Farmers National Banc Beats Q2 Estimates

Key Points

• - Earnings per share (non-GAAP) surpassed estimates, reaching $0.37 versus the expected $0.36.

• - Revenue (GAAP) totaled $47.0 million, beating forecasts.

• - Asset quality came under pressure as non-performing loans increased to 0.84% of total loans, mainly due to two commercial real estate relationships.

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Farmers National Banc (NASDAQ:FMNB), a regional community bank serving Ohio and western Pennsylvania, reported its second-quarter 2025 results on July 23, 2025. The company delivered non-GAAP earnings per share of $0.37, exceeding the analyst consensus of $0.36. Revenue (GAAP) also topped expectations at $47.0 million, compared to the $46.0 million GAAP estimate. The quarter showed continued strength in loan and revenue growth, but also a notable rise in credit risk due to certain commercial real estate exposures. Overall, the period marked another profitable performance, with sustained growth in core community banking activities and diversified fee income streams.

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Key Success Factors

Farmers National Banc operates as a regional community bank providing financial services, including commercial and consumer banking, trust and investment management, insurance products, and retirement plan consulting. Its footprint spans Ohio and western Pennsylvania, with a focus on serving local businesses and individuals through both traditional and fee-based products.

In recent years, the company has grown its market via strategic acquisitions, such as Emclaire Financial Corp, which increased its branch network in western Pennsylvania. Key factors for ongoing success include maintaining strong deposit and loan growth, diversifying revenue through trust and insurance services, delivering cost efficiencies, and preserving robust capital and asset quality metrics as required by regulatory standards.

Quarterly Performance and Highlights

The period revealed higher profitability as Farmers National Banc once again exceeded earnings (non-GAAP EPS) and revenue (GAAP) estimates. Earnings per share reached $0.37. Revenue (GAAP) came in at $47.0 million, a $1.0 million GAAP revenue beat versus expectations. Management credited these gains to growth in several business lines, supported by net income of $13.9 million (GAAP).

Loan growth helped drive results. Total loans rose by $52.0 million, with commercial loan balances up $43.6 million. This equated to annualized growth rates of 6.4% and 8.8%, respectively, as the company continued its push in commercial banking. Fee-based income contributed strongly, with noninterest income climbing 25.8% in the second quarter of 2025 compared to the second quarter of 2024. Insurance agency commissions increased to $1.8 million in the second quarter of 2025 from $1.3 million in the second quarter of 2024, Trust fees increased to $2.6 million in the second quarter of 2025 from $2.3 million in the second quarter of 2024, and Income from retirement plan consulting rose 25.7% in the second quarter of 2025 compared to the second quarter of 2024, reflecting the impact of Crest Retirement Advisors, an acquired retirement plan consulting business.

Margins and cost controls continued to improve. The net interest margin, which measures the spread between funding and lending rates, increased from 2.71% in the second quarter of 2024 to 2.91% in the second quarter of 2025. This reflected higher loan yields and reduced funding costs amid a softening interest rate environment. Operating efficiency, measured by the efficiency ratio (lower is better), improved to 56.7% in the second quarter of 2025, down from 60.8% in the second quarter of 2024. Noninterest expense (GAAP) rose more slowly than revenue (GAAP), supporting better operating leverage.

Asset quality trends drew increased attention. Non-performing loans rose to $27.8 million, or 0.84% of total loans, in the second quarter of 2025, up from $20.7 million (0.64%) in the first quarter of 2025 and $22.8 million (0.70%) in the fourth quarter of 2024. The increase in non-performing loans resulted primarily from two non-owner occupied commercial real estate loans in the Pittsburgh area newly classified as nonaccrual. This led to a specific credit reserve of $2.6 million and a provision for credit losses of $3.5 million, representing a marked jump from $1.1 million in Q2 2024. Despite the increase in problem loans, actual loan losses—measured by net charge-offs to average loans—remained low and stable at 0.07%.

Management Outlook and Investor Focus Areas

Management expressed optimism about further net interest margin expansion through the rest of fiscal 2025, noting that future changes in the Federal Reserve’s policy rates would affect margin trends. No formal quantitative revenue or earnings guidance was provided for the remainder of the year. The quarterly dividend was unchanged at $0.17 per share, maintaining a long-running streak of shareholder payouts.

Investors should watch trends in credit quality as a key area going forward. While current loan losses remain very low, the recent spike in non-performing assets driven by two specific commercial real estate relationships highlights potential risk if economic or regional market conditions deteriorate further. Other important metrics for the quarters ahead include loan and deposit growth, fee income contribution from trust, insurance, and retirement consulting, and the company’s ability to maintain strong capital ratios above regulatory minimums.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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