1,484,198

 

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The following table summarizes the investment securities with unrealized losses for which an allowance for credit losses has not been recorded at March 31, 2026 and December 31, 2025, aggregated by major security type and length of time in a continuous unrealized loss position.

 

		Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(In Thousands of Dollars)		Value				Loss				Value				Loss				Value				Loss
March 31, 2026
U.S. Treasury and U.S. government sponsored entities		$	1,159			$	(11	)		$	92,833			$	(9,840	)		$	93,992			$	(9,851	)
State and political subdivisions			155,312				(2,308	)			404,333				(90,380	)			559,645				(92,688	)
Corporate bonds			18,386				(30	)			6,805				(250	)			25,191				(280	)
Mortgage-backed securities			74,431				(958	)			427,583				(82,362	)			502,014				(83,320	)
Collateralized mortgage obligations			56,177				(1,184	)			69,827				(5,359	)			126,004				(6,543	)
Small Business Administration			0				0				1,880				(129	)			1,880				(129	)
Total		$	305,465			$	(4,491	)		$	1,003,261			$	(188,320	)		$	1,308,726			$	(192,811	)

 

		Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(In Thousands of Dollars)		Value				Loss				Value				Loss				Value				Loss
December 31, 2025
U.S. Treasury and U.S. government sponsored entities		$	100			$	0			$	93,211			$	(9,487	)		$	93,311			$	(9,487	)
State and political subdivisions			6,302				(1,360	)			432,053				(86,811	)			438,355				(88,171	)
Corporate bonds			2,962				(44	)			6,293				(245	)			9,255				(289	)
Mortgage-backed securities			48,965				(313	)			437,859				(82,660	)			486,824				(82,973	)
Collateralized mortgage obligations			50,887				(621	)			69,006				(5,118	)			119,893				(5,739	)
Small Business Administration			0				0				2,070				(140	)			2,070				(140	)
Total		$	109,216			$	(2,338	)		$	1,040,492			$	(184,461	)		$	1,149,708			$	(186,799	)

 

As of March 31, 2026, the Company’s security portfolio consisted of 1,068 securities, 913 of which were in an unrealized loss position. The treasury, agency, mortgage-backed securities, collateralized mortgage obligations and small business administration securities that the Company owns are all issued by government sponsored entities and therefore contain no potential for credit loss. The Company does not consider any of its available-for-sale securities with unrealized losses to be attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in noncredit related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The vast majority of the Company's state and political subdivisions holdings are of high credit quality and are rated AA or higher. In addition, management has both the ability and intent to hold the securities for a period of time sufficient to allow for the recovery in fair value. As of March 31, 2026, the Company has not recorded an allowance for credit losses on available for sale (“AFS”) securities.

 

At December 31, 2025, the Company’s security portfolio consisted of 899 securities, 716 of which were in an unrealized loss position. The treasury, agency, mortgage-backed securities, collateralized mortgage obligations and small business administration securities that the Company owns are all issued by government sponsored entities and therefore contain no potential for credit loss. At December 31, 2025, the Company did not consider any of its available-for-sale securities with unrealized losses to be attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in noncredit related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The vast majority of the Company's state and political subdivisions holdings are of high credit quality and are rated AA or higher. In addition, management had both the ability and intent to hold the securities for a period of time sufficient to allow for the recovery in fair value. At December 31, 2025, the Company had not recorded an allowance for credit losses on AFS securities.

 

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Equity Securities

 

The Company also holds equity securities which include $16.2 million in Small Business Investment Company (“SBIC”) partnership investments as well as $876,000 in local and regional bank holdings and other miscellaneous equity funds at March 31, 2026. At December 31, 2025, the Company held $15.5 million in SBIC investments and $370,000 in local and regional bank holdings and other miscellaneous equity funds. These investments are held at modified cost and any changes in the modified costs are recognized in income in both 2026 and 2025.

 

Loans:

 

Loan balances were as follows:

 

(In Thousands of Dollars)		March 31, 2026				December 31, 2025
Commercial real estate
Owner occupied		$	626,711			$	393,061
Non-owner occupied			1,047,722				710,468
Farmland			231,601				211,370
Other			403,988				294,587
Commercial
Commercial and industrial			591,409				340,224
Agricultural			52,414				54,195
Residential real estate
1-4 family residential			1,219,766				850,300
Home equity lines of credit			349,656				181,544
Consumer
Indirect			233,576				231,242
Direct			21,539				16,483
Other			10,020				10,070
Total loans		$	4,788,402			$	3,293,544
Net deferred loan costs			11,662				11,169
Allowance for credit losses			(54,684	)			(36,811	)
Net loans		$	4,745,380			$	3,267,902

 

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Allowance for credit loss activity

 

The following tables present the activity in the allowance for credit losses by portfolio segment for the three month periods ended March 31, 2026 and 2025:

 

Three Months Ended March 31, 2026

 

		Commercial								Residential
(In Thousands of Dollars)		Real Estate				Commercial				Real Estate				Consumer				Total
Allowance for credit losses
Beginning balance		$	20,064			$	4,536			$	7,241			$	4,970			$	36,811
(Credit) Provision for credit losses			(1,771	)			329				13				416				(1,013	)
Initial allowance on loans purchased with credit deterioration			3,380				600				15				0				3,995
Initial allowance on purchased seasoned loans			8,377				2,746				4,102				110				15,335
Loans charged off			(1	)			(291	)			(83	)			(354	)			(729	)
Recoveries			0				121				43				121				285
Total ending allowance balance		$	30,049			$	8,041			$	11,331			$	5,263			$	54,684

 

Three Months Ended March 31, 2025

 

		Commercial								Residential
(In Thousands of Dollars)		Real Estate				Commercial				Real Estate				Consumer				Total
Allowance for credit losses
Beginning balance		$	19,259			$	4,628			$	7,271			$	4,705			$	35,863
Provision (Credit) for credit losses			263				(125	)			(234	)			118				22
Loans charged off			(44	)			(313	)			(19	)			(322	)			(698	)
Recoveries			2				193				47				120				362
Total ending allowance balance		$	19,480			$	4,383			$	7,065			$	4,621			$	35,549

 

The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company's historical loss experience from December 31, 2011 to March 31, 2026. As of March 31, 2026, the Company expects that the markets in which it operates will experience minimal changes to economic conditions, stable trend in unemployment rate, and an increased trend of delinquencies. Management adjusted historical loss experience for these expectations. No reversion adjustments were necessary, as the starting point for the Company's estimate was a cumulative loss rate covering the expected contractual term of the portfolio. While there are many factors that go into the calculation of the allowance for credit losses, the change in the balances from  March 31, 2025 to March 31, 2026 is largely attributed to the Middlefield Merger.

 

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The following tables present the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of March 31, 2026 and December 31, 2025:

 

		Nonaccrual with				Nonaccrual with				Loans past due
		no allowance				an allowance				over 89 days
(In Thousands of Dollars)		for credit loss				for credit loss				still accruing
March 31, 2026
Commercial real estate
Owner occupied		$	4,989			$	2,818			$	0
Non-owner occupied			6,773				16,680				0
Farmland			0				1,879				0
Other			1,576				0				0
Commercial
Commercial and industrial			8,074				9,521				0
Agricultural			0				161				0
Residential real estate
1-4 family residential			1,878				3,068				268
Home equity lines of credit			506				1,004				0
Consumer
Indirect			32				526				0
Direct			0				4				0
Other			97				0				0
Total loans		$	23,925			$	35,661			$	268

 

		Nonaccrual with				Nonaccrual with				Loans past due
		no allowance				an allowance				over 89 days
(In Thousands of Dollars)		for credit loss				for credit loss				still accruing
December 31, 2025
Commercial real estate
Owner occupied		$	1,346			$	207			$	0
Non-owner occupied			2,408				10,776				0
Farmland			0				1,917				0
Other			1,093				0				0
Commercial
Commercial and industrial			0				2,778				82
Agricultural			0				159				0
Residential real estate
1-4 family residential			1,095				2,329				271
Home equity lines of credit			424				689				0
Consumer
Indirect			61				462				0
Direct			0				21				0
Other			97				0				0
Total loans		$	6,524			$	19,338			$	353

 

There were no loans that were held for sale and in nonaccrual status for the periods ending  March 31, 2026 and   December 31, 2025.

 

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The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2026 and December 31, 2025:

 

(In Thousands of Dollars)		Real Estate				Business Assets				Vehicles				Cash
March 31, 2026
Commercial real estate
Owner occupied		$	7,518			$	0			$	0			$	0
Non-owner occupied			35,322				0				0				0
Farmland			1,839				0				0				0
Other			1,576				0				0				0
Commercial
Commercial and industrial			0				16,812				0				0
Agricultural			0				8				0				0
Residential real estate
1-4 family residential			3,031				0				0				0
Home equity lines of credit			912				0				0				0
Consumer
Indirect			0				0				72				0
Direct			0				0				2				0
Other			97				0				0				0
Total loans		$	50,295			$	16,820			$	74			$	0

 

(In Thousands of Dollars)		Real Estate				Business Assets				Vehicles				Cash
December 31, 2025
Commercial real estate
Owner occupied		$	1,346			$	0			$	0			$	0
Non-owner occupied			24,235				0				0				0
Farmland			1,872				0				0				0
Other			1,093				0				0				0
Commercial
Commercial and industrial			0				2,352				0				0
Agricultural			0				0				0				0
Residential real estate
1-4 family residential			2,411				0				0				0
Home equity lines of credit			944				0				0				0
Consumer
Indirect			0				0				102				0
Direct			0				0				4				0
Other			97				0				0				0
Total loans		$	31,998			$	2,352			$	106			$	0

 

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The following tables present the aging of the amortized cost basis in past due loans as of March 31, 2026 and December 31, 2025 by class of loans.

 

										90 Days
										or More
		30-59 Days				60-89 Days				Past Due				Total				Loans Not
(In Thousands of Dollars)		Past Due				Past Due				and Nonaccrual				Past Due				Past Due				Total
March 31, 2026
Commercial real estate
Owner occupied		$	376			$	0			$	7,807			$	8,183			$	618,356			$	626,539
Non-owner occupied			106				0				23,453				23,559				1,023,809				1,047,368
Farmland			112				160				1,879				2,151				229,304				231,455
Other			990				0				1,576				2,566				400,802				403,368
Commercial
Commercial and industrial			641				390				17,595				18,626				574,331				592,957
Agricultural			239				25				161				425				52,879				53,304
Residential real estate
1-4 family residential			8,634				59				5,214				13,907				1,206,809				1,220,716
Home equity lines of credit			695				227				1,510				2,432				347,486				349,918
Consumer
Indirect			1,372				513				558				2,443				240,360				242,803
Direct			99				30				4				133				21,479				21,612
Other			32				0				97				129				9,895				10,024
Total loans		$	13,296			$	1,404			$	59,854			$	74,554			$	4,725,510			$	4,800,064

  

										90 Days
										or More
		30-59 Days				60-89 Days				Past Due				Total				Loans Not
(In Thousands of Dollars)		Past Due				Past Due				and Nonaccrual				Past Due				Past Due				Total
December 31, 2025
Commercial real estate
Owner occupied		$	419			$	1,018			$	1,553			$	2,990			$	389,881			$	392,871
Non-owner occupied			8				0				13,184				13,192				696,884				710,076
Farmland			116				163				1,917				2,196				209,035				211,231
Other			0				0				1,093				1,093				292,915				294,008
Commercial
Commercial and industrial			1,064				174				2,860				4,098				337,639				341,737
Agricultural			235				30				159				424				54,665				55,089
Residential real estate
1-4 family residential			9,848				1,122				3,695				14,665				836,515				851,180
Home equity lines of credit			75				54				1,113				1,242				180,544				181,786
Consumer
Indirect			2,090				470				523				3,083				237,027				240,110
Direct			37				7				21				65				16,486				16,551
Other			17				0				97				114				9,960				10,074
Total loans		$	13,909			$	3,038			$	26,215			$	43,162			$	3,261,551			$	3,304,713

  

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Loan Restructurings

 

The Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

 

Any restructuring of a loan in which the borrower has experienced financial difficulty and the terms of the loan are more favorable than would generally be considered for borrowers with the same credit characteristics would be individually evaluated. Otherwise, the restructured loan remains in the appropriate segment in the ACL model.

 

The following table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the three months ended March 31, 2026 and March 31, 2025, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

 

 

Three Months Ended March 31, 2026		Amortized Cost
(In Thousands of Dollars)		Payment Deferral				Term Extension				Interest Rate Reduction				Combination Payment Deferral and Interest Rate Reduction				Total				% of Total Class of Financing Receivable
Commercial real estate
Non-owner occupied		$	4,321			$	0			$	0			$	0			$	4,321				0.41	%
Residential real estate
1-4 family residential			0				0				0				38				38				0.00	%
Total modifications to borrowers experiencing financial difficulty		$	4,321			$	0			$	0			$	38			$	4,359				0.09	%

 

Three Months Ended March 31, 2025		Amortized Cost
(In Thousands of Dollars)		Payment Deferral				Term Extension				Interest Rate Reduction				Combination Payment Deferral and Interest Rate Reduction				Total				% of Total Class of Financing Receivable
Commercial
Commercial and industrial		$	124			$	0			$	0			$	0			$	124				0.04	%
Residential real estate
Home equity lines of credit			0				15				0				0				15				0.01	%
Total modifications to borrowers experiencing financial difficulty		$	124			$	15			$	0			$	0			$	139				0.00	%

 

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The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three months ended March 31, 2026 and March 31, 2025:

 

Payment Deferral

Interest Rate Reduction

Term Extension

Weighted-Average

Weighted-Average Contractual Interest Rate

Weighted-Average Years

Principal Deferred

From

To

Added to the Life

Three Months Ended March 31, 2026

Commercial real estate

Non-owner occupied

$

19

Residential real estate

1-4 family residential

$

5

6.75

%

3.00

%

 

Payment Deferral

Interest Rate Reduction

Term Extension

Weighted-Average

Weighted-Average Contractual Interest Rate

Weighted-Average Years

Principal Deferred

From

To

Added to the Life

Three Months Ended March 31, 2025

Commercial

Commercial and industrial

$

112

Residential real estate

Home Equity Lines of Credit

0.00

%

0.00

%

5

 

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the three months ended March 31, 2026 and March 31, 2025:

 

Three Months Ended March 31, 2026		Payment status (Amortized cost Basis)
						30-89				90+
(In Thousands of Dollars)		Current				Days past due				Days past due
Accrual restructured loans
Commercial real estate
Non-owner occupied		$	0			$	0			$	0
Residential real estate
1-4 family residential			0				0				0
Total accruing restructured loans		$	0			$	0			$	0
Nonaccrual restructured loans
Commercial real estate
Non-owner occupied			4,321				0				0
Residential real estate
1-4 family residential			38				0				0
Total nonaccrual restructured loans		$	4,359			$	0			$	0
Total restructured loans		$	4,359			$	0			$	0

 

Three Months Ended March 31, 2025		Payment status (Amortized cost Basis)
						30-89				90+
(In Thousands of Dollars)		Current				Days past due				Days past due
Accrual restructured loans
Commercial real estate
Non-owner occupied		$	0			$	0			$	0
Residential real estate
Home equity lines of credit			15				0				0
Total accruing restructured loans		$	15			$	0			$	0
Nonaccrual restructured loans
Commercial			0				0				124
Commercial and industrial
Total nonaccrual restructured loans		$	0			$	0			$	124
Total restructured loans		$	15			$	0			$	124

 

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As of March 31, 2026, the Company had no commitments to lend any additional funds on restructured loans.

 

The following table presents the amortized cost basis of loans that had a payment default during the three months ended March 31, 2026 and  March 31, 2025, and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. For purposes of this disclosure a default occurs when within 12 months of the original modification, a loan is 30 days contractually past due under the modified terms:

 

Three Months Ended March 31, 2026		Amortized Cost
														Combination
														Term Extension
		Payment				Term				Interest Rate				and Interest Rate
(In Thousands of Dollars)		Deferral				Extension				Reduction				Reduction
Residential real estate
1-4 family residential		$	102			$	0			$	0			$	0
Total modifications to borrowers experiencing financial difficulty		$	102			$	0			$	0			$	0

 

Three Months Ended March 31, 2025		Amortized Cost
														Combination
														Term Extension
		Payment				Term				Interest Rate				and Interest Rate
(In Thousands of Dollars)		Deferral				Extension				Reduction				Reduction
Commercial
Commercial and industrial		$	124			$	0			$	0			$	0
Residential real estate
1-4 family residential			0				0				0				0
Home equity lines of credit			0				0				0				19
Total modifications to borrowers experiencing financial difficulty		$	124			$	0			$	0			$	19

 

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance of the credit losses is adjusted by the same amount.

  

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Credit Quality Indicators

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $3 million, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt and affirm their risk ratings. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

 

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential, consumer indirect and direct loan classes, the Company evaluates credit quality based on the aging status of the loan and by payment activity. Nonperforming loans are loans past due 90 days and still accruing interest and nonaccrual loans.

 

---

 

The following table presents total loans by risk categories and year of origination:

 

		Term Loans Amortized Cost Basis by Origination Year
(In Thousands of Dollars)																										Revolving
As of March 31, 2026		2026				2025				2024				2023				2022				Prior				Loans				Total
Commercial real estate - Owner occupied:
Risk Rating
Pass		$	6,435			$	97,972			$	93,041			$	75,052			$	69,005			$	259,001			$	6,180			$	606,686
Special mention			0				0				1,554				4,670				363				1,276				0				7,863
Substandard			0				0				0				4,989				4,840				2,161				0				11,990
Total commercial real estate - Owner occupied loans		$	6,435			$	97,972			$	94,595			$	84,711			$	74,208			$	262,438			$	6,180			$	626,539
Commercial real estate - Owner Occupied: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	1			$	0			$	1
Commercial real estate - Non-owner occupied:
Risk Rating
Pass		$	14,550			$	91,541			$	104,325			$	97,891			$	193,371			$	467,941			$	22,322			$	991,941
Special mention			0				0				0				0				3,112				3,893				290				7,295
Substandard			0				0				4,146				0				0				42,121				0				46,267
Doubtful			0				0				0				0				1,865				0				0				1,865
Total commercial real estate - Non-owner occupied loans		$	14,550			$	91,541			$	108,471			$	97,891			$	198,348			$	513,955			$	22,612			$	1,047,368
Commercial real estate - Non-owner occupied: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	0			$	0			$	0
Commercial real estate - Farmland:
Risk Rating
Pass		$	6,968			$	22,635			$	22,991			$	19,083			$	36,266			$	113,859			$	7,177			$	228,979
Special mention			0				0				0				0				0				0				0				0
Substandard			0				0				0				1,839				0				637				0				2,476
Total commercial real estate - Farmland loans		$	6,968			$	22,635			$	22,991			$	20,922			$	36,266			$	114,496			$	7,177			$	231,455
Commercial real estate - Farmland: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	0			$	0			$	0
Commercial real estate - Other:
Risk Rating
Pass		$	5,707			$	68,403			$	64,518			$	103,518			$	52,205			$	68,358			$	21,762			$	384,471
Special mention			0				0				0				9,306				0				165				0				9,471
Substandard			0				2,953				0				1,465				3,499				563				946				9,426
Total commercial real estate - Other loans		$	5,707			$	71,356			$	64,518			$	114,289			$	55,704			$	69,086			$	22,708			$	403,368
Commercial real estate - Other: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	0			$	0			$	0

 

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		Term Loans Amortized Cost Basis by Origination Year (Continued)
(In Thousands of Dollars)																										Revolving
As of March 31, 2026		2026				2025				2024				2023				2022				Prior				Loans				Total
Commercial - Commercial and industrial:
Risk Rating
Pass		$	21,865			$	107,794			$	99,324			$	73,119			$	50,748			$	46,938			$	164,156			$	563,944
Special mention			0				0				0				0				2,026				330				4,591				6,947
Substandard			0				970				5,828				3,694				7,057				2,706				1,811				22,066
Total commercial - Commercial and industrial loans		$	21,865			$	108,764			$	105,152			$	76,813			$	59,831			$	49,974			$	170,558			$	592,957
Commercial - Commercial and industrial: Current period gross write-offs		$	0			$	10			$	6			$	31			$	86			$	158			$	0			$	291
Commercial - Agricultural:
Risk Rating
Pass		$	1,993			$	11,287			$	6,205			$	7,187			$	7,376			$	3,200			$	15,895			$	53,143
Special mention			0				0				0				0				0				0				0				0
Substandard			0				0				29				0				26				106				0				161
Total commercial - Agricultural loans		$	1,993			$	11,287			$	6,234			$	7,187			$	7,402			$	3,306			$	15,895			$	53,304
Commercial - Agricultural: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	0			$	0			$	0
Residential real estate - 1-4 family residential:
Payment Performance
Performing		$	27,635			$	158,176			$	127,731			$	108,168			$	191,644			$	596,855			$	5,293			$	1,215,502
Nonperforming			0				0				0				198				999				4,017				0				5,214
Total residential real estate - 1-4 family residential loans		$	27,635			$	158,176			$	127,731			$	108,366			$	192,643			$	600,872			$	5,293			$	1,220,716
Residential real estate - 1-4 family residential: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	32			$	0			$	32
Residential real estate - Home equity lines of credit:
Payment Performance
Performing		$	0			$	100			$	395			$	163			$	514			$	7,606			$	339,630			$	348,408
Nonperforming			0				101				0				203				558				648				0				1,510
Total residential real estate - Home equity lines of credit loans		$	0			$	201			$	395			$	366			$	1,072			$	8,254			$	339,630			$	349,918
Residential real estate - Home equity lines of credit: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	51			$	0			$	51

 

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		Term Loans Amortized Cost Basis by Origination Year (Continued)
(In Thousands of Dollars)																										Revolving
As of March 31, 2026		2026				2025				2024				2023				2022				Prior				Loans				Total
Consumer - Indirect:
Payment Performance
Performing		$	25,493			$	73,812			$	49,673			$	34,384			$	26,636			$	32,247			$	0			$	242,245
Nonperforming			0				34				130				57				70				267				0				558
Total consumer - Indirect loans		$	25,493			$	73,846			$	49,803			$	34,441			$	26,706			$	32,514			$	0			$	242,803
Consumer - Indirect: Current period gross write-offs		$	0			$	16			$	42			$	46			$	0			$	189			$	0			$	293
Consumer - Direct:
Payment Performance
Performing		$	1,608			$	4,673			$	2,043			$	1,441			$	846			$	10,997			$	0			$	21,608
Nonperforming			0				0				1				0				0				3				0				4
Total consumer - Direct loans		$	1,608			$	4,673			$	2,044			$	1,441			$	846			$	11,000			$	0			$	21,612
Consumer - Direct: Current period gross write-offs		$	0			$	0			$	6			$	0			$	5			$	10			$	0			$	21
Consumer - Other:
Payment Performance
Performing		$	0			$	0			$	0			$	0			$	4			$	690			$	9,233			$	9,927
Nonperforming			0				0				0				0				97				0				0				97
Total consumer - Other loans		$	0			$	0			$	0			$	0			$	101			$	690			$	9,233			$	10,024
Consumer - Other: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	1			$	39			$	40

 

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		Term Loans Amortized Cost Basis by Origination Year
(In Thousands of Dollars)																										Revolving
As of December 31, 2025		2025				2024				2023				2022				2021				Prior				Loans				Total
Commercial real estate - Owner occupied:
Risk Rating
Pass		$	54,226			$	47,332			$	49,344			$	40,512			$	55,333			$	133,226			$	3,195			$	383,168
Special mention			0				648				4,729				0				1,069				74				0				6,520
Substandard			0				0				1,346				430				1				1,406				0				3,183
Total commercial real estate - Owner occupied loans		$	54,226			$	47,980			$	55,419			$	40,942			$	56,403			$	134,706			$	3,195			$	392,871
Commercial real estate - Owner Occupied: Current period gross write-offs		$	0			$	0			$	0			$	0			$	22			$	75			$	0			$	97
Commercial real estate - Non-owner occupied:
Risk Rating
Pass		$	79,473			$	71,707			$	47,336			$	115,103			$	75,125			$	257,596			$	20,072			$	666,412
Special mention			0				0				0				3,126				0				4,103				215				7,444
Substandard			0				21				124				1,870				10,528				21,812				0				34,355
Doubtful			0				0				0				0				1,865				0				0				1,865
Total commercial real estate - Non-owner occupied loans		$	79,473			$	71,728			$	47,460			$	120,099			$	87,518			$	283,511			$	20,287			$	710,076
Commercial real estate - Non-owner occupied: Current period gross write-offs		$	0			$	0			$	0			$	1,970			$	0			$	0			$	0			$	1,970
Commercial real estate - Farmland:
Risk Rating
Pass		$	20,347			$	19,990			$	20,478			$	35,611			$	16,728			$	91,987			$	3,568			$	208,709
Substandard			0				0				1,872				0				352				298				0				2,522
Total commercial real estate - Farmland loans		$	20,347			$	19,990			$	22,350			$	35,611			$	17,080			$	92,285			$	3,568			$	211,231
Commercial real estate - Farmland: Current period gross write-offs		$	0			$	0			$	0			$	0			$	0			$	44			$	0			$	44
Commercial real estate - Other:
Risk Rating
Pass		$	62,052			$	50,127			$	48,815			$	65,170			$	23,895			$	24,391			$	1,351			$	275,801
Special mention			0				0				9,279				0				0				1,364				0				10,643
Substandard			2,965				0				981				3,496				112				10				0				7,564
Total commercial real estate - Other loans		$	65,017			$	50,127			$	59,075			$	68,666			$	24,007			$	25,765			$	1,351			$	294,008
Commercial real estate - Other: Current period gross write-offs		$	0			$	0			$	0			$	2,454			$	0			$	0			$	0			$	2,454

 

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		Term Loans Amortized Cost Basis by Origination Year (Continued)
(In Thousands of Dollars)																										Revolving
As of December 31, 2025		2025				2024				2023				2022				2021				Prior				Loans				Total
Commercial - Commercial and industrial:
Risk Rating
Pass		$	65,564			$	63,502			$	52,078			$	38,843			$	11,342			$	19,002			$	80,655			$	330,986
Special mention			0				0				0				2,158				253				0				2,050				4,461
Substandard			8				210				21				2,612				719				1,163				1,557				6,290
Total commercial - Commercial and industrial loans		$	65,572			$	63,712			$	52,099			$	43,613			$	12,314			$	20,165			$	84,262			$	341,737
Commercial - Commercial and industrial: Current period gross write-offs		$	345			$	122			$	230			$	311			$	127			$	116			$	28			$	1,279
Commercial - Agricultural:
Risk Rating
Pass		$	11,929			$	6,738			$	8,151			$	8,058			$	2,502			$	1,028			$	16,523			$	54,929
Special mention			0				0				0				0				0				0				0				0
Substandard			0				32				0				20				18				90				0				160
Total commercial - Agricultural loans		$	11,929			$	6,770			$	8,151			$	8,078			$	2,520			$	1,118			$	16,523			$	55,089
Commercial - Agricultural: Current period gross write-offs		$	0			$	114			$	16			$	38			$	26			$	18			$	0			$	212
Residential real estate - 1-4 family residential:
Payment Performance
Performing		$	90,911			$	88,021			$	58,641			$	142,333			$	140,411			$	323,056			$	4,112			$	847,485
Nonperforming			0				0				396				574				238				2,487				0				3,695
Total residential real estate - 1-4 family residential loans		$	90,911			$	88,021			$	59,037			$	142,907			$	140,649			$	325,543			$	4,112			$	851,180
Residential real estate - 1-4 family residential: Current period gross write-offs		$	0			$	0			$	0			$	0			$	150			$	67			$	0			$	217
Residential real estate - Home equity lines of credit:
Payment Performance
Performing		$	0			$	24			$	135			$	296			$	211			$	4,963			$	175,044			$	180,673
Nonperforming			0				0				7				438				0				668				0				1,113
Total residential real estate - Home equity lines of credit loans		$	0			$	24			$	142			$	734			$	211			$	5,631			$	175,044			$	181,786
Residential real estate - Home equity lines of credit: Current period gross write-offs		$	0			$	0			$	10			$	28			$	0			$	13			$	0			$	51

 

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		Term Loans Amortized Cost Basis by Origination Year (Continued)
(In Thousands of Dollars)																										Revolving
As of December 31, 2025		2025				2024				2023				2022				2021				Prior				Loans				Total
Consumer - Indirect:
Payment Performance
Performing		$	78,564			$	55,727			$	38,329			$	30,359			$	15,556			$	21,052			$	0			$	239,587
Nonperforming			2				125				101				102				86				107				0				523
Total consumer - Indirect loans		$	78,566			$	55,852			$	38,430			$	30,461			$	15,642			$	21,159			$	0			$	240,110
Consumer - Indirect: Current period gross write-offs		$	22			$	191			$	93			$	40			$	93			$	489			$	0			$	928
Consumer - Direct:
Payment Performance
Performing		$	4,010			$	1,580			$	1,280			$	871			$	647			$	8,142			$	0			$	16,530
Nonperforming			0				0				0				4				0				17				0				21
Total consumer - Direct loans		$	4,010			$	1,580			$	1,280			$	875			$	647			$	8,159			$	0			$	16,551
Consumer - Direct: Current period gross write-offs		$	0			$	6			$	16			$	9			$	0			$	28			$	0			$	59
Consumer - Other:
Payment Performance
Performing		$	0			$	0			$	0			$	4			$	64			$	418			$	9,491			$	9,977
Nonperforming			0				0				0				97				0				0				0				97
Total consumer - Other loans		$	0			$	0			$	0			$	101			$	64			$	418			$	9,491			$	10,074
Consumer - Other: Current period gross write-offs		$	0			$	1			$	5			$	0			$	1			$	189			$	0			$	196

 

For the periods ending  March 31, 2026 and  December 31, 2025, there were no loans that were held for sale and in nonaccrual status. In the 1-4 family residential real estate portfolio at March 31, 2026, other real estate owned and foreclosure properties were $0 and $1.6 million, respectively.  In the 1-4 family residential real estate portfolio at December 31, 2025, other real estate owned and foreclosure properties were $52,000 and $506,000, respectively.

 

The Company follows ASU 2016-13 to calculate the allowance for credit losses which requires projecting credit losses over the lifetime of the credits. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans. Although the Company has a diversified loan portfolio, the credit risk in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors operate, and the resulting impact on the operations of borrowers or on the value of any underlying collateral.

 

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 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.

 

The Company uses two methodologies to analyze loan pools. The cohort method and the probability of default/loss given default (“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 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.

 

The probability of default portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, loan restructuring for borrowers experiencing financial difficulty or is partially, or wholly, charged-off. Typically, a one-year time period is used to assess probability of default (“PD”). PD can be measured and applied using various risk criteria. 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.

 

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The following table presents the loan pools and the associated methodology used during the calculation of the allowance for credit losses in 2026.

 

Portfolio Segments		Loan Pool		Methodology		Loss Drivers
Residential real estate		1-4 Family Residential Real Estate - 1st Liens		Cohort		Credit Loss History
		1-4 Family Residential Real Estate - 2nd Liens		Cohort		Credit Loss History
Home Equity Lines of Credit		Home Equity Lines of Credit		Cohort		Credit Loss History
Consumer Finance		Cash Reserves		Cohort		Credit Loss History
		Direct		Cohort		Credit Loss History
		Indirect		Cohort		Credit Loss History
Commercial		Commercial and Industrial		PD/LGD		Credit Loss History
		Agricultural		PD/LGD		Credit Loss History
		Municipal		PD/LGD		Credit Loss History
Commercial real estate		Owner Occupied		PD/LGD		Credit Loss History
		Non-Owner Occupied		PD/LGD		Credit Loss History
		Multifamily		PD/LGD		Credit Loss History
		Farmland		PD/LGD		Credit Loss History
		Construction		PD/LGD		Credit Loss History

 

According to the accounting standard, an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables for all loan segments. Current policy dictates that a loan will be placed on nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows insufficient collateral coverage based on a current assessment of the value of the collateral.

 

In addition, ASU Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the Company must first establish a loss expectation for extended (funded) commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable, and considered by the company’s management as likely to fund over the life of the instrument. At March 31, 2026, the Company had $1.03 billion in unfunded commitments and set aside $1.88 million in anticipated credit losses. At December 31, 2025, the Company had $710 million in unfunded commitments and set aside $1.34 million in anticipated credit losses. The $323 million increase in unfunded commitments and $540,000 increase in the reserve for anticipated credit losses is attributed to the Middlefield Merger. This reserve is recorded in other liabilities as opposed to the ACL.

 

The determination of the ACL is complex and the Company makes decisions on the effects of factors that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgments as to the facts and circumstances related to particular situations or credits. The ACL was $54.7 million at March 31, 2026 and $36.8 million at December 31, 2025. The increase of $17.9 million was due to the Day 1 reserve related to the Middlefield Merger that was partially offset by the release of reserves attributed to the reduction of the organic loan portfolio and improvement in historical loss ratios.

 

Purchased Loans

 

As a result of the Middlefield Merger, the Company acquired $1.49 billion in loans. 

 

		March 31, 2026
Par value of acquired loans at acquisition		$	1,531,402
Net purchase discount			(21,229	)
Allowance for credit losses of PCD loans			(3,995	)
Allowance for credit losses of PSLs			(15,335	)
Purchase price of loans at acquisition		$	1,490,843

 

Under ASU Topic 326, when loans are obtained through a business combination accounted for using the acquisition method in accordance with ASC 805 and are not purchase credit deteriorated (“PCD”), they are accounted for as purchased seasoned loans (“PSL”). PCD loans have evidence of more than insignificant deterioration of credit. PCD loans and PSLs acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. PCD loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. During 2026, the Company acquired PCD loans with a fair value of $41.2 million, credit discount of $4.0 million and noncredit discount of $5.3 million. The outstanding balance at March 31, 2026 and related allowance on PCD loans is as follows:

 

		March 31, 2026								December 31, 2025
(In Thousands of Dollars)			Loan Balance				ACL Balance				Loan Balance				ACL Balance
Commercial real estate
Owner Occupied		$	10,508			$	715			$	258			$	9
Non-owner Occupied			35,942				3,778				25,690				1,428
Farmland			0				0				0				0
Other			1,410				43				0				0
Commercial
Commercial and industrial			17,263				600				509				25
Agricultural			88				5				88				6
Residential real estate
1-4 family residential			2,087				10				894				4
Home equity lines of credit			605				6				0				0
Total		$	67,903			$	5,157			$	27,439			$	1,472

    

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Revenue from Contracts with Customers:

 

All material revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. ASC 606 rules govern the disclosure of revenue tied to contracts. The following table presents the Company’s noninterest income by revenue stream and reportable segment, net of eliminations, for the three months ended March 31, 2026 and 2025.

 

		Trust				Bank
(In Thousands of Dollars)		Segment				Segment				Totals
For Three Months Ended March 31, 2026
Service charges on deposit accounts		$	0			$	1,966			$	1,966
Debit card and EFT fees			0				2,023				2,023
Trust fees			3,030				0				3,030
Insurance agency commissions			0				1,683				1,683
Retirement plan consulting fees			886				0				886
Investment commissions			0				871				871
Other (outside the scope of ASC 606)			0				3,229				3,229
Total noninterest income		$	3,916			$	9,772			$	13,688

 

		Trust				Bank
(In Thousands of Dollars)		Segment				Segment				Totals
For Three Months Ended March 31, 2025
Service charges on deposit accounts		$	0			$	1,758			$	1,758
Debit card and EFT fees			0				1,866				1,866
Trust fees			2,641				0				2,641
Insurance agency commissions			0				1,741				1,741
Retirement plan consulting fees			798				0				798
Investment commissions			0				529				529
Other (outside the scope of ASC 606)			0				1,148				1,148
Total noninterest income		$	3,439			$	7,042			$	10,481

 

A description of the Company’s revenue streams under ASC 606 follows:

 

Service charges on deposit accounts – The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Management reviewed the deposit account agreements, and determined that the agreements can be terminated at any time by either the Bank or the account holder. Transaction fees, such as balance transfers, wires and overdraft charges are settled the day the performance obligation is satisfied. The Bank’s monthly service charges and maintenance fees are for services provided to the customer on a monthly basis and are considered a series of services that have the same pattern of transfer each month. The review of service charges assessed on deposit accounts included the amount of variable consideration that is a part of the monthly charges. It was found that the waiver of service charges due to insufficient funds and dormant account fees is immaterial and would not require a change in the accounting treatment for these fees under the revenue standards.

 

Debit Card Interchange Fees – Customers and the Bank have an account agreement and maintain deposit balances with the Bank. Customers use a bank issued debit card to purchase goods and services, and the Bank earns interchange fees on those transactions, typically a percentage of the sale amount of the transaction. The Bank records the amount due when it receives the settlement from the payment network. Payments from the payment network are received and recorded into income on a daily basis. There are no contingent debit card interchange fees recorded by the Company that could be subject to a clawback in future periods.

 

Trust fees – Services provided to Trust customers are a series of distinct services that have the same pattern of transfer each month. Fees for trust accounts are billed and drafted from trust accounts monthly. The Company records these fees on the income statement on a monthly basis. Fees are assessed based on the total investable assets of the customer’s trust account. A signed contract between the Company and the customer is maintained for all customer trust accounts with payment terms identified. It is probable that the fees will be collectible as funds being managed are accessible by the asset manager. Past history of trust fee income recorded by the Company indicates that it is highly unlikely that a significant reversal could occur. There are no contingent incentive fees recorded by the Company that could be subject to a clawback in future periods.

 

Insurance Agency Commissions – Insurance agency commissions are received from insurance carriers for the agency’s share of commissions from customer premium payments. These commissions are recorded into income when checks are received from the insurance carriers, and there is no contingent portion associated with these commission checks. There may be a short time-lag in recording revenue when cash is received instead of recording the revenue when the policy is signed by the customer, but the time lag is insignificant and does not impact the revenue recognition process.

 

Insurance also receives incentive checks from the insurance carriers for achieving specified levels of production with particular carriers. These amounts are recorded into income when a check is received, and there are no contingent amounts associated with these payments that may be clawed back by the carrier in the future. Similar to the monthly commissions explained in the preceding paragraph, there may be a short time-lag in recording incentive revenue on a cash basis as opposed to estimating the amount of incentive revenue expected to be earned, this does not materially impact the recognition of Insurance revenue. If there were any amounts that would need to be refunded for one specific Insurance customer, management believes the reversal would not be significant.

 

---

 

Other potential situations surrounding the recognition of Insurance revenue include estimating potential refunds due to the likely cancellation of a percentage of customers canceling their policies and recording revenue at the time of policy renewals.

 

Retirement Plan Consulting Fees – Revenue is recognized based on the level of work performed for the client. Any payments that are received for work to be performed in the future are recorded in a deferred revenue account, and recorded into income when the fees are earned.

 

Investment Commissions – Investment commissions are earned through the sales of non-deposit investment products to customers of the Company. The sales are conducted through a third-party broker-dealer. When the commissions are received and recorded into income on the Bank’s income statement, there is no contingent portion that may need to be refunded back to the broker dealer.

 

Other – Income items included in “Other” are Bank owned life insurance income, security gains, net gains on the sale of loans and other operating income. Any amounts within the scope of ASC 606 are deemed immaterial.

 

Fair Value:

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

There are three levels of inputs that may be used to measure fair values:

 

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

 

Investment Securities

 

The Company uses a third party service to estimate fair value on available for sale securities on a monthly basis. The Company’s service provider uses a leading evaluation pricing service for U.S. domestic fixed income securities and values securities using exit pricing requirements. The Company independently corroborates the fair value received through this pricing service by obtaining the pricing through a second source at the end of each quarter. The fair values for investment securities, which consist of equity securities that are recorded at fair value to comply with exit pricing, are determined by quoted market prices in active markets, if available (Level 1). The equity securities change in fair value is recorded in the income statement. For securities where quoted prices are not available, fair values are calculated based on quoted prices for similar assets in active markets, quoted prices for similar assets in markets that are not active or inputs other than quoted prices, which provide a reasonable basis for fair value determination. Such inputs may include interest rates and yield curves, prepayment speeds, credit risks and default rates. The inputs used are principally derived from observable market data (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). The fair values of Level 3 investment securities are determined by using unobservable inputs to measure fair value of assets for which there is little, if any, market activity at the measurement date, using reasonable inputs and assumptions based on the best information at the time, to the extent that inputs are available without undue cost and effort.

 

At March 31, 2026, the Company determined that no securities had a fair value less than amortized cost that was as a result of credit deterioration as outlined in ASU 2016-13.

 

Loans Held For Sale, at Fair Value

 

The fair value of loans held for sale is estimated based upon binding contracts or quotes from third party investors (Level 2).

 

Mortgage Banking Derivatives

 

The fair value of mortgage banking derivatives are calculated using derivative valuation models that utilize quoted prices for similar assets adjusted for the specific attributes of the commitments and other observable market data at the valuation date (Level 2).

 

Loan Servicing Rights

 

Loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount at the end of each quarter. If the carrying amount of an individual tranche exceeds the fair value then an impairment is recorded on that tranche so that the servicing asset is carried at fair value. The calculation of the fair value is performed by an independent third party and the model uses factors such as the interest rate, prepayment speeds and other default rate assumptions that market participants would use in estimating the future net servicing income that can be validated against available market data (Level 2).

 

Interest Rate Swaps

 

The Company periodically enters into interest rate swap agreements with its commercial customers who desire a fixed rate loan term that is longer than the Company is willing to extend. The Company enters into a reciprocal swap agreement with a third party that offsets the interest rate risk from the interest rate extended to the customer. The fair value of these interest rate swap derivative instruments is calculated by an independent third party and are based upon valuation models that use observable market data as of the measurement date (Level 2).

 

---

 

The Company also entered into a fair value hedge to mitigate the risk of further interest rate increases and the subsequent impact on the valuation of the Company’s state and political subdivision municipal bond portfolio. The Company uses an independent third party to perform a market valuation analysis for this derivative (Level 2).

 

Collateral Dependent Loans

 

Fair value estimates of collateral dependent loans that are individually reviewed are based on the fair value of the collateral, less estimated costs to sell. Loans carried at fair value generally receive individual allocations of the allowance for credit losses in 2025 and 2026. For collateral dependent loans, fair value is commonly based on recent real estate appraisals or on quoted sales price in certain instances. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Adjustments to a quoted price are routinely made to factor in data that affect the marketability of the collateral. Such adjustments, in both instances, are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. These loans are evaluated on a quarterly basis and adjusted accordingly.

 

Other Real Estate Owned

 

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair values are commonly based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

Appraisals for both collateral-dependent loans and other real estate owned are performed by certified general appraisers (for commercial and commercial real estate properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Appraisal Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what adjustments should be made to appraisals to arrive at fair value.

 

Assets measured at fair value on a recurring basis are summarized below:

 

						Fair Value Measurements at March 31, 2026 Using:
						Quoted
						Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		Carrying				Assets				Inputs				Inputs
(In Thousands of Dollars)		Value				(Level 1)				(Level 2)				(Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities		$	94,898			$	0			$	94,898			$	0
State and political subdivisions			625,956				0				625,956				0
Corporate bonds			32,073				0				31,099				974
Mortgage-backed securities-residential			552,731				0				552,731				0
Collateralized mortgage obligations			176,660				0				176,660				0
Small Business Administration			1,880				0				1,880				0
Total investment securities		$	1,484,198			$	0			$	1,483,224			$	974
Equity securities			876				876				0				0
Loans held for sale			1,919				0				1,919				0
Interest rate swaps			958				0				958				0
Interest rate lock commitments			52				0				52				0
Forward sales contract			51				0				51				0
Financial Liabilities
Interest rate swaps			958				0				958				0
Fair value hedge derivative			324				0				324				0

 

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						Fair Value Measurements at December 31, 2025 Using:
						Quoted
						Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		Carrying				Assets				Inputs				Inputs
(In Thousands of Dollars)		Value				(Level 1)				(Level 2)				(Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities		$	95,295			$	0			$	95,295			$	0
State and political subdivisions			503,697				0				503,697				0
Corporate bonds			13,045				0				11,827				1,218
Mortgage-backed securities-residential			547,134				0				547,134				0
Collateralized mortgage obligations			182,216				0				182,216				0
Small Business Administration			2,070				0				2,070				0
Total investment securities			1,343,457				0				1,342,239				1,218
Equity securities			370				370				0				0
Loans held for sale			1,516				0				1,516				0
Interest rate swaps			911				0				911				0
Interest rate lock commitments			71				0				71				0
Financial Liabilities
Interest rate swaps			911				0				911				0
Forward sales contract			15				0				15				0
Fair value hedge derivative			529				0				529				0

 

There were no significant transfers between Level 1 and Level 2 during the periods presented above.

 

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

		Three Months ended
		March 31,
(In Thousands of Dollars)		2026				2025
Beginning Balance		$	1,218			$	1,409
Transfers between levels			0				0
Acquired and/or purchased			0				0
Discount accretion (premium amortization)			4				14
Repayments, calls and maturities			(250	)			0
Changes in unrealized gains (losses)			2				(11	)
Ending Balance		$	974			$	1,412

 

Assets measured at fair value on a non-recurring basis are summarized below:

 

						Fair Value Measurements at March 31, 2026 Using:
						Quoted
						Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		Carrying				Assets				Inputs				Inputs
(In Thousands of Dollars)		Value				(Level 1)				(Level 2)				(Level 3)
Financial Assets
Collateral dependent loans
Commercial real estate
Owner occupied		$	1,964			$	0			$	0			$	1,964
Non-owner occupied			11,196				0				0				11,196
Farmland			1,558				0				0				1,558
Commercial
Commercial and industrial			8,161				0				0				8,161
Agricultural			7				0				0				7
Residential real estate
1–4 family residential			97				0				0				97
Home equity lines of credit			208				0				0				208
Mortgage servicing rights			179				0				179				0

 

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						Fair Value Measurements at December 31, 2025 Using:
						Quoted
						Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		Carrying				Assets				Inputs				Inputs
(In Thousands of Dollars)		Value				(Level 1)				(Level 2)				(Level 3)
Financial Assets
Collateral dependent loans
Commercial real estate
Non-owner occupied		$	7,626			$	0			$	0			$	7,626
Farmland			1,558				0				0				1,558
Commercial and industrial
Commercial and industrial			2,137				0				0				2,137
Residential real estate
1–4 family residential			295				0				0				295
Home equity lines of credit			302				0				0				302
Mortgage servicing rights			988				0				988				0

 

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods ended March 31, 2026 and December 31, 2025:

 

									Range
					Valuation		Unobservable		(Weighted
March 31, 2026		Fair value			Technique(s)		Input(s)		Average)
Collateral dependent loans
Commercial real estate		$	14,718		Income Approach		Adjustment for difference between cap rates of comparable sales		(63.33%) - 46.49% 8.56%
Commercial			8,168		Quoted price for collateral		Offer Price		7.58%
Residential			305		Sales comparison		Adjustment for differences between comparable sales		(20.40%) - 14.44% (4.92%)

 

 

									Range
					Valuation		Unobservable		(Weighted
December 31, 2025		Fair value			Technique(s)		Input(s)		Average)
Collateral dependent loans
Commercial real estate		$	9,184		Income approach		Adjustment for difference between cap rates of comparable sales		(57.94%) - 41.77% 15.31%
Commercial			2,137		Quoted price for collateral		Offer Price		9.14%
Residential			597		Sales comparison		Adjustment for differences between comparable sales		(11.58%) - 14.18% (6.26%)

 

The carrying amounts and estimated fair values of financial instruments not previously disclosed at March 31, 2026 and December 31, 2025 are as follows:

 

						Fair Value Measurements at March 31, 2026 Using:
		Carrying
(In Thousands of Dollars)		Amount				Level 1				Level 2				Level 3				Total
Financial assets
Cash and cash equivalents		$	186,083			$	38,220			$	147,863			$	0			$	186,083
Restricted stock			37,788				n/a				n/a				n/a				n/a
Loans, net			4,745,380				0				0				4,648,787				4,648,787
Financial liabilities
Deposits			5,921,385				5,004,550				918,094				0				5,922,644
Short-term borrowings			341,000				0				341,000				0				341,000
Long-term borrowings			94,108				0				89,203				0				89,203

 

						Fair Value Measurements at December 31, 2025 Using:
		Carrying
(In Thousands of Dollars)		Amount				Level 1				Level 2				Level 3				Total
Financial assets
Cash and cash equivalents		$	92,357			$	20,486			$	71,871			$	0			$	92,357
Restricted stock			29,531				n/a				n/a				n/a				n/a
Loans, net			3,267,902				0				0				3,190,808				3,190,808
Financial liabilities
Deposits			4,342,778				3,576,017				768,246				0				4,344,263
Short-term borrowings			281,000				0				281,000				0				281,000
Long-term borrowings			86,733				0				80,998				0				80,998

 

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Goodwill and Intangible Assets:

 

Goodwill associated with the Merger during the first quarter of 2026 and the Company’s past acquisitions totaled $271.7 million and $167.5 million at March 31, 2026 and December 31, 2025, respectively. The Company recorded $104.2 million in goodwill in the first quarter of 2026 as a result of the Merger.  Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through an impairment test. Management performs goodwill impairment testing on an annual basis as of September 30, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. As of March 31, 2026, no events or changes in circumstances indicated that the fair value of the reporting unit was below its carrying value. The Company will continue to monitor its goodwill for possible impairment.

 

Acquired Intangible Assets

 

Acquired intangible assets were as follows:

 

		March 31, 2026								December 31, 2025
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
(In Thousands of Dollars)		Amount				Amortization				Amount				Amortization
Amortized intangible assets:
Customer relationship intangibles		$	7,975			$	(7,285	)		$	7,975			$	(7,253	)
Non-compete contracts			457				(436	)			457				(435	)
Trade name			1,131				(499	)			1,131				(494	)
Core deposit intangible			51,941				(16,472	)			32,115				(15,645	)
Total		$	61,504			$	(24,692	)		$	41,678			$	(23,827	)

 

Aggregate amortization expense was $865,000 and $735,000 for the three month periods ended March 31, 2026 and 2025, respectively. 

 

Estimated amortization expense for each of the next five periods and thereafter:

 

2026 (9 months)		$	3,585
2027			4,667
2028			4,656
2029			4,648
2030			4,365
Thereafter			14,891
Total		$	36,812

 

Leases:

 

The Company has operating leases for branch office locations, vehicles, land and certain office equipment such as printers and copiers. The leases have remaining lease terms of up to 16.3 years, some of which had options to extend the lease for up to 15 years. The right of use assets and lease liabilities were $11.1 million and $11.4 million as of March 31, 2026, respectively, and $7.9 million and $8.2 million at December 31, 2025, respectively. The right of use assets are included in other assets while the lease liabilities are included in other liabilities on the balance sheet.

 

Lease expense for the three month periods ended March 31, 2026 and 2025 was $427,000 and $293,000, respectively. The weighted-average remaining lease term for all leases was 8.87 years as of March 31, 2026. The weighted-average discount rate was 3.75% for all leases as of March 31, 2026.

 

On March 2, 2026, the Company performed a valuation of Middlefield's leases to determine an initial right of use asset and lease liability in connection with the Merger. The Company recorded an initial right of use asset and lease liability of $3.5 million for these leases. 

 

Maturities of lease liabilities are as follows as of March 31, 2026:

 

2026 (9 months)		$	1,490
2027			1,892
2028			1,749
2029			1,499
2030			1,249
Thereafter			5,719
Total Payments			13,598
Less: lease liability expense			(2,219	)
Total		$	11,379

 

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Derivative Financial Instruments:

 

Interest Rate Swaps

 

The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a variable rate loan while creating a fixed rate loan for the customer by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans with a notional value of $105.5 million and fair value of $958,000 in other assets and $958,000 in other liabilities at March 31, 2026. At December 31, 2025, the Company had interest rate swaps associated with commercial loans with a notional value of $88.7 million and fair value of $911,000 in other assets and $911,000 in other liabilities. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.

 

There were no net gains or losses for interest rate swaps for the three month periods ended March 31, 2026 and 2025.

 

Interest Rate Swap Designated as a Fair Value Hedge

 

The Company has one interest rate swap with a notional amount of $100.0 million that was in place at both March 31, 2026 and December 31, 2025. This swap is designated as a fair value hedge to mitigate the risk of further interest rate increases and the subsequent impact on the valuation of the Company’s state and political subdivision municipal bond portfolio. The gross aggregate fair value of the swap at March 31, 2026 is $(324,000) and is recorded as a $(211,000) mark to market adjustment in other liabilities and $(113,000) recorded to other liabilities for the accrued interest payable in the Consolidated Balance Sheet. At December 31, 2025, the gross aggregate fair value of the swap was $(529,000) and was recorded as a $(451,000) mark to market adjustment in other liabilities, and $(78,000) was recorded to other liabilities for the accrued interest payable in the Consolidated Balance Sheet. The Company expects the hedge to remain in effect for the remaining term of the swap, which matures August 2026. A summary of the interest rate swap designated as a fair value hedge is presented below:

 

(In Thousands of Dollars)			March 31, 2026				December 31, 2025
Notional amount fair value hedge		$	100,000			$	100,000
Fixed pay rates			4.35	%			4.35	%
Variable SOFR receive rates			3.68	%			3.87	%
Remaining maturity (in years)			0.3				0.6
Fair value		$	(324	)		$	(529	)

 

Mortgage Banking Derivatives

 

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third-party investors are considered derivatives. The Company enters into forward commitments for the future delivery of residential mortgage loans when the interest rate locks are committed in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships.

 

The net gains (losses) relating to non-designated derivative instruments used for risk management are included in Net Gains on Sale of Loans on the Consolidated Statements of Income and are summarized below for the quarters ended March 31, 2026 and March 31, 2025:

 

		Three Months Ended
		March 31,
		2026				2025
Forward sales contracts		$	66			$	(32	)
Interest rate lock commitments			(18	)			36

 

The following table reflects the amount and fair value of mortgage banking derivatives included in the Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025:

 

		March 31, 2026								December 31, 2025
		Notional				Fair				Notional				Fair
(In Thousands of Dollars)		Amount				Value				Amount				Value
Included in other assets:
Forward sales contracts		$	8,250			$	51			$	0			$	0
Interest rate lock commitments			8,686				52				6,337				71
Total included in other assets		$	16,936			$	103			$	6,337			$	71
Included in other liabilities:
Forward sales contracts		$	0			$	0			$	5,000			$	(15	)

 

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Earnings Per Share:

 

The computation of basic and diluted earnings per share is shown in the following table:

 

		Three Months Ended
		March 31,
		2026				2025
Basic EPS
Net income (In thousands of dollars)		$	16,264			$	13,578
Weighted average shares outstanding			44,650,899				37,380,606
Basic earnings per share		$	0.36			$	0.36
Diluted EPS
Net income (In thousands of dollars)		$	16,264			$	13,578
Weighted average shares outstanding for basic earnings per share			44,650,899				37,380,606
Dilutive effect of restricted stock awards			223,492				245,877
Weighted average shares for diluted earnings per share			44,874,391				37,626,483
Diluted earnings per share		$	0.36			$	0.36

 

There were 63,398 restricted stock awards that were considered anti-dilutive for the three month period ended March 31, 2026 and 119,258 restricted stock awards that were considered anti-dilutive for the three month period ended March 31, 2025.

 

Stock Based Compensation:

 

In April of 2022, the Company, with the approval of shareholders, created the 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan permits the award of up to one million shares to the Company’s directors and employees to attract and retain exceptional personnel, motivate performance and, most importantly, to help align the interests of the Company’s executives with those of the Company’s shareholders. The 2022 Plan replaced the 2017 Plan and the 2017 Plan has been sunset.  There were 59,122 service time based share awards and 150,468 performance based share awards granted under the 2022 Plan during the three month period ended March 31, 2026, as shown in the table below. The actual number of performance based shares issued will depend on the relative performance of the Company’s average return on equity compared to a group of peer companies over a three year vesting period, ending December 31, 2028. As of March 31, 2026, 142,675 shares were still available to be awarded from the 2022 Plan. 

 

In April 2026, the Company, with approval of shareholders, approved the 2026 Equity Incentive Plan (the "2026 Plan"). The 2026 Plan permits the award of up to one million shares to the Company's non-employee directors and employees. The 2026 Plan replaces the 2022 Plan; no further shares may be awarded under the 2022 Plan and any shares previously awarded under the 2022 Plan which are forfeited will not be available for reissuance. 

 

The restricted stock awards were granted with a fair value price equal to the market price of the Company’s common stock at the date of the grant. Expense recognized was $662,000 for the three months ended March 31, 2026. The expense recognized was $642,000 for the three months ended March 31, 2025. As of March 31, 2026, there was $2.1 million of total unrecognized compensation expense related to the nonvested shares granted under the 2022 Plan. The remaining cost is expected to be recognized over 2.9 years.

 

The following is the activity under the Plans during the three month period ended March 31, 2026.

 

		Maximum				Weighted				Maximum				Weighted
		Awarded				Average				Awarded				Average
		Service				Grant Date				Performance				Grant Date
		Units				Fair Value				Units				Fair Value
Beginning balance - non-vested shares			176,915			$	13.77				269,657			$	14.13
Granted			59,122				13.12				150,468				13.04
Vested			(21,534	)			13.56				(75,847	)			13.60
Forfeited			(2,500	)			14.06				0				0
Ending balance - non-vested shares			212,003			$	13.55				344,278			$	13.64

 

The following is the activity under the Plans during the three month period ended March 31, 2025.

 

		Maximum				Weighted				Maximum				Weighted
		Awarded				Average				Awarded				Average
		Service				Grant Date				Performance				Grant Date
		Units				Fair Value				Units				Fair Value
Beginning balance - non-vested shares			231,430			$	14.35				222,920			$	14.57
Granted			35,566				14.29				95,404				14.47
Vested			(68,839	)			14.41				(41,008	)			14.32
Forfeited			0				0				0				0.00
Ending balance - non-vested shares			198,157			$	13.33				277,316			$	14.14

 

The 97,381 shares that vested during the three month period ended March 31, 2026 had a weighted average fair value of $13.59 per share.

 

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Other Comprehensive Income (Loss):

 

The following tables represent the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three month periods ended March 31, 2026 and 2025.

 

						Reclassification
		Net unrealized				adjustment for
		holding (losses)				(gains) losses
		gains on available				realized in income				Change in funded status
(In Thousands of Dollars)		for sale securities				on fair value hedge				of post-retirement plan				Total
Balance December 31, 2025		$	(143,597	)		$	(476	)		$	(2	)		$	(144,075	)
Other comprehensive (loss) before reclassification			(6,270	)			0				0				(6,270	)
Amounts reclassified from accumulated other comprehensive income			0				190				0				190
Net current period other comprehensive (loss) income			(6,270	)			190				0				(6,080	)
Balance March 31, 2026		$	(149,867	)		$	(286	)		$	(2	)		$	(150,155	)
Balance December 31, 2024		$	(192,860	)		$	(403	)		$	(2	)		$	(193,265	)
Other comprehensive income before reclassification			15,096				0				0				15,096
Amounts reclassified from accumulated other comprehensive income (loss)			1,054				(186	)			0				868
Net current period other comprehensive income (loss)			16,150				(186	)			0				15,964
Balance March 31, 2025		$	(176,710	)		$	(589	)		$	(2	)		$	(177,301	)

 

Amounts reclassified out of each component of accumulated other comprehensive income (loss) were not material for the three month periods ended March 31, 2026 and 2025.

 

Regulatory Capital Matters:

 

Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action by regulators that, if undertaken, could have a direct material effect on the financial statements. Management believes that as of March 31, 2026, the Company and the Bank meet all capital adequacy requirements to which they are subject.

 

The FDIC and other federal banking regulators revised the risk-based capital requirements applicable to financial holding companies and insured depository institutions, including the Company and the Bank, to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”).

 

The common equity tier 1 capital, tier 1 capital and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. The leverage ratio is calculated by dividing tier 1 capital by adjusted average total assets.

 

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. Excluding the additional buffer, Basel III requires the Company and the Bank to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, (ii) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0% and (iv) a minimum leverage ratio of at least 4.0%.

 

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2026 and December 31, 2025, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

 

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Actual and required capital amounts and ratios, which do not include the capital conservation buffer, are presented below at March 31, 2026 and December 31, 2025:

 

																		To be Well Capitalized
										Requirement For Capital								Under Prompt Corrective
		Actual								Adequacy Purposes:								Action Provisions:
		Amount				Ratio				Amount				Ratio				Amount				Ratio
March 31, 2026
Common equity tier 1 capital ratio
Consolidated		$	616,805				11.70	%		$	237,213				4.5	%			N/A				N/A
Bank			673,881				12.67	%			239,410				4.5	%		$	345,815				6.5	%
Total risk based capital ratio
Consolidated			771,371				14.63	%			421,712				8.0	%			N/A				N/A
Bank			730,447				13.73	%			425,619				8.0	%			532,023				10.0	%
Tier 1 risk based capital ratio
Consolidated			642,805				12.19	%			316,284				6.0	%			N/A				N/A
Bank			673,881				12.67	%			319,214				6.0	%			425,619				8.0	%
Tier 1 leverage ratio
Consolidated			642,805				11.21	%			229,446				4.0	%			N/A				N/A
Bank			673,881				11.73	%			229,839				4.0	%			287,299				5.0	%
December 31, 2025
Common equity tier 1 capital ratio
Consolidated		$	448,549				12.02	%		$	167,878				4.5	%			N/A				N/A
Bank			491,553				13.20	%			167,539				4.5	%		$	242,000				6.5	%
Total risk based capital ratio
Consolidated			576,703				15.46	%			298,450				8.0	%			N/A				N/A
Bank			529,707				14.23	%			297,846				8.0	%			372,308				10.0	%
Tier 1 risk based capital ratio
Consolidated			466,549				12.51	%			223,838				6.0	%			N/A				N/A
Bank			491,553				13.20	%			223,385				6.0	%			297,846				8.0	%
Tier 1 leverage ratio
Consolidated			466,549				8.92	%			209,204				4.0	%			N/A				N/A
Bank			491,553				9.42	%			208,672				4.0	%			260,840				5.0	%

 

Segment Information:

 

The Company's reportable segments are determined by the Chief Financial Officer, who is the designated chief operating decision maker, based upon information provided about the Company's products and services offered, primarily distinguished between the banking and trust operations.  The segments are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar.  The chief operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance of each segment to evaluate compensation of certain employees.  Segment pretax profit is used to assess the performance of the banking segment by monitoring the net interest margin and non-interest expenses.  Segment pretax profit is also used to assess the performance of the trust segment by monitoring trust service fees, retirement plan consulting fees and non-interest expenses.  Loans and investments provide the significant revenues in the banking operation, while trust service fees and retirement plan consulting fees provide the significant revenues in trust operations.  Interest expense, provisions for credit losses and payroll provide the significant expenses in the banking operation, while payroll provides the significant expense in the trust segment.  All operations are domestic.

 

Accounting policies for segments are the same as those described in the Financial Statement Notes.  Income taxes are calculated on operating income.  Transactions among segments are made at fair value.

 

Significant segment totals are reconciled to the financial statements as follows:

 

		Trust				Bank				Consolidated
(In Thousands of Dollars)		Segment				Segment				Segment totals
March 31, 2026
Total assets for reportable segments		$	17,678			$	7,215,696			$	7,233,374
Eliminations and other											(57,898	)
Total consolidated assets										$	7,175,476

 

		Trust				Bank				Consolidated
(In Thousands of Dollars)		Segment				Segment				Segment totals
December 31, 2025
Total assets for reportable segments		$	17,000			$	5,230,175			$	5,247,175
Eliminations and other											(1,305	)
Total consolidated assets										$	5,245,870

 

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		Trust				Bank				Consolidated
(In Thousands of Dollars)		Segment				Segment				Segment totals
For Three Months Ended March 31, 2026
Interest income - loans including fees		$	0			$	55,109			$	55,109
Interest income - investments			0				10,544				10,544
Trust fees			3,030				0				3,030
Retirement plan consulting fees			886				0				886
Total consolidated segment revenues			3,916				65,653				69,569
Reconciliation of revenue
Other revenues											11,236
Total consolidated revenues											80,805
Interest expense - deposits			0				20,440				20,440
Interest expense - borrowings			0				4,109				4,109
Credit for credit losses and unfunded loans			0				(1,034	)			(1,034	)
Payroll expenses			1,679				16,810				18,489
Total consolidated segment expenses			1,679				40,325				42,004
Segment profit			2,237				25,328				27,565
Reconciliation of expenses
Other expenses *											18,829
Total consolidated expenses											60,833
Total consolidated income before taxes										$	19,972
Other segment disclosures
Occupancy and equipment			134				4,961				5,095
Intangible amortization			14				851				865

 

		Trust				Bank				Consolidated
(In Thousands of Dollars)		Segment				Segment				Segment totals
For Three Months Ended March 31, 2025
Interest income - loans including fees		$	0			$	46,707			$	46,707
Interest income - investments			0				9,514				9,514
Trust fees			2,641				0				2,641
Retirement plan consulting fees			798				0				798
Total consolidated segment revenues			3,439				56,221				59,660
Reconciliation of revenue
Other revenues											8,126
Total consolidated revenues											67,786
Interest expense - deposits			0				19,717				19,717
Interest expense - borrowings			0				3,393				3,393
Provision for credit losses and unfunded loans			0				(204	)			(204	)
Payroll expenses			1,474				14,681				16,155
Total consolidated segment expenses			1,474				37,587				39,061
Segment profit			1,965				18,634				20,599
Reconciliation of expenses
Other expenses *											12,371
Total consolidated expenses											51,432
Total consolidated income before taxes										$	16,354
Other segment disclosures
Occupancy and equipment			143				3,983				4,126
Intangible amortization			23				712				735

 

* The Bank segment includes Farmers National Insurance and Farmers of Canfield Investment Co.

 

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Short-term borrowings:

 

The Bank had short-term advances from the Federal Home Loan Bank ("FHLB") of $341.0 million at March 31, 2026, and $281.0 million at December 31, 2025. The interest rate on these borrowings was 3.76% at the period ended  March 31, 2026, and 3.76% at the period ended  December 31, 2025. These short-term borrowings were borrowed using the FHLB's short term repurchase advance program, as these products allow the most flexibility to meet the Bank's varying liquidity needs. These FHLB advances were secured by pledged assets which are described in the following Long-Term Borrowings footnote.

 

The Bank has access to a line of credit for $25.0 million at a major domestic bank that is below prime rate. The line and terms are periodically reviewed by the lending bank and is generally subject to withdrawal at their discretion. There were no outstanding borrowings under this line at March 31, 2026 or December 31, 2025.

 

Long-term borrowings:

 

There were no long-term advances from the FHLB at March 31, 2026 or December 31, 2025.

 

Long-term and short-term FHLB advances are secured by a blanket pledge of residential mortgage, commercial real estate, and multi-family loans totaling $2.4 billion for the period ending  March 31, 2026 and $1.8 billion for the period ended  December 31, 2025. Based on this collateral, the Bank is eligible to borrow an additional $788.9 million at March 31, 2026.

 

In November 2021, the Company completed the issuance of $75.0 million aggregate principal amount, fixed-to-floating rate subordinated notes due December 15, 2031, in a private offering exempt from the registration requirements under the Securities Act of 1933, as amended. The notes carry a fixed rate of 3.125% for five years at which time they will convert to a floating rate based on the three-month term secured overnight funding rate, plus a spread of 220 basis points. The net proceeds from the sale were approximately $73.8 million, after deducting the offering expenses. The Company’s intent was to use the proceeds from the sale for general corporate purposes, which may include, without limitation, providing capital to support its growth organically or through acquisitions, in financing investments, capital expenditures, repurchasing its common shares and for investments in the Bank as regulatory capital. The subordinated debentures are included in Total Capital under current regulatory guidelines and interpretations.

 

In August 2024, the Company bought back and retired $3 million of the outstanding subordinated notes. The Company may, at its option, beginning December 15, 2026, redeem additional portions of the notes, in whole or in part, from time to time, subject to certain conditions.

 

On March 2, 2026, the Company completed its acquisition of Middlefield, which included the assumption of Floating Rate Junior Subordinated Debt Securities due January 30, 2037 (the “junior subordinated debt securities”) at an acquisition-date fair value of $7.2 million, held in a wholly-owned statutory trust whose common securities were wholly-owned by Middlefield. The sole assets of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital securities held by third-party investors. The securities bear interest at a rate of 1.67% over the 3-month term SOFR rate that includes an additional spread adjustment of 26 basis points. The rate at March 31, 2026 was 5.60%.

 

On November 1, 2021, the Company completed its acquisition of Cortland, which included the assumption of Floating Rate Junior Subordinated Debt Securities due September 15, 2037 (the “junior subordinated debt securities”) at an acquisition-date fair value of $4.3 million, held in a wholly-owned statutory trust whose common securities were wholly-owned by Cortland. The sole assets of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital securities held by third-party investors. The securities bear interest at a rate of 1.45% over the 3-month term SOFR rate that includes an additional spread adjustment of 26 basis points. The rate at March 31, 2026 was 5.39% and at December 31, 2025 the rate was 5.43%.

 

On January 7, 2020, the Company completed its acquisition of Maple Leaf, which included the assumption of Floating Rate Junior Subordinated Debt Securities due December 15, 2036 (the “junior subordinated debt securities”) held in a wholly-owned statutory trust whose common securities were wholly-owned by Maple Leaf. The sole assets of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital securities held by third-party investors. The securities bear interest at a rate of 1.80% over the 3-month term SOFR rate that includes an additional spread adjustment of 26 basis points. The rate at March 31, 2026 was 5.74% and at December 31, 2025 the rate was 5.78%.

 

In 2015, the Company completed its acquisition of National Bancshares Corporation, which included the assumption of Floating Rate Junior Subordinated Debt Securities due June 15, 2035 (the “junior subordinated debt securities”) held in a wholly-owned statutory trust, TSEO Statutory Trust I. The sole assets of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital securities held by third-party investors. The securities bear interest at a rate of 1.70% over the 3-month term SOFR rate that includes an additional spread adjustment of 26 basis points. The rate at March 31, 2026 was 5.64% and at December 31, 2025 the rate was 5.68%.

 

In all of the above instances, the Company may redeem the junior subordinated debentures at any quarter-end, in whole, or in part, at par. This type of subordinated debenture qualifies as Tier 1 capital for regulatory purposes in determining and evaluating the Company’s capital adequacy.

 

---

 

A summary of all junior subordinated debentures issued by the Company to affiliates and subordinated debentures follows. For the junior subordinated debentures, these amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts along with any unamortized fair value marks. For the subordinated debentures, these amounts represent the par value less the remaining deferred offering expense associated with the issuance of the debentures. Balances were as follows at March 31, 2026 and December 31, 2025:

 

(In Thousands of Dollars)			March 31, 2026				December 31, 2025
TSEO Statutory Trust I		$	2,631			$	2,619
Maple Leaf Financial Statutory Trust II			8,243				8,187
Cortland Statutory Trust I			4,506				4,492
Middlefield Statutory Trust I			7,223				0
Total junior subordinated debentures owed to unconsolidated subsidiary trusts		$	22,603			$	15,298
Subordinated Debentures		$	71,505			$	71,435
Total long-term borrowings		$	94,108			$	86,733

 

Tax Credit Investments:

 

The Company invests in qualified affordable housing projects, as well as solar investment tax credits.

 

At March 31, 2026 and December 31, 2025, the balance of the investment for qualified affordable housing projects was $29 million and $26.0 million, respectively. Total unfunded commitments related to the investments in qualified affordable housing projects totaled $14.1 million and $13.2 million at March 31, 2026 and December 31, 2025. The Company expects to complete the fulfillment of these commitments during the year ending 2040.

 

In the first quarters ended March 31, 2026 and March 31, 2025, the Company recognized amortization expense of $537,000 and $473,000, respectively, from its investment in qualified affordable housing projects. This amortization expense was included within income tax expense on the consolidated statements of income.

 

Additionally, during the first quarters ended March 31, 2026 and March 31, 2025, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $661,000 and $564,000, respectively. The qualified affordable housing investment credits are included in the net changes in other assets and liabilities in the cash flows from operating activities in the consolidated statements of cash flows. During the three month periods ended March 31, 2026 and March 31, 2025, the Company did not incur impairment losses related to its investment in affordable housing tax credits.

 

In the first quarter of 2025, the Company began investing in solar investment tax credits. At March 31, 2026, and  December 31, 2025, the balance of the investment was $2.9 million and $3.3 million, respectively. The solar tax investment was fully funded at March 31, 2026.  The total unfunded commitments related to the investments in solar investment tax credits totaled $1.7 million at December 31, 2025. 

 

In the first quarter ended March 31, 2026, the Company recognized amortization expense of $569,000 from its investment in solar investment tax credits. This amortization expense was included within income tax expense on the consolidated statements of income. In the three month period ended March 31, 2025, the Company did not recognize amortization expense from its investment in solar investment tax credits. 

 

Additionally, during the first quarter ended March 31, 2026, the Company recognized tax credits and other benefits from its investment in solar investment tax credits of $730,000. The solar investment tax credits are included in the net changes in other assets and liabilities in the cash flows from operating activities in the consolidated statements of cash flows. In the three month period ended March 31, 2025, the Company did not recognize tax credits and other benefits from its investment in solar investment tax credits. During the first quarters ended March 31, 2026 and March 31, 2025, the Company did not incur impairment losses related to its investment in solar investment tax credits.

 

---

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Note Regarding Forward Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of historical fact, but rather statements based on the Company’s current expectations, beliefs and assumptions regarding the future of Farmers’ business, future plans and strategies, projections, anticipated events and trends, its intended results and future performance, the economy and other future conditions. Forward-looking statements are preceded by terms such as “will,” “would,” “should,” “could,” “may,” “expect,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “project,” or variations of these words, or similar expressions. Forward-looking statements are not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Numerous uncertainties, risks, and changes could cause or contribute to Farmers’ actual results, performance, and achievements to be materially different from those expressed or implied by the forward-looking statements.

 

Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission (the “Commission”), including without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s 2025 Form 10-K, as updated in Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q.

 

Many of these factors are beyond the Company’s ability to control or predict, and readers are cautioned not to put undue reliance on those forward-looking statements. 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 ongoing conflict with Iran;

	•	the length and extent of U.S. and foreign country tariff policies and their impact on global, national, and regional economic conditions;
	•	actions by the Federal Reserve Board, U.S. 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;

•

Farmers' ability to attract, recruit and retain skilled employees; and

•

new service and product offerings by competitors and price pressures.

 

Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in the presentation are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Company does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.  

 

 

Results of Operations. The following is a comparison of selected financial ratios and other results at or for the three month periods ended March 31, 2026 and 2025:

 

		At or for the Three Months Ended
		March 31,
(In Thousands, except Per Share Data)		2026				2025
Total assets		$	7,175,476			$	5,157,040
Net income		$	16,264			$	13,578
Diluted earnings per share		$	0.36			$	0.36
Return on average assets (annualized)			1.11	%			1.06	%
Return on average equity (annualized)			11.55	%			13.12	%
Dividends to net income			39.55	%			47.10	%
Net loans to assets			66.13	%			62.36	%
Loans to deposits			81.06	%			72.55	%

 

Net Income. The Company reported net income of $16.3 million, or $0.36 per diluted share, for the quarter ended March 31, 2026 compared to $13.6 million, or $0.36 per diluted share, for the quarter ended March 31, 2025. Net income for the first quarter of 2026 included a charge of $4.0 million related to the Merger with Middlefield and the conversion of our core system to Jack Henry. The new core platform contract will save the Company approximately $2.0 million per year, or $0.04 in diluted earnings per share, once the conversion is complete in August of 2026.  

 

Net Interest Income. The following schedule details the various components of net interest income for the periods indicated. All asset yields are calculated on a tax-equivalent basis where applicable. Security yields are based on amortized cost.

 

 

Average Balance Sheets and Related Yields and Rates

(Dollar Amounts in Thousands)

 

		Three Months Ended												Three Months Ended
		March 31, 2026												March 31, 2025
		AVERAGE												AVERAGE
		BALANCE				INTEREST				RATE (1)				BALANCE				INTEREST				RATE (1)
EARNING ASSETS
Loans (2)		$	3,811,021			$	55,214				5.80	%		$	3,261,908			$	46,810				5.74	%
Taxable securities			1,177,183				7,773				2.64	%			1,135,580				7,096				2.50	%
Tax-exempt securities (2)			403,587				3,415				3.38	%			377,078				2,990				3.17	%
Other investments			51,720				761				5.89	%			44,170				541				4.90	%
Federal funds sold and other			102,808				681				2.65	%			73,575				510				2.77	%
TOTAL EARNING ASSETS			5,546,319				67,844				4.89	%			4,892,311				57,947				4.74	%
Nonearning assets			315,777												226,456
TOTAL ASSETS		$	5,862,096											$	5,118,767
INTEREST-BEARING LIABILITIES
Time deposits		$	811,760			$	6,629				3.27	%		$	733,406			$	6,632				3.62	%
Brokered time deposits			0				0				0.00	%			143,393				1,538				4.29	%
Savings deposits			1,490,444				6,507				1.75	%			1,115,259				4,012				1.44	%
Demand deposits - interest bearing			1,447,299				7,304				2.02	%			1,377,522				7,535				2.19	%
Total interest-bearing deposits			3,749,503				20,440				2.18	%			3,369,580				19,717				2.34	%
Short term borrowings			333,056				3,135				3.77	%			218,444				2,417				4.43	%
Long term borrowings			89,218				974				4.37	%			86,209				976				4.53	%
Total borrowed funds			422,274				4,109				3.89	%			304,653				3,393				4.45	%
TOTAL INTEREST-BEARING LIABILITIES			4,171,777				24,549				2.35	%			3,674,233				23,110				2.52	%
NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits - noninterest bearing			1,102,395												977,619
Other liabilities			24,876												52,894
Stockholders' equity			563,048												414,021
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	5,862,096											$	5,118,767
Net interest income and interest rate spread						$	43,295				2.54	%						$	34,837				2.22	%
Net interest margin											3.12	%											2.85	%

  

(1)	Rates are calculated on an annualized basis.

(2)

Interest on certain tax-exempt loans and tax-exempt securities in 2026 and 2025 is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21%

  

Net Interest Income. Net interest income for the three months ended March 31, 2026, was $42.6 million compared to $34.2 million for the three months ended March 31, 2025. The Merger with Middlefield and a 27 basis point increase in the net interest margin were the primary reasons for this increase.

 

The net interest margin for the three-month period ended March 31, 2026, was 3.12% compared to 2.85% for the same period in 2025. Interest-earning asset yields increased 15 basis points in the first quarter of 2026 compared to the first quarter of 2025 while the cost of interest-bearing liabilities decreased 17 basis points when comparing these two periods. This decrease in interest-bearing liabilities resulted from a reduction in deposit costs of 18 basis points and a 56 basis point reduction in costs on borrowings rates in comparing the first quarter of 2025 to the first quarter of 2026.  

 

Provision for Credit Losses and Provision for Unfunded Loans. The provision for credit losses and unfunded loans was a benefit of $1.0 million for the three months ended March 31, 2026, compared to a benefit of $204,000 for the three months ended March 31, 2025. The provision in the first quarter of 2026 was positively impacted by improvements in qualitative factors in the Company’s CECL model. 

  

 

Noninterest Income. Noninterest income for the first quarter of 2026 was $13.7 million compared to $10.5 million for the first quarter of 2025. The increase was driven by the Middlefield acquisition, growth in the wealth lines of business and lower losses on the sale of securities. 

  

 

 

Service charges on deposit accounts increased $208,000 to $2.0 million for the first quarter of 2026 compared to $1.8 million for the first quarter in 2025 primarily as a result of the Merger.   Bank owned life insurance income increased $682,000 during the first quarter of 2026 to $1.5 million compared to $810,000 in the first quarter of 2025.  Death claims were higher by $416,000 in 2026 compared to 2025 and the addition of Middlefield was primarily responsible for the remaining difference. Trust fees increased to $3.0 million at March 31, 2026, from $2.6 million at March 31, 2025.  The increase was due to continued growth in the business unit. Insurance agency commissions were $1.7 million both in the first quarter of 2026 and 2025.  Losses on the sale of securities totaled $18,000 in the first quarter of 2026 compared to losses on the sale of securities of $1.3 million during the first quarter of 2025.  The Company restructured $23.8 million of securities at the end of the first quarter of 2025 resulting in the loss realized on the sale.  Retirement plan consulting fees increased slightly to $886,000 in the first quarter of 2026 from $798,000 in the first quarter of 2025. Investment commissions grew $342,000 to $871,000 in the first quarter of 2026 compared to $529,000 in the first quarter of 2025.  The Company has a strong sales team in this line of business and is looking to grow with deeper penetration into newer markets.  Other mortgage banking income was $477,000 in the first quarter of 2026 compared to $147,000 in the first quarter of 2025.  This increase was primarily due to the Company recovering $303,000 of mortgage servicing rights impairment in the first quarter of 2026.  Debit card income grew from $1.9 million in the first quarter of 2025 to $2.0 million in the first quarter of 2026 as better volumes were realized in the current period.  Other noninterest income was $898,000 in the first quarter of 2026 compared to $1.2 million in the first quarter of 2025 primarily due to lower SBIC income in 2026.   

 

Noninterest Expense. Noninterest expense totaled $37.3 million for the quarter ended March 31, 2026 compared to $28.5 million for the quarter ended March 31, 2025. Salaries and employee benefits were $18.5 million in the first quarter of 2026 compared to $16.2 million in the first quarter of 2025. The increase was primarily driven by higher salaries associated with employee raises, the acquisition of Middlefield in the first quarter of 2026 and higher commission expense from increased revenue in the fee-based businesses.  Occupancy and equipment expense increased to $5.1 million in the first quarter of 2026 from $4.1 million in the first quarter of 2025 due to the Merger and increased maintenance costs in 2026 due to more severe winter weather conditions.  FDIC and state and local taxes increased by $341,000 to $1.6 million in the first quarter of 2026 compared to $1.3 million in the first quarter of 2025 due to the Merger and higher capital levels year-over-year.  Expense related to the Merger and to convert our core processing system increased to $4.0 million.  There were no expenses recognized for these activities in the first quarter of 2025.  Core processing expense increased to $1.7 million in the first quarter of 2026 from $1.4 million in the first quarter of 2025.  The increase was due to the Merger and a lower level of service credits in 2026. Other noninterest expense increased by $650,000 to $3.8 million in the first quarter of 2026 primarily as a result of the acquisition and timing issues.    

 

Income Taxes. Income tax expense was $3.7 million for the three months ended March 31, 2026 compared to $2.8 million for the three months ended March 31, 2025 due to higher pretax income in the first quarter of 2026. 

 

Financial Condition

 

Cash and Cash Equivalents. Cash and cash equivalents increased $93.7 million during the first three months of 2026 to $186.1 million from $92.4 million at December 31, 2025. The increase in the cash balances was primarily due to the Company intentionally holding more liquidity on its balance sheet at March 31, 2026 and the Merger with Middlefield.  

 

Securities. The Company had securities available for sale totaling $1.48 billion as of March 31, 2026 compared to $1.34 billion as of December 31, 2025. The increase is a direct result of the Merger.  Net unrealized losses on the portfolio totaled $189.7 million at March 31, 2026, compared to $181.8 million at December 31, 2025. The Company anticipates continued volatility in the bond market in 2026, which will continue to affect the value of the portfolio. 

 

Loans. Net loans (excluding loans held for sale) increased to $4.75 billion at March 31, 2026 from $3.27 billion at December 31, 2025. The increase in 2026 is primarily due to the Merger.

 

The following tables present the amortized cost basis of the Company's commercial real estate portfolio segment by industry as of March 31, 2026 and December 31, 2025:

 

						% of Commercial								Weighted Average				Weighted Average
(In Thousands of Dollars)		Amortized Cost				Real Estate				% of Total Portfolio				Loan-to-Value				Occupancy
March 31, 2026
Commercial real estate
Retail		$	336,456				14.57	%			7.01	%			50.87	%			88.59	%
Farmland			231,455				10.03	%			4.82	%			46.85	%			100.00	%
Warehouse/Industrial			232,623				10.08	%			4.85	%			51.12	%			93.90	%
Office			194,707				8.43	%			4.06	%			58.58	%			81.72	%
Multifamily			247,892				10.74	%			5.16	%			59.24	%			72.54	%
Medical			145,189				6.29	%			3.02	%			54.08	%			93.66	%
Hotel			43,459				1.88	%			0.91	%			43.57	%			75.61	%
Special Purpose			75,927				3.29	%			1.58	%			52.88	%			100.00	%
Restaurant			43,121				1.87	%			0.90	%			49.44	%			100.00	%
Multifamily - Construction			37,343				1.62	%			0.78	%			54.52	%			5.02	%
All Other			720,558				31.21	%			15.01	%			45.37	%			96.24	%
Total		$	2,308,730				100.00	%			48.10	%

 

 

						% of Commercial								Weighted Average				Weighted Average
(In Thousands of Dollars)		Amortized Cost				Real Estate				% of Total Portfolio				Loan-to-Value				Occupancy
December 31, 2025
Commercial real estate
Retail		$	337,257				20.97	%			10.21	%			51.86	%			87.81	%
Farmland			211,231				13.13	%			6.39	%			48.61	%			100.00	%
Warehouse/Industrial			236,391				14.70	%			7.15	%			52.50	%			93.23	%
Office			191,765				11.92	%			5.80	%			59.74	%			81.76	%
Multifamily			171,956				10.69	%			5.20	%			59.15	%			72.03	%
Medical			141,396				8.79	%			4.28	%			55.31	%			93.83	%
Hotel			44,356				2.76	%			1.34	%			44.15	%			75.81	%
Special Purpose			78,533				4.88	%			2.38	%			53.62	%			98.62	%
Restaurant			44,583				2.77	%			1.35	%			52.52	%			100.00	%
Multifamily - Construction			62,595				3.89	%			1.89	%			55.98	%			27.46	%
All Other			88,123				5.48	%			2.67	%			46.51	%			96.04	%
Total		$	1,608,186				100.00	%			48.66	%

 

Allowance for Credit Losses. The following table indicates key asset quality ratios that management evaluates on an ongoing basis. The amortized cost balances were used in the calculations.

 

Asset Quality History

(In Thousands of Dollars)

 

		3/31/2026				12/31/2025				9/30/2025				6/30/2025				3/31/2025
Nonperforming loans		$	59,854			$	26,215			$	35,344			$	27,819			$	20,724
Nonperforming loans as a % of total loans			1.25	%			0.79	%			1.06	%			0.84	%			0.64	%
Non-performing assets		$	59,977			$	26,318			$	35,519			$	28,052			$	20,902
Non-performing assets as a % of total assets			0.84	%			0.50	%			0.68	%			0.54	%			0.41	%
Loans delinquent 30-89 days		$	14,700			$	16,947			$	16,083			$	17,727			$	11,192
Loans delinquent 30-89 days as a % of total loans			0.31	%			0.51	%			0.48	%			0.54	%			0.34	%
Allowance for credit losses		$	54,684			$	36,811			$	39,528			$	35,863			$	35,549
Allowance for credit losses as a % of total loans			1.14	%			1.11	%			1.18	%			1.17	%			1.09	%
Allowance for credit losses as a % of nonperforming loans			91.36	%			140.42	%			111.84	%			138.62	%			171.54	%
Net charge-offs for the quarter		$	444			$	4,897			$	536			$	572			$	336
Annualized net charge-offs to average net loans outstanding			0.05	%			0.59	%			0.07	%			0.07	%			0.04	%

 

The Company's allowance for credit losses increased to $54.7 million for the period ended March 31, 2026, from $36.8 million for the period ended December 31, 2025. The increase in the allowance for credit losses was primarily driven by the Merger.  The Company recorded a $4.0 million and $15.3 million increase to the allowance for credit losses for the Day 1 reserve for purchased financial assets with credit deterioration and purchased seasoned loans, respectively. The Company estimates the ACL based on the amortized cost basis of the underlying loan and has made an accounting policy election to exclude accrued interest from the loan’s amortized cost basis and the related measurement of the ACL. Estimating the amount of the ACL is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of potential problem loans, all of which may be susceptible to significant change.

 

Based on the evaluation of the adequacy of the allowance for credit losses, management believes that the allowance for credit losses at March 31, 2026 is adequate. 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 estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Specific factors considered by management in determining the amounts charged to operating expenses include previous credit loss experience, the status of past due interest and principal payments, the quality of financial information supplied by loan customers and the general condition of the industries in the community to which loans have been made.

 

Deposits. Total deposits increased to $5.9 billion at March 31, 2026 from $4.34 billion at December 31, 2025.   Customer deposits grew $1.6 billion, including an increase of $282.7 million in public funds.  The increase was primarily due to Middlefield, which added $1.49 billion in deposits, as well as seasonal growth in public funds.  

 

Short-term Borrowings. Total short-term borrowing balances increased from $281.0 million at December 31, 2025 to $341.0 million at March 31, 2026. The Middlefield Merger added $145.0 million in short-term borrowings offset by payoffs.  

 

Total Stockholders' Equity. Total stockholders’ equity increased to $766.9 million at March 31, 2026 from $485.7 million at December 31, 2025. The increase was primarily due to an increase in common stock of $276.2 million from the Merger coupled with growth in retained earnings of $9.8 million due to $16.3 million of net income recognized during the first three months of the year partially offset by dividends paid on outstanding common shares.  

 

The capital management function is a regular process that consists of providing capital for both the current financial position and the anticipated future growth of the Company. At March 31, 2026, the Company is required to maintain 4.5% common equity tier 1 to risk weighted assets excluding the conservation buffer to be adequately capitalized. The Company’s common equity tier 1 to risk weighted assets was 11.70%, total risk-based capital ratio stood at 14.63%, and the Tier 1 risk-based capital ratio and Tier 1 leverage ratio were at 12.19% and 11.21%, respectively, at March 31, 2026. Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject, as of March 31, 2026.

 

Federal bank regulatory agencies finalized a rule that simplifies capital requirements for community banks by allowing them to adopt a simple leverage ratio to measure capital adequacy. The community bank leverage ratio framework removes requirements for calculating and reporting risk-based capital ratios for a qualifying community bank that opts into the framework. The Company has not elected to adopt this framework.

 

 

Critical Accounting Policies

 

The Company follows financial accounting and reporting policies that are in accordance with U.S. GAAP. These policies are presented in Note 1 of the consolidated audited financial statements in the Company’s Annual Report to Shareholders included in the Company’s 2025 Form 10-K. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified accounting policies that are critical accounting policies and an understanding of these policies is necessary to understand the Company’s financial statements. These policies relate to determining the adequacy of the allowance for credit losses, if there is any impairment of goodwill or other intangible and estimating the fair value of assets acquired and liabilities assumed in connection with any merger activity. Additional information regarding these policies is included in the notes to the aforementioned 2025 consolidated financial statements, Note 1 (Summary of Significant Accounting Policies), Note 4 (Loans) and Note 2 (Business Combinations), and the sections captioned “Loan Portfolio.”

 

Farmers maintains an allowance for credit losses. The allowance for credit losses is presented as a reserve against loans on the balance sheets. Credit losses are charged off against the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses. A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance.

 

The Company’s allowance for credit losses represents management’s estimate of expected credit losses over the remaining expected life of the Company’s financial assets measured at amortized cost and certain off-balance sheet lending-related commitments.

 

The allowance for credit losses involves significant judgment on a number of matters including the weighting of macroeconomic forecasts and microeconomic statistics, incorporation of historical loss experience, assessment of risk characteristics, assignment of risk ratings, valuation of collateral, and the determination of remaining expected life. Refer to Note 4 for further information on these judgments as well as the Company’s policies and methodologies used to determine the Company’s allowance for credit losses.

 

A significant judgment involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate credit losses over the four-quarter forecast period within the Company’s methodology. The four-quarter forecast incorporates three macroeconomic variables (“MEV”) that are relevant for exposures across the Company.

 

•

U.S. changes in real gross domestic product (GDP).

•

U.S. personal consumption expenditures (PCE) inflation.

•

U.S. civilian unemployment rate.

 

Changes in the Company’s assumptions and forecasts of economic conditions could significantly affect its estimate of expected credit losses in the portfolio at the balance sheet date or lead to significant changes in the estimate from one reporting period to the next.

 

It is difficult to estimate how potential changes in any one factor or input might affect the overall allowance for credit losses because management considers a wide variety of factors and inputs in estimating the allowance for credit losses. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor or input may offset deterioration in others.

 

To consider the impact of a hypothetical alternate macroeconomic forecast, the Company compared the modeled credit losses determined using its central and relative adverse macroeconomic scenarios. The central and relative adverse scenarios each included the three MEVs, but differed in the levels, paths and peaks/troughs of those variables over the four-quarter forecast period.

 

For example, compared to the Company’s central scenario that is based on a four-quarter forecasted change in U.S. real GDP of 2.40% from 4Q2025 to 4Q2026, U.S. PCE inflation of 2.70%, and U.S. unemployment of 4.40%, the Company’s relative adverse scenario assumes a four-quarter forecast with a contraction of U.S. real GDP, a PCE inflation between 5.00% and 7.00% and an elevated U.S. unemployment rate between 6.00% and 7.00%. This analysis is not intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including:

 

•

The impacts of changes in the MEVs are both interrelated and nonlinear, so the results of this analysis cannot be simply extrapolated for more severe changes in macroeconomic variables.

•

Expectations of future changes in portfolio composition and borrower behavior can significantly affect the allowance for credit losses.

 

To demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of March 31, 2026, the Company compared the modeled estimates under its relative adverse scenario for two of the Company’s largest loan pools to its central scenario for the same loan pools. Without considering offsetting or correlated effects in other qualitative components of the Company’s allowance for credit losses, the comparison between these two scenarios for the exposures below reflect the following differences:

 

•

An increase of approximately $943,000 for residential real estate loans and lending-related commitments

•

An increase of approximately $1.4 million for commercial real estate non-owner occupied loans and lending-related commitments

 

 

This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall allowance for credit losses as it does not reflect any potential changes in the other adjustments to the quantitative calculation, which would also be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these modeled lifetime loss estimates based on then-current circumstances and conditions.

 

Recognizing that forecasts of macroeconomic conditions are inherently uncertain, the Company believes that its process to consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for the period ended March 31, 2026.

 

The Company uses two methodologies to analyze loan pools. 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 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.

 

The 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 assess PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. 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.

 

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Company’s subsidiaries to provide quality, cost-effective services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The fair value of the goodwill is estimated by reviewing the past and projected operating results for the subsidiaries and comparable industry information. At March 31, 2026, on a consolidated basis, Farmers had intangibles of $36.8 million subject to amortization and $271.7 million in goodwill, which was not subject to periodic amortization.

 

The Company accounts for acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at the estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment based on information available as of the acquisition date. Loans acquired in a business combination transaction are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component. A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.

 

 

Liquidity

 

The Company maintains, in the opinion of management, liquidity sufficient to satisfy depositors’ requirements and to meet the credit needs of customers. The Company depends on its ability to maintain its market share of deposits as well as its potential to acquire new funds. The Company’s ability to attract deposits and borrow funds depends in large measure on its profitability, capitalization and overall financial condition. The Company’s objective in liquidity management is to maintain the ability to meet loan commitments, purchase securities or to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. Principal sources of liquidity for the Company include assets considered relatively liquid, such as federal funds sold, cash-due from banks, as well as cash flows from maturities and repayments of loans, and to a lesser extent securities.

 

Along with its liquid assets, the Bank has additional sources of liquidity available which help to ensure that adequate funds are available as needed. These other sources include, but are not limited to, access to funds in the wholesale arena, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at major domestic banks. The Bank has a line of credit totaling $25.0 million and there was no balance on this line at either March 31, 2026 or December 31, 2025. The Company also has access to borrow $11.5 million at the Federal Reserve Discount Window, however, there was no balance on this line at March 31, 2026 or December 31, 2025. The Federal Reserve Discount Window can be an additional source of funds with the posting of additional collateral. As of March 31, 2026, the Bank had $341.0 million in outstanding balances with the FHLB. Additional borrowing capacity at the FHLB was approximately $788.9 million at March 31, 2026. The Bank views its membership in the FHLB as a solid source of liquidity.  Management feels that its liquidity position is adequate and will continue to monitor the position on a monthly basis.

 

Off-Balance Sheet Arrangements

 

In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The Bank’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Because some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments. Collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for, home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were $1.03 billion at March 31, 2026, and $710 million at December 31, 2025. Additionally, the Company has committed up to $21.2 million in subscriptions in SBIC investment funds and at March 31, 2026, the Company had invested $16.0 million in these funds.

 

 

Recent Market and Regulatory Developments

 

Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in the U.S. Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system.

 

Also, such statutes, regulations and policies are continually under review by Congress, state legislatures and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the Company could have a material effect on the business of the Company.

 

 

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Important considerations in asset/liability management are liquidity, the balance between interest rate sensitive assets and liabilities and the adequacy of capital. Interest rate sensitive assets and liabilities are those which have rates subject to change within a future time period due to maturity of the instrument or changes in market rates. While liquidity management involves meeting the funds flow requirements of the Company, the management of interest rate sensitivity focuses on the structure of these assets and liabilities with respect to maturity and repricing characteristics. Managing interest rate sensitive assets and liabilities provides a means of tempering fluctuating interest rates and maintaining net interest margins through periods of changing interest rates. The Company monitors interest rate sensitive assets and liabilities to determine the overall interest rate position over various time frames.

 

The Company considers the primary market exposure to be interest rate risk. Simulation analysis is used to monitor the Company’s exposure to changes in interest rates, and the effect of the change to net interest income. 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 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.

 

Changes In Interest Rate			March 31, 2026				December 31, 2025				ALCO
(basis points)			Result				Result				Guidelines
Net Interest Income Change
+400				-4.5	%			-6.6	%			-12.5	%
+300				-3.6	%			-5.2	%			-10.0	%
+200				-2.5	%			-3.4	%			-7.5	%
+100				-1.3	%			-1.8	%			-5.0	%
-100				1.4	%			1.4	%			-5.0	%
-200				2.5	%			2.3	%			-10.0	%
-300				3.5	%			3.4	%			-15.0	%
-400				3.7	%			3.5	%			-20.0	%
Net Present Value Of Equity Change
+400				-20.0	%			-27.9	%			-12.5	%
+300				-14.9	%			-20.7	%			-10.0	%
+200				-9.3	%			-12.9	%			-7.5	%
+100				-4.5	%			-6.2	%			-5.0	%
-100				2.3	%			3.1	%			-10.0	%
-200				0.8	%			2.4	%			-15.0	%
-300				-4.7	%			-2.9	%			-20.0	%
-400				-9.3	%			-2.5	%			-25.0	%

The yield curve has changed dramatically over the past four years. From March 2022 to July 2023, in an intense effort to diffuse inflation, the Federal Open Market Committee raised the discount rate from 0.25% to 5.50%. The committee then held the discount rate at 5.50% until September 2024 when they cut the discount rate by a total of 100 basis points over the last four months of 2024. These rate cuts in 2024 were an attempt to guide the economy into a “soft landing”, where the still comparatively elevated rate would continue to bring down inflation without harming the job market or the economy. The committee cut rates by 25 basis points three more times in 2025 in an effort to prioritize employment to promote economic stability amid a slowing labor market. The new target rate set in December 2025 was 3.50% to 3.75%, where it has remained for the first three months of 2026.  Overall, the discount rate remains elevated despite the rate cuts over the past two years.

 

The above table presents results in the up rate scenarios that exceed internal policy limits for the Economic Value of Equity (“EVE”) for both of the periods presented. This unprecedented outcome was created by the events occurring over the past five 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 these funds at the prevailing low rates; and now the usage of the deposits as consumers utilize their deposits in an effort to maintain living standards in the current economy, which prevents the Company from investing in the higher rates that are now available. With the EVE model moving rates even higher than the current rates, 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 employing strategies to shrink the longer duration investment portfolio and replace the balances with assets having a shorter duration, including loans, in an effort to close the gap between the book and market rates. Any growth in lending will be done in a measured manner given the uncertain economic backdrop that exists today. The Company recognizes the risk that is inherent in growing loans but feels that its historical record of prudent underwriting, its low loan to deposit ratio and its strong credit metrics provide the ability to pursue solid opportunities in the marketplace. In addition, any loan growth will be broad based and will encompass consumer, indirect, 1-4 family, commercial and industrial and commercial real estate, so as not to increase the risk in any one portfolio or sector.

 

 

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 March 31, 2026, and December 31, 2025. A report on interest rate risk is presented to the Board of Directors and the Asset/Liability Committee on a quarterly basis. 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. 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. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure.

 

Item 4. Controls and Procedures

 

Based on their evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective. There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a–15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. Legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, although the Company establishes accruals where losses are deemed probable and reasonably estimable. The Company’s assessment of the current exposure with respect to adverse claims in legal matters could change in the event of the discovery of additional facts in such matters or upon determinations by judges, juries, administrative agencies or other finders of fact that are inconsistent with the Company’s evaluation of claims. It is possible that the ultimate resolution of 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 1A. Risk Factors

For discussion of risk factors related to the Company, refer to Part 1, Item 1A, "Risk Factor," contained in the Company's Annual Report on form 10-K for the year ended December 31, 2025. 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of equity securities by the issuer.

 

On March 1, 2023, the Company announced that its Board of Directors authorized the purchase of up to 1,000,000 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. This 2023 Repurchase Program supersedes the Company's 2019 share repurchase program. The 2023 Repurchase Program may be modified, suspended or terminated by the Company at any time.

 

										Total Number of				Maximum Number
										Shares Purchased				of Shares that May
		Total Number of				Average Price				as Part of Publicly				Yet be Purchased
Period		Shares Purchased				Paid per Share				Announced Program				Under the Program
Beginning balance															497,047
January 1 - 31			874			$	13.30				0				497,047
February 1 - 28			43,565				13.60				0				497,047
March 1 - 31			0				0				0				497,047
Ending balance			44,439				3.59				0				497,047

 

There was no treasury stock activity under the program during the three month period ended March 31, 2026.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

Item 5. Other Information

 

Securities Trading Plans of Directors and Executive Officers

 

During the three months ended March 31, 2026, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

 

 

Item 6. Exhibits

 

The following exhibits are filed or incorporated by reference as part of this report:

 

2.1*	Agreement and Plan of Merger by and between Farmers National Banc Corp. and Middlefield Banc Corp., dated as of October 22, 2025 (incorporated by reference from exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on October 27, 2025).
3.1	Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed with the Commission on October 3, 2001).
3.2	Amendment to Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2013).
3.3	Amendment to Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 20, 2018).
3.4	Amendment to Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on February 10, 2026).
3.5	Amended Code of Regulations of Farmers National Banc Corp. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 17, 2020).
10.1*	Farmers National Banc Corp. 2026 Form of Performance-based Cash Award under 2026 Incentive Plan.
10.2*	Farmers National Banc Corp. 2026 Form of Notice of Grant of Performance-based Restricted Stock Awards under 2022 Equity Incentive Plan.
10.3*	Farmers National Banc Corp. 2026 Form of Performance-based Equity Award under 2022 Equity Incentive Plan.
10.4*	Farmers National Banc Corp. 2026 Restricted Stock Award under 2022 Equity Incentive Plan.
31.1	Rule 13a-14(a)/15d-14(a) Certification of Kevin J. Helmick, President and Chief Executive Officer of the Company (principal executive officer) (filed herewith).
31.2	Rule 13a-14(a)/15d-14(a) Certification of A. Troy Adair, Executive Vice President, Chief Financial Officer and Secretary of the Company (principal financial officer) (filed herewith).
32.1	Certification pursuant to 18 U.S.C. Section 1350 of Kevin J. Helmick, President and Chief Executive Officer of the Company (principal executive officer) (filed herewith).
32.2	Certification pursuant to 18 U.S.C. Section 1350 of A. Troy Adair, Executive Vice President, Chief Financial Officer and Secretary of the Company (principal financial officer) (filed herewith).
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, formatted in iXBRL (Inline Extensible Business Reporting Language), filed herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Unaudited Consolidated Financial Statements.
104	The cover page from the Company’s Quarterly report on Form 10-Q for the quarter ended March 31, 2026, has been formatted in Inline XBRL.

 

* Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request. 

** Constitutes a management contract or compensatory plan or arrangement.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

FARMERS NATIONAL BANC CORP.

 

 

Dated: May 7, 2026

/s/ Kevin J. Helmick

Kevin J. Helmick President and Chief Executive Officer

 

 

Dated: May 7, 2026

/s/ A. Troy Adair

A. Troy Adair Senior Executive Vice President, Chief Financial Officer and Secretary