FARMERS NATIONAL BANC CORP /OH/ (FMNB)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 delivered adjusted EPS of $0.42 (ex-items), up from $0.37 in Q2 and $0.39 in Q1, while GAAP diluted EPS was $0.33 due to a $3.1M core conversion consulting charge and ~$1.0M losses on securities/other assets . On S&P Global consensus, adjusted EPS modestly beat ($0.42 vs $0.405), while S&P “total revenue” modestly missed ($46.3M vs $48.3M) as fee income softened YoY and the quarter included securities losses .*
• Net interest margin inflected to 3.00% (2.91% in Q2; 2.85% in Q1), the first time above 3% in ~2.5 years, driven by lower funding costs and lagged asset repricing; management expects further NIM expansion into 2026 given liability sensitivity and falling rates .
• Credit quality mixed: provision normalized to $1.4M (vs $3.5M in Q2), but NPLs rose to $35.3M (1.06% of loans) due to a single $7.3M relationship moving to nonaccrual; annualized net charge-offs steady at 0.07% .
• Strategic M&A: announced all-stock merger with Middlefield Banc Corp. (MBCN) valued at ~$299M (2.6x exchange ratio), with targeted ~7% EPS accretion in 2027, TBV dilution of ~4.4% earned back in ~3 years, and pro forma TCE/TA ~6.4% by 2027; cost saves of ~38% on MBCN plus ~$2M annual savings from core conversion (August 2026) underpin medium-term upside .

What Went Well and What Went Wrong

• What Went Well

  • NIM expansion: “over the past three months, we’ve seen our net interest margin expand to 3%, which is the first time we’ve been over 3% in almost 2.5 years” (CFO) . Reported NIM improved to 3.00% from 2.91% (Q2) and 2.85% (Q1) .
  • Core growth: loans +$34.4M q/q (4.2% annualized), led by commercial loans +$30.1M (6.0% annualized), reflecting momentum into 2H25 .
  • Balance sheet optimization: restructured $28.5M of securities with ~220 bps yield pickup; deposit mix improvement included payoff of $75M brokered CDs and strong core (ex-public funds) growth since YE .

• What Went Wrong

  • Asset quality: NPLs rose to $35.3M (1.06% of loans) from $27.8M (0.84%) in Q2, largely a single $7.3M nonaccrual CRE exposure; management targets resolution by year-end 2025 .
  • Operating expense: noninterest expense rose to $31.7M (from $27.2M YoY) including $3.1M consulting costs for the core conversion; efficiency ratio worsened to 62.66% vs 56.66% in Q2 .
  • Fee lines mixed: noninterest income fell YoY to $11.4M (vs $12.3M) on larger securities losses and lower SBIC income, partially offset by stronger trust, retirement, and investment commissions .

Financial Results

S&P consensus vs. actual (Q3 2025):

• Adjusted EPS: $0.405 estimate vs $0.42 actual (beat)*
• S&P “Total Revenue”: $48.3M estimate vs $46.318M actual (miss)*

KPIs and balance sheet

Notes: GAAP EPS includes ~$3.1M core conversion costs and ~$1.0M losses on securities/other assets in Q3; adjusted EPS excludes these items .

Guidance Changes

No formal revenue/EPS numeric guidance provided; commentary emphasizes NIM trajectory, merger synergies, and cost saves timeline .

Earnings Call Themes & Trends

Management Commentary

• “Farmers continues to deliver strong financial results…strengthen our operating platform and enhance our financial model” — Kevin J. Helmick, CEO .
• “We’ve seen our net interest margin expand to 3%…first time…in almost 2.5 years” — CFO .
• “Core conversion…will result in over $2,000,000 of annual savings once the conversion is complete in August 2026” — CFO .
• Middlefield merger rationale: expands Columbus and Central Ohio, complements Northeast Ohio, and leverages wealth businesses; two Middlefield directors to join Board .

Q&A Highlights

• Growth and balance sheet: MBCN accelerates organic loan and fee growth (Columbus and Central/Western Ohio); additional balance sheet restructuring opportunities with rates moving lower .
• CRE concentration: Rises modestly but “well below” 300% regulatory threshold; balanced focus on CRE and C&I growth opportunities .
• Cost saves timing: Standalone core conversion $2M savings incremental to MBCN’s 38% cost saves; majority of MBCN cost saves back-end loaded in 2026, with 2027 reflecting full run-rate; ~$0.75M additional one-time core costs later in 2026 .
• Funding and margin: Expect to manage deposit costs more efficiently post-merger; scope for additional margin expansion over 12–24 months .
• LDR target: Comfortable toward ~90% over time (vs ~82% pro forma at announcement), implying capacity to deploy liquidity .

Estimates Context

• S&P Global consensus (Q3 2025): Adjusted EPS $0.405 vs actual $0.42 (beat); S&P “Total Revenue” $48.3M vs actual $46.318M (miss). Coverage thin (EPS: 2 estimates; Revenue: 1 estimate).*
• Implications: Modest EPS beat despite one-time core conversion costs (excluded in adjusted EPS). Revenue miss reflects fee softness (lower SBIC, securities losses) offset by trust/retirement/investment fee growth; sequentially, NII momentum and NIM inflection underpin 2H25 trajectory .

Key Takeaways for Investors

• Adjusted profitability intact: Q3 adj. EPS of $0.42 outpaced consensus despite one-time core conversion costs; GAAP EPS of $0.33 reflects prudent investment in platform transformation .*
• NIM inflecting higher: Liability-sensitive balance sheet and falling rates should continue to lift NIM into 2026; sequential NII growth confirms momentum .
• Credit watch item: Single-name nonaccrual drove NPL ratio to 1.06%; expected resolution by year-end 2025 reduces tail risk, while charge-offs remain low at 0.07% .
• Merger as catalyst: Middlefield accelerates scale in demographically attractive Ohio markets, with ~7% EPS accretion in 2027 and meaningful cost saves; wealth cross-sell could enhance fee mix .
• Expense bridge: 2026 likely “lumpy” as cost saves phase in; run-rate accretion more visible by late-2026 into 2027 per management .
• Capital and capacity: CET1 improved to 11.74%; comfort with LDR toward ~90% supports loan growth; deposit base strengthened with brokered CDs paid off in Q3 .
• Trading setup: Near-term narrative hinges on NIM expansion and MBCN deal milestones; watch for NPL resolution and sustained core deposit growth to drive multiple.

Footnote: *Estimates and “S&P Total Revenue” figures from S&P Global consensus; values may reflect adjusted definitions. Values retrieved from S&P Global.