FARMERS NATIONAL BANC CORP /OH/ (Form: 10-Q, Received: 05/08/2019 16:31:44)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly period ended March 31, 2019

Commission file number 001-35296

FARMERS NATIONAL BANC CORP.

(Exact name of registrant as specified in its charter)

OHIO		34-1371693
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No)

20 South Broad Street Canfield, OH		44406
(Address of principal executive offices)		(Zip Code)

(330) 533-3341

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, No Par Value	FMNB	The NASDAQ Stock Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at April 30, 2019
Common Stock, No Par Value		27,813,956 shares

		Page Number
PART I - FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited)

	Included in Part I of this report:

	Farmers National Banc Corp. and Subsidiaries

	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statement of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4	Controls and Procedures	43

PART II - OTHER INFORMATION		44

Item 1	Legal Proceedings	44

Item 1A	Risk Factors	44

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3	Defaults Upon Senior Securities	44

Item 4	Mine Safety Disclosures	44

Item 5	Other Information	44

Item 6	Exhibits	45

SIGNATURES		46

10-Q Certifications

Section 906 Certifications

CONSOLIDATED B ALANCE SHEETS

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

	(In Thousands of Dollars)
(Unaudited)	March 31, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	20,869		$	18,042
Federal funds sold and other		48,803			39,884
TOTAL CASH AND CASH EQUIVALENTS		69,672			57,926
Securities available for sale		403,770			402,190
Equity securities		7,460			7,130
Loans held for sale		2,360			1,237
Loans		1,743,651			1,735,840
Less allowance for loan losses		13,777			13,592
NET LOANS		1,729,874			1,722,248
Premises and equipment, net		24,345			21,211
Goodwill		38,201			38,201
Other intangibles		5,424			5,751
Bank owned life insurance		34,972			34,758
Other assets		39,996			38,212
TOTAL ASSETS	$	2,356,074		$	2,328,864

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	415,131		$	421,950
Interest-bearing		1,438,909			1,352,770
Brokered time deposits		100,293			25,000
TOTAL DEPOSITS		1,954,333			1,799,720
Short-term borrowings		103,498			244,759
Long-term borrowings		5,850			6,033
Other liabilities		19,442			16,032
TOTAL LIABILITIES		2,083,123			2,066,544
Commitments and contingent liabilities
Stockholders’ Equity:
Common Stock - Authorized 50,000,000 shares; issued 28,179,598 in 2019 and 2018		186,483			186,163
Retained earnings		89,518			83,630
Accumulated other comprehensive income (loss)		595			(4,030	)
Treasury stock, at cost; 402,690 shares in 2019 and 387,697 in 2018		(3,645	)		(3,443	)
TOTAL STOCKHOLDERS’ EQUITY		272,951			262,320
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,356,074		$	2,328,864

See accompanying notes

CONSOLIDATED STATEME NTS OF INCOME

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

	(In Thousands except Per Share Data)
	For the Three Months Ended
(Unaudited)	March 31, 2019		March 31, 2018
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	21,469	$	18,427
Taxable securities		1,244		1,233
Tax exempt securities		1,595		1,331
Dividends		175		146
Federal funds sold and other interest income		196		145
TOTAL INTEREST AND DIVIDEND INCOME		24,679		21,282
INTEREST EXPENSE
Deposits		3,435		1,411
Short-term borrowings		1,231		881
Long-term borrowings		48		44
TOTAL INTEREST EXPENSE		4,714		2,336
NET INTEREST INCOME		19,965		18,946
Provision for loan losses		550		775
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		19,415		18,171
NONINTEREST INCOME
Service charges on deposit accounts		1,074		1,003
Bank owned life insurance income		214		222
Trust fees		1,858		1,807
Insurance agency commissions		803		699
Security gains, including fair value changes for equity securities		10		18
Retirement plan consulting fees		358		379
Investment commissions		260		256
Net gains on sale of loans		671		487
Debit card and EFT fees		778		806
Other operating income		494		333
TOTAL NONINTEREST INCOME		6,520		6,010
NONINTEREST EXPENSES
Salaries and employee benefits		9,356		8,738
Occupancy and equipment		1,717		1,704
State and local taxes		470		459
Professional fees		794		698
Merger related costs		0		25
Advertising		250		275
FDIC insurance		87		222
Intangible amortization		327		354
Core processing charges		791		739
Telephone and data		260		237
Other operating expenses		1,925		1,645
TOTAL NONINTEREST EXPENSES		15,977		15,096
INCOME BEFORE INCOME TAXES		9,958		9,085
INCOME TAXES		1,570		1,359
NET INCOME	$	8,388	$	7,726
EARNINGS PER SHARE - basic and diluted	$	0.30	$	0.28

See accompanying notes

CONSOLIDATED STATEME NTS OF COMPREHENSIVE INCOME

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

	(In Thousands of Dollars)
	For the Three Months Ended
(Unaudited)	March 31, 2019			March 31, 2018
NET INCOME	$	8,388		$	7,726
Other comprehensive income:
Net unrealized holding gains (losses) on available for sale securities		5,821			(8,886	)
Reclassification adjustment for losses (gains) realized in income		34			(2	)
Net unrealized holding gains (losses)		5,855			(8,888	)
Income tax effect		(1,230	)		1,866
Other comprehensive income (loss), net of tax		4,625			(7,022	)
TOTAL COMPREHENSIVE INCOME	$	13,013		$	704

See accompanying notes

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

	(In Thousands of Dollars)
	For the Three Months Ended
(Unaudited)	March 31, 2019			March 31, 2018
COMMON STOCK
Beginning balance	$	186,163		$	186,903
Issued 0 shares in 2019 and 96,873 shares in 2018 under the Long Term Incentive Plan		0			(706	)
Stock compensation expense for unvested shares		320			397
Ending balance		186,483			186,594

RETAINED EARNINGS
Beginning balance		83,630			59,208
Cumulative effect adjustment upon adoption of ASU 2016-01		0			169
Beginning balance adjusted		83,630			59,377
Net income		8,388			7,726
Dividends declared at $.09 per share in 2019 and $0.07 per share in 2018		(2,500	)		(1,935	)
Ending balance		89,518			65,168

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning balance		(4,030	)		596
Cumulative effect adjustment upon adoption of ASU 2016-01		0			(169	)
Beginning balance adjusted		(4,030	)		427
Other comprehensive income (loss)		4,625			(7,022	)
Ending balance		595			(6,595	)

TREASURY STOCK, AT COST
Beginning balance		(3,443	)		(4,633	)
Purchased 14,993 shares in 2019 and 0 in 2018		(202	)		0
Issued 0 shares in 2019 and 96,873 shares in 2018 under the Long Term Incentive Plan		0			706
Ending balance		(3,645	)		(3,927	)
TOTAL STOCKHOLDERS' EQUITY	$	272,951		$	241,240

See accompanying notes.

CONSOLIDATED STAT EMENTS OF CASH FLOWS

FARMERS NATIONAL BANC CORP. AND SUBSIDIARIES

	(In Thousands of Dollars)
	Three Months Ended
(Unaudited)	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,388		$	7,726
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		550			775
Depreciation and amortization		709			749
Net amortization of securities		538			756
Available for sale security loss		34			0
Realized and unrealized (gains) loss on equity securities		(44	)		(18	)
Loss on land and building sales, net		8			0
Stock compensation expense		320			397
(Gain) loss on adjustment of other real estate owned		60			(30	)
Earnings on bank owned life insurance		(214	)		(222	)
Origination of loans held for sale		(10,695	)		(9,226	)
Proceeds from loans held for sale		10,243			9,586
Net gains on sale of loans		(671	)		(487	)
Net change in other assets and liabilities		(3,993	)		(28	)
NET CASH FROM OPERATING ACTIVITIES		5,233			9,978
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and repayments of securities available for sale		5,635			12,968
Proceeds from sales of securities available for sale		9,646			0
Purchases of securities available for sale		(10,153	)		(13,692	)
Proceeds from sales of equity securities		121			262
Purchase of equity securities		(351	)		(643	)
Proceeds from redemption of restricted stock		8			0
Purchase of restricted stock		0			(643	)
Loan originations and payments, net		(8,444	)		(22,521	)
Proceeds from sale of other real estate owned		0			165
Proceeds from land and building sales		62			0
Additions to premises and equipment		(466	)		(89	)
NET CASH FROM INVESTING ACTIVITIES		(3,942	)		(24,193	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		154,613			32,440
Net change in short-term borrowings		(141,261	)		(21,553	)
Repayment of long-term borrowings		(195	)		(202	)
Cash dividends paid		(2,500	)		(1,935	)
Repurchase of common shares		(202	)		0
NET CASH FROM FINANCING ACTIVITIES		10,455			8,750
NET CHANGE IN CASH AND CASH EQUIVALENTS		11,746			(5,465	)
Beginning cash and cash equivalents		57,926			57,614
Ending cash and cash equivalents	$	69,672		$	52,149
Supplemental cash flow information:
Interest paid	$	4,536		$	2,306
Supplemental noncash disclosures:
Transfer of loans to other real estate	$	268		$	23
Security purchases not settled	$	1,426		$	300
Issuance of stock awards	$	0		$	706

See accompanying notes

NOTES TO UNAUDITED CONSOL IDATED FINANCIAL STATEMENTS

Principles of Consolidation:

Farmers National Banc Corp. (“Company”) 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 services through its subsidiary, Farmers Trust Company (“Trust”), retirement consulting services through National Associates, Inc. (“NAI”) and insurance services through the Bank’s subsidiary, Insurance. Farmers National Captive, Inc. (“Captive”) is a wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company and its subsidiaries. The Captive pools resources with thirteen other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves and to provide insurance where not currently available or economically feasible in today’s insurance market place. The consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries, along with the Trust, NAI and Captive. All significant intercompany balances and transactions have been eliminated in the consolidation.

Basis of Presentation:

The unaudited condensed consolidated 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 2018 Annual Report to Shareholders included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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. Operations are managed and financial performance is primarily aggregated and reported in three lines of business, the Bank segment, the Trust segment and the Retirement Consulting segment.

Equity:

The Company, with the approval of shareholders at the April 2018 annual meeting, increased the authorized shares available for issuance from 35,000,000 to 50,000,000 shares. Outstanding shares at March 31, 2019 were 27,776,908.

Comprehensive Income:

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income consists of unrealized gains and losses on securities available for sale which are recognized as components of stockholders equity, net of tax effect.

New Accounting Standards:

During April of 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities . Under current U.S. GAAP, a premium is typically amortized to the maturity date when a callable debt security is purchased at a premium, even if the holder is certain the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. The new standard shortens the amortization period for the premium to the earliest call date to more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. The standard takes effect for public business entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company early adopted this ASU effective January 1, 2018 and there was no material impact on its Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Instead, under th e new guidance, an entity is to perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reportin g unit ’ s fair value. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests per formed on testing dates after January 1, 2017. The Company does not plan on early adoption of this ASU. The adoption of this guidance is not expected to have an impact on the Company ’ s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13: Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (modified by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments Credit Losses) . The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for public companies for annual periods beginning after December 15, 2019, including interim periods within that fiscal year. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company has accumulated historical credit information, established an internal committee and is in the process of validating the installation of data implementation. Adoption of ASU 2016-13 will happen on January 1, 2020. Management has not determined the full impact the new standard will have on the Consolidated Financial Statements.

In February 2016, FASB issued ASU 2016-02 (Topic 842): Leases . The main objective of ASU 2016-02 is to provide users with useful, transparent and complete information about leasing transactions. ASU 2016-02 requires the rights and obligations associated with leasing arrangements be reflected on the balance sheet to increase transparency and comparability among organizations. Under the updated guidance, lessees will be required to recognize a right-to-use asset and a liability to make a lease payment and disclose key information about leasing arrangements. ASU 2016-02 is effective for public companies for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this ASU on January 1, 2019. As disclosed in the lease footnote, certain leases that the Company has in place required the capitalization of $3.6 million on the balance sheet as an asset and a related liability in the same amount with no income statement effect at January 1, 2019.

In January 2016, FASB issued ASU 2016-01: Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . The main objective of ASU 2016-01 is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments in ASU 2016-01 include the following: 1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. The amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this ASU 2016-01 on January 1, 2018 which resulted in a $169 thousand increase to beginning retained earnings and a $169 thousand decrease to accumulated other comprehensive income on the December 31, 2018 Consolidated Financial Statements.

In May 2014, FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for the Company’s year ending December 31, 2018 and was adopted as of January 1, 2018. Interest income is outside of the scope of the new standard and was not impacted by the adoption of the standard. An evaluation of the Company’s noninterest income streams resulted in no change in revenue recognition at adoption, nor did it change revenue recognition prospectively in a significant way. Refer to the Revenue from Contracts with Customers footnote for further discussion on the Company’s accounting for revenue sources within the scope of ASC 606.

The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2018. The adoption of ASC 606 did not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.

Securities:

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolio at March 31, 2019 and December 31, 2018 and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income:

			Gross		Gross
(In Thousands of Dollars)	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
March 31, 2019
U.S. Treasury and U.S. government sponsored entities	$	5,911	$	4	$	(68	)	$	5,847
State and political subdivisions		211,197		4,080		(541	)		214,736
Corporate bonds		1,206		4		(7	)		1,203
Mortgage-backed securities - residential		151,555		241		(2,188	)		149,608
Collateralized mortgage obligations - residential		21,196		162		(673	)		20,685
Small Business Administration		11,936		0		(245	)		11,691
Totals	$	403,001	$	4,491	$	(3,722	)	$	403,770

			Gross		Gross
(In Thousands of Dollars)	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
December 31, 2018
U.S. Treasury and U.S. government sponsored entities	$	6,111	$	0	$	(102	)	$	6,009
State and political subdivisions		211,762		2,075		(1,893	)		211,944
Corporate bonds		1,206		0		(18	)		1,188
Mortgage-backed securities - residential		154,130		84		(4,167	)		150,047
Collateralized mortgage obligations - residential		21,775		72		(775	)		21,072
Small Business Administration		12,292		0		(362	)		11,930
Totals	$	407,276	$	2,231	$	(7,317	)	$	402,190

Proceeds from the sale of portfolio securities were $9.8 million during the three month period ended March 31, 2019. Gross gains of $22 thousand along with gross losses of $56 thousand were realized on these sales during the three month period ended March 31, 2019. $44 thousand of gains were recognized in the income statement for equity securities during the same three month period as a result of adoption of ASU 2016-01. Proceeds from the sale of portfolio securities were $262 thousand during the three month period ended March 31, 2018. Gross gains were $4 thousand and along with gross losses of $2 thousand during the same three month period ended March 31, 2018. $16 thousand of gains were recognized in the income statement for equity securities during the same three month period ended March 31, 2018, as a result of adoption of ASU 2016-01.

The amortized cost and fair value of the debt securities portfolio are shown 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, 2019
(In Thousands of Dollars)	Amortized Cost		Fair Value
Maturity
Within one year	$	6,076	$	6,095
One to five years		35,119		35,397
Five to ten years		152,330		155,259
Beyond ten years		24,789		25,035
Mortgage-backed, collateralized mortgage obligations and Small Business Administration securities		184,687		181,984
Total	$	403,001	$	403,770

The following table summarizes the investment securities with unrealized losses at March 31, 201 9 and December 31, 201 8 , 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, 2019
U.S. Treasury and U.S. government sponsored entities	$	0	$	0		$	5,098	$	(68	)	$	5,098	$	(68	)
State and political subdivisions		3,039		(7	)		38,090		(534	)		41,129		(541	)
Corporate bonds		0		0			678		(7	)		678		(7	)
Mortgage-backed securities - residential		22		0			129,244		(2,188	)		129,266		(2,188	)
Collateralized mortgage obligations - residential		0		0			13,560		(673	)		13,560		(673	)
Small Business Administration		7		0			11,684		(245	)		11,691		(245	)
Total temporarily impaired	$	3,068	$	(7	)	$	198,354	$	(3,715	)	$	201,422	$	(3,722	)

	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, 2018
U.S. Treasury and U.S. government sponsored entities	$	648	$	(2	)	$	5,065	$	(100	)	$	5,713	$	(102	)
State and political subdivisions		23,569		(201	)		64,174		(1,692	)		87,743		(1,893	)
Corporate bonds		516		(4	)		672		(14	)		1,188		(18	)
Mortgage-backed securities - residential		13,002		(114	)		126,200		(4,053	)		139,202		(4,167	)
Collateralized mortgage obligations - residential		20		(1	)		14,003		(774	)		14,023		(775	)
Small Business Administration		11		0			11,919		(362	)		11,930		(362	)
Total temporarily impaired	$	37,766	$	(322	)	$	222,033	$	(6,995	)	$	259,799	$	(7,317	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities are generally evaluated for OTTI under FASB Accounting Standards Codification (“ASC”) 320, Investments – Debt and Equity Securities . Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, or U.S. government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment, and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income or loss. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

As of March 31, 2019, the Company’s security portfolio consisted of 576 securities, 196 of which were in an unrealized loss position. The majority of the unrealized losses on the Company’s securities are related to its holdings of mortgage-backed securities, collateralized mortgage obligations, state and political subdivision securities, and Small Business Administration securities as discussed below.

Unrealized losses on debt securities issued by state and political subdivisions have not been recognized into income. These securities have maintained their investment grade ratings and management does not have the intent and does not expect to be required to sell these securities before their anticipated recovery. The fair value is expected to recover as the securities approach their maturity date.

All of the Company’s holdings of collateral ized mortgage obligations and residential mortgage-backed securities were issued by U.S. government-sponsored entities. Unrealized losses on these securities have not been recognized into income. Because the decline in fair value is attributable to chang es in interest rates and illiquidity, and not credit quality, the issues are guaranteed by the issuing entity which the U.S. government has affirmed its commitment to support, and because the Company does not have the intent to sell these residential mortg age-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be OTTI.

Management does not believe any unrealized losses on Small Business Administration securities represent an OTTI. The securities are issued and backed by the full faith and credit of the U.S. government and the Company does not have the intent and does not anticipate that it will be required to sell these securities before their anticipated recovery. The fair value of these securities is expected to recover as they approach their maturity.

Loans:

Loan balances were as follows:

(In Thousands of Dollars)	March 31, 2019			December 31, 2018
Originated loans:
Commercial real estate
Owner occupied	$	164,818		$	158,947
Non-owner occupied		256,377			256,124
Farmland		114,910			110,881
Other		101,149			94,527
Commercial
Commercial and industrial		237,822			227,031
Agricultural		35,288			37,623
Residential real estate
1-4 family residential		307,647			307,794
Home equity lines of credit		82,888			82,690
Consumer
Indirect		160,560			164,509
Direct		29,549			30,277
Other		10,789			11,894
Total originated loans	$	1,501,797		$	1,482,297
Acquired loans:
Commercial real estate
Owner occupied	$	43,554		$	44,872
Non-owner occupied		16,199			16,920
Farmland		40,399			40,983
Other		7,122			8,091
Commercial
Commercial and industrial		17,135			18,141
Agricultural		7,613			9,526
Residential real estate
1-4 family residential		75,774			78,786
Home equity lines of credit		22,545			23,617
Consumer
Direct		8,481			9,442
Other		162			162
Total acquired loans	$	238,984		$	250,540
Net Deferred loan costs		2,870			3,003
Allowance for loan losses		(13,777	)		(13,592	)
Net loans	$	1,729,874		$	1,722,248

Purchased credit impaired loans

As part of past acquisitions the Company acquired various loans that displayed evidence of deterioration of credit quality since origination and which was probable that all contractually required payments would not be collected. The carrying amounts and contractually required payments of these loans which are included in the loan balances above are summarized in the following tables:

(In Thousands of Dollars)	March 31, 2019		December 31, 2018
Commercial real estate
Non-owner occupied	$	275	$	292
Commercial
Commercial and industrial		856		899
Total outstanding balance	$	1,131	$	1,191
Carrying amount, net of allowance of $0 in 2019 and 2018	$	849	$	903

Accretable yield, or income expected to be collected, is shown in the table below:

	Three Months Ended
(In Thousands of Dollars)	March 31, 2019			March 31, 2018
Beginning balance	$	93		$	170
New loans purchased	0			0
Accretion of income		(7	)		(19	)
Ending balance	$	86		$	151

The key assumptions considered include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income and principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. There were no adjustments to forecasted cash flows that impacted the allowance for loan losses for the three month periods ended March 31, 2019 and 2018.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2019 and 2018:

Three Months Ended March 31, 2019

(In Thousands of Dollars)	Commercial Real Estate		Commercial			Residential Real Estate			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	5,036	$	2,093		$	2,837		$	2,963		$	663	$	13,592
Provision for loan losses		159		107			(28	)		182			130		550
Loans charged off		0		(44	)		(21	)		(501	)		0		(566	)
Recoveries		0		1			25			175			0		201
Total ending allowance balance	$	5,195	$	2,157		$	2,813		$	2,819		$	793	$	13,777

Three Months Ended March 31, 2018

(In Thousands of Dollars)	Commercial Real Estate		Commercial			Residential Real Estate			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance	$	4,260	$	2,011		$	2,521		$	2,848		$	675		$	12,315
Provision for loan losses		142		147			75			527			(116	)		775
Loans charged off		0		(97	)		(56	)		(629	)		0			(782	)
Recoveries		2		1			61			178			0			242
Total ending allowance balance	$	4,404	$	2,062		$	2,601		$	2,924		$	559		$	12,550

The following tables pre sent the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, based on impair ment method as of March 31, 2019 and December 31, 2018 . The recorded investment in loans includes the unpaid principal balance and unamortized loan origination fees and costs:

March 31, 2019

(In Thousands of Dollars)	Commercial Real Estate		Commercial		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6	$	3	$	261	$	0	$	0	$	270
Collectively evaluated for impairment		5,151		2,144		2,526		2,817		793		13,431
Acquired loans collectively evaluated for impairment		38		10		26		2		0		76
Acquired with deteriorated credit quality		0		0		0		0		0		0
Total ending allowance balance	$	5,195	$	2,157	$	2,813	$	2,819	$	793	$	13,777

Loans:
Loans individually evaluated for impairment	$	623	$	213	$	4,538	$	150	$	0	$	5,524
Loans collectively evaluated for impairment		635,532		272,663		385,831		206,129		0		1,500,155
Acquired loans		106,724		24,040		97,738		8,621		0		237,123
Acquired with deteriorated credit quality		245		604		0		0		0		849
Total ending loans balance	$	743,124	$	297,520	$	488,107	$	214,900	$	0	$	1,743,651

December 31, 2018

(In Thousands of Dollars)	Commercial Real Estate		Commercial		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6	$	3	$	267	$	0	$	0	$	276
Collectively evaluated for impairment		4,981		2,075		2,534		2,960		663		13,213
Acquired loans collectively evaluated for impairment		49		15		36		3		0		103
Acquired with deteriorated credit quality		0		0		0		0		0		0
Total ending allowance balance	$	5,036	$	2,093	$	2,837	$	2,963	$	663	$	13,592

Loans:
Loans individually evaluated for impairment	$	790	$	223	$	4,627	$	83	$	0	$	5,723
Loans collectively evaluated for impairment		618,729		264,208		385,702		212,130		0		1,480,769
Acquired loans		110,143		26,916		101,804		9,582		0		248,445
Acquired with deteriorated credit quality		262		641		0		0		0		903
Total ending loans balance	$	729,924	$	291,988	$	492,133	$	221,795	$	0	$	1,735,840

The following tables present information related to impaired loans by class of loans as of March 31, 2019 and December 31, 2018:

(In Thousands of Dollars)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
March 31, 2019
With no related allowance recorded:
Commercial real estate
Owner occupied	$	362	$	328	$	0
Non-owner occupied		40		38		0
Commercial
Commercial and industrial		184		154		0
Residential real estate
1-4 family residential		3,443		2,710		0
Home equity lines of credit		429		361		0
Consumer		264		127		0
Subtotal		4,722		3,718		0

With an allowance recorded:
Commercial real estate
Farmland		258		257		6
Commercial
Commercial and industrial		59		59		3
Residential real estate
1-4 family residential		1,286		1,277		185
Home equity lines of credit		203		190		76
Consumer		22		23		0
Subtotal		1,828		1,806		270
Total	$	6,550	$	5,524	$	270

(In Thousands of Dollars)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
December 31, 2018
With no related allowance recorded:
Commercial real estate
Owner occupied	$	524	$	494	$	0
Non-owner occupied		40		38		0
Commercial
Commercial and industrial		191		162		0
Residential real estate
1-4 family residential		3,451		2,759		0
Home equity lines of credit		379		326		0
Consumer		174		83		0
Subtotal		4,759		3,862		0

With an allowance recorded:
Commercial real estate
Farmland		258		258		6
Commercial
Commercial and industrial		61		61		3
Residential real estate
1-4 family residential		1,354		1,343		188
Home equity lines of credit		224		199		79
Consumer		0		0		0
Subtotal		1,897		1,861		276
Total	$	6,656	$	5,723	$	276

The following tables present the average recorded investment in impaired loans by class and interest income recognized by loan class for the three month periods ended March 31, 2019 and 2018:

	Average Recorded Investment				Interest Income Recognized
	For Three Months Ended March 31,				For Three Months Ended March 31,
(In Thousands of Dollars)	2019		2018		2019		2018
With no related allowance recorded:
Commercial real estate
Owner occupied	$	331	$	420	$	4	$	7
Non-owner occupied		38		0		0		0
Commercial
Commercial and industrial		157		873		2		1
Residential real estate
1-4 family residential		2,693		2,636		43		49
Home equity lines of credit		347		325		5		4
Consumer		112		63		3		3
Subtotal		3,678		4,317		57		64

With an allowance recorded:
Commercial real estate
Farmland		257		0		0		0
Commercial
Commercial and industrial		59		67		1		1
Residential real estate
1-4 family residential		1,319		1,429		8		10
Home equity lines of credit		196		155		2		2
Consumer		8		1		0		0
Subtotal		1,839		1,652		11		13
Total	$	5,517	$	5,969	$	68	$	77

Cash basis interest recognized during the three month periods ended March 31, 2019 and 2018 was not materially different from interest income recognized under the accrual method.

Nonaccrual loans and loans past due 90 days or more still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The followi ng table presents the recorded investment in nonaccrual and loans past due 90 days or more still on accrual by cla ss of loans as of March 31, 2019 and December 31, 2018 :

	March 31, 2019				December 31, 2018
(In Thousands of Dollars)	Nonaccrual		Loans Past Due 90 Days or More Still Accruing		Nonaccrual		Loans Past Due 90 Days or More Still Accruing
Originated loans:
Commercial real estate
Owner occupied	$	330	$	0	$	340	$	0
Farmland		26		0		30		0
Commercial
Commercial and industrial		439		0		122		0
Agricultural		158		0		158		0
Residential real estate
1-4 family residential		2,201		92		2,318		185
Home equity lines of credit		673		57		644		31
Consumer
Indirect		369		198		346		369
Direct		83		101		54		200
Other				8		0		2
Total originated loans	$	4,279	$	456	$	4,012	$	787
Acquired loans:
Commercial real estate
Non-owner occupied	$	48	$	0	$	82	$	0
Farmland		257		0		257		0
Commercial
Commercial and industrial		754		0		824		0
Agricultural		295		0		291		0
Residential real estate
1-4 family residential		780		151		1,001		122
Home equity lines of credit		270		53		203		14
Consumer
Direct		82		153		95		43
Total acquired loans	$	2,486	$	357	$	2,753	$	179
Total loans	$	6,765	$	813	$	6,765	$	966

The following tables present the aging of the recorded investment in pas t due loans as of March 31, 2019 and December 31, 2018 by class of loans:

(In Thousands of Dollars)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Past Due		Loans Not Past Due		Total
March 31, 2019
Originated loans:
Commercial real estate
Owner occupied	$	55	$	0	$	330	$	385	$	164,062	$	164,447
Non-owner occupied		183		22		0		205		255,559		255,764
Farmland		0		0		26		26		114,756		114,782
Other		0		0		0		0		100,866		100,866
Commercial
Commercial and industrial		154		0		439		593		236,786		237,379
Agricultural		84		5		158		247		35,147		35,394
Residential real estate
1-4 family residential		3,275		11		2,293		5,579		301,303		306,882
Home equity lines of credit		0		153		730		883		82,025		82,908
Consumer
Indirect		1,454		481		567		2,502		163,217		165,719
Direct		827		174		184		1,185		28,563		29,748
Other		37		8		8		53		10,737		10,790
Total originated loans:	$	6,069	$	854	$	4,735	$	11,658	$	1,493,021	$	1,504,679
Acquired loans:
Commercial real estate
Owner occupied	$	43	$	0	$	0	$	43	$	43,610	$	43,653
Non-owner occupied		0		0		48		48		16,044		16,092
Farmland		284		72		257		613		39,785		40,398
Other		0		0		0		0		7,122		7,122
Commercial
Commercial and industrial		84		0		754		838		16,296		17,134
Agricultural		17		0		295		312		7,301		7,613
Residential real estate
1-4 family residential		1,031		0		931		1,962		73,810		75,772
Home equity lines of credit		146		165		323		634		21,911		22,545
Consumer
Direct		300		14		235		549		7,932		8,481
Other		0		0		0		0		162		162
Total acquired loans	$	1,905	$	251	$	2,843	$	4,999	$	233,973	$	238,972
Total loans	$	7,974	$	1,105	$	7,578	$	16,657	$	1,726,994	$	1,743,651

(In Thou sands of Dollars)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Nonaccrual		Total Past Due		Loans Not Past Due		Total
December 31, 2018
Originated loans:
Commercial real estate
Owner occupied	$	82	$	0	$	340	$	422	$	158,161	$	158,583
Non-owner occupied		22		0		0		22		255,458		255,480
Farmland		184		0		30		214		110,547		110,761
Other		0		0		0		0		94,242		94,242
Commercial
Commercial and industrial		159		0		122		281		226,320		226,601
Agricultural		69		10		158		237		37,484		37,721
Residential real estate
1-4 family residential		1,964		424		2,503		4,891		302,131		307,022
Home equity lines of credit		64		14		675		753		81,957		82,710
Consumer
Indirect		1,714		755		715		3,184		166,622		169,806
Direct		714		340		254		1,308		29,183		30,491
Other		33		14		2		49		11,845		11,894
Total originated loans	$	5,005	$	1,557	$	4,799	$	11,361	$	1,473,950	$	1,485,311
Acquired loans:
Commercial real estate
Owner occupied	$	321	$	0	$	0	$	321	$	44,618	$	44,939
Non-owner occupied		0		0		82		82		16,764		16,846
Farmland		0		102		257		359		40,623		40,982
Other		0		0		0		0		8,091		8,091
Commercial
Commercial and industrial		94		0		824		918		17,223		18,141
Agricultural		31		5		291		327		9,198		9,525
Residential real estate
1-4 family residential		750		229		1,123		2,102		76,682		78,784
Home equity lines of credit		208		0		217		425		23,192		23,617
Consumer
Direct		318		257		138		713		8,729		9,442
Other		0		0		0		0		162		162
Total acquired loans	$	1,722	$	593	$	2,932	$	5,247	$	245,282	$	250,529
Total loans	$	6,727	$	2,150	$	7,731	$	16,608	$	1,719,232	$	1,735,840

Troubled Debt Restructurings:

Total troubled debt restructurings were $5.3 million and $5.5 million at March 31, 2019 and December 31, 2018, respectively. The Company has allocated $66 thousand and $72 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings at March 31, 2019 and December 31, 2018, respectively. There were no commitments to lend additional amounts to borrowers with loans that were classified as troubled debt restructurings at March 31, 2019 and at December 31, 2018.

During the three month periods ended March 31, 2019 and 2018, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a deferral of principal and interest; or a legal concession. During the three month period ended March 31, 2019, the terms of such loans included a reduction of the stated interest rate of loans in the range of 2.375% to 2.74% and an extension of the maturity date on these and other troubled debt restructurings by 86 months. During the same three month period in 2018, the terms of such loans included a reduction of the stated interest rate of the loan by 1.75% and extensions of the maturity dates by 6 months.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month perio ds ended March 31, 2019 and 2018 :

			Pre-Modification		Post-Modification
Three Months Ended March 31, 2019	Number of		Outstanding Recorded		Outstanding Recorded
(In thousands of Dollars)	Loans		Investment		Investment
Originated loans:
Residential real estate
1-4 family residential		3	$	73	$	75
Home equity lines of credit		1		40		40
Indirect		12		105		105
Total originated loans		16	$	218	$	220
Acquired loans:
Residential real estate
1-4 family residential		2		51		55
Total loans		18	$	269	$	275

			Pre-Modification		Post-Modification
Three Months Ended March 31, 2018	Number of		Outstanding Recorded		Outstanding Recorded
(In thousands of Dollars)	Loans		Investment		Investment
Originated loans:
Commercial real estate
Owner occupied		1	$	360	$	360
Residential real estate
1-4 family residential		3		43		43
Home equity lines of credit		2		14		14
Indirect		5		29		29
Total originated loans		11	$	446	$	446
Acquired loans:
Residential real estate
1-4 family residential		4		108		108
Total acquired loans		4	$	108	$	108
Total loans		15	$	554	$	554

There were $6 thousand and $19 thousand in charge offs and a $6 thousand and $19 thousand increase to the provision for loan losses during the three month periods ended March 31, 2019 and 2018, respectively as a result of troubled debt restructurings.

There were two residential real estate loans and one home equity line of credit for which there was a payment default within twelve months following the modification of the troubled debt restructuring during the three month period ended March 31, 2019. All of the loans were past due at March 31, 2019. There was no provision recorded as a result of the defaults during 2019. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

There were three residential real estate loans for which there was a payment default within twelve months following the modification of the troubled debt restructuring during the three month period ended March 31, 2019. These loans were not past due at March 31, 2019. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

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 $750 thousand, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans and leases in their respective portfolios on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakn ess 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 no t 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.

As of March 31, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
March 31, 2019
Originated loans:
Commercial real estate
Owner occupied	$	162,064	$	1,653	$	730	$	164,447
Non-owner occupied		251,581		4,085		98		255,764
Farmland		113,432		1,285		65		114,782
Other		99,207		1,417		242		100,866
Commercial
Commercial and industrial		234,405		736		2,238		237,379
Agricultural		34,915		77		402		35,394
Total originated loans	$	895,604	$	9,253	$	3,775	$	908,632
Acquired loans:
Commercial real estate
Owner occupied	$	42,666	$	127	$	860	$	43,653
Non-owner occupied		15,889		57		146		16,092
Farmland		36,040		665		3,693		40,398
Other		6,470		0		652		7,122
Commercial
Commercial and industrial		16,079		170		885		17,134
Agricultural		6,706		362		545		7,613
Total acquired loans	$	123,850	$	1,381	$	6,781	$	132,012
Total loans	$	1,019,454	$	10,634	$	10,556	$	1,040,644

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2018
Originated loans:
Commercial real estate
Owner occupied	$	156,892	$	945	$	746	$	158,583
Non-owner occupied		251,240		4,139		101		255,480
Farmland		109,391		1,301		69		110,761
Other		92,669		1,325		248		94,242
Commercial
Commercial and industrial		219,938		4,207		2,456		226,601
Agricultural		37,158		81		482		37,721
Total originated loans	$	867,288	$	11,998	$	4,102	$	883,388
Acquired loans:
Commercial real estate
Owner occupied	$	43,763	$	430	$	746	$	44,939
Non-owner occupied		16,601		58		187		16,846
Farmland		36,565		668		3,749		40,982
Other		7,434		0		657		8,091
Commercial
Commercial and industrial		16,407		170		1,564		18,141
Agricultural		8,612		346		567		9,525
Total acquired loans	$	129,382	$	1,672	$	7,470	$	138,524
Total loans	$	996,670	$	13,670	$	11,572	$	1,021,912

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer indirect and direct loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at March 31, 2019, there were $208 thousand of other real estate owned properties and $1.0 million of properties in foreclosure. Other real estate owned and foreclosure properties were $0 at March 31, 2019 and $1.2 million at December 31, 2018.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of March 31, 2019 and December 31, 2018. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
March 31, 2019
Originated loans:
Performing	$	304,589	$	82,178	$	165,152	$	29,564	$	10,782
Nonperforming		2,293		730		567		184		8
Total originated loans	$	306,882	$	82,908	$	165,719	$	29,748	$	10,790
Acquired loans:
Performing	$	74,841	$	22,222	$	0	$	8,246	$	162
Nonperforming		931		323		0		235		0
Total acquired loans		75,772		22,545		0		8,481		162
Total loans	$	382,654	$	105,453	$	165,719	$	38,229	$	10,952

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2018
Originated loans:
Performing	$	304,519	$	82,035	$	169,091	$	30,237	$	11,892
Nonperforming		2,503		675		715		254		2
Total originated loans	$	307,022	$	82,710	$	169,806	$	30,491	$	11,894
Acquired loans:
Performing	$	77,661	$	23,400	$	0	$	9,304	$	162
Nonperforming		1,123		217		0		138		0
Total acquired loans		78,784		23,617		0		9,442		162
Total loans	$	385,806	$	106,327	$	169,806	$	39,933	$	12,056

Revenue from Contracts with Customers

All material revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. 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, 2019 and 2018.

(In Thousands of Dollars)	Trust Segment		Bank Segment		Retirement Consulting Segment		Totals
For Three Months Ended March 31, 2019
Service charges on deposit accounts	$	0	$	1,074	$	0	$	1,074
Debit card and EFT fees		0		778		0		778
Trust Fees		1,858		0		0		1,858
Insurance agency commissions		0		803		0		803
Retirement plan consulting fees		0		0		358		358
Investment commission		0		260		0		260
Other		0		1,389		0		1,389
Total noninterest Income	$	1,858	$	4,304	$	358	$	6,520

(In Thousands of Dollars)	Trust Segment		Bank Segment		Retirement Consulting Segment		Totals
For Three Months Ended March 31, 2018
Service charges on deposit accounts	$	0	$	1,003	$	0	$	1,003
Debit card and EFT fees		0		806		0		806
Trust Fees		1,807		0		0		1,807
Insurance agency commissions		0		699		0		699
Retirement plan consulting fees		0		0		379		379
Investment commission		0		256		0		256
Other		0		1,060		0		1,060
Total noninterest Income	$	1,807	$	3,824	$	379	$	6,010

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 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 new revenue standards.

Debit Card and EFT Fees – Customers and the Bank have an account agreement and maintain deposi t 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 clawbac k 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 the estimating potential refunds due to the likely cancellation of a percentage of customers cancelling their policies and recording revenue at the time of policy renewals. Management concluded that since Insurance agency commissions represent only 2.6% of the Company’s total revenue, adjusting the current practice of recording insurance revenue for these situations would not have a material impact on the reporting of total revenue.

Retirement Plan Consulting Fees – The fees earned from retirement plan consulting is generated by National Associates, Inc. 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. Retirement plan consulting fees represent only 1.1% of the Company’s total revenue, and therefore management has concluded that any adjustment of revenue for one particular customer for a refund or any other reason would be insignificant and would not materially impact the Company’s total revenue.

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 Cetera. Investment commissions represent only 0.8% of the Company’s total revenue, and therefore management has concluded that any adjustment of revenue for a particular customer for a refund or any other reason would be insignificant and would not materially impact the Company’s total revenue.

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.

Interest-Rate Swaps:

The Company uses a program that utilizes interest-rate swaps as part of its asset/liability management strategy. The interest-rate swaps are used to help manage the Company’s interest rate risk position and not as derivatives for trading purposes. The notional amount of the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest-rate swap agreements.

The objective of the interest-rate swaps is to protect the related fixed rate commercial real estate loans from changes in fair value due to changes in interest rates. The Company has a program whereby it lends to its borrowers at a fixed rate with the loan agreement contain ing a two-way yield maintenance provision, which will be invoked in the event of prepayment of the loan, and is expected to exactly offset the fair value of unwinding the swap. The yield maintenance provision represents an embedded derivative which is bif urcated from the host loan contract and, as such, the swaps and embedded derivatives are not designated as hedges. Accordingly, both instruments are carried at fair value and changes in fair value are reported in current period earnings.

Summary information about these interest-rate swaps at periods ended March 31, 2019 and December 31, 2018 is as follows:

	March 31, 2019			December 31, 2018
Notional amounts (In thousands)	$	42,425		$	35,996
Weighted average pay rate on interest-rate swaps		4.49	%		4.53	%
Weighted average receive rate on interest-rate swaps		4.79	%		4.78	%
Weighted average maturity (years)		4.2			4.4
Fair value of interest-rate swaps	$	(1,092	)	$	(767	)
Fair value of loan yield maintenance provisions	$	1,092		$	767

The fair value of the yield maintenance provisions and interest-rate swaps is recorded in other assets and other liabilities, respectively, in the consolidated balance sheets. Changes in the fair value of the yield maintenance provisions and interest-rate swaps are reported in earnings, as other noninterest income in the consolidated statements of income. For the three month periods ended March 31, 2019 and 2018 there were no net gains or losses recognized in earnings.

Earnings Per Share:

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

	Three Months Ended March 31,
	2019		2018
Basic EPS
Net income (In thousands)	$	8,388	$	7,726
Weighted average shares outstanding		27,790,028		27,578,858
Basic earnings per share	$	0.30	$	0.28

Diluted EPS
Net income (In thousands)	$	8,388	$	7,726
Weighted average shares outstanding for basic earnings per share		27,790,028		27,578,858
Average unvested restricted stock awards		193,301		339,153
Weighted average shares for diluted earnings per share		27,983,329		27,918,011
Diluted earnings per share	$	0.30	$	0.28

There were no restricted stock awards that were considered anti-dilutive for the three month periods ended March 31, 2019 and 2018.

Stock Based Compensation:

During 2017, the Company, with the approval of shareholders, created the 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan permits the award of up to 800 thousand 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 Farmers’ executives with those of the Company’s shareholders. There were 18,913 service time based shares and 67,651 performance based shares granted under the 2017 Plan during the three month period ended March 31, 2019, as shown in the table below. The actual number of performance based stock awards issued will depend on certain performance conditions which are mainly average return on equity compared to a group of peer companies over a three year vesting period.

During 2012, the Company, with the approval of shareholders, created the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan permitted the award of up to 500 thousand shares to the Company’s directors and employees to promote the Company’s long-term financial success by motivating performance through long-term incentive compensation and to better align the interests of its employees with those of its shareholders. There were no additional shares grant ed under the Plan during the three months ended March 31, 2019 . Any new restricted stock awards will be issued under the 2017 Plan described above.

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 $320 thousand for the three month period ended March 31, 2019. During the prior period, the expense recognized was $397 thousand for the three month period ended March 31, 2018. As of March 31, 2019, there was $2.3 million of total unrecognized compensation expense related to the non-vested shares granted under the Plans. The remaining cost is expected to be recognized over 3 years.

The following is the activity under the Plans during the three month period ended March 31, 2019.

	Three Months Ended March 31, 2019
	Maximum Awarded Service Units		Weighted Average Grant Date Fair Value		Maximum Awarded Performance Units		Weighted Average Grant Date Fair Value
Beginning balance - nonvested shares		87,955	$	13.04		203,828	$	11.96
Granted		18,913		13.61		67,651		13.50
Vested		0		0		0		0.00
Forfeited		0		0		0		0.00
Ending balance - nonvested shares		106,868		13.14		271,479		12.35

Other Comprehensive Income (Loss):

The following table represents the details of other comprehensive income for the three month periods ended March 31, 2019 and 2018.

	Three Months Ended March 31, 2019
(In Thousands of Dollars)	Pre-tax			Tax			After-Tax
Unrealized holding gains (losses) on available-for-sale securities during the period	$	5,821		$	(1,223	)	$	4,598
Reclassification adjustment for (gains) losses included in net income (1)		34			(7	)		27
Net other comprehensive income	$	5,855		$	(1,230	)	$	4,625

	Three Months Ended March 31, 2018
(In Thousands of Dollars)	Pre-tax			Tax			After-Tax
Unrealized holding gains (losses) on available-for-sale securities during the period	$	(8,886	)	$	1,866		$	(7,020	)
Reclassification adjustment for (gains) losses included in net income (1)		(2	)		0			(2	)
Net other comprehensive (loss)	$	(8,888	)	$	1,866		$	(7,022	)

(1)	Pre-tax reclassification adjustments relating to available-for-sale securities are reported in security gains and the tax impact is included in income tax expense on the consolidated statements of income.

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. The new minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III) are being phased in and began on January 1, 2015 and was fully implemented on January 1, 2019. 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, 2019, the Company and the Bank meet all capital adequacy requirements to which they are subject.

The FDIC and other federal banking r egulators 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 Ban king 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. The capital conservation buffer phased in beginning January 1, 2016 and increased each year until it was fully implemented at 2.5% on January 1, 2019. The additional capital conservation buffer is 2.5% for the year of 2019 and was 1.875% during 2018. 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, 2019 and December 31, 2018, 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.

Actual and required capital amounts and ratios, which do not include the capital conservation buffer, are presented below at March 31, 2019 and December 31, 2018:

	Actual					Requirement For Capital Adequacy Purposes:					To be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2019
Common equity tier 1 capital ratio
Consolidated	$	229,240		12.37	%	$	83,374		4.5	%	N/A		N/A
Bank		215,987		11.68	%		83,223		4.5	%	$	120,211		6.5	%
Total risk based capital ratio
Consolidated		245,287		13.24	%		148,220		8.0	%	N/A		N/A
Bank		229,764		12.42	%		147,952		8.0	%		184,940		10.0	%
Tier I risk based capital ratio
Consolidated		231,510		12.50	%		111,165		6.0	%	N/A		N/A
Bank		215,987		11.68	%		110,964		6.0	%		147,952		8.0	%
Tier I leverage ratio
Consolidated		231,510		10.07	%		92,004		4.0	%	N/A		N/A
Bank		215,987		9.45	%		91,428		4.0	%		114,285		5.0	%

December 31, 2018
Common equity tier 1 capital ratio
Consolidated	$	222,892		12.16	%	$	82,478		4.5	%	N/A		N/A
Bank		210,409		11.51	%		82,242		4.5	%	$	118,795		6.5	%
Total risk based capital ratio
Consolidated		238,742		13.03	%		146,628		8.0	%	N/A		N/A
Bank		224,001		12.26	%		146,209		8.0	%		182,761		10.0	%
Tier I risk based capital ratio
Consolidated		225,150		12.28	%		109,971		6.0	%	N/A		N/A
Bank		210,409		11.51	%		109,656		6.0	%		146,209		8.0	%
Tier I leverage ratio
Consolidated		225,150		9.91	%		90,900		4.0	%	N/A		N/A
Bank		210,409		9.32	%		90,324		4.0	%		112,905		5.0	%

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. ASU 2016-01 which was adopted by the Company on January 1, 2018, requires the use of exit price notion when measuring the fair value of financial instruments for disclosure purposes. Our service provider is considered a leading evaluation pricing service for U.S. domestic fixed income securities and complies fully with ASU 2016-01’s exit pricing requirements. They subscribe to multiple third-party pricing vendors, and supplement that information with matrix pricing methods. The fair values for investment securities, which consist of equity securities are recorded at fair market value to comply with ASU 2016-01, are determined by quoted market prices in active markets, if available (Level 1). The equity securities change in fair market value is recorded in the income statements. 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, volatilities, prepayment speeds, credit risks and default rates. Inputs used are derived principally 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. For the period ended March 31, 2019 and for the year ended December 31, 2018, the fair value of Level 3 investment securities was immaterial.

Derivative Instruments: The fair values of derivative instruments are based on valuation models using observable market data as of the measurement date (Level 2).

Impaired Loans: At the time loans are considered impaired, collateral dependent impaired loans are valued at the lower of cost or fair value and non-collateral dependent loans are valued based on discounted cash flows. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans fair value is commonly based on recent real estate appraisals. These 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. Such adjustments 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. Impaired loans are evaluated on a quarterly basis for additional impairment 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 impaired loans and other real estate owned are performed by certified general appraisers (for commercial and commercial real estate properties) or certified residential appraisers (for res idential 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 fa ir 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, 2019 Using:
(In Thousands of Dollars)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities	$	5,847	$	0	$	5,847	$	0
State and political subdivisions		214,736		0		214,736		0
Corporate bonds		1,203		0		1,203		0
Mortgage-backed securities-residential		149,608		0		149,602		6
Collateralized mortgage obligations		20,685		0		20,685		0
Small Business Administration		11,691		0		11,691		0
Equity securities
Equity securities at fair value		553		553		0		0
Other equity investments measured at net asset value		6,907	n/a		n/a		n/a
Total investment securities	$	411,230	$	553	$	403,764	$	6
Loan yield maintenance provisions	$	1,092	$	0	$	1,092	$	0
Financial Liabilities
Interest rate swaps	$	1,092	$	0	$	1,092	$	0

	Fair Value Measurements at December 31, 2018 Using:
(In Thousands of Dollars)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities	$	6,009	$	0	$	6,009	$	0
State and political subdivisions		211,944		0		211,944		0
Corporate bonds		1,188		0		1,188		0
Mortgage-backed securities-residential		150,047		0		150,041		6
Collateralized mortgage obligations		21,072		0		21,072		0
Small Business Administration		11,930		0		11,930		0
Equity securities
Equity securities at fair value		495		495		0		0
Other equity investments measured at net asset value		6,635	n/a		n/a		n/a
Total investment securities	$	409,320	$	495	$	402,184	$	6
Loan yield maintenance provisions	$	767	$	0	$	767	$	0
Financial Liabilities
Interest rate swaps	$	767	$	0	$	767	$	0

There were no significant transfers between Level 1 and Level 2 during the three month periods ended March 31, 2019 and 2018. For additional information related to yield maintenance provisions and interest rate swaps see Interest–Rate Swaps note.

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

	Investment Securities Available-for-sale (Level 3)
	Three Months ended March 31,
(In Thousands of Dollars)	2019		2018
Beginning Balance	$	6	$	8
Transfers from level 2		0		0
Repayments, calls and maturities		0		(1	)
Ending Balance	$	6	$	7

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

	Fair Value Measurements at March 31, 2019 Using:
(In Thousands of Dollars)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Impaired loans
Commercial real estate
Farmland	$	251	$	0	$	0	$	251
1–4 family residential		577		0		0		577
Consumer indirect		32		0		0		32
Other real estate owned
1–4 family residential		51		0		0		51

	Fair Value Measurements at December 31, 2018 Using:
(In Thousands of Dollars)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Impaired loans
Commercial real estate
Farmland	$	251	$	0	$	0	$	251
1–4 family residential		640		0		0		640
Consumer		7		0		0		7

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $1.1 million with a valuation allowance of $223 thousand at March 31, 2019, resulting in no additional provision for loan losses for the three month period. At December 31, 2018, impaired loans had a principal balance of $1.1 million, with a valuation allowance of $227 thousand. Loans measured at fair value at March 31, 2018 resulted in an additional provision for loan losses of $66 thousand for the three month period ending March 31, 2018. Excluded from the fair value of impaired loans, at March 31, 2019 and December 31, 2018, discussed above are $686 thousand and $694 thousand of loans classified as troubled debt restructurings and measured using the present value of cash flows, which is not considered an exit price.

Impaired commercial real estate loans, both owner-occupied and non-owner occupied as well as other real estate owned properties are valued by independent external appraisals. These external appraisals are prepared using the sales comparison approach and income approach valuation techniques. Management makes subsequent unobservable adjustments to the impaired loan appraisals. Impaired loans other than commercial real estate and other real estate owned are not considered material.

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, 2019 and December 31, 2018 :

March 31, 2019	Fair value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Impaired loans
Commercial real estate	$	251	Sales comparison	Adjustment for differences between comparable sales	(22.70%) - 16.16% 9.39%
Residential		577	Sales comparison	Adjustment for differences between comparable sales	(49.90%) - 45.99% 5.56%
Consumer		32	Sales comparison	Adjustment for differences between comparable sales	(9.63%) - 9.63% (0%)
Other real estate owned		51	Sales comparison	Adjustment for differences between comparable sales	(39.77%) - 32.49% (7.30%)

December 31, 2018	Fair value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Impaired loans
Commercial real estate	$	251	Sales comparison	Adjustment for differences between comparable sales	(22.70%) - 16.16% 9.39%
Residential		640	Sales comparison	Adjustment for differences between comparable sales	(49.90%) - 45.99% 6.52%
Consumer		7	Sales comparison	Adjustment for differences between comparable sales	(5.71%) - 5.71% (0.00%)

The carrying amounts and estimated fair values of financial instruments not previously disclosed at March 31, 2019 and December 31, 2018 are as follows:

			Fair Value Measurements at March 31, 2019 Using:
(In Thousands of Dollars)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	69,672	$	20,869	$	48,803	$	0	$	69,672
Restricted stock		11,729	n/a		n/a		n/a		n/a
Loans held for sale		2,360		0		2,431		0		2,431
Loans, net		1,729,874		0		0		1,687,534		1,687,534
Accrued interest receivable		7,722		0		2,352		5,370		7,722
Financial liabilities
Deposits		1,954,333		1,469,330		481,741		0		1,951,071
Short-term borrowings		103,498		0		103,498		0		103,498
Long-term borrowings		5,850		0		5,763		0		5,763
Accrued interest payable		1,168		77		1,091		0		1,168

			Fair Value Measurements at December 31, 2018 Using:
(In Thousands of Dollars)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	57,926	$	18,042	$	39,884	$	0	$	57,926
Restricted stock		11,737	n/a		n/a		n/a		n/a
Loans held for sale		1,237		0		1,274		0		1,274
Loans, net		1,722,248		0		0		1,673,626		1,673,626
Accrued interest receivable		7,114		0		2,359		4,755		7,114
Financial liabilities
Deposits		1,799,720		1,427,260		367,306		0		1,794,566
Short-term borrowings		244,759		0		244,759		0		244,759
Long-term borrowings		6,033		0		5,847		0		5,847
Accrued interest payable		990		63		927		0		990

The methods and assumptions used to estimate fair value, not previously described, are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as either Level 1 or Level 2. The Company has determined that cash on hand and non-interest bearing due from bank accounts are Level 1 whereas interest bearing federal funds sold and other are Level 2.

Restricted Stock: It is not practical to determine the fair value of restricted stock due to restrictions placed on its transferability.

Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: Beginning January 1, 2018, the Company uses a third party firm that uses cash flow analysis and current market interest rates along with adjustments for credit, liquidity and option risk to conform to the ASU 2016-01 exit price requirement. Impaired loans are valued at the lower of cost or fair value as described previously.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest receivable and payable approximate fair value resulting in a Level 1, Level 2 or Level 3 classification. The classification is the result of the association with securities, loans and deposits.

Deposits: The fair values disclosed for demand deposits – interest and non-interest checking, passbook savings, and money market accounts – are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 1 classification. The carrying amounts of variable rate certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair value for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Long-term Borrowings: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Off-balance Sheet Instruments: The fair value of commitments is not considered material.

Segment Information:

The reportable segments are determined by the products and services offered, primarily distinguished between banking, trust and retirement consulting operations. They are also distinguished by the level of information provided to the chief operating decision makers in the Company, who use such information to review performance of various components of the business, which are then aggregated. Loans, investments, and deposits provide the revenues in the banking operation. All operations are domestic. Significant segment totals are reconciled to the financial statements as follows:

(In Thousands of Dollars)	Trust Segment		Bank Segment		Retirement Consulting Segment			Eliminations and Others			Consolidated Totals
March 31, 2019
Goodwill and other intangibles	$	4,152	$	37,870	$	2,425		$	(822	)	$	43,625
Total assets	$	11,852	$	2,336,476	$	3,193		$	4,553		$	2,356,074

(In Thousands of Dollars)	Trust Segment		Bank Segment		Retirement Consulting Segment			Eliminations and Others			Consolidated Totals
December 31, 2018
Goodwill and other intangibles	$	4,199	$	38,113	$	2,462		$	(822	)	$	43,952
Total assets	$	11,490	$	2,309,644	$	3,060		$	4,670		$	2,328,864

(In Thousands of Dollars)	Trust Segment		Bank Segment		Retirement Consulting Segment			Eliminations and Others			Consolidated Totals
For Three Months Ended March 31, 2019
Net interest income	$	38	$	19,949	$	0		$	(22	)	$	19,965
Provision for loan losses		0		550		0			0			550
Service fees, security gains and other noninterest income		1,898		4,305		358			(41	)		6,520
Noninterest expense		1,263		13,527		338			140			15,268
Amortization and depreciation expense		52		605		40			12			709
Income before taxes		621		9,572		(20	)		(215	)		9,958
Income taxes		130		1,556		(4	)		(112	)		1,570
Net Income	$	491	$	8,016	$	(16	)	$	(103	)	$	8,388

(In Thousands of Dollars)	Trust Segment		Bank Segment		Retirement Consulting Segment			Eliminations and Others			Consolidated Totals
For Three Months Ended March 31, 2018
Net interest income	$	31	$	18,933	$	0		$	(18	)	$	18,946
Provision for loan losses		0		775		0			0			775
Service fees, security gains and other noninterest income		1,838		3,854		379			(61	)		6,010
Noninterest expense		1,277		12,552		312			206			14,347
Amortization and depreciation expense		63		624		50			12			749
Income before taxes		529		8,836		17			(297	)		9,085
Income taxes		111		1,353		4			(109	)		1,359
Net Income	$	418	$	7,483	$	13		$	(188	)	$	7,726

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

Leases

The Company has operating leases for branch office locations, vehicles and certain office equipment such as printers, copiers and faxes. The leases have remaining lease terms of 1 to 11.5 years, some of which include options to extend the lease for up to 10 years and some of which include options to terminate the leases within 1 year.

The right of use asset and lease liability as of March 31, 2019 was $3.5 million.

Lease payments made for the quarter ended March 31, 2019 were $ 146 thousand . Interest expense and amortization expense on finance leases were $27 thousand and $89 thousand for the quarter ended March 31, 2019, respectively. The weighted-average re maining lease term for all leases was 7.1 years as of March 31, 2019 and the weighted -average discount rate was 3.4 %.

Maturities of lease liabilities are as follows as of March 31, 2019:

2019	$	438
2020		590
2021		592
2022		475
2023		418
Thereafter		1,664
Total Payments		4,177
Less: Imputed Interest		(644	)
Total	$	3,533

Goodwill and Intangible Assets:

Goodwill associated with the Company’s recent purchase of Monitor in August 2017 and other past acquisitions totaled $38.2 million at March 31, 2019 and December 31, 2018. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test. Management performs goodwill impairment testing on an annual basis as of September 30. The fair value of the reporting unit is determined based on a discounted cash flow model.

Acquired Intangible Assets

Acquired intangible assets were as follows:

	March 31, 2019					December 31, 2018
(In Thousands of Dollars)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer relationship intangibles	$	7,210	$	(5,595	)	$	7,210	$	(5,481	)
Non-compete contracts		430		(381	)		430		(380	)
Trade name		520		(241	)		520		(229	)
Core deposit intangible		6,254		(2,773	)		6,254		(2,573	)
Total	$	14,414	$	(8,990	)	$	14,414	$	(8,663	)

Aggregate amortization expense was $327 thousand for the three month period ended March 31, 2019. Amortization expense was $354 thousand for the three months ended March 31, 2018.

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

2019 (Nine months)	$	980
2020		1,202
2021		1,142
2022		1,025
2023		514
Thereafter		561
TOTAL	$	5,424

Short-term borrowings:

There were $100 million in short-term Federal Home Loan Bank Advances at March 31, 2019 with a weighted average interest rate of 2.53%. Short-term Federal Home Loan Bank Advances were $240 million at December 31, 2018. The Company had $3.1 million and $4.4 million in securities sold under repurchase agreements for the periods ended March 31, 2019 and December 31, 2018, respectively. In addition, the Company had a $350 thousand balance on business lines of credit with one lending institution at March 31, 2019 and December 31, 2018.

Securities sold under repurchase agreements are secured by the Bank’s holdings of debt securities issued by U.S. government sponsored entities and agencies. These pledged securities which are 105% of the repurchase agreement balances, had a carrying amount of $3.3 million and $4.6 million at March 31, 2019 and December 31, 2018.

The following table provides a disaggregation of the obligation by the class of collateral pledged for short-term financing obtained through the sales of repurchase agreements:

(In Thousands of Dollars)	March 31, 2019		December 31, 2018
Overnight and continuous repurchase agreements
U.S. Treasury and U.S. government sponsored entities	$	178	$	332
State and political subdivisions		881		664
Mortgage-backed securities - residential		1,832		3,094
Collateralized mortgage obligations - residential		257		319
Total repurchase agreements	$	3,148	$	4,409

Management believes the risks associated with the agreements are minimal and, in the case of collateral decline, the Company has additional investment securities available to adequately pledge as guarantees for the repurchase agreements.

Item 2.

Manageme nt’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 Annual Report on Form 10-K for the year ended December 31, 2018.

While the Company believes that the forward-looking statements in this report are reasonable, given these factors, as well as other variables that may affect our operating results, readers should rely 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.

Overview

Net income for the three months ended March 31, 2019 was $8.4 million, or $0.30 per diluted share, which compares to $7.7 million, or $0.28 per diluted share, for the three months ended March 31, 2018. Annualized return on average assets and return on average equity were 1.45% and 12.71%, respectively, for the three month period ending March 31, 2019, compared to 1.45% and 13.03% for the same period in 2018.

Total loans were $1.744 billion at March 31, 2019 compared to $1.736 billion at December 31, 2018. The increase in loans is a result of Farmers’ focus on loan growth utilizing a talented lending and credit team, while adhering to a sound underwriting discipline. The increase in loans has occurred mainly in the commercial, commercial real estate, residential real estate and agricultural loan categories. Loans comprise 79.3% of the Bank’s first quarter average earning assets at March 31, 2019, an improvement compared to 78.1% for the same period in 2018. This improvement along with the growth in earning assets has resulted in a 16.5% increase in tax equated loan interest income from the first quarter of 2019 compared to the same quarter in 2018.

Non-performing assets to total assets remain at a low level, currently at 0.33%. Early stage delinquencies, which are loans 30 - 89 days delinquent, also continue to remain at low levels, at $9.1 million, or 0.52% of total loans, at March 31, 2019. Net charge-offs for the current quarter were $365 thousand, compared to $540 thousand in the same quarter in 2018 and total net charge-offs as a percentage of average net loans outstanding is only 0.08% for the quarter ended March 31, 2019, compared to 0.14% in the same quarter in 2018.

The net interest margin for the three months ended March 31, 2019 was 3.81%, an 11 basis point decrease from the quarter ended March 31, 2018. In comparing the first quarter of 2019 to the same period in 2018, asset yields increased 29 basis points, while the cost of interest-bearing liabilities increased 54 basis points. Most of this increase was the result of higher rates paid on interest bearing checking accounts and time deposits, consistent with increases in the federal funds sold rate. The net interest margin is impacted by the additional accretion as a result of the discounted loan portfolios acquired in recent mergers, which increased the net interest margin by 4 basis points for the quarters ended March 31, 2019 and 2018, respectively.

The Company made progress in its effort to increase noninterest income, which increased 8.5% to $6.5 million for the quarter ended March 31, 2019 compared to $6.0 million in the same quarter of 2018. Net gains on sales of loans increased $184 thousand, or 37.8%, and other operating income increased $169 thousand, or 50.8% in comparing the first quarter of 2019 to the same quarter in 2018.

Farmers has remained committed to managing its level of noninterest expenses. Total noninterest expenses for the first quarter of 2019 increased 5.8% to $16.0 million compared to $15.1 million in the same quarter in 2018, primarily as a result of a $618 thousand, or 7.1%, increase in salaries and employee benefits.

The efficiency ratio for the quarter ended March 31, 2019 improved to 57.8% compared to 58.0 % for the same quarter in 2018 . The main factors leading to this improvement were the increase in net interest income and noninterest income .

The Company’s return on average tangible equity (Non-GAAP) decreased to 14.99% for the quarter ended March 31, 2019 compared to 15.84% for the same quarter in 2018.

Return on average tangible equity is a non - U.S. GAAP financial measure and should be considered in addition to, not a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the tangible equity for the three month periods ended March 31, 2019 and 2018, reconciliations are displayed in the table below.

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, 2019 and 2018:

	At or for the Three Months Ended March 31,
(In Thousands, except Per Share Data)	2019			2018
Total assets	$	2,356,074		$	2,167,517
Net income	$	8,388		$	7,726
Basic and diluted earnings per share	$	0.30		$	0.28
Return on average assets (annualized)		1.45	%		1.45	%
Return on average equity (annualized)		12.71	%		13.03	%
Efficiency ratio (tax equivalent basis) (1)		57.83	%		57.98	%
Equity to asset ratio		11.58	%		11.13	%
Tangible common equity ratio (2)		9.92	%		9.24	%
Dividends to net income		29.80	%		25.05	%
Net loans to assets		73.42	%		73.21	%
Loans to deposits		89.22	%		97.69	%

(1)

The ratio is calculated by dividing noninterest expenses by the sum of net interest income and noninterest income. The Company strives for a lower efficiency ratio. This efficiency ratio measure is not required by any regulatory agency but provides meaningful information to management and investors since a lower ratio indicates the Company is using their assets more effectively to generate profits.

(2)

The tangible common equity ratio is calculated by dividing total common stockholders’ equity by total assets, after reducing both amounts by intangible assets. The tangible common equity ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of the Company’s capital levels. Since there is no authoritative requirement to calculate the tangible common equity ratio, the Company’s tangible common equity ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non - U.S. GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the actual unaudited tangible common equity ratio as of March 31, 2019 and 2018, reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets are set forth below:

Reconciliation of Common Stockholders' Equity to Tangible Common Equity
	At or for the Three Months Ended		At or for the Three Months Ended		At or for the Three Months Ended
	March 31,		December 31,		March 31,
(In Thousands of Dollars)	2019		2018		2018
Stockholders' equity	$	272,951	$	262,320	$	241,240
Less goodwill and other intangibles		43,625		43,952		45,015
Tangible common equity		229,326		218,368		196,225
Average stockholders' equity		267,736		252,449		240,387
Less average goodwill and other intangibles		43,840		44,185		45,248
Average tangible common equity	$	223,896	$	208,264	$	195,139

Reconciliation of Total Assets to Tangible Assets
	At or for the Three Months Ended		At or for the Three Months Ended		At or for the Three Months Ended
	March 31,		December 31,		March 31,
(In Thousands of Dollars)	2019		2018		2018
Total assets	$	2,356,074	$	2,328,864	$	2,167,517
Less goodwill and other intangibles		43,625		43,952		45,015
Tangible assets		2,312,449		2,284,912		2,122,502
Average assets		2,338,792		2,301,847		2,162,706
Less average goodwill and other intangibles		43,840		44,185		45,248
Average tangible assets	$	2,294,952	$	2,257,662	$	2,117,458

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, 2019								March 31, 2018
	AVERAGE								AVERAGE
	BALANCE			INTEREST		RATE (1)			BALANCE			INTEREST		RATE (1)
EARNING ASSETS
Loans (3) (5) (6)	$	1,727,950		$	21,571		5.06	%	$	1,564,990		$	18,509		4.80	%
Taxable securities (4)		196,062			1,244		2.57			206,345			1,233		2.42
Tax-exempt securities (4) (6)		207,618			2,011		3.93			185,560			1,680		3.67
Equity securities (2)		11,932			175		5.95			10,887			146		5.44
Federal funds sold and other		34,789			196		2.28			35,070			145		1.68
TOTAL EARNING ASSETS		2,178,351			25,197		4.69			2,002,852			21,713		4.40
NONEARNING ASSETS
Cash and due from banks		33,380								33,677
Premises and equipment		22,419								22,205
Allowance for loan losses		(13,727	)							(12,272	)
Unrealized gains (losses) on securities		(4,437	)							(4,183	)
Other assets (3)		122,806								120,427
TOTAL ASSETS	$	2,338,792							$	2,162,706

INTEREST-BEARING LIABILITIES
Time deposits	$	368,117		$	1,659		1.83	%	$	271,473		$	813		1.21	%
Brokered time deposits		46,861			266		2.27			0			0		0.00
Savings deposits		420,613			308		0.30			482,404			182		0.15
Demand deposits		589,595			1,202		0.83			451,295			416		0.37
Short term borrowings		197,787			1,231		2.52			282,408			881		1.26
Long term borrowings		5,907			48		3.30			6,863			44		2.66
TOTAL INTEREST-BEARING LIABILITIES		1,628,880			4,714		1.17			1,494,443			2,336		0.63

NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand deposits		428,520								411,805
Other liabilities		13,656								16,071
Stockholders’ equity		267,736								240,387
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,338,792							$	2,162,706
Net interest income and interest rate spread				$	20,483		3.52	%				$	19,377		3.77	%
Net interest margin							3.81	%							3.92	%

(1)	Rates are calculated on an annualized basis.

(2)	Equity securities include restricted stock, which is included in other assets on the consolidated balance sheets.

(3)	Non-accrual loans and overdraft deposits are included in other assets.

(4)	Includes unamortized discounts and premiums. Average balance and yield are computed using the average historical amortized cost.

(5)	Interest on loans includes fee income of $877 thousand and $935 thousand for 2019 and 2018, respectively, and is reduced by amortization of $702 thousand and $666 thousand for 2019 and 2018, respectively.

(6)

For 2019, adjustments of $102 thousand and $416 thousand, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. For 2018, adjustments of $82 thousand and $349 thousand, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. These adjustments are based on a marginal federal income tax rate of 21%, less disallowances.

Net Interest Income. N et interest income for the three m onth period ended March 31, 2019 was $20.0 milli on compared to $18.9 mil lion for the same period in 2018 . On a tax equivalent basis net interest income was $20.5 million for the first quarter of 2019 compared to $19.4 million for the same period in 2018. The net interest margin to average earning assets on a fully taxable equivalent basis decreased 11 basis points to 3.81 % for the t hree months ended March 31, 2019, compared to 3.92 % for the same three month period in the prior year. In comparing t he quar ters ended March 31, 2019 and 2018 , yield s on earning assets increased 29 basis points, while the cost of interest bearing liabilities increased 54 basis points. The decreased margin is mainly due to the pressure on increas ing deposit rates to remain comp etitive within the local markets we serve . Excluding the amortization of premium on time deposits and the accretion of the loan portfolio discount, the net interest margin would have been 4 basis points lower for the quarter ended March 31, 2019 .

Noninterest Income. Noninterest income increased 8.5% to $6.5 million for the quarter ended March 31, 2019 compared to $6.0 million in 2018. Net gains on sales of loans increased $184 thousand, or 37.8%, other operating income increased $169 thousand, or 50.8%, and insurance agency commissions also increased $104 thousand, or 14.9%, in comparing the first quarter of 2019 to the same quarter in 2018. These increases were offset by a drop in debit card interchange income of $28 thousand, or 3.5%, and retirement plan consulting fees of $21 thousand, or 5.5%

Noninterest Expense. Total noninterest expense for the first quarter of 2019 increased to $16.0 million compared to $15.1 million in the same quarter in 2018, primarily as a result of a $618 thousand, or 7.1%, increase in salaries and employee benefits and other operating expense of $280 thousand, offset by a $135 thousand decrease in FDIC insurance expense. Annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 2.83% in the first quarter of 2018 to 2.77% in the first quarter of 2019.

The Company’s tax equivalent efficiency ratio for the three month period ended March 31, 2019 was 57.8% compared to 58.0% for the same period in 2018. The positive change in the efficiency ratio was the result of increased net interest income and increased non-interest income and the stabilized level of noninterest expenses relative to average assets.

Income Taxes . Income tax expense totaled $1.6 million for the quarter ended March 31, 2019 and $1.4 million for the quarter ended March 31, 2018. The effective tax rate for the three month period ended March 31, 2019 was 15.8% compared to the effective tax rate of 15.0% for the same period in 2018. Management continues to seek out additional tax exempt earning assets, mainly in the form of municipal bond securities, to help reduce the level of income tax liability.

Other Comprehensive Income. For the quarter ended March 31, 2019, the change in net unrealized gains or losses on securities, net of reclassifications, resulted in an unrealized gain, net of tax, of $4.6 million, compared to an unrealized loss of $7.0 million for the same period in 2018. The other comprehensive income increase is due to the positive change in the fair value of securities for the three month period ended March 31, 2019.

Financial Condition

Cash and Cash Equivalents . Cash and cash equivalents increased $11.7 million during the first three months of 2019 from $57.9 million to $69.7 million. The increase in the cash balance is part of normal fluctuations on the Company’s $2.356 billion balance sheet. The Company expects cash and cash equivalents to be reduced to December 31, 2018 levels over the next few months as cash is used for loan growth and security portfolio purchases.

Securities . Securities available-for-sale increased by $1.6 million since December 31, 2018. The Company intends to maintain the securities portfolio’s current level, as a percentage of total assets, during the remaining months of 2019.

Loans . Gross loans increased $7.8 million since December 31, 2018. The increase in loans has occurred in the commercial, commercial real estate, residential real estate and agricultural loan portfolios. The Bank utilized a talented lending and credit team while adhering to sound underwriting discipline to increase the loan portfolio. The increase in average loan balances along with an increase in market interest rates help the current quarter’s loan income improve to $21.5 million or 16.5% compared to $18.4 million in the same quarter ended March 31, 2018.

On a tax equated basis loan income improved by $3.1 million compared to the same quarter in 2018. The average tax equivalent interest rate on the loan portfolio was 5.06% for the three month period ended March 31, 2019 compared to 4.80% for the same period in 2017. On a fully tax equivalent basis, loans contributed $21.6 million of total interest income during the three month period ended March 31, 2019 compared to $18.5 million for the same period in 2018.

Allowance for Loan Losses . The following table indicates key asset quality ratios that management evaluates on an ongoing basis. Recorded investment amounts were used in the calculations.

A sset Quality History

(In Thousands of Dollars)

	3/31/2019			12/31/2018			9/30/2018			6/30/2018			3/31/2018
Nonperforming loans	$	7,578		$	7,731		$	9,222		$	8,406		$	7,893
Nonperforming loans as a % of total loans		0.43	%		0.45	%		0.55	%		0.51	%		0.49	%
Loans delinquent 30-89 days	$	9,082		$	8,877		$	10,626		$	10,636		$	6,973
Loans delinquent 30-89 days as a % of total loans		0.52	%		0.51	%		0.63	%		0.65	%		0.44	%
Allowance for loan losses	$	13,777		$	13,592		$	13,377		$	12,764		$	12,550
Allowance for loan losses as a % of loans		0.79	%		0.78	%		0.79	%		0.78	%		0.78	%
Allowance for loan losses as a % of non-acquired loans		0.92	%		0.92	%		0.93	%		0.94	%		0.97	%
Allowance for loan losses as a % of nonperforming loans		181.80	%		175.81	%		145.06	%		151.84	%		159.00	%
Annualized net charge-offs to average net loans outstanding		0.08	%		0.07	%		0.08	%		0.13	%		0.14	%
Non-performing assets	$	7,786		$	7,731		$	9,222		$	8,406		$	7,952
Non-performing assets as a % of total assets		0.33	%		0.33	%		0.40	%		0.38	%		0.37	%
Net charge-offs for the quarter	$	365		$	310		$	337		$	536		$	540

For the three months ended March 31, 2019, management recorded a $550 thousand provision for loan losses, compared to providing $775 thousand over the same three month period in the prior year. The smaller provision was mainly a result of higher loan loss quarters rolling off the loss history period used in calculation and the continued lower amounts of net charge offs. In determining the estimate of the allowance for loan losses, management computes the historical loss percentage based upon the loss history of the past 12 quarters. The Company believes that using a loss history of the previous 12 quarters helps mitigate volatility in the timing of charge-offs and better reflects probable incurred losses. Loan growth over the first three months of 2019 was 1.8% on an annualized basis. The allowance for loan losses as a percentage of the total loan portfolio was 0.79% at March 31, 2019 compared to 0.78% at March 31, 2018. The loan portfolios acquired at fair market value from previous acquisitions were recorded at fair market value and without an associated allowance for loan loss. When the acquired loans are excluded, the ratio of allowance for loan losses to total non-acquired loans is 0.92% at March 31, 2019 compared to 0.97% at March 31, 2018. Early stage delinquencies, which are loans 30 – 89 days delinquent, as a percentage of total loans increased from 0.44% at March 31, 2018 to 0.52% at March 31, 2019 and non-performing loans as a percentage of total loans decreased from 0.49% at March 31, 2018 to 0.43% at March 31, 2019. The allowance for loan losses to non-performing loans increased from 159.00% at March 31, 2018 to 181.80% at March 31, 2019.

Based on the evaluation of the adequacy of the allowance for loan losses, management believes that the allowance for loan losses at March 31, 2019 is adequate and reflects probable incurred losses in the portfolio. The provision for loan losses is based on management’s judgment after taking into consideration all factors connected with the collectability of the existing loan portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry standards and other relevant factors. 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 $154.6 million from December 31, 2018 to March 31, 2019, for a balance of $1.95 billion. The increase in deposits is the result of the Company’s efforts to increase deposits without causing a significant negative impact to the net interest margin during the first three months of 2019. Interest bearing accounts and brokered time deposits increased a combined $161.4 million, or 11.7%, during the first three months of 2019. The increase in interest bearing accounts is mostly due an approximate increase of $56 million in public funds deposits and a $75 million increase in brokered time deposits. Money Market index accounts decreased as customers moved funds to certificates of deposit during the period. At December 31, 2018 the balance in money market index accounts was $195.7 million and at March 31, 2019 it was $190.3 million, a decrease of 2.8%. The Company’s strategy is to grow deposit balances. While there is growing pressure in the deposit market for increasing deposit rates, management understands the need to protect the net interest margin but also remain competitive within the market to help supply the needs of the growing loan portfolio. At March 31, 2019, core deposits, which include, savings, money market accounts, time deposits less than $250 thousand, demand deposits and interest bearing demand deposits represented approximately 89.8% of total deposits.

Borrowings. Total borrowing balances decreased 56.4% from $250.8 million at December 31, 2018 to $109.3 million at March 31, 2019 . During the three month pe riod ended March 31, 2019 the Comp any was able to repay $150 million in short-term FHLB advances as a result of the use of additional brokered time deposits. The use of brokered time deposits also had a positive impact on the overall cost of funds , due to a lower interest rate paid on these deposits compared to ad vances from Federal Home Loan Bank .

Capital Resources. Total stockholders’ equity increased $10.6 million, or 4.1%, during the three month period ended March 31, 2019. The increase is due to the net income addition to retained earnings less the amount of dividends paid. Shareholders received $0.09 per share in cash dividends in the first quarter of 2019. The increased first quarter dividend to $0.09 is a 12.5% increase over the $0.08 paid in the last two quarters of 2018. Book value per share increased from $9.44 per share at December 31, 2018 to $9.83 per share at March 31, 2019. The Company’s tangible book value per share (non-GAAP measure) also increased, from $7.86 per share at December 31, 2018 to $8.26 per share at March 31, 2019. The increases in book value and tangible book value per share were the result of increases to retained earnings from profit retention.

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. New minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III) are being phased in from January 1, 2015 through January 1, 2019. The Company must hold a capital conservation buffer of 2.5% above adequately capitalized risk-based capital ratios during 2019. At March 31, 2019 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 12.4%, total risk-based capital ratio stood at 13.2%, and the Tier I risk-based capital ratio and Tier I leverage ratio were at 12.5% and 10.1%, respectively, at March 31, 2019. Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject, as of March 31, 2019.

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 Annual Report on Form 10-K for the year ended December 31, 2018. 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 three 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 loan 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 the merger activity. Additional information regarding these policies is included in the notes to the aforementioned 2018 consolidated financial statements, Note 1 (Summary of Significant Accounting Policies), Note 2 (Business Combination), Note 4 (Loans), and the sections captioned “Loan Portfolio.”

U.S. 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. U.S. 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.

Liquidity

The Company maintains, in the opinion of management, liquidity sufficient to satisfy depositors’ requirements and meet the credit needs of customers. The Company depends on its ability to maintain its market share of deposits as well as acquiring 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 and due from banks, as well as cash flows from maturities and repayments of loans, and 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, loan repayments, 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 do mestic banks. At March 31, 2019 , this line of credit totaled $3 5 million of which the Bank had not borrowed against. In addition, the Company has two revolving lines of credit with corre spondent banks totaling $6.2 million. The outst anding balance at March 31, 2019 was $350 thousand. Management feels that its liquidity position is adequate and continues to mo nitor the position on a mont hly basis. As of March 31, 2019 , the Bank had outstandin g balances with the FHLB of $103.6 million with additional borrowing capacity of approximately $451.9 million with the FHLB, as well as access to the Federal Reserve Disco unt Window, which provides an additional source of funds. The Bank views its membership in the FHLB as a solid source of liquidity.

The primary investing activities of the Company are originating loans and purchasing securities. During the first three months of 2019, net cash used by investing activities amounted to $3.9 million, compared to $24.2 million used in the same period in 2018. Loan originations used $8.4 million during the first three months of 2019 compared to the $22.5 million used during the same period in 2018. The cash used in investing activities during this period can be attributed to the reduced lending activity. Proceeds from the maturities and repayments of securities available for sale were $5.6 million for the quarter ended March 31, 2019 compared to $13.0 million during the first three months of 2018. Conversely, proceeds from the sale of securities available for sale amounted to $9.6 million used during the first three months of 2019 compared to none used during the same period in 2018.

The primary financing activities of the Company are obtaining deposits, repurchase agreements and other borrowings. Net cash provided by financing activities amounted to $10.5 million for the period ended March 31, 2019, compared to $8.8 million provided in financing activities for the same period in 2018. There were large swings in two line items during the three month period ended March 31, 2019 compared to the same period last year: changes in short term borrowings used $141.3 million in the three month period ended March 31, 2019, compared to $21.6 million used during the three month period ended March 31, 2018, and there was also $154.6 million provided by deposits during the three month period ended March 31, 2019 compared to $32.4 million provided during the three month period ended March 31, 2018.

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 $343.3 million at March 31, 2019 and $339.4 at December 31, 2018. Additionally, the Company has committed up to $8 million in subscriptions in Small Business Investment Company investment funds. At March 31, 2019 the Company had invested $6.9 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. It is likely that the Trump Administration and the U.S. Congress will pursue and potentially implement legislative or regulatory changes affecting financial institutions and the financial industry. In 2018, President Trump signed a bill reforming the Dodd-Frank Act and the Trump Administration has indicated its intent to loosen additional regulations. Such legislation could change the operating environment for Farmers and its subsidiaries in unpredictable ways, it could decrease the costs of doing business, expand permissible activities or affect the competitive balance among financial institutions. With the enactment and the continuing implementation of the Dodd-Frank Act and regulations thereunder, the nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable. Farmers cannot predict the scope and timing of any such future legislation and, if enacted, the effect that it could have on its business, financial condition or results of operations.

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 econom ic 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

The Company’s ability to maximize net income is dependent, in part, on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of the Company are monetary in nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company. Additionally, the Company’s balance sheet is slightly asset sensitive and in the uncertain interest rate environment that exists today, the Company’s net interest margin could be under additional pressure should interest rates begin to lower in the near future.

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 in the event of a sudden and sustained 300 basis point increase or 100 basis point decrease in market interest rates:

Changes In Interest Rate (basis points)	March 31, 2019 Result			December 31, 2018 Result			ALCO Guidelines
Net Interest Income Change
+300		3.4	%		1.8	%		15	%
+200		2.5	%		1.6	%		10	%
+100		1.3	%		0.9	%		5	%
-100		-3.7	%		-3.0	%		5	%
Net Present Value Of Equity Change
+300		24.5	%		15.2	%		20	%
+200		19.7	%		11.8	%		15	%
+100		13.5	%		8.2	%		10	%
-100		-22.6	%		-16.6	%		10	%

It should be noted that the change in the net present value of equity exceeded policy in all the simulation models above for the period ended March 31, 2019 and for a sudden decrease in rates of 100 basis point (1%) for the period ended December 31, 2018. This is primarily due to the positive impact on the fair value of assets not being as great as the negative impact on the fair value of certain liabilities. Some short term and maturing borrowings were replaced with a mix of core and time deposits which allowed the Bank to “lock in” funding costs for a longer term, which would help the margin should rates rise. In the case of rates decreasing 100 basis points, core deposits and their fair value would be negatively impacted as rates could not be reduced by the full extent of the sudden decrease. Management will continue to monitor the policy exceptions and may consider changes to the asset/liability position in the future. The net interest income results of the simulations indicate that they fall within internal limits established by the Company at March 31, 2019. 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, nor does it hold derivative financial instruments, and does not plan to purchase these instruments in the near future.

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, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART I I - 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.

Item 1A.

Risk Factors

There have been no material changes to the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of equity securities by the issuer.

On September 28, 2012, the Company announced that its Board of Directors approved a stock repurchase program that authorizes the repurchase of up to 920,000 shares of its outstanding common stock in the open market or in privately negotiated transactions.

The following table summarizes the treasury stock activity under the program during the three month period ended March 31, 2019.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares that May Yet be Purchased Under the Program
Beginning balance								245,866
January 1-31		0	$	0.00		0		245,866
February 1-28		1,300		13.00		1,300		244,566
March 1-31		13,693		13.51		13,693		230,873
Ending balance		14,993		13.47		14,993		230,873

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

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


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 (File No. 333-70806)).

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	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 19, 2019).

10.1	Farmers National Banc Corp. 2019 Form of Notice of Grant of Long-term Incentive Plan Awards under 2017 Equity Incentive Plan (filed herewith).

10.2	Farmers National Banc Corp. 2019 Form of Performance-Based Equity Award Agreement under 2017 Equity Incentive Plan (filed herewith).

10.3	Farmers National Banc Corp. 2019 Form of Service-Based Restricted Stock Award Agreement under 2017 Equity Incentive Plan (filed herewith).

10.4	Farmers National Banc Corp. 2019 Form of Performance-Based Cash Award Agreement under Long-Term Incentive Plan (filed herewith).

31.1	Rule 13a-14(a)/15d-14(a) Certification of Kevin J. Helmick, President and Chief Executive Officer of the Company (filed herewith).

31.2	Rule 13a-14(a)/15d-14(a) Certification of Carl D. Culp, Executive Vice President, Chief Financial Officer and Treasurer of the Company (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 (filed herewith).

32.2	Certification pursuant to 18 U.S.C. Section 1350 of Carl D. Culp, Executive Vice President, Chief Financial Officer and Treasurer of the Company (filed herewith).

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text.

*	Constitutes a management contract or compensatory plan or arrangement.

SIGN ATURES

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 8, 2019

/s/ Kevin J. Helmick

Kevin J. Helmick

President and Chief Executive Officer

Dated: May 8, 2019

/s/ Carl D. Culp

Carl D. Culp

Executive Vice President and Treasurer

Exhibit 10.1

Notice of Grant of

Restricted Stock Award,

Performance-based Equity Award, and

Performance-based Cash Award

Name

Address

City, State Zip Code

Subject to the terms and conditions of the 2017 Equity Incentive Plan and the Farmers National Banc Corp. Long-Term Incentive Plan (the “Plans”) and the accompanying Restricted Stock Award Agreement, Performance-based Equity Award Agreement, and Performance-based Cash Award Agreement (the “Award Agreements”), you have been granted Shares of Restricted Stock, Performance-based Shares, and a Performance-based Cash Award (collectively, the “Awards”) as follows:


Grant Date:	February 20, 2019
Number of Shares:	Your Awards consist of the following: Shares of Restricted Stock ¹ Performance-based Shares ² $ Target Performance-based Cash ³
Vesting Schedule:	Your Awards of Shares of Restricted Stock, Performance-based Shares, and Performance-based Cash will be subject to vesting on February 18, 2022 (Normal Vesting Date).
Settlement:	Your Awards will be settled in Shares or Cash, depending on the Award, as described in the respective Award Agreements.

This Notice of Grant and the accompanying Award Agreements describe your Awards and the terms and conditions of your Awards. To ensure you fully understand these terms and conditions, you should:

•

Read the Plan carefully to ensure you understand how the Plans work; and

•

Read this Notice of Grant and corresponding Award Agreement carefully to ensure you understand the nature of your Award and what you must do to earn it.

You may contact Mark Nicastro by telephone (330-533-5025) or email (mnicastro@farmersbankgroup.com) if you have any questions about your Award or Award Agreement.

Number of Shares of Restricted Stock were determined by multiplying $_________ (the dollar amount used to determine your total target Awards) by .25, and dividing the result by $____ (the average reported closing price of a Share during the 30-day period ending on the last trading day prior to the Grant Date). The resulting number of Shares were rounded to the nearest whole Share.

Number of Performance-based Shares were determined by multiplying $_________ by .5, dividing the result by $____ (to determine the target number of Performance-based Shares), and multiplying the result by 2 (to determine the maximum number of Performance-based Shares). The resulting number of Performance-based Shares were rounded to the nearest whole Share.

³	Your target Performance-based Cash Award was determined by multiplying $_________ by .25.

Exhibit 10.2

FARMERS NATIONAL BANC CORP.

PERFORMANCE-BASED EQUITY AWARD AGREEMENT

(2019)

Farmers National Banc Corp. (the “ Company ”) hereby grants the undersigned Participant an Award pursuant to the Farmers National Banc Corp. 2017 Equity Incentive Plan (the “ Equity LTI Plan ”) as evidenced by the Notice of Grant accompanying this Award Agreement (the “ Grant Notice ”), and as further described in this Award Agreement (this “ Award Agreement ”).

Nature of Award . Effective as of the date specified in the Grant Notice (the “ Grant Date ”), the Company hereby grants to the individual identified in the Grant Notice (the “ Participant ”) the award as set forth in the Grant Notice (the “ Award ”). The Award is subject to the terms and conditions described in the Equity LTI Plan, this Award Agreement and the Grant Notice.

2.	Performance Period : The three-year period beginning January 1, 2019 and ending on December 31, 2021 (the “ Performance Period ”).

3.	Target Equity Award as Percentage of Base Compensation : __% x .50 (the “ Target Performance-Based Equity Award ”).

Earning an Award: The Participant shall be eligible to receive a benefit in Company common shares equal in value based on the Grant Date between 0% and 200% of the Target Performance-Based Equity Award, based on achievement during the Performance Period of the Performance Objective set forth below. Performance between two stated levels will be interpolated when determining the percentage of the Target Performance-Based Equity Award earned.

The amount of the Target Performance-Based Equity Award that may be earned in Company common shares will be based on the sum of the Company’s return on equity for each fiscal year during the Performance Period divided by three (“ Average ROE ”), compared to the Average ROE of the Company’s Peer Group during the Performance Period (“ Relative Average ROE ”). The total, maximum number of ROE Award Shares described in the Grant Notice eligible to be earned was determined by (i) dividing the dollar amount of Participant’s Target Performance-Based Equity Award by the average reported closing price of a share of Company common stock during the 30-day period ending on the day prior to the Grant Date of this Award, and (ii) multiplying the result by 200% (x 2.0), rounded to the nearest whole share. Therefore, between 0% and 100% of the ROE Award Shares are subject to vesting on the “ Normal Vesting Date ” stated in the Grant Notice, in accordance with the following schedule and percentages:

Performance Objective: Relative Average ROE during Performance Period	Percentage of Average ROE Award Shares Earned
Less than Peer Group 25 ^th percentile	0%
Equal to Peer Group 25 ^th percentile (threshold)	10%
Equal to Peer Group 50 ^th percentile (target)	50%
Equal to or higher than Peer Group 75 ^th percentile (max)	100%

For these purposes: (i) Relative Average ROE shall be determined by the Committee in its sole discretion; and (ii) the Committee shall select the institutions constituting, and make such periodic adjustments as it determines appropriate to, the “ Peer Group ” in its sole discretion.

Payment of Award : With respect to the Performance Period, the Committee shall certify the level of achievement of the Performance Objective set forth in Section 4 and determine the amount payable with respect to your Award based on such level of achievement. Payment of the Award shall be made to the Participant on the Normal Vesting Date in the form of a number of Company common shares determined by multiplying the applicable percentage for the level of performance certified by the Compensation Committee times the Participant’s total number of ROE Award Shares. Any ROE Award Shares that do not vest as of the Normal Vesting Date will be forfeited.

6.	Limitations on Payment of Award: The Committee may, in its sole discretion, reduce the amount payable with respect to the Award.

Forfeiture of Awards: If the Company is required to prepare an accounting restatement due to material non-compliance of the Company, as a result of misconduct by a Participant, with any financial reporting requirement under any applicable laws, the Participant shall reimburse the Company for all amounts received under the Equity LTI Plan within 30 days after receipt of notice of the same from the Company.

8.	Effect of Termination: Participant may forfeit this Award if employment terminates prior to the Normal Vesting Date, although it will depend on the reason for termination as provided below :

(a)

Death, Disability or Retirement . If you terminate due to death, Disability, or Retirement, you will vest in a prorated portion of your ROE Award Shares determined by multiplying the number of your ROE Award Shares by a fraction, the numerator of which is the number of whole months you were employed from the Grant Date to the date of death, Disability or Retirement, and the denominator of which is 36. Payment of the Award shall be made to the Participant in the form of a number of Company common shares determined by multiplying such pro rata portion of your ROE Award Shares by the applicable percentage for the level of performance certified by the Compensation Committee, with performance based on the Company’s relative Average ROE for the portion of the Performance Period that ended on the last day of the calendar quarter immediately preceding the date of termination. Such settlement of the Award will occur within ninety (90) days of the date of termination. Any ROE Award Shares that do not vest or are not so settled will be forfeited.

(b)

Termination by the Company without Cause or by Participant for Good Reason . If the Company terminates your employment without “Cause,” or you terminate your employment with the Company for “Good Reason,” each as defined in Exhibit A attached hereto and incorporated herein, you will vest in and receive a prorated portion of your ROE Award Shares determined in the same manner as described in Section 8(a) hereinabove based on your termination date .

(c)

Termination for any Other Reason . If your employment with the Company terminates under any other circumstance (including if such termination is by the Company for Cause regardless of whether such termination could also constitute a Retirement), your ROE Award Shares will be forfeited on your termination date.

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9.	Effect of Change in Control : Notwithstanding the foregoing, if a Change in Control occurs after the Grant Date, your ROE Award Shares will be subject to the following additional terms and conditions:

(a)

If such a Change in Control occurs prior to the Normal Vesting Date and in connection therewith or within two years thereafter your employment is terminated either by the Company or a successor in interest for any reason other than for “Cause” or by you for “Good Reason,” you shall be entitled to receive a number of Company common shares determined as though the Performance Objective had been satisfied at the “target” level of achievement for the Performance Period. Therefore, 50% of your unvested ROE Award Shares which remain unvested as of the termination date will fully vest.

10.	Restrictive Covenants .

(a)

Non-Solicitation . The Participant acknowledges and agrees that as a condition to and in consideration of this Award Agreement, during the term of the Participant’s employment and for a period of twenty-four (24) months thereafter (the “Non-Solicitation Restrictive Period”), the Participant will not, directly or indirectly:

(i)

Solicit, engage or otherwise interfere with any customer or client who is at the time of termination or was within the preceding six (6) months of termination a customer or client of Company, its subsidiaries or any other related entity for the purposes of directly or indirectly furnishing any financial or banking services that a national banking association, bank holding company, state bank, savings and loan association or other regulated financial institution is permitted by law to conduct or furnish on the date the Participant’s employment is terminated.

(ii)

Employ, solicit for employment, engage or otherwise interfere with any person who is at the time of termination or was within the preceding six (6) months of termination employed by the Company, its subsidiaries or any related entity, or otherwise directly or indirectly induce or take any action which would encourage or influence any such person to leave that person’s employment or terminate, reduce or modify their business or relationship with the Company, or any of its subsidiaries or related entities.

The restrictive covenants and Restrictive Periods provided for herein will not be construed to limit the application of any other restrictive covenant or restriction period set forth in any other agreement entered into between the Participant and the Company.

(b)

Nondisclosure and Non-appropriation of Information . The Participant recognizes and acknowledges that while employed by the Company, the Participant will have access to, learn, be provided with and, in some cases, prepare and create, certain Confidential Information (as defined in section (c) below), proprietary information or Trade Secrets (as defined below) of the Company, including, but not limited to, processes, financial information, pricing information, operating techniques, marketing processes, training techniques, customer, vendor, and referral source lists, price and cost information, files and forms, (collectively, the “Trade Secrets”), all of which are of substantial value to the Company and the businesses conducted by it. The Participant expressly covenants and agrees that the Participant will:

-3 -

(i)

Hold in a fiduciary capacity and not reveal, communicate, use or cause to be used for the Participant’s own benefit or divulge during the period of employment by the Company and for an indefinite period thereafter, any Confidential Information, proprietary information or Trade Secrets now or hereafter owned by the Company;

(ii)

Not sell, exchange, give away, or otherwise dispose of Confidential Information, proprietary information or Trade Secrets now or hereafter owned by the Company, whether the same will or may have been originated or discovered by the Company, the Participant or otherwise;

(iii)

Not reveal, divulge or make known to any person, firm, company or corporation any Confidential Information, proprietary information or Trade Secrets of the Company, unless such communication is required pursuant to a compulsory proceeding in which the Participant’s failure to provide such Confidential Information, proprietary information or Trade Secrets would subject the Participant to criminal or civil sanctions and then only to the extent that Executive provides prior notice to Company prior to disclosure.

(iv)

Return to the Company before termination of employment with the Company, any and all written information, material or equipment that constitutes, contains or relates in any way to Confidential Information, proprietary information, Trade Secrets and any other documents, equipment, and material of any kind relating in any way to the business of the Company, which are in the Participant’s possession, custody and control and which are or may be property of the Company, whether confidential or not, including any and all copies thereof which may have been made by or for the Participant and that the Participant will maintain no copies thereof after termination of the Participant’s employment.

(c)

Definitions.

(i)

“Confidential Information” means all information disclosed to or known by the Participant as a consequence of or through is employment with the Company which either has not been made generally available to the public and is useful or of value to the current or anticipated business of the Company; or has been identified to the Participant as confidential, either orally or in writing. Confidential Information includes without limitation computer software and programs; marketing, manufacturing, organizational research and development; business plans; sales forecasts; identities, competence, abilities and compensation of other employees of the Company; pricing cost and other financial information; current and prospective customer and supplier lists and information about customers, suppliers or their employees; information concerning planned or pending acquisitions or divestitures; and information concerning purchases of equipment or property. Confidential Information does not include information which is in or hereafter enters the public domain through no fault of the Participant, or is disclosed by a third party having the legal right to use and disclose the information.

(d)

Other Terms and Conditions.

(i)

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a livelihood without violating the foregoing restrictions and that the Participant’s ability to earn a livelihood without violating these restrictions is a material employment condition. The Participant acknowledges and recognizes that if the Participant’s employment terminates for any reason, this Section 10 of th is Award Agreement will survive any such termination and any expiration of this Award Agreement . Further, the Participant agrees and consents that this Award Agreement is assignable by the Company.

(ii)

The Participant agrees that if a court of law finds that the provisions of this Award Agreement are too harsh so that they are unenforceable, then such court of law may enforce those restrictions and limitations which are acceptable and deemed enforceable by the court.

(iii)

In the event the Participant breaches the terms of this Award Agreement, it is agreed that all time periods contained in this Award Agreement will be tolled until the Participant ceases to breach this Award Agreement.

(e)

Injunction . The parties acknowledge and agree, due to the subject matter of this Award Agreement, that money damages will be an inadequate remedy for a breach by Participant of any of the obligations hereunder. Consequently, if the Participant breaches or threatens to breach any of the obligations under this Award Agreement, the Participant agrees that the Company shall have the right, in addition to any other rights or remedies available to it at law or in equity, to obtain equitable relief, including, without limitation, injunctive relief and specific performance, in the event of any breach or threatened breach. Further, the parties hereto agree and declare that it may be impossible to measure in monetary terms the damages that may accrue to the Company by reason of Participant’s violation of this Award Agreement. Therefore, in the event that the Company, or any successor in interest thereto, shall institute an action or proceeding to enforce the provisions of this Award Agreement, each party or other person against whom such action or proceeding is brought shall and hereby does, in advance, waive the claim or defense that there is adequate remedy at law. In the event such injunctive relief is warranted and obtained by the Company, Participant agrees to pay all costs of said action, including reasonable attorney fees.

11.	Miscellaneous:

(a)

Non-Transferability . An Award may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

(b)

Beneficiary . Unless otherwise specifically designated by the Participant in writing, a Participant’s beneficiary under the Equity LTI Plan shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate.

(c)

No Right to Continued Service or to Awards . The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of a Participant or interfere with or limit the right of the Company or any Affiliate to Terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.

(d)

Tax Withholding . The Company or an Affiliate, as applicable, shall have the power and the right to deduct, withhold or collect any amount required by law or regulation to be

-5-

withheld with respect to any taxable event arising with respect to an Award granted under the Equity LTI Plan.

(e)

Requirements of Law . The grant of Awards shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.

(f)

Governing Law . The Equity LTI Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

(g)

Award Subject to Equity LTI Plan . The Award is subject to the terms and conditions described in this Award Agreement and the Equity LTI Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Equity LTI Plan and the terms of this Award Agreement, the terms of the Equity LTI Plan will govern. The Committee has the sole responsibility of interpreting the Equity LTI Plan and this Award Agreement, and its determination of the meaning of any provision in the Equity LTI Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Equity LTI Plan.

(h)

Section 409A Payment Delay . If a Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s “separation from service” (within the meaning of Section 409A of the Code) until the expiration of six months from the date of such separation from service (or, if earlier, the Participant’s death). Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such separation from service.

(i)

Signature in Counterparts . This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

-6 -

PARTICIPANT

Date:

Print Name:

FARMERS NATIONAL BANC CORP.

By:

Date:

Its:

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EXHIBIT A

DEFINITIONS OF “CAUSE” AND “GOOD REASON”

“Cause” means that, in the reasonable judgment of the Compensation Committee, any of the following events have occurred: (1) the willful or negligent failure by the Participant to substantially perform his or her duties with the Company and, after written notification by the Company to the Participant, the continued failure of the Participant to substantially perform such duties; (2) the willful or negligent engagement by the Participant in conduct which is demonstrably and materially injurious to the Company, financially or otherwise; (3) action or inaction by the Participant that constitutes a breach of fiduciary duty with respect to the Company or any of its subsidiaries; (4) the violation of any material written policy, rule or regulation of the Company; or (5) the Participant’s material breach of any agreement in respect of confidentiality with the Company, whether or not entered into after the Grant Date.

“Good Reason” means the occurrence of any of the following: (1) a reduction in Participant’s annual base salary rate, unless such reduction generally applies to other Participants regardless of the reason(s) therefor; (2) a substantial diminution in Participant’s duties, authorities or responsibilities; or (3) the relocation of Participant’s principal place of employment with the Company such that (a) the distance from the former principal place of employment to the relocated principal place of employment is over 50 miles and (b) the distance from his or her primary residence to the relocated principal place of employment is over 50 miles; provided, however, that Good Reason shall exist only to the extent that Participant provides the Company with written notice of his or her intention to terminate employment with the Company for Good Reason that specifies the condition(s) constituting Good Reason and the Company fails to correct such condition(s) within ten (10) business days from receipt of such written notice. Notwithstanding the foregoing, Good Reason shall cease to exist for an event on the one hundred and twentieth (120 ^th ) day following the later of its occurrence or Participant’s knowledge thereof, unless Participant has given the Company written notice of such condition and of Participant’s intent to terminate for Good Reason prior to such date. With respect to the Chief Executive Officer only, Good Reason shall also include a change in responsibilities such that the Chief Executive Officer reports to someone other than directly to the Company’s Board of Directors.

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Exhibit 10.3

FARMERS NATIONAL BANC CORP.

RESTRICTED STOCK AWARD AGREEMENT

(2019)

Farmers National Banc Corp. (the “ Company ”) hereby grants the undersigned Participant an Award pursuant to the Farmers National Banc Corp. 2017 Equity Incentive Plan (the “ Plan ”) as evidenced by the Notice of Grant accompanying this Award Agreement (the “ Grant Notice ”), and as further described in this Award Agreement (this “ Award Agreement ”).

2.	Number of Shares . The number of Shares of Restricted Stock in your Award is set forth in the Grant Notice. For purposes of this Award Agreement, each whole Share awarded represents the right to receive one Share.

Vesting . The Shares of Restricted Stock in your Award will be settled or will be forfeited depending on whether the terms and conditions described in the Grant Notice, this Award Agreement, and the Plan are satisfied. Accordingly, your Shares normally will vest on the “ Normal Vesting Date ” in accordance with the schedule identified in the Grant Notice. If the scheduled Normal Vesting Date is a non-business day, the next following business day will be considered the Normal Vesting Date.

Forfeiture of Awards: If the Company is required to prepare an accounting restatement due to material non-compliance of the Company, as a result of misconduct by a Participant, with any financial reporting requirement under any applicable laws, the Participant shall reimburse the Company for all amounts received under the Plan within 30 days after receipt of notice of the same from the Company.

5.	Effect of Termination: Participant may forfeit this Award if employment terminates prior to the Normal Vesting Date, although it will depend on the reason for termination as provided below:

Termination Due to Death or Disability . If you terminate due to death or Disability, your Shares of Restricted Stock will vest fully on the date of your death or Disability.

Termination Due to Retirement . If you terminate due to Retirement, and provided that the Committee agrees to treat your termination as a Retirement, you will vest in a prorated portion of your Shares of Restricted Stock determined by multiplying the number of your Award Shares by a fraction, the numerator of which is the number of whole months you were employed from the Grant Date to the date of Retirement, and the denominator of which is 36.

Termination by the Company without Cause or by Participant for Good Reason . If the Company terminates your employment without “Cause,” or you terminate your employment with the Company for “Good Reason,” each as defined in Exhibit A attached hereto and incorporated herein, you will vest in and receive a prorated portion of your Award Shares determined in the same manner as described in Section 5(b) hereinabove based on your termination date .

Termination for any Other Reason . If you r employment with the Company terminate s under any other circumstance (including if such termination is by the Company for Cause regardless of whether such termination could also constitute a Retirement) , your Shares of Restricted Stock will be forfeited on your termination date.

6.	Effect of Change in Control : Notwithstanding the foregoing, if a Change in Control occurs after the Grant Date, your Shares of Restricted Stock will be subject to the following additional terms and conditions:

7.	Restrictive Covenants .

(i)

(ii)

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(i)

(ii)

(iii)

(iv)

Definitions.

(i)

Other Terms and Conditions.

(i)

-3-

during their full time periods and throughout the restrictive areas set forth in this Award Agreement . The Participant further acknowledges that if the Participant’s employment with the Company terminates for any reason the Participant can earn a livelihood without violating the foregoing restrictions and that the Participant’s ability to earn a livelihood without violating these restrictions is a material employment condition. The Participant acknowledges and recognizes that if the Participant’s employment terminates for any reason, this Section 7 of th is Award Agreement will survive any such termination and any expiration of this Award Agreement . Further, the Participant agrees and consents that this Award Agreement is assignable by the Company.

(ii)

(iii)

8.	Miscellaneous:

Non-Transferability . An Award may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

Beneficiary . Unless otherwise specifically designated by the Participant in writing, a Participant’s beneficiary under the Plan shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate.

-4 -

Tax Withholding . The Company or an Affiliate, as applicable, shall have the power and the right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to an Award granted under the Plan .

Governing Law . The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

Award Subject to Plan . The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

Signature in Counterparts . This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

-5 -

PARTICIPANT			FARMERS NATIONAL BANC CORP.


			By:
Signature
			Its:
Print

Date:			Date:

-6-

EXHIBIT A

DEFINITIONS OF “CAUSE” AND “GOOD REASON”

1/15/2018 29006765 V.4

-7 -

Exhibit 10.4

FARMERS NATIONAL BANC CORP.

PERFORMANCE-BASED CASH AWARD AGREEMENT

(2019)

Farmers National Banc Corp. (the “ Company ”) hereby grants the undersigned Participant an Award pursuant to the Farmers National Banc Corp. Long-Term Incentive Plan (the “ Cash LTI Plan ”), as evidenced by the Notice of Grant accompanying this Award Agreement (the “ Grant Notice ”), and as further described in this Award Agreement (this “ Award Agreement ”).

Nature of Award . Effective as of the date specified in the Grant Notice (the “ Grant Date ”), the Company hereby grants to the individual identified in the Grant Notice (the “ Participant ”) the award as set forth in the Grant Notice (the “ Award ”). The Award is subject to the terms and conditions described in the Cash LTI Plan, this Award Agreement and the Grant Notice.

2.	Performance Period : The three-year period beginning on the January 1, 2019 and ending on December 31, 2021 (the “ Performance Period ”).

3.	Target Cash Award as Percentage of Base Compensation : __% x .25 (the “ Target Performance-Based Cash Award ”).

Earning an Award: The Participant shall be eligible to receive a payment equal to between 0% and 200% of the Target Performance-Based Cash Award, based on achievement during the Performance Period of the Performance Objective set forth below. Performance between two stated levels will be interpolated when determining the percentage of the Target Performance-Based Cash Award earned.

The percentage of the Target Performance-Based Cash Award that is earned will be based on the Company’s Total Shareholder Return (“ TSR ”) during the Performance Period compared to the Total Shareholder Return of the Company’s Peer Group during the Performance Period (“ Relative TSR ”), expressed as a percentile. Between 0% and 200% of the Target Performance-Based Cash Award is subject to vesting on the “ Normal Vesting Date ” stated in the Grant Notice, in accordance with the following schedule and percentages:

Performance Objective: Relative TSR during Performance Period	Percentage of Target Cash Award Earned
Less than Peer Group 25 ^th percentile	0%
Equal to Peer Group 25 ^th percentile (threshold)	20%
Equal to Peer Group 50 ^th percentile (target)	100%
Equal to or higher than Peer Group 75 ^th percentile (max)	200%

For these purposes: (i) Relative TSR shall be determined by the Committee in its sole discretion; and (ii) the Committee shall select the institutions constituting, and make such periodic adjustments as it determines appropriate to, the “ Peer Group ” in its sole discretion.

Payment of Award : With respect to the Performance Period, the Committee shall certify the level of achievement of the Performance Objective set forth in Section 4 and determine the amount payable with respect to your Award based on such level of achieveme nt . Payment of the Award shall be made to the Participant in cash in a single lump sum on the Normal Vesting Date determined by multiplying the applicable percentage for the level of performance certified by the Compensation Committee times the Participant’s Target Performance-Based Cash Award .

6.	Limitations on Payment of Award: The Committee may, in its sole discretion, reduce the amount payable with respect to the Award.

Forfeiture of Awards: If the Company is required to prepare an accounting restatement due to material non-compliance of the Company, as a result of misconduct by a Participant, with any financial reporting requirement under any applicable laws, the Participant shall reimburse the Company for all amounts received under the Cash LTI Plan within 30 days after receipt of notice of the same from the Company.

8.	Effect of Termination: Participant may forfeit this Award if employment terminates prior to the Normal Vesting Date, although it will depend on the reason for termination as provided below :

(a)

Death, Disability or Retirement . If you terminate due to death, Disability, or Retirement, the amount of your Award (if any) shall be multiplied by a fraction, the numerator of which is the number of whole months you were employed from the Grant Date to the date of death, Disability or Retirement , and the denominator of which is 36. Payment of the Award shall be made to the Participant in cash in a single lump sum determined by multiplying such pro rata portion of your Target Performance-Based Cash Award by the applicable percentage for the level of performance certified by the Compensation Committee, with performance based on the Company’s relative TSR for the portion of the Performance Period that ended on the last day of the calendar quarter immediately preceding the date of termination. Such payment of the Award will occur within ninety (90) days of the date of termination.

(b)

Termination by the Company without Cause or by Participant for Good Reason . If the Company terminates your employment without “Cause,” or you terminate your employment with the Company for “Good Reason,” each as defined in Exhibit A attached hereto and incorporated herein, you will be paid a prorated portion of your Target Performance-Based Cash Award determined in the same manner as described in Section 8(a) hereinabove based on your termination date.

(c)

Termination for any Other Reason . If your employment with the Company terminates under any other circumstance (including if such termination is by the Company for Cause regardless of whether such termination could also constitute a Retirement), you shall forfeit any rights with respect to the Award on your termination date.

9.	Effect of Change in Control : Notwithstanding the foregoing, if a Change in Control occurs after the Grant Date, your Award will be subject to the following additional terms and conditions:

(a)

If such a Change in Control occurs prior to the Normal Vesting Date and in connection therewith or within two years thereafter your employment is terminated either by the Company or a successor in interest for any reason other than for “Cause” or by you for “Good Reason,” you shall be entitled to receive a payment equal to the amount payable with respect to your Award as though the Performance Objective had been satisfied at the “target” level of achievement for the Performance Period. Therefore, you shall be entitled to a payment in the amount of 100% of your Target Performance-Based Cash Award. Payment will be made in a single lump-sum cash payment within 60 days following the termination date.

-2 -

10.	Restrictive Covenants .

(a)

(i)

(ii)

(b)

(i)

(ii)

-3 -

(iii)

(iv)

(c)

Definitions.

(i)

(d)

Other Terms and Conditions.

(i)

The Participant acknowledges that the Participant is entering into this Award Agreement voluntarily and has given careful consideration to the restraints imposed by this Award Agreement. Irrespective of the manner of any employment termination, the restraints imposed by this Award Agreement will be operative during their full time periods and throughout the restrictive areas set forth in this Award Agreement. The Participant further acknowledges that if the Participant’s employment with the Company terminates for any reason the Participant can earn a livelihood without violating the foregoing restrictions and that the Participant’s ability to earn a livelihood without violating these restrictions is a material employment condition. The Participant acknowledges and recognizes that if the Participant’s employment terminates for any reason, this Section 10 of the Award Agreement will survive any such termination and any expiration of this Award Agreement. Further, the Participant agrees and consents that this Award Agreement is assignable by the Company.

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(ii)

(iii)

(e)

11.	Miscellaneous:

(a)

Non-Transferability . An Award may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

(b)

Beneficiary . Unless otherwise specifically designated by the Participant in writing, a Participant’s beneficiary under the Cash LTI Plan shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate.

(c)

(d)

(e)

-5 -

(f)

Governing Law . The Cash LTI Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

(g)

Award Subject to Cash LTI Plan . The Award is subject to the terms and conditions described in this Award Agreement and the Cash LTI Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Cash LTI Plan and the terms of this Award Agreement, the terms of the Cash LTI Plan will govern. The Committee has the sole responsibility of interpreting the Cash LTI Plan and this Award Agreement, and its determination of the meaning of any provision in the Cash LTI Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Cash LTI Plan.

(h)

(i)

Signature in Counterparts . This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

-6 -


PARTICIPANT			Date:


Print Name:


FARMERS NATIONAL BANC CORP.			Date:

By:

Its:

-7-

EXHIBIT A

DEFINITIONS OF “CAUSE” AND “GOOD REASON”

-8 -

Exhibit 31.1

CERTIFICATIONS

Certification of Chief Executive Officer

CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-Q

I, Kevin J. Helmick certify that:

1) I have reviewed this quarterly report on Form 10-Q of Farmers National Banc Corp.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 8, 2019

/s/ Kevin J. Helmick

Kevin J. Helmick

Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

Certification of Chief Financial Officer

CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-Q

I, Carl D. Culp certify that:

1) I have reviewed this quarterly report on Form 10-Q of Farmers National Banc Corp.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 8, 2019

/s/ Carl D. Culp

Carl D. Culp

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Farmers National Banc Corp. (the “Corporation”) on Form 10-Q for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Kevin J. Helmick, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Kevin J. Helmick

Kevin J. Helmick

Chief Executive Officer

May 8, 2019

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Farmers National Banc Corp. (the “Corporation”) on Form 10-Q for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Carl D. Culp, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Carl D. Culp

Carl D. Culp

Chief Financial Officer

May 8, 2019