item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2012 proxy statement part iv item 15 item 14 principal accountant fees services information regarding item set forth corporation’s definitive proxy statement used connection annual meeting shareholders held april 23 2009 proxy statement incorporated reference part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2014 proxy statement part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2017 proxy statement part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2019 proxy statement part iv item 15 item 14 principal accountant fees services information regarding item set forth registrant’s definitive proxy statement used connection annual meeting shareholders held march 30 2004 proxy statement attached hereto part iv item 15 item 14 principal accountant fees services information regarding item set forth registrant’s definitive proxy statement used connection annual meeting shareholders held march 31 2005 proxy statement incorporated reference part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2015 proxy statement part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report item 8 financial statements supplementary datais set forth registrants 1995 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountants consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports form 8k filed three months ended december 31 1995 independent auditors consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 26 1996 relating consolidated financial statements farmers national banc corp subsidiary hill barth king inc warren ohio march 15 1996 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp william stewart carl culp president chief executive officer controller chief financial officer president director march 25 1996 william stewart director march 25 1996 benjamin r brown executive vice president march 25 1996 richard l calvin director march 25 1996 joseph lane director march 25 1996 david c myers director march 25 1996 edward ort executive vice president march 25 1996 frank l paden director march 25 1996 ronald v wertz index exhibits following exhibits filed incorporated references part report 31 applicable 32 applicable 41 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 91 applicable 101 applicable 111 applicable 121 applicable 131 annual report security holders filed herewith 181 applicable 191 applicable 221 subsidiaries registrant filed herewith 231 applicable 241 applicable 251 applicable 271 financial data schedule filed herewith 281 applicable 991 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed richard l calvin executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2021 proxy statement part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2013 proxy statement part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2018 proxy statement part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 financial statements item 8 financial statements supplementary data set forth company’s 2009 annual report shareholders incorporated reference part ii report 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part report listed index exhibits appears page 17 hereof incorporated herein reference financial statement schedules presented applicable b exhibits filed incorporated reference part report listed index exhibits appears page 17 hereof incorporated herein reference c financial statement schedules financial statement schedules presented section none applicable signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized index exhibits following exhibits filed incorporated reference part report copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2011 proxy statement part iv item 15 item 14 controls procedures based evaluation date within 90 days filing form 10k company’s chief executive officer chief financial officer concluded company’s disclosure controls procedures defined rules 13a14 15d14 securities exchange act 1934 effective significant changes internal controls factors could significantly affect controls subsequent date evaluation including corrective actions regard significant deficiencies material weaknesses iii2 part iv item 15 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2020 proxy statement part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report item 8 financial statements supplementary data set forth registrant’s 2000 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountant’s consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports filed three months ended december 31 2000 iv1 independent auditor’s consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 31 2001 relating consolidated financial statements farmers national banc corp subsidiary shill barth king llc hill barth king llc warren ohio march 20 2001 iv2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized iv3 index exhibits following exhibits filed incorporated references part report 2 applicable 3i articles incorporation filed herewith 3ii code regulations filed herewith 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 applicable 11 applicable 12 applicable 13 annual report security holders filed herewith 16 applicable 18 applicable 21 subsidiaries registrant subsidiary registrant incorporated reference part item 1 report 22 applicable 23 applicable 24 applicable 99 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 iv4 item 14 principal accountant fees services information required item 14 incorporated herein reference disclosure included captions “independent registered public accounting firm fees” “preapproval fees” 2016 proxy statement part iv item 15 item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2011 2010 2009 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements • general economic conditions market areas farmers conducts business could materially impact credit quality trends • business conditions banking industry • regulatory environment • fluctuations interest rates • demand loans market areas farmers conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2011 2010 companys net income totaled 92 million 2011 compared 90 million 2010 per share basis diluted earnings per share 050 compared 066 diluted earnings per share 2010 common comparative ratios results operations include return average assets return average stockholders’ equity 2011 return average equity 876 compared 1046 2010 return average assets 089 2011 087 2010 results 2011 included 18 million gains sales securities compared 27 million 2010 net interest income net interest income principal source companys earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2011 taxable equivalent net interest income decreased 508 thousand 13 2010 interestearning assets averaged 9592 million 2011 increasing 82 million 087 compared 2010 companys interestbearing liabilities decreased 325 8681 million 2010 8399 million 2011 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicatorsnet interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2011 390 decreasing 398 2010 net interest margin represents overall profit marginnet interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2011 net interest margin measured fully taxable equivalent basis decreased 401 compared 410 2010 decrease net interest margin largely result change mix interest earning assets loans yield securities comprised smaller level interestearning assets current year 2011 loans 586 average earning assets compared 630 2010 total taxable equivalent interest income 463 million 2011 37 million less 500 million reported 2010 average loans decreased 371 million 619 2011 yields decreased 622 2010 597 2011 income securities federal funds increased 32 thousand 025 2011 though farmers saw yields assets decrease 362 2010 321 2011 average balance investment securities federal funds sold increased 1310 2011 mainly due increases customer deposits proceeds company’s public offering combined limited opportunities grow loans total interest expense amounted 78 million 2011 287 decrease 110 million reported 2010 decrease 2011 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 127 2010 093 2011 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income decreased 671 thousand 2011 decrease result 876 thousand decrease gains sales securities 2011 farmers sold 510 million securities recognize market appreciation existing holdings pay 119 million fhlb advances order reduce cost funds reinvested remaining 391 million diversify securities portfolio bank owned life insurance income also decreased 399 thousand 2011 decrease primarily due receipt death benefit proceeds excess cash value 2010 included income decreases noninterest income offset increases trust fee income 455 thousand investment commissions 323 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue noninterest expenses noninterest expense 2011 337 million compared 310 million period 2010 representing increase 28 million 89 increase result 12 million prepayment penalty related payoff advances fhlb advances paid prior maturity decrease farmers’ cost funds improve regulatory risk based capital ratios strategy also allows company remove longer duration assets order improve market value company’s capital rising rate environment also 677 thousand 148 increase operating expenses 2011 compared 2010 mainly due higher consulting real estate owned expenses increase partially offset fdic insurance expense decrease 2011 475 thousand 364 2010 due change assessment base fdic assessments based asset size opposed based deposit size prior years salaries employee benefits also increased 11 million primarily resulting higher number employees higher employee count attributed primarily newly created north canton office well staff added originate sell residential real estate loans secondary market detail noninterest expense line items classified farmers excluding farmers trust farmers trust total company years ending december 31 2011 2010 2009 company’s tax equivalent efficiency ratio twelve month period ended december 31 2011 6714 compared 6110 period 2010 two factors leading decline efficiency ratio 12 million fhlb advances prepayment penalties paid 2011 increase salaries employee benefits explained earlier section also noted efficiency ratio 2010 enhanced bank owned life insurance income death benefit proceeds 510 thousand compared 46 thousand 2011 efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 25 million 2011 2010 income taxes computed using appropriate effective tax rates period effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 216 2011 221 2010 refer note 14 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2010 2009 company’s net income totaled 90 million 2010 compared 58 million 2009 per share basis diluted earnings per share 066 2010 compared 044 2009 2010 return average equity 1046 compared 732 2009 return average assets 087 2010 060 2009 net interest income 2010 taxable equivalent net interest income increased 40 million 115 2009 interestearning assets averaged 9509 million 2010 increasing 507 million 563 compared 2009 2010 net interest margin measured fully taxable equivalent basis 410 comparison 388 2009 total taxable equivalent interest income 500 million 2010 15 million less 515 million reported 2009 decrease primarily result decline yield earning assets offset growth level average earning assets average loan balances increased 173 million 297 yields decreased 656 2009 622 2010 income securities federal funds sold decreased 632 thousand 473 2010 company saw yields assets decrease 419 2009 362 2010 average balances investment securities federal funds sold increased 1049 2010 mainly due increases customer deposits total interest expense amounted 110 million 2010 3353 decrease 165 million reported 2009 decrease 2010 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 201 2009 127 2010 noninterest income total income 2010 increased 38 million increase result 17 million increase security gains increase also result 14 million increase trust fee income farmers trust purchased march 31 2009 therefore prior year’s results included nine months income compared twelve months 2010 bank owned life insurance income also increased 372 thousand due receipt death benefit proceeds excess cash value included income insurance agency commissions also increased 154 thousand 2010 farmers national insurance commenced operations august 2009 therefore prior year’s results included five months income compared twelve months 2010 increases partially offset decline 522 thousand service charges deposit accounts primarily related decrease overdraft fee income noninterest expenses total noninterest expenses 2010 increased 441 13 million 2009 resulted inclusion expenses associated farmers trust throughout 2010 farmers trust acquired march 31 2009 results 2009 included nine months expenses associated operations farmers trust’s noninterest expense 46 million 2010 compared 34 million reported period 2009 core processing charges increased 742 thousand 2010 late 2009 farmers’ outsourced core processing services previously performed house resulting increase 2009 professional fees also increased 390 thousand increase due legal expenses associated farmers’ capital raising activities income taxes income tax expense totaled 25 million 2010 11 million 2009 effective income tax rate 221 2010 155 2009 increase effective tax rate due farmers relatively comparable tax exempt income 2010 2009 income taxes significantly higher 2010 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds companys ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2011 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2011 bank eligible borrow additional 885 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2011 amounted 111 million farmers’ primary investing activities originating loans purchasing securities 2011 net cash used investing activities amounted 690 million compared 86 million net cash investing activities 2010 net decreases loans 148 million 2011 compared 121 million 2010 purchases securities available sale 1715 million 2011 compared 1382 million 2010 proceeds maturities sales securities available sale 941 million 2011 compared 1340 million 2010 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash financing activities amounted 701 million 2011 compared 404 million net cash used 2010 change result net increase deposits increased 791 million 2011 compared 165 million decrease 2010 addition 138 million change cash financing activities result issuance farmers’ common treasury shares public offering first quarter 2011 also shortterm borrowings decreased 75 million 2011 compared 203 million decrease 2010 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2011 amounts commercial real estate loans december 31 2011 based remaining scheduled repayments principal shown following table total loans 5718 million yearend 2011 compared 5904 million yearend 2010 represents decrease 314 decline loans particularly first quarter 2011 related slow economic growth farmers believes demand experience business consumer credit consistent experience banks federal reserve’s fourth district banks nationally per federal reserve beige book loans comprised 586 bank’s average earning assets 2011 compared 630 2010 product mix loan portfolio includes commercial loans comprising 131 residential real estate loans 292 commercial real estate loans 346 consumer loans 231 december 31 2011 compared 130 300 345 225 respectively december 31 2010 loans contributed 724 total taxable equivalent interest income 2011 745 2010 loan yield 597 2011 114 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrowers future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral consumer loans decreased 1328 million december 31 2010 1319 million december 31 2011 representing 069 decrease management continues target automobile dealer network purchase indirect installment loans dealer paper purchased using strict underwriting guidelines emphasis quality indirect loans comprise 90 consumer loan portfolio net loan losses consumer loan portfolio decreased 276 thousand 2011 compared 639 thousand 2010 residential real estate mortgage loans decreased 567 1670 million december 31 2011 compared 1771 million 2010 commercial real estate loans decreased 287 2039 million 2010 1980 million 2011 farmers originated fixed rate adjustable rate mortgages 2011 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial loans december 31 2011 decreased 230 yearend 2010 outstanding balances 749 million banks commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 37 million 2011 compared 81 million 2010 decrease 44 million decrease primarily due fewer chargeoffs lower level total delinquencies year ago period factors considered management’s estimate loan loss provisions adequacy allowance loan losses offsetting improvements credit quality ratio nonperforming loans total loans increased 151 december 31 2010 193 december 31 2011 change ratio result increase nonperforming loans 21 million december 31 2010 decline loan balances 5904 million december 31 2010 5718 million december 31 2011 provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectibility existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 513 thousand year primary reason increase current year due increase nonperforming loans increase specific allocations impaired loans december 31 2011 loans considered impaired totaled 104 million allowance allocation 985 thousand end 2010 loans considered impaired 71 million allowance allocation 605 thousand loans individually identified impaired include nonaccrual commercial real estate loans contractual terms modified represent troubled debt restructurings impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows valuation collateraldependent impaired loans challenging component financial reporting process due timing loan identified impaired need timely close farmers’ books given period typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical extent external appraisal returns value estimate materially different internally generated estimate release interim annual financial statements farmers adjusts associated specific loss reserve necessary farmers’ consolidated financial statements difference ratio allowance loan losses nonperforming loans december 31 2011 8919 compared 10456 december 31 2010 increase nonperforming loans primarily related commercial real estate residential real estate portfolios balance allowance loan losses 98 million 172 loans december 31 2011 ratio increased 158 reported december 31 2010 farmers forgone interest income approximately 101 thousand nonaccrual loans december 31 2011 would earned year loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 102 2010 056 2011 primary reason improvement related commercial industrial loan portfolio experiencing decrease net chargeoffs 29 million 2010 375 thousand 2011 company’s net chargeoffs primarily concentrated commercial real estate residential real estate consumer loans net losses commercial real estate loans accounted 383 total net losses residential real estate loans accounted 409 total net losses consumer loans represented 88 total significant allocation allowance loan losses performing commercial real estate loans classified internal loan review substandard loss experience average balance category loans past two years approximately 814 principal balance loans management’s allocation loans actual loss experience may less amount allocated december 31 2011 amount substandard loans continue accrue interest 247 million always management working address weaknesses specific loans may result loss allowance allocated four loan categories interpreted indication chargeoffs 2012 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses onetofour family real estate loan category represents approximately 292 total loans historically represented small percentage loan losses commercial loan category represents 131 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications commercial real estate loan category represents 346 total loan portfolio loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion normally annual fee two percent charged issuance letter credit december 31 2011 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 857 million 2011 excess balances federal funds sold strategically invested throughout year farmers also sold 510 million securities 2011 resulting net security gains 18 million farmers sold securities recognize market appreciation existing holdings pay fhlb advances decrease company’s cost funds reinvested new securities diversify securities portfolio farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages investments mortgagebacked securities involve risk actual principal prepayments greater estimated prepayments life security prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows book value investment securities type obligation dates indicated type summary debt securities held december 31 2011 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 35 39 thousand 539 thousand 529 thousand 345 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment increased 36 million 2011 increase related management’s decision expand branch network foot print trumbull county relocate mahoning county trust office new branch facility trumbull county also house trumbull county offices farmers trust expected completed summer 2012 addition farmers trust new building mahoning county also house insurance operations members commercial lending team new location provide company ability add staff private banking building opened operations february 2012 deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year companys average total deposits increased 257 7711 million 2010 7908 million 2011 money market account balances increased 495 million since december 31 2010 growth money market accounts offset slight decrease time deposits 862 thousand customers moved deposit dollars time deposits seeking liquidity company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2011 core depositssavings money market accounts time deposits less 100 thousand demand deposits interest bearing demand deposits represented approximately 88 total deposits see note 7 within item 8 annual report form 10k additional detail bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose transaction help fund costs employee benefit plans cash surrender value policies 150 million december 31 2011 compared 115 million december 31 2010 additional boli policies purchased order fund increased employee benefit costs borrowings shortterm borrowings decreased 75 million 71 since december 31 2010 decrease resulted securities sold repurchase agreements decreasing 68 million 65 longterm borrowings decreased 135 million 545 mainly result repayment federal home loan bank advances including 119 million advances prepaid prior maturity see note 8 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2011 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements commitments 12312011 note 10 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2011 company unconsolidated related special purpose entities company engage derivatives hedging contracts interest rate swaps may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes capital resources total stockholders’ equity increased 30 880 million december 31 2010 1144 million 2010 increase equity partially result successful common share offering completed first quarter 2011 adding approximately 14 million capital increase also result net income mark market adjustments company’s investment securities partially offset cash dividends paid shareholders past twelve months year farmers issued 111 thousand shares dividend reinvestment program shareholders received total 012 per share cash dividends paid past four quarters book value decreased 54 645 per share december 31 2010 610 per share december 31 2011 decline book value mainly result stock sale less book value company’s tangible book value also decreased 32 595 per share december 31 2010 576 per share december 31 2011 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2011 farmers bank farmers required minimum tier 1 total capital ratios 400 800 respectively farmers bank farmers capital ratios minimum levels december 31 2011 2010 yearend 2011 2010 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified following accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses securities otherthantemporarily impaired impairent goodwill intangibles additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 2 securities note 3 loans sections captioned “loan portfolio” “investment securities” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based managements periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets managements assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period otherthantemporary impairment securities second critical accounting policy declines fair value securities cost temporary reflected realized losses estimating otherthantemporary losses management considers 1 length time extent reasons fair value less cost 2 financial condition near term prospects issuer 3 whether farmers intent sell debt security likely required sell debt security anticipated recovery management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s trust provide quality costeffective trust services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill resides books farmers trust estimated reviewing past projected operating results subsidiary trust banking industry comparable information december 31 2011 consolidated basis farmers intangibles 27 million subject amortization 37 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2011 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition information required section incorporated reference information appearing caption “management discussion analysis financial condition results operation” located pages 9 17 corporation’s annual report item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2013 2012 2011 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements general economic conditions market areas farmers conducts business could materially impact credit quality trends business conditions banking industry regulatory environment fluctuations interest rates demand loans market areas farmers conducts business rapidly changing technology evolving banking industry standards competitive factors including increased competition regional national financial institutions new service product offerings competitors price pressures similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2013 2012 company’s net income totaled 78 million 2013 compared 99 million 2012 per share basis diluted earnings per share 041 compared 053 diluted earnings per share 2012 common comparative ratios results operations include return average assets return average stockholders’ equity 2013 return average equity 666 compared 842 2012 return average assets 068 2013 089 2012 results 2013 included 863 thousand gains sales securities compared 11 million 2012 2013 company completed acquisition outstanding stock retirement planning consultancy national associates inc cleveland ohio company leading independent consultant retirement plans offers actuarial plan design compliance administrative services third party administrator nai provides services 401k defined benefit profit sharing flexible spending 403b esop plans acquiring nai company assumes professional staff highly qualified credentialed synergies cost savings resulting combining operations companies help drive increase noninterest income net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2013 taxable equivalent net interest income decreased 822 thousand 212 2012 interestearning assets averaged 1061 billion 2013 increasing 304 million 295 compared 2012 company’s interestbearing liabilities decreased 034 8816 million 2012 8787 million 2013 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2013 347 decreasing 366 2012 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2013 net interest margin measured fully taxable equivalent basis decreased 358 compared 376 2012 decrease net interest margin largely result interestearning assets repricing lower rate total taxable equivalent interest income 430 million 2013 20 million less 450 million reported 2012 comparing years ending december 31 2013 2012 yields earning assets decreased 31 basis points cost interest bearing liabilities decreased 12 basis points average loans increased 306 million 542 2013 however yields decreased 571 2012 524 2013 tax equated income securities federal funds decreased 933 thousand 73 2013 farmers saw yields assets decreased 273 2012 253 2013 average balance investment securities federal funds sold decreased slightly 4654 million 2012 4652 million 2013 total interest expense amounted 51 million 2013 185 decrease 62 million reported 2012 decrease 2013 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 070 2012 058 2013 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 13 million 2013 increase noninterest income due several factors retirement plan consulting fees increased 477 thousand compared none 2012 reflecting income earned newly acquired entity national associates inc “nai” service charges deposit accounts increased 20 million 2012 24 million 2013 company made adjustments service charge structure deposit accounts bank owned life insurance income increased 170 thousand company received tax free death benefits included income insurance agency commissions also increased 119 thousand trust fees increased 86 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue operating income also increased 406 thousand primarily result gain sale land owned company noninterest expenses noninterest expense 2013 391 million compared 358 million 2012 representing increase 33 million 92 increase result 117 increase salary employee benefits mainly due 13 million recorded severance costs majority severance costs associated departure company’s president ceo 2013 company underwent cost reduction program 2013 included closure two retail branch locations elimination several full time positions reduction number employees bank offset employees included acquisition nai including 17 employees nai 328 full time equivalent employees compared 335 one year ago professional fees increased 16 result corporate legal consulting fees related compensation practices business advisory fees intangible amortization increased 215 thousand result amortization intangible assets related acquisition nai merger related costs also increased 330 thousand operating expenses increased 193 thousand state local taxes also increased 110 thousand 91 result increase intangible tax paid state ohio due higher levels stockholders’ equity company’s tax equivalent efficiency ratio twelve month period ended december 31 2013 7482 compared 6994 period 2012 main factor leading decline efficiency ratio increase noninterest expenses explained earlier section efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 17 million 2013 31 million 2012 income taxes computed using appropriate effective tax rates period decrease current year tax expense mainly attributed 35 million decrease income taxes effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 178 2013 235 2012 effective tax rate decrease compared period 2012 primarily due increase tax exempt income securities loans bank owned life insurance income refer note 14 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2012 2011 company’s net income totaled 99 million 2012 compared 92 million 2011 per share basis diluted earnings per share 053 2012 compared 050 2011 2012 return average equity 842 compared 876 2011 return average assets 089 2012 2011 net interest income 2012 taxable equivalent net interest income increased 292 thousand 08 2011 interestearning assets averaged 10303 million 2012 increasing 712 million 74 compared 2011 2012 net interest margin measured fully taxable equivalent basis 376 comparison 401 2011 total taxable equivalent interest income 450 million 2012 13 million less 463 million reported 2011 decrease primarily result change mix interest earning assets 2012 loans yield securities 548 average earning assets compared 586 2011 average loan balances increased 31 million 055 yields decreased 597 2011 571 2012 income securities federal funds sold decreased 54 thousand 042 2012 though company saw yields assets decrease 321 2011 273 2012 average balances investment securities federal funds sold increased 171 2012 mainly due increases customer deposits outpacing opportunities grow loans total interest expense amounted 62 million 2012 207 decrease 78 million reported 2011 decrease 2012 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 093 2011 070 2012 noninterest income total noninterest income 2012 increased 39 thousand increase noninterest income primarily due income sale loans increasing 113 thousand twelve months ended december 31 2011 598 thousand twelve month period 2012 company decided sell residential real estate loans originates order decrease interest rate risk reduce liquidity risk diversify revenue streams increase loans sold income offset decrease security gains 745 thousand higher 2011 trust fees also increased 142 thousand investment commissions increased 83 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue noninterest expenses noninterest expense 2012 358 million compared 337 million 2011 representing increase 21 million 60 increase result 128 increase salary employee benefits resulting higher number employees current year 561 thousand 346 increase health insurance costs higher employee count attributed primarily secondary mortgage project expansion occupancy equipment expense also increased 578 thousand result depreciation expense small equipment costs related new facilities professional fees increased 10 result corporate legal consulting fees related compensation practices business advisory fees also 86 thousand 16 decrease operating expenses 2012 compared 2011 mainly related new facilities opened 2012 expense increases offset 12 million prepayment penalties paid federal home loan bank cincinnati prior year compared none 2012 state local taxes also increased 248 thousand 260 result increase intangible tax paid state ohio due higher levels stockholders’ equity core processing charges also increased 126 thousand due higher number accounts new banking products customers income taxes income tax expense totaled 31 million 2012 25 million 2011 effective income tax rate 235 2012 216 2011 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2013 farmers borrowed 6 million lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2013 bank eligible borrow additional 846 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2013 amounted 198 million farmers’ primary investing activities originating loans purchasing securities 2013 net cash used investing activities amounted 280 million compared 823 million 2012 net increases loans 455 million 2013 compared 193 2012 cash used lending activities 2013 attributed activity commercial real estate residential real estate indirect loan portfolios purchases securities available sale 1499 million 2013 compared 2374 million 2012 proceeds maturities sales securities available sale 1690 million 2013 compared 1757 million 2012 21 million used purchase national associates inc year ended december 31 2013 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash financing activities amounted 35 million 2013 compared 567 million 2012 majority change attributed change deposits provided 789 million 2012 used 38 million 2013 shortterm borrowings increased 17 million 2013 compared 182 million decrease 2012 10 million new federal home loan bank longterm advances 2013 compared none last year company used 16 million acquisition treasury shares 2013 compared none 2012 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2013 amounts commercial real estate loans december 31 2012 based remaining scheduled repayments principal shown following table total loans 6307 million yearend 2013 compared 5866 million yearend 2012 represents increase 752 increase loans mainly occurred commercial real estate residential real estate indirect loan portfolios loans comprised 561 bank’s average earning assets 2013 compared 548 2012 product mix loan portfolio includes commercial loans comprising 167 residential real estate loans 270 commercial real estate loans 344 consumer loans 219 december 31 2013 compared 166 266 342 226 respectively december 31 2012 loans contributed 726 total taxable equivalent interest income 2013 717 2012 loan yield 524 2013 119 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral consumer loans increased 1326 million december 31 2012 1381 million december 31 2013 representing 41 increase management continues target automobile dealer network purchase indirect installment loans dealer paper purchased using strict underwriting guidelines emphasis quality indirect loans comprise 904 consumer loan portfolio net chargeoffs consumer loan portfolio increased 901 thousand 2013 compared 374 thousand 2012 residential real estate mortgage loans increased 89 1702 million december 31 2013 compared 1562 million 2012 farmers originated fixed rate adjustable rate mortgages 2013 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial real estate loans increased 2007 million december 31 2012 2174 million december 31 2013 increase 83 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers commercial loans december 31 2013 increased 81 yearend 2012 outstanding balances 1050 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit growth commercial real estate loan portfolios consistent improvements local economy several new projects announced mahoning valley along decreased levels unemployment led small business owners expand make additional investments operations summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 13 million 2013 compared 725 thousand 2012 increase 565 thousand increase primarily due increase level nonperforming loans factor considered management’s estimate loan loss provisions adequacy allowance loan losses nonperforming loans total loans increased 140 december 31 2012 144 december 31 2013 change ratio result increase nonperforming loans 849 thousand december 31 2012 net chargeoffs year ended december 31 2013 61 thousand higher provision loan losses determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses decreased 61 thousand year aside various credit quality metrics discussed another reason decrease current year allowance loan losses decrease loan loss history used basis evaluate probable incurred losses loans collectively evaluated december 31 2013 loans collectively evaluated impairment totaled 6187 million allowance allocation 70 million end 2012 loans collectively evaluated impairment 5752 million allowance allocation 74 million commercial real estate commercial loan portfolios experienced negative provision 703 thousand even though portfolio’s loan balances increased 83 2013 attributed reduction substandard commercial real estate commercial loans year residential real estate consumer loan portfolio’s allowance loan losses provision 20 million result adjustment methodology impairment formula used portfolio segments 2013 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows valuation collateraldependent impaired loans challenging component financial reporting process due timing loan identified impaired need timely close farmers’ books given period typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical extent external appraisal returns value estimate materially different internally generated estimate release interim annual financial statements farmers adjusts associated specific loss reserve necessary farmers’ consolidated financial statements difference ratio allowance loan losses nonperforming loans december 31 2013 8325 compared 9301 december 31 2012 increase nonperforming loans primarily related commercial residential real estate consumer loan portfolios balances three portfolios increased similar fashion 2013 balance allowance loan losses 76 million 120 loans december 31 2013 ratio decreased 130 reported december 31 2012 company forgone interest income approximately 93 thousand nonaccrual loans december 31 2013 would earned year loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 052 2012 023 2013 primary reason improvement gross chargeoffs total decreased 13 million 329 2012 2013 additional portfolios saw recoveries increase 267 thousand total largest increase commercial industrial loan portfolio significant allocation allowance loan losses performing commercial real estate loans classified internal loan review substandard loss experience average balance category loans past three years approximately 420 principal balance loans management’s allocation loans equates allocation approximately 295 thousand end 2013 compared allocation 935 thousand end 2012 allocation decreased due decrease historical loss experience substandard loans well decrease total balance substandard loans actual loss experience may less amount allocated december 31 2013 amount substandard loans continue accrue interest 89 million always management working address weaknesses specific loans may result loss allowance allocated four loan categories interpreted indication chargeoffs 2014 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 219 total loans 2013 net loan losses accounted 667 losses entire loan portfolio commercial loan category represents 167 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications commercial real estate loan category represents 344 total loan portfolio loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion normally annual fee two percent charged issuance letter credit december 31 2013 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio decreased 411 million 2013 maturing security funds used fund loan portfolio growth excess balances federal funds sold strategically invested throughout year company’s investment strategy maintain diverse investment security portfolio higher concentration mortgagebacked securities issued us government sponsored enterprises taxfree municipal securities farmers sold 931 million securities 2013 resulting net security gains 863 thousand farmers recognized market appreciation faster paying mortgagebacked securities lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2013 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 35 38 thousand 590 thousand 536 thousand 209 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment decreased 12 million 2013 decrease result normal depreciation decision close two retail branch locations leetonia warren ohio declining branch transaction counts banking trends driving customers towards online banking decision made close two branches october 2013 deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year company’s average total deposits increased 128 8920 million 2012 9105 million 2013 savings deposits increased 65 million noninterest bearing deposits increased 235 million since december 31 2012 growth savings noninterest deposits offset decrease 257 million money market accounts interest rates continuing low customers little incentive commit funds term deposit accounts time deposits decreased 86 million customers moved deposit dollars time deposits seeking liquidity company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2013 core deposits savings money market accounts time deposits less 100 thousand demand deposits interest bearing demand deposits represented approximately 906 total deposits see note 7 within item 8 annual report form 10k additional detail bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose transaction help fund costs employee benefit plans cash surrender value policies 159 million december 31 2013 compared 155 million december 31 2012 borrowings shortterm borrowings increased 17 million 22 since december 31 2012 longterm borrowings increased 94 million 902 result new 10 million federal home loan bank advance see note 9 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2013 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements note 10 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2013 company unconsolidated related special purpose entities company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 19 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity decreased 64 1208 million december 31 2012 1130 million 2013 decrease equity mainly result 131 million decrease accumulated comprehensive income change accumulated comprehensive income mainly due swing unrealized gains investment security portfolio 2012 unrealized losses 2013 additionally company obtained 16 million treasury share repurchases 2013 decreases offset net income past twelve months year shareholders received total 012 per share cash dividends paid past four quarters book value decreased 68 643 per share december 31 2012 602 per share december 31 2013 company’s tangible book value also decreased 105 611 per share december 31 2012 547 per share december 31 2013 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2013 farmers bank farmers required minimum tier 1 total capital ratios 400 800 respectively farmers bank farmers capital ratios minimum levels december 31 2013 2012 yearend 2013 2012 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses securities otherthantemporarily impaired impairment goodwill intangibles additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 2 securities note 3 loans sections captioned “loan portfolio” “investment securities” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period otherthantemporary impairment securities second critical accounting policy declines fair value securities cost temporary reflected realized losses estimating otherthantemporary losses management considers 1 length time extent reasons fair value less cost 2 financial condition near term prospects issuer 3 whether farmers intent sell debt security likely required sell debt security anticipated recovery management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s trust provide quality costeffective trust services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill resides books farmers trust nai estimated reviewing past projected operating results subsidiaries industry comparable information december 31 2013 consolidated basis farmers intangibles 40 million subject amortization 64 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2013 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2016 2015 2014 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements • general economic conditions market areas farmers conducts business could materially impact credit quality trends • business conditions banking industry • regulatory environment • fluctuations interest rates • demand loans market areas farmers conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2016 2015 company’s net income totaled 206 million 2016 compared 81 million 2015 per share basis diluted earnings per share 076 compared 036 diluted earnings per share 2015 excluding expenses related acquisition activities net income 2016 would 210 million 078 per share compared 129 million 057 per share 2015 common comparative ratios results operations include return average assets return average stockholders’ equity 2016 return average equity 972 compared 497 2015 return average assets 107 2016 054 2015 annualized return average assets return average equity excluding merger related expenses 109 992 2016 compared 087 795 2015 respectively results 2016 included 73 thousand gains sales securities compared 94 thousand 2015 addition 2016 results include 238 thousand gains sale land buildings june 1 2016 bank completed acquisition bowers merged bowers insurance bank’s whollyowned insurance agency subsidiary bowers continue operate cortland ohio location enhance company’s current product lineup offer broader options commercial farm home auto propertycasualty insurance carriers meet needs company’s customers transaction involved cash 123280 shares stock totaling 32 million including 12 million future payments contingent upon bowers meeting performance targets goodwill 18 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 16 million related client relationships company name noncompetition agreements june 19 2015 company completed acquisition outstanding stock national bancshares corporation “nboh” parent company first national bank orrville “first national bank” transaction involved cash 7262955 shares stock totaling 748 million first national bank branches became branches farmers bank pursuant agreement shareholder nboh received either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares nboh exchanged stock 20 cash october 1 2015 company completed acquisition tristate 1st banc inc “tristate” parent company 1st national community bank “fncb” pursuant terms merger agreement common shareholders tristate entitled receive 1747 shares farmers’ common stock 1420 cash common share without par value tristate “tristate common shares” subject proration provisions specified merger agreement provide targeted aggregate split total consideration consisting 75 company common shares 25 cash preferred shareholders tristate received 1360 cash share series preferred stock without par value tristate total consideration actually paid form 36 million cash 107 million worth company’s stock october 1 2015 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2016 taxable equivalent net interest income increased 188 million 363 2015 interestearning assets averaged 1761 billion 2016 increasing 3986 million compared 2015 company’s interestbearing liabilities increased 278 1057 billion 2015 1351 billion 2016 two previously mentioned acquisitions increased interestearning assets 6475 million interestbearing liabilities 6055 million respective completion dates company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2016 394 increasing 372 2015 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2016 net interest margin measured fully taxable equivalent basis increased 401 compared 381 2015 net interest margin excluding impact amortization accretion current year acquisitions improved 19 basis points 395 year ended december 31 2016 accretion added 98 thousand per month 2016 continue next several years increase net interest margin largely result interest bearing liabilities repricing lower rates shifting assets investment securities higher interest income rates loans long term time deposits mature renewed lesser rates moving liquid accounts lower interest rates total taxable equivalent interest income 751 million 2016 191 million 560 million reported 2015 comparing years ending december 31 2016 2015 yields earning assets increased 15 basis points cost interest bearing liabilities decreased 7 basis points average loans increased 3889 million 407 2016 loan yield remained unchanged 474 tax equated income securities federal funds increased 591 thousand 55 2016 farmers saw yields assets increase slightly 264 2015 272 2016 average balance investment securities federal funds sold also increased 4072 million 2015 4168 million 2016 total interest expense amounted 44 million 2016 70 increase 41 million reported 2015 increase 2016 result 2049 million increase interestbearing deposits 890 million increase borrowings cost interestbearing liabilities decreased 039 2015 032 2016 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 49 million 2016 increase noninterest income due several factors gains sale mortgage loans increased 11 million 28 million representing increase 17 million insurance agency commissions also increased 16 million compared 569 thousand 2015 service charges deposit accounts increased 33 million 2015 40 million 2016 reflecting size company two bank acquisitions debit card interchange fees also increased 780 thousand 415 operating income also increased 599 thousand primarily result positive impact account level transaction volumes merger related growth bank company expect amounts increase 2017 management continues focus growing various sources noninterest income noninterest expenses noninterest expense 2016 595 million compared 540 million 2015 representing increase 55 million 101 increase salaries employee benefits increased 53 million 198 mainly due increase number employees resulting mergers company’s full time equivalent employees “fte” increased 85 december 31 2015 december 31 2016 occupancy equipment costs also increased 12 million due additional banking locations resulting mergers excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 321 2015 306 2016 company’s tax equivalent efficiency ratio twelve month period ended december 31 2016 6159 compared 7526 period 2015 excluding expenses related acquisition activities efficiency ratio year ended december 31 2016 improved 6099 compared 662 2015 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 75 million 2016 25 million 2015 income taxes computed using appropriate effective tax rates period increase current year tax expense result 165 increase income taxes 1055 million 2015 28 million 2016 effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 267 2016 237 2015 refer note 16 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2015 2014 company’s net income totaled 81 million 2015 compared 90 million 2014 per share basis diluted earnings per share 036 compared 048 diluted earnings per share 2014 excluding expenses related acquisition activities net income 2015 would 129 million 057 per share common comparative ratios results operations include return average assets return average stockholders’ equity 2015 return average equity 497 compared 745 2014 return average assets 054 2015 079 2014 excluding expenses related acquisition activities return average assets return average stockholders’ equity 087 795 respectively results 2015 included 94 thousand gains sales securities compared 457 thousand 2014 net interest income 2015 taxable equivalent net interest income increased 137 million 360 2014 interestearning assets averaged 1363 billion 2015 increasing 3012 million compared 2014 company’s interestbearing liabilities increased 248 8473 million 2014 1057 billion 2015 nboh tristate acquisitions increased interestearning assets 6475 million interestbearing liabilities 6055 million respective completion dates total taxable equivalent interest income 519 million 2015 137 million 381 million reported 2014 comparing years ending december 31 2015 2014 yields earning assets increased 6 basis points cost interest bearing liabilities decreased similarly 19 basis points average loans increased 3244 million 5141 2015 however yields decreased 497 2014 474 2015 tax equated income securities federal funds decreased 601 thousand 530 2015 even though tax equated income decreased farmers saw yields assets increase slightly 263 2014 264 2015 average balance investment securities federal funds sold decreased 4304 million 2014 4072 million 2015 total interest expense amounted 41 million 2015 107 decrease 46 million reported 2014 decrease 2015 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 054 2014 039 2015 noninterest income total noninterest income increased 3 million 2015 increase noninterest income due several factors gains sale mortgage loans increased 358 thousand 11 million representing increase 743 thousand retirement plan consulting fees also increased 21 million compared 18 million 2014 service charges deposit accounts increased 26 million 2014 33 million 2015 reflecting size company two acquisitions investment commissions increased 146 thousand 14 management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue operating income also increased 1 million primarily result positive impact account level transaction volumes merger related growth included increase operating income debit card interchange income increased 618 thousand atm fee income increased 74 thousand noninterest expenses noninterest expense 2015 540 million compared 382 million 2014 representing increase 158 million 415 increase merger related costs 64 million 2015 compared none 2014 salaries employee benefits also increased 58 million mainly due increase number employees resulting mergers company’s full time equivalent employees “fte” increased 105 december 31 2014 december 31 2015 occupancy equipment costs also increased 947 thousand due additional eighteen banking locations resulting mergers excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 334 2014 321 2015 company’s tax equivalent efficiency ratio twelve month period ended december 31 2015 7526 compared 7024 period 2014 excluding expenses related acquisition activities efficiency ratio year ended december 31 2015 improved 662 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 25 million 2015 26 million 2014 small decrease current year tax expense mainly attributed 10 million decrease income taxes effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 237 2015 227 2014 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2016 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2016 bank eligible borrow additional 144 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2016 amounted 1329 million farmers’ primary investing activities originating loans purchasing securities 2016 net cash used investing activities amounted 1152 million compared 231 million used 2015 net increases loans 1332 million 2016 compared 1397 million 2015 cash used lending activities 2016 attributed activity commercial real estate residential real estate agricultural consumer loan portfolios purchases securities available sale 526 million 2016 compared 727 million 2015 proceeds maturities sales securities available sale 714 million 2016 compared 1656 million 2015 net cash 297 million received result acquisitions nboh tristate 2015 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash provided financing activities amounted 767 million 2016 compared 454 million 2015 majority increase attributed net change deposits increased 1157 million 2016 compared 447 million decrease 2015 shortterm borrowings decreased 274 million 2016 compared 912 million increase 2015 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2016 amounts commercial real estate loans december 31 2016 based remaining scheduled repayments principal shown following table total loans 14 billion yearend 2016 compared 13 billion yearend 2015 loans grew 10 organically past twelve months organic increase loans direct result farmers’ focus loan growth utilizing talented lending credit team adhering sound underwriting discipline increase loans occurred commercial real estate agricultural residential real estate consumer loan portfolios loans comprised 763 bank’s average earning assets 2016 compared 701 2015 product mix loan portfolio includes commercial loans comprising 143 residential real estate loans 301 commercial real estate loans 312 consumer loans 153 agricultural loans 91 december 31 2016 compared 154 304 315 143 91 respectively december 31 2015 loans contributed 849 total taxable equivalent interest income 2016 808 2015 loan yields 474 2015 48 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2016 increased 25 yearend 2015 outstanding balances 2044 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 4302 million december 31 2016 compared 3951 million 2015 farmers originated fixed rate adjustable rate mortgages 2016 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial real estate loans increased 4085 million december 31 2015 4460 million december 31 2016 increase 374 million 92 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios consistent improvements local economy several new projects announced mahoning valley stark county along decreased levels unemployment led small business owners expand make additional investments operations agricultural loans increased 1092 million 2015 1290 million 2016 increase 198 million 181 company’s agricultural loan portfolio contains diverse mix dairy crops land poultry cattle loans agricultural loan portfolio increased 11 thousand 2014 1092 million 2015 result nboh merger summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 39 million 2016 compared 35 million 2015 increase 360 thousand increase primarily due level net chargeoffs overall 101 organic increase total loans factors considered management’s estimate loan loss provisions adequacy allowance loan losses net chargeoffs year ended december 31 2016 20 million 168 thousand less net chargeoffs year ended december 31 2015 allowance loan losses total loans increased 069 december 31 2015 076 december 31 2016 acquired loans nboh tristate mergers excluded ratio 103 december 31 2016 108 december 31 2015 compares similarly periods prior 2015 presented table additionally loans collectively evaluated impairment excludes acquired loans compared allowance loan losses loans collectively evaluated impairment ratio 101 year ended december 31 2016 compared 103 year ended december 31 2015 nonperforming loans total loans decreased 081 december 31 2015 057 december 31 2016 determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 19 million year aside various credit quality metrics discussed another reason increase current year allowance loan losses increase probable incurred losses associated commercial loan portfolio december 31 2016 commercial loans collectively evaluated impairment totaled 1951 million allowance allocation 18 million compared commercial loans collectively evaluated impairment 1564 million allowance loan losses 13 million december 31 2015 commercial loan portfolio experienced provision 701 thousand compared 234 thousand provision 2015 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical adjusts associated specific loss reserve necessary ratio allowance loan losses nonperforming loans december 31 2016 improved 13283 compared 8596 december 31 2015 nonaccrual agricultural loans category increased year 73 thousand december 31 2015 686 thousand 053 total agricultural loans december 31 2016 balance allowance loan losses increased 2016 increased loan portfolio size 109 million compared 90 million 2015 company forgone interest income approximately 553 thousand nonaccrual loans december 31 2016 would earned life loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 023 2015 015 2016 result larger loan portfolio improved loan quality net chargeoffs decreased 22 million 2015 20 million 2016 loan types experienced decrease gross chargeoffs comparing two periods following table summarizes company’s allocation allowance loan losses past five years allowance allocated four loan categories interpreted indication chargeoffs 2017 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 153 total loans 2016 net loan losses accounted 694 losses entire loan portfolio commercial loan category represents 172 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications net chargeoffs commercial real estate portfolio represents 374 total portfolio 334 thousand 2016 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion annual fee two percent charged issuance letter credit december 31 2016 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio decreased 243 million 2016 decrease resulted maturing securities reinvested used instead fund loan portfolio growth company’s investment strategy maintain diverse investment security portfolio higher concentration mortgagebacked securities issued us government sponsored enterprises taxfree municipal securities farmers sold 115 million securities 2016 resulting net security gains 73 thousand farmers recognized market appreciation faster paying mortgagebacked securities lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio 2014 company created investments subsidiary hold municipal securities take advantage favorable tax treatment december 31 2016 investments entity balance 769 million municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2016 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 35 90 thousand 683 thousand 14 million 112 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment net decrease 965 thousand 2016 result sale land bank premises amounting 12 million depreciation 17 million offset new additions premises equipment amounting 923 thousand deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year company’s average total deposits increased 1165 billion 2015 1368 billion 2016 representing increase 174 average interest bearing demand deposits increased 1145 million savings deposits increased 725 million since december 31 2015 interest rates continuing low customers little incentive commit funds term deposit accounts time deposits modest increase 180 million 2016 company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2016 core deposits savings money market accounts time deposits less 250 thousand demand deposits interest bearing demand deposits represented approximately 970 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose transaction help fund costs employee benefit plans cash surrender value policies 300 million december 31 2016 compared 292 million december 31 2015 borrowings shortterm borrowings decreased 274 million 121 since december 31 2015 result deposit growth occurred 2016 decrease shortterm federal home loan advances “fhlb” longterm borrowings decreased 71 million 321 maturing fhlb advances refinanced shortterm advances capitalize favorable interest rates see note 10 11 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2016 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements note 12 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2016 company unconsolidated related special purpose entities company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 20 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 77 1980 million december 31 2015 2132 million 2016 increase due net income addition retained earnings less amount dividends paid also contributing overall equity increase 12 million stock issued part purchase price bowers year shareholders received total 016 per share cash dividends paid past four quarters 33 increase compared 012 cash dividend per share paid 2015 book value increased 72 735 per share december 31 2015 788 per share december 31 2016 company’s tangible book value also increased 576 per share december 31 2015 621 per share december 31 2016 increase 78 additionally company repurchased 168 thousand treasury shares 2016 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2016 new minimum capital requirements associated basel committee capital liquidity regulation basel iii farmers bank farmers required minimum capital ratios actual minimum ratios detailed note 14 consolidated financial statements farmers bank farmers capital ratios minimum levels december 31 2016 2015 yearend 2016 2015 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank became subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retained onetime election prior treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios mentioned prior paragraph bank falls within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses impairment goodwill intangibles estimating fair value assets acquired liabilities assumed connection merger activity additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 4 loans note 2 business combinations section captioned “loan portfolio” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies us gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s subsidiaries provide quality costeffective services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods us gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill estimated reviewing past projected operating results subsidiaries comparable industry information december 31 2016 consolidated basis farmers intangibles 80 million subject amortization 372 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2016 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2018 2017 2016 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements annual report form 10k contains “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical fact rather statements based farmers’ current expectations beliefs assumptions regarding future farmers’ business future plans strategies projections anticipated events trends intended results future performance economy future conditions forwardlooking statements preceded terms “will” “would” “should” “could” “may” “expect” “estimate” “believe” “anticipate” “intend” “plan” “project” variations words similar expressions forwardlooking statements guarantee future performance actual future results could differ materially contained forwardlooking information forwardlooking statements relate future subject inherent uncertainties risks changes circumstances difficult predict many outside control numerous uncertainties risks changes could cause contribute farmers’ actual results performance achievements materially different expressed implied forwardlooking statements factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k readers cautioned put undue reliance forwardlooking statements speak date thereof following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements • general economic conditions market areas farmers conducts business could materially impact credit quality trends • business conditions banking industry • regulatory environment • fluctuations interest rates • demand loans market areas farmers conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2018 2017 company’s net income totaled 326 million 2018 compared 227 million 2017 per share basis diluted earnings per share 116 compared 082 diluted earnings per share 2017 return average assets return average equity 146 1313 respectively year ending december 31 2018 compared 109 992 2017 return average tangible equity increased 1348 2017 1595 2018 december 22 2017 hr1 known “tax cuts jobs act” signed law hr1 among things reduced corporate income tax rate 21 effective january 1 2018 result passage new tax law farmers’ effective tax rate decreased 3072 year ended december 31 2017 1492 year ended december 31 2018 important note also result new tax law farmers determined net deferred tax assets needed reduced fourth quarter 2017 approximately 18 million representing impact earnings per share approximately 006 per diluted share fourth quarter based quarter’s weighted average diluted shares outstanding approximately 28 million august 15 2017 company completed acquisition monitor holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value farmers national banc corp subject overall limitation 85 monitor common shares exchanged farmers common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price farmers common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2018 taxable equivalent net interest income increased 35 million 46 2017 interestearning assets averaged 2075 billion 2018 increasing 1513 million compared 2017 company’s interestbearing liabilities increased 71 1449 billion 2017 1553 billion 2018 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2018 366 decreasing 388 2017 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2018 net interest margin measured fully taxable equivalent basis decreased 387 compared 399 2017 net interest margin excluding impact amortization accretion acquisitions decreased 13 basis point 383 year ended december 31 2018 accretion added 695 thousand per month 2018 continue next several years decrease net interest margin mainly due pressure increasing deposit rates federal reserve bank continued raise federal funds interest rate 2018 federal funds interest rate increased 4 times total 100 basis points year total taxable equivalent interest income 936 million 2018 99 million 837 million reported 2017 comparing years ending december 31 2018 2017 yields earning assets increased 16 basis points cost interest bearing liabilities increased 38 basis points average loans increased 1390 million 93 2018 loan yield increased eighteen basis points 491 tax equated income securities federal funds increased 296 thousand 23 2018 farmers saw yields assets decrease slightly 305 2017 304 2018 average balance investment securities federal funds sold also increased 4296 million 2017 4420 million 2018 increase federal funds interest rate mentioned impacted cost shortterm borrowings interestbearing deposits 2018 total interest expense amounted 133 million 2018 928 increase 69 million reported 2017 interestbearing deposits increased 964 million 82 increases interest rates paid deposits resulted 36 million 813 increase interest expense deposit balances borrowings balances increased 69 million 25 however interest expense related borrowings increased 27 million 114 total cost interestbearing deposits borrowings increased 047 2017 085 2018 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 14 million 6 2018 increase noninterest income due several factors trust fee income increased 64 million 71 million representing increase 695 thousand 108 resulting growth new customers increase market value trust assets commissions sale investment products increased 184 thousand 20 2018 debit card interchange fees increased 262 thousand 85 customers continue increase use debit cards make purchases goods services insurance agency commissions also increased 26 million compared 24 million 2017 service charges deposit accounts increased 41 million 2017 43 million 2018 increases offset decrease income sale mortgage loans 337 thousand decrease retirement plan consulting fees 173 thousand bank company expect noninterest income increase 2019 management continues focus growing various sources noninterest income noninterest expenses noninterest expense 2018 627 million compared 616 million 2017 representing increase 11 million 18 increase salaries employee benefits grew 12 million 35 mainly due merit increases salaries 18 increase number full time equivalent employees 445 453 operating expenses increased 309 thousand 42 state local taxes increased 224 thousand 135 increases offset drop merger related expenses 1 million excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 293 2017 282 2018 company’s tax equivalent efficiency ratio twelvemonth period ended december 31 2018 5793 compared 5966 period 2017 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 57 million 2018 101 million 2017 income taxes computed using appropriate effective tax rates period decrease current year tax expense primarily attributable previously mentioned reduction corporate income tax rate 35 21 result tax cuts jobs act income tax expense 101 million 2017 also impacted 18 million adjustment increase income tax expense result writedown company’s deferred tax asset 35 21 effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 149 2018 307 2017 anticipate effective rate 2019 range 15 16 refer note 16 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2017 2016 company’s net income totaled 227 million 2017 compared 206 million 2016 per share basis diluted earnings per share 082 compared 076 diluted earnings per share 2016 excluding 18 million adjustment net deferred tax asset resulting tax cut jobs act became law december 2017 524 thousand expenses related acquisition activities net income 2017 would 248 million 090 per share common comparative ratios results operations include return average assets return average stockholders’ equity 2017 return average equity 992 compared 972 2016 return average assets 109 2017 107 2016 excluding expenses related acquisition activities return average assets return average stockholders’ equity 2017 would 119 1083 2017 return average tangible equity would 1348 net interest income 2017 taxable equivalent net interest income increased 61 million 87 2016 interestearning assets averaged 19 billion 2017 increasing 162 million compared 2016 company’s interestbearing liabilities increased 73 135 billion 2016 145 billion 2017 previously mentioned acquisition monitor increased interestearning assets 381 million interestbearing liabilities 178 million completion date total taxable equivalent interest income 837 million 2017 86 million 751 million reported 2016 comparing years ending december 31 2017 2016 yields earning assets increased 9 basis points cost interest bearing liabilities increased 15 basis points average loans increased 1492 million 111 2017 loan yield decreased one basis point 473 tax equated income securities federal funds increased 18 million 159 2017 farmers saw yields assets increase slightly 272 2016 305 2017 average balance investment securities federal funds sold also increased 4168 million 2016 4296 million 2017 total interest expense amounted 69 million 2017 572 increase 44 million reported 2016 increase 2017 result 491 million 44 increase interestbearing deposits 491 million 212 increase borrowings cost interestbearing liabilities increased 032 2016 047 2017 noninterest income total noninterest income increased 807 thousand 35 2017 increase noninterest income due several factors gains sale mortgage loans increased 28 million 31 million representing increase 300 thousand 8 insurance agency commissions also increased 24 million compared 16 million 2016 service charges deposit accounts increased 40 million 2016 41 million 2017 reflecting size company previous bank acquisitions debit card interchange fees also increased 430 thousand 161 increases offset decrease operating income 478 thousand decrease investment commissions 291 thousand noninterest expenses noninterest expense 2017 616 million compared 595 million 2016 representing increase 21 million 36 increase salaries employee benefits increased 29 million 89 mainly due increase salaries acquisition bowers insurance agency inc bowers completed june 1 2016 resulted seven months expense 2016 compared full year 2017 company also experienced increase employee health care insurance expense 2017 company’s full time equivalent employees “fte” increased 10 december 31 2016 december 31 2017 operating expenses decreased 10 million result increased efficiencies gained company grew 2017 excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 306 2016 293 2017 company’s tax equivalent efficiency ratio 12 month period ended december 31 2017 5966 compared 6159 period 2016 excluding expenses related acquisition activities efficiency ratio year ended december 31 2017 improved 5879 compared 6099 2016 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 101 million 2017 75 million 2016 increase current year tax expense mainly attributed 169 increase income taxes previously mentioned tax cuts jobs act also added 18 million 2017’s income tax expense result writedown company’s deferred tax asset 35 21 effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 307 2017 267 2016 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2018 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2018 bank eligible borrow additional 309 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2018 amounted 2438 million farmers’ primary investing activities originating loans purchasing securities 2018 net cash used investing activities amounted 1805 million compared 1371 million used 2017 net increases loans 1602 million 2018 compared 1323 million 2017 cash used lending activities 2017 attributed activity commercial real estate commercial industrial residential real estate agricultural loan portfolios purchases securities available sale 709 million 2018 compared 1146 million 2017 proceeds maturities sales securities available sale 533 million 2018 compared 976 million 2017 net cash 163 million received result acquisition monitor 2017 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash provided financing activities amounted 1409 million 2018 compared 1224 million 2017 majority increase attributed net change deposits increase deposits 195 million 2018 compared increase 454 million 2017 shortterm borrowings decreased 448 million 2018 compared increase 911 million 2018 decrease shortterm borrowings mainly result growth deposit balances allowed company pay shortterm federal home loan bank advances year loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2018 amounts commercial real estate agricultural loans december 31 2018 based remaining scheduled repayments principal shown following table total loans 17 billion yearend 2018 compared 16 billion yearend 2017 loans grew 10 organically past twelve months organic increase loans direct result farmers’ focus loan growth utilizing talented lending credit team adhering sound underwriting discipline increase loans occurred commercial real estate agricultural residential real estate commercial loan portfolios loans comprised 787 bank’s average earning assets 2018 compared 777 2017 company also experienced growth originated loans portfolio result loans previously acquired earlier bank mergers renewed recorded originated book product mix loan portfolio includes commercial loans comprising 141 residential real estate loans 284 commercial real estate loans 333 consumer loans 128 agricultural loans 114 december 31 2018 compared 139 297 325 135 104 respectively december 31 2017 loans contributed 857 total taxable equivalent interest income 2018 843 2017 loan yields 491 2018 40 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2018 increased 113 yearend 2017 outstanding balances 2447 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 5 4921 million december 31 2018 compared 4689 million 2017 farmers originated fixed rate adjustable rate mortgages 2018 fixed rate terms generally limited fifteenyear terms adjustable rate products offered maturities thirty years commercial real estate loans increased 5125 million december 31 2017 5782 million december 31 2018 increase 657 million 128 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios consistent improvements local economy several new projects announced company’s market area along relatively decreased levels unemployment led small business owners expand make additional investments operations agricultural loans increased 1631 million 2017 1990 million 2018 increase 359 million 22 company’s agricultural loan portfolio contains diverse mix dairy crops land poultry cattle loans summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 3 million 2018 compared 34 million 2017 decrease 350 thousand decrease primarily due lower level net chargeoffs percentage loans outstanding 2018 net chargeoffs year ended december 31 2018 17 million 164 thousand 87 less net chargeoffs year ended december 31 2017 allowance loan losses total loans remained 078 december 31 2018 2017 acquired loans previous mergers excluded ratio 092 december 31 2018 097 december 31 2017 compares similarly periods prior 2016 presented table additionally loans collectively evaluated impairment excludes acquired loans compared allowance loan losses loans collectively evaluated impairment ratio 096 year ended december 31 2018 compared 097 year ended december 31 2017 nonperforming loans total loans decreased slightly 049 december 31 2017 045 december 31 2018 determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 13 million year aside various credit quality metrics discussed another reason increase current year allowance loan losses increase size loan portfolio loan growth 2018 amounted 10 december 31 2018 commercial loans collectively evaluated impairment totaled 2642 million allowance allocation 21 million compared commercial loans collectively evaluated impairment 2253 million allowance loan losses 20 million december 31 2017 commercial loan portfolio experienced provision 112 thousand compared 446 thousand provision 2017 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical adjusts associated specific loss reserve necessary ratio allowance loan losses nonperforming loans december 31 2018 improved 17581 compared 16004 december 31 2017 increases nonaccrual loans residential real estate loan agricultural loan portfolios offset decreases commercial real estate commercial loan portfolios balance allowance loan losses increased 2018 increased loan portfolio size 136 million compared 123 million 2017 company forgone interest income approximately 440 thousand nonaccrual loans december 31 2018 would earned life loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 013 2017 010 2018 result larger loan portfolio improved loan quality net chargeoffs decreased 19 million 2017 17 million 2018 increase gross chargeoffs experienced residential real estate loan portfolios 156 thousand offset decreases commercial real estate commercial industrial consumer loan portfolios 207 thousand 155 thousand 224 thousand respectively following table summarizes company’s allocation allowance loan losses past five years allowance allocated four loan categories interpreted indication chargeoffs 2018 occurred proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 128 total loans 2018 gross chargeoffs accounted 812 losses entire loan portfolio commercial loan category represents 168 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications gross chargeoffs commercial loan portfolio 220 thousand 2018 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion annual fee two percent charged issuance letter credit december 31 2018 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 108 million 2018 increase result asset growth 2018 maintaining security portfolio constant level percentage total assets company’s investment strategy maintain diverse investment security portfolio higher concentration taxfree municipal securities mortgagebacked securities issued us government sponsored enterprises farmers sold 162 million securities 2018 resulting net security gains 271 thousand farmers recognized market appreciation faster paying mortgagebacked securities recognized losses lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio 2014 company created investment subsidiary hold municipal securities take advantage favorable tax treatment december 31 2018 investment entity balance 974 million general market municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods increasing mortgage interest rates refinancing generally slows prepayments underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2018 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based new statutory tax rate 21 written tax cuts jobs act 21 thousand 259 thousand 12 million 202 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment net decrease 11 million 2018 result depreciation 15 million offset new additions premises equipment amounting 450 thousand deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits including 25 million brokered time deposits added first time 2018 year company’s average total deposits increased 1559 billion 2017 1681 billion 2018 representing increase 78 noninterest demand deposits increased 257 million 2018 average interest bearing demand deposits increased 1010 million offset decrease savings deposits 558 million since december 31 2017 interest rates increasing 2018 customers incentive commit funds term deposit accounts average time deposits increased 511 million 2018 company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2018 core deposits savings money market accounts time deposits less 250 thousand demand deposits interest bearing demand deposits represented approximately 938 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose investment help fund costs employee benefit plans cash surrender value policies 348 million december 31 2018 compared 339 million december 31 2017 borrowings average shortterm borrowings decreased 448 million 155 since december 31 2017 result loan growth outpacing deposit growth 2018 decrease result nearly 70 million securities sold repurchase agreements converting interest bearing checking accounts offset 25 million increase shortterm federal home loan advances “fhlb” average longterm borrowings decreased 10 million maturing fhlb advances refinanced shortterm advances capitalize favorable interest rates see note 11 12 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2018 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements also 2 million additional commitment sbic investment funds next several years payments predetermined due dates year end 2018 note 13 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2018 company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 21 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 84 2421 million december 31 2017 2623 million 2018 increase due net income addition retained earnings less amount dividends paid year shareholders received total 030 per share cash dividends paid past four quarters 364 increase compared 022 cash dividend per share paid 2017 book value increased 74 879 per share december 31 2017 944 per share december 31 2018 company’s tangible book value also increased 714 per share december 31 2017 786 per share december 31 2018 increase 101 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2018 new minimum capital requirements associated basel committee capital liquidity regulation basel iii farmers bank farmers required minimum capital ratios actual minimum ratios detailed note 15 consolidated financial statements farmers bank farmers capital ratios minimum levels december 31 2018 2017 yearend 2018 2017 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank became subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retained onetime election prior treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios mentioned prior paragraph bank falls within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses impairment goodwill intangibles estimating fair value assets acquired liabilities assumed connection merger activity additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 4 loans note 2 business combinations section captioned “loan portfolio” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies us gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s subsidiaries provide quality costeffective services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods us gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill estimated reviewing past projected operating results subsidiaries comparable industry information december 31 2018 consolidated basis farmers intangibles 58 million subject amortization 382 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2018 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2014 2013 2012 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements ● general economic conditions market areas farmers conducts business could materially impact credit quality trends ● business conditions banking industry ● regulatory environment ● fluctuations interest rates ● demand loans market areas farmers conducts business ● rapidly changing technology evolving banking industry standards ● competitive factors including increased competition regional national financial institutions ● new service product offerings competitors price pressures ● similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2014 2013 company’s net income totaled 90 million 2014 compared 78 million 2013 per share basis diluted earnings per share 048 compared 041 diluted earnings per share 2013 common comparative ratios results operations include return average assets return average stockholders’ equity 2014 return average equity 745 compared 666 2013 return average assets 079 2014 068 2013 results 2014 included 457 thousand gains sales securities compared 863 thousand 2013 company completed acquisition outstanding stock retirement planning consultancy national associates inc cleveland ohio company leading independent consultant retirement plans offers actuarial plan design compliance administrative services third party administrator nai provides services 401k defined benefit profit sharing flexible spending 403b esop plans acquiring nai company assumes professional staff highly qualified credentialed synergies cost savings resulting combining operations companies help drive increase noninterest income nai contributed 18 million gross revenues company resulting net loss 671 thousand year ended december 31 2014 net loss mainly due 764 thousand goodwill impairment charge goodwill partially impaired described note 6 amount equal reduction contingent consideration payable two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 january 2015 company announced definitive agreement reached acquire national bancshares corporation holding company first national bank orrville merged farmers national bank canfield completion transaction expected occur first quarter 2015 first national bank orrville branches become branches farmers national bank canfield pursuant agreement shareholder national bancshares entitled elect receive either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares exchanged stock 20 cash based farmers’ volume weighted average stock price last 20 trading days 797 january 26 2015 transaction valued approximately 740 million merger expected qualify taxfree reorganization shareholders electing receive farmers’ stock transaction subject receipt national bancshares’ shareholder approval company’s shareholder approval customary regulatory approvals company estimates following closing approximately 17 billion assets 33 banking locations throughout ohio farmers expects transaction accretive earnings per share first full year operations excluding onetime restructuring charges bank exceed “wellcapitalized” thresholds regulatory definitions transaction helps company achieve additional operating scale drive earnings per share growth management team continues focus achieving aboveaverage returns shareholders addition financial benefits merger significant step company’s strategy expand bank’s footprint combined company create topperforming midwest community bank scale product depth efficiency compete effectively deliver bestinclass service customers providing employees compelling corporate culture enhanced advancement potential net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2014 taxable equivalent net interest income increased 213 thousand 056 2013 interestearning assets averaged 1061 billion 2014 increasing 680 thousand compared 2013 company’s interestbearing liabilities decreased 357 8787 million 2013 8473 million 2014 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2014 348 increasing 347 2013 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2014 net interest margin measured fully taxable equivalent basis increased 359 compared 358 2013 increase net interest margin largely result interest bearing liabilities repricing lower rates long term time deposits mature renewed lesser rates moving liquid accounts lower interest rates total taxable equivalent interest income 427 million 2014 271 thousand less 430 million reported 2013 comparing years ending december 31 2014 2013 yields earning assets decreased 3 basis points cost interest bearing liabilities decreased similarly 4 basis points average loans increased 355 million 595 2014 however yields decreased 524 2013 497 2014 tax equated income securities federal funds decreased 450 thousand 382 2014 even though tax equated income decreased farmers saw yields assets increase 253 2013 263 2014 taxable securities increasing 18 basis points attributed reduction amortization expense due reduction prepayments mortgage backed security portfolio average balance investment securities federal funds sold decreased 4652 million 2013 4304 million 2014 total interest expense amounted 46 million 2014 96 decrease 51 million reported 2013 decrease 2014 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 058 2013 054 2014 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 14 million 2014 increase noninterest income due several factors retirement plan consulting fees increased 18 million compared 628 thousand 2013 reflecting full twelve months year compared six months income earned newly acquired entity nai 2013 service charges deposit accounts increased 24 million 2013 26 million 2014 company made adjustments service charge structure deposit accounts trust fees also increased 509 thousand insurance agency commissions increased 111 thousand investment commissions increased 37 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue noninterest expenses noninterest expense 2014 382 million compared 391 million 2013 representing decrease 895 thousand 23 decrease result 53 decrease salary employee benefits mainly due severance costs recorded 2013 2014 state local taxes decreased 435 thousand 878 thousand 2014 compared 13 million 2013 decrease result new reduced financial institution’s tax rate state ohio 2014 merger related costs also decreased 330 thousand 2014 professional fees increased 108 result corporate legal consulting fees related compensation practices business advisory fees intangible amortization increased 143 thousand result full twelve months amortization intangible assets related acquisition nai advertising increased 201 thousand company’s tax equivalent efficiency ratio twelve month period ended december 31 2014 7024 compared 7482 period 2013 main factor leading improvement efficiency ratio decrease noninterest expenses increase noninterest income explained earlier section efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 26 million 2014 17 million 2013 income taxes computed using appropriate effective tax rates period increase current year tax expense mainly attributed 21 million increase income taxes effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 227 2014 178 2013 effective tax rate increase compared period 2013 primarily due increase taxable noninterest income relative tax exempt income securities loans bank owned life insurance refer note 14 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2013 2012 company’s net income totaled 78 million 2013 compared 99 million 2012 per share basis diluted earnings per share 041 compared 053 diluted earnings per share 2012 2013 return average equity 666 compared 842 2012 return average assets 068 2013 089 2012 results 2013 included 863 thousand gains sales securities compared 11 million 2012 2013 company completed acquisition outstanding stock retirement planning consultancy national associates inc cleveland ohio company leading independent consultant retirement plans offers actuarial plan design compliance administrative services third party administrator nai provides services 401k defined benefit profit sharing flexible spending 403b esop plans acquiring nai company assumes professional staff highly qualified credentialed synergies cost savings resulting combining operations companies help drive increase noninterest income net interest income 2013 taxable equivalent net interest income decreased 822 thousand 212 2012 interestearning assets averaged 1061 billion 2013 increasing 304 million 295 compared 2012 company’s interestbearing liabilities decreased 034 8816 million 2012 8787 million 2013 total taxable equivalent interest income 430 million 2013 20 million less 450 million reported 2012 comparing years ending december 31 2013 2012 yields earning assets decreased 31 basis points cost interest bearing liabilities decreased 12 basis points average loans increased 306 million 542 2013 however yields decreased 571 2012 524 2013 tax equated income securities federal funds decreased 933 thousand 73 2013 farmers saw yields assets decreased 273 2012 253 2013 average balance investment securities federal funds sold decreased slightly 4654 million 2012 4652 million 2013 total interest expense amounted 51 million 2013 185 decrease 62 million reported 2012 decrease 2013 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 070 2012 058 2013 noninterest income total noninterest income increased 13 million 2013 increase noninterest income due several factors retirement plan consulting fees increased 477 thousand compared none 2012 reflecting income earned newly acquired entity nai service charges deposit accounts increased 20 million 2012 24 million 2013 company made adjustments service charge structure deposit accounts bank owned life insurance income increased 170 thousand company received tax free death benefits included income insurance agency commissions also increased 119 thousand trust fees increased 86 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue operating income also increased 406 thousand primarily result gain sale land owned company noninterest expenses noninterest expense 2013 391 million compared 358 million 2012 representing increase 33 million 92 increase result 117 increase salary employee benefits mainly due 13 million recorded severance costs majority severance costs associated departure company’s president ceo 2013 company underwent cost reduction program 2013 included closure two retail branch locations elimination several full time positions reduction number employees bank offset employees included acquisition nai including 17 employees nai 328 full time equivalent employees compared 335 one year ago professional fees increased 16 result corporate legal consulting fees related compensation practices business advisory fees intangible amortization increased 215 thousand result amortization intangible assets related acquisition nai merger related costs also increased 330 thousand operating expenses increased 193 thousand state local taxes also increased 110 thousand 91 result increase intangible tax paid state ohio due higher levels stockholders’ equity income taxes income tax expense totaled 17 million 2013 31 million 2012 effective income tax rate 178 2013 235 2012 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2014 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2014 bank eligible borrow additional 819 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2014 amounted 284 million farmers’ primary investing activities originating loans purchasing securities 2014 net cash provided investing activities amounted 62 million compared 280 million used 2013 net increases loans 354 million 2014 compared 455 2013 cash used lending activities 2014 attributed activity commercial real estate residential real estate commercial loan portfolios purchases securities available sale 644 million 2014 compared 1499 million 2013 proceeds maturities sales securities available sale 1066 million 2014 compared 1690 million 2013 21 million used purchase national associates inc year ended december 31 2013 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash used financing activities amounted 185 million 2014 compared 35 million provided 2013 majority change attributed change shortterm borrowings shortterm borrowings decreased 225 million 2014 compared 17 million increase 2013 company used 16 million acquisition treasury shares 2013 compared 29 million 2014 deposits provided 487 thousand 2014 used 38 million 2013 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2014 amounts commercial real estate loans december 31 2014 based remaining scheduled repayments principal shown following table total loans 6639 million yearend 2014 compared 6307 million yearend 2013 represents increase 53 increase loans mainly occurred commercial residential real estate commercial real estate loan portfolios loans comprised 595 bank’s average earning assets 2014 compared 561 2013 product mix loan portfolio includes commercial loans comprising 181 residential real estate loans 277 commercial real estate loans 335 consumer loans 207 december 31 2014 compared 167 270 344 219 respectively december 31 2013 loans contributed 735 total taxable equivalent interest income 2014 726 2013 loan yields 497 2014 95 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2014 increased 144 yearend 2013 outstanding balances 1202 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 81 1839 million december 31 2014 compared 1702 million 2013 farmers originated fixed rate adjustable rate mortgages 2014 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial real estate loans increased 2174 million december 31 2013 2226 million december 31 2014 increase 24 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios consistent improvements local economy several new projects announced mahoning valley stark county along decreased levels unemployment led small business owners expand make additional investments operations summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 19 million 2014 compared 13 million 2013 increase 590 thousand increase primarily due increase level chargeoffs overall 332 million increase total loans factors considered management’s estimate loan loss provisions adequacy allowance loan losses net chargeoffs year ended december 31 2014 18 million 465 thousand higher net chargeoffs year ended december 31 2013 allowance loan losses total loans decreased 120 december 31 2013 115 december 31 2014 conversely nonperforming loans total loans decreased 144 december 31 2013 128 december 31 2014 change ratio result decrease nonperforming loans 596 thousand december 31 2013 determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 64 thousand year aside various credit quality metrics discussed another reason increase current year allowance loan losses increase probable incurred losses associated commercial loan portfolio december 31 2014 loans individually evaluated impairment totaled 19 million allowance allocation 272 thousand compared commercial loans individually evaluated impairment 24 million allowance loan losses 110 thousand december 31 2013 commercial real estate loan portfolio experienced negative provision 50 thousand even though portfolio’s loan balances increased 22 2014 attributed reduction adversely classified commercial real estate loans year commercial loan portfolio’s allowance loan losses provision 357 thousand residential real estate loan portfolio provision 233 thousand consumer loan portfolio provision 14 million year ended december 31 2014 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows valuation collateraldependent impaired loans challenging component financial reporting process due timing loan identified impaired need timely close farmers’ books given period typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical extent external appraisal returns value estimate materially different internally generated estimate release interim annual financial statements farmers adjusts associated specific loss reserve necessary farmers’ consolidated financial statements difference ratio allowance loan losses nonperforming loans december 31 2014 8999 compared 8325 december 31 2013 decrease nonperforming loans primarily related commercial consumer loan portfolios nonperforming consumer loans decreased 150 thousand 2014 balance allowance loan losses remained 76 million 115 loans december 31 2014 ratio decreased 120 reported december 31 2013 company forgone interest income approximately 441 thousand nonaccrual loans december 31 2014 would earned life loans performed accordance original terms net chargeoffs percentage average loans outstanding increased 023 2013 028 2014 primary reason increase gross chargeoffs consumer portfolio increased 490 thousand 284 2013 2014 majority chargeoffs consumer portfolio related indirect auto loans significant allocation allowance loan losses performing commercial real estate loans classified internal loan review substandard loss experience average balance category loans past three years approximately 33 principal balance loans management’s allocation loans equates allocation approximately 250 thousand end 2014 compared allocation 295 thousand end 2013 allocation decreased due decrease historical loss experience substandard loans actual loss experience may less amount allocated december 31 2014 amount substandard loans continue accrue interest 85 million always management working address weaknesses specific loans may result loss allowance allocated four loan categories interpreted indication chargeoffs 2015 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 207 total loans 2014 net loan losses accounted 620 losses entire loan portfolio commercial loan category represents 181 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications net chargeoffs commercial real estate portfolio represents 335 total portfolio 26 thousand 2014 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion normally annual fee two percent charged issuance letter credit december 31 2014 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio decreased 332 million 2014 maturing security funds used fund loan portfolio growth excess balances federal funds sold strategically invested throughout year company’s investment strategy maintain diverse investment security portfolio higher concentration mortgagebacked securities issued us government sponsored enterprises taxfree municipal securities farmers sold 571 million securities 2014 resulting net security gains 457 thousand farmers recognized market appreciation faster paying mortgagebacked securities lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio 2014 company created investments subsidiary hold municipal securities take advantage favorable tax treatment december 31 2014 investments entity balance 295 million municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2014 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 35 99 thousand 161 thousand 270 thousand 104 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment decreased 138 thousand 2014 decrease net result normal depreciation asset additions throughout year deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year company’s average total deposits increased slightly 9105 million 2013 9168 million 2014 average savings deposits decreased 62 million average noninterest bearing deposits increased 235 million since december 31 2013 growth savings noninterest deposits offset decrease 189 million money market accounts interest rates continuing low customers little incentive commit funds term deposit accounts time deposits decreased 131 million customers moved deposit dollars time deposits seeking liquidity company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2014 core deposits savings money market accounts time deposits less 100 thousand demand deposits interest bearing demand deposits represented approximately 911 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose transaction help fund costs employee benefit plans cash surrender value policies 164 million december 31 2014 compared 159 million december 31 2013 borrowings shortterm borrowings decreased 225 million 275 since december 31 2013 securities sold agreements repurchase decreased 165 million longterm borrowings increased 86 million 432 result new 10 million federal home loan bank advance see note 9 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2014 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements note 10 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2014 company unconsolidated related special purpose entities company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 19 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 93 1130 million december 31 2013 1236 million 2014 increase equity mainly result 66 million increase accumulated comprehensive income change accumulated comprehensive income mainly due swing unrealized losses investment security portfolio 2013 unrealized gains 2014 net income past twelve months offset dividends paid year shareholders received total 012 per share cash dividends paid past four quarters book value increased 115 602 per share december 31 2013 671 per share december 31 2014 company’s tangible book value also increased 547 per share december 31 2013 623 per share december 31 2014 additionally company obtained 29 million treasury share repurchases 2014 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2014 farmers bank farmers required minimum tier 1 total capital ratios 400 800 respectively farmers bank farmers capital ratios minimum levels december 31 2014 2013 yearend 2014 2013 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank become subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retain onetime election existing treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios bank’s management expects bank fall within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses securities otherthantemporarily impaired impairment goodwill intangibles additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 2 securities note 3 loans sections captioned “loan portfolio” “investment securities” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period otherthantemporary impairment securities second critical accounting policy declines fair value securities cost temporary reflected realized losses estimating otherthantemporary losses management considers 1 length time extent reasons fair value less cost 2 financial condition near term prospects issuer 3 whether farmers intent sell debt security likely required sell debt security anticipated recovery management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s trust provide quality costeffective trust services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill resides books farmers trust nai estimated reviewing past projected operating results subsidiaries industry comparable information december 31 2014 consolidated basis farmers intangibles 32 million subject amortization 56 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2014 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 managements discussion analysis financial condition results operations 1219 item 8 item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2020 2019 2018 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements annual report form 10k contains “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical fact rather statements based farmers’ current expectations beliefs assumptions regarding future farmers’ business future plans strategies projections anticipated events trends intended results future performance economy future conditions forwardlooking statements preceded terms “will” “would” “should” “could” “may” “expect” “estimate” “believe” “anticipate” “intend” “plan” “project” variations words similar expressions forwardlooking statements guarantee future performance actual future results could differ materially contained forwardlooking information forwardlooking statements relate future subject inherent uncertainties risks changes circumstances difficult predict many outside control numerous uncertainties risks changes could cause contribute farmers’ actual results performance achievements materially different expressed implied forwardlooking statements factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following intended allencompassing list summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statement • general economic conditions markets company conducts business could materially impact credit quality trends • effects covid19 pandemic local national international economy organization employees customers suppliers business operations financial condition including customers’ ability repay loans • disruptions mortgage lending markets significant unexpected fluctuations interest rates related covid19 governmental responses including financial stimulus packages • general business conditions banking industry • regulatory environment • general fluctuations interest rates • demand loans market areas company conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • impact election regulatory landscape capital markets response management covid19 pandemic including provision additional economic stimulus federal government factors currently anticipated may also materially adversely affect company’s results operations cash flows financial position assurance future results meet expectations company believes forwardlooking statements presentation reasonable place undue reliance forwardlooking statement addition statements speak date made company undertake expressly disclaims obligation update alter statements whether result new information future events otherwise expect may required applicable law results operations comparison operating results years ended december 31 2020 2019 company’s net income totaled 419 million 2020 compared 358 million 2019 per share basis diluted earnings per share 147 compared 128 diluted earnings per share 2019 return average assets return average equity 146 1280 respectively year ending december 31 2020 compared 150 1256 2019 return average tangible equity excluding acquisition costs non gaap measure increased 1488 2019 1600 2020 january 7 2020 company completed acquisition maple leaf financial inc “maple leaf” parent company geauga savings bank branches located cuyahoga geauga counties ohio transaction involved cash 1398229 shares stock totaling 430 million pursuant terms merger agreement common shareholders maple leaf right receive 64000 cash 455948 common shares without par value company subject overall limitation 50 maple leaf common shares exchanged farmers common shares 50 exchanged cash holders outstanding unexercised warrants purchase maple leaf common shares received amount cash equal excess 64000 37000 exercise price warrants january 7 2020 maple leaf total assets 2770 million included gross loans 1821 million deposits 1831 million equity 321 million net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2020 taxable equivalent net interest income increased 141 million 166 2019 interestearning assets averaged 2664 billion 2020 increasing 4513 million compared 2019 company’s interestbearing liabilities increased 192 1656 billion 2019 1974 billion 2020 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2020 349 decreasing 353 2019 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2020 net interest margin measured fully taxable equivalent basis decreased 370 compared 382 2019 net interest margin excluding impact amortization accretion acquisitions nongaap decreased 5 basis points 4 basis points 365 378 years ended december 31 2020 2019 respectively accretion added 1098 thousand 759 thousand per month 2020 2019 continue next several years net interest margin also impacted ppp loan program excluding impact ppp loans net interest margin nongaap decreased 1 basis point 369 year ended december 31 2020 decrease net interest margin mainly due pressure decreasing rates federal reserve bank continued cut federal funds interest rate 2020 federal reserve bank cut target federal funds rate 000 025 total taxable equivalent interest income 1147 million 2020 106 million 1041 million reported 2019 increase mainly due increase average earning assets due organic growth acquisition maple leaf comparing years ending december 31 2020 2019 yields earning assets decreased 40 basis points cost interest bearing liabilities decreased 36 basis points average loans increased 3051 million 174 2020 however loan yield decreased 30 basis points 479 tax equated income securities federal funds increased 13 million 91 2020 farmers saw yields assets decrease 322 2019 265 2020 average balance investment securities federal funds sold also increased 4545 million 2019 6007 million 2020 decrease federal funds interest rate mentioned reduced cost shortterm borrowings interestbearing deposits 2020 total interest expense amounted 161 million 2020 177 decrease 196 million reported 2019 interestbearing deposits increased 3345 million 218 decreases interest rates paid deposits resulted 25 million 147 decrease interest expense deposit balances borrowings balances decreased 162 million 136 interest expense related borrowings decreased 10 million 361 total cost interestbearing deposits borrowings decreased 118 2019 082 2020 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 86 million 299 2020 increase noninterest income mainly due net gains sale loans increasing 44 million 2019 123 million 2020 increase debit card eft fees increasing 35 million 2019 39 million 2020 increase partially offset decrease income service charges deposit accounts 832 thousand bank company expect noninterest income remain steady decrease slightly 2021 management expects gain sales mortgage loans reduced 2021 noninterest expenses noninterest expense 2020 740 million compared 655 million 2019 representing increase 85 million 130 increase salaries employee benefits grew 26 million 71 mainly due temporary increase fte counts acquisition maple leaf employee bonuses paid result covid19 annual merit increases operating expenses increased 20 million 222 result increased mortgage servicing rights expense captive insurance company losses members pool made claims covid19 pandemic increases slightly offset drop professional fees 389 thousand 125 litigation settlement expenses 505 thousand excluding expenses related acquisition activities nongaap noninterest expenses measured percentage average assets decreased 275 2019 258 2020 company’s tax equivalent efficiency ratio twelvemonth period ended december 31 2020 5282 compared 5659 period 2019 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 84 million 2020 73 million 2019 income taxes computed using appropriate effective tax rates period effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 167 2020 170 2019 decreased effective tax rate due additions nontaxable municipal securities portfolio anticipate effective rate 2021 range 15 17 refer note 18 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2019 2018 company’s net income totaled 358 million 2019 compared 326 million 2018 per share basis diluted earnings per share 128 compared 116 diluted earnings per share 2018 return average assets return average equity 150 1256 respectively year ending december 31 2019 compared 146 1313 2018 return average tangible equity excluding acquisition costs non gaap measure decreased 1595 2018 1488 2019 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2019 taxable equivalent net interest income increased 42 million 52 2018 interestearning assets averaged 2212 billion 2019 increasing 1378 million compared 2018 company’s interestbearing liabilities increased 67 1553 billion 2018 1656 billion 2019 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2019 353 decreasing 366 2018 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2019 net interest margin measured fully taxable equivalent basis decreased 382 compared 387 2018 net interest margin excluding impact amortization accretion acquisitions nongaap decreased 5 basis point 378 year ended december 31 2019 accretion added 759 thousand per month 2019 continue next several years decrease net interest margin mainly due pressure decreasing rates federal reserve bank continued cut federal funds interest rate 2019 federal funds interest rate decreased 3 times total 75 basis points year total taxable equivalent interest income 1041 million 2019 105 million 936 million reported 2018 comparing years ending december 31 2019 2018 yields earning assets increased 20 basis points cost interest bearing liabilities increased 33 basis points average loans increased 1253 million 77 2019 loan yield increased 18 basis points 509 tax equated income securities federal funds increased 12 million 89 2019 farmers saw yields assets increase 304 2018 322 2019 average balance investment securities federal funds sold also increased 4420 million 2018 4545 million 2019 decrease federal funds interest rate mentioned reduced cost shortterm borrowings 2019 even rate decrease total interest expense amounted 196 million 2019 478 increase 133 million reported 2018 interestbearing deposits increased 2716 million 215 increases interest rates paid deposits resulted 87 million 1071 increase interest expense deposit balances borrowings balances decreased 1681 million 584 interest expense related borrowings decreased 24 million 464 total cost interestbearing deposits borrowings increased 085 2018 118 2019 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 31 million 122 2019 increase noninterest income due several factors trust fee income increased 71 million 75 million representing increase 349 thousand 49 resulting growth new customers increase market value trust assets commissions sale investment products increased 303 thousand 275 2019 net gains sale loans increased 27 million 2018 44 million 2019 630 insurance agency commissions increased 29 million compared 26 million 2018 increases offset decrease income retirement plan consulting fees 195 thousand decrease security gains 229 thousand bank company expect noninterest income increase 2020 management continues focus growing various sources noninterest income noninterest expenses noninterest expense 2019 655 million compared 627 million 2018 representing increase 27 million 44 increase salaries employee benefits grew 12 million 33 mainly due merit increases salaries operating expenses increased 628 thousand merger related expenses increased 352 thousand company also incurred 505 thousand litigation expense expected future years increases offset drop fdic insurance 568 thousand telephone data expense 113 thousand excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 282 2018 275 2019 company’s tax equivalent efficiency ratio twelvemonth period ended december 31 2019 5659 compared 5793 period 2018 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 73 million 2019 57 million 2018 income taxes computed using appropriate effective tax rates period effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 170 2019 149 2018 increased effective tax rate due income tax liability adjustments refer note 18 consolidated financial statements additional information regarding effective tax rate loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate agricultural loans listed december 31 2020 amounts commercial real estate agricultural loans december 31 2020 based remaining scheduled repayments principal shown following table total loans 21 billion yearend 2020 compared 18 billion yearend 2019 representing increase 147 excluding 1821 million loans added maple leaf acquisition loan growth 47 increase loans direct result farmers’ focus loan growth utilizing talented lending credit team adhering sound underwriting discipline addition ppp loans 2020 increase loans occurred commercial real estate agricultural residential real estate commercial loan portfolios loans comprised 775 bank’s average earning assets 2020 compared 795 2019 product mix loan portfolio includes commercial loans comprising 193 residential real estate loans 252 commercial real estate loans 343 consumer loans 100 agricultural loans 112 december 31 2020 compared 141 276 340 119 124 respectively december 31 2019 loans contributed 861 total taxable equivalent interest income 2020 860 2019 loan yields 479 2020 48 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2020 increased 570 yearend 2019 outstanding balances 4010 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 48 5233 million december 31 2020 compared 4993 million 2019 farmers originated fixed rate adjustable rate mortgages 2020 fixed rate terms generally limited fifteenyear terms adjustable rate products offered maturities thirty years commercial real estate loans increased 6155 million december 31 2019 7128 million december 31 2020 increase 973 million 158 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios mainly due ppp loan program loans added acquisition maple leaf agricultural loans increased 2263 million 2019 2320 million 2020 increase 58 million 26 company’s agricultural loan portfolio contains diverse mix dairy crops land poultry cattle loans summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 91 million 2020 compared 25 million 2019 increase 67 million larger provision current year mainly result current economic conditions resulting global outbreak covid19 determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses net chargeoffs year ended december 31 2020 14 million 112 thousand 72 less net chargeoffs year ended december 31 2019 allowance loan losses total loans increased 107 december 31 2020 compared 080 december 31 2019 acquired loans previous mergers excluded ratio 123 december 31 2020 090 december 31 2019 increase attributed uncertainty surrounding current economic environment caused pandemic additionally loans collectively evaluated impairment excludes acquired loans compared allowance loan losses loans collectively evaluated impairment ratio 120 year ended december 31 2020 compared 089 year ended december 31 2019 nonperforming loans total loans increased 035 december 31 2019 067 december 31 2020 accordance accounting relief provisions cares subsequent provisions health economic recovery omnibus emergency solutions heroes acts bank postponed adoption current expected credit losses “cecl” accounting standard 2020 primarily due impact covid19 pandemic economy lack reasonable supportable economic forecasts company adopted asu 201613 january 1 2021 company recorded onetime adjustment equity comply asu adoption increased allowance loan losses 5 10 expected management expect amount change first quarter 2021 retains option make adjustments new information becomes available provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 77 million year increased provision determined required result impact increased negative factors exist current economic environment resulting global pandemic december 31 2020 commercial loans collectively evaluated impairment totaled 4244 million allowance allocation 45 million compared commercial loans collectively evaluated impairment 2900 million allowance loan losses 23 million december 31 2019 commercial loan portfolio experienced provision 30 million compared 417 thousand provision 2019 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical adjusts associated specific loss reserve necessary ratio allowance loan losses nonperforming loans december 31 2020 1601 compared 22832 december 31 2019 due increases nonaccrual loans loan portfolios balance allowance loan losses also increased 2020 221 million 145 million 2019 mainly due uncertainty surrounding current economic environment pandemic times lesser extent increased loan portfolio size company forgone interest income approximately 516 thousand nonaccrual loans december 31 2020 would earned life loans performed accordance original terms company offered three month deferrals upon request borrowers good standing impacted covid19 accordance interagency guidance coronavirus aid relief economic security cares act deferral requests began middle march 2020 concluded end three month deferral period company granted second three month deferral period second deferral period offered select group customers within specific industry codes may higher credit risk see note 4 loans details discussion net chargeoffs percentage average loans outstanding decreased 009 2019 004 2020 result larger loan portfolio net chargeoffs decreased 16 million 2019 14 million 2020 increase gross chargeoffs experienced commercial loan commercial real estate loan portfolios 212 thousand 77 thousand respectively offset decreases residential real estate loan consumer loan portfolios 228 thousand 355 thousand respectively following table summarizes company’s allocation allowance loan losses past five years allowance allocated four loan categories interpreted indication chargeoffs 2020 occurred proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 100 total loans 2020 gross chargeoffs accounted 656 losses entire loan portfolio commercial loan category represents 193 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications gross chargeoffs commercial loan portfolio 412 thousand 2020 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion annual fee two percent charged issuance letter credit december 31 2020 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 1423 million 2020 increase result asset growth 2020 deposit growth result banking customers seeking safety additional cash customer’s hands result federal stimulus legislation maintaining security portfolio constant level percentage total assets company’s investment strategy maintain diverse investment security portfolio higher concentration taxfree municipal securities mortgagebacked securities issued us government sponsored enterprises farmers sold 189 million securities 2020 resulting net security gains 385 thousand farmers recognized market appreciation faster paying mortgagebacked securities recognized losses lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio company investment subsidiary hold municipal securities take advantage favorable tax treatment december 31 2020 investment entity balance 1723 million general market taxfree municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods increasing mortgage interest rates refinancing generally slows prepayments underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2020 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 21 9 thousand 24 thousand 146 thousand 22 million four ranges maturities 2 payments based contractual maturity premises equipment premises equipment net increase 18 million 2020 result additions 22 million disposals 579 thousand depreciation 15 million addition 17 million net lease obligations capitalized added premises equipment 2020 deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits including 320 million brokered time deposits added first time 2018 brokered deposits added additional way control reduce company’s cost funds year company’s average total interestbearing deposits increased 1966 billion 2019 2417 billion 2020 representing increase 230 geauga acquisition adding 1833 million average noninterest demand deposits increased 1169 million 2020 average interest bearing demand deposits increased 2150 million average savings deposits increased 513 million since december 31 2019 average time deposits increased 790 million 2020 company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2020 core deposits savings money market accounts time deposits less 250 thousand demand deposits interest bearing demand deposits represented approximately 934 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose investment help fund costs employee benefit plans 2020 bank purchased additional 15 million bank owned life insurance cash surrender value policies 513 million december 31 2020 compared 355 million december 31 2019 borrowings average shortterm borrowings decreased 754 million 784 since december 31 2019 result using brokered time deposits place expensive fhlb borrowings additional organic deposits discussed helped reduced need shortterm borrowings average longterm borrowings increased 591 million maturing shortterm fhlb advances refinanced capitalize favorable longterm interest rates see note 12 13 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2020 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements also 796 thousand additional commitment sbic investment funds next several years payments predetermined due dates year end 2020 note 13 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2020 company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 22 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 170 2993 million december 31 2019 3501 million 2020 increase due net income addition retained earnings less amount dividends paid year shareholders received total 044 per share cash dividends paid past four quarters 158 increase compared 038 cash dividends per share paid 2019 book value increased 148 1082 per share december 31 2019 1242 per share december 31 2020 company’s tangible book value also increased 928 per share december 31 2019 1066 per share december 31 2020 increase 149 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2020 new minimum capital requirements associated basel committee capital liquidity regulation basel iii farmers bank farmers required minimum capital ratios actual minimum ratios detailed note 16 consolidated financial statements farmers bank farmers capital ratios minimum levels december 31 2020 2019 yearend 2020 2019 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank became subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retained onetime election prior treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios mentioned prior paragraph bank falls within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses impairment goodwill intangibles estimating fair value assets acquired liabilities assumed connection merger activity additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 4 loans note 2 business combinations section captioned “loan portfolio” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies us gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s subsidiaries provide quality costeffective services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods us gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill estimated reviewing past projected operating results subsidiaries comparable industry information december 31 2020 consolidated basis farmers intangibles 38 million subject amortization 458 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2019 2020 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2012 2011 2010 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements • general economic conditions market areas farmers conducts business could materially impact credit quality trends • business conditions banking industry • regulatory environment • fluctuations interest rates • demand loans market areas farmers conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2012 2011 company’s net income totaled 99 million 2012 compared 92 million 2011 per share basis diluted earnings per share 053 compared 050 diluted earnings per share 2011 common comparative ratios results operations include return average assets return average stockholders’ equity 2012 return average equity 842 compared 876 2011 return average assets 089 2012 2011 results 2012 included 11 million gains sales securities compared 18 million 2011 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2012 taxable equivalent net interest income increased 292 thousand 076 2011 interestearning assets averaged 1030 billion 2012 increasing 712 million 742 compared 2011 company’s interestbearing liabilities increased 497 8399 million 2011 8816 million 2012 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicatorsnet interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2012 366 decreasing 390 2011 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2012 net interest margin measured fully taxable equivalent basis decreased 376 compared 401 2011 decrease net interest margin largely result change mix interest earning assets loans yield securities comprised smaller level interestearning assets current year 2012 loans 548 average earning assets compared 586 2011 total taxable equivalent interest income 450 million 2012 13 million less 463 million reported 2011 average loans increased 31 million 055 2012 yields decreased 597 2011 571 2012 income securities federal funds decreased 54 thousand 042 2012 farmers saw yields assets decrease 321 2011 273 2012 average balance investment securities federal funds sold increased 171 2012 mainly due increases customer deposits outpacing opportunities grow loans total interest expense amounted 62 million 2012 207 decrease 78 million reported 2011 decrease 2012 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 093 2011 070 2012 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 39 thousand 2012 increase noninterest income primarily due income sale loans increasing 113 thousand twelve months ended december 31 2011 598 thousand twelve month period 2012 company decided sell residential real estate loans originates order decrease interest rate risk reduce liquidity risk diversify revenue streams increase loans sold income offset decrease security gains 745 thousand higher 2011 trust fees also increased 142 thousand investment commissions increased 83 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue noninterest expenses noninterest expense 2012 358 million compared 337 million 2011 representing increase 21 million 60 increase result 128 increase salary employee benefits resulting higher number employees current year 561 thousand 346 increase health insurance costs higher employee count attributed primarily secondary mortgage project expansion occupancy equipment expense also increased 578 thousand result depreciation expense small equipment costs related new facilities professional fees increased 10 result corporate legal consulting fees related compensation practices business advisory fees also 86 thousand 16 decrease operating expenses 2012 compared 2011 mainly related new facilities opened 2012 expense increases offset 12 million prepayment penalties paid federal home loan bank cincinnati prior year compared none 2012 state local taxes also increased 248 thousand 260 result increase intangible tax paid state ohio due higher levels stockholders’ equity core processing charges also increased 126 thousand due higher number accounts new banking products customers company’s tax equivalent efficiency ratio twelve month period ended december 31 2012 6994 compared 6714 period 2011 main factor leading decline efficiency ratio increase noninterest expenses explained earlier section efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 31 million 2012 25 million 2011 income taxes computed using appropriate effective tax rates period increase current year tax expense mainly attributed 12 million increase income taxes effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 235 2012 216 2011 effective tax rate increase period 2011 primarily due reduction amount tax exempt municipal securities income percentage total income year refer note 14 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2011 2010 company’s net income totaled 92 million 2011 compared 90 million 2010 per share basis diluted earnings per share 050 2011 compared 066 2010 2011 return average equity 876 compared 1046 2010 return average assets 089 2011 087 2010 net interest income 2011 taxable equivalent net interest income decreased 508 thousand 13 less 2010 interestearning assets averaged 9592 million 2011 increasing 82 million 087 compared 2010 2011 net interest margin measured fully taxable equivalent basis 401 comparison 410 2010 total taxable equivalent interest income 463 million 2011 37 million less 500 million reported 2010 decrease primarily result change mix interest earning assets 2011 loans yield securities 586 average earning assets compared 630 2010 average loan balances decreased 371 million 619 yields decreased 622 2010 597 2011 income securities federal funds sold increased 32 thousand 025 2011 though company saw yields assets decrease 362 2010 321 2011 average balances investment securities federal funds sold increased 129 2011 mainly due increases customer deposits proceeds company’s public offering combine limited opportunities grow loans total interest expense amounted 78 million 2011 287 decrease 110 million reported 2010 decrease 2011 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 127 2010 093 2011 noninterest income total noninterest income 2011 decreased 671 thousand decrease result 876 thousand decrease gains sales securities 2011 farmers sold 510 million securities recognize market appreciation existing holdings pay 119 million fhlb advances order reduce cost funds reinvested remaining 391 million diversify securities portfolio bank owned life insurance income also decreased 399 thousand 2011 decrease primarily due receipt death benefit proceeds excess cash value 2010 included income decreases noninterest income offset increases trust fee income 455 thousand investment commissions 323 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue noninterest expenses noninterest expense 2011 337 million compared 310 million period 2010 representing increase 28 million 89 increase result 12 million prepayment penalty related payoff advances fhlb advances paid prior maturity decrease farmers’ cost funds improve regulatory risk based capital ratios strategy also allows company remove longer duration assets order improve market value company’s capital rising rate environment also 677 thousand 148 increase operating expenses 2011 compared 2010 mainly due higher consulting real estate owned expenses increase partially offset fdic insurance expense decrease 2011 475 thousand 364 2010 due change assessment base fdic assessments based asset size opposed based deposit size prior years salaries employee benefits also increased 11 million primarily resulting higher number employees higher employee count attributed primarily newly created north canton office well staff added originate sell residential real estate loans secondary market income taxes income tax expense totaled 25 million 2011 2010 effective income tax rate 216 2011 221 2010 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2012 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2012 bank eligible borrow additional 849 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2012 amounted 104 million farmers’ primary investing activities originating loans purchasing securities 2012 net cash used investing activities amounted 823 million compared 690 million 2011 net increases loans 193 million 2012 compared 148 million net decrease 2011 purchases securities available sale 2374 million 2012 compared 1715 million 2011 proceeds maturities sales securities available sale 1757 million 2012 compared 941 million 2011 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash financing activities amounted 567 million 2012 compared 701 million 2011 change result proceeds common stock offering amounting 138 million 2011 compared none 2012 another factor contributing change repayment federal home loan bank borrowings 2011 amounting 135 million 2011 compared 840 thousand 2012 deposits increased 789 million 2012 compared 791 million 2011 also shortterm borrowings decreased 182 million 2012 compared 75 million decrease 2011 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2012 amounts commercial real estate loans december 31 2012 based remaining scheduled repayments principal shown following table total loans 5866 million yearend 2012 compared 5718 million yearend 2011 represents increase 259 increase loans mainly occurred commercial loan portfolio loans comprised 548 bank’s average earning assets 2012 compared 586 2011 product mix loan portfolio includes commercial loans comprising 166 residential real estate loans 266 commercial real estate loans 342 consumer loans 226 december 31 2012 compared 131 292 346 231 respectively december 31 2011 loans contributed 717 total taxable equivalent interest income 2012 724 2011 loan yield 571 2012 135 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral consumer loans increased 1319 million december 31 2011 1326 million december 31 2012 representing 06 increase management continues target automobile dealer network purchase indirect installment loans dealer paper purchased using strict underwriting guidelines emphasis quality indirect loans comprise 90 consumer loan portfolio net chargeoffs consumer loan portfolio increased 374 thousand 2012 compared 276 thousand 2011 residential real estate mortgage loans decreased 65 1562 million december 31 2012 compared 1670 million 2011 decrease result decision sell residential real estate mortgage loans originated 2012 secondary market commercial real estate loans increased 13 1980 million 2011 2007 million 2012 farmers originated fixed rate adjustable rate mortgages 2012 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial loans december 31 2012 increased 297 yearend 2011 outstanding balances 971 million growth commercial loan portfolio consistent improvements local economy several new projects announced mahoning valley along decreased levels unemployment led small business owners expand make additional investments operations bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 725 thousand 2012 compared 37 million 2011 decrease 29 million decrease primarily due fewer chargeoffs lower level total delinquencies lower level nonaccrual nonperforming loans significant decline substandard rated credits year ago period factors considered management’s estimate loan loss provisions adequacy allowance loan losses nonperforming loans total loans decreased 193 december 31 2011 140 december 31 2012 change ratio result decrease nonperforming loans 28 million december 31 2011 although net chargeoffs year ended december 31 2012 22 million higher provision loan losses higher provision necessary higher loss history quarters rolling company’s 12 quarter past experience used estimate adequacy allowance loan losses lower provision also impacted result chargeoffs year specifically reserved prior year determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters periods prior first quarter 2012 management used historical loss percentage based past 8 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectibility existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses decreased 22 million year aside improvement various credit quality metrics discussed another reason decrease current year allowance loan losses decrease specific allocation impaired loans december 31 2012 loans individually identified impaired totaled 114 million allowance allocation 180 thousand end 2011 loans considered impaired 104 million allowance allocation 985 thousand loans individually identified impaired include nonaccrual commercial real estate loans contractual terms modified represent troubled debt restructurings impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows valuation collateraldependent impaired loans challenging component financial reporting process due timing loan identified impaired need timely close farmers’ books given period typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical extent external appraisal returns value estimate materially different internally generated estimate release interim annual financial statements farmers adjusts associated specific loss reserve necessary farmers’ consolidated financial statements difference ratio allowance loan losses nonperforming loans december 31 2011 8919 compared 9272 december 31 2012 decrease nonperforming loans primarily related commercial real estate residential real estate portfolios balance allowance loan losses 76 million 130 loans december 31 2012 ratio decreased 172 reported december 31 2011 nonperforming assets 1 included nonaccrual loans company forgone interest income approximately 91 thousand nonaccrual loans december 31 2012 would earned year loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 056 2011 052 2012 primary reason improvement related residential real estate loan portfolio experiencing decrease net chargeoffs 13 million 2011 702 thousand 2012 company’s net chargeoffs primarily concentrated commercial real estate commercial industrial residential real estate loans net losses commercial real estate loans accounted 333 total net losses commercial industrial loans accounted 298 total net losses residential real estate loans represented 241 total significant allocation allowance loan losses performing commercial real estate loans classified internal loan review substandard loss experience average balance category loans past three years approximately 771 principal balance loans management’s allocation loans equates allocation approximately 935 thousand end 2012 compared allocation 16 million end 2011 allocation decreased due decrease historical loss experience substandard loans well decrease total balance substandard loans actual loss experience may less amount allocated december 31 2012 amount substandard loans continue accrue interest 156 million always management working address weaknesses specific loans may result loss allowance allocated four loan categories interpreted indication chargeoffs 2013 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses onetofour family real estate loan category represents approximately 266 total loans 2012 net loan losses accounted 241 losses entire loan portfolio commercial loan category represents 166 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications commercial real estate loan category represents 342 total loan portfolio loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion normally annual fee two percent charged issuance letter credit december 31 2012 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 641 million 2012 excess balances federal funds sold strategically invested throughout year company’s investment strategy maintain diverse investment security portfolio higher concentration mortgagebacked securities issued us government sponsored enterprises taxfree municipal securities important note 2012 company increased investment small business administration securities guaranteed full faith credit us government order diversify holdings farmers also sold 912 million securities 2012 resulting net security gains 11 million farmers recognized market appreciation faster paying mortgagebacked securities lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2012 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 35 19 thousand 514 thousand 641 thousand 309 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment increased 20 million 2012 increase related management’s decision expand branch network foot print trumbull county relocate mahoning county trust office relocate stark county office leased facility new branch facility trumbull county houses trumbull county offices farmers trust completed summer 2012 addition farmers trust new building mahoning county also houses insurance operations members commercial lending team new location provides company ability add staff private banking building opened operations february 2012 deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year company’s average total deposits increased 128 7908 million 2011 8920 million 2012 money market account balances increased 321 million noninterest bearing deposits increased 359 million since december 31 2011 interest rates low customers little incentive commit funds term deposit accounts growth money market accounts offset decrease time deposits 199 million customers moved deposit dollars time deposits seeking liquidity company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2012 core deposits savings money market accounts time deposits less 100 thousand demand deposits interest bearing demand deposits represented approximately 91 total deposits see note 7 within item 8 annual report form 10k additional detail bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose transaction help fund costs employee benefit plans cash surrender value policies 155 million december 31 2012 compared 150 million december 31 2011 borrowings shortterm borrowings decreased 182 million 186 since december 31 2011 decrease resulted securities sold repurchase agreements decreasing 175 million 18 longterm borrowings decreased 840 thousand 75 mainly result repayment federal home loan bank advances see note 8 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2012 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements commitments 12312012 note 10 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2012 company unconsolidated related special purpose entities company engage derivatives hedging contracts interest rate swaps may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes capital resources total stockholders’ equity increased 56 1144 million december 31 2011 1208 million 2012 increase equity mainly result net income offset cash dividends paid shareholders past twelve months year farmers issued 45 thousand shares dividend reinvestment program shareholders received total 018 per share cash dividends paid past four quarters including two special 003 cash dividends paid february 28 december 31 2012 book value increased 54 610 per share december 31 2011 643 per share december 31 2012 company’s tangible book value also increased 61 576 per share december 31 2011 611 per share december 31 2012 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2012 farmers bank farmers required minimum tier 1 total capital ratios 400 800 respectively farmers bank farmers capital ratios minimum levels december 31 2012 2011 yearend 2012 2011 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses securities otherthantemporarily impaired impairment goodwill intangibles additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 2 securities note 3 loans sections captioned “loan portfolio” “investment securities” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period otherthantemporary impairment securities second critical accounting policy declines fair value securities cost temporary reflected realized losses estimating otherthantemporary losses management considers 1 length time extent reasons fair value less cost 2 financial condition near term prospects issuer 3 whether farmers intent sell debt security likely required sell debt security anticipated recovery management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s trust provide quality costeffective trust services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill resides books farmers trust estimated reviewing past projected operating results subsidiary trust banking industry comparable information december 31 2012 consolidated basis farmers intangibles 23 million subject amortization 37 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2012 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2017 2016 2015 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements • general economic conditions market areas farmers conducts business could materially impact credit quality trends • business conditions banking industry • regulatory environment • fluctuations interest rates • demand loans market areas farmers conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2017 2016 company’s net income totaled 227 million 2017 compared 206 million 2016 per share basis diluted earnings per share 082 compared 076 diluted earnings per share 2016 return average assets return average equity 109 992 respectively year ending december 31 2017 compared 107 972 2016 excluding 18 million adjustment net deferred tax asset resulting tax cuts jobs act became law december 2017 524 thousand expenses related acquisition activities net income 2017 would 248 million 090 per diluted share return average assets return average equity would 119 1083 return average tangible equity would 1348 december 22 2017 hr1 known “tax cuts jobs act” signed law hr1 among things reduces corporate income tax rate 21 effective january 1 2018 result passage new tax law farmers completed revaluation net deferred tax assets company’s deferred tax assets net deferred tax liabilities represent corporate tax benefits anticipated realized future reduction federal corporate tax rate effective january 1 2018 reduces benefits farmers determined net deferred tax assets would reduced approximately 18 million fourth quarter 2017 representing impact earnings per share approximately 006 per diluted share based fourth quarter weighted average diluted shares outstanding approximately 275 million august 15 2017 company completed acquisition monitor bancorp inc “monitor” holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value farmers national banc corp subject overall limitation 85 monitor common shares exchanged farmers common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price farmers common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 june 1 2016 bank completed acquisition bowers insurance agency inc bowers merged bowers insurance bank’s whollyowned insurance agency subsidiary bowers continue operate cortland ohio location enhance company’s current product lineup offer broader options commercial farm home auto propertycasualty insurance carriers meet needs company’s customers transaction involved cash 123280 shares stock totaling 32 million including 12 million future payments contingent upon bowers meeting performance targets goodwill 18 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 16 million related client relationships company name noncompetition agreements net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2017 taxable equivalent net interest income increased 61 million 87 2016 interestearning assets averaged 1923 billion 2017 increasing 1620 million compared 2016 company’s interestbearing liabilities increased 73 1351 billion 2016 1449 billion 2017 previously mentioned acquisition monitor increased interestearning assets 381 million interestbearing liabilities 178 million completion date company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2017 388 decreasing 394 2016 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2017 net interest margin measured fully taxable equivalent basis decreased 399 compared 401 2016 net interest margin excluding impact amortization accretion acquisitions improved one basis point 396 year ended december 31 2017 accretion added 496 thousand per month 2017 continue next several years slight decrease net interest margin mainly due pressure increasing deposit rates federal reserve bank continues raise federal funds interest rate total taxable equivalent interest income 837 million 2017 86 million 751 million reported 2016 comparing years ending december 31 2017 2016 yields earning assets increased 9 basis points cost interest bearing liabilities increased 15 basis points average loans increased 1492 million 111 2017 loan yield decreased one basis point 473 tax equated income securities federal funds increased 18 million 159 2017 farmers saw yields assets increase 272 2016 305 2017 average balance investment securities federal funds sold also increased 4168 million 2016 4296 million 2017 total interest expense amounted 69 million 2017 572 increase 44 million reported 2016 increase 2017 result 491 million 44 increase interestbearing deposits 491 million 212 increase borrowings cost interestbearing liabilities increased 032 2016 047 2017 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 807 thousand 35 2017 increase noninterest income due several factors gains sale mortgage loans increased 28 million 31 million representing increase 300 thousand 8 insurance agency commissions also increased 24 million compared 16 million 2016 service charges deposit accounts increased 40 million 2016 41 million 2017 reflecting size company two bank acquisitions debit card interchange fees also increased 430 thousand 161 increases offset decrease operating income 478 thousand decrease investment commissions 291 thousand bank company expect amounts increase 2018 management continues focus growing various sources noninterest income noninterest expenses noninterest expense 2017 616 million compared 595 million 2016 representing increase 21 million 36 increase salaries employee benefits increased 29 million 89 mainly due increase salaries previously mentioned acquisition bowers completed june 1 2016 resulted seven months expense 2016 compared full year 2017 company also experienced increase employee health care insurance expense 2017 company’s full time equivalent employees “fte” increased 10 december 31 2016 december 31 2017 operating expenses decreased 10 million result increased efficiencies gained company grew 2017 excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 306 2016 293 2017 company’s tax equivalent efficiency ratio twelve month period ended december 31 2017 5966 compared 6159 period 2016 excluding expenses related acquisition activities efficiency ratio year ended december 31 2017 improved 5879 compared 6099 2016 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 101 million 2017 75 million 2016 income taxes computed using appropriate effective tax rates period increase current year tax expense result 169 increase income taxes 28 million 2016 328 million 2017 previously mentioned tax cuts jobs act also added 18 million current year’s income tax expense result writedown company’s deferred tax asset 35 21 effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 307 2017 267 2016 based early projections anticipate new effective tax rate 2018 could range 15 19 refer note 16 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2016 2015 company’s net income totaled 206 million 2016 compared 81 million 2015 per share basis diluted earnings per share 076 compared 036 diluted earnings per share 2015 excluding expenses related acquisition activities net income 2016 would 210 million 078 per share net income 2015 would 129 million 057 per share common comparative ratios results operations include return average assets return average stockholders’ equity 2016 return average equity 972 compared 497 2015 return average assets 107 2016 054 2015 excluding expenses related acquisition activities return average assets return average stockholders’ equity 109 992 2016 compared 087 795 2015 respectively results 2016 included 73 thousand gains sales securities compared 94 thousand 2015 net interest income 2016 taxable equivalent net interest income increased 188 million 363 2015 interestearning assets averaged 1761 billion 2016 increasing 3986 million compared 2015 company’s interestbearing liabilities increased 278 1057 billion 2015 1351 billion 2016 nboh tristate acquisitions increased interestearning assets 6475 million interestbearing liabilities 6055 million respective completion dates total taxable equivalent interest income 751 million 2016 191 million 560 million reported 2015 comparing years ending december 31 2016 2015 yields earning assets increased 15 basis points cost interest bearing liabilities decreased similarly seven basis points average loans increased 3889 million 407 2016 loan yield remained unchanged 474 tax equated income securities federal funds increased 591 thousand 550 2016 farmers saw yields assets increase slightly 264 2015 272 2016 average balance investment securities federal funds sold also increased 4072 million 2015 4168 million 2016 total interest expense amounted 44 million 2016 70 increase 41 million reported 2015 increase 2016 result 2049 million increase interestbearing deposits 890 million increase borrowings cost interestbearing liabilities decreased 039 2015 032 2016 noninterest income total noninterest income increased 49 million 2016 increase noninterest income due several factors gains sale mortgage loans increased 11 million 28 million representing increase 17 million insurance agency commissions also increased 16 million compared 569 thousand 2015 service charges deposit accounts increased 33 million 2015 40 million 2016 reflecting size company two bank acquisitions debit card interchange fees also increased 780 thousand 415 operating income also increased 599 thousand primarily result positive impact account level transaction volumes merger related growth noninterest expenses noninterest expense 2016 595 million compared 540 million 2015 representing increase 55 million 101 increase salaries employee benefits increased 53 million 198 mainly due increase number employees resulting mergers company’s full time equivalent employees “fte” increased 85 december 31 2015 december 31 2016 occupancy equipment costs also increased 12 million due additional banking locations resulting mergers excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 321 2015 306 2016 company’s tax equivalent efficiency ratio 12 month period ended december 31 2016 6159 compared 7526 period 2015 excluding expenses related acquisition activities efficiency ratio year ended december 31 2016 improved 6099 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 75 million 2016 25 million 2015 increase current year tax expense mainly attributed 175 million increase income taxes effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 267 2016 237 2015 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit three major domestic banks december 31 2017 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2017 bank eligible borrow additional 60 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2017 amounted 2198 million farmers’ primary investing activities originating loans purchasing securities 2017 net cash used investing activities amounted 1371 million compared 1154 million used 2016 net increases loans 1323 million 2017 compared 1332 million 2016 cash used lending activities 2017 attributed activity commercial real estate residential real estate agricultural loan portfolios purchases securities available sale 1146 million 2017 compared 526 million 2016 proceeds maturities sales securities available sale 976 million 2017 compared 714 million 2016 net cash 163 million received result acquisition monitor 2017 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash provided financing activities amounted 1224 million 2017 compared 767 million 2016 majority increase attributed net change shortterm borrowings company increased shortterm borrowings 911 million 2017 compared 274 million decrease 2016 increase shortterm borrowings mainly result loan growth outpacing deposit growth 2017 deposits increased 454 million 2017 compared 1157 million increase 2016 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2017 amounts commercial real estate agricultural loans december 31 2017 based remaining scheduled repayments principal shown following table total loans 16 billion yearend 2017 compared 14 billion yearend 2016 loans grew 9 organically past twelve months organic increase loans direct result farmers’ focus loan growth utilizing talented lending credit team adhering sound underwriting discipline increase loans occurred commercial real estate agricultural residential real estate commercial loan portfolios loans comprised 777 bank’s average earning assets 2017 compared 763 2016 company also experienced growth originated loans portfolio result loans previously acquired earlier bank mergers renewed recorded originated book product mix loan portfolio includes commercial loans comprising 139 residential real estate loans 297 commercial real estate loans 325 consumer loans 135 agricultural loans 104 december 31 2017 compared 143 301 312 153 91 respectively december 31 2016 loans contributed 843 total taxable equivalent interest income 2017 849 2016 loan yields 473 2017 38 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2017 increased 76 yearend 2016 outstanding balances 2200 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 4689 million december 31 2017 compared 4302 million 2016 farmers originated fixed rate adjustable rate mortgages 2017 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial real estate loans increased 4460 million december 31 2016 5125 million december 31 2017 increase 665 million 149 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios consistent improvements local economy several new projects announced company’s market area along decreased levels unemployment led small business owners expand make additional investments operations agricultural loans increased 1290 million 2016 1631 million 2017 increase 341 million 264 company’s agricultural loan portfolio contains diverse mix dairy crops land poultry cattle loans summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 34 million 2017 compared 39 million 2016 decrease 520 thousand decrease primarily due lower level net chargeoffs 2017 decrease past due nonperforming loans net chargeoffs year ended december 31 2017 19 million 109 thousand less net chargeoffs year ended december 31 2016 allowance loan losses total loans increased 076 december 31 2016 078 december 31 2017 acquired loans nboh tristate mergers excluded ratio 097 december 31 2017 103 december 31 2016 compares similarly periods prior 2015 presented table additionally loans collectively evaluated impairment excludes acquired loans compared allowance loan losses loans collectively evaluated impairment ratio 096 year ended december 31 2017 compared 101 year ended december 31 2016 nonperforming loans total loans decreased 057 december 31 2016 049 december 31 2017 determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 15 million year aside various credit quality metrics discussed another reason increase current year allowance loan losses increase size loan portfolio loan growth 2017 amounted 105 december 31 2017 commercial loans collectively evaluated impairment totaled 2253 million allowance allocation 20 million compared commercial loans collectively evaluated impairment 1951 million allowance loan losses 18 million december 31 2016 commercial loan portfolio experienced provision 446 thousand compared 701 thousand provision 2016 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical adjusts associated specific loss reserve necessary ratio allowance loan losses nonperforming loans december 31 2017 improved 16004 compared 13283 december 31 2016 increases nonaccrual loans residential real estate loan consumer loan portfolios offset decreases commercial real estate agricultural loan portfolios balance allowance loan losses increased 2017 increased loan portfolio size 123 million compared 109 million 2016 company forgone interest income approximately 264 thousand nonaccrual loans december 31 2017 would earned life loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 015 2016 013 2017 result larger loan portfolio improved loan quality net chargeoffs decreased 20 million 2016 19 million 2017 increase gross chargeoffs experienced consumer commercial loan portfolios 523 thousand 130 thousand respectively offset decreases commercial real estate residential real estate loan portfolios 142 thousand 26 thousand respectively following table summarizes company’s allocation allowance loan losses past five years allowance allocated four loan categories interpreted indication chargeoffs 2017 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 135 total loans 2017 gross chargeoffs accounted 774 losses entire loan portfolio commercial loan category represents 168 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications gross chargeoffs commercial real estate portfolio represents 400 total portfolio 207 thousand 2017 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion annual fee two percent charged issuance letter credit december 31 2017 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 233 million 2017 increase result maintaining security portfolio’s constant level percentage total assets 2017’s growth assets company’s investment strategy maintain diverse investment security portfolio higher concentration taxfree municipal securities mortgagebacked securities issued us government sponsored enterprises farmers sold 545 million securities 2017 resulting net security gains 4 thousand farmers recognized market appreciation faster paying mortgagebacked securities lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio 2014 company created investment subsidiary hold municipal securities take advantage favorable tax treatment december 31 2017 investment entity balance 955 million municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2017 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based new statutory tax rate 21 written tax cuts jobs act 81 thousand 263 thousand 931 101 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment net decrease 939 thousand 2017 result sale land bank premises amounting 439 thousand depreciation 16 million offset new additions premises equipment amounting 11 million deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year company’s average total deposits increased 1468 billion 2016 1559 billion 2017 representing increase 62 noninterest demand deposits increased 422 million 2017 average interest bearing demand deposits increased 714 million offset decrease savings deposits 195 million since december 31 2016 interest rates continuing low 2017 customers little incentive commit funds term deposit accounts average time deposits modest decrease 27 million 2017 company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2017 core deposits savings money market accounts time deposits less 250 thousand demand deposits interest bearing demand deposits represented approximately 964 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose investment help fund costs employee benefit plans cash surrender value policies 339 million december 31 2017 compared 300 million december 31 2016 borrowings average shortterm borrowings increased 592 million 280 since december 31 2016 result loan growth outpacing deposit growth 2017 increase shortterm federal home loan advances “fhlb” average longterm borrowings decreased 101 million 510 maturing fhlb advances refinanced shortterm advances capitalize favorable interest rates see note 10 11 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2017 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements also 3 million additional commitment sbic investment funds next several years payments predetermined due dates year end 2017 note 12 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2017 company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 20 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 135 2132 million december 31 2016 2421 million 2017 increase due net income addition retained earnings less amount dividends paid issuance stock monitor acquisition year shareholders received total 022 per share cash dividends paid past four quarters 38 increase compared 016 cash dividend per share paid 2016 book value increased 116 788 per share december 31 2016 879 per share december 31 2017 company’s tangible book value also increased 621 per share december 31 2016 714 per share december 31 2017 increase 150 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2017 new minimum capital requirements associated basel committee capital liquidity regulation basel iii farmers bank farmers required minimum capital ratios actual minimum ratios detailed note 14 consolidated financial statements farmers bank farmers capital ratios minimum levels december 31 2017 2016 yearend 2017 2016 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank became subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retained onetime election prior treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios mentioned prior paragraph bank falls within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses impairment goodwill intangibles estimating fair value assets acquired liabilities assumed connection merger activity additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 4 loans note 2 business combinations section captioned “loan portfolio” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies us gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s subsidiaries provide quality costeffective services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods us gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill estimated reviewing past projected operating results subsidiaries comparable industry information december 31 2017 consolidated basis farmers intangibles 72 million subject amortization 382 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2017 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition information required section incorporated reference information appearing caption “management discussion analysis financial condition results operation” located pages 13 22 company’s annual report item 7a item 7 management’s discussion analysis financial condition results operations information required item 303 regulation sk incorporated herein reference information appearing caption “management discussion analysis financial condition results operation” beginning page 14 company’s annual report item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2019 2018 2017 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements annual report form 10k contains “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical fact rather statements based farmers’ current expectations beliefs assumptions regarding future farmers’ business future plans strategies projections anticipated events trends intended results future performance economy future conditions forwardlooking statements preceded terms “will” “would” “should” “could” “may” “expect” “estimate” “believe” “anticipate” “intend” “plan” “project” variations words similar expressions forwardlooking statements guarantee future performance actual future results could differ materially contained forwardlooking information forwardlooking statements relate future subject inherent uncertainties risks changes circumstances difficult predict many outside control numerous uncertainties risks changes could cause contribute farmers’ actual results performance achievements materially different expressed implied forwardlooking statements factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k readers cautioned put undue reliance forwardlooking statements speak date thereof following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements • general economic conditions market areas farmers conducts business could materially impact credit quality trends • business conditions banking industry • regulatory environment • fluctuations interest rates • demand loans market areas farmers conducts business • rapidly changing technology evolving banking industry standards • competitive factors including increased competition regional national financial institutions • new service product offerings competitors price pressures • similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2019 2018 company’s net income totaled 358 million 2019 compared 326 million 2018 per share basis diluted earnings per share 128 compared 116 diluted earnings per share 2018 return average assets return average equity 150 1256 respectively year ending december 31 2019 compared 146 1313 2018 return average tangible equity excluding acquisition costs non gaap measure decreased 1595 2018 1488 2019 january 7 2020 company completed acquisition maple leaf financial inc “maple leaf” parent company geauga savings bank branches located cuyahoga geauga counties ohio company expects acquisition increase synergies cost savings resulting combining two companies transaction involved cash 1398229 shares stock totaling 392 million pursuant terms merger agreement common shareholders maple leaf right receive 64000 cash 455948 common shares without par value company subject overall limitation 50 maple leaf common shares exchanged farmers common shares 50 exchanged cash holders outstanding unexercised warrants purchase maple leaf common shares received amount cash equal excess 64000 37000 exercise price warrants january 7 2020 maple leaf total assets 2770 million included gross loans 1821 million deposits 1831 million equity 321 million august 15 2017 company completed acquisition monitor holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value farmers national banc corp subject overall limitation 85 monitor common shares exchanged farmers common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price farmers common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2019 taxable equivalent net interest income increased 42 million 52 2018 interestearning assets averaged 2212 billion 2019 increasing 1378 million compared 2018 company’s interestbearing liabilities increased 67 1553 billion 2018 1656 billion 2019 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2019 353 decreasing 366 2018 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2019 net interest margin measured fully taxable equivalent basis decreased 382 compared 387 2018 net interest margin excluding impact amortization accretion acquisitions decreased 5 basis point 378 year ended december 31 2019 accretion added 759 thousand per month 2019 continue next several years decrease net interest margin mainly due pressure decreasing rates federal reserve bank continued cut federal funds interest rate 2019 federal funds interest rate decreased 3 times total 75 basis points year total taxable equivalent interest income 1041 million 2019 105 million 936 million reported 2018 comparing years ending december 31 2019 2018 yields earning assets increased 20 basis points cost interest bearing liabilities increased 33 basis points average loans increased 1253 million 77 2019 loan yield increased 18 basis points 509 tax equated income securities federal funds increased 12 million 89 2019 farmers saw yields assets increase 304 2018 322 2019 average balance investment securities federal funds sold also increased 4420 million 2018 4545 million 2019 decrease federal funds interest rate mentioned reduced cost shortterm borrowings interestbearing deposits 2019 total interest expense amounted 196 million 2019 478 increase 133 million reported 2018 interestbearing deposits increased 2716 million 215 increases interest rates paid deposits resulted 87 million 1071 increase interest expense deposit balances borrowings balances decreased 1681 million 584 interest expense related borrowings decreased 24 million 464 total cost interestbearing deposits borrowings increased 085 2018 118 2019 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 31 million 122 2019 increase noninterest income due several factors trust fee income increased 71 million 75 million representing increase 349 thousand 49 resulting growth new customers increase market value trust assets commissions sale investment products increased 303 thousand 275 2019 net gains sale loans increased 27 million 2018 44 million 2019 630 insurance agency commissions increased 29 million compared 26 million 2018 increases offset decrease income retirement plan consulting fees 195 thousand decrease security gains 229 thousand bank company expect noninterest income increase 2020 management continues focus growing various sources noninterest income noninterest expenses noninterest expense 2019 655 million compared 627 million 2018 representing increase 27 million 44 increase salaries employee benefits grew 12 million 33 mainly due merit increases salaries operating expenses increased 628 thousand merger related expenses increased 352 thousand company also incurred 505 thousand litigation expense expected future years increases offset drop fdic insurance 568 thousand telephone data expense 113 thousand excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 282 2018 275 2019 company’s tax equivalent efficiency ratio twelvemonth period ended december 31 2019 5659 compared 5793 period 2018 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 73 million 2019 57 million 2018 income taxes computed using appropriate effective tax rates period effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 170 2019 149 2018 increased effective tax rate due income tax liability adjustments anticipate effective rate 2020 range 15 17 refer note 18 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2018 2017 company’s net income totaled 326 million 2018 compared 227 million 2017 per share basis diluted earnings per share 116 compared 082 diluted earnings per share 2017 return average assets return average equity 146 1313 respectively year ending december 31 2018 compared 109 992 2017 return average tangible equity increased 1348 2017 1595 2018 december 22 2017 hr1 known “tax cuts jobs act” signed law hr1 among things reduced corporate income tax rate 21 effective january 1 2018 result passage new tax law farmers’ effective tax rate decreased 3072 year ended december 31 2017 1492 year ended december 31 2018 important note also result new tax law farmers determined net deferred tax assets needed reduced fourth quarter 2017 approximately 18 million representing impact earnings per share approximately 006 per diluted share fourth quarter based quarter’s weighted average diluted shares outstanding approximately 28 million august 15 2017 company completed acquisition monitor holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value farmers national banc corp subject overall limitation 85 monitor common shares exchanged farmers common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price farmers common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2018 taxable equivalent net interest income increased 35 million 46 2017 interestearning assets averaged 2075 billion 2018 increasing 1513 million compared 2017 company’s interestbearing liabilities increased 71 1449 billion 2017 1553 billion 2018 company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2018 366 decreasing 388 2017 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2018 net interest margin measured fully taxable equivalent basis decreased 387 compared 399 2017 net interest margin excluding impact amortization accretion acquisitions decreased 13 basis point 383 year ended december 31 2018 accretion added 695 thousand per month 2018 continue next several years decrease net interest margin mainly due pressure increasing deposit rates federal reserve bank continued raise federal funds interest rate 2018 federal funds interest rate increased 4 times total 100 basis points year total taxable equivalent interest income 936 million 2018 99 million 837 million reported 2017 comparing years ending december 31 2018 2017 yields earning assets increased 16 basis points cost interest bearing liabilities increased 38 basis points average loans increased 1390 million 93 2018 loan yield increased eighteen basis points 491 tax equated income securities federal funds increased 296 thousand 23 2018 farmers saw yields assets decrease slightly 305 2017 304 2018 average balance investment securities federal funds sold also increased 4296 million 2017 4420 million 2018 increase federal funds interest rate mentioned impacted cost shortterm borrowings interestbearing deposits 2018 total interest expense amounted 133 million 2018 928 increase 69 million reported 2017 interestbearing deposits increased 964 million 82 increases interest rates paid deposits resulted 36 million 813 increase interest expense deposit balances borrowings balances increased 69 million 25 however interest expense related borrowings increased 27 million 114 total cost interestbearing deposits borrowings increased 047 2017 085 2018 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 14 million 6 2018 increase noninterest income due several factors trust fee income increased 64 million 71 million representing increase 695 thousand 108 resulting growth new customers increase market value trust assets commissions sale investment products increased 184 thousand 20 2018 debit card interchange fees increased 262 thousand 85 customers continue increase use debit cards make purchases goods services insurance agency commissions also increased 26 million compared 24 million 2017 service charges deposit accounts increased 41 million 2017 43 million 2018 increases offset decrease income sale mortgage loans 337 thousand decrease retirement plan consulting fees 173 thousand bank company expect noninterest income increase 2019 management continues focus growing various sources noninterest income noninterest expenses noninterest expense 2018 627 million compared 616 million 2017 representing increase 11 million 18 increase salaries employee benefits grew 12 million 35 mainly due merit increases salaries 18 increase number full time equivalent employees 445 453 operating expenses increased 309 thousand 42 state local taxes increased 224 thousand 135 increases offset drop merger related expenses 1 million excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 293 2017 282 2018 company’s tax equivalent efficiency ratio twelvemonth period ended december 31 2018 5793 compared 5966 period 2017 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 57 million 2018 101 million 2017 income taxes computed using appropriate effective tax rates period decrease current year tax expense primarily attributable previously mentioned reduction corporate income tax rate 35 21 result tax cuts jobs act income tax expense 101 million 2017 also impacted 18 million adjustment increase income tax expense result writedown company’s deferred tax asset 35 21 effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 149 2018 307 2017 anticipate effective rate 2019 range 15 16 refer note 18 consolidated financial statements additional information regarding effective tax rate liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2019 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2019 bank eligible borrow additional 460 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2019 amounted 1178 million farmers’ primary investing activities originating loans purchasing securities 2019 net cash used investing activities amounted 931 million compared 1793 million used 2018 reduction mainly result less cash used lending activities net increases loans 775 million 2019 compared 1602 million 2018 cash used lending activities 2019 attributed activity commercial real estate commercial industrial residential real estate agricultural loan portfolios purchases securities available sale 830 million 2019 compared 692 million 2018 proceeds maturities sales securities available sale 334 million 2019 compared 162 million 2018 farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash provided financing activities amounted 672 million 2019 compared 1396 million 2018 majority decrease attributed net change shortterm borrowings increase deposits 2092 million 2019 compared increase 195 million 2018 shortterm borrowings decreased 1677 million 2019 compared 448 million 2018 decrease shortterm borrowings mainly result growth deposit balances allowed company pay shortterm federal home loan bank advances year loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate agricultural loans listed december 31 2019 amounts commercial real estate agricultural loans december 31 2019 based remaining scheduled repayments principal shown following table total loans 18 billion yearend 2019 compared 17 billion yearend 2018 loans grew 44 organically past twelve months increase loans direct result farmers’ focus loan growth utilizing talented lending credit team adhering sound underwriting discipline increase loans occurred commercial real estate agricultural residential real estate commercial loan portfolios loans comprised 795 bank’s average earning assets 2019 compared 787 2018 product mix loan portfolio includes commercial loans comprising 141 residential real estate loans 276 commercial real estate loans 340 consumer loans 119 agricultural loans 124 december 31 2019 compared 141 284 333 128 114 respectively december 31 2018 loans contributed 860 total taxable equivalent interest income 2019 857 2018 loan yields 509 2019 38 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2019 increased 44 yearend 2018 outstanding balances 2555 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 15 4993 million december 31 2019 compared 4921 million 2018 farmers originated fixed rate adjustable rate mortgages 2019 fixed rate terms generally limited fifteenyear terms adjustable rate products offered maturities thirty years commercial real estate loans increased 5782 million december 31 2018 6155 million december 31 2019 increase 373 million 65 company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios consistent improvements local economy several new projects announced company’s market area along relatively decreased levels unemployment led small business owners expand make additional investments operations agricultural loans increased 1990 million 2018 2263 million 2019 increase 273 million 137 company’s agricultural loan portfolio contains diverse mix dairy crops land poultry cattle loans summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 25 million 2019 compared 30 million 2018 decrease 550 thousand smaller provision current year mainly result higher loan loss quarters rolling loss history period used calculation lower levels net chargeoffs current year determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses net chargeoffs year ended december 31 2019 16 million 168 thousand 98 less net chargeoffs year ended december 31 2018 allowance loan losses total loans increased 080 december 31 2019 compared 078 december 31 2018 acquired loans previous mergers excluded ratio 090 december 31 2019 092 december 31 2018 compares similarly periods prior 2016 presented table additionally loans collectively evaluated impairment excludes acquired loans compared allowance loan losses loans collectively evaluated impairment ratio 089 year ended december 31 2019 compared 096 year ended december 31 2018 nonperforming loans total loans decreased 045 december 31 2018 035 december 31 2019 adoption asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments january 1 2020 company completed process implementation process testing system company recorded onetime adjustment equity january 1 2020 comply asu adoption amount 25 million increased allowance loan losses 17 management expect amount change first quarter 2020 retains option make adjustments new information becomes available provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 895 thousand year aside various credit quality metrics discussed another reason increase current year allowance loan losses increase size loan portfolio loan growth 2019 amounted 44 december 31 2019 commercial loans collectively evaluated impairment totaled 2900 million allowance allocation 23 million compared commercial loans collectively evaluated impairment 2642 million allowance loan losses 21 million december 31 2018 commercial loan portfolio experienced provision 417 thousand compared 112 thousand provision 2018 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical adjusts associated specific loss reserve necessary ratio allowance loan losses nonperforming loans december 31 2019 improved 22832 compared 17581 december 31 2018 increases nonaccrual loans commercial loan consumer loan portfolios offset decreases residential real estate agricultural commercial real estate loan portfolios balance allowance loan losses increased 2019 increased loan portfolio size 145 million compared 136 million 2018 company forgone interest income approximately 392 thousand nonaccrual loans december 31 2019 would earned life loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 010 2018 009 2019 result larger loan portfolio improved loan quality net chargeoffs decreased 17 million 2018 16 million 2019 increase gross chargeoffs experienced residential real estate loan commercial real estate loan portfolios 82 thousand 45 thousand offset decreases commercial consumer loan portfolios 20 thousand 616 thousand respectively following table summarizes company’s allocation allowance loan losses past five years allowance allocated four loan categories interpreted indication chargeoffs 2019 occurred proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 119 total loans 2019 gross chargeoffs accounted 725 losses entire loan portfolio commercial loan category represents 141 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications gross chargeoffs commercial loan portfolio 200 thousand 2019 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion annual fee two percent charged issuance letter credit december 31 2019 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 308 million 2019 increase result asset growth 2019 maintaining security portfolio constant level percentage total assets company’s investment strategy maintain diverse investment security portfolio higher concentration taxfree municipal securities mortgagebacked securities issued us government sponsored enterprises farmers sold 334 million securities 2019 resulting net security losses 11 thousand farmers recognized market appreciation faster paying mortgagebacked securities recognized losses lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio 2014 company created investment subsidiary hold municipal securities take advantage favorable tax treatment december 31 2019 investment entity balance 1175 million general market taxfree municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods increasing mortgage interest rates refinancing generally slows prepayments underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2019 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 21 41 thousand 202 thousand 12 million 242 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment net increase 26 million 2019 result additions 15 million disposals 488 thousand depreciation 15 million accordance asu 201602 31 million net lease obligations capitalized added premises equipment well deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits including 841 million brokered time deposits added first time 2018 brokered deposits added additional way control reduce company’s cost funds year company’s average total deposits increased 1681 billion 2018 1966 billion 2019 representing increase 169 noninterest demand deposits increased 133 million 2019 average interest bearing demand deposits increased 1354 million offset decrease savings deposits 546 million since december 31 2018 average time deposits increased 1076 million 2019 company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2019 core deposits savings money market accounts time deposits less 250 thousand demand deposits interest bearing demand deposits represented approximately 903 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose investment help fund costs employee benefit plans cash surrender value policies 355 million december 31 2019 compared 348 million december 31 2018 borrowings average shortterm borrowings decreased 1849 million 658 since december 31 2018 result using brokered time deposits place expensive fhlb borrowings additional organic deposits discussed helped reduced need shortterm borrowings average longterm borrowings increased 168 million maturing shortterm fhlb advances refinanced capitalize favorable longterm interest rates see note 12 13 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2019 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements also 980 thousand additional commitment sbic investment funds next several years payments predetermined due dates year end 2019 note 13 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2019 company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 22 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 141 2623 million december 31 2018 2993 million 2019 increase due net income addition retained earnings less amount dividends paid year shareholders received total 038 per share cash dividends paid past four quarters 267 increase compared 030 cash dividends per share paid 2018 book value increased 41 944 per share december 31 2018 1082 per share december 31 2019 company’s tangible book value also increased 786 per share december 31 2018 928 per share december 31 2019 increase 166 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2019 new minimum capital requirements associated basel committee capital liquidity regulation basel iii farmers bank farmers required minimum capital ratios actual minimum ratios detailed note 16 consolidated financial statements farmers bank farmers capital ratios minimum levels december 31 2019 2018 yearend 2019 2018 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank became subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retained onetime election prior treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios mentioned prior paragraph bank falls within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses impairment goodwill intangibles estimating fair value assets acquired liabilities assumed connection merger activity additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 4 loans note 2 business combinations section captioned “loan portfolio” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies us gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s subsidiaries provide quality costeffective services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods us gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill estimated reviewing past projected operating results subsidiaries comparable industry information december 31 2019 consolidated basis farmers intangibles 44 million subject amortization 382 million goodwill subject periodic amortization recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2018 2019 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7 management’s discussion analysis financial condition results operations following presents discussion analysis farmers’ financial condition results operations management review highlights principal factors affecting earnings significant changes balance sheet items years 2015 2014 2013 financial information prior years presented appropriate objective financial review enhance reader’s understanding accompanying tables charts consolidated financial statements notes financial statements financial statistics appearing elsewhere annual report form 10k applicable discussion also reflects management’s insights known events trends may reasonably expected material effect farmers’ business financial condition results operations cautionary note regarding forward looking statements discussions annual report form 10k statements historical fact including statements include terms “will” “may” “should” “believe” “expect” “anticipate” “estimate” “project” intend” “plan” forwardlooking statements involve risks uncertainties forwardlooking statement guarantee future performance actual future results could differ materially contained forwardlooking information factors could cause contribute differences include without limitation risks uncertainties detailed time farmers’ filings securities exchange commission including without limitation risk factors disclosed item 1a “risk factors” annual report form 10k many factors beyond company’s ability control predict readers cautioned put undue reliance forwardlooking statements following list intended allencompassing list risks uncertainties affecting company summarizes several factors could cause company’s actual results differ materially anticipated expected forwardlooking statements · general economic conditions market areas farmers conducts business could materially impact credit quality trends · business conditions banking industry · regulatory environment · fluctuations interest rates · demand loans market areas farmers conducts business · rapidly changing technology evolving banking industry standards · competitive factors including increased competition regional national financial institutions · new service product offerings competitors price pressures · similar items factors currently anticipated may also materially adversely affect farmers’ business financial condition results operations cash flows assurance future results meet expectations company believes forwardlooking statements annual report form 10k reasonable reader place undue reliance forwardlooking statement addition statements speak date made farmers undertake expressly disclaims obligation update alter statements whether result new information future events otherwise except may required applicable law results operations comparison operating results years ended december 31 2015 2014 company’s net income totaled 81 million 2015 compared 90 million 2014 per share basis diluted earnings per share 036 compared 048 diluted earnings per share 2014 excluding expenses related acquisition activities net income 2015 would 129 million 057 per share common comparative ratios results operations include return average assets return average stockholders’ equity 2015 return average equity 497 compared 745 2014 return average assets 054 2015 079 2014 excluding expenses related acquisition activities return average assets return average stockholders’ equity 087 795 respectively results 2015 included 94 thousand gains sales securities compared 457 thousand 2015 june 19 2015 company completed acquisition outstanding stock national bancshares corporation “nboh” parent company first national bank orrville “first national bank” transaction involved cash 7262955 shares stock totaling 748 million first national bank orrville branches became branches farmers national bank canfield pursuant agreement shareholder nboh received either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares nboh exchanged stock 20 cash october 1 2015 company completed acquisition tristate 1st banc inc “tristate” parent company 1st national community bank “fncb” pursuant terms merger agreement common shareholders tristate entitled receive 1747 common shares without par value company “company common shares” 1420 cash common share without par value tristate “tristate common shares” subject proration provisions specified merger agreement provide targeted aggregate split total consideration consisting 75 company common shares 25 cash preferred shareholders tristate received 1360 cash share series preferred stock without par value tristate total consideration actually paid form 36 million cash 107 million worth company’s stock october 1 2015 net interest income net interest income principal source company’s earnings represents difference interest income interestearning assets interest expense interestbearing liabilities 2015 taxable equivalent net interest income increased 137 million 360 2014 interestearning assets averaged 1363 billion 2015 increasing 3012 million compared 2014 company’s interestbearing liabilities increased 248 8473 million 2014 1057 billion 2015 two previously mentioned acquisitions increased interestearning assets 6475 million interestbearing liabilities 6055 million respective completion dates company finances earning assets combination interestbearing interestfree funds interestbearing funds composed deposits shortterm borrowings longterm debt interest paid use funds second factor net interest income equation interestfree funds demand deposits stockholders’ equity require interest expense therefore contribute significantly net interest income profit margin spread invested funds key performance measure company monitors two key performance indicators net interest spread net interest margin net interest spread represents difference average rate earned interestearning assets average rate paid interestbearing liabilities net interest spread 2015 372 increasing 348 2014 net interest margin represents overall profit margin net interest income percentage total interestearning assets performance indicator gives effect interest earned investable funds including substantial volume interestfree funds 2015 net interest margin measured fully taxable equivalent basis increased 381 compared 359 2014 net interest margin excluding impact amortization accretion current year acquisitions improved 17 basis points 376 year ended december 31 2015 accretion added 64 thousand per month final months 2015 continue next several years increase net interest margin largely result interest bearing liabilities repricing lower rates shifting assets investment securities higher interest income rates loans long term time deposits mature renewed lesser rates moving liquid accounts lower interest rates total taxable equivalent interest income 519 million 2015 137 million 381 million reported 2014 comparing years ending december 31 2015 2014 yields earning assets increased 6 basis points cost interest bearing liabilities decreased similarly 19 basis points average loans increased 3244 million 5141 2015 however yields decreased 497 2014 474 2015 tax equated income securities federal funds decreased 601 thousand 530 2015 even though tax equated income decreased farmers saw yields assets increase slightly 263 2014 264 2015 average balance investment securities federal funds sold decreased 4304 million 2014 4072 million 2015 total interest expense amounted 41 million 2015 107 decrease 46 million reported 2014 decrease 2015 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 054 2014 039 2015 management continue evaluate future changes interest rates shape treasury yield curve assets liabilities may priced accordingly minimize impact net interest margin noninterest income total noninterest income increased 3 million 2015 increase noninterest income due several factors gains sale mortgage loans increased 358 thousand 11 million representing increase 743 thousand retirement plan consulting fees also increased 21 million compared 18 million 2014and service charges deposit accounts increased 26 million 2014 33 million 2015 reflecting size company two acquisitions investment commissions increased 146 thousand 14 management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue operating income also increased 1 million primarily result positive impact account level transaction volumes merger related growth included increase operating income debit card interchange income increased 618 thousand atm fee income increased 74 thousand bank company expect amounts increase 2016 level activity full twelve months noninterest expenses noninterest expense 2015 540 million compared 382 million 2014 representing increase 158 million 415 increase merger related costs 64 million 2015 compared none 2014 salaries employee benefits also increased 58 million mainly due increase number employees resulting mergers company’s full time equivalent employees “fte” increased 105 december 31 2014 december 31 2015 occupancy equipment costs also increased 947 thousand due additional eighteen banking locations resulting mergers excluding expenses related acquisition activities noninterest expenses measured percentage average assets decreased 334 2014 321 2015 company’s tax equivalent efficiency ratio twelve month period ended december 31 2015 7526 compared 7024 period 2014 excluding expenses related acquisition activities efficiency ratio year ended december 31 2015 improved 662 main factors leading improvement efficiency ratio increase net interest income noninterest income along stabilized level noninterest expenses relative average assets explained preceding paragraph efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 25 million 2015 26 million 2014 income taxes computed using appropriate effective tax rates period small decrease current year tax expense mainly attributed 10 million decrease income taxes effective tax rates less statutory tax rate primarily due nontaxable interest dividend income effective income tax rate 237 2015 227 2014 refer note 16 consolidated financial statements additional information regarding effective tax rate comparison operating results years ended december 31 2014 2013 company’s net income totaled 90 million 2014 compared 78 million 2013 per share basis diluted earnings per share 048 compared 041 diluted earnings per share 2013 2014 return average equity 745 compared 666 2013 return average assets 079 2014 068 2013 results 2014 included 457 thousand gains sales securities compared 863 thousand 2013 company completed acquisition outstanding stock retirement planning consultancy national associates inc cleveland ohio company leading independent consultant retirement plans offers actuarial plan design compliance administrative services third party administrator nai provides services 401k defined benefit profit sharing flexible spending 403b esop plans acquiring nai company assumes professional staff highly qualified credentialed synergies cost savings resulting combining operations companies help drive increase noninterest income nai contributed 18 million gross revenues company resulting net loss 671 thousand year ended december 31 2014 net loss mainly due 764 thousand goodwill impairment charge goodwill partially impaired described note 6 amount equal reduction contingent consideration payable two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 net interest income 2014 taxable equivalent net interest income increased 213 thousand 056 2013 interestearning assets averaged 1061 billion 2014 increasing 680 thousand compared 2013 company’s interestbearing liabilities decreased 357 8787 million 2013 8473 million 2014 total taxable equivalent interest income 427 million 2014 271 thousand less 430 million reported 2013 comparing years ending december 31 2014 2013 yields earning assets decreased 3 basis points cost interest bearing liabilities decreased 4 basis points average loans increased 355 million 595 2014 however yields decreased 524 2013 497 2014 tax equated income securities federal funds decreased 450 thousand 382 2014 farmers saw yields assets increased 253 2013 263 2014 average balance investment securities federal funds sold decreased 4652 million 2013 4304 million 2014 total interest expense amounted 46 million 2014 96 decrease 51 million reported 2013 decrease 2014 result lower rates interest paid interestbearing deposits repurchase agreements cost interestbearing liabilities decreased 058 2013 054 2014 noninterest income total noninterest income increased 14 million 2014 increase noninterest income due several factors retirement plan consulting fees increased 18 million compared 628 thousand 2013 reflecting full twelve months year compared six months income earned newly acquired entity nai 2013 service charges deposit accounts increased 24 million 2013 26 million 2014 company made adjustments service charge structure deposit accounts bank owned life insurance income decreased 237 thousand trust fees increased 509 thousand insurance agency commissions increased 111 thousand investment commissions increased 37 thousand management continues focus diversifying revenue sources decrease reliance net interest income main driver revenue noninterest expenses noninterest expense 2014 382 million compared 391 million 2013 representing decrease 895 thousand 23 decrease result 53 decrease salary employee benefits mainly due severance costs recorded 2013 2014 state local taxes decreased 435 thousand 878 thousand 2014 compared 13 million 2013 decrease result new reduced financial institution’s tax rate state ohio 2014 merger related costs also decreased 330 thousand 2014 professional fees increased 108 result corporate legal consulting fees related compensation practices business advisory fees intangible amortization increased 143 thousand result full twelve months amortization intangible assets related acquisition nai advertising increased 201 thousand company’s tax equivalent efficiency ratio twelve month period ended december 31 2014 7024 compared 7482 period 2013 main factor leading improvement efficiency ratio decrease noninterest expenses increase noninterest income explained earlier section efficiency ratio calculated follows noninterest expense divided sum tax equivalent net interest income plus noninterest income excluding security gains losses intangible amortization ratio measure expense incurred generate dollar revenue management continue closely monitor keep increases expenses minimum income taxes income tax expense totaled 26 million 2014 17 million 2013 effective income tax rate 227 2014 178 2013 liquidity farmers maintains opinion management liquidity sufficient satisfy depositors’ requirements meet credit needs customers company depends ability maintain market share deposits well acquiring new funds company’s ability attract deposits borrow funds depends large measure profitability capitalization overall financial condition principal sources liquidity include assets considered relatively liquid shortterm investment securities federal funds sold cash due banks along liquid assets farmers additional sources liquidity available help insure adequate funds available needed sources include limited loan repayments ability obtain deposits adjustment interest rates purchasing federal funds borrowings approved lines credit two major domestic banks december 31 2015 farmers borrowed lines credit management feels liquidity position adequate continue monitor position monthly basis company also additional borrowing capacity fhlb well access federal reserve discount window provides additional source funds company views membership fhlb solid source liquidity december 31 2015 bank eligible borrow additional 634 million fhlb various fixed rate variable rate credit facilities advances outstanding fhlb december 31 2015 amounted 1701 million farmers’ primary investing activities originating loans purchasing securities 2015 net cash used investing activities amounted 225 million compared 62 million provided 2014 net increases loans 140 million 2015 compared 354 million 2014 cash used lending activities 2015 attributed activity commercial real estate residential real estate commercial loan portfolios purchases securities available sale 727 million 2015 compared 644 million 2014 proceeds maturities sales securities available sale 1656 million 2015 compared 1066 million 2014 net cash 307 million received result acquisitions nboh tristate farmers’ primary financing activities obtaining deposits repurchase agreements borrowings net cash provided financing activities amounted 507 million 2015 compared 185 million used 2014 majority change attributed change shortterm borrowings shortterm borrowings increased 1012 million 2015 compared 225 million decrease 2014 deposits decreased 393 million 2015 compared 487 thousand increase 2014 loan portfolio maturities sensitivities loans interest rates following schedule shows composition loans percentage loans category dates indicated balances include unamortized loan origination fees costs following schedule sets forth maturities based remaining scheduled repayments principal commercial real estate loans listed december 31 2015 amounts commercial real estate loans december 31 2015 based remaining scheduled repayments principal shown following table total loans 13 billion yearend 2015 compared 6639 million yearend 2014 loans grew 20 organically past twelve months addition 432 million 66 million increase loans resulting nboh tristate acquisitions respectively organic increase loans direct result farmers’ focus loan growth utilizing talented lending credit team adhering sound underwriting discipline increase loans occurred commercial real estate commercial industrial residential real estate loan portfolios loans comprised 701 bank’s average earning assets 2015 compared 595 2014 product mix loan portfolio includes commercial loans comprising 178 residential real estate loans 304 commercial real estate loans 375 consumer loans 143 december 31 2015 compared 181 277 335 207 respectively december 31 2014 loans contributed 808 total taxable equivalent interest income 2015 735 2014 loan yields 474 2015 63 basis points greater average rate total earning assets management recognizes loan portfolio holds bank’s’ highest yielding assets inherently risky portfolio accordingly management attempts balance credit risk versus return conservative credit standards management developed maintains comprehensive underwriting guidelines loan review function monitors credits approval process minimize risks associated changes borrower’s future repayment capacity bank generally requires scheduled periodic principal interest payments types loans normally requires collateral commercial loans december 31 2015 increased 92 yearend 2014 outstanding balances 2307 million bank’s commercial loans granted customers within immediate trade area bank mix diverse covering wide range borrowers business types local municipalities bank monitors controls concentrations within particular industry segment economy loans made purposes equipment purchases capital leasehold improvements purchase inventory general working capital small business lines credit residential real estate mortgage loans increased 3951 million december 31 2015 compared 1839 million 2014 farmers originated fixed rate adjustable rate mortgages 2014 fixed rate terms generally limited fifteen year terms adjustable rate products offered maturities thirty years commercial real estate loans increased 2226 million december 31 2014 48597 million december 31 2015 increase 2634 million company’s commercial real estate loan portfolio includes loans owner occupied nonowner occupied real estate loans made finance properties office industrial buildings hotels retail shopping centers growth commercial real estate loan portfolios consistent improvements local economy several new projects announced mahoning valley stark county along decreased levels unemployment led small business owners expand make additional investments operations summary loan loss experience following analysis allowance loan losses periods indicated provisions charged operations amounted 35 million 2015 compared 19 million 2014 increase 16 million increase primarily due increase level net chargeoffs overall 20 organic increase total loans factors considered management’s estimate loan loss provisions adequacy allowance loan losses net chargeoffs year ended december 31 2014 22 million 337 thousand higher net chargeoffs year ended december 31 2014 allowance loan losses total loans decreased 115 december 31 2014 069 december 31 2015 decrease result additional loan portfolio acquired fair market value without allowance loan losses displayed allowance loan losses percentage nonacquired loans acquired loans excluded ratio 108 compares similarly periods presented table additionally loans collectively evaluated impairment excludes acquired loans compared allowance loan losses loans collectively evaluated impairment ratio 103 year ended december 31 2015 compared 104 year ended december 31 2014 nonperforming loans total loans decreased 128 december 31 2014 081 december 31 2015 although nonperforming loans increased 2 million comparing 2015 2014 size total loan portfolio almost doubled past twelve months determining estimate allowance loan losses management computes historical loss percentage based upon loss history past 12 quarters company believes using loss history previous 12 quarters helps mitigate volatility timing chargeoffs better reflects probable incurred losses provision loan losses charged operating expense based management’s judgment taking consideration factors connected collectability existing loan portfolio management evaluates loan portfolio light economic conditions changes nature volume loan portfolio industry standards relevant factors specific factors considered management determining amounts charged operating expenses include previous chargeoff experience status past due interest principal payments quality financial information supplied loan customers general condition industries community loans made allowance loan losses increased 13 million year aside various credit quality metrics discussed another reason increase current year allowance loan losses increase probable incurred losses associated commercial real estate loan portfolio december 31 2015 loans collectively evaluated impairment totaled 2969 million allowance allocation 27 million compared commercial real estate loans individually evaluated impairment 2154 million allowance loan losses 21 million december 31 2014 commercial real estate loan portfolio experienced provision 857 thousand compared negative 50 thousand provision 2014 impaired loans carried fair value underlying collateral less estimated disposition costs repayment loan expected solely dependent sale collateral otherwise impaired loans carried present value expected cash flows typically commercial real estate loans identified impaired become ninety days past due earlier management believes probable company collect amounts due terms loan agreement farmers identifies loan impaired also concludes loan collateral dependent farmers performs internal collateral valuation interim measure farmers typically obtains external appraisal validate internal collateral valuation soon practical adjusts associated specific loss reserve necessary ratio allowance loan losses nonperforming loans december 31 2015 8596 compared 8999 december 31 2014 nonperforming loan totals actually increased prior year additional loan balances acquired two mergers year ratio allowance loan losses nonperforming loans improved nonperforming commercial loans category decreased 2015 balance allowance loan losses increased 2015 increased loan portfolio size 90 million compared 76 million 2014 company forgone interest income approximately 439 thousand nonaccrual loans december 31 2015 would earned life loans performed accordance original terms net chargeoffs percentage average loans outstanding decreased 028 2014 022 2015 result larger loan portfolio improved loan quality net chargeoffs increase 18 million 2014 22 million 2015 primary reason increase gross chargeoffs commercial real estate portfolio increased 385 thousand 2550 2014 2015 majority chargeoffs commercial loan portfolio related small number loans significant allocation allowance loan losses performing commercial real estate loans classified internal loan review substandard loss experience average balance category loans past three years approximately 193 principal balance loans management’s allocation loans equates allocation approximately 109 thousand end 2015 compared allocation 250 thousand end 2014 allocation decreased due decrease historical loss experience substandard loans actual loss experience may less amount allocated december 31 2015 amount substandard loans continue accrue interest 57 million always management working address weaknesses specific loans may result loss allowance allocated four loan categories interpreted indication chargeoffs 2016 occur proportions allocation indicates future chargeoff trends allowance allocated onetofour family real estate loan category consumer loan category based upon company’s allowance methodology homogeneous loans increases decreases balances portfolios previous years indirect installment loan category represented largest percentage loan losses consumer loan category represents approximately 143 total loans 2015 net loan losses accounted 591 losses entire loan portfolio commercial loan category represents 178 total loan portfolio management relies bank’s internal loan review procedures allocates accordingly based loan classifications net chargeoffs commercial real estate portfolio represents 375 total portfolio 406 thousand 2015 loans identified management known information possible credit problems borrowers ability comply loan repayment terms management actively monitoring certain borrowers’ financial condition loans management wants closely monitor due special circumstances loans potential loss exposure considered management’s analysis adequacy allowance loan losses loan commitments lines credit normal course business bank extended various commitments credit commitments mortgages revolving lines credit letters credit generally extended period one month one year normally fees charged unused portion normally annual fee two percent charged issuance letter credit december 31 2015 concentrations loans exceeding 10 total loans disclosed category loans date also interestearning assets either nonaccrual past due restructured nonperforming investment securities investment securities portfolio increased 45 million 2015 maturing security funds reinvested used fund loan portfolio growth deposit runoff company’s investment strategy maintain diverse investment security portfolio higher concentration mortgagebacked securities issued us government sponsored enterprises taxfree municipal securities farmers sold 1075 million securities 2015 resulting net security gains 94 thousand farmers recognized market appreciation faster paying mortgagebacked securities lower rated municipal securities reinvested new mortgagebacked securities higher rated municipal securities diversify securities portfolio 2014 company created investments subsidiary hold municipal securities take advantage favorable tax treatment december 31 2015 investments entity balance 508 million municipal securities farmers’ objective managing investment portfolio preserve enhance corporate liquidity investment primarily short intermediate term securities readily marketable highest credit quality general investment securities limited funds bank feels excess funds used satisfy loan demand operating considerations volcker rule places limits trading activity insured depository institutions entities affiliated depository institution subject certain exceptions bank engage trading activities types funds regulated volcker rule mortgagebacked securities created pooling mortgages issuance security mortgagebacked securities typically represent participation interest pool singlefamily multifamily mortgages prepayment estimates mortgagebacked securities performed purchase ensure prepayment assumptions reasonable considering underlying collateral mortgagebacked securities issue current mortgage interest rates determine yield estimated maturity mortgagebacked security portfolio prepayments faster anticipated may shorten life security may result faster amortization premiums paid thereby reduce net yield securities periods declining mortgage interest rates refinancing generally increases accelerates prepayment underlying mortgages related security holdings mortgagebacked securities issued us government sponsored enterprises following table shows carrying value investment securities type obligation dates indicated type summary debt securities held december 31 2015 classified according maturity including weighted average yield range maturities set forth 1 weighted average yield computed dividing total contractual interest income adjusted amortization premium accretion discount life security par value securities outstanding weighted average yield taxexempt obligations states political subdivisions calculated fully taxable equivalent basis amounts adjustments interest based statutory tax rate 35 131 thousand 432 thousand 507 thousand 142 thousand four ranges maturities 2 payments based contractual maturity premises equipment premises equipment net increase 71 million 2015 result 80 million acquired mergers increase result eighteen additional branch locations well furniture fixtures new locations deposits represent company’s principal source funds deposit base consists demand deposits savings money market accounts time deposits year company’s average total deposits increased 9168 million 2014 1165 billion 2015 average interest bearing demand deposits increased 922 million savings deposits increased 592 million since december 31 2014 additionally noninterest bearing demand deposits increased 870 million 2015 interest rates continuing low customers little incentive commit funds term deposit accounts time deposits modest increase 103 million considering additional time deposits acquired mergers company’s focus core deposit growth farmers continue price deposit rates remain competitive within market retain customers december 31 2015 core deposits savings money market accounts time deposits less 250 thousand demand deposits interest bearing demand deposits represented approximately 968 total deposits bank owned life insurance farmers’ owns bank owned life insurance policies lives certain members management purpose transaction help fund costs employee benefit plans cash surrender value policies 292 million december 31 2015 compared 164 million december 31 2014 borrowings shortterm borrowings increased 1667 million 2819 since december 31 2014 result acquisitions continued strong loan growth increase shortterm federal home loan advances longterm borrowings decreased 62 million 219 maturing federal home loan bank advances refinanced shortterm advances capitalize favorable interest rates see note 10 11 within item 8 annual report form 10k additional detail contractual obligations commitments contingent liabilities offbalance sheet arrangements following table presents december 31 2015 company’s significant fixed determinable contractual obligations payment date payment amounts represent amounts contractually due recipient include unamortized premiums discounts similar carrying value adjustments discussion nature obligation included referenced note consolidated financial statements note 12 consolidated financial statements discusses greater detail commitments contingencies various obligations exists agreements examples commitments contingencies include commitments extend credit standby letters credit december 31 2015 company unconsolidated related special purpose entities company engage derivatives hedging contracts may expose company liabilities greater amounts recorded consolidated balance sheet management’s policy engage derivatives contracts speculative trading purposes company utilize interestrate swaps way helping manage interest rate risk derivatives trading purposes see note 20 within item 8 annual report form 10k additional detail capital resources total stockholders’ equity increased 603 1236 million december 31 2014 1980 million 2015 increase equity mainly result 703 million increase common stock issued acquisitions 2015 net income past twelve months partially offset dividends paid year shareholders received total 012 per share cash dividends paid past four quarters book value increased 95 671 per share december 31 2014 735 per share december 31 2015 company’s tangible book value decreased 623 per share december 31 2014 577 per share december 31 2015 additionally company repurchased 213 thousand treasury shares 2015 bank national chartered bank subject dividend restrictions set forth occ must approve declaration dividends excess sum profits current year retained net profits preceding two years defined farmers bank required maintain minimum amounts capital total “risk weighted” assets defined banking regulators december 31 2015 new minimum capital requirements associated basel committee capital liquidity regulation basel iii farmers bank farmers required minimum capital ratios actual minimum ratios detailed note 14 consolidated financial statements farmers bank farmers capital ratios minimum levels december 31 2015 2014 yearend 2015 2014 recent regulatory notifications categorized farmers bank well capitalized regulatory framework prompt corrective action 2013 federal banking regulators approved final rule implement revised capital adequacy standards basel committee banking supervision commonly called basel iii address relevant provisions doddfrank act final rule strengthens definition regulatory capital increases riskbased capital requirements makes selected changes calculation riskweighted assets adjusts prompt corrective action thresholds community banking organizations company bank became subject new rule january 1 2015 certain provisions new rule phased period 2015 2019 bank retained onetime election prior treatment accumulated comprehensive income unrealized gains losses securities available sale affect regulatory capital amounts ratios mentioned prior paragraph bank falls within new regulatory capital ratio guidelines critical accounting policies company follows financial accounting reporting policies accordance generally accepted accounting principles united states america conform general practices within banking industry accounting policies considered critical accounting policies critical accounting policies require management’s difficult subjective complex judgments often result need make estimates effect matters inherently uncertain company identified three accounting policies critical accounting policies understanding policies necessary understand financial statements policies relate determining adequacy allowance loan losses impairment goodwill intangibles estimating fair value assets acquired liabilities assumed connection merger activity additional information regarding policies included notes consolidated financial statements including note 1 summary significant accounting policies note 4 loans note 2 business combinations section captioned “loan portfolio” management believes judgments estimates assumptions used preparation consolidated financial statements appropriate given factual circumstances time farmers maintains allowance loan losses allowance loan losses presented reserve loans balance sheets loan losses charged allowance loan losses recoveries amounts previously charged credited allowance loan losses provision loan losses charged operations based management’s periodic evaluation adequacy allowance provision credit losses provides probable losses loans estimating amount allowance loan losses requires significant judgment use estimates related amount timing expected future cash flows impaired loans estimated losses pools homogeneous loans based historical loss experience consideration current economic trends conditions may susceptible significant change loan portfolio represents largest asset category consolidated balance sheets management’s assessment adequacy allowance loan losses considers individually impaired loans pools homogeneous loans similar risk characteristics environmental risk factors pools homogeneous loans similar risk characteristics assessed probable losses probable losses estimated application historical loss experience historical loss experience data used establish loss estimates may precisely correspond current portfolio result historical loss experience used allowance analysis may representative actual unrealized losses inherent portfolio management also evaluates impact environmental factors pose additional risks may adequately addressed analyses described environmental factors could include levels trends delinquencies impaired loans chargeoffs recoveries trends volume terms loans effects changes lending policies procedures including underwriting collection chargeoff recovery experience ability depth lending management staff national local economic trends conditions industry geographic conditions concentrations credit limited local industries employees suppliers common risk factor might affect loss experience across one components portfolio determination component allowances requires considerable management judgment extent actual outcomes differ management estimates additional provision credit losses could required could adversely affect earnings financial position future periods “loan portfolio” section financial review includes discussion factors driving changes allowance loan losses current period management believes accounting goodwill intangible assets also involves higher degree judgment significant accounting policies gaap establishes standards amortization acquired intangible assets impairment assessment goodwill arising business combinations represents value attributable unidentifiable intangible assets business acquired company’s goodwill relates value inherent banking industry value dependent upon ability company’s trust provide quality costeffective trust services competitive marketplace goodwill value supported revenue part driven volume business transacted decrease earnings resulting decline customer base inability deliver costeffective services sustained periods lead impairment goodwill could adversely impact earnings future periods gaap requires annual evaluation goodwill impairment frequently events changes circumstances indicate asset might impaired fair value goodwill resides books farmers trust nai estimated reviewing past projected operating results subsidiaries industry comparable information december 31 2015 consolidated basis farmers intangibles 78 million subject amortization 351 million goodwill subject periodic amortization estimating fair value assets acquired liabilities assumed connection nboh tristate acquisitions 2015 requires significant judgment addition associated goodwill mentioned prior paragraph estimates fair values loans core deposit intangible assets premises equipment time deposits susceptible estimation management’s judgment real estate equipment values well amount timing future cash flows associated loans deposits factors considered recent accounting pronouncements developments note 1 consolidated financial statements discusses new accounting policies adopted farmers 2015 expected impact accounting policies recently issued proposed yet required adopted extent adoption new accounting standards materially affects financial condition results operations liquidity impacts discussed applicable sections financial review notes consolidated financial statements item 7a item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor companys exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 200 basis point increase 100 basis point decrease market interest rates noted change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily positive impact fair value assets would great negative impact fair value certain liabilities specifically core deposits typically bear relatively low interest rates fair value would negatively impacted rates could adjusted full extent sudden decrease rates management believe 100 basis rate decline realistic current interest rate environment remaining results analysis comply internal limits established company report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes currently hold derivative financial instruments largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk information required section incorporated reference information appearing caption “market risk” located pages 11 12 corporation’s annual report item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates noted change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily positive impact fair value assets would great negative impact fair value certain liabilities specifically core deposits typically bear relatively low interest rates fair value would negatively impacted rates could adjusted full extent sudden decrease rates management believe 100 basis rate decline realistic current interest rate environment remaining results analysis comply internal limits established company report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates assumptions predictions include inputs compute baseline net interest income growth rates expected changes rates interest bearing deposit accounts loans competition various factors difficult accurately predict interest rate change results fall within policy limits year ended december 31 2016 2015 report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates assumptions predictions include inputs compute baseline net interest income growth rates expected changes rates interest bearing deposit accounts loans competition various factors difficult accurately predict noted december 31 2018 change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily due positive impact fair value assets great negative impact fair value certain liabilities specifically core deposits typically bear relatively low interest rates fair value would negatively impacted rates could adjusted full extent sudden decrease rates management continue monitor policy exception may consider changes assetliability position future remaining results simulations indicate interest rate change results fall within internal limits established company december 31 2018 2017 report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes hold derivative financial instruments plan purchase instruments near future largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates interest rate change results fall within policy limits year ended december 31 2014 noted december 31 2013 change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily positive impact fair value assets would great negative impact fair value certain liabilities remaining results 2013 comply internal limits established company report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates assumptions predictions include inputs compute baseline net interest income growth rates expected changes rates interest bearing deposit accounts loans competition various factors difficult accurately predict noted december 31 2020 2019 change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily due positive impact fair value assets great negative impact fair value certain liabilities specifically core deposits typically bear relatively low interest rates fair value would negatively impacted rates could adjusted full extent sudden decrease rates management continue monitor policy exception may consider changes assetliability position future remaining results simulations indicate interest rate change results fall within internal limits established company december 31 2020 2019 report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes hold derivative financial instruments plan purchase instruments near future largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements corporation management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates corporation monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames corporation considers primary market exposure interest rate risk simulation analysis used monitor corporations exposure changes interest rates effect change net interest income following table shows effect net interest income event sudden sustained 100 200 basis point increase decrease market interest rates changes change interest rate net interest net basis points income interest income 200 359 214 100 179 107 100 327 195 200 653 389 results analysis comply internal limits established corporation report interest rate risk presented board directors assetliability committee quarterly basis corporation market risk sensitive instruments held trading purposes hold derivative financial instruments plan purchase instruments future largest amount interest sensitive assets liabilities maturing within twelve months corporation monitors area closely corporation emphasize interest sensitivity analysis beyond time frame believes various unpredictable factors could result erroneous interpretations early withdrawal deposits prepayments loans loan delinquencies factors could effect addition changes rates interest sensitive assets liabilities may equal could result change net margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure part iii item 10 directors executive officers registrant information relating directors set forth registrants definitive proxy statement used connection annual meeting shareholders held march 25 1999 proxy statement attached hereto executive officers registrant names ages positions executive officers march 1 1999 name age position held william stewart 69 chairman richard l calvin 72 vice chairman frank l paden 48 president secretary carl culp 35 exec vice pres treasurer donald f lukas 52 senior vice president officers elected annually board directors immediately following annual meeting shareholders term office executive officers period ending next annual meeting principal occupation business experience executive officers mr william stewart served chairman since march 1996 prior time president secretary since inception registrant march 31 1983 president bank since 1972 held various executive positions bank mr richard l calvin served vice chairman since march 1996 prior time executive vice president treasurer registrant since inception march 31 1983 executive vice president bank since 1972 held various executive positions bank mr frank l paden served president secretary since march 1996 prior time executive vice president registrant since march 1995 executive vice president bank since march 1995 held various executive positions bank mr carl culp served executive vice president treasurer since march 1996 prior time controller registrant since november 1995 controller bank since november 1995 mr donald f lukas served senior vice president registrant since march 1996 prior time vice president bank since march 1987 item 11 executive compensation information regarding item set forth registrants definitive proxy statement used connection annual meeting shareholders held march 25 1999 proxy statement attached hereto item 12 security ownership certain beneficial owners management information relating item set forth registrants definitive proxy statement used connection annual meeting shareholders held march 25 1999 proxy statement attached hereto item 13 certain relationships related transactions information regarding item set forth registrants definitive proxy statement used connection annual meeting shareholders held march 25 1999 proxy statement attached hereto part iv item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 200 basis point increase 100 basis point decrease market interest rates noted change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily positive impact fair value assets would great negative impact fair value certain liabilities specifically core deposits typically bear relatively low interest rates fair value would negatively impacted rates could adjusted full extent sudden decrease rates management believe 100 basis rate decline realistic current interest rate environment remaining results analysis comply internal limits established company report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates assumptions predictions include inputs compute baseline net interest income growth rates expected changes rates interest bearing deposit accounts loans competition various factors difficult accurately predict interest rate change results fall within policy limits year ended december 31 2017 2016 report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk information required section incorporated reference information appearing caption “market risk” located pages 15 16 company’s annual report item 8 item 7a quantitative qualitative disclosures market risk information required item 305 regulation sk incorporated herein reference information appearing caption “market risk” beginning page 17 company’s annual report item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates assumptions predictions include inputs compute baseline net interest income growth rates expected changes rates interest bearing deposit accounts loans competition various factors difficult accurately predict noted december 31 2019 2018 change net present value equity exceeded policy simulation model assumed sudden decrease rates 100 basis points 1 primarily due positive impact fair value assets great negative impact fair value certain liabilities specifically core deposits typically bear relatively low interest rates fair value would negatively impacted rates could adjusted full extent sudden decrease rates management continue monitor policy exception may consider changes assetliability position future remaining results simulations indicate interest rate change results fall within internal limits established company december 31 2019 2018 report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes hold derivative financial instruments plan purchase instruments near future largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 7a quantitative qualitative disclosures market risk important considerations assetliability management liquidity balance interest rate sensitive assets liabilities adequacy capital interest rate sensitive assets liabilities yields rates subject change within future time period due maturity instrument changes market rates liquidity management involves meeting funds flow requirements company management interest rate sensitivity focuses structure assets liabilities respect maturity repricing characteristics balancing interest rate sensitive assets liabilities provides means tempering fluctuating interest rates maintaining net interest margins periods changing interest rates company monitors interest rate sensitive assets liabilities determine overall interest rate position various time frames company considers primary market exposure interest rate risk simulation analysis used monitor company’s exposure changes interest rates effect change net interest income following table shows effect net interest income net present value equity event sudden sustained 300 basis point increase 100 basis point decrease market interest rates interest rate change results fall within policy limits year ended december 31 2015 2014 report interest rate risk presented board directors assetliability committee quarterly basis company market risk sensitive instruments held trading purposes largest amount interest sensitive assets liabilities maturing within twelve months company monitors area closely early withdrawal deposits prepayments loans loan delinquencies factors impact actual results comparison simulation analysis addition changes rates interest sensitive assets liabilities may equal could result change net interest margin interest rate sensitivity management provides degree protection net interest income volatility possible necessarily desirable attempt eliminate risk completely matching interest sensitive assets liabilities factors market demand interest rate outlook regulatory restraint strategic planning also effect desired balance sheet structure item 8 item 8 financial statements supplementary data set forth registrants 1996 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountants consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports filed three months ended december 31 1996 independent auditors consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 23 1997 relating consolidated financial statements farmers national banc corp subsidiary hill barth king inc warren ohio march 25 1997 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden carl culp president secretary executive vice president treasurer chairman march 25 1997 william stewart director march 25 1997 benjamin r brown vice chairman march 25 1997 richard l calvin director march 25 1997 joseph lane director march 25 1997 david c myers director march 25 1997 edward ort president march 25 1997 frank l paden director march 25 1997 ronald v wertz index exhibits following exhibits filed incorporated references part report 2 applicable 3i applicable 3ii applicable 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 applicable 11 applicable 12 applicable 13 annual report security holders filed herewith 16 applicable 18 applicable 21 subsidiaries registrant filed herewith 22 applicable 23 applicable 24 applicable 27 financial data schedule filed herewith 99 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 8 financial statements supplementary data management’s report internal control financial reporting management farmers national banc corp responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2011 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” internal controlintegrated framework based assessment believe december 31 2011 internal control financial reporting effective based criteria crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2011 stated report dated march 14 2012 john gulas carl culp president ceo executive vice president treasurer september 30 crowe horwath llp independent member crowe horwath international report independent registered public accounting firm board directors shareholders farmers national banc corp canfield ohio audited accompanying consolidated balance sheets farmers national banc corp december 31 2011 2010 related consolidated statements income comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2011 also audited farmers national banc corp’s internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso farmers national banc corp’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion financial statements referred present fairly material respects financial position farmers national banc corp december 31 2011 2010 results operations cash flows years threeyear period ended december 31 2011 conformity accounting principles generally accepted united states america also opinion farmers national banc corp maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso crowe horwath llp cleveland ohio march 14 2012 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data 1 stock option expense 2011 2010 2009 less 1000 rounded 0 2 treasury stock repurchased 2010 2009 less 1000 rounded 0 see accompanying notes consolidated statements cash flows farmers national banc corp subsidiaries unaudited see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank “bank” canfield farmers trust company “trust” consolidated financial statements also include accounts farmers national bank canfield’s subsidiary farmers national insurance together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services nationally chartered subsidiary farmers national bank canfield national bank subject regulation office comptroller currency federal deposit insurance corporation area served bank northeastern region ohio service provided eighteen 18 locations company provides trust services subsidiary farmers trust company insurance services bank’s subsidiary farmers national insurance farmers trust company statechartered bank license conduct trust business ohio department commerce division financial institutions estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates allowance loan losses deferred tax assets carrying amount goodwill fair values financial instruments particularly subject change cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthan loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within mahoning trumbull columbiana stark counties therefore company’s exposure credit risk significantly affected changes economy four county area allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based managements judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans concession granted borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 250 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced company recent two years historical loss factors declined slightly due higher chargeoff periods rolling analysis however increased level nonperforming loans continued sluggishness economy market area caused increase economic adjustments applied loss factors actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans levels trends chargeoffs recoveries trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential mortgage loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member federal home loan bank fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual impairment test intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet noncompete contracts amortized fully straight line basis term agreement ended march 31 2011 customer relationship intangibles amortized 13 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized stock options issued employees based fair value awards date grant blackscholes model utilized estimate fair value stock options compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit likely tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting likely test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock options earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income comprehensive income consists solely unrealized gains losses securities available sale recognized separate component equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements restrictions cash hand deposit federal reserve bank required meet regulatory reserve clearing requirements equity company successfully completed rights public offering 5000000 common shares january 2011 2053136 shares treasury stock reissued proceeds rights public offering net offering costs 12 million 138 million treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 4 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments chief decisionmakers monitor revenue streams various products services operations managed financial performance primarily aggregated reported two lines business bank segment trust segment company discloses segment information footnote 17 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards december 2010 fasb amended existing guidance relating goodwill impairment testing guidance requires carrying amount reporting unit zero negative qualitative assessment performed determine likely goodwill impaired step 2 impairment test shall performed determined likely goodwill impaired amendments guidance effective fiscal years interim periods within years beginning december 15 2010 effect adopting standard material effect company’s operating results financial condition april 2011 fasb amended existing guidance assisting creditor determining whether restructuring troubled debt restructuring amendments clarify guidance creditor’s evaluation whether granted concession whether debtor experiencing financial difficulties regard determining whether concession granted asu clarifies creditors precluded using effective interest method determine whether concession granted absence using effective interest method creditor must focus considerations value underlying collateral evaluation collateral guarantees debtor’s ability access funds market rates interest rate increases whether restructuring results delay payment insignificant guidance effective interim annual reporting periods beginning june 15 2011 applied retrospectively beginning annual period adoption purposes measuring impairment newly identified troubled debt restructurings amendments applied prospectively first interim annual period beginning june 15 2011 adoption significant impact company’s consolidated financial statements may 2011 fasb issued amendment achieve common fair value measurement disclosure requirements us international accounting principles overall guidance consistent existing us accounting principles however amendments change particular principle requirement measuring fair value disclosing information fair value measurements amendments guidance effective interim annual reporting periods beginning december 15 2011 company currently evaluating impact amendment consolidated financial statements june 2011 fasb amended existing guidance eliminated option present components comprehensive income part statement changes stockholder’s equity amendment requires comprehensive income presented either single continuous statement two separate consecutive statements amendments guidance effective beginning fiscal reporting year interim periods within year begins december 15 2011 early adoption permitted company early adopted amendment presenting comprehensive income new consolidated statements comprehensive income new statement follows consolidated statements income september 2011 fasb amended existing guidance relating goodwill impairment testing amendment permits assessment qualitative factors determine whether existence events circumstances leads determination likely fair value reporting unit less carrying amount assessing events circumstances concluded likely fair value reporting unit less carrying amount performing twostep impairment test unnecessary amendments guidance effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted including annual interim goodwill impairment tests performed date september 15 2011 financial statements recent annual interim period yet issued note 2securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2011 2010 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 631 thousand 938 thousand 356 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 194 million december 31 2011 182 million december 31 2010 pledged secure public deposits repurchase agreements trust company securities carrying amount 100 thousand yearend 2011 2010 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders equity us government agencies following table summarizes investment securities unrealized losses december 31 2011 december 31 2010 aggregated major security type length time continuous unrealized loss position company’s equity securities include local regional bank holdings company recognized 11 thousand pretax 74 thousand pretax charge otherthantemporary decline fair value equity holdings years ended december 31 2011 2009 respectively decline fair value cost deemed otherthantemporary difference amortized cost basis equity security fair value must recognized charge earnings otherthantemporary impairment recognized year ended december 31 2010 december 31 2011 company’s security portfolio consisted 412 securities 33 unrealized loss position majority unrealized losses related company’s holdings mortgagebacked securitiesresidential securities issued state political subdivisions discussed mortgagebacked securitiesresidential company’s holdings mortgagebacked securitiesresidential year end 2011 2010 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2011 securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income generally securities maintained investment grade ratings management intent sell securities anticipated recovery fair value expected recover securities approach maturity date note 3 loans year end follows following table presents activity allowance loan losses portfolio segment year ending december 31 2011 december 31 2011 activity allowance loan losses years ending december 31 2010 2009 follows following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2011 2010 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material december 31 2011 december 31 2010 following table presents information related impaired loans class loans year ended december 31 2011 recorded investment loans excludes accrued interest receivable due immateriality interest income recognized impairment immaterial following table presents information related impaired loans class loans year ended december 31 2010 recorded investment loans excludes accrued interest receivable due immateriality following table presents information impaired loans december 31 interest income recognized impairment periods immaterial nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2011 december 31 2010 following table presents aging recorded investment past due loans december 31 2011 2010 class loans troubled debt restructurings total troubled debt restructurings 43 million 30 million december 31 2011 2010 respectively company allocated 48 thousand 40 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2011 2010 commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2011 december 31 2010 year ending december 31 2011 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent reduction recorded investment loan modifications involving reduction stated interest rate loan periods ranging 18 79 months modifications involving extension maturity date periods ranging 24 months 30 years following table presents loans class modified troubled debt restructurings occurred year ending december 31 2011 troubled debt restructurings described immaterial affect allowance loan losses december 31 2011 charge offs result allowance adjustment single loan modified troubled debt restructuring payment default within twelve months following modification year ending december 31 2011 default result borrower’s death 2011 troubled debt restructuring increased allowance loan losses immaterial amount year ending december 31 2011 loan considered payment default 30 days contractually past due modified terms credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 300 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves managements close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institutions credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans december 31 2011 december 31 2010 company sold residential real estate financing receivables year end period december 31 2011 amount 53 million note 4fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities fair values investment securities determined quoted market prices available level 1 securities quoted prices available fair values calculated based market prices similar securities level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 impaired loans fair value impaired loans specific allocations allowance loan losses generally based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value real estate owned certain commercial residential real estate properties classified real estate owned oreo measured fair value less costs sell fair values based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value assets measured fair value recurring basis including financial assets company elected fair value option summarized significant transfers level 1 level 2 2011 2010 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 period ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans measured impairment using fair value collateral dependent loans principal balance 46 million valuation allowance 936 thousand december 31 2011 resulting additional provision loan losses 13 million year ending december 31 2011 december 31 2010 impaired loans carrying amount 28 million valuation allowance 565 thousand loans measured fair value throughout year resulted additional provision loan losses 22 million year ending december 31 2010 excluded fair value impaired loans december 31 2011 2010 discussed 23 million 18 million loans classified troubled debt restructurings carried fair value real estate owned measured fair value less costs sell net carrying amount 346 thousand december 31 2011 five properties charged reflecting updated appraisals resulted writedown 115 thousand december 31 2010 real estate owned carried fair value fair value financial instruments carrying amounts estimated fair values financial instruments december 31 2011 december 31 2010 follows methods assumptions used estimate fair value described follows carrying amount estimated fair value cash equivalents loans held sale accrued interest receivable payable demand deposits shortterm debt variable rate loans deposits reprice frequently fully methods determining fair values securities described previously fixed rate loans deposits variable rate loans deposits infrequent repricing limits fair value based discounted cash flows using current market rates applied estimated life credit risk fair value debt based current rates similar financing practicable determine fair value restricted stock due restrictions placed transferability fair value offbalance sheet items considered material note 5premises equipment yearend premises equipment follows depreciation expense 11 million year ended december 31 2011 10 million year ended december 31 2010 980 thousand 2009 company leases certain branch properties operating leases rent expense 283 257 203 thousand 2011 2010 2009 addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 6goodwill intangible assets goodwill associated company’s purchase farmers trust company 2009 totaled 37 million december 31 2011 2010 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting unit including existing goodwill intangible assets estimating fair value reporting unit determined fair value reporting unit exceeded carrying amount carrying amount reporting unit exceeds fair value required perform second step impairment test acquired intangible assets acquired intangible assets follows year end aggregate amortization expense 479 thousand 580 thousand 449 thousand 2011 2010 2009 estimated amortization expense next five years note 7interest bearing deposits time deposits 100 thousand 979 million 974 million yearend 2011 2010 following summary scheduled maturities certificates deposit years following december 31 2011 following summary yearend interest bearing deposits note 8securities sold agreements repurchase shortterm borrowings securities sold repurchase agreements secured banks holdings debt securites issued us government sponsored entities agencies carrying amount 1756 million 1660 million yearend 2011 2010 repurchase agreements financing arrangements mature within 89 days agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust company information concerning securities sold agreements repurchase summarized follows 2011 bank paid shortterm us treasury interestbearing demand note balance 781 thousand december 31 2010 demand note interest free december 31 2010 bank access lines credit amounting 245 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings line december 31 2011 2010 farmers national banc corp unsecured 15 million revolving line credit line renewed annually outstanding balance 11 million december 31 2011 2010 interest rate prime floor 45 interest rate december 31 2011 2010 45 note 9federal home loan bank advances longterm borrowings year end longterm advances federal home loan bank follows 2011 bank paid 12 million prepayment fees retire several fhlb advances totaling 119 million due date among advances prepaid fhlb fixedrate advance convertible floating rate advance 5 million balance december 31 2010 also included prepayment 2011 bank prepaid 5 million fhlb fixedrate advance putable certain specific dates option fhlb december 31 2011 bank retains 10 million putable fhlb fixedrate advances december 31 2010 balance putable fhlb fixedrate advances 15 million fhlb elect put bank required repay advance date without penalty federal home loan bank advances secured blanket pledge residential mortgage loans totaling 996 million 953 million year end 2011 2010 based collateral bank eligible borrow additional 885 million year end 2011 advance subject prepayment penalty paid prior maturity date scheduled repayments longterm fhlb advances follows bank note payable secured real estate totaling 129 thousand 2011 189 thousand 2010 note carries fixed interest rate 750 scheduled principal repayments note payable follows note 10commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less fixed rate loan commitments 2011 interest rates ranging 475 625 mature thirty years fixed rate commitments 2010 interest rates ranging 475 625 maturities ranging fifteen thirty years fixed rate unused lines credit interest rates ranging 325 1800 december 31 2011 december 31 2010 standby letters credit considered financial guarantees standby letters credit contractual value 40 million 2011 32 million 2010 carrying amount items balance sheet material note 11stock options company’s stock option plan shareholderapproved permitted grant share options directors officers employees 375 thousand shares common stock company believes awards better align interests employees shareholders option awards granted exercise price equal market price companys common stock date grant option awards vesting periods 5 years 10year contractual terms option exercises expected satisfied either newly issued shares treasury shares fair value companys stock december 31 2011 2010 less option exercise price therefore outstanding exercisable options intrinsic value fair value option award estimated date grant using closed form option valuation blackscholes model uses assumptions noted table expected volatilities based historical volatilities company’s common stock company uses historical data estimate option exercise postvesting termination behavior expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant options granted exercised 2011 2010 2009 summary activity stock option plan 2011 follows company expects outstanding options vest december 31 2011 total unrecognized compensation cost related nonvested stock options granted plan immaterial note 12regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2011 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2011 2010 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions corporation’s principal source funds dividend payments dividends received bank trust bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2012 bank could without prior approval declare dividends approximately 166 million plus 2012 net profits retained date dividend declaration trust would need agency approval declare dividends 2012 since exceeded limits 974 thousand december 31 2011 due continuing growth bank’s business increase allowance loan losses associated current economic conditions senior management board determined higher levels capital appropriate occ concurred board’s view additional capital would beneficial supporting continued growth operations result effective february 2 2010 occ proposed bank accepted following individual minimum capital requirements farmers national bank tier capital adjusted total assets 720 total capital riskweighted assets 1100 december 31 2011 bank compliance minimum capital requirements set forth board occ increase capital levels company executed offering 5 million common shares farmers national banc corp stock january 2011 offering 5 million shares 3 per share involved rights offering existing shareholders offering standby investors offering public company issued 2946864 authorized unissued common shares reissued 2053136 shares treasury stock total proceeds offering net offering costs 12 million 138 million since companys cost basis treasury shares greater price paid common shares issued rights offering difference 193 million recorded reduction retained earnings company contributed 8 million bank general operating purposes may include among others payment expenses payments dividends pursuing strategic opportunities may presented bank time actual required capital amounts ratios presented yearend note 13employee benefit plans company qualified 401k deferred compensation retirement savings plan employees company completed least 90 days service meet certain eligibility requirements eligible participate plan terms plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution plan total expense 300 thousand 268 thousand 236 thousand years ended december 31 2011 2010 2009 respectively company maintains deferred compensation plan certain retirees due early retirement participant plan future monthly benefits reduced resulted benefit 26 thousand recorded 2011 expense plan 43 thousand 21 thousand years ended december 31 2010 2009 respectively liability plan december 31 2011 2010 189 thousand 257 thousand company also postretirement benefit plan covering individuals retired company met certain service age requirements certain active employees met similar service requirements postretirement health care plan includes limit company’s share costs recent future retirees expense plan 2011 2010 2009 material accrued postretirement benefit liability plan also material due immateriality plan disclosures required us generally accepted accounting principles omitted note 14income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2011 2010 capital loss carryover 33 thousand used offset future capital gain income expires december 31 2013 december 31 2011 december 31 2010 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months penalties interest recorded income statement years ended december 31 2011 2010 2009 amounts accrued penalties interest december 31 2011 2010 company subject us federal income tax company longer subject examination federal taxing authority years prior 2008 tax years 20082010 remain open examination us taxing authority note 15related party transactions loans principal officers directors affiliates 2011 follows deposits principal officers directors affiliates yearend 2011 2010 651 thousand 751 thousand note 16earnings per share factors used earnings per share computation follow stock options 5000 28500 37000 shares common stock considered computing diluted earnings per share 2011 2010 2009 respectively antidilutive note 17segment information reportable segments determined products services offered primarily distinguished banking trust operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers national insurance 2011 2010 note 18quarterly financial data unaudited fourth quarter 2011 bank sold certain investment securities recognized security gains 18 million also fourth quarter 2011 bank prepaid 119 million fhlb advances incurred 12 million prepayment penalty included noninterest expense bank sold certain investment securities recognized security gains 26 million third fourth quarters 2010 note 19parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes statements income statements cash flows item 9 item 8 financial statements supplementary financial data information required section incorporated reference information located pages 20 36 corporation’s annual report item 9 item 8 financial statements supplementary data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2013 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 1992 internal controlintegrated framework based assessment believe december 31 2013 internal control financial reporting effective based criteria crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2013 stated report dated march 13 2014 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer executive vice president treasurer report independent registered public accounting firm board directors shareholders farmers national banc corp canfield ohio audited accompanying consolidated balance sheets farmers national banc corp “company” december 31 2013 2012 related consolidated statements income comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2013 also audited company’s internal control financial reporting december 31 2013 based criteria established 1992 internal control integrated framework issued committee sponsoring organizations treadway commission “coso” company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion financial statements referred present fairly material respects financial position farmers national banc corp december 31 2013 2012 results operations cash flows years threeyear period ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established 1992 internal control integrated framework issued coso crowe horwath llp cleveland ohio march 13 2014 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income loss table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data 1 stock option expense 2012 2011 less 1000 rounded 0 see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank “bank” canfield farmers trust company “trust” national associates inc “nai” consolidated financial statements also include accounts farmers national bank canfield’s subsidiary farmers national insurance together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity nationally chartered subsidiary farmers national bank canfield national bank subject regulation office comptroller currency federal deposit insurance corporation area served bank northeastern region ohio service provided seventeen 17 locations july 1 2013 company acquired national associates inc “nai” retirement plan consulting firm located cleveland ohio therefore company provides retirement consulting services nai company provides trust services subsidiary farmers trust company insurance services bank’s subsidiary farmers national insurance farmers trust company statechartered bank license conduct trust business ohio department commerce division financial institutions estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates allowance loan losses deferred tax assets carrying amount goodwill fair values financial instruments particularly subject change cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthantemporary impairment otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis equity securities entire amount impairment recognized earnings loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale generally sold servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within mahoning trumbull columbiana stark counties therefore company’s exposure credit risk significantly affected changes economy four county area allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 300 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelvequarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous pass rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans levels trends chargeoffs recoveries trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential mortgage loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member federal home loan bank fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income restricted stock included assets consolidated balance sheets bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual impairment tests associated acquisition trust nai intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized average 13 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized stock options issued employees based fair value awards date grant blackscholes model utilized estimate fair value stock options compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock options earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income loss comprehensive income loss consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements restrictions cash hand deposit federal reserve bank required meet regulatory reserve clearing requirements equity part nai acquisition company issued 228777 common shares 2013 company successfully completed rights public offering 5000000 common shares january 2011 2053136 shares treasury stock reissued proceeds rights public offering net offering costs 12 million 138 million treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 4 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments chief decisionmakers monitor revenue streams various products services operations managed financial performance primarily aggregated reported three lines business bank trust retirement planningconsulting segments company discloses segment information footnote 20 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards february 2013 fair accounting standards board “fasb” issued accounting standards update 201302 “asu” primary objective improving reporting reclassifications accumulated comprehensive income “aoci” significant reclassifications required presented entirety net income reporting period us generally accepted accounting principles us gaap asu requires entity report effect reclassifications aoci respective line items net income either face statement reports net income financial statement notes aoci items reclassified net income entirety presentation financial statement notes required company adopted asu beginning periods ended march 31 2013 adding additional footnote disclosure footnote 15 consolidated financial statements note 2 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2013 2012 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 301 thousand 371 thousand 631 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 164 million december 31 2013 169 million december 31 2012 pledged secure public deposits repurchase agreements trust company securities carrying amount 100 thousand yearend 2013 2012 2011 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2013 2012 aggregated major security type length time continuous unrealized loss position unrealized losses equity securities unrealized losses rounded less 1 thousand year 2013 unrealized losses mortgagebacked securities residential small business administration securities unrealized losses rounded less 1 thousand year 2012 company’s equity securities include local regional bank holdings year ended december 31 2013 3 thousand pretax charge recognized otherthantemporary decline fair value equity holdings company recognized otherthantemporary impairment less 1 thousand rounded zero year ended december 31 2012 company recognized 11 thousand otherthantemporary impairment year ended december 31 2011 decline fair value cost deemed otherthantemporary difference amortized cost basis equity security fair value must recognized charge earnings december 31 2013 company’s security portfolio consisted 414 securities 124 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securitiesresidential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income generally securities maintained investment grade ratings management intent required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securitiesresidential company’s holdings mortgagebacked securitiesresidential year end 2013 2012 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2013 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities insure adequate credit support december 31 2013 company believes otherthantemporarily impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2013 note 3 loans year end follows following table presents activity allowance loan losses portfolio segment years ended december 31 2013 2012 2011 december 31 2013 december 31 2012 december 31 2011 company changed methodology estimating allowance probable incurred loan losses 2012 management computed historical loss percentage based upon loss history past 12 quarters previous years management used historical loss percentage based past 8 quarters using 12 quarter loss history resulted larger historical loss ratio would computed using 8 quarter history company believes using 12 quarter loss history helps mitigate volatility timing chargeoffs better reflects probable incurred losses following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2013 2012 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material december 31 2013 december 31 2012 following table presents information related impaired loans class loans year ended december 31 2013 2012 2011 recorded investment loans excludes accrued interest receivable due immateriality 2013 company first time began considering consumer loans individually impairment interest income recognized cash basis interest recognized materially different 2013 interest income recognized impairment 2012 2011 periods immaterial nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2013 2012 following table presents aging recorded investment past due loans december 31 2013 2012 class loans troubled debt restructurings total troubled debt restructurings 83 million 76 million december 31 2013 2012 respectively company allocated 397 thousand 155 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2013 2012 16 thousand commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2013 commitments december 31 2012 year ending december 31 2013 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent reduction recorded investment loan permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies deferral principal payments legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 025 325 also extensions maturity dates troubled debt restructurings range three months 126 months following table presents loans class modified troubled debt restructurings occurred year ending december 31 2013 following table presents loans class modified troubled debt restructurings occurred year ending december 31 2012 50 thousand 418 thousand charge offs 66 thousand increase 306 thousand decrease allowance loan losses result allowance adjustment due troubled debt restructurings described december 31 2013 december 31 2012 respectively two commercial loans 204 thousand one commercial real estate loan 205 thousand one residential real estate loan 35 thousand modified troubled debt restructuring payment defaults within twelve months following modification year ending december 31 2013 four loans past due december 31 2013 one indirect loan modified troubled debt restructuring payment defaults within twelve months following modification year ending december 31 2013 loan past due december 31 2013 additional provision impact allowance losses associated loans loan considered payment default 30 days contractually past due modified terms loans modified troubled debt restructuring payment default within twelve months following modification year ending december 31 2012 credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 300 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 4 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company used third party service estimate fair value available sale securities monthly basis service provider considered leading evaluation pricing service us domestic fixed income securities subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities determined quoted market prices active markets available level 1 securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort year ended december 31 2013 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison via independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2013 2012 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 period ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans carried fair value measured impairment using fair value collateral principal balance 42 million valuation allowance 363 thousand december 31 2013 resulting additional provision loan losses 916 thousand year ending december 31 2013 december 31 2012 impaired loans carrying amount 26 million valuation allowance 25 thousand loans measured fair value throughout year resulted additional provision loan losses 997 thousand year ending december 31 2012 excluded fair value impaired loans december 31 2013 2012 discussed 30 million 43 million loans specific allowance amounts allocated classified troubled debt restructurings measured using present value discounted cash flows carried fair value impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2013 2012 real estate owned measured fair value less costs sell net carrying amount 33 thousand december 31 2013 company sold six real estate owned properties year ended december 31 2013 company recorded 21 thousand write downs three real estate owned properties year ended december 31 2013 december 31 2012 real estate owned net carrying amount 57 thousand year ended december 31 2012 five properties charged reflecting updated appraisals resulted writedown 97 thousand fair value financial instruments carrying amounts estimated fair values financial instruments previously presented december 31 2013 december 31 2012 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows variable rate loans reprice frequently significant change credit risk fair values based carrying values resulting level 3 classification fair values loans estimated using discounted cash flow analyses using interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification impaired loans valued lower cost fair value described previously methods utilized estimate fair value loans necessarily represent exit price loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 5premises equipment yearend premises equipment follows depreciation expense 12 million year ended december 31 2013 12 million year ended december 31 2012 11 million year ended december 31 2011 company purchased property located adjacent canfield branch south broad street canfield 395 thousand management’s plans property house investment insurance mortgage lending activities possession took place january 2014 declining branch transaction counts banking trends driving customers towards online banking decision made close two retail branch locations leetonia warren ohio two branches closed october 1 2013 one property valued 90 thousand moved real estate owned still providing atm service remains service part premises equipment company plans actively market properties sale near future company leases certain branch properties operating leases rent expense 302 265 283 thousand 2013 2012 2011 addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 6goodwill intangible assets goodwill associated company’s purchase national associates inc july 2013 farmers trust company 2009 totaled 64 million december 31 2013 37 million december 31 2012 nai acquisition fully described note 16 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting units including existing goodwill intangible assets estimating fair value reporting units company determined fair value reporting units exceeded carrying amount carrying amount reporting unit exceeds fair value second step impairment test required acquired intangible assets acquired intangible assets follows year end aggregate amortization expense 624 thousand 409 thousand 479 thousand 2013 2012 2011 estimated amortization expense next five years note 7 interest bearing deposits time deposits 100 thousand 857 million 866 million yearend 2013 2012 following summary scheduled maturities certificates deposit years following december 31 2013 following summary yearend interest bearing deposits note 8 securities sold agreements repurchase shortterm borrowings securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies carrying amount 1524 million 1620 million year ended 2013 2012 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust company information concerning securities sold agreements repurchase summarized follows bank access lines credit amounting 245 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion december 31 2013 bank drawn 6 million lines 6 million repaid january 2014 borrowings line december 31 2012 farmers national banc corp unsecured 15 million revolving line credit line renewed annually outstanding balance 350 thousand december 31 2013 2012 interest rate prime floor 45 interest rate december 31 2013 2012 45 note 9 federal home loan bank advances longterm borrowings year end longterm advances federal home loan bank follows 2013 bank received fixedrate fhlb advance amount 10 million annual 5 principal prepayment december 31 2013 bank retains 10 million putable fhlb fixedrate advances balance putable fhlb fixedrate advances also 10 million december 31 2012 fhlb elect put bank required repay advance date without penalty federal home loan bank advances secured blanket pledge residential mortgage loans totaling 1044 million 952 million year end 2013 2012 based collateral bank eligible borrow additional 846 million year end 2013 advance subject prepayment penalty paid prior maturity date scheduled repayments longterm fhlb advances follows 2013 bank made final payment note payable secured real estate totaling 64 thousand december 31 2012 note carried fixed interest rate 750 note 10 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less fixed rate loan commitments 2013 interest rates 450 mature ten twelve years fixed rate commitments 2012 interest rates ranging 288 450 mature ten thirty years fixed rate unused lines credit interest rates ranging 216 1350 december 31 2013 325 1800 december 31 2012 standby letters credit considered financial guarantees standby letters credit contractual value 49 million 2013 38 million 2012 carrying amount items balance sheet material note 11 stock based compensation 2012 company approval shareholders created 2012 equity incentive plan “plan” plan permits award 500 thousand shares company’s directors employees promote company’s longterm financial success motivating performance longterm incentive compensation better align interests employees shareholders share awards issued years ended december 31 2013 2012 plan company’s stock option plan shareholderapproved since expired permitted grant share options directors officers employees 375 thousand shares common stock option awards granted exercise price equal market price company’s common stock date grant option awards vesting periods 5 years 10year contractual terms option exercises expected satisfied either newly issued shares treasury shares fair value company’s stock december 31 2013 2012 less equal fair value option exercise price therefore outstanding exercisable options intrinsic value fair value option award estimated date grant using closed form option valuation blackscholes model uses assumptions noted table expected volatilities based historical volatilities company’s common stock company uses historical data estimate option exercise postvesting termination behavior expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant options granted exercised stock option plan 2013 2012 2011 summary stock option plan year end 2013 follows weighted average remaining contractual life changed 55 years december 31 2012 01 years december 31 2013 employee holding 5000 options terminated november 2013 per stock option plan employees three months date separation exercise options december 31 2013 total unrecognized compensation cost related nonvested stock options granted plan immaterial note 12 regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2013 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2013 2012 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions corporation’s principal source funds dividend payments dividends received bank trust bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2014 bank could without prior approval declare dividends approximately 116 million plus 2014 net profits retained date dividend declaration order practice trust powers trust must maintain minimum capital 3 million trust could without prior approval declare dividends 7 thousand plus net profits retained date dividend declaration 2014 actual required capital amounts ratios presented yearend note 13 employee benefit plans company qualified 401k deferred compensation retirement savings plan employees company completed least 90 days service meet certain eligibility requirements eligible participate plan terms plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution plan total expense 336 thousand 334 thousand 300 thousand years ended december 31 2013 2012 2011 respectively company maintains deferred compensation plan certain retirees expense plan 10 thousand 13 thousand years ended december 31 2013 2012 due early retirement participant plan future monthly benefits reduced resulted benefit 26 thousand recorded 2011 liability plan december 31 2013 163 thousand 170 thousand december 31 2012 company also postretirement health care benefit plan covering individuals retired company met certain service age requirements certain active employees met similar service requirements postretirement health care plan includes limit company’s share costs recent future retirees expense plan 2013 2012 2011 13 thousand 34 thousand 15 thousand accrued postretirement benefit liability plan 370 thousand 375 thousand december 31 2013 2012 due immateriality plan disclosures required us generally accepted accounting principles omitted note 14 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2013 2012 42 thousand capital loss carryover used offset capital gain income 2013 december 31 2013 december 31 2012 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company paid 12 thousand penalty year ended december 31 2013 amounts accrued penalties interest december 31 2013 2012 company subject us federal income tax company longer subject examination federal taxing authority years prior 2010 tax years 20102012 remain open examination us taxing authority note 15 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2013 2012 2011 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 16 business combination july 1 2013 company completed acquisition outstanding stock retirement planning consultancy national associates inc cleveland ohio transaction involved cash stock totaling 44 million including 15 million future payments contingent upon nai meeting income performance targets estimated fair value acquisition date 920000 fair market value contingent consideration determined using monte carlo simulation’s key assumptions included two year period estimated volatility 20 expected ebitda base 6 maximum 12 discount rate 119 acquisition part company’s plan increase levels noninterest income complement existing retirement services currently offered acquisitionrelated costs 270 thousand included company’s consolidated statements income year ended december 31 2013 goodwill 26 million recorded balance sheet nai arising acquisition consisted largely synergies cost savings resulting combining operations companies goodwill expected deductible income tax purposes fair value intangible assets 23 million related client relationships company name noncompetition agreements following table summarizes consideration paid nai amounts assets acquired liabilities assumed nai contributed 627 thousand gross revenues company resulting net loss 156 thousand six month period ended december 31 2013 following table presents pro forma information acquisition occurred beginning 2012 pro forma information includes adjustments amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transactions effected assumed dates note 17 related party transactions loans principal officers directors affiliates 2013 follows deposits principal officers directors affiliates yearend 2013 2012 16 million 11 million note 18 earnings per share factors used earnings per share computation follow stock options 5000 shares common stock 2013 2012 2011 considered computing diluted earnings per share antidilutive note 19 interest rate swaps 2012 company began using program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designed hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2013 2012 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2013 2012 note 20 segment information reportable segments determined products services offered primarily distinguished banking nai trust operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers national insurance note 21 quarterly financial data unaudited company sold certain investment securities recognized security gains 597 thousand third quarter 2013 13 million charge recorded third quarter 2013 severance costs company sold certain investment securities recognized security gains 11 million third fourth quarters 2012 note 22parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2016 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2016 internal control financial reporting effective based criteria crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2016 stated report dated march 7 2017 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer senior executive vice president treasurer report independent registered public accounting firm board directors shareholders farmers national banc corp canfield ohio audited accompanying consolidated balance sheets farmers national banc corp “company” december 31 2016 2015 related consolidated statements income comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2016 also audited company’s internal control financial reporting december 31 2016 based criteria established 2013 internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion financial statements referred present fairly material respects financial position farmers national banc corp december 31 2016 2015 results operations cash flows years threeyear period ended december 31 2016 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2016 based criteria established 2013 internal control integrated framework issued coso crowe horwath llp crowe horwath llp cleveland ohio march 7 2017 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank canfield “bank” farmers trust company “trust” national associates inc “nai” farmers national captive inc “captive” captive formed 2016 whollyowned insurance subsidiary company consolidated financial statements also include accounts farmers national bank canfield’s subsidiaries farmers national insurance “insurance” farmers canfield investment co “investments” bank acquired bowers insurance agency inc “bowers” consolidated activity bowers farmers national insurance “insurance” 2016 company acquired first national bank orrville “first national bank” subsidiary national bancshares corporation “nboh” 1st national community bank “fncb” subsidiary tristate 1st banc inc “tristate” 2015 consolidated activity acquisitions within bank see note 2 together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation primary area served bank northeastern region ohio thirty eight 38 locations acquisition fncb bank added one branch location southwestern pennsylvania company provides trust services trust subsidiary retirement consulting services nai subsidiary insurance services bank’s insurance subsidiary primary purpose investments invest municipal securities captive provides property casualty insurance coverage company subsidiaries captive pools resources thirteen similar insurance subsidiaries financial institutions spread limited amount risk among pool members provide insurance currently available economically feasible today’s insurance market place trust statechartered bank license conduct trust business ohio department commerce division financial institutions estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthantemporary impairment otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis equity securities entire amount impairment recognized earnings loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale sold without servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured purchased credit impaired loans company purchased loans shown evidence credit deterioration since origination acquisition first national bank loans recorded amount paid carryover seller’s allowance loan losses company estimates amount timing expected cash flows loan expected cash flows excess amount paid recorded interest income remaining life loan excess loan’s contractual principal interest expected cash flows recorded life loan expected cash flows continue estimated present value expected cash flows less carrying amount loss recorded provision loan losses present value expected cash flows greater carrying amount recognized part future interest income derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within northeastern ohio therefore company’s exposure credit risk significantly affected changes economy 9 county area loans secured real estate represent 56 total portfolio changes related real estate markets monitor management allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff acquired loans individually evaluated purchased loans without evidence credit deterioration management evaluates reviewed loan using internal grading system grade assigned loan date acquisition extent purchased loan specifically reviewed loan assumed characteristics similar characteristics acquired portfolio purchased loans grade purchased loan without evidence credit deterioration reviewed subsequent date acquisition time loan renewed extended time information becomes available company provides material insight regarding loan’s performance status borrower quality value underlying collateral extent current information indicates probable company collect amounts according contractual terms thereof loan considered impaired individually considered determination required allowance loan losses extent current information indicates probable company able collect amounts according contractual terms thereof loan considered impaired considered determination required level allowance determining day one fair values purchased loans without evidence credit deterioration date acquisition management includes carryover previously recorded allowance loan losses ii adjustment unpaid principal balance reflect appropriate market rate interest given risk profile grade assigned loan adjustment accreted earnings yield adjustment using effective yield method remaining life loan allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 750 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses servicing rights mortgage loans sold servicing rights retained servicing rights initially recorded fair value income statement effect recorded gains sales loans fair value based market prices comparable mortgage servicing contracts available alternatively based valuation model calculates present value estimated future net servicing income valuation model incorporates assumptions market participants would use estimating future net servicing income cost service discount rate custodial earnings rate inflation rate ancillary income prepayment speeds default rates losses company compares valuation model inputs results published industry data validate model results assumptions classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans servicing assets evaluated impairment based upon fair value assets compared carrying amount impairment reported valuation allowance extent fair value less capitalized amount grouping valuation allowance impairment servicing assets december 31 2016 servicing fee income recorded earned servicing loans based contractual percentage outstanding principal fixed amount per loan amortization mortgage servicing rights netted loan servicing fee income servicing fees late fees ancillary fees related loan servicing considered significant financial reporting foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual goodwill impairment tests associated acquisition trust bowers nai first national bank fncb intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet core deposit intangible assets arising bank acquisitions amortized estimated useful lives 7 8 years noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized range 13 15 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock equity awards earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters currently material effect financial statements restrictions cash hand deposit federal reserve bank “frb” required meet regulatory reserve clearing requirements company deposits frb 164 million december 31 2016 294 million december 31 2015 equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 6 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments operations managed financial performance primarily aggregated reported three lines business bank trust retirement consulting segments company discloses segment information note 21 reclassification items prior year financial statements reclassified conform current presentation reclassification loan portfolios occurred breakout agricultural loans separate line item prior year reclassification also took place deferred tax asset detail footnote 16 align current period detail reclassifications effect prior year net income stockholders’ equity adoption new accounting standards newly issued yet effective accounting standards june 2016 financial accounting standards board “fasb” issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments asu requires organization measure expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better inform credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses organizations continue use judgment determine loss estimation method appropriate circumstances additionally asu amends accounting credit losses availableforsale debt securities purchased financial assets credit deterioration asu 201613 effective public companies annual periods beginning december 15 2019 including interim periods within fiscal years entities apply standards provisions cumulativeeffect adjustment retained earnings beginning first reporting period guidance adopted company begun accumulate historical credit information preparation adoption asu 201613 management determined full impact new standard consolidated financial statements march 2016 fasb issued accounting standards update “asu” 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting amendments asu 201609 simplify several aspects accounting employee sharebased payment transactions including accounting income taxes forfeitures statutory tax withholding requirements well classification statement cash flows asu 201609 effective public companies interim annual reporting periods beginning december 15 2016 early adoption permitted company expects adoption asu 201609 material impact consolidated financial statements disclosures february 2016 fasb issued asu 201602 topic 842 leases main objective asu 201602 provide users useful transparent complete information leasing transactions asu 201602 requires rights obligations associated leasing arrangements reflected balance sheet increase transparency comparability among organizations updated guidance lessees required recognize righttouse asset liability make lease payment disclose key information leasing arrangements asu 201602 effective public companies interim annual reporting periods beginning december 15 2018 early adoption permitted disclosed footnote 7 certain leases company place could require capitalization 27 million balance sheet asset related liability amount income statement affect therefore company expect adoption asu material impact consolidated financial statements january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities main objective asu 201601 enhance reporting model financial instruments provide users financial statements decisionuseful information asu 201601 addresses certain aspects recognition measurement presentation disclosure financial instruments amendments asu 201601 include following 1 require equity investments except accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income 2 simplify impairment assessment equity investments without readily determinable fair values requiring qualitative assessment identify impairment 3 require public business entities use exit price notion measuring fair value financial instruments disclosure purposes 4 require entity present separately comprehensive income portion total change fair value liability resulting change instrumentspecific credit risk entity elected measure liability fair value among others amendments asu 201601 effective fiscal years beginning december 15 2017 including interim periods within fiscal years company currently evaluating effects asu 201601 consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu creates new topic 606 provide guidance revenue recognition entities enter contracts customers transfer goods services enter contracts transfer nonfinancial assets core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services additional disclosures required provide quantitative qualitative information regarding nature amount timing uncertainty revenue cash flows arising contracts customers new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2017 early adoption permitted annual reporting periods beginning december 15 2016 management anticipates impact adoption guidance company’s consolidated financial statements limited expect asu impact core revenue mainly interest income less interest expense management still assessing impact noninterest income related subsidiary entities trust nai insurance well bank’s service charges deposit accounts note 2 business combinations june 1 2016 bank completed acquisition bowers merged activity bowers insurance bank’s whollyowned insurance agency subsidiary bowers group engaged selling insurance including commercial farm home auto propertycasualty insurance help meet needs company’s customers transaction involved cash 123280 shares stock totaling 32 million including 12 million future payments contingent upon bowers meeting performance targets estimated fair value acquisition date 880 thousand acquisition part company’s plan increase levels noninterest income complement existing insurance services currently offered goodwill 18 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 16 million related client relationships company name noncompetition agreements valuation assets acquired created including intangible assets goodwill preliminary could subject change october 1 2015 company completed acquisition tristate parent company fncb transaction involved cash 1296517 shares stock totaling 143 million pursuant terms merger agreement common shareholders tristate received 1747 common shares without par value company 1420 cash common share tristate subject proration provisions specified merger agreement provide targeted aggregate split total consideration consisting 75 shares farmers’ common stock 25 cash preferred shareholders tristate received 1360 cash share series preferred stock without par value tristate goodwill 30 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies 2016 adjustment additional 225 thousand made goodwill due refinement deferred tax asset item goodwill determined deductible income tax purposes fair value intangible assets 12 million related core deposits june 19 2015 company completed acquisition outstanding stock nboh parent company first national bank orrville transaction involved cash 7262955 shares stock totaling 748 million first national bank orrville branches became branches farmers bank pursuant terms merger agreement shareholder nboh received either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares nboh exchanged stock 20 cash goodwill 267 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 44 million related core deposits acquisitions provide attractive mix additional loans deposits helps company achieve additional operating scale drive per share earnings growth addition financial benefits merger significant step company’s strategy expand footprint following table summarizes consideration paid tristate nboh amounts assets acquired liabilities assumed closing date acquisition fair value net assets acquired includes fair value adjustments certain receivables considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows however company believes contractual cash flows related financial instruments acquired tristate collected receivables considered impaired acquisition date subject guidance relating purchased credit impaired loans purchase credit impaired loans would shown evidence credit deterioration since origination following table presents pro forma information three acquisitions occurred 2015 2016 actually took place beginning 2015 pro forma information includes adjustments merger related costs amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transactions effective assumed dates note 3 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2016 2015 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 26 thousand 33 thousand 160 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 242 million december 31 2016 219 million december 31 2015 149 million december 31 2014 pledged secure public deposits repurchase agreements trust securities carrying amount 100 thousand yearend 2016 2015 2014 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2016 2015 aggregated major security type length time continuous unrealized loss position company’s equity securities include local regional bank holdings otherthantemporary impairments recognized 2016 2015 2014 otherthantemporary impairment occur amount impairment recognized earnings depends whether entity intends sell security likely would required sell security recovery amortized cost basis previous amortized cost basis less impairment recognized earnings becomes new amortized cost basis investment december 31 2016 company’s security portfolio consisted 518 securities 226 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securities residential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income december 31 2016 securities issued state political subdivisions investment grade ratings management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2016 2015 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2016 2015 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2016 2015 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income company consider securities otherthantemporarily impaired december 31 2016 2015 decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery note 4 loans year end follows purchased credit impaired loans part nboh acquisition 2015 company acquired various loans displayed evidence deterioration credit quality since origination probable contractually required payments would collected carrying amounts contractually required payments loans included loan balances summarized following tables accretable yield income expected collected shown table key assumptions considered include probability default amount actual prepayments acquisition date prepayments affect estimated life loans could change amount interest income principal expected collected reforecasting future estimated cash flows credit loss expectations adjusted necessary adjustments forecasted cash flows impacted allowance loan losses years ended december 31 2016 2015 following tables present activity allowance loan losses portfolio segment years ended december 31 2016 2015 2014 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2016 2015 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans years ended december 31 2016 2015 2014 recorded investment loans excludes accrued interest receivable due immateriality cash basis interest income recognized interest income recognized materially equal 2016 2015 2014 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2016 2015 following tables present aging recorded investment past due loans december 31 2016 2015 class loans troubled debt restructurings total troubled debt restructurings 70 million 93 million december 31 2016 2015 respectively company allocated 101 thousand 528 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2016 2015 respectively commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2016 2015 years ending december 31 2016 2015 2014 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent reduction recorded investment loan deferral principal payments legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 038 1151 also extensions maturity dates troubled debt restructurings range nine months 122 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2016 2015 2014 troubled debt restructurings described increased allowance loan losses 43 thousand resulted charge offs 344 thousand year ended december 31 2016 troubled debt restructurings described increased allowance loan losses 101 thousand resulted charge offs 129 thousand year ended december 31 2015 troubled debt restructurings described increased allowance loan losses 11 thousand resulted charge offs 42 thousand year ended december 31 2014 two commercial real estate loans 12 million one residential real estate loan 1 thousand one home equity line credit 10 thousand modified troubled debt restructurings payment defaults within twelve months following modification year december 31 2016 none loans past due december 31 2016 effect provision loan losses result default 2016 one commercial real estate loan 40 thousand one residential real estate loan 1 thousand one home equity line credit 11 thousand modified troubled debt restructurings payment defaults within twelve months following modification year december 31 2015 three loans past due december 31 2015 effect provision loan losses result default 2015 four residential real estate loans payment defaults within twelve months following modification troubled debt restructuring year ending december 31 2014 one four loans past due december 31 2014 effect provision loan losses result default 2014 credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 5 loan servicing company began servicing loans upon acquisition first national bank’s servicing portfolio june 2015 mortgage loans serviced others reported assets principal balances loans yearend follows custodial escrow balances maintained connection serviced loans 961 thousand december 31 2016 584 thousand december 31 2015 activity mortgage servicing rights years ended december 31 2016 2015 follows valuation allowance required mortgage servicing rights december 31 2016 2015 note 6 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company used third party service estimate fair value available sale securities monthly basis service provider considered leading evaluation pricing service us domestic fixed income securities subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities determined quoted market prices active markets available level 1 securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2016 2015 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2016 2015 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 year ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans measured impairment using fair value collateral dependent loans principal balance 727 thousand valuation allowance 173 thousand december 31 2016 resulting additional provision loan losses 139 thousand year ending december 31 2016 december 31 2015 impaired loans principal balance 34 million valuation allowance 383 thousand loans measured fair value throughout year resulted additional provision loan losses 270 thousand year ending december 31 2015 excluded fair value impaired loans december 31 2016 2015 discussed 20 million 29 million loans classified troubled debt restructurings measured using present value cash flows considered exit price impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material december 31 2016 real estate owned measured fair value less costs sell net carrying amount 16 thousand year ended december 31 2016 company charged three properties reflecting updated appraisal resulted writedown 36 thousand company related write downs year ended december 31 2015 following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2016 2015 fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2016 december 31 2015 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows variable rate loans reprice frequently significant change credit risk fair values based carrying values resulting level 3 classification fair values loans estimated using discounted cash flow analyses using interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification impaired loans valued lower cost fair value described previously methods utilized estimate fair value loans necessarily represent exit price loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification loan servicing rights fair value based valuation model calculates present value estimated future net servicing income valuation model utilizes interest rate prepayment speed default rate assumptions market participants would use estimating future net servicing income level 2 accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 7premises equipment yearend premises equipment follows depreciation expense 17 million year ended december 31 2016 15 million year ended december 31 2015 11 million year ended december 31 2014 june 2016 company added 1 location addition bowers trumbull county fixed assets recorded fair market value june 2015 company added 14 branches mostly wayne medina counties part nboh acquisition september 2015 4 branches mostly columbiana county part tristate acquisition fixed assets recorded fair market value company leases certain branch properties operating leases rent expense 362 332 323 thousand 2016 2015 2014 respectively addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 8goodwill intangible assets goodwill associated company’s purchase bowers june 2016 nboh june 2015 tristate october 2015 nai july 2013 trust 2009 totaled 372 million december 31 2016 351 million december 31 2015 bowers nboh tristate nai acquisitions fully described note 2 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting units including existing goodwill intangible assets estimating fair value reporting units annual impairment analysis september 30 2016 company determined fair value goodwill exceeded carrying amount annual impairment testing september 30 2014 fair value nai less carrying value carrying amount reporting unit exceeds fair value second step impairment test required analysis indicated step 2 analysis necessary nai reporting unit step 2 goodwill impairment test performed measure impairment loss step 2 requires implied fair value reporting unit’s goodwill compared carrying amount goodwill carrying amount reporting unit’s goodwill exceeds implied fair value goodwill impairment loss shall recognized amount equal excess performing step 2 determined implied value goodwill less carrying costs resulting impairment charge 763 thousand year ended december 31 2014 initial valuation nai future income projections fully attained fair value reporting unit determined based discounted cash flow model additionally 763 thousand impairment offset equal reduction future payment liability associated purchase two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 intangibles core deposit intangible assets associated company’s purchases nboh tristate totaled 56 million intangible assets follows year end aggregate amortization expense 15 million 983 thousand 767 thousand 2016 2015 2014 respectively estimated amortization expense next five years note 9 interest bearing deposits time deposits 250 thousand 433 million 396 million yearend 2016 2015 following summary scheduled maturities certificates deposit years following december 31 2016 following summary yearend interest bearing deposits note 10 shortterm borrowings bank shortterm advances fhlb maturity dates less one year time advance balances due within one year renewed time maturity fhlb advances secured pledgings described following longterm borrowings footnote balances year end follows securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies carrying amount 820 million 793 million year ended 2016 2015 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank trust information concerning securities sold agreements repurchase summarized follows following table provides disaggregation obligation class collateral pledged shortterm financing obtained sales repurchase agreements management believes risks associated agreements minimal case collateral decline company additional investment securities available adequately pledge guarantees repurchase agreements bank access lines credit amounting 25 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings lines december 31 2016 2015 farmers two unsecured revolving lines credit 65 million lines renewed annually lines interest rates prime floors 35 45 outstanding balance two lines 350 thousand december 31 2016 2015 interest rate outstanding balance december 31 2016 2015 45 note 11 longterm borrowings year end longterm advances fhlb follows bank total 5 million putable fhlb fixedrate advances fhlb elect put bank required repay advance date without penalty bank added 8 million longterm advances part two acquisitions year ended december 31 2015 shortterm longterm fhlb advances secured blanket pledge residential mortgage loans totaling 2769 million 2378 million year end 2016 2015 based collateral bank eligible borrow additional 1440 million year end 2016 advance subject prepayment penalty paid prior maturity date scheduled payments longterm fhlb advances follows company added special purpose entity hold 21 million trust preferred debenture part tristate acquisition debt floating rate determined quarterly based threemonth libor december 31 2016 interest rate 27 securities redeemed quarterend final maturity trust preferred debenture december 15 2036 company 22 million note payable recorded longterm borrowings section consolidated balance sheets note 12 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less six fixed rate loan commitments 2016 interest rate 425 525 matures within fifteen years variable rate loan commitments interest rates december 31 2016 ranged 469 575 fixed rate loan commitments 2015 interest rates 389 mature within fifteen years fixed rate unused lines credit interest rates ranging 010 1800 december 31 2016 020 2190 december 31 2015 standby letters credit considered financial guarantees standby letters credit contractual value 43 million december 31 2016 56 million december 31 2015 carrying amount items balance sheet material additionally company committed 5 million subscription sbic investment funds december 31 2016 company invested 34 million funds note 13 stock based compensation 2012 company approval shareholders created 2012 equity incentive plan “plan” plan permits award 500 thousand shares company’s directors employees promote company’s longterm financial success motivating performance longterm incentive compensation better align interests employees shareholders service time based restricted stock awards granted plan totaling 20747 shares 2016 244105 shares 2015 also 82990 performance based restricted stock awards granted 2016 132620 performance based restricted stock awards granted 2015 actual number performance based stock awards issued depend certain performance conditions mainly average return equity compared group peer companies three year vesting period restricted stock awards granted fair value price equal market price company’s common stock date grant expense recognized plan 892 thousand year ended 2016 486 thousand 2015 116 thousand 2014 december 31 2016 26 million total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized next 2 years following activity plan years ended december 31 2016 note 14 regulatory matters banks financial holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices new minimum capital requirements associated basel committee capital liquidity regulation basel iii phased began january 1 2015 continue january 1 2019 capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2016 company bank meet capital adequacy requirements subject fdic federal banking regulators revised riskbased capital requirements applicable financial holding companies insured depository institutions including company bank make consistent agreements reached basel committee banking supervision “basel iii” common equity tier 1 capital tier 1 capital total capital ratios calculated dividing respective capital amounts riskweighted assets leverage ratio calculated dividing tier 1 capital adjusted average total assets basel iii limits capital distributions certain discretionary bonus payments banking organization hold “capital conservation buffer” consisting 25 common equity tier 1 capital tier 1 capital total capital riskweighted assets addition amount necessary meet minimum riskbased capital requirements capital conservation buffer phase began january 1 2016 increase year fully implemented 25 january 1 2019 capital conservation buffer 2016 0625 currently basel iii additional capital conservation buffer requires company bank maintain minimum ratio common equity tier 1 capital riskweighted assets least 5125 ii minimum ratio tier 1 capital riskweighted assets least 6625 iii minimum ratio total capital riskweighted assets least 8625 iv minimum leverage ratio least 40 prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2016 2015 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions company’s principal source funds dividend payments dividends received bank trust nai bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2017 bank could without prior approval declare dividends approximately 19 million plus 2017 net profits retained date dividend declaration order practice trust powers trust must maintain minimum capital 3 million trust would also able without prior approval declare dividends 102 thousand plus 2017 net profits retained date dividend declaration actual required capital amounts ratios presented yearend note 15 employee benefit plans company qualified 401k deferred compensation retirement savings plan “savings plan” employees company completed least 90 days service meet certain eligibility requirements eligible participate savings plan terms savings plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution savings plan total expense 506 thousand 431 thousand 336 thousand years ended december 31 2016 2015 2014 respectively 2014 company adopted profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 1 annual compensation associates 2016 2015 2014 expense 103 thousand 82 thousand 73 thousand years ended december 31 2016 2015 2014 respectively company maintains deferred compensation plan certain retirees expense plan 9 thousand year ended december 31 2016 10 thousand years ended december 31 2015 2014 liability deferred compensation plan december 31 2016 141 thousand 149 thousand december 31 2015 company established nonqualified deferred compensation plan select group management highly compensated eligible individuals terms plan eligible individuals may elect defer receipt compensation later taxable year company recorded asset liability equal amount represents amount contributions payable due participants plan recorded asset liability 345 thousand december 31 2016 67 thousand december 31 2015 part nboh acquisition company director retirement death benefit plan benefit prior members board directors nboh plan designed provide annual retirement benefit paid director upon retirement board attaining age 70 additional benefits participants added plan liability recorded december 31 2016 2015 1 million 929 thousand respectively benefit payment upon satisfying plan’s requirements benefit qualifying director death maximum 15 years expense plan 130 thousand 2016 none 2015 company assumed employee stock ownership plan “esop” part tristate acquisition covered substantially employees officers trustee discretionary authority purchase shares common stock tristate open market contributions plan 2016 2015 acquisition tristate shares converted company’s shares trustee held 39690 shares december 31 2016 2015 termination esop still process december 31 2016 company also postretirement health care benefit plan covering individuals retired company met certain service age requirements certain active employees met similar service requirements company process terminating plan expected completed within next year two benefit recognized plan 2016 2015 184 thousand 12 thousand respectively expense 4 thousand 2014 accrued postretirement benefit liability plan 70 thousand 280 thousand december 31 2016 2015 due immateriality plan disclosures required us generally accepted accounting principles omitted note 16 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2016 2015 december 31 2016 december 31 2015 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company approximately 205 thousand alternative minimum tax credits may carried forward indefinitely company paid penalties year ended december 31 2016 2015 amounts accrued penalties interest december 31 2016 2015 company subject us federal income tax company longer subject examination federal taxing authority years prior 2013 tax years 20132015 remain open examination us taxing authority note 17 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2016 2015 2014 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 18 related party transactions loans principal officers directors affiliates 2016 follows deposits principal officers directors affiliates yearend 2016 2015 120 million 79 million note 19 earnings per share factors used earnings per share computation follow restricted stock awards considered antidilutive year end 2016 2014 193105 award shares common stock considered computing diluted earnings per share antidilutive year end 2015 note 20 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2016 2015 2014 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2016 2015 2014 note 21 segment information reportable segments determined products services offered primarily distinguished banking trust retirement consulting operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations consulting fees provide revenues retirement consulting operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes insurance investment note 22 quarterly financial data unaudited note 23parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2018 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2018 internal control financial reporting effective based criteria crowe llp audited effectiveness company’s internal control financial reporting december 31 2018 stated report dated march 5 2019 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer senior executive vice president treasurer report independent registered public accounting firm shareholders board directors farmers national banc corp canfield ohio opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets farmers national banc corp company december 31 2018 2017 related consolidated statements income comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2018 related notes collectively referred financial statements also audited company’s internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company december 31 2018 2017 results operations cash flows years threeyear period ended december 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate crowe llp crowe llp served company’s auditor since 2003 cleveland ohio march 5 2019 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank canfield “bank” “farmers bank” farmers trust company “farmers trust” national associates inc “nai” farmers national captive inc “captive” captive formed 2016 whollyowned insurance subsidiary company consolidated financial statements also include accounts bank’s subsidiaries farmers national insurance llc “farmers insurance” farmers canfield investment co “farmers investments” company acquired monitor bancorp inc “monitor” holding company monitor bank 2017 consolidated activity within bank acquired bowers insurance agency inc “bowers” consolidated activity bowers farmers insurance 2016 see note 2 together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation primary area served bank northeastern region ohio thirty nine 39 locations twobranch location southwestern pennsylvania company provides trust services farmers trust subsidiary retirement consulting services nai subsidiary insurance services bank’s insurance subsidiary farmers trust statechartered bank license conduct trust business ohio department commerce division financial institutions primary purpose farmers investments invest municipal securities captive provides property casualty insurance coverage company subsidiaries captive pools resources thirteen similar insurance subsidiaries financial institutions spread limited amount risk among pool members provide insurance currently available economically feasible today’s insurance market place estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions shortterm borrowings assets liabilities securities debt securities classified available sale might sold maturity securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax equity securities readily determinable fair values carried fair value changes fair value reported net income prior 2018 equity securities readily determinable fair values classified available sale carried fair value unrealized holding gains losses reported comprehensive income net tax january 1 2018 company adopted new accounting standard financial instruments requires equity investments measured fair value changes fair value recognized net income adoption guidance resulted 169 thousand increase beginning retained earnings 169 thousand decrease accumulated comprehensive income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale sold without servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan well secured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured purchased credit impaired loans company purchased loans shown evidence credit deterioration since origination loans recorded amount paid carryover seller’s allowance loan losses company estimates amount timing expected cash flows loan expected cash flows excess amount paid recorded interest income remaining life loan excess loan’s contractual principal interest expected cash flows recorded life loan expected cash flows continue estimated present value expected cash flows less carrying amount loss recorded provision loan losses present value expected cash flows greater carrying amount recognized part future interest income derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within northeastern ohio therefore company’s exposure credit risk significantly affected changes economy nine county area loans secured real estate represent 705 total portfolio changes related real estate markets monitored management allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff acquired loans individually evaluated purchased loans without evidence credit deterioration management evaluates reviewed loan using internal grading system grade assigned loan date acquisition extent purchased loan specifically reviewed loan assumed characteristics similar characteristics acquired portfolio purchased loans grade purchased loan without evidence credit deterioration reviewed subsequent date acquisition time loan renewed extended time information becomes available company provides material insight regarding loan’s performance status borrower quality value underlying collateral extent current information indicates probable company collect amounts according contractual terms thereof loan considered impaired individually considered determination required allowance loan losses extent current information indicates probable company able collect amounts according contractual terms thereof loan considered impaired considered determination required level allowance determining day one fair values purchased loans without evidence credit deterioration date acquisition management includes carryover previously recorded allowance loan losses ii adjustment unpaid principal balance reflect appropriate market rate interest given risk profile grade assigned loan adjustment accreted earnings yield adjustment using effective yield method remaining life loan allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 750 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses servicing rights mortgage loans sold servicing rights retained servicing rights initially recorded fair value income statement effect recorded gains sales loans fair value based market prices comparable mortgage servicing contracts available alternatively based valuation model calculates present value estimated future net servicing income valuation model incorporates assumptions market participants would use estimating future net servicing income cost service discount rate custodial earnings rate inflation rate ancillary income prepayment speeds default rates losses company compares valuation model inputs results published industry data validate model results assumptions classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans servicing assets evaluated impairment based upon fair value assets compared carrying amount impairment reported valuation allowance extent fair value less capitalized amount grouping valuation allowance impairment servicing assets december 31 2018 2017 servicing fee income recorded earned servicing loans based contractual percentage outstanding principal fixed amount per loan amortization mortgage servicing rights netted loan servicing fee income servicing fees late fees ancillary fees related loan servicing considered significant financial reporting foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense assets recorded assets balance sheets real estate owned “oreo” oreo totaled 0 december 31 2018 171 thousand december 31 2017 operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value restricted stock totaled 117 million december 31 2018 105 million december 31 2017 cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual goodwill impairment tests associated acquisition farmers trust nai first national bank orrville 1st national community bank bowers monitor intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet core deposit intangible assets arising bank acquisitions amortized estimated useful lives 7 8 years noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized range 13 15 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock equity awards earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters currently material effect financial statements restrictions cash hand deposit federal reserve bank “frb” required meet regulatory reserve clearing requirements company deposits frb 342 million december 31 2018 300 million december 31 2017 equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank farmers trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 7 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments operations managed financial performance primarily aggregated reported three lines business bank farmers trust retirement consulting segments company discloses segment information note 22 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards newly issued yet effective accounting standards february 2018 fasb issued asu 201802 income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income amendments update allow reclassification accumulated comprehensive income retained earnings stranded tax effects resulting tax cuts jobs act consequently amendments eliminate stranded tax effects improve usefulness information reported financial statement users however amendments relate reclassification income tax effects tax cuts jobs act guidance requires effect change tax laws rates included income continuing operations affected standard takes effect entities fiscal years interim periods within fiscal years beginning december 15 2018 early adoption amendments update permitted public business entities reporting periods financial statements yet issued entities reporting periods financial statements yet made available issuance company early adopted asu result reclass 106 thousand accumulated comprehensive income retained earnings reflected consolidated financial statements december 31 2017 april 2017 fasb issued asu 201708 receivablesnonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities current us gaap premium typically amortized maturity date callable debt security purchased premium even holder certain call exercised result upon exercise call callable debt security held premium unamortized premium recorded loss earnings new standard shortens amortization period premium earliest call date closely align interest income recorded bonds held premium discount economics underlying instrument standard takes effect public business entities fiscal years interim periods within fiscal years beginning december 15 2018 company early adopted asu effective january 1 2018 material impact consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment asu eliminates step 2 goodwill impairment test instead new guidance entity perform annual goodwill impairment test comparing fair value reporting unit carrying amount impairment charge would recognized amount carrying amount exceeds reporting units fair value new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed testing dates january 1 2017 company plan early adoption asu adoption guidance expected impact companys consolidated financial statements february 2016 fasb issued asu 201602 topic 842 leases main objective asu 201602 provide users useful transparent complete information leasing transactions asu 201602 requires rights obligations associated leasing arrangements reflected balance sheet increase transparency comparability among organizations updated guidance lessees required recognize righttouse asset liability make lease payment disclose key information leasing arrangements asu 201602 effective public companies interim annual reporting periods beginning december 15 2018 early adoption permitted company adopted asu january 1 2019 disclosed footnote 8 certain leases company place require capitalization 36 million balance sheet asset related liability amount income statement effect january 1 2019 january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities main objective asu 201601 enhance reporting model financial instruments provide users financial statements decisionuseful information asu 201601 addresses certain aspects recognition measurement presentation disclosure financial instruments amendments asu 201601 include following 1 require equity investments except accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income 2 simplify impairment assessment equity investments without readily determinable fair values requiring qualitative assessment identify impairment 3 require public business entities use exit price notion measuring fair value financial instruments disclosure purposes 4 require entity present separately comprehensive income portion total change fair value liability resulting change instrumentspecific credit risk entity elected measure liability fair value among others amendments asu 201601 effective fiscal years beginning december 15 2017 including interim periods within fiscal years company adopted asu 201601 january 1 2018 resulted 169 thousand increase beginning retained earnings 169 thousand decrease accumulated comprehensive income consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu creates new topic 606 provide guidance revenue recognition entities enter contracts customers transfer goods services enter contracts transfer nonfinancial assets core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services additional disclosures required provide quantitative qualitative information regarding nature amount timing uncertainty revenue cash flows arising contracts customers new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2017 new guidance adopted january 1 2018 refer revenue contracts customers note 5 discussion company’s accounting revenue sources within scope accounting standards codification “asc” 606 june 2016 financial accounting standards board “fasb” issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments asu requires organization measure expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better inform credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses organizations continue use judgment determine loss estimation method appropriate circumstances additionally asu amends accounting credit losses availableforsale debt securities purchased financial assets credit deterioration asu 201613 effective public companies annual periods beginning december 15 2019 including interim periods within fiscal years entities apply standards provisions cumulativeeffect adjustment retained earnings beginning first reporting period guidance adopted company continues accumulate historical credit information established internal committee completed setup stage installation process new software preparation parallel testing first quarter 2019 adoption asu 201613 happen january 1 2020 management determined full impact new standard consolidated financial statements note 2 business combinations august 2017 company completed acquisition monitor holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value company subject overall limitation 85 monitor common shares exchanged company’s common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price company’s common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 goodwill 10 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 673 thousand related core deposits following table summarizes consideration paid monitor amounts assets acquired liabilities assumed closing date acquisition june 2016 bank completed acquisition bowers merged activity bowers farmers insurance bank’s whollyowned insurance agency subsidiary bowers group engaged selling insurance including commercial farm home auto propertycasualty insurance help meet needs company’s customers transaction involved cash 123280 shares stock totaling 32 million including 12 million future payments contingent upon bowers meeting performance targets estimated fair value acquisition date 880 thousand first three contingent payments made july 2017 totaling 316 thousand reduced earnout payable 564 thousand subsequent first payment management conducted two annual valuations contingent consideration found necessary reduce future payment liability associated remaining two payments 200 thousand year end 2017 20 thousand year end 2018 364 thousand 180 thousand recorded reduction acquisition related costs consolidated statements income december 31 2017 2018 respectively company conducts valuation work annually earnout calculation second three contingent payments completed june 2018 determined payment earned due acquisition part company’s plan increase levels noninterest income complement existing insurance services currently offered goodwill 18 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes original fair value intangible assets 16 million related client relationships company name noncompetition agreements following table summarizes consideration paid bowers amounts assets acquired liabilities assumed closing date acquisition following table presents pro forma information acquisitions occurred 2016 2017 actually took place beginning 2016 pro forma information includes adjustments merger related costs amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transactions effective assumed date note 3 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2018 2017 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 59 thousand 2 thousand 26 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 194 million december 31 2018 269 million december 31 2017 pledged secure public deposits repurchase agreements farmers trust securities carrying amount 100 thousand yearend 2018 2017 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2018 2017 aggregated major security type length time continuous unrealized loss position company’s equity securities include local regional bank holdings otherthantemporary impairments recognized 2017 2016 otherthantemporary impairment occur amount impairment recognized earnings depends whether entity intends sell security likely would required sell security recovery amortized cost basis previous amortized cost basis less impairment recognized earnings becomes new amortized cost basis investment december 31 2018 company’s security portfolio consisted 583 securities 256 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securities residential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income december 31 2018 2017 securities issued state political subdivisions investment grade ratings management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2018 2017 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2018 2017 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2018 2017 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income company consider securities otherthantemporarily impaired december 31 2018 2017 decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery note 4 loans year end follows purchased credit impaired loans part nboh acquisition 2015 company acquired various loans displayed evidence deterioration credit quality since origination probable contractually required payments would collected carrying amounts contractually required payments loans included loan balances summarized following tables accretable yield income expected collected shown table key assumptions considered include probability default amount actual prepayments acquisition date prepayments affect estimated life loans could change amount interest income principal expected collected reforecasting future estimated cash flows credit loss expectations adjusted necessary adjustments forecasted cash flows impacted allowance loan losses years ended december 31 2018 2017 following tables present activity allowance loan losses portfolio segment years ended december 31 2018 2017 2016 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2018 2017 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans years ended december 31 2018 2017 recorded investment loans excludes accrued interest receivable due immateriality following tables present average recorded investment impaired loans class interest income recognized loan class years ended december 31 2018 2017 2016 cash basis interest income recognized interest income recognized materially equal 2018 2017 2016 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2018 2017 following tables present aging recorded investment past due loans december 31 2018 2017 class loans troubled debt restructurings total troubled debt restructurings 55 million 50 million december 31 2018 2017 respectively company allocated 72 thousand 68 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2018 2017 respectively commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2018 2017 years ending december 31 2018 2017 2016 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies extension interest period deferral principal payments capitalization interest legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 049 349 also extensions maturity dates troubled debt restructurings range five months 132 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2018 2017 2016 troubled debt restructurings described increase allowance loan losses result charge offs year ended december 31 2018 troubled debt restructurings described increased allowance loan losses 75 thousand resulted charge offs 75 thousand year ended december 31 2017 troubled debt restructurings described increased allowance loan losses 43 thousand resulted charge offs 344 thousand year ended december 31 2016 two residential real estate loans 146 thousand payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2018 loans past due december 31 2018 effect provision loan losses result default 2018 loan considered payment default 30 days contractually past due modified terms loans payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2017 two commercial real estate loans 12 million one residential real estate loan 1 thousand one home equity line credit 10 thousand modified troubled debt restructurings payment defaults within twelve months following modification year ended december 31 2016 none loans past due december 31 2016 effect provision loan losses result default 2016 credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 5 revenue contracts customers material revenue contracts customers scope asc 606 recognized within noninterest income following table presents company’s noninterest income revenue stream reportable segment net eliminations years ended december 31 2018 2017 items outside scope asc 606 noted company elected modified retrospective approach adoption therefore prior period balances presented legacy gaap may comparable current year presentation description company’s revenue streams asc 606 follows service charges deposit accounts company earns fees deposit customers transactionbased account maintenance overdraft services management reviewed deposit account agreements determined agreements terminated time either bank account holder transaction fees balance transfers wires overdraft charges settled day performance obligation satisfied bank’s monthly service charges maintenance fees services provided customer monthly basis considered series services pattern transfer month review service charges assessed deposit accounts included amount variable consideration part monthly charges found waiver service charges due insufficient funds dormant account fees immaterial would require change accounting treatment fees new revenue standards recognition revenue asc 606 materially change timing magnitude revenue recognition debit card interchange fees customers bank account agreement maintain deposit balances bank customers use bank issued debit card purchase goods services bank earns interchange fees transactions typically percentage sale amount transaction bank records amount due receives settlement payment network payments payment network received recorded income daily basis contingent debit card interchange fees recorded company could subject clawback future periods recognition revenue asc 606 materially change timing magnitude revenue recognition trust fees services provided farmers trust customers series distinct services pattern transfer month fees trust accounts billed drafted trust accounts monthly company records fees income statement monthly basis fees assessed based total investable assets customer’s trust account signed contract company customer maintained customer trust accounts payment terms identified probable fees collectible funds managed accessible asset manager past history trust fee income recorded company indicates highly unlikely significant reversal could occur contingent incentive fees recorded company could subject clawback future periods recognition revenue asc 606 materially change timing magnitude revenue recognition insurance agency commissions insurance agency commissions received insurance carriers agency’s share commissions customer premium payments commissions recorded income checks received insurance carriers contingent portion associated commission checks may short timelag recording revenue cash received instead recording revenue policy signed customer time lag insignificant impact revenue recognition process farmers insurance also receives incentive checks insurance carriers achieving specified levels production particular carriers amounts recorded income check received contingent amounts associated payments may clawed back carrier future similar monthly commissions explained preceding paragraph may short timelag recording incentive revenue cash basis opposed estimating amount incentive revenue expected earned materially impact recognition insurance revenue amounts would need refunded one specific farmers insurance customer management believes reversal would significant potential situations surrounding recognition farmers insurance revenue include estimating potential refunds due likely cancellation percentage customers cancelling policies recording revenue time policy renewals management concluded since farmers insurance agency commissions represent 22 company’s total revenue adjusting current practice recording insurance revenue situations would material impact reporting total revenue recognition revenue asc 606 materially change timing magnitude revenue recognition retirement plan consulting fees earned retirement plan consulting generated nai revenue recognized based level work performed client payments received work performed future recorded deferred revenue account recorded income fees earned retirement plan consulting fees represent 14 company’s total revenue therefore management concluded adjustment revenue one particular customer refund reason would insignificant would materially impact company’s total revenue recognition revenue asc 606 materially change timing magnitude revenue recognition investment commissions investment commissions earned sales nondeposit investment products customers company sales conducted thirdparty brokerdealer commissions received recorded income bank’s income statement contingent portion may need refunded back cetera investment commissions represent 10 company’s total revenue therefore management concluded adjustment revenue particular customer refund reason would insignificant would materially impact company’s total revenue recognition revenue asc 606 materially change timing magnitude revenue recognition income items included “other” bank owned life insurance income security gains net gains sale loans operating income amounts within scope asc 606 deemed immaterial note 6 loan servicing company began servicing loans upon acquisition first national bank’s servicing portfolio june 2015 mortgage loans serviced others reported assets principal balances loans yearend follows custodial escrow balances maintained connection serviced loans 17 million december 31 2018 14 million december 31 2017 mortgage servicing rights recorded balance sheets assets activity mortgage servicing rights years ended december 31 2018 2017 2016 follows valuation allowance required mortgage servicing rights december 31 2018 2017 2016 note 7 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company uses third party service estimate fair value available sale securities monthly basis asu 201601 adopted company january 1 2018 requires use exit price notion measuring fair value financial instruments disclosure purposes company’s service provider considered leading evaluation pricing service us domestic fixed income securities complies fully asu 201601’s exit pricing requirements subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities consist equity securities recorded fair market value comply asu 201601 determined quoted market prices active markets available level 1 equity securities change fair market value recorded income statements securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2018 2017 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2018 2017 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 year ended december 31 assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans measured impairment using fair value collateral dependent loans principal balance 11 million valuation allowance 227 thousand december 31 2018 resulting additional provision loan losses 180 thousand year ending december 31 2018 december 31 2017 impaired loans principal balance 851 thousand valuation allowance 109 thousand loans measured fair value throughout year resulted additional provision loan losses 272 thousand year ending december 31 2017 december 31 2016 impaired loans principal balance 727 thousand valuation allowance 173 thousand loans measured fair value throughout year resulted additional provision loan losses 139 thousand year ending december 31 2016 excluded fair value impaired loans december 31 2018 2017 discussed 694 thousand 763 thousand loans classified troubled debt restructurings measured using present value cash flows considered exit price impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material december 31 2018 real estate owned measured fair value less costs sell zero net carrying amount year ended december 31 2018 company writedowns related real estate owned company 23 thousand 36 thousand related write downs years ended december 31 2017 2016 following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2018 2017 fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2018 december 31 2017 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows beginning january 1 2018 company used third party firm uses cash flow analysis current market interest rates along adjustments credit liquidity option risk conform asu 201601 exit price requirement december 31 2017 management used discounted cash flow analysis interest rates offered loans similar terms borrowers similar credit quality estimate fair market value impaired loans valued lower cost fair value described previously loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 8 premises equipment yearend premises equipment follows depreciation expense 15 million year ended december 31 2018 16 million year ended december 31 2017 17 million year ended december 31 2016 company leases certain branch properties operating leases rent expense 490 449 362 thousand 2018 2017 2016 respectively addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments including reasonably certain renewal options generally present follows note 9 goodwill intangible assets goodwill associated company’s purchases monitor august 2017 bowers june 2016 past acquisitions totaled 382 million december 31 2018 2017 monitor acquisition fully described note 2 business acquisitions impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test management performs goodwill impairment testing annual basis september 30 fair value reporting unit determined based discounted cash flow model acquired intangible assets acquired intangible assets follows aggregate amortization expense 14 million 2018 15 million 2017 2016 estimated amortization expense next five years thereafter note 10 interest bearing deposits time deposits 250 thousand 798 million 519 million yearend 2018 2017 following summary scheduled maturities certificates deposit brokered time deposits years following december 31 2018 following summary yearend interest bearing deposits note 11 shortterm borrowings bank shortterm advances fhlb maturity dates less one year time advance balances due within one year renewed time maturity fhlb advances secured pledgings described following longterm borrowings footnote balances year end follows securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies pledged securities 105 repurchase agreement balances carrying amount 46 million 779 million year ended 2018 2017 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust fhlb information concerning securities sold agreements repurchase summarized follows following table provides disaggregation obligation class collateral pledged shortterm financing obtained sales repurchase agreements management believes risks associated agreements minimal case collateral decline company additional investment securities available adequately pledge guarantees repurchase agreements bank access lines credit amounting 35 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings lines december 31 2018 2017 farmers two unsecured revolving lines credit 65 million lines renewed annually lines interest rates prime floors 35 45 outstanding balance two lines 350 thousand december 31 2018 2017 interest rate outstanding balance december 31 2018 2017 55 45 note 12 longterm borrowings year end longterm advances fhlb follows longterm shortterm fhlb advances secured blanket pledge residential mortgage commercial real estate multifamily loans totaling 5526 million 2802 million year end 2018 2017 based collateral bank eligible borrow additional 3088 million year end 2018 advance subject prepayment penalty paid prior maturity date scheduled payments longterm fhlb advances follows company added special purpose entity hold 21 million trust preferred debenture part tristate acquisition 2015 debt floating rate determined quarterly based threemonth libor december 31 2018 interest rate 449 securities redeemed quarterend final maturity trust preferred debenture december 15 2036 balance outstanding trust preferred debenture 23 22 million year end 2018 2017 note 13 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less commitments fixed rate unused lines credit interest rates ranging 299 1600 december 31 2018 2017 standby letters credit considered financial guarantees standby letters credit contractual value 52 million december 31 2018 49 million december 31 2017 carrying amount items balance sheet material additionally company committed 8 million subscription sbic investment funds december 31 2018 company invested 60 million funds note 14 stock based compensation 2017 company approval shareholders created 2017 equity incentive plan “2017 plan” 2017 plan permits award 800 thousand shares company’s directors employees attract retain exceptional personnel motivate performance importantly help align interests farmers’ executives company’s shareholders 25729 service time based shares 62919 performance based shares granted 2017 plan year ended december 31 2018 shown table actual number performance based stock awards issued depend certain performance conditions mainly average return equity compared group peer companies three year vesting period 2012 company approval shareholders created 2012 equity incentive plan “2012 plan” 2012 plan permitted award 500 thousand shares company’s directors employees promote company’s longterm financial success motivating performance longterm incentive compensation better align interests employees shareholders additional shares granted plan 2018 new restricted stock awards issued 2017 plan described restricted stock awards granted fair value price equal market price company’s common stock date grant expense recognized 17 million 2018 24 million 2017 892 thousand 2016 december 31 2018 15 million total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized 220 years following activity plans 2018 324978 shares vested 2018 weighted average fair value 1521 per share note 15 regulatory matters banks financial holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices new minimum capital requirements associated basel committee capital liquidity regulation basel iii phased beginning january 1 2015 continued january 1 2019 capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2018 company bank meet capital adequacy requirements subject fdic federal banking regulators revised riskbased capital requirements applicable financial holding companies insured depository institutions including company bank make consistent agreements reached basel committee banking supervision “basel iii” common equity tier 1 capital tier 1 capital total capital ratios calculated dividing respective capital amounts riskweighted assets leverage ratio calculated dividing tier 1 capital adjusted average total assets basel iii limits capital distributions certain discretionary bonus payments banking organization hold “capital conservation buffer” consisting 25 common equity tier 1 capital tier 1 capital total capital riskweighted assets addition amount necessary meet minimum riskbased capital requirements capital conservation buffer began phase january 1 2016 increased year fully implemented 25 january 1 2019 capital conservation buffer 1875 2018 125 2017 buffer required additional capital amount 344 million year end 2018 additional 210 million year end 2017 excluding additional capital conservation buffer basel iii requires company bank maintain minimum ratio common equity tier 1 capital riskweighted assets least 45 ii minimum ratio tier 1 capital riskweighted assets least 60 iii minimum ratio total capital riskweighted assets least 80 iv minimum leverage ratio least 40 prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2018 2017 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions company’s principal source funds dividend payments dividends received bank farmers trust nai bank farmers trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2019 bank could without prior approval declare dividends approximately 390 million plus 2019 net profits retained date dividend declaration order practice trust powers farmers trust must maintain minimum capital 3 million farmers trust would also able without prior approval declare dividends 603 thousand plus 2019 net profits retained date dividend declaration actual required capital amounts including capital conservation buffer ratios presented yearend note 16 employee benefit plans company qualified 401k deferred compensation retirement savings plan “savings plan” employees company completed least 90 days service meet certain eligibility requirements eligible participate savings plan terms savings plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution savings plan total expense 573 thousand 556 thousand 506 thousand years ended december 31 2018 2017 2016 respectively 2014 company adopted profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 1 annual compensation associates 2018 2017 2016 expense 78 thousand 105 thousand 103 thousand years ended december 31 2018 2017 2016 respectively company maintains deferred compensation plan certain retirees expense plan 8 thousand years ended december 31 2018 2017 9 thousand year ended december 31 2016 liability deferred compensation plan december 31 2018 124 thousand 133 thousand december 31 2017 2015 company established nonqualified deferred compensation plan select group management highly compensated eligible individuals terms plan eligible individuals may elect defer receipt compensation later taxable year company recorded asset liability equal amount represents amount contributions payable due participants plan recorded asset liability 753 thousand 566 thousand 345 thousand december 31 2018 2017 2016 respectively part nboh acquisition company director retirement death benefit plan benefit prior members board directors nboh plan designed provide annual retirement benefit paid director upon retirement board attaining age 70 additional benefits participants added plan liability recorded december 31 2018 2017 941 thousand 1 million respectively benefit payment upon satisfying plan’s requirements benefit qualifying director death maximum 15 years benefit recognized plan 19 thousand 2018 expense plan 91 thousand 130 recorded 2017 2016 respectively company assumed employee stock ownership plan “esop” part tristate acquisition covered substantially employees officers company terminated plan 2017 trustee discretionary authority purchase shares common stock tristate open market contributions plan 2018 2017 acquisition tristate esop shares converted company’s shares distributed participants trustee held shares december 31 2018 2017 company postretirement health care benefit plan covered individuals retired company met certain service age requirements certain active employees met similar service requirements company terminated plan 2017 benefit recognized plan 70 thousand 184 thousand december 31 2017 2016 respectively due termination plan accrued postretirement benefit liability december 31 2018 2017 0 due immateriality plan disclosures required us generally accepted accounting principles omitted note 17 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 21 2018 35 2017 2016 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2018 2017 december 31 2018 december 31 2017 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company subject us federal income tax company longer subject examination federal taxing authority years prior 2015 tax years 20152018 remain open examination us taxing authority december 2017 hr1 commonly known tax cuts jobs act “act” signed law act included several provisions affected company’s federal income tax expense reduced federal income tax rate 21 effective january 1 2018 result rate reduction company required remeasure income tax expense period enactment deferred tax assets liabilities using enacted rate items expected recovered settled remeasurement company’s net deferred tax asset resulted additional income tax expense 18 million 2017 note 18 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2018 2017 2016 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 19 related party transactions loans principal officers directors affiliates 2018 follows deposits principal officers directors affiliates yearend 2018 2017 116 million 59 million note 20 earnings per share factors used earnings per share computation follow restricted stock awards considered antidilutive year end 2018 2017 2016 note 21 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2018 2017 2016 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2018 2017 2016 note 22 segment information reportable segments determined products services offered primarily distinguished banking trust retirement consulting operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations consulting fees provide revenues retirement consulting operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers insurance investment note 23 quarterly financial data unaudited note 24 parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary data set forth registrant’s 2001 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountant’s consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports filed three months ended december 31 2001 iv1 independent auditor’s consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 18 2002 relating consolidated financial statements farmers national banc corp subsidiary shill barth king llc hill barth king llc warren ohio march 22 2002 iv2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized iv3 index exhibits following exhibits filed incorporated references part report 2 applicable 3i applicable 3ii applicable 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 applicable 11 applicable 12 applicable 13 annual report security holders filed herewith 16 applicable 18 applicable 21 subsidiaries registrant subsidiary registrant incorporated reference part item 1 report 22 applicable 23 applicable 24 applicable 99 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 iv4 item 8 financial statements supplementary data report hill barth king llc independent auditors registrant’s 2002 financial statements included exhibit 99 filed herewith item 9 item 8 financial statements supplementary data set forth registrant’s 2005 annual report shareholders incorporated reference part ii report a2 financial statement schedules financial statement schedules presented applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page 12 hereof incorporated herein reference b report form 8k one form 8k filed fourth quarter 2005 form 8k dated october 21 2005 discussed earnings third quarter 2005 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden carl culp frank l paden carl culp president secretary executive vice president treasurer march 14 2006 march 14 2006 benjamin r brown director march 14 2006 benjamin r brown anne frederick crawford director march 14 2006 anne frederick crawford james r fisher director march 14 2006 james r fisher joseph lane director march 14 2006 joseph lane ralph macali director march 14 2006 ralph macali earl r scott director march 14 2006 earl r scott frank l paden president director march 14 2006 frank l paden ronald v wertz director march 14 2006 ronald v wertz index exhibits following exhibits filed incorporated reference part report 2 applicable 3i articles incorporation including amendments thereto registrant incorporated reference exhibit 41 farmers national banc corp’s form s3 registration statement dated october 3 2001 file 012055 3ii code regulations including amendments thereto registrant incorporated reference exhibit 42 farmers national banc corp’s form s3 registration statement dated october 3 2001 file 012055 4 incorporated reference initial filing 9 applicable 10 information regarding item set forth registrant’s definitive proxy statement used connection annual meeting shareholders held march 30 2006 proxy statement incorporated reference 11 refer note n annual report incorporated reference 12 applicable 13 annual report security holders 14 company adopted code ethics applies chief executive officer chief financial officer complies criteria provided sec rules code ethics available calling corporate services 3305333341 16 applicable 18 applicable 21 farmers national bank canfield ohio 22 applicable 23a consent crowe chizek company llc 24 applicable 31a certification chief executive officer filed herewith 31b certification chief financial officer filed herewith 32a 1350 certification chief executive officer filed herewith 32b 1350 certification chief financial officer filed herewith 33 applicable 34 applicable 35 applicable copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 8 financial statements supplementary data set forth registrant’s 2006 annual report shareholders incorporated reference part ii report a2 financial statement schedules financial statement schedules presented applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page 12 hereof incorporated herein reference financial statement schedules presented applicable b exhibits filed incorporated reference part report listed index exhibits appears page 12 hereof incorporated herein reference c financial statement schedules financial statement schedules presented section none applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden frank l paden carl culp carl culp president secretary executive vice president treasurer march 6 2007 march 6 2007 benjamin r brown benjamin r brown director march 6 2007 anne frederick crawford anne frederick crawford director march 6 2007 james r fisher james r fisher director march 6 2007 joseph lane joseph lane director march 6 2007 ralph macali ralph macali director march 6 2007 earl r scott earl r scott director march 6 2007 frank l paden frank l paden president director march 6 2007 ronald v wertz ronald v wertz director march 6 2007 index exhibits following exhibits filed incorporated reference part report copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2014 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2014 internal control financial reporting effective based criteria crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2014 stated report dated february 27 2015 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer executive vice president treasurer report independent registered public accounting firm board directors shareholders farmers national banc corp canfield ohio audited accompanying consolidated balance sheets farmers national banc corp “company” december 31 2014 2013 related consolidated statements income comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2014 also audited company’s internal control financial reporting december 31 2014 based criteria established 2013 internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion financial statements referred present fairly material respects financial position farmers national banc corp december 31 2014 2013 results operations cash flows years threeyear period ended december 31 2014 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2014 based criteria established 2013 internal control integrated framework issued coso crowe horwath llp cleveland ohio february 27 2015 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income loss table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data 1 stock option expense 2012 less 1000 rounded 0 see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank “bank” canfield farmers trust company “trust” national associates inc “nai” consolidated financial statements also include accounts farmers national bank canfield’s subsidiaries farmers national insurance “insurance” farmers canfield investment co “investments” together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation area served bank northeastern region ohio service provided twenty 20 locations 2013 company acquired nai retirement plan consulting firm located cleveland ohio therefore company provides retirement consulting services nai company provides trust services subsidiary trust insurance services bank’s subsidiary insurance primary purpose investments new subsidiary bank 2014 invest municipal securities farmers trust company statechartered bank license conduct trust business ohio department commerce division financial institutions estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthantemporary impairment otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis equity securities entire amount impairment recognized earnings loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale generally sold servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within mahoning trumbull columbiana stark cuyahoga counties therefore company’s exposure credit risk significantly affected changes economy five county area allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 300 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans levels trends chargeoffs recoveries trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member federal home loan bank fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual impairment tests associated acquisition trust nai intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized average 13 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized stock options restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock options earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income loss comprehensive income loss consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements restrictions cash hand deposit federal reserve bank required meet regulatory reserve clearing requirements equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 4 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments chief decisionmakers monitor revenue streams various products services operations managed financial performance primarily aggregated reported three lines business bank trust retirement consulting segments company discloses segment information note 20 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards may 2014 fasb issued accounting standards update 201409 revenue contracts customers topic 606 asu creates new topic 606 provide guidance revenue recognition entities enter contracts customers transfer goods services enter contracts transfer nonfinancial assets core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services additional disclosures required provide quantitative qualitative information regarding nature amount timing uncertainty revenue cash flows arising contracts customers new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2016 early adoption permitted management currently evaluating impact adoption guidance company’s consolidated financial statements january 2014 fasb issued asu 201404 “reclassification residential real estate collateralized consumer mortgage loans upon foreclosure” objective amendments asu 201404 topic 310 “receivables troubled debt restructurings creditors” reduce diversity clarifying substance repossession foreclosure occurs creditor considered received physical possession residential real estate property collateralizing consumer mortgage loan receivable derecognized real estate property recognized amendments effective fiscal years interim periods within years beginning december 15 2014 entity elect adopt amendments using either modified retrospective transition method prospective transition method early adoption permitted adoption guidance expected material impact company’s consolidated financial statements january 2014 fasb amended existing guidance asu 20141 “investments equity method joint ventures topic 323 accounting investments qualified affordable housing projects” eliminate effective yield election permit reporting entities make accounting policy election account investments qualified affordable housing projects using proportional amortization method certain conditions met disclosures change accounting principle required upon transition amendments effective annual periods interim reporting periods beginning december 15 2014 amendments standard applied retrospectively periods presented reporting entity uses effective yield method date adoption standard may continue apply preexisting investments early adoption permitted adoption standard expected material effect company’s consolidated financial statements note 2 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2014 2013 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 160 thousand 301 thousand 370 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 149 million december 31 2014 164 million december 31 2013 pledged secure public deposits repurchase agreements trust company securities carrying amount 100 thousand yearend 2014 2013 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2014 2013 aggregated major security type length time continuous unrealized loss position unrealized losses equity securities unrealized losses rounded less 1 thousand year 2013 company’s equity securities include local regional bank holdings year ended december 31 2013 3 thousand pretax charge recognized otherthantemporary decline fair value equity holdings company recognized otherthantemporary impairment less 1 thousand rounded zero year ended december 31 2012 otherthantemporary impairments recognized 2014 decline fair value cost deemed otherthantemporary difference amortized cost basis equity security fair value must recognized charge earnings december 31 2014 company’s security portfolio consisted 376 securities 91 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securities residential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income generally securities maintained investment grade ratings management intent required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2014 2013 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2014 2013 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2014 2013 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2014 2013 note 3 loans year end follows following tables present activity allowance loan losses portfolio segment years ended december 31 2014 2013 2012 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2014 2013 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans year ended december 31 2014 2013 2012 recorded investment loans excludes accrued interest receivable due immateriality 2013 company first time began considering consumer loans individually impairment cash basis interest income recognized interest income recognized materially equal 2014 2013 cash basis interest income recognized interest income recognized impairment immaterial 2012 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2014 2013 following tables present aging recorded investment past due loans december 31 2014 2013 class loans troubled debt restructurings total troubled debt restructurings 81 million 83 million december 31 2014 2013 respectively company allocated 242 thousand 397 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2014 2013 25 thousand 16 thousand commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2014 2013 years ending december 31 2014 2013 2012 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent reduction recorded investment loan permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies deferral principal payments legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 025 325 also extensions maturity dates troubled debt restructurings range fifteen months 126 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2014 2013 2012 troubled debt restructurings described increased allowance loan losses 11 thousand resulted charge offs 42 thousand year ended december 31 2014 troubled debt restructurings described increased allowance loan losses 66 thousand resulted charge offs 50 thousand year ended december 31 2013 troubled debt restructurings described increased allowance loan losses 306 thousand resulted charge offs 418 thousand year ended december 31 2012 four residential real estate loans payment defaults within twelve months following modification troubled debt restructuring year ending december 31 2014 one four loans past due december 31 2014 effect provision loan losses result default 2014 two commercial loans 204 thousand one commercial real estate loan 205 thousand one residential real estate loan 35 thousand modified troubled debt restructuring payment defaults within twelve months following modification year ending december 31 2013 four loans past due december 31 2013 one indirect loan modified troubled debt restructuring payment defaults within twelve months following modification year ending december 31 2013 loan past due december 31 2013 additional provision impact allowance losses associated loans modified troubled debt restructuring payment default within twelve months following modification year ending december 31 2012 loan considered payment default 30 days contractually past due modified terms credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 4 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company used third party service estimate fair value available sale securities monthly basis service provider considered leading evaluation pricing service us domestic fixed income securities subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities determined quoted market prices active markets available level 1 securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2014 2013 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison via independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2014 2013 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 period ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans carried fair value measured impairment using fair value collateral principal balance 988 thousand valuation allowance 117 thousand december 31 2014 resulting additional provision loan losses 992 thousand year ending december 31 2014 december 31 2013 impaired loans carrying amount 42 million valuation allowance 363 thousand loans measured fair value throughout year resulted additional provision loan losses 916 thousand year ending december 31 2013 excluded fair value impaired loans december 31 2014 2013 discussed 42 million 30 million loans specific allowance amounts allocated classified troubled debt restructurings measured using present value discounted cash flows carried fair value impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2014 2013 real estate owned measured fair value less costs sell net carrying amount 45 thousand december 31 2014 company sold ten real estate owned properties year ended december 31 2014 company recorded 5 thousand write downs one real estate owned properties year ended december 31 2014 december 31 2013 real estate owned net carrying amount 33 thousand year ended december 31 2013 three properties charged reflecting updated appraisals resulted writedown 21 thousand fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2014 december 31 2013 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows variable rate loans reprice frequently significant change credit risk fair values based carrying values resulting level 3 classification fair values loans estimated using discounted cash flow analyses using interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification impaired loans valued lower cost fair value described previously methods utilized estimate fair value loans necessarily represent exit price loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 5premises equipment yearend premises equipment follows depreciation expense 11 million year ended december 31 2014 12 million years ended december 31 2013 2012 2014 company purchased property located adjacent canfield branch south broad street canfield 395 thousand house investment insurance mortgage lending activities building put service june 2014 declining branch transaction counts banking trends driving customers towards online banking decision made close two retail branch locations leetonia warren ohio two branches closed october 1 2013 one property recently valued 45 thousand moved real estate owned still providing atm service remains service part premises equipment company currently marketing properties sale company leases certain branch properties operating leases rent expense 323 302 265 thousand 2014 2013 2012 addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 6goodwill intangible assets goodwill associated company’s purchase national associates inc july 2013 farmers trust company 2009 totaled 56 million december 31 2014 64 million december 31 2013 nai acquisition fully described note 16 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting units including existing goodwill intangible assets estimating fair value reporting units annual impairment analysis september 30 2014 company determined fair value farmers trust company exceeded carrying amount however fair value nai less carrying value carrying amount reporting unit exceeds fair value second step impairment test required analysis indicated step 2 analysis necessary national associates inc entity step 2 goodwill impairment test performed measure impairment loss step 2 requires implied fair value reporting unit’s goodwill compared carrying amount goodwill carrying amount reporting unit’s goodwill exceeds implied fair value goodwill impairment loss shall recognized amount equal excess performing step 2 determined implied value goodwill less carrying costs resulting impairment charge 763 thousand year ended december 31 2014 initial valuation newly acquired entity future income projections fully attained fair value reporting unit determined based discounted cash flow model additionally 763 thousand impairment offset equal reduction future payment liability associated purchase two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 acquired intangible assets acquired intangible assets follows year end aggregate amortization expense 767 thousand 624 thousand 409 thousand 2014 2013 2012 estimated amortization expense next five years note 7 interest bearing deposits time deposits 250 thousand 263 million 220 million yearend 2014 2013 following summary scheduled maturities certificates deposit years following december 31 2013 following summary yearend interest bearing deposits note 8 securities sold agreements repurchase shortterm borrowings securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies carrying amount 1478 million 1524 million year ended 2014 2013 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust company information concerning securities sold agreements repurchase summarized follows bank access lines credit amounting 245 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings lines december 31 2014 december 31 2013 bank drawn 6 million lines repaid full amount january 2014 farmers national banc corp unsecured 15 million revolving line credit line renewed annually outstanding balance 350 thousand december 31 2014 2013 interest rate prime floor 45 interest rate december 31 2014 2013 45 2014 farmers national banc corp added unsecured 5 million line credit another banking institution line renewed annually drawn upon interest rate prime floor 35 note 9 federal home loan bank advances longterm borrowings year end longterm advances federal home loan bank follows december 2014 bank received variable rate cash management advance fhlb amount 10 million renewed quarterly bank also total 10 million putable fhlb fixedrate advances fhlb elect put bank required repay advance date without penalty federal home loan bank advances secured blanket pledge residential mortgage loans totaling 1103 million 1044 million year end 2014 2013 based collateral bank eligible borrow additional 819 million year end 2014 advance subject prepayment penalty paid prior maturity date scheduled repayments longterm fhlb advances follows note 10 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less fixed rate loan commitments 2014 interest rates range 400 463 mature within thirty years fixed rate loan commitments 2013 interest rates 450 mature ten twelve years fixed rate unused lines credit interest rates ranging 211 1350 december 31 2014 216 1350 december 31 2013 standby letters credit considered financial guarantees standby letters credit contractual value 52 million december 31 2014 49 million december 31 2013 carrying amount items balance sheet material note 11 stock based compensation 2012 company approval shareholders created 2012 equity incentive plan “plan” plan permits award 500 thousand shares company’s directors employees promote company’s longterm financial success motivating performance longterm incentive compensation better align interests employees shareholders 46957 share awards granted plan february 2014 restricted stock awards granted exercise price equal market price company’s common stock date grant awards three year performance period end december 31 2016 participants receive awards based performance company’s return equity metrics expense recognized plan 116 thousand year ended 2014 december 31 2014 231 thousand total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized next two years shares awarded expense recognized years ended december 31 2013 2012 plan following activity plan year ended december 31 2014 company’s stock option plan shareholderapproved since expired permitted grant share options directors officers employees 375 thousand shares common stock option awards granted exercise price equal market price company’s common stock date grant option awards vesting periods 5 years 10year contractual terms first quarter 2014 last remaining 5000 outstanding options exercised company satisfied options reissuance treasury shares options granted stock option plan 2014 2013 2012 note 12 regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2014 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2014 2013 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions corporation’s principal source funds dividend payments dividends received bank trust bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2015 bank could without prior approval declare dividends approximately 91 million plus 2015 net profits retained date dividend declaration order practice trust powers trust must maintain minimum capital 3 million trust would need regulatory approval declare dividends 2015 actual required capital amounts ratios presented yearend note 13 employee benefit plans company qualified 401k deferred compensation retirement savings plan employees company completed least 90 days service meet certain eligibility requirements eligible participate plan terms plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution plan total expense 336 thousand 336 thousand 334 thousand years ended december 31 2014 2013 2012 respectively 2014 company adopted profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 1 annual compensation associates expense 73 thousand year ended december 31 2014 company maintains deferred compensation plan certain retirees expense plan 10 thousand 10 thousand 13 thousand years ended december 31 2014 2013 2012 liability plan december 31 2014 156 thousand 163 thousand december 31 2013 company also postretirement health care benefit plan covering individuals retired company met certain service age requirements certain active employees met similar service requirements postretirement health care plan includes limit company’s share costs recent future retirees expense plan 2014 2013 2012 4 thousand 13 thousand 34 thousand accrued postretirement benefit liability plan 314 thousand 370 thousand december 31 2014 2013 due immateriality plan disclosures required us generally accepted accounting principles omitted note 14 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2014 2013 december 31 2014 december 31 2013 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company paid penalties year ended december 31 2014 2012 company paid 12 thousand penalty year ended december 31 2013 amounts accrued penalties interest december 31 2014 2013 company subject us federal income tax company longer subject examination federal taxing authority years prior 2011 tax years 20112013 remain open examination us taxing authority note 15 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2014 2013 2012 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 16 business combination july 1 2013 company completed acquisition outstanding stock retirement planning consultancy national associates inc cleveland ohio transaction involved cash stock totaling 44 million including 15 million future payments contingent upon nai meeting income performance targets estimated fair value acquisition date 920 thousand contingent consideration future payment payable adjusted 156 thousand based september 30 2014 fair market value estimation fair market value contingent consideration determined using monte carlo simulation’s key assumptions included two year period estimated volatility 20 expected ebitda base 6 maximum 12 discount rate 119 acquisition part company’s plan increase levels noninterest income complement existing retirement services currently offered acquisitionrelated costs 270 thousand included company’s consolidated statements income year ended december 31 2013 goodwill 26 million recorded balance sheet nai arising acquisition consisted largely synergies cost savings resulting combining operations companies goodwill expected deductible income tax purposes goodwill partially impaired described note 6 amount equal reduction contingent consideration payable two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 impairment nai goodwill 19 million december 31 2014 fair value intangible assets 23 million related client relationships company name noncompetition agreements following table summarizes consideration paid nai amounts assets acquired liabilities assumed following table presents pro forma information acquisition occurred beginning 2012 pro forma information includes adjustments amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transactions effected assumed dates note 17 related party transactions loans principal officers directors affiliates 2014 follows deposits principal officers directors affiliates yearend 2014 2013 17 million 16 million note 18 earnings per share factors used earnings per share computation follow stock options 5000 shares common stock 2013 2012 considered computing diluted earnings per share antidilutive note 19 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2014 2013 2012 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2014 2013 2012 note 20 segment information reportable segments determined products services offered primarily distinguished banking trust retirement consulting operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations consulting fees provide revenues retirement consulting operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers national insurance farmers canfield investment co note 21 subsequent event january 2015 company announced definitive agreement reached acquire shares national bancshares corporation holding company first national bank orville merged farmers national bank canfield completion transaction first national bank orrville branches become branches farmers national bank canfield pursuant agreement shareholder national bancshares entitled elect receive either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares exchanged stock 20 cash based farmers’ volume weighted average stock price last 20 trading days 797 january 26 2015 transaction valued approximately 740 million merger expected qualify taxfree reorganization shareholders electing receive farmers’ stock transaction subject receipt national bancshares’ shareholder approval farmers’ shareholder approval customary regulatory approvals company expects transaction close first half 2015 note 22 quarterly financial data unaudited company sold certain investment securities recognized security gains 372 thousand fourth quarter 2014 gains 597 thousand third quarter 2013 13 million charge recorded third quarter 2013 severance costs note 23parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary data set forth registrants 1997 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountants consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports filed three months ended december 31 1997 independent auditors consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 23 1998 relating consolidated financial statements farmers national banc corp subsidiary hill barth king inc warren ohio march 10 1998 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp sfrank l paden scarl culp president secretary executive vice president treasurer swilliam stewart chairman march 10 1998 sbenjamin r brown director march 10 1998 srichard l calvin vice chairman march 10 1998 sjoseph lane director march 10 1998 sdavid c myers director march 10 1998 sedward ort director march 10 1998 sfrank l paden president march 10 1998 director sronald v wertz director march 10 1998 index exhibits following exhibits filed incorporated references part report 2 applicable 3i applicable 3ii applicable 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 applicable 11 applicable 12 applicable 13 annual report security holders filed herewith 16 applicable 18 applicable 21 subsidiaries registrant filed herewith 22 applicable 23 applicable 24 applicable 27 financial data schedule filed herewith 99 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 8 financial statements supplementary data set forth registrant’s 1999 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountant’s consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports filed three months ended december 31 1999 iv1 independent auditor’s consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 20 2000 relating consolidated financial statements farmers national banc corp subsidiary hill barth king llc hill barth king llc warren ohio march 14 2000 iv2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp william stewart william stewart chairman march 14 2000 benjamin r brown benjamin r brown director march 14 2000 richard l calvin richard l calvin vice chairman march 14 2000 joseph lane joseph lane director march 14 2000 david c myers david c myers director march 14 2000 edward ort edward ort director march 14 2000 frank l paden frank l paden president director march 14 2000 ronald v wertz ronald v wertz director march 14 2000 iv3 index exhibits following exhibits filed incorporated references part report applicable articles incorporation filed herewith ii code regulations filed herewith registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries applicable annual report security holders filed herewith applicable subsidiaries registrant subsidiary registrant incorporated reference part item 1 report 22 applicable financial data schedule filed herewith applicable definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 iv4 item 8 financial statements supplementary data 2136 item 9 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2020 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2020 internal control financial reporting effective based criteria cliftonlarsonallen llp audited effectiveness company’s internal control financial reporting december 31 2020 stated report dated march 4 2021 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer senior executive vice president treasurer report independent registered public accounting firm board directors stockholders farmers national banc corp canfield ohio opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets farmers national banc corp “company” december 31 2020 2019 related consolidated statements income comprehensive income stockholders’ equity cash flows two years period ended december 31 2020 related notes collectively referred “financial statements” also audited company’s internal control financial reporting december 31 2020 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows two years period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal controlintegrated framework 2013 issued coso basis opinion company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s financial statements opinion companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states “pcaob” required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matters communicated matters arising current period audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate allowance loan losses described notes 1 4 consolidated financial statements company’s allowance loan losses valuation allowance probable incurred losses loan portfolio extent reasonable estimate allowance loan losses 221 million december 31 2020 consists two components specific reserves based probable losses specific loans “specific reserves” representing 04 million ii general allowance based historical loan loss experience general economic conditions qualitative risk factors internal external company “general reserves” representing 217 million general component allowance loan losses based variety risk considerations quantitative qualitative quantitative factors include company’s historical loss experience delinquency chargeoff trends collateral values known information individual loans factors qualitative factors include various considerations regarding general economic environment company’s market area qualitative adjustment general reserve includes management’s consideration levels trends delinquencies impaired loans trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations qualitative adjustment contributes significantly general reserve component allowance loan losses management’s identification analysis considerations related adjustments requires significant judgment could significant effect allowance loan losses identified estimate qualitative adjustment general reserve allowance loan losses critical audit matter represent significant portion total general reserve management’s estimate relies qualitative analysis determine quantitative adjustment required especially subjective auditor judgment primary procedures performed address critical audit matter included performing substantive testing including evaluating management’s judgments assumptions developing general reserve qualitative adjustments allowance loan losses consisted following • evaluating completeness accuracy data inputs used basis adjustments relating qualitative general reserve factors considering whether sources data factors management used forming assumptions relevant reliable sufficient purpose based information gathered • evaluating reasonableness management’s judgments related qualitative quantitative assessment data used determination general reserve qualitative adjustments consistency supporting data relevant historical data industry data • assessing whether historical data comparable consistent data current year considering whether data sufficiently reliable among procedures evaluation considered evidence internal external sources loan portfolio performance whether assumptions applied consistently period • analytically evaluating qualitative adjustment current year compared prior years directional consistency reasonableness • testing calculations used management translate assumptions key factors allowance estimated amount scliftonlarsonallen llp cliftonlarsonallen llp served company’s auditor since 2019 toledo ohio march 4 2021 report independent registered public accounting firm shareholders board directors farmers national banc corp canfield ohio opinion financial statements audited accompanying consolidated statements income comprehensive income stockholders’ equity cash flows farmers national banc corp company year ended december 31 2018 related notes collectively referred financial statements opinion financial statements referred present fairly material respects results operations cash flows company year ended december 31 2018 conformity accounting principles generally accepted united states america basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audit financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audit provides reasonable basis opinion scrowe llp crowe llp served company’s auditor 2003 2018 cleveland ohio march 5 2019 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank canfield “bank” “farmers bank” farmers trust company “farmers trust” farmers national captive inc “captive” consolidated financial statements also include accounts bank’s subsidiaries farmers national insurance llc “farmers insurance” farmers canfield investment co “farmers investments” company acquired maple leaf financial inc “maple leaf” parent company geauga savings bank 2020 consolidated activity within bank together entities referred “the company” significant intercompany balances transactions eliminated consolidation corporate reorganization 2019 trust acquired shares national associates inc “nai” company corporate reorganization company sole shareholder trust nai reorganization entities combined one reporting unit one operating segment began reporting one unit internal external reports 2019 combination concert company’s plan increase efficiencies within different business lines nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation primary area served bank northeastern region ohio forty 40 locations one location southwestern pennsylvania company provides trust services retirement consulting services farmers trust subsidiary insurance services bank’s insurance subsidiary farmers trust statechartered bank license conduct trust business ohio department commerce division financial institutions primary purpose farmers investments invest municipal securities captive provides property casualty insurance coverage company subsidiaries captive pools resources eleven similar insurance subsidiaries financial institutions spread limited amount risk among pool members provide insurance currently available economically feasible today’s insurance market place estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions shortterm borrowings assets liabilities securities debt securities classified available sale might sold maturity securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax equity securities readily determinable fair values carried fair value changes fair value reported net income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases sales recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale sold without servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan well secured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured purchased credit impaired loans company purchased loans shown evidence credit deterioration since origination loans recorded amount paid carryover seller’s allowance loan losses company estimates amount timing expected cash flows loan expected cash flows excess amount paid recorded interest income remaining life loan excess loan’s contractual principal interest expected cash flows recorded life loan expected cash flows continue estimated present value expected cash flows less carrying amount loss recorded provision loan losses present value expected cash flows greater carrying amount recognized part future interest income derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within northeastern ohio therefore company’s exposure credit risk significantly affected changes economy nine county area loans secured real estate represent 683 total portfolio changes related real estate markets monitored management allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff acquired loans individually evaluated purchased loans without evidence credit deterioration management evaluates reviewed loan using internal grading system grade assigned loan date acquisition extent purchased loan specifically reviewed loan assumed characteristics similar characteristics acquired portfolio purchased loans grade purchased loan without evidence credit deterioration reviewed subsequent date acquisition time loan renewed extended time information becomes available company provides material insight regarding loan’s performance status borrower quality value underlying collateral extent current information indicates probable company collect amounts according contractual terms thereof loan considered impaired individually considered determination required allowance loan losses extent current information indicates probable company able collect amounts according contractual terms thereof loan considered impaired considered determination required level allowance determining day one fair values purchased loans without evidence credit deterioration date acquisition management includes carryover previously recorded allowance loan losses ii adjustment unpaid principal balance reflect appropriate market rate interest given risk profile grade assigned loan adjustment accreted earnings yield adjustment using effective yield method remaining life loan allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured commercial real estate loans 400 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans measured individually 250 thousand collectively threshold separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses servicing rights mortgage loans sold servicing rights retained servicing rights initially recorded fair value income statement effect recorded gains sales loans fair value based market prices comparable mortgage servicing contracts available alternatively based valuation model calculates present value estimated future net servicing income valuation model incorporates assumptions market participants would use estimating future net servicing income cost service discount rate custodial earnings rate inflation rate ancillary income prepayment speeds default rates losses company compares valuation model inputs results published industry data validate model results assumptions classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans servicing assets evaluated impairment based upon fair value assets compared carrying amount impairment reported valuation allowance extent fair value less capitalized amount grouping valuation allowance impairment servicing assets december 31 2020 2019 servicing fee income recorded earned servicing loans based contractual percentage outstanding principal fixed amount per loan amortization mortgage servicing rights netted loan servicing fee income servicing fees late fees ancillary fees related loan servicing considered significant financial reporting foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense assets recorded assets balance sheets real estate owned “oreo” oreo totaled 0 december 31 2020 19 thousand december 31 2019 operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member federal home loan bank “fhlb” system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value restricted stock totaled 146 million december 31 2020 117 million 2019 cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual goodwill impairment tests associated acquisitions farmers trust farmers insurance recent banking acquisitions intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet core deposit intangible assets arising bank acquisitions amortized estimated useful lives 7 8 years noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized range 13 15 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock equity awards earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated 2019 company accrued charge 505 thousand relating pending settlement legal contingency case settled payment made 2020 management believe matters currently would material effect financial statements restrictions cash hand deposit federal reserve bank “frb” required meet regulatory reserve clearing requirements company deposits frb 2010 million december 31 2020 361 million december 31 2019 equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank farmers trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 7 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments operations managed financial performance primarily aggregated reported two lines business bank segment farmers trust segment 2019 company merged retirement consulting segment trust segment prior periods segment reporting reported three segments reclassified two segments consistent current year presentation company discloses segment information note 23 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards newly issued yet effective accounting standards reacting global markets’ planned shift away using major interbank reference rates including london interbank offered rate libor fasb recently issued asu 202004 amended asu 202101 facilitation effects reference rate reform financial reporting ease burden accounting contract modifications related reference rate reform amendments asu 202004 create new topic codification asc 848 reference rate reform contains guidance designed simplify entities account contracts modified replace libor benchmark interest rates new rates amendments asu 202004 give entities option apply expedients exceptions contract modifications made december 31 2022 certain criteria met adopted amendments exceptions applied eligible modifications contracts accounted asc topic industry subtopic guidance asc 848 apply contract modifications made december 31 2022 management still evaluating asu including clarifications asu 202101 adopted december 31 2020 january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment asu eliminates step 2 goodwill impairment test instead new guidance entity perform annual goodwill impairment test comparing fair value reporting unit carrying amount impairment charge would recognized amount carrying amount exceeds reporting unit’s fair value new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed testing dates january 1 2017 company adopted asu january 1 2020 adoption guidance impact company’s consolidated financial statements june 2016 fasb issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments asu requires organization measure expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better inform credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques changed reflect full amount expected credit losses organizations continue use judgment determine loss estimation method appropriate circumstances additionally asu amends accounting credit losses available sale debt securities purchased financial assets credit deterioration asu 201613 effective public companies annual periods beginning december 15 2019 entities apply standard’s provisions cumulativeeffect adjustment retained earnings beginning first reporting period guidance adopted accordance accounting relief provisions cares subsequent provisions health economic recovery omnibus emergency solutions heroes act bank postponed adoption current expected credit losses “cecl” accounting standards primarily due impact covid19 pandemic economy lack reasonable supportable economic forecasts company adopted asu 201613 january 1 2021 company recorded onetime adjustment equity comply asu adoption increased allowance loan losses 5 10 expected management expect amount change first quarter 2021 retains option make adjustments new information becomes available february 2016 fasb issued asu 201602 topic 842 leases main objective asu 201602 provide users useful transparent complete information leasing transactions asu 201602 requires rights obligations associated leasing arrangements reflected balance sheet order increase transparency comparability among organizations updated guidance lessees required recognize righttouse asset liability make lease payment disclose key information leasing arrangements asu 201602 effective public companies interim annual reporting periods beginning december 15 2018 early adoption permitted company adopted asu january 1 2019 certain leases company place required capitalization 36 million balance sheet asset related liability amount income statement effect january 1 2019 note 2 business combinations january 7 2020 company completed acquisition maple leaf financial inc “maple leaf” parent company geauga savings bank branches located cuyahoga geauga counties ohio company expects acquisition increase synergies cost savings resulting combining two companies transaction involved cash 1398229 shares stock totaling 430 million pursuant terms merger agreement common shareholders maple leaf right receive 64000 cash 455948 common shares without par value company holders outstanding unexercised warrants purchase maple leaf common shares received amount cash equal excess 64000 37000 exercise price warrants goodwill 76 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining entities goodwill determined deductible income tax purposes following table summarizes consideration paid maple leaf amounts assets acquired liabilities assumed closing date acquisition following table presents pro forma information maple leaf acquisition occurred january 2020 actually took place beginning 2019 pro forma information includes adjustments merger related costs amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transaction effective assume date note 3 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2020 2019 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision benefit related net realized gains losses 90 thousand 2 thousand 59 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 371 million december 31 2020 253 million december 31 2019 pledged secure public deposits repurchase agreements farmers trust securities carrying amount 100 thousand yearend 2020 2019 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2020 2019 aggregated major security type length time continuous unrealized loss position company’s equity securities include 63 million small business investment company “sbic” partnership investments well 538 thousand local regional bank holdings miscellaneous equity funds unrealized gains recognized income 2019 2020 result asu 201601 otherthantemporary impairment occur amount impairment recognized earnings depends whether entity intends sell security likely would required sell security recovery amortized cost basis previous amortized cost basis less impairment recognized earnings becomes new amortized cost basis investment december 31 2020 company’s security portfolio consisted 671 securities 45 unrealized loss position majority unrealized losses related company’s holdings securities issued us treasury us government sponsored entities state political subdivisions mortgagebacked securities residential collateralized mortgage obligations discussed securities issued us treasury us government sponsored entities unrealized losses debt securities issued us treasury us government sponsored entities recognized income december 31 2020 2019 securities issued us treasury us government sponsored entities backed federal government management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income december 31 2020 2019 securities issued state political subdivisions investment grade ratings management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2020 2019 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2020 2019 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2020 2019 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income company consider securities otherthantemporarily impaired december 31 2019 decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery note 4 loans class year end follows purchased credit impaired loans part past acquisitions company acquired various loans displayed evidence deterioration credit quality since origination probable contractually required payments would collected carrying amounts contractually required payments loans included loan balances summarized following tables accretable yield income expected collected shown table key assumptions considered include probability default amount actual prepayments acquisition date prepayments affect estimated life loans could change amount interest income principal expected collected reforecasting future estimated cash flows credit loss expectations adjusted necessary adjustments forecasted cash flows impacted allowance loan losses years ended december 31 2020 2019 2018 following tables present activity allowance loan losses portfolio segment years ended december 31 2020 2019 2018 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2020 2019 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans years ended december 31 2020 2019 recorded investment loans excludes accrued interest receivable due immateriality following tables present average recorded investment impaired loans class interest income recognized loan class years ended december 31 2020 2019 2018 cash basis interest income recognized interest income recognized materially equal 2020 2019 2018 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2020 2019 following tables present aging recorded investment past due loans december 31 2020 2019 class loans troubled debt restructurings total troubled debt restructurings 41 million 46 million december 31 2020 2019 respectively company allocated 81 thousand 61 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2020 2019 respectively commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2020 2019 years ending december 31 2020 2019 2018 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies extension interest period deferral principal payments capitalization interest andor escrow legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 024 274 also extensions maturity dates troubled debt restructurings range two months 183 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2020 2019 2018 troubled debt restructurings described increased allowance loan losses 65 thousand resulted charge offs 65 thousand year ended december 31 2020 troubled debt restructurings described increased allowance loan losses 126 thousand resulted charge offs 126 thousand year ended december 31 2019 troubled debt restructurings described increased allowance loan losses 66 thousand resulted charge offs 66 thousand year ended december 31 2018 one residential real estate loan 12 thousand payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2020 loan past due december 31 2020 effect provision loan losses result default 2020 loan considered payment default 30 days contractually past due modified terms one residential real estate loans 19 thousand payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2019 loan past due december 31 2019 effect provision loan losses result default 2019 two residential real estate loans 146 thousand payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2018 loans past due december 31 2018 effect provision loan losses result default 2018 farmers offering special financial assistance support customers good standing experiencing financial hardships related covid19 pandemic accordance interagency guidance coronavirus aid relief economic security cares act following table reports number amount payment deferrals loan type december 31 2020 company offered three month deferrals upon request borrowers good standing impacted covid19 accordance interagency guidance cares deferral requests began middle march 2020 concluded end three month deferral period company granted second three month deferral period 285 million commercial real estate loans 49 million commercial loans included amounts detailed second deferral period offered select group customers within specific industry codes might higher credit risk limited number business customers total six month deferral period decline deferred loans balances due ending deferment period fact borrowers requested additional deferments continued pay original terms loan farmers also preferred sba lender dedicated significant additional staff resources help customers complete submit applications supporting documentation loans offered new paycheck protection program ppp cares could obtain sba approval receive funding quickly possible period ppp program company facilitated ppp assistance 1714 business customers totaling 1998 million company behalf customers began processing borrower applications ppp forgiveness beginning september 2020 sba ninety days review application ppp forgiveness provide decision end review forgiveness ppp loan communicated payment received sba company record cash received sba payoff loans based amount forgiveness provided accelerate amount net deferred loan feescosts recognized portion ppp loans forgiven december 31 2020 company received payments sba forgiveness loans totaling 676 million approximately 338 total ppp loans company processing new applications second round ppp loan funding credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 5 revenue contracts customers material revenue contracts customers scope asc 606 recognized within noninterest income following table presents company’s noninterest income revenue stream reportable segment net eliminations years ended december 31 2020 2019 2018 items outside scope asc 606 noted description company’s revenue streams asc 606 follows service charges deposit accounts company earns fees deposit customers transactionbased account maintenance overdraft services management reviewed deposit account agreements determined agreements terminated time either bank account holder transaction fees balance transfers wires overdraft charges settled day performance obligation satisfied bank’s monthly service charges maintenance fees services provided customer monthly basis considered series services pattern transfer month review service charges assessed deposit accounts included amount variable consideration part monthly charges found waiver service charges due insufficient funds dormant account fees immaterial would require change accounting treatment fees new revenue standards debit card interchange fees customers bank account agreement maintain deposit balances bank customers use bank issued debit card purchase goods services bank earns interchange fees transactions typically percentage sale amount transaction bank records amount due receives settlement payment network payments payment network received recorded income daily basis contingent debit card interchange fees recorded company could subject clawback future periods trust fees services provided farmers trust customers series distinct services pattern transfer month fees trust accounts billed drafted trust accounts monthly company records fees income statement monthly basis fees assessed based total investable assets customer’s trust account signed contract company customer maintained customer trust accounts payment terms identified probable fees collectible funds managed accessible asset manager past history trust fee income recorded company indicates highly unlikely significant reversal could occur contingent incentive fees recorded company could subject clawback future periods insurance agency commissions insurance agency commissions received insurance carriers agency’s share commissions customer premium payments commissions recorded income checks received insurance carriers contingent portion associated commission checks may short timelag recording revenue cash received instead recording revenue policy signed customer time lag insignificant impact revenue recognition process insurance also receives incentive checks insurance carriers achieving specified levels production particular carriers amounts recorded income check received contingent amounts associated payments may clawed back carrier future similar monthly commissions explained preceding paragraph may short timelag recording incentive revenue cash basis opposed estimating amount incentive revenue expected earned materially impact recognition insurance revenue amounts would need refunded one specific insurance customer management believes reversal would significant potential situations surrounding recognition farmers insurance revenue include estimating potential refunds due likely cancellation percentage customers cancelling policies recording revenue time policy renewals management concluded since farmers insurance agency commissions represent 21 company’s total revenue 2020 adjusting current practice recording insurance revenue situations would material impact reporting total revenue retirement plan consulting fees earned retirement plan consulting generated farmers trust revenue recognized based level work performed client payments received work performed future recorded deferred revenue account recorded income fees earned retirement plan consulting fees represent 10 company’s total revenue 2020 therefore management concluded adjustment revenue one particular customer refund reason would insignificant would materially impact company’s total revenue investment commissions investment commissions earned sales nondeposit investment products customers company sales conducted thirdparty brokerdealer commissions received recorded income bank’s income statement contingent portion may need refunded back broker dealer investment commissions represent 10 company’s total revenue 2020 therefore management concluded adjustment revenue particular customer refund reason would insignificant would materially impact company’s total revenue income items included “other” bank owned life insurance income security gains net gains sale loans operating income amounts within scope asc 606 deemed immaterial note 6 loan servicing company retained servicing rights mortgage loans sold federal home loan mortgage corporation mortgage loans serviced others reported assets principal balances loans yearend follows custodial escrow balances maintained connection serviced loans 34 million december 31 2020 22 million december 31 2019 mortgage servicing rights recorded balance sheets assets activity mortgage servicing rights years ended december 31 2020 2019 2018 follows valuation allowance required mortgage servicing rights december 31 2020 2019 2018 note 7 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company uses third party service estimate fair value available sale securities monthly basis company uses exit price notion required asu 201601 measuring fair value financial instruments disclosure purposes company’s service provider considered leading evaluation pricing service us domestic fixed income securities complies fully exit pricing requirements subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities consist equity securities recorded fair market value comply asu 201601 determined quoted market prices active markets available level 1 equity securities change fair market value recorded income statements securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2020 2019 fair value level 3 investment securities immaterial derivative instruments fair value derivative instruments based valuation models using observable market data measurement date loan agreement containing twoway yield maintenance provision invoked expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2020 2019 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 year ended december 31 assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans measured impairment using fair value collateral dependent loans principal balance 23 million valuation allowance 368 thousand december 31 2020 resulting additional provision loan losses 440 thousand year ending december 31 2020 december 31 2019 impaired loans principal balance 208 thousand valuation allowance 13 thousand loans measured fair value throughout year resulted additional provision loan losses 134 thousand year ending december 31 2019 excluded fair value impaired loans december 31 2020 2019 discussed 513 thousand 583 thousand loans classified troubled debt restructurings measured using present value cash flows considered exit price impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material december 31 2020 2019 real estate owned measured fair value less costs sell zero net carrying amount year ended december 31 2020 company 19 thousand writedowns related real estate owned company 68 thousand writedowns related real estate owned year ended december 31 2019 following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2020 2019 fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2020 december 31 2019 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated using third party firm uses cash flow analysis current market interest rates along adjustments credit liquidity option risk conform asu 201601 exit price requirement impaired loans valued lower cost fair value described previously loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits borrowings deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 8 premises equipment yearend premises equipment owned utilized operations company follows depreciation expense 15 million years ended december 31 2020 2019 2018 yearend premises equipment subject lease agreements company acts lessor follows see note 9 additional lease disclosures note 9 leases company operating leases branch office locations vehicles certain office equipment printers copiers faxes leases remaining lease terms 95 years include options extend lease 10 years include options terminate lease january 2021 right use asset lease liability 48 million 50 million december 31 2020 respectively 31 million 32 million december 31 2019 respectively lease payments made year ended december 31 2020 2019 782 thousand 584 thousand interest expense amortization expense finance leases year ended december 31 2020 133 thousand 456 thousand interest expense amortization expense finance leases year ended december 31 2019 103 thousand 355 thousand weightedaverage remaining lease term leases 49 years december 31 2020 weightedaverage discount rate 298 maturities lease liabilities follows december 31 2020 note 10 goodwill intangible assets goodwill associated company’s purchases geauga january 2020 past acquisitions totaled 458 million december 31 2020 382 million december 31 2019 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test management performs goodwill impairment testing annual basis september 30 fair value reporting units determined using combination discounted cash flow method guideline public company method acquired intangible assets acquired intangible assets follows aggregate intangible amortization expense 13 million 2020 2019 14 million 2018 estimated amortization expense next five years thereafter note 11 interest bearing deposits time deposits 250 thousand 1369 million 1082 million yearend 2020 2019 following summary scheduled maturities certificates deposit brokered time deposits years following december 31 2020 following summary yearend interest bearing deposits note 12 shortterm borrowings bank shortterm advances fhlb december 31 2020 december 31 2019 balances due within one year renewed time maturity fhlb advances secured pledgings described following longterm borrowings footnote balances year end 2019 follows securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies pledged securities 105 repurchase agreement balances carrying amount 23 million 18 million year ended 2020 2019 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust fhlb information concerning securities sold agreements repurchase summarized follows following table provides disaggregation obligation class collateral pledged shortterm financing obtained sales repurchase agreements management believes risks associated agreements minimal case collateral decline company additional investment securities available adequately pledge guarantees repurchase agreements bank access lines credit amounting 35 million two major domestic banks prime rate lines terms periodically reviewed lending banks generally subject withdrawal discretion borrowings lines december 31 2020 2019 farmers two unsecured revolving lines credit 65 million lines renewed annually lines interest rates prime floors 35 45 outstanding balance two lines 350 thousand december 31 2020 2019 interest rate outstanding balance december 31 2020 2019 460 475 note 13 longterm borrowings year end longterm advances fhlb follows longterm shortterm fhlb advances secured blanket pledge residential mortgage commercial real estate multifamily loans totaling 6164 million 5779 million year end 2020 2019 based collateral bank eligible borrow additional 5495 million year end 2020 advance subject prepayment penalty paid prior maturity date scheduled payments longterm fhlb advances follows company two special purpose entities hold 70 24 million trust preferred debentures debt floating rate determined quarterly based threemonth libor december 31 2020 interest rate 202 192 securities redeemed quarterend final maturity trust preferred debenture december 31 2036 balance outstanding trust preferred debenture 94 23 million year end 2020 2019 note 14 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less commitments fixed rate unused lines credit interest rates ranging 225 2190 december 31 2020 299 2190 december 31 2019 standby letters credit considered financial guarantees standby letters credit contractual value 50 million december 31 2020 68 million december 31 2019 carrying amount items balance sheet material additionally company committed 8 million subscription sbic investment funds december 31 2020 company invested 72 million funds note 15 stock based compensation 2017 company approval shareholders created 2017 equity incentive plan “2017 plan” 2017 plan permits award 800 thousand shares company’s directors employees attract retain exceptional personnel motivate performance importantly help align interests farmers’ executives company’s shareholders 29045 service time based shares 50187 performance based shares granted 2017 plan year ended december 31 2020 shown table actual number performance based shares issued depend relative performance company’s average return equity compared group peer companies three year vesting period ending december 31 2023 december 31 2020 396315 shares still available awarded 2017 plan restricted stock awards granted fair value price equal market price company’s common stock date grant expense recognized 14 million 2020 2019 17 million 2018 december 31 2020 12 million total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized 22 years following activity plan 2020 115032 shares vested 2020 weighted average fair value 1171 per share note 16 regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices minimum capital requirements associated basel committee capital liquidity regulation basel iii phased fully implemented january 1 2019 capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2020 company bank meet capital adequacy requirements subject fdic federal banking regulators revised riskbased capital requirements applicable financial holding companies insured depository institutions including company bank make consistent agreements reached basel committee banking supervision “basel iii” common equity tier 1 capital tier 1 capital total capital ratios calculated dividing respective capital amounts riskweighted assets leverage ratio calculated dividing tier 1 capital adjusted average total assets basel iii limits capital distributions certain discretionary bonus payments banking organization hold “capital conservation buffer” consisting 25 common equity tier 1 capital tier 1 capital total capital riskweighted assets addition amount necessary meet minimum riskbased capital requirements capital conservation buffer 25 years 2020 2019 buffer requires additional capital amount 529 million year end 2020 additional 478 million year end 2019 excluding additional buffer basel iii requires company bank maintain minimum ratio common equity tier 1 capital riskweighted assets least 45 ii minimum ratio tier 1 capital riskweighted assets least 60 iii minimum ratio total capital riskweighted assets least 80 iv minimum leverage ratio least 40 prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2020 2019 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions company’s principal source funds dividend payments dividends received bank farmers trust lesser extent captive bank farmers trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years conclusion 2020 bank could without prior approval declare dividends approximately 128 million plus 2021 net profits retained date dividend declaration order practice trust powers farmers trust must maintain minimum capital 3 million farmers trust would also able without prior approval declare dividends 206 thousand plus 2021 net profits retained date dividend declaration actual required capital amounts including capital conservation buffer ratios presented yearend note 17 employee benefit plans company qualified 401k deferred compensation retirement savings plan “savings plan” employees company completed least 90 days service meet certain eligibility requirements eligible participate savings plan terms savings plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches 50 participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution savings plan total expense 665 thousand 708 thousand 573 thousand years ended december 31 2020 2019 2018 respectively company profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 2 annual compensation associates 2020 1 2019 2018 expense 195 thousand year ended december 31 2020 95 thousand year ended december 31 2019 78 thousand year ended december 31 2018 company maintains deferred compensation plan certain retirees expense plan 7 thousand years ended december 31 2020 2019 8 thousand year ended december 31 2018 liability deferred compensation plan december 31 2020 105 thousand 115 thousand december 31 2019 2015 company established nonqualified deferred compensation plan select group management highly compensated eligible individuals terms plan eligible individuals may elect defer receipt compensation later taxable year company recorded asset liability equal amount represents amount contributions payable due participants plan recorded asset liability 19 million 13 million december 31 2020 2019 respectively part nboh acquisition company director retirement death benefit plan benefit prior members board directors nboh plan designed provide annual retirement benefit paid director upon retirement board attaining age 70 additional benefits participants added plan liability recorded december 31 2020 2019 11 million 10 million respectively benefit payment upon satisfying plan’s requirements benefit qualifying director death maximum 15 years expense plan 180 thousand 136 thousand recorded 2020 2019 respectively benefit recognized plan 19 thousand 2018 note 18 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 21 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2020 2019 december 31 2020 december 31 2019 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company subject us federal income tax company longer subject examination federal taxing authority years prior 2017 tax years 20172019 remain open examination us taxing authority note 19 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2020 2019 2018 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 20 related party transactions loans principal officers directors affiliates 2020 2019 follows deposits principal officers directors affiliates yearend 2020 2019 268 million 116 million note 21 earnings per share factors used earnings per share computation follow restricted stock awards considered antidilutive year end 2020 2019 2018 note 22 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2020 2019 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2020 2019 2018 note 23 segment information reportable segments determined products services offered primarily distinguished banking trust operations trust retirement consulting segments combined 2019 segments also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees consulting fees provide revenue trust operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers insurance investment note 24 quarterly financial data unaudited note 25 parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary data set forth registrants 1998 annual report shareholders incorporated reference part ii report a2 financial statement schedules page accountants consent iv2 schedules omitted applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page iv4 hereof incorporated herein reference b report form 8k reports filed three months ended december 31 1998 independent auditors consent farmers national banc corp hereby consent incorporation reference registration statement report dated january 19 1999 relating consolidated financial statements farmers national banc corp subsidiary hill barth king inc warren ohio march 16 1999 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp sfrank l paden scarl culp president secretary executive vice president treasurer swilliam stewart chairman march 16 1999 benjamin r brown director march 16 1999 srichard l calvin vice chairman march 16 1999 sjoseph lane director march 16 1999 sdavid c myers director march 16 1999 sedward ort director march 16 1999 sfrank l paden president march 16 1999 director sronald v wertz director march 16 1999 index exhibits following exhibits filed incorporated references part report 2 applicable 3i applicable 3ii applicable 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 applicable 11 applicable 12 applicable 13 annual report security holders filed herewith 16 applicable 18 applicable 21 subsidiaries registrant filed herewith 22 applicable 23 applicable 24 applicable 27 financial data schedule filed herewith 99 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 8 financial statements supplementary data management’s report internal control financial reporting management farmers national banc corp company responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2012 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” internal controlintegrated framework based assessment believe december 31 2012 internal control financial reporting effective based criteria crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2012 stated report dated march 13 2013 john gulas carl culp president chief executive officer executive vice president treasurer report independent registered public accounting firm board directors shareholders farmers national banc corp canfield ohio audited accompanying consolidated balance sheets farmers national banc corp company december 31 2012 2011 related consolidated statements income comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2012 also audited farmers national banc corp’s internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso farmers national banc corp’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion financial statements referred present fairly material respects financial position farmers national banc corp december 31 2012 2011 results operations cash flows years threeyear period ended december 31 2012 conformity accounting principles generally accepted united states america also opinion farmers national banc corp maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso crowe horwath llp cleveland ohio march 13 2013 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data 1 stock option expense 2012 2011 2010 less 1000 rounded 0 2 treasury stock repurchased 2010 less 1000 rounded 0 see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank “bank” canfield farmers trust company “trust” consolidated financial statements also include accounts farmers national bank canfield’s subsidiary farmers national insurance together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity nationally chartered subsidiary farmers national bank canfield national bank subject regulation office comptroller currency federal deposit insurance corporation area served bank northeastern region ohio service provided nineteen 19 locations company provides trust services subsidiary farmers trust company insurance services bank’s subsidiary farmers national insurance farmers trust company statechartered bank license conduct trust business ohio department commerce division financial institutions estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates allowance loan losses deferred tax assets carrying amount goodwill fair values financial instruments particularly subject change cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthantemporary impairment otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis equity securities entire amount impairment recognized earnings loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale generally sold servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within mahoning trumbull columbiana stark counties therefore company’s exposure credit risk significantly affected changes economy four county area allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used es timating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 250 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelvequarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous pass rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans levels trends chargeoffs recoveries trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential mortgage loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member federal home loan bank fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income restricted stock included assets consolidated balance sheets bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual impairment test intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet noncompete contracts amortized fully straight line basis term agreement ended march 31 2011 customer relationship intangibles amortized 13 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized stock options issued employees based fair value awards date grant blackscholes model utilized estimate fair value stock options compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock options earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income comprehensive income consists unrealized gains losses securities available sale changes funded status post retirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements restrictions cash hand deposit federal reserve bank required meet regulatory reserve clearing requirements equity company successfully completed rights public offering 5000000 common shares january 2011 2053136 shares treasury stock reissued proceeds rights public offering net offering costs 12 million 138 million treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 4 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments chief decisionmakers monitor revenue streams various products services operations managed financial performance primarily aggregated reported two lines business bank segment trust segment company discloses segment information footnote 18 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards may 2011 fasb issued amendment achieve common fair value measurement disclosure requirements us international accounting principles overall guidance consistent existing us accounting principles however amendments change particular principle requirement measuring fair value disclosing information fair value measurements amendments guidance effective interim annual reporting periods beginning december 15 2011 effect adopting standard material effect company’s operating results financial condition additional disclosures included fair value footnote june 2011 fasb amended existing guidance eliminated option present components comprehensive income part statement changes stockholders’ equity amendment requires comprehensive income presented either single continuous statement two separate consecutive statements amendments guidance effective beginning fiscal reporting year interim periods within year begins december 15 2011 company adopted amendment year ended december 31 2011 presenting comprehensive income new consolidated statement comprehensive income new statements follow consolidated statements income note 2securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2012 2011 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 371 thousand 631 thousand 938 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 169 million december 31 2012 194 million december 31 2011 pledged secure public deposits repurchase agreements trust company securities carrying amount 100 thousand yearend 2012 2011 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies following table summarizes investment securities unrealized losses december 31 2012 2011 aggregated major security type length time continuous unrealized loss position unrealized losses mortgagebacked securities residential rounded less 1 thousand 2012 2011 small business administration securities unrealized losses rounded less 1 thousand year 2012 well company’s equity securities include local regional bank holdings company recognized otherthantemporary impairment less 1 thousand rounded zero year ended december 31 2012 year ended december 31 2011 11 thousand pretax charge recognized otherthantemporary decline fair value equity holdings decline fair value cost deemed otherthantemporary difference amortized cost basis equity security fair value must recognized charge earnings otherthantemporary impairment recognized year ended december 31 2010 december 31 2012 company’s security portfolio consisted 411 securities 54 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securitiesresidential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income generally securities maintained investment grade ratings management intent sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securitiesresidential company’s holdings mortgagebacked securitiesresidential year end 2012 2011 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2012 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities insure adequate credit support december 31 2012 company believes otherthantemporarily impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2012 note 3 loans year end follows following table presents activity allowance loan losses portfolio segment years ended december 31 2012 2011 activity allowance loan losses year ending december 31 2010 follows company changed methodology estimating allowance probable incurred loan losses 2012 management computed historical loss percentage based upon loss history past 12 quarters previous years management used historical loss percentage based past 8 quarters using 12 quarter loss history resulted larger historical loss ratio would computed using 8 quarter history company believes using 12 quarter loss history helps mitigate volatility timing chargeoffs better reflects probable incurred losses following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2012 2011 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following table presents information related impaired loans class loans year ended december 31 2012 2011 recorded investment loans excludes accrued interest receivable due immateriality interest income recognized impairment periods immaterial following table presents information impaired loans december 31 interest income recognized impairment 2010 immaterial nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2012 2011 following table presents aging recorded investment past due loans december 31 2012 2011 class loans troubled debt restructurings total troubled debt restructurings 76 million 43 million december 31 2012 2011 respectively company allocated 155 thousand 48 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2012 2011 commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2012 december 31 2011 year ending december 31 2012 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent reduction recorded investment loan permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies deferral principal payments troubled debt restructuring modifications involved reduction notes stated interest rate range 1 36 loans maturity periods ranging 5 months 41 months one loan involved extension maturity date 5 years following table presents loans class modified troubled debt restructurings occurred year ending december 31 2012 418 thousand charge offs 306 thousand decrease allowance loan losses result allowance adjustment due troubled debt restructurings described december 31 2012 loans modified troubled debt restructuring payment default within twelve months following modification year ending december 31 2012 following table presents loans class modified troubled debt restructurings occurred year ending december 31 2011 troubled debt restructurings described immaterial affect allowance loan losses december 31 2011 charge offs result allowance adjustment single loan modified troubled debt restructuring payment default within twelve months following modification year ending december 31 2011 default result borrower’s death 2011 troubled debt restructuring increased allowance loan losses immaterial amount year ending december 31 2011 loan considered payment default 30 days contractually past due modified terms credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 300 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 4fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company used third party service estimate fair value available sale securities monthly basis service provider considered leading evaluation pricing service us domestic fixed income securities subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities determined quoted market prices active markets available level 1 securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort company’s chief financial officer controller year ended december 31 2012 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison via independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2012 2011 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 period ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans carried fair value measured impairment using fair value collateral principal balance 26 million valuation allowance 25 thousand december 31 2012 resulting additional provision loan losses 997 million year ending december 31 2012 december 31 2011 impaired loans carrying amount 46 million valuation allowance 936 thousand loans measured fair value throughout year resulted additional provision loan losses 13 million year ending december 31 2011 excluded fair value impaired loans december 31 2012 2011 discussed 43 million 23 million loans specific allowance amounts allocated classified troubled debt restructurings carried fair value impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2012 real estate owned measured fair value less costs sell net carrying amount 57 thousand december 31 2012 company sold fifteen real estate owned properties year ended december 31 2012 company recorded 97 thousand write downs five real estate owned properties year ended december 31 2012 december 31 2011 real estate owned net carrying amount 346 thousand year ended december 31 2011 five properties charged reflecting updated appraisals resulted writedown 115 thousand fair value financial instruments carrying amounts estimated fair values financial instruments december 31 2012 december 31 2011 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows variable rate loans reprice frequently significant change credit risk fair values based carrying values resulting level 3 classification fair values loans estimated using discounted cash flow analyses using interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification impaired loans valued lower cost fair value described previously methods utilized estimate fair value loans necessarily represent exit price loans held sale fair value loans held sale estimated based upon binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 5premises equipment yearend premises equipment follows depreciation expense 12 million year ended december 31 2012 11 million year ended december 31 2011 10 million year ended december 31 2010 company leases certain branch properties operating leases rent expense 265 283 257 thousand 2012 2011 2010 addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 6goodwill intangible assets goodwill associated company’s purchase farmers trust company 2009 totaled 37 million december 31 2012 2011 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting unit including existing goodwill intangible assets estimating fair value reporting unit determined fair value reporting unit exceeded carrying amount carrying amount reporting unit exceeds fair value required perform second step impairment test acquired intangible assets acquired intangible assets follows year end aggregate amortization expense 409 thousand 479 thousand 580 thousand 2012 2011 2010 estimated amortization expense next five years note 7interest bearing deposits time deposits 100 thousand 866 million 979 million yearend 2012 2011 following summary scheduled maturities certificates deposit years following december 31 2012 following summary yearend interest bearing deposits note 8securities sold agreements repurchase shortterm borrowings securities sold repurchase agreements secured bank’s holdings debt securites issued us government sponsored entities agencies carrying amount 1620 million 1756 million year ended 2012 2011 repurchase agreements financing arrangements mature within 89 days agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust company information concerning securities sold agreements repurchase summarized follows 2011 bank paid shortterm us treasury interestbearing demand note bank access lines credit amounting 245 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings line december 31 2012 2011 farmers national banc corp unsecured 15 million revolving line credit line renewed annually outstanding balance 350 thousand december 31 2012 11 million december 31 2011 interest rate prime floor 45 interest rate december 31 2012 2011 45 note 9federal home loan bank advances longterm borrowings year end longterm advances federal home loan bank follows 2011 bank paid 12 million prepayment fees retire several fhlb advances totaling 119 million due date among advances prepaid 5 million fhlb fixedrate advance convertible floating rate advance also included prepayment 2011 bank prepaid 5 million fhlb fixedrate advance putable certain specific dates option fhlb december 31 2012 bank retains 10 million putable fhlb fixedrate advances balance putable fhlb fixedrate advances also 10 million december 31 2011 fhlb elect put bank required repay advance date without penalty federal home loan bank advances secured blanket pledge residential mortgage loans totaling 952 million 996 million year end 2012 2011 based collateral bank eligible borrow additional 849 million year end 2012 advance subject prepayment penalty paid prior maturity date scheduled repayments longterm fhlb advances follows bank note payable secured real estate totaling 64 thousand 2012 129 thousand 2011 note carries fixed interest rate 750 remaining scheduled principal repayments note payable amount 64 thousand due 2013 note 10commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less fixed rate loan commitments 2012 interest rates ranging 288 450 mature ten thirty years fixed rate commitments 2011 interest rates ranging 475 625 mature thirty years fixed rate unused lines credit interest rates ranging 325 1800 december 31 2012 december 31 2011 standby letters credit considered financial guarantees standby letters credit contractual value 38 million 2012 40 million 2011 carrying amount items balance sheet material note 11stock options 2012 company approval shareholders created restricted stock award plan permits award 500000 shares directors employees based performance company believes awards better align interests employees shareholders share awards issued 2012 plan company’s stock option plan shareholderapproved since expired permitted grant share options directors officers employees 375 thousand shares common stock option awards granted exercise price equal market price company’s common stock date grant option awards vesting periods 5 years 10year contractual terms option exercises expected satisfied either newly issued shares treasury shares fair value company’s stock december 31 2012 2011 less fair value option exercise price therefore outstanding exercisable options intrinsic value fair value option award estimated date grant using closed form option valuation blackscholes model uses assumptions noted table expected volatilities based historical volatilities company’s common stock company uses historical data estimate option exercise postvesting termination behavior expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant options granted exercised stock option plan 2012 2011 2010 summary activity stock option plan 2012 follows company expects outstanding options vest december 31 2012 total unrecognized compensation cost related nonvested stock options granted plan immaterial note 12regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2012 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2012 2011 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions corporation’s principal source funds dividend payments dividends received bank trust bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2013 bank could without prior approval declare dividends approximately 152 million plus 2013 net profits retained date dividend declaration trust could without prior approval declare dividends 868 thousand plus net profits retained date dividend declaration 2013 bolster capital levels company executed offering 5 million common shares farmers national banc corp stock january 2011 offering 5 million shares 3 per share involved rights offering existing shareholders offering standby investors offering public company issued 2946864 authorized unissued common shares reissued 2053136 shares treasury stock total proceeds offering net offering costs 12 million 138 million since company’s cost basis treasury shares greater price paid common shares issued rights offering difference 193 million recorded reduction retained earnings company contributed 8 million bank general operating purposes may include among others payment expenses payments dividends pursuing strategic opportunities may presented bank time september 28 2012 company announced board directors approved share repurchase program company authorized repurchase 920000 shares common stock open market privately negotiated transactions subject market conditions one year ending september 27 2013 “program” program may modified suspended terminated company time company repurchased 7221 shares common shares course 2012 actual required capital amounts ratios presented yearend note 13 employee benefit plans company qualified 401k deferred compensation retirement savings plan employees company completed least 90 days service meet certain eligibility requirements eligible participate plan terms plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution plan total expense 334 thousand 300 thousand 268 thousand years ended december 31 2012 2011 2010 respectively company maintains deferred compensation plan certain retirees expense plan 13 thousand 43 thousand years ended december 31 2012 2010 respectively due early retirement participant plan future monthly benefits reduced resulted benefit 26 thousand recorded 2011 liability plan december 31 2012 170 thousand 189 thousand december 31 2011 company also postretirement health care benefit plan covering individuals retired company met certain service age requirements certain active employees met similar service requirements postretirement health care plan includes limit company’s share costs recent future retirees expense plan 2012 2011 2010 34 thousand 15 thousand 38 thousand accrued postretirement benefit liability plan 375 thousand 473 thousand december 31 2012 2011 due immateriality plan disclosures required us generally accepted accounting principles omitted note 14income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2012 2011 33 thousand capital loss carryover used offset future capital gain income expires december 31 2013 remaining 9 thousand expires december 31 2017 december 31 2012 december 31 2011 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months penalties interest recorded income statement years ended december 31 2012 2011 2010 amounts accrued penalties interest december 31 2012 2011 company subject us federal income tax company longer subject examination federal taxing authority years prior 2009 tax years 20092011 remain open examination us taxing authority note 15related party transactions loans principal officers directors affiliates 2012 follows deposits principal officers directors affiliates yearend 2012 2011 11 million 651 thousand note 16 earnings per share factors used earnings per share computation follow stock options 5000 shares common stock 2012 2011 28500 shares common stock 2010 considered computing diluted earnings per share antidilutive note 17 interest rate swaps 2012 company began using program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designed hedges accordingly instruments carried fair value changes fair value reported current period earnings 2012 company entered five interestrate swap agreements summary information interestrate swaps year ended december 31 2012 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions interestrate swaps year ended december 31 2012 note 18 segment information reportable segments determined products services offered primarily distinguished banking trust operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers national insurance note 19quarterly financial data unaudited company sold certain investment securities recognized security gains 473 thousand third quarter 586 thousand fourth quarter 2012 fourth quarter 2011 bank sold certain investment securities recognized security gains 18 million also fourth quarter 2011 bank prepaid 119 million fhlb advances incurred 12 million prepayment penalty included noninterest expense note 20parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2017 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2017 internal control financial reporting effective based criteria crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2017 stated report dated march 6 2018 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer senior executive vice president treasurer report independent registered public accounting firm shareholders board directors farmers national banc corp canfield ohio opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets farmers national banc corp company december 31 2017 2016 related consolidated statements income comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2017 related notes collectively referred financial statements also audited company’s internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company december 31 2017 2016 results operations cash flows years threeyear period ended december 31 2017 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate crowe horwath llp crowe horwath llp served companys auditor since 2003 cleveland ohio march 6 2018 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank canfield “bank” farmers trust company “trust” national associates inc “nai” farmers national captive inc “captive” captive formed 2016 whollyowned insurance subsidiary company consolidated financial statements also include accounts farmers national bank canfield’s subsidiaries farmers national insurance “insurance” farmers canfield investment co “investments” company acquired monitor bancorp inc “monitor” holding company monitor bank 2017 first national bank orrville “first national bank” subsidiary national bancshares corporation “nboh” 1st national community bank “fncb” subsidiary tristate 1st banc inc “tristate” 2015 consolidated activity acquisitions within bank acquired bowers insurance agency inc “bowers” consolidated activity bowers farmers national insurance “insurance” 2016 see note 2 together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation primary area served bank northeastern region ohio thirty nine 39 locations two branch location southwestern pennsylvania company provides trust services trust subsidiary retirement consulting services nai subsidiary insurance services bank’s insurance subsidiary trust statechartered bank license conduct trust business ohio department commerce division financial institutions primary purpose investments invest municipal securities captive provides property casualty insurance coverage company subsidiaries captive pools resources thirteen similar insurance subsidiaries financial institutions spread limited amount risk among pool members provide insurance currently available economically feasible today’s insurance market place estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthantemporary impairment otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis equity securities entire amount impairment recognized earnings loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale sold without servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured purchased credit impaired loans company purchased loans shown evidence credit deterioration since origination acquisition first national bank loans recorded amount paid carryover seller’s allowance loan losses company estimates amount timing expected cash flows loan expected cash flows excess amount paid recorded interest income remaining life loan excess loan’s contractual principal interest expected cash flows recorded life loan expected cash flows continue estimated present value expected cash flows less carrying amount loss recorded provision loan losses present value expected cash flows greater carrying amount recognized part future interest income derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within northeastern ohio therefore company’s exposure credit risk significantly affected changes economy nine county area loans secured real estate represent 698 total portfolio changes related real estate markets monitored management allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff acquired loans individually evaluated purchased loans without evidence credit deterioration management evaluates reviewed loan using internal grading system grade assigned loan date acquisition extent purchased loan specifically reviewed loan assumed characteristics similar characteristics acquired portfolio purchased loans grade purchased loan without evidence credit deterioration reviewed subsequent date acquisition time loan renewed extended time information becomes available company provides material insight regarding loan’s performance status borrower quality value underlying collateral extent current information indicates probable company collect amounts according contractual terms thereof loan considered impaired individually considered determination required allowance loan losses extent current information indicates probable company able collect amounts according contractual terms thereof loan considered impaired considered determination required level allowance determining day one fair values purchased loans without evidence credit deterioration date acquisition management includes carryover previously recorded allowance loan losses ii adjustment unpaid principal balance reflect appropriate market rate interest given risk profile grade assigned loan adjustment accreted earnings yield adjustment using effective yield method remaining life loan allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 750 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses servicing rights mortgage loans sold servicing rights retained servicing rights initially recorded fair value income statement effect recorded gains sales loans fair value based market prices comparable mortgage servicing contracts available alternatively based valuation model calculates present value estimated future net servicing income valuation model incorporates assumptions market participants would use estimating future net servicing income cost service discount rate custodial earnings rate inflation rate ancillary income prepayment speeds default rates losses company compares valuation model inputs results published industry data validate model results assumptions classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans servicing assets evaluated impairment based upon fair value assets compared carrying amount impairment reported valuation allowance extent fair value less capitalized amount grouping valuation allowance impairment servicing assets december 31 2017 2016 servicing fee income recorded earned servicing loans based contractual percentage outstanding principal fixed amount per loan amortization mortgage servicing rights netted loan servicing fee income servicing fees late fees ancillary fees related loan servicing considered significant financial reporting foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense assets recorded assets balance sheets real estate owned “oreo” oreo totaled 171 thousand december 31 2017 482 thousand december 31 2016 operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value restricted stock totaled 105 million december 31 2017 96 million december 31 2016 cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual goodwill impairment tests associated acquisition trust nai first national bank fncb bowers monitor intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet core deposit intangible assets arising bank acquisitions amortized estimated useful lives 7 8 years noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized range 13 15 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock equity awards earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters currently material effect financial statements restrictions cash hand deposit federal reserve bank “frb” required meet regulatory reserve clearing requirements company deposits frb 300 million december 31 2017 164 million december 31 2016 equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 6 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments operations managed financial performance primarily aggregated reported three lines business bank trust retirement consulting segments company discloses segment information note 21 adoption new accounting standards newly issued yet effective accounting standards february 2018 fasb issued asu 201802 income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income amendments update allow reclassification accumulated comprehensive income retained earnings stranded tax effects resulting tax cuts jobs act consequently amendments eliminate stranded tax effects improve usefulness information reported financial statement users however amendments relate reclassification income tax effects tax cuts jobs act guidance requires effect change tax laws rates included income continuing operations affected standard takes effect entities fiscal years interim periods within fiscal years beginning december 15 2018 early adoption amendments update permitted public business entities reporting periods financial statements yet issued entities reporting periods financial statements yet made available issuance company early adopted asu result reclass 106 thousand accumulated comprehensive income retained earnings reflected consolidated financial statements december 31 2017 april 2017 fasb issued asu 201708 receivablesnonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities current us gaap premium typically amortized maturity date callable debt security purchased premium even holder certain call exercised result upon exercise call callable debt security held premium unamortized premium recorded loss earnings new standard shortens amortization period premium earliest call date closely align interest income recorded bonds held premium discount economics underlying instrument standard takes effect public business entities fiscal years interim periods within fiscal years beginning december 15 2018 company plan early adopt asu permitted including adoption interim period company expect adoption asu material impact consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment asu eliminates step 2 goodwill impairment test instead new guidance entity perform annual goodwill impairment test comparing fair value reporting unit carrying amount impairment charge would recognized amount carrying amount exceeds reporting units fair value new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed testing dates january 1 2017 company plan early adoption asu adoption guidance expected impact companys consolidated financial statements june 2016 financial accounting standards board “fasb” issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments asu requires organization measure expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better inform credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses organizations continue use judgment determine loss estimation method appropriate circumstances additionally asu amends accounting credit losses availableforsale debt securities purchased financial assets credit deterioration asu 201613 effective public companies annual periods beginning december 15 2019 including interim periods within fiscal years entities apply standards provisions cumulativeeffect adjustment retained earnings beginning first reporting period guidance adopted company begun accumulate historical credit information established internal committee engaged software provider preparation testing systems 2019 adoption asu 201613 happen january 1 2020 management determined full impact new standard consolidated financial statements march 2016 fasb issued accounting standards update “asu” 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting amendments asu 201609 simplify several aspects accounting employee sharebased payment transactions including accounting income taxes forfeitures statutory tax withholding requirements well classification statement cash flows asu 201609 effective public companies interim annual reporting periods beginning december 15 2016 early adoption permitted company adopted asu 201609 january 1 2017 material impact consolidated financial statements disclosures february 2016 fasb issued asu 201602 topic 842 leases main objective asu 201602 provide users useful transparent complete information leasing transactions asu 201602 requires rights obligations associated leasing arrangements reflected balance sheet increase transparency comparability among organizations updated guidance lessees required recognize righttouse asset liability make lease payment disclose key information leasing arrangements asu 201602 effective public companies interim annual reporting periods beginning december 15 2018 early adoption permitted company adopt asu required disclosed footnote 7 certain leases company place could require capitalization 29 million balance sheet asset related liability amount income statement effect therefore company expect adoption asu material impact consolidated financial statements january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities main objective asu 201601 enhance reporting model financial instruments provide users financial statements decisionuseful information asu 201601 addresses certain aspects recognition measurement presentation disclosure financial instruments amendments asu 201601 include following 1 require equity investments except accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income 2 simplify impairment assessment equity investments without readily determinable fair values requiring qualitative assessment identify impairment 3 require public business entities use exit price notion measuring fair value financial instruments disclosure purposes 4 require entity present separately comprehensive income portion total change fair value liability resulting change instrumentspecific credit risk entity elected measure liability fair value among others amendments asu 201601 effective fiscal years beginning december 15 2017 including interim periods within fiscal years company adopted asu 201601 january 1 2018 realized material impact consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu creates new topic 606 provide guidance revenue recognition entities enter contracts customers transfer goods services enter contracts transfer nonfinancial assets core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services additional disclosures required provide quantitative qualitative information regarding nature amount timing uncertainty revenue cash flows arising contracts customers new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2017 new guidance effective companys year ending december 31 2018 adopted january 1 2018 use modified retrospective approach used implementing standard interest income outside scope new standard impacted adoption standard review company’s noninterest income resulted change revenue recognition since adoption expected change revenue recognition prospectively significant way note 2 business combinations august 15 2017 company completed acquisition monitor bancorp inc “monitor” holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value farmers national banc corp subject overall limitation 85 monitor common shares exchanged farmers common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price farmers common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 goodwill 10 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 673 thousand related core deposits following table summarizes consideration paid monitor amounts assets acquired liabilities assumed closing date acquisition valuation assets acquired created including limited net loans goodwill preliminary could subject change changes expected material june 1 2016 bank completed acquisition bowers merged activity bowers insurance bank’s whollyowned insurance agency subsidiary bowers group engaged selling insurance including commercial farm home auto propertycasualty insurance help meet needs company’s customers transaction involved cash 123280 shares stock totaling 32 million including 12 million future payments contingent upon bowers meeting performance targets estimated fair value acquisition date 880 thousand first three contingent payments made 2017 totaling 316 thousand reduced earnout payable 564 thousand subsequent payment management conducted valuation contingent consideration found necessary reduce future payment liability associated remaining two payments 200 thousand year end 2017 364 thousand recorded reduction acquisition related costs current year consolidated statements income december 31 2017 company conducts valuation work annually acquisition part company’s plan increase levels noninterest income complement existing insurance services currently offered goodwill 18 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 16 million related client relationships company name noncompetition agreements following table summarizes consideration paid bowers amounts assets acquired liabilities assumed closing date acquisition following table presents pro forma information acquisitions occurred 2016 2017 actually took place beginning 2016 pro forma information includes adjustments merger related costs amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transactions effective assumed date october 1 2015 company completed acquisition tristate parent company fncb transaction involved cash 1296517 shares stock totaling 143 million pursuant terms merger agreement common shareholders tristate received 1747 common shares without par value company 1420 cash common share tristate subject proration provisions specified merger agreement provide targeted aggregate split total consideration consisting 75 shares farmers’ common stock 25 cash preferred shareholders tristate received 1360 cash share series preferred stock without par value tristate goodwill 30 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 12 million related core deposits june 19 2015 company completed acquisition outstanding stock nboh parent company first national bank orrville transaction involved cash 7262955 shares stock totaling 748 million first national bank orrville branches became branches farmers bank pursuant agreement shareholder nboh received either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares nboh exchanged stock 20 cash goodwill 267 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 44 million related core deposits note 3 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2017 2016 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 2 thousand 26 thousand 33 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 269 million december 31 2017 242 million december 31 2016 pledged secure public deposits repurchase agreements trust securities carrying amount 100 thousand yearend 2017 2016 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2017 2016 aggregated major security type length time continuous unrealized loss position company’s equity securities include local regional bank holdings otherthantemporary impairments recognized 2017 2016 2015 otherthantemporary impairment occur amount impairment recognized earnings depends whether entity intends sell security likely would required sell security recovery amortized cost basis previous amortized cost basis less impairment recognized earnings becomes new amortized cost basis investment december 31 2017 company’s security portfolio consisted 550 securities 184 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securities residential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income december 31 2017 2016 securities issued state political subdivisions investment grade ratings management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2017 2016 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2017 2016 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2017 2016 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income company consider securities otherthantemporarily impaired december 31 2017 2016 decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery note 4 loans year end follows purchased credit impaired loans part nboh acquisition 2015 company acquired various loans displayed evidence deterioration credit quality since origination probable contractually required payments would collected carrying amounts contractually required payments loans included loan balances summarized following tables accretable yield income expected collected shown table key assumptions considered include probability default amount actual prepayments acquisition date prepayments affect estimated life loans could change amount interest income principal expected collected reforecasting future estimated cash flows credit loss expectations adjusted necessary adjustments forecasted cash flows impacted allowance loan losses years ended december 31 2017 2016 following tables present activity allowance loan losses portfolio segment years ended december 31 2017 2016 2015 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2017 2016 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans years ended december 31 2017 2016 2015 recorded investment loans excludes accrued interest receivable due immateriality cash basis interest income recognized interest income recognized materially equal 2017 2016 2015 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2017 2016 following tables present aging recorded investment past due loans december 31 2017 2016 class loans troubled debt restructurings total troubled debt restructurings 50 million 70 million december 31 2017 2016 respectively company allocated 68 thousand 101 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2017 2016 respectively commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2017 2016 years ending december 31 2017 2016 2015 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies extension interest period deferral principal payments legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 049 1151 also extensions maturity dates troubled debt restructurings range six months 132 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2017 2016 2015 troubled debt restructurings described increased allowance loan losses 75 thousand resulted charge offs 75 thousand year ended december 31 2017 troubled debt restructurings described increased allowance loan losses 43 thousand resulted charge offs 344 thousand year ended december 31 2016 troubled debt restructurings described increased allowance loan losses 101 thousand resulted charge offs 129 thousand year ended december 31 2015 loans payment defaults within twelve months following modification troubled debt restructuring year december 31 2017 loan considered payment default 30 days contractually past due modified terms two commercial real estate loans 12 million one residential real estate loan 1 thousand one home equity line credit 10 thousand modified troubled debt restructurings payment defaults within twelve months following modification year december 31 2016 none loans past due december 31 2016 effect provision loan losses result default 2016 one commercial real estate loan 40 thousand one residential real estate loan 1 thousand one home equity line credit 11 thousand modified troubled debt restructurings payment defaults within twelve months following modification year december 31 2015 three loans past due december 31 2015 effect provision loan losses result default 2015 credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 5 loan servicing company began servicing loans upon acquisition first national bank’s servicing portfolio june 2015 mortgage loans serviced others reported assets principal balances loans yearend follows custodial escrow balances maintained connection serviced loans 14 million december 31 2017 961 thousand december 31 2016 mortgage servicing rights recorded balance sheets assets activity mortgage servicing rights years ended december 31 2017 2016 2015 follows valuation allowance required mortgage servicing rights december 31 2017 2016 2015 note 6 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company used third party service estimate fair value available sale securities monthly basis service provider considered leading evaluation pricing service us domestic fixed income securities subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities determined quoted market prices active markets available level 1 securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2017 2016 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2017 2016 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 year ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans measured impairment using fair value collateral dependent loans principal balance 851 thousand valuation allowance 109 thousand december 31 2017 resulting additional provision loan losses 272 thousand year ending december 31 2017 december 31 2016 impaired loans principal balance 727 thousand valuation allowance 173 thousand loans measured fair value throughout year resulted additional provision loan losses 139 thousand year ending december 31 2016 excluded fair value impaired loans december 31 2017 2016 discussed 763 thousand 20 million loans classified troubled debt restructurings measured using present value cash flows considered exit price impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material december 31 2017 real estate owned measured fair value less costs sell zero net carrying amount year ended december 31 2017 company charged one property reflecting updated appraisal resulted writedown 23 thousand company 36 thousand related write downs year ended december 31 2016 following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2017 2016 fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2017 december 31 2016 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows variable rate loans reprice frequently significant change credit risk fair values based carrying values resulting level 3 classification fair values loans estimated using discounted cash flow analyses using interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification impaired loans valued lower cost fair value described previously methods utilized estimate fair value loans necessarily represent exit price loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 7premises equipment yearend premises equipment follows depreciation expense 16 million year ended december 31 2017 17 million year ended december 31 2016 15 million year ended december 31 2015 august 2017 company added one location holmes county part monitor acquisition fixed assets recorded fair market value june 2016 company added one location addition bowers insurance group trumbull county fixed assets recorded fair market value company leases certain branch properties operating leases rent expense 449 362 332 thousand 2017 2016 2015 respectively addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 8goodwill intangible assets goodwill associated company’s recent purchases monitor august 2017 bowers june 2016 nboh june 2015 tristate october 2015 past acquisitions totaled 382 million december 31 2017 372 million december 31 2016 monitor bowers nboh tristate acquisitions fully described note 2 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting units including existing goodwill intangible assets estimating fair value reporting units carrying amount reporting unit exceeds fair value second step impairment test required step 2 requires implied fair value reporting unit’s goodwill compared carrying amount goodwill carrying amount reporting unit’s goodwill exceeds implied fair value goodwill impairment loss shall recognized amount equal excess annual impairment analysis september 30 2017 company determined fair value goodwill exceeded carrying amount intangibles core deposit intangible assets associated company’s purchases monitor nboh tristate totaled 63 million intangible assets follows year end aggregate amortization expense 15 million 2017 2016 983 thousand 2015 estimated amortization expense next five years thereafter note 9 interest bearing deposits time deposits 250 thousand 519 million 433 million yearend 2017 2016 following summary scheduled maturities certificates deposit years following december 31 2017 following summary yearend interest bearing deposits note 10 shortterm borrowings bank shortterm advances fhlb maturity dates less one year time advance balances due within one year renewed time maturity fhlb advances secured pledgings described following longterm borrowings footnote balances year end follows securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies pledged securities 105 repurchase agreement balances carrying amount 779 million 820 million year ended 2017 2016 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank trust fhlb information concerning securities sold agreements repurchase summarized follows following table provides disaggregation obligation class collateral pledged shortterm financing obtained sales repurchase agreements management believes risks associated agreements minimal case collateral decline company additional investment securities available adequately pledge guarantees repurchase agreements bank access lines credit amounting 20 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings lines december 31 2017 2016 farmers two unsecured revolving lines credit 65 million lines renewed annually lines interest rates prime floors 35 45 outstanding balance two lines 350 thousand december 31 2017 2016 interest rate outstanding balance december 31 2017 2016 45 note 11 longterm borrowings year end longterm advances fhlb follows longterm shortterm fhlb advances secured blanket pledge residential mortgage loans totaling 2802 million 2769 million year end 2017 2016 based collateral bank eligible borrow additional 604 million year end 2017 advance subject prepayment penalty paid prior maturity date scheduled payments longterm fhlb advances follows company added special purpose entity hold 21 million trust preferred debenture part tristate acquisition 2015 debt floating rate determined quarterly based threemonth libor december 31 2017 interest rate 302 securities redeemed quarterend final maturity trust preferred debenture december 15 2036 balance outstanding trust preferred debenture 22 million year end 2017 2016 note 12 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less commitments fixed rate unused lines credit interest rates ranging 299 1600 december 31 2017 010 1800 december 31 2016 six fixed rate loan commitments 2016 interest rate 425 525 matures within fifteen years variable rate loan commitments interest rates december 31 2016 ranged 469 575 standby letters credit considered financial guarantees standby letters credit contractual value 49 million december 31 2017 43 million december 31 2016 carrying amount items balance sheet material additionally company committed 8 million subscription sbic investment funds december 31 2017 company invested 50 million funds note 13 stock based compensation 2017 company approval shareholders created 2017 equity incentive plan “2017 plan” 2017 plan permits award 800 thousand shares company’s directors employees attract retain exceptional personnel motivate performance importantly help align interests farmers’ executives company’s shareholders 63248 service time based shares 64993 performance based shares granted 2017 plan year ended december 31 2017 shown table actual number performance based stock awards issued depend certain performance conditions mainly average return equity compared group peer companies three year vesting period 2012 company approval shareholders created 2012 equity incentive plan “2012 plan” 2012 plan permits award 500 thousand shares company’s directors employees promote company’s longterm financial success motivating performance longterm incentive compensation better align interests employees shareholders additional shares granted plan 2017 detailed table new restricted stock awards issued 2017 plan described restricted stock awards granted fair value price equal market price company’s common stock date grant expense recognized plans 24 million 2017 892 thousand 2016 486 thousand 2015 december 31 2017 13 million total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized next 2 years following activity plans years ended december 31 2017 note 14 regulatory matters banks financial holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices new minimum capital requirements associated basel committee capital liquidity regulation basel iii phased began january 1 2015 continue january 1 2019 capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2017 company bank meet capital adequacy requirements subject fdic federal banking regulators revised riskbased capital requirements applicable financial holding companies insured depository institutions including company bank make consistent agreements reached basel committee banking supervision “basel iii” common equity tier 1 capital tier 1 capital total capital ratios calculated dividing respective capital amounts riskweighted assets leverage ratio calculated dividing tier 1 capital adjusted average total assets basel iii limits capital distributions certain discretionary bonus payments banking organization hold “capital conservation buffer” consisting 25 common equity tier 1 capital tier 1 capital total capital riskweighted assets addition amount necessary meet minimum riskbased capital requirements capital conservation buffer began phase january 1 2016 increase year fully implemented 25 january 1 2019 capital conservation buffer 125 2017 0625 2016 buffer required additional capital amount 315 million year end 2017 additional 193 million year end 2016 excluding additional capital conservation buffer basel iii requires company bank maintain minimum ratio common equity tier 1 capital riskweighted assets least 45 ii minimum ratio tier 1 capital riskweighted assets least 60 iii minimum ratio total capital riskweighted assets least 80 iv minimum leverage ratio least 40 prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2017 2016 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions company’s principal source funds dividend payments dividends received bank trust nai bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2018 bank could without prior approval declare dividends approximately 162 million plus 2018 net profits retained date dividend declaration order practice trust powers trust must maintain minimum capital 3 million trust would also able without prior approval declare dividends 400 thousand plus 2018 net profits retained date dividend declaration actual required capital amounts including capital conservation buffer ratios presented yearend note 15 employee benefit plans company qualified 401k deferred compensation retirement savings plan “savings plan” employees company completed least 90 days service meet certain eligibility requirements eligible participate savings plan terms savings plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution savings plan total expense 556 thousand 506 thousand 431 thousand years ended december 31 2017 2016 2015 respectively 2014 company adopted profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 1 annual compensation associates 2017 2016 2015 expense 103 thousand 103 thousand 82 thousand years ended december 31 2017 2016 2015 respectively company maintains deferred compensation plan certain retirees expense plan 8 thousand 9 thousand 10 thousand years ended december 31 2017 2016 2015 respectively liability deferred compensation plan december 31 2017 133 thousand 141 thousand december 31 2016 2015 company established nonqualified deferred compensation plan select group management highly compensated eligible individuals terms plan eligible individuals may elect defer receipt compensation later taxable year company recorded asset liability equal amount represents amount contributions payable due participants plan recorded asset liability 566 thousand 345 thousand 67 thousand december 31 2017 2016 2015 respectively part nboh acquisition company director retirement death benefit plan benefit prior members board directors nboh plan designed provide annual retirement benefit paid director upon retirement board attaining age 70 additional benefits participants added plan liability recorded december 31 2017 2016 1 million benefit payment upon satisfying plan’s requirements benefit qualifying director death maximum 15 years expense plan 91 thousand 130 thousand 0 2017 2016 2015 respectively company assumed employee stock ownership plan “esop” part tristate acquisition covered substantially employees officers company terminated plan 2017 trustee discretionary authority purchase shares common stock tristate open market contributions plan 2017 2016 acquisition tristate esop shares converted company’s shares distributed participants trustee held shares december 31 2017 39690 shares december 31 2016 company postretirement health care benefit plan covered individuals retired company met certain service age requirements certain active employees met similar service requirements company terminated plan 2017 benefit recognized plan 70 thousand 184 thousand 12 thousand december 31 2017 2016 2015 respectively due termination plan accrued postretirement benefit liability december 31 2017 2016 0 70 thousand respectively due immateriality plan disclosures required us generally accepted accounting principles omitted note 16 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2017 2016 december 31 2017 december 31 2016 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company approximately 64 thousand alternative minimum tax credits carried forward indefinitely company paid penalties year ended december 31 2017 2016 amounts accrued penalties interest december 31 2017 2016 company subject us federal income tax company longer subject examination federal taxing authority years prior 2014 tax years 20142017 remain open examination us taxing authority december 22 2017 hr1 commonly known tax cuts jobs act “act” signed law act includes several provisions affect company’s federal income tax expense including reducing federal income tax rate 21 effective january 1 2018 result rate reduction company required remeasure income tax expense period enactment deferred tax assets liabilities using enacted rate items expected recovered settled remeasurement company’s net deferred tax asset resulted additional 2017 income tax expense 18 million note 17 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2017 2016 2015 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 18 related party transactions loans principal officers directors affiliates 2017 follows deposits principal officers directors affiliates yearend 2017 2016 59 million 120 million note 19 earnings per share factors used earnings per share computation follow restricted stock awards considered antidilutive year end 2017 2016 193105 award shares common stock considered computing diluted earnings per share antidilutive year end 2015 note 20 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2017 2016 2015 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2017 2016 2015 note 21 segment information reportable segments determined products services offered primarily distinguished banking trust retirement consulting operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations consulting fees provide revenues retirement consulting operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes insurance investment note 22 quarterly financial data unaudited income tax expense fourth quarter elevated due additional 18 million tax expense remeasurement company’s net deferred tax asset note 23parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 financial statements supplementary financial data information required section incorporated reference information located pages 25 44 company’s annual report item 9 item 8 financial statements supplementary data information required item incorporated herein reference information located pages 27 48 company’s annual report item 9 item 8 financial statements supplementary data set forth registrant’s 2007 annual report shareholders incorporated reference part ii report 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part report listed index exhibits appears page 12 hereof incorporated herein reference financial statement schedules presented applicable b exhibits filed incorporated reference part report listed index exhibits appears page 12 hereof incorporated herein reference c financial statement schedules financial statement schedules presented section none applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden carl culp frank l paden president secretary march 11 2008 carl culp executive vice president treasurer march 11 2008 benjamin r brown benjamin r brown director march 11 2008 anne frederick crawford anne frederick crawford director march 11 2008 james r fisher james r fisher director march 11 2008 joseph lane joseph lane director march 11 2008 ralph macali ralph macali director march 11 2008 earl r scott earl r scott director march 11 2008 frank l paden frank l paden president director march 11 2008 ronald v wertz ronald v wertz director march 11 2008 index exhibits following exhibits filed incorporated reference part report copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2019 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2019 internal control financial reporting effective based criteria cliftonlarsonallen llp audited effectiveness company’s internal control financial reporting december 31 2019 stated report dated march 5 2020 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer senior executive vice president treasurer report independent registered public accounting firm board directors stockholders farmers national banc corp canfield oh opinions financial statements internal control financial reporting audited accompanying consolidated balance sheet farmers national banc corp company december 31 2019 related consolidated statements income comprehensive income stockholders’ equity cash flows year ended december 31 2019 related notes collectively referred financial statements also audited company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company december 31 2019 results operations cash flows year ended december 31 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s financial statements opinion company’s internal control financial reporting based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audit consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate cliftonlarsonallen llp cliftonlarsonallen llp served company’s auditor since 2019 toledo oh march 5 2020 report independent registered public accounting firm shareholders board directors farmers national banc corp canfield ohio opinion financial statements audited accompanying consolidated balance sheet farmers national banc corp company december 31 2018 related consolidated statements income comprehensive income stockholders’ equity cash flows years twoyear period ended december 31 2018 related notes collectively referred financial statements opinion financial statements referred present fairly material respects financial position company december 31 2018 results operations cash flows years twoyear period ended december 31 2018 conformity accounting principles generally accepted united states america basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion scrowe llp crowe llp served company’s auditor 2003 2018 cleveland ohio march 5 2019 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank canfield “bank” “farmers bank” farmers trust company “farmers trust” farmers national captive inc “captive” consolidated financial statements also include accounts bank’s subsidiaries farmers national insurance llc “farmers insurance” farmers canfield investment co “farmers investments” company acquired monitor bancorp inc “monitor” holding company monitor bank 2017 consolidated activity within bank together entities referred “the company” significant intercompany balances transactions eliminated consolidation corporate reorganization 2019 trust acquired shares national associates inc “nai” company corporate reorganization company sole shareholder trust nai reorganization entities combined one reporting unit one operating segment began reporting one unit internal external reports third quarter 2019 combination concert company’s plan increase efficiencies within different business lines nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation primary area served bank northeastern region ohio thirty nine 39 locations twobranch locations southwestern pennsylvania company provides trust services retirement consulting services farmers trust subsidiary insurance services bank’s insurance subsidiary farmers trust statechartered bank license conduct trust business ohio department commerce division financial institutions primary purpose farmers investments invest municipal securities captive provides property casualty insurance coverage company subsidiaries captive pools resources eleven similar insurance subsidiaries financial institutions spread limited amount risk among pool members provide insurance currently available economically feasible today’s insurance market place estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions shortterm borrowings assets liabilities securities debt securities classified available sale might sold maturity securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax equity securities readily determinable fair values carried fair value changes fair value reported net income prior 2018 equity securities readily determinable fair values classified available sale carried fair value unrealized holding gains losses reported comprehensive income net tax january 1 2018 company adopted new accounting standard financial instruments requires equity investments measured fair value changes fair value recognized net income adoption guidance resulted 169 thousand increase beginning retained earnings 169 thousand decrease accumulated comprehensive income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale sold without servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan well secured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured purchased credit impaired loans company purchased loans shown evidence credit deterioration since origination loans recorded amount paid carryover seller’s allowance loan losses company estimates amount timing expected cash flows loan expected cash flows excess amount paid recorded interest income remaining life loan excess loan’s contractual principal interest expected cash flows recorded life loan expected cash flows continue estimated present value expected cash flows less carrying amount loss recorded provision loan losses present value expected cash flows greater carrying amount recognized part future interest income derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within northeastern ohio therefore company’s exposure credit risk significantly affected changes economy nine county area loans secured real estate represent 616 total portfolio changes related real estate markets monitored management allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff acquired loans individually evaluated purchased loans without evidence credit deterioration management evaluates reviewed loan using internal grading system grade assigned loan date acquisition extent purchased loan specifically reviewed loan assumed characteristics similar characteristics acquired portfolio purchased loans grade purchased loan without evidence credit deterioration reviewed subsequent date acquisition time loan renewed extended time information becomes available company provides material insight regarding loan’s performance status borrower quality value underlying collateral extent current information indicates probable company collect amounts according contractual terms thereof loan considered impaired individually considered determination required allowance loan losses extent current information indicates probable company able collect amounts according contractual terms thereof loan considered impaired considered determination required level allowance determining day one fair values purchased loans without evidence credit deterioration date acquisition management includes carryover previously recorded allowance loan losses ii adjustment unpaid principal balance reflect appropriate market rate interest given risk profile grade assigned loan adjustment accreted earnings yield adjustment using effective yield method remaining life loan allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 750 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses servicing rights mortgage loans sold servicing rights retained servicing rights initially recorded fair value income statement effect recorded gains sales loans fair value based market prices comparable mortgage servicing contracts available alternatively based valuation model calculates present value estimated future net servicing income valuation model incorporates assumptions market participants would use estimating future net servicing income cost service discount rate custodial earnings rate inflation rate ancillary income prepayment speeds default rates losses company compares valuation model inputs results published industry data validate model results assumptions classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans servicing assets evaluated impairment based upon fair value assets compared carrying amount impairment reported valuation allowance extent fair value less capitalized amount grouping valuation allowance impairment servicing assets december 31 2019 2018 servicing fee income recorded earned servicing loans based contractual percentage outstanding principal fixed amount per loan amortization mortgage servicing rights netted loan servicing fee income servicing fees late fees ancillary fees related loan servicing considered significant financial reporting foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense assets recorded assets balance sheets real estate owned “oreo” oreo totaled 19 thousand december 31 2019 0 december 31 2018 operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value restricted stock totaled 117 million december 31 2019 2018 cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual goodwill impairment tests associated acquisition farmers trust nai first national bank orrville 1st national community bank bowers monitor intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet core deposit intangible assets arising bank acquisitions amortized estimated useful lives 7 8 years noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized range 13 15 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock equity awards earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income comprehensive income consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated 2019 company accrued charge 505 thousand relating pending settlement legal contingency management believe matters currently would material effect financial statements pending settlement contingency discussed note 24 restrictions cash hand deposit federal reserve bank “frb” required meet regulatory reserve clearing requirements company deposits frb 361 million december 31 2019 342 million december 31 2018 equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank farmers trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 7 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments operations managed financial performance primarily aggregated reported two lines business bank segment farmers trust segment 2019 company merged retirement consulting segment trust segment prior periods segment reporting reported three segments reclassified two segments consistent current year presentation company discloses segment information note 23 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards newly issued yet effective accounting standards june 2018 fasb issued asu 201807 compensationstock compensation topic 718 improvements nonemployee sharebased payment accounting asu expands scope topic 718 include sharebased payment transactions acquiring goods services nonemployees amendments asu effective reporting periods december 15 2018 company adopted asu 201807 effective january 1 2019 impact consolidated financial statements result adoption asu 201807 august 2017 fasb issued asu 201712 derivatives hedging topic 815 targeted improvements accounting hedging activities asu better aligns entity’s risk management activities financial reporting hedging relationships changes designation measurement guidance qualifying hedging relationships presentation hedge results amendments asu effective reporting periods december 15 2018 company adopted asu 201712 effective january 1 2019 significant impact consolidated financial statements result adoption asu 201712 april 2017 fasb issued asu 201708 receivablesnonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities current us gaap premium typically amortized maturity date callable debt security purchased premium even holder certain call exercised result upon exercise call callable debt security held premium unamortized premium recorded loss earnings new standard shortens amortization period premium earliest call date closely align interest income recorded bonds held premium discount economics underlying instrument standard takes effect public business entities fiscal years interim periods within fiscal years beginning december 15 2018 company early adopted asu effective january 1 2018 material impact consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment asu eliminates step 2 goodwill impairment test instead new guidance entity perform annual goodwill impairment test comparing fair value reporting unit carrying amount impairment charge would recognized amount carrying amount exceeds reporting units fair value new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed testing dates january 1 2017 company plan early adoption asu adoption guidance expected impact companys consolidated financial statements june 2016 financial accounting standards board “fasb” issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments asu requires organization measure expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better estimate credit loss forecasts many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses organizations continue use judgment determine loss estimation method appropriate circumstances additionally asu amends accounting credit losses availableforsale debt securities purchased financial assets credit deterioration asu 201613 effective public companies annual periods beginning december 15 2019 including interim periods within fiscal years entities apply standards provisions cumulativeeffect adjustment retained earnings beginning first reporting period guidance adopted company completed process implementation process testing system adoption asu 201613 happened january 1 2020 company recorded onetime adjustment equity comply asu adoption increased allowance loan losses 15 20 expected management expect amount change first quarter 2020 retains option make adjustments new information becomes available february 2016 fasb issued asu 201602 topic 842 leases main objective asu 201602 provide users useful transparent complete information leasing transactions asu 201602 requires rights obligations associated leasing arrangements reflected balance sheet increase transparency comparability among organizations updated guidance lessees required recognize righttouse asset liability make lease payment disclose key information leasing arrangements asu 201602 effective public companies interim annual reporting periods beginning december 15 2018 early adoption permitted company adopted asu january 1 2019 disclosed footnote 9 certain leases company place required capitalization 36 million balance sheet asset related liability amount income statement effect january 1 2019 balance righttouse asset liability 31 million december 31 2019 january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities main objective asu 201601 enhance reporting model financial instruments provide users financial statements decisionuseful information asu 201601 addresses certain aspects recognition measurement presentation disclosure financial instruments amendments asu 201601 include following 1 require equity investments except accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income 2 simplify impairment assessment equity investments without readily determinable fair values requiring qualitative assessment identify impairment 3 require public business entities use exit price notion measuring fair value financial instruments disclosure purposes 4 require entity present separately comprehensive income portion total change fair value liability resulting change instrumentspecific credit risk entity elected measure liability fair value among others amendments asu 201601 effective fiscal years beginning december 15 2017 including interim periods within fiscal years company adopted asu 201601 january 1 2018 resulted 169 thousand increase beginning retained earnings 169 thousand decrease accumulated comprehensive income december 31 2018 consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu creates new topic 606 provide guidance revenue recognition entities enter contracts customers transfer goods services enter contracts transfer nonfinancial assets core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services additional disclosures required provide quantitative qualitative information regarding nature amount timing uncertainty revenue cash flows arising contracts customers new guidance effective annual reporting periods interim reporting periods within annual periods beginning december 15 2017 new guidance adopted january 1 2018 refer revenue contracts customers note 5 discussion company’s accounting revenue sources within scope accounting standards codification “asc” 606 note 2 business combinations january 7 2020 company completed acquisition maple leaf financial inc “maple leaf” parent company geauga savings bank branches located cuyahoga geauga counties ohio company expects acquisition increase synergies cost savings resulting combining two companies transaction involved cash 1398229 shares stock totaling 392 million pursuant terms merger agreement common shareholders maple leaf right receive 64000 cash 455948 common shares without par value company holders outstanding unexercised warrants purchase maple leaf common shares received amount cash equal excess 64000 37000 exercise price warrants january 7 2020 maple leaf total assets 2770 million included gross loans 1821 million deposits 1831 million equity 321 million august 2017 company completed acquisition monitor holding company monitor bank transaction involved cash 465787 shares stock totaling 75 million pursuant terms merger agreement common shareholders monitor entitled elect receive consideration cash common shares without par value company subject overall limitation 85 monitor common shares exchanged company’s common shares 15 exchanged cash per share cash consideration 76938 equal monitor’s march 31 tangible book value multiplied 125 based volume weighted average closing price company’s common shares 20 trading days ended august 11 2017 1404 final stock exchange ratio 5480 resulting implied value per monitor common share 76938 goodwill 10 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill determined deductible income tax purposes fair value intangible assets 673 thousand related core deposits following table summarizes consideration paid monitor amounts assets acquired liabilities assumed closing date acquisition following table presents pro forma information acquisition occurred 2017 actually took place beginning 2017 pro forma information includes adjustments merger related costs amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transaction effective assume date note 3 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2019 2018 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision benefit related net realized gains losses 2 thousand 59 thousand 2 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 253 million december 31 2019 194 million december 31 2018 pledged secure public deposits repurchase agreements farmers trust securities carrying amount 100 thousand yearend 2019 2018 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2019 2018 aggregated major security type length time continuous unrealized loss position company’s equity securities include 73 million small business investment company “sbic” partnership investments well 600 thousand local regional bank holdings miscellaneous equity funds unrealized gains recognized income 2018 2019 result asu 201601 otherthantemporary impairments recognized 2017 otherthantemporary impairment occur amount impairment recognized earnings depends whether entity intends sell security likely would required sell security recovery amortized cost basis previous amortized cost basis less impairment recognized earnings becomes new amortized cost basis investment december 31 2019 company’s security portfolio consisted 596 securities 83 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securities residential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income december 31 2019 2018 securities issued state political subdivisions investment grade ratings management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2019 2018 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2019 2018 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2019 2018 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income company consider securities otherthantemporarily impaired december 31 2019 2018 decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery note 4 loans class year end follows purchased credit impaired loans part nboh acquisition 2015 company acquired various loans displayed evidence deterioration credit quality since origination probable contractually required payments would collected carrying amounts contractually required payments loans included loan balances summarized following tables accretable yield income expected collected shown table key assumptions considered include probability default amount actual prepayments acquisition date prepayments affect estimated life loans could change amount interest income principal expected collected reforecasting future estimated cash flows credit loss expectations adjusted necessary adjustments forecasted cash flows impacted allowance loan losses years ended december 31 2019 2018 following tables present activity allowance loan losses portfolio segment years ended december 31 2019 2018 2017 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2019 2018 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans years ended december 31 2019 2018 recorded investment loans excludes accrued interest receivable due immateriality following tables present average recorded investment impaired loans class interest income recognized loan class years ended december 31 2019 2018 2017 cash basis interest income recognized interest income recognized materially equal 2019 2018 2017 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2019 2018 following tables present aging recorded investment past due loans december 31 2019 2018 class loans troubled debt restructurings total troubled debt restructurings 46 million 55 million december 31 2019 2018 respectively company allocated 61 thousand 72 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2019 2018 respectively commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2019 2018 years ending december 31 2019 2018 2017 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies extension interest period deferral principal payments capitalization interest andor escrow legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 024 349 also extensions maturity dates troubled debt restructurings range two months 132 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2019 2018 2017 troubled debt restructurings described increased allowance loan losses 126 thousand resulted charge offs 126 thousand year ended december 31 2019 troubled debt restructurings described increased allowance loan losses 66 thousand resulted charge offs 66 thousand year ended december 31 2018 troubled debt restructurings described increased allowance loan losses 75 thousand resulted charge offs 75 thousand year ended december 31 2017 one residential real estate loan 19 thousand payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2019 loan past due december 31 2019 effect provision loan losses result default 2019 loan considered payment default 30 days contractually past due modified terms two residential real estate loans 146 thousand payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2018 loans past due december 31 2018 effect provision loan losses result default 2018 loans payment defaults within twelve months following modification troubled debt restructuring year ended december 31 2017 credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 5 revenue contracts customers material revenue contracts customers scope asc 606 recognized within noninterest income following table presents company’s noninterest income revenue stream reportable segment net eliminations years ended december 31 2019 2018 items outside scope asc 606 noted description company’s revenue streams asc 606 follows service charges deposit accounts company earns fees deposit customers transactionbased account maintenance overdraft services management reviewed deposit account agreements determined agreements terminated time either bank account holder transaction fees balance transfers wires overdraft charges settled day performance obligation satisfied bank’s monthly service charges maintenance fees services provided customer monthly basis considered series services pattern transfer month review service charges assessed deposit accounts included amount variable consideration part monthly charges found waiver service charges due insufficient funds dormant account fees immaterial would require change accounting treatment fees new revenue standards debit card interchange fees customers bank account agreement maintain deposit balances bank customers use bank issued debit card purchase goods services bank earns interchange fees transactions typically percentage sale amount transaction bank records amount due receives settlement payment network payments payment network received recorded income daily basis contingent debit card interchange fees recorded company could subject clawback future periods trust fees services provided farmers trust customers series distinct services pattern transfer month fees trust accounts billed drafted trust accounts monthly company records fees income statement monthly basis fees assessed based total investable assets customer’s trust account signed contract company customer maintained customer trust accounts payment terms identified probable fees collectible funds managed accessible asset manager past history trust fee income recorded company indicates highly unlikely significant reversal could occur contingent incentive fees recorded company could subject clawback future periods insurance agency commissions insurance agency commissions received insurance carriers agency’s share commissions customer premium payments commissions recorded income checks received insurance carriers contingent portion associated commission checks may short timelag recording revenue cash received instead recording revenue policy signed customer time lag insignificant impact revenue recognition process insurance also receives incentive checks insurance carriers achieving specified levels production particular carriers amounts recorded income check received contingent amounts associated payments may clawed back carrier future similar monthly commissions explained preceding paragraph may short timelag recording incentive revenue cash basis opposed estimating amount incentive revenue expected earned materially impact recognition insurance revenue amounts would need refunded one specific insurance customer management believes reversal would significant potential situations surrounding recognition farmers insurance revenue include estimating potential refunds due likely cancellation percentage customers cancelling policies recording revenue time policy renewals management concluded since farmers insurance agency commissions represent 22 company’s total revenue adjusting current practice recording insurance revenue situations would material impact reporting total revenue retirement plan consulting fees earned retirement plan consulting generated farmers trust revenue recognized based level work performed client payments received work performed future recorded deferred revenue account recorded income fees earned retirement plan consulting fees represent 11 company’s total revenue therefore management concluded adjustment revenue one particular customer refund reason would insignificant would materially impact company’s total revenue investment commissions investment commissions earned sales nondeposit investment products customers company sales conducted thirdparty brokerdealer commissions received recorded income bank’s income statement contingent portion may need refunded back broker dealer investment commissions represent 11 company’s total revenue therefore management concluded adjustment revenue particular customer refund reason would insignificant would materially impact company’s total revenue income items included “other” bank owned life insurance income security gains net gains sale loans operating income amounts within scope asc 606 deemed immaterial note 6 loan servicing company retained servicing rights mortgage loans sold federal home loan mortgage corporation mortgage loans serviced others reported assets principal balances loans yearend follows custodial escrow balances maintained connection serviced loans 22 million december 31 2019 17 million december 31 2018 mortgage servicing rights recorded balance sheets assets activity mortgage servicing rights years ended december 31 2019 2018 2017 follows valuation allowance required mortgage servicing rights december 31 2019 2018 2017 note 7 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company uses third party service estimate fair value available sale securities monthly basis asu 201601 adopted company january 1 2018 requires use exit price notion measuring fair value financial instruments disclosure purposes company’s service provider considered leading evaluation pricing service us domestic fixed income securities complies fully asu 201601’s exit pricing requirements subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities consist equity securities recorded fair market value comply asu 201601 determined quoted market prices active markets available level 1 equity securities change fair market value recorded income statements securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2019 2018 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2019 2018 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 year ended december 31 assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans measured impairment using fair value collateral dependent loans principal balance 208 thousand valuation allowance 13 thousand december 31 2019 resulting additional provision loan losses 134 thousand year ending december 31 2019 december 31 2018 impaired loans principal balance 11 million valuation allowance 227 thousand loans measured fair value throughout year resulted additional provision loan losses 180 thousand year ending december 31 2018 excluded fair value impaired loans december 31 2019 2018 discussed 583 thousand 694 thousand loans classified troubled debt restructurings measured using present value cash flows considered exit price impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material december 31 2019 real estate owned measured fair value less costs sell zero net carrying amount year ended december 31 2019 company 68 thousand writedowns related real estate owned company writedowns related real estate owned year ended december 31 2018 following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2019 2018 fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2019 december 31 2018 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated using third party firm uses cash flow analysis current market interest rates along adjustments credit liquidity option risk conform asu 201601 exit price requirement impaired loans valued lower cost fair value described previously loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 8 premises equipment yearend premises equipment owned utilized operations company follows depreciation expense 15 million years ended december 31 2019 2018 16 million year ended december 31 2017 yearend premises equipment subject lease agreements company acts lessor follows see note 9 additional lease disclosures note 9 leases company operating leases branch office locations vehicles certain office equipment printers copiers faxes leases remaining lease terms 105 years include options extend lease 10 years include options terminate lease january 2020 right use asset lease liability 31 million 32 million december 31 2019 lease payments made year ended december 31 2019 584 thousand interest expense amortization expense finance leases year ended december 31 2019 103 thousand 355 thousand weightedaverage remaining lease term leases 64 years december 31 2019 weightedaverage discount rate 34 maturities lease liabilities follows december 31 2019 note 10 goodwill intangible assets goodwill associated company’s purchases monitor august 2017 past acquisitions totaled 382 million december 31 2019 2018 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test management performs goodwill impairment testing annual basis september 30 fair value reporting unit determined based discounted cash flow model acquired intangible assets acquired intangible assets follows aggregate intangible amortization expense 13 million 2019 14 million 2018 15 million 2017 estimated amortization expense next five years thereafter note 11 interest bearing deposits time deposits 250 thousand 1082 million 798 million yearend 2019 2018 following summary scheduled maturities certificates deposit brokered time deposits years following december 31 2019 following summary yearend interest bearing deposits note 12 shortterm borrowings bank shortterm advances fhlb maturity dates less one year time advance balances due within one year renewed time maturity fhlb advances secured pledgings described following longterm borrowings footnote balances year end follows securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies pledged securities 105 repurchase agreement balances carrying amount 18 million 46 million year ended 2019 2018 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust fhlb information concerning securities sold agreements repurchase summarized follows following table provides disaggregation obligation class collateral pledged shortterm financing obtained sales repurchase agreements management believes risks associated agreements minimal case collateral decline company additional investment securities available adequately pledge guarantees repurchase agreements bank access lines credit amounting 35 million two major domestic banks prime rate lines terms periodically reviewed lending banks generally subject withdrawal discretion borrowings lines december 31 2019 2018 farmers two unsecured revolving lines credit 65 million lines renewed annually lines interest rates prime floors 35 45 outstanding balance two lines 350 thousand december 31 2019 2018 interest rate outstanding balance december 31 2019 2018 475 55 note 13 longterm borrowings year end longterm advances fhlb follows longterm shortterm fhlb advances secured blanket pledge residential mortgage commercial real estate multifamily loans totaling 5779 million 5526 million year end 2019 2018 based collateral bank eligible borrow additional 4600 million year end 2019 advance subject prepayment penalty paid prior maturity date scheduled payments longterm fhlb advances follows company special purpose entity hold 21 million trust preferred debenture debt floating rate determined quarterly based threemonth libor december 31 2019 interest rate 359 securities redeemed quarterend final maturity trust preferred debenture december 15 2036 balance outstanding trust preferred debenture 23 million year end 2019 2018 note 14 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less commitments fixed rate unused lines credit interest rates ranging 299 2190 december 31 2019 299 1600 december 31 2018 standby letters credit considered financial guarantees standby letters credit contractual value 68 million december 31 2019 52 million december 31 2018 carrying amount items balance sheet material additionally company committed 8 million subscription sbic investment funds december 31 2019 company invested 67 million funds note 15 stock based compensation 2017 company approval shareholders created 2017 equity incentive plan “2017 plan” 2017 plan permits award 800 thousand shares company’s directors employees attract retain exceptional personnel motivate performance importantly help align interests farmers’ executives company’s shareholders 39913 service time based shares 67651 performance based shares granted 2017 plan year ended december 31 2019 shown table actual number performance based shares issued depend relative performance company’s average return equity compared group peer companies three year vesting period ending december 31 2022 december 31 2019 475547 shares still available awarded 2017 plan restricted stock awards granted fair value price equal market price company’s common stock date grant expense recognized 14 million 2019 17 million 2018 24 million 2017 december 31 2019 16 million total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized 24 years following activity plan 2019 125517 shares vested 2019 weighted average fair value 1387 per share note 16 regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices new minimum capital requirements associated basel committee capital liquidity regulation basel iii phased began january 1 2015 fully implemented january 1 2019 capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2019 company bank meet capital adequacy requirements subject fdic federal banking regulators revised riskbased capital requirements applicable financial holding companies insured depository institutions including company bank make consistent agreements reached basel committee banking supervision “basel iii” common equity tier 1 capital tier 1 capital total capital ratios calculated dividing respective capital amounts riskweighted assets leverage ratio calculated dividing tier 1 capital adjusted average total assets basel iii limits capital distributions certain discretionary bonus payments banking organization hold “capital conservation buffer” consisting 25 common equity tier 1 capital tier 1 capital total capital riskweighted assets addition amount necessary meet minimum riskbased capital requirements capital conservation buffer phased beginning january 1 2016 increased year fully implemented 25 january 1 2019 capital conservation buffer 25 year 2019 1875 2018 buffer required additional capital amount 478 million year end 2019 additional 344 million year end 2018 excluding additional buffer basel iii requires company bank maintain minimum ratio common equity tier 1 capital riskweighted assets least 45 ii minimum ratio tier 1 capital riskweighted assets least 60 iii minimum ratio total capital riskweighted assets least 80 iv minimum leverage ratio least 40 prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2019 2018 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions company’s principal source funds dividend payments dividends received bank farmers trust bank farmers trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years conclusion 2019 bank could without prior approval declare dividends approximately 252 million plus 2020 net profits retained date dividend declaration order practice trust powers farmers trust must maintain minimum capital 3 million farmers trust would also able without prior approval declare dividends 273 thousand plus 2020 net profits retained date dividend declaration actual required capital amounts including capital conservation buffer ratios presented yearend note 17 employee benefit plans company qualified 401k deferred compensation retirement savings plan “savings plan” employees company completed least 90 days service meet certain eligibility requirements eligible participate savings plan terms savings plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches 50 participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution savings plan total expense 708 thousand 573 thousand 556 thousand years ended december 31 2019 2018 2017 respectively company profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 1 annual compensation associates 2019 2018 2017 expense 95 thousand 78 thousand 105 thousand years ended december 31 2019 2018 2017 respectively company maintains deferred compensation plan certain retirees expense plan 7 thousand year ended december 31 2019 8 thousand years ended december 31 2018 2017 liability deferred compensation plan december 31 2019 115 thousand 124 thousand december 31 2018 2015 company established nonqualified deferred compensation plan select group management highly compensated eligible individuals terms plan eligible individuals may elect defer receipt compensation later taxable year company recorded asset liability equal amount represents amount contributions payable due participants plan recorded asset liability 13 million 753 thousand 566 thousand december 31 2019 2018 2017 respectively part nboh acquisition company director retirement death benefit plan benefit prior members board directors nboh plan designed provide annual retirement benefit paid director upon retirement board attaining age 70 additional benefits participants added plan liability recorded december 31 2019 2018 10 million 941 thousand respectively benefit payment upon satisfying plan’s requirements benefit qualifying director death maximum 15 years expense plan 136 thousand recorded 2019 benefit recognized plan 19 thousand 2018 expense 91 thousand recorded 2017 company postretirement health care benefit plan covered individuals retired company met certain service age requirements certain active employees met similar service requirements company terminated plan 2017 benefit recognized plan 70 thousand december 31 2017 due termination plan accrued postretirement benefit liability december 31 2019 2018 0 due immateriality plan disclosures required us generally accepted accounting principles omitted note 18 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 21 2019 2018 35 2017 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2019 2018 december 31 2019 december 31 2018 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company subject us federal income tax company longer subject examination federal taxing authority years prior 2016 tax years 20162018 remain open examination us taxing authority december 2017 hr1 commonly known tax cuts jobs act “act” signed law act included several provisions affected company’s federal income tax expense reduced federal income tax rate 21 effective january 1 2018 result rate reduction company required remeasure income tax expense period enactment deferred tax assets liabilities using enacted rate items expected recovered settled remeasurement company’s net deferred tax asset resulted additional income tax expense 18 million 2017 note 19 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2019 2018 2017 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 20 related party transactions loans principal officers directors affiliates 2019 follows deposits principal officers directors affiliates yearend 2019 2018 116 million note 21 earnings per share factors used earnings per share computation follow restricted stock awards considered antidilutive year end 2019 2018 2017 note 22 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2019 2018 2017 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2019 2018 2017 note 23 segment information reportable segments determined products services offered primarily distinguished banking trust operations trust retirement consulting segments combined 2019 segments also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees consulting fees provide revenue trust operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers insurance investment note 24contingencies company defendant lawsuits adversary proceedings arising ordinary course business legal costs incurred connection resolution claims lawsuits generally expensed incurred although company establishes accruals losses deemed probable reasonably estimable company’s assessment current exposure respect adverse claims legal matters could change event discovery additional facts matters upon determinations judges juries administrative agencies finds fact inconsistent company’s evaluations claims 2019 company accrued charge 505 thousand relating pending settlement legal contingency company insurance coverage contingency expects recover amount estimated charge amount expected insurance recovery recorded december 31 2019 note 25 quarterly financial data unaudited note 26 parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 8 supplementary data new accounting pronouncements june 1998 financial accounting standards board fasb issued statement 133 sfas 133 “accounting derivative instruments hedging activities” statement establishes accounting reporting standards derivative instruments embedded contracts hedging activities requires entity recognize derivatives either assets liabilities statement financial position measure instruments fair value june 1999 fasb issued sfas 137 deferred effective date sfas 133 years beginning june 15 2000 management believe adoption statement material impact financial condition results operations part iii item 10 item 8 financial statements supplementary financial data management’s report internal control financial reporting management farmers national banc corp “company” responsible establishing maintaining adequate internal control financial reporting internal control financial reporting defined rule 13a151 promulgated securities exchange act 1934 process designed supervision principal executive principal financial officers effected board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance us generally accepted accounting principles includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2015 making assessment management used criteria set forth committee sponsoring organizations treadway commission “coso” 2013 internal controlintegrated framework based assessment believe december 31 2015 internal control financial reporting effective based criteria management’s assessment effectiveness company’s internal control financial reporting excluded nboh tristate company acquired outstanding shares yearend 2015 acquired entities represented aggregate 36 23 consolidated total assets consolidated net interest income respectively company year ended december 31 2015 fully discussed note 2 consolidated financial statements guidelines established sec companies allowed exclude acquisitions first assessment internal control financial reporting following date acquisition crowe horwath llp audited effectiveness company’s internal control financial reporting december 31 2015 stated report dated march 10 2016 kevin j helmick carl culp kevin j helmick carl culp president chief executive officer executive vice president treasurer report independent registered public accounting firm board directors shareholders farmers national banc corp canfield ohio audited accompanying consolidated balance sheets farmers national banc corp “company” december 31 2015 2014 related consolidated statements income comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2015 also audited company’s internal control financial reporting december 31 2015 based criteria established 2013 internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate permitted corporation excluded operations financial institutions acquired 2015 described note 2 consolidated financial statements scope management’s report internal control financial reporting also excluded scope audit internal control financial reporting opinion financial statements referred present fairly material respects financial position farmers national banc corp december 31 2015 2014 results operations cash flows years threeyear period ended december 31 2015 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2015 based criteria established 2013 internal control integrated framework issued coso crowe horwath llp cleveland ohio march 10 2016 consolidated balance sheets table dollar amounts thousands except per share data see accompanying notes consolidated statements income table dollar amounts thousands except per share data see accompanying notes consolidated statements comprehensive income loss table dollar amounts thousands except per share data see accompanying notes consolidated statements stockholders’ equity table dollar amounts thousands except per share data see accompanying notes consolidated statements cash flows table dollar amounts thousands except per share data see accompanying notes consolidated financial statements table dollar amounts thousands except per share data note 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts farmers national banc corp whollyowned subsidiaries farmers national bank “bank” canfield farmers trust company “trust” national associates inc “nai” company acquired first national bank orrville “first national bank” subsidiary national bancshares corporation “nboh” 1st national community bank “fncb” subsidiary tristate 1st banc inc “tristate” 2015 consolidated activity acquisitions within bank see note 2 consolidated financial statements also include accounts farmers national bank canfield’s subsidiaries farmers national insurance “insurance” farmers canfield investment co “investments” together entities referred “the company” significant intercompany balances transactions eliminated consolidation nature operations company provides full banking services including wealth management services mortgage banking activity bank national bank subject regulation office comptroller currency federal deposit insurance corporation primary area served bank northeastern region ohio thirty eight 38 locations acquisition fncb bank added one branch location southwestern pennsylvania company provides trust services trust subsidiary retirement consulting services nai subsidiary insurance services bank’s insurance subsidiary primary purpose investments new subsidiary bank 2014 invest municipal securities farmers trust company statechartered bank license conduct trust business ohio department commerce division financial institutions estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash flows cash equivalents include cash hand deposits financial institutions federal funds sold generally federal funds purchased sold oneday periods net cash flows reported loan deposit transactions short term borrowings assets liabilities securities available sale debt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized holding gains losses reported comprehensive income net tax interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method without anticipating prepayments except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method purchases recorded trade date management evaluates securities otherthantemporary impairment otti least quarterly basis frequently economic market conditions warrant securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otherthantemporary impairment otti related factors recognized comprehensive income credit loss defined difference present value cash flows expected collected amortized cost basis equity securities entire amount impairment recognized earnings loans held sale mortgage loans originated intended sale secondary market carried lower aggregate cost fair value determined outstanding commitments investors net unrealized losses charged earnings mortgage loans held sale sold without servicing rights released gains losses sales mortgage loans based difference selling price carrying value related loan sold loans management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses substantially loans secured specific items collateral including business assets consumer assets commercial residential real estate interest income accrued unpaid principal balance loan origination fees net certain direct origination costs deferred recognized interest income using level yield method without anticipating prepayments interest income mortgage commercial loans discontinued time loan 90 days delinquent unless loan wellsecured process collection consumer loans typically charged later 120 days past due past due status based contractual terms loan cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans classes loans interest accruals discontinued interest accrued received loans placed nonaccrual reversed interest income interest loans thereafter recorded cashbasis costrecovery method qualifying return accrual loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured purchased credit impaired loans company purchased loans shown evidence credit deterioration since origination acquisition first national bank loans recorded amount paid carryover seller’s allowance loan losses company estimates amount timing expected cash flows loan expected cash flows excess amount paid recorded interest income remaining life loan excess loan’s contractual principal interest expected cash flows recorded life loan expected cash flows continue estimated present value expected cash flows less carrying amount loss recorded provision loan losses present value expected cash flows greater carrying amount recognized part future interest income derivatives derivative financial instruments recognized assets liabilities fair value company’s derivatives interestrate swap agreements used part asset liability management strategy help manage interest rate risk position company use derivatives trading balance sheet hedging purposes derivative transactions considered instruments hedging designation otherwise known standalone derivatives changes fair value derivatives reported currently earnings noninterest income concentration credit risk significant concentrations loans one industry customer however company’s business activity customers located within northeastern ohio therefore company’s exposure credit risk significantly affected changes economy 9 county area loans secured real estate represent 68 total portfolio changes related real estate markets monitor management allowance loan losses allowance loan losses valuation allowance probable incurred loan losses increased provision loan losses decreased chargeoffs less recoveries allowance based management’s judgment taking consideration past loss experience reviews individual loans current economic conditions factors considered relevant management financial statement date management uses best information available establish allowance future adjustments allowance may necessary may material economic conditions differ substantially assumptions used estimating allowance additions original estimate allowance loan losses deemed necessary reported earnings period become reasonably estimable probable allocations allowance may made specific loans entire allowance available loan management’s judgment chargedoff acquired loans individually evaluated purchased loans without evidence credit deterioration management evaluates reviewed loan using internal grading system grade assigned loan date acquisition extent purchased loan specifically reviewed loan assumed characteristics similar characteristics acquired portfolio purchased loans grade purchased loan without evidence credit deterioration reviewed subsequent date acquisition time loan renewed extended time information becomes available company provides material insight regarding loan’s performance status borrower quality value underlying collateral extent current information indicates probable company collect amounts according contractual terms thereof loan considered impaired individually considered determination required allowance loan losses extent current information indicates probable company able collect amounts according contractual terms thereof loan considered impaired considered determination required level allowance determining day 1 fair values purchased loans without evidence credit deterioration date acquisition management includes carry previously recorded allowance loan losses ii adjustment unpaid principal balance reflect appropriate market rate interest given risk profile grade assigned loan adjustment accreted earnings yield adjustment using effective yield method remaining life loan allowance consists specific general components specific component relates loans individually classified impaired loan considered impaired based current information events probable company unable collect scheduled payments principal interest due according contractual terms loan agreement loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings classified impaired factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed impairment measured loan basis commercial real estate loans 750 thousand individually aggregate either present value expected future cash flows discounted loan’s effective interest rate loan’s obtainable market price fair value collateral loan collateral dependent large groups smaller balance homogeneous loans consumer residential real estate loans collectively evaluated impairment accordingly separately identified impairment disclosures nonreal estate secured consumer loans bankruptcy debt reaffirmed considered troubled debt restructurings evaluated individually ensure accurate accounting treatment place company considers guidance troubled debt restructuring individual consumer residential loans evaluating impairment disclosure troubled debt restructurings measured present value estimated future cash flow using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses general component covers nonimpaired loans based historical loss experience adjusted current factors historical loss experience determined portfolio segment based actual loss history experienced recent twelve quarters formula calculating allowance loan losses requires historical loss percentage applied homogeneous risk rated loans actual loss experience supplemented economic factors based risks present portfolio segment economic factors include consideration following levels trends delinquencies impaired loans levels trends chargeoffs recoveries trends volume terms loans effects changes risk selection underwriting standards changes lending policies procedures practices experience ability depth lending management relevant staff national local economic trends conditions industry conditions effects changes credit concentrations following portfolio segments identified commercial loans commercial credit extended commercial customers use normal business operations finance working capital needs equipment purchases projects majority borrowers customers business within geographic regions loans generally underwritten individually secured assets company personal guarantee business owners commercial loans made based primarily historical projected cash flow borrower underlying collateral provided borrower commercial real estate loans commercial real estate loans subject underwriting standards processes similar commercial loans viewed primarily cash flow loans repayment loans largely dependent successful operation property loan performance may adversely affected factors impacting general economy conditions specific real estate market geographic location property type consumer loans consumer loans primarily comprised loans made directly consumers indirectly automobile dealerships loans specific matrix consists several factors including debt income type collateral loan collateral value credit history relationship borrower consumer lending uses riskbased pricing underwriting process residential real estate loans residential mortgage loans represent loans consumers purchase refinance residence loans generally financed 15 years cases extended borrowers finance primary residence real estate market values time origination directly affect amount credit extended event default subsequent changes values may impact severity losses servicing rights mortgage loans sold servicing rights retained servicing rights initially recorded fair value income statement effect recorded gains sales loans fair value based market prices comparable mortgage servicing contracts available alternatively based valuation model calculates present value estimated future net servicing income valuation model incorporates assumptions market participants would use estimating future net servicing income cost service discount rate custodial earnings rate inflation rate ancillary income prepayment speeds default rates losses company compares valuation model inputs results published industry data order validate model results assumptions classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans classes servicing assets subsequently measured using amortization method requires servicing rights amortized noninterest income proportion period estimated future net servicing income underlying loans servicing assets evaluated impairment based upon fair value assets compared carrying amount impairment reported valuation allowance extent fair value less capitalized amount grouping valuation allowance impairment servicing assets december 31 2015 servicing fee income recorded earned servicing loans based contractual percentage outstanding principal fixed amount per loan amortization mortgage servicing rights netted loan servicing fee income servicing fees late fees ancillary fees related loan servicing considered significant financial reporting foreclosed assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair value declines subsequent foreclosure valuation allowance recorded expense operating costs acquisition expensed premises equipment land carried cost premises equipment stated cost less accumulated depreciation buildings related components depreciated using straightline method useful lives ranging 5 40 years furniture fixtures equipment depreciated using straightline method useful lives ranging 3 10 years restricted stock bank member federal home loan bank fhlb system members required certain amount stock based level borrowings factors may invest additional amounts bank also member owns stock federal reserve bank stocks carried cost classified restricted securities included assets periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurance company purchased life insurance policies certain key officers bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value adjusted charges amounts due probable settlement longterm assets premises equipment longterm assets reviewed impairment events indicate carrying amount may recoverable future undiscounted cash flows impaired assets recorded fair value goodwill intangible assets goodwill resulting business combination generally determined excess fair value consideration transferred fair value net assets acquired acquisition date goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment least annually company selected september 30 date perform annual goodwill impairment tests associated acquisition trust nai first national bank fncb intangible assets definite useful lives amortized estimated useful lives goodwill intangible asset indefinite life balance sheet core deposit intangible assets arising bank acquisitions amortized estimated useful lives 7 8 years noncompete contracts amortized straight line basis term agreements customer relationship trade name intangibles amortized average 13 years accelerated method loan commitments related financial instruments financial instruments include offbalance sheet credit instruments commitments make loans commercial letters credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stockbased compensation cost recognized stock options restricted stock awards issued employees based fair value awards date grant market price company’s common stock grant date used restricted stock awards compensation cost recognized required service period generally defined vesting period awards graded vesting compensation cost recognized straightline basis requisite service period entire award income taxes income tax expense total current year income tax due refundable change deferred tax assets liabilities deferred tax assets liabilities expected future tax amounts temporary differences carrying amounts tax bases assets liabilities computed using enacted tax rates valuation allowance needed reduces deferred tax assets amount expected realized tax position recognized benefit “more likely not” tax position would sustained tax examination tax examination presumed occur amount recognized largest amount tax benefit greater 50 likely realized examination tax positions meeting “more likely not” test tax benefit recorded company recognizes interest andor penalties related income tax matters income tax expense retirement plans employee 401k profit sharing plan expense amount matching discretionary contributions deferred compensation supplemental retirement plan expense allocates benefits years service earnings per common share basic earnings per common share net income divided weighted average number common shares outstanding period diluted earnings per common share include dilutive effect additional potential common shares issuable stock equity awards earnings dividends per share restated stock splits stock dividends date issuance financial statements comprehensive income loss comprehensive income loss consists net income comprehensive income loss comprehensive income loss consists unrealized gains losses securities available sale changes funded status postretirement health plan recognized separate components equity net tax effects loss contingencies loss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements restrictions cash hand deposit federal reserve bank “frb” required meet regulatory reserve clearing requirements company deposits frb 294 million december 31 2015 140 million december 31 2014 equity treasury stock carried cost dividend restriction banking regulations require maintaining certain capital levels may limit dividends paid bank trust holding company holding company shareholders fair value financial instruments fair values financial instruments estimated using relevant market information assumptions fully disclosed note 6 fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segments chief decisionmakers monitor revenue streams various products services operations managed financial performance primarily aggregated reported three lines business bank trust retirement consulting segments company discloses segment information note 21 reclassification items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity adoption new accounting standards september 2015 fasb amended existing guidance accounting standards update asu 201516 business combinations topic 805 simplifying accounting measurementperiod adjustments amendments require acquirer recognize adjustments estimated amounts identified measurement period reporting period adjustment amounts determined amendments require acquirer record period’s financial statements effect earnings changes depreciation amortization income effects result change estimated amounts calculated accounting completed acquisition date amendments effective annual reporting periods interim reporting periods within annual periods beginning december 15 2015 amendments applied prospectively adjustments provisional amounts occur effective date earlier application permitted financial statements issued adoption standard material effect company’s consolidated financial statements june 2014 fasb issued asu 201411 repurchasetomaturity transactions repurchase financings disclosures new guidance aligns accounting repurchasetomaturity transactions repurchase agreements executed repurchase financings accounting typical repurchase agreements going forward transactions would accounted secured borrowings guidance eliminates sale accounting repurchasetomaturity transactions supersedes guidance transfer financial asset contemporaneous repurchase financing could accounted combined basis forward agreement resulted outcomes referred offbalancesheet accounting amendments asu require new disclosure transactions economically similar repurchase agreements transferor retains substantially exposure economic return transferred financial assets throughout term transaction amendments asu also require expanded disclosures nature collateral pledged repurchase agreements similar transactions accounted secured borrowings company adopted amendments asu effective january 1 2015 addition expanded disclosures nature collateral pledged repurchase agreements similar transactions accounted secured borrowings effective company’s reporting period ending june 30 2015 companys repurchase agreements typical nature ie repurchasetomaturity transactions repurchase agreements executed repurchase financing accounted secured borrowings adoption asu 201411 material impact companys consolidated financial statements newly issued yet effective accounting standards january 2016 fasb issued asu 201601 financial instrumentsoverall subtopic 82510 recognition measurement financial assets financial liabilities affecting public private companies notforprofit organizations employee benefit plans hold financial assets owe financial liabilities requiring equity investments except accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income asu take effect fiscal years beginning december 15 2017 adoption standard expected material effect company’s consolidated financial statements note 2 business combinations october 1 2015 company completed acquisition tristate parent company fncb transaction involved cash 1296517 shares stock totaling 143 million pursuant terms merger agreement common shareholders tristate received 1747 common shares without par value company 1420 cash common share tristate subject proration provisions specified merger agreement provide targeted aggregate split total consideration consisting 75 shares farmers’ common stock 25 cash preferred shareholders tristate received 1360 cash share series preferred stock without par value tristate goodwill 28 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill expected deductible income tax purposes fair value intangible assets 12 million related core deposits following table summarizes consideration paid tristate amounts assets acquired liabilities assumed closing date acquisition valuation assets acquired created including limited net loans goodwill preliminary could subject change june 19 2015 company completed acquisition outstanding stock nboh parent company first national bank transaction involved cash 7262955 shares stock totaling 748 million first national bank branches became branches farmers bank pursuant agreement shareholder nboh received either 3215 per share cash 4034 shares farmers’ common stock subject overall limitation 80 shares nboh exchanged stock 20 cash goodwill 267 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining companies goodwill expected deductible income tax purposes fair value intangible assets 44 million related core deposits following table summarizes consideration paid nboh amounts assets acquired liabilities assumed closing date acquisition provides attractive mix additional loans deposits helps company achieve additional operating scale drives earnings per share growth addition financial benefits merger significant step company’s strategy expand footprint combined company creates topperforming midwest community bank scale product depth efficiency compete effectively fair value net assets acquired includes fair value adjustments certain receivables considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows however company believes contractual cash flows related financial instruments collected receivables considered impaired acquisition date subject guidance relating purchased credit impaired loans shown evidence credit deterioration since origination receivables acquired subject requirements include nonimpaired loans customer receivables fair value gross contractual amounts receivable 4297 million date acquisition following table presents pro forma information acquisitions occurred 2015 actually took place beginning 2014 pro forma information includes adjustments merger related costs amortization intangibles arising transaction related income tax effects pro forma financial information necessarily indicative results operations would occurred transactions effective assumed dates july 1 2013 company completed acquisition outstanding stock retirement planning consultancy nai rocky river ohio transaction involved cash stock totaling 44 million including 15 million future cash payments contingent upon nai meeting income performance targets based growth ebitda initial fair value 920 thousand measurement period defined essence “the twelve month period ending second anniversary closing date” based actual ebitda growth company recognized 13 million expense year ended december 31 2015 writing fair value contingent consideration 156 thousand 2014 final payment 15 million made satisfy contingent consideration clause agreement september 2015 goodwill 26 million recorded balance sheet arising acquisition consisted largely synergies cost savings resulting combining operations companies goodwill expected deductible income tax purposes goodwill partially impaired described note 8 amount equal reduction contingent consideration payable two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 impairment 2014 nai goodwill 19 million year ended 2015 2014 fair value intangible assets 23 million related client relationships company name noncompetition agreements intangible assets carrying value 13 million december 31 2015 note 3 securities available sale following table summarizes amortized cost fair value availableforsale securities portfolio december 31 2015 2014 corresponding amounts gross unrealized gains losses recognized accumulated comprehensive income loss follows proceeds sales availableforsale securities associated gains losses follows tax provision related net realized gains 33 thousand 160 thousand 301 thousand respectively amortized cost fair value debt securities portfolio shown expected maturity expected maturities may differ contractual maturities issuers right call prepay obligations without call prepayment penalties securities due single maturity date shown separately securities carrying amount 219 million december 31 2015 149 million december 31 2014 164 million december 31 2013 pledged secure public deposits repurchase agreements trust company securities carrying amount 100 thousand yearend 2015 2014 2013 pledged qualify fiduciary state ohio year holdings issuer exceeded 10 stockholders’ equity us government agencies sponsored entities following table summarizes investment securities unrealized losses december 31 2015 2014 aggregated major security type length time continuous unrealized loss position company’s equity securities include local regional bank holdings year ended december 31 2013 3 thousand pretax charge recognized otherthantemporary decline fair value equity holdings otherthantemporary impairments recognized 2015 2014 otherthantemporary impairment occur amount impairment recognized earnings depends whether entity intends sell security likely would required sell security recovery amortized cost basis previous amortized cost basis less impairment recognized earnings becomes new amortized cost basis investment december 31 2015 company’s security portfolio consisted 486 securities 178 unrealized loss position majority unrealized losses related company’s holdings securities issued state political subdivisions mortgagebacked securities residential collateralized mortgage obligations small business administration discussed securities issued state political subdivisions unrealized losses debt securities issued state political subdivisions recognized income generally securities maintained investment grade ratings management intent expect required sell securities anticipated recovery fair value expected recover securities approach maturity date mortgagebacked securities residential company’s holdings mortgagebacked securitiesresidential year end 2015 2014 issued us government sponsored enterprises unrealized losses mortgagebacked securitiesresidential recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell mortgagebacked securitiesresidential likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2015 2014 collateralized mortgage obligations company’s portfolio includes collateralized mortgage obligations issued us government sponsored enterprises decline fair value attributable changes interest rates illiquidity credit quality company intent sell collateralized mortgage obligations likely required sell securities anticipated recovery company monitors securities ensure adequate credit support december 31 2015 2014 company believes otherthantemporary impairment small business administration company’s holdings small business administration securities issued backed full faith credit us government unrealized losses small business administration securities recognized income decline fair value attributable changes interest rates illiquidity credit quality company intent sell securities likely required sell securities anticipated recovery company consider securities otherthantemporarily impaired december 31 2015 2014 note 4 loans year end follows purchased credit impaired loans part nboh acquisition 2015 company acquired various loans displayed evidence deterioration credit quality since origination probable contractually required payments would collected carrying amounts contractually required payments loans included loan balances summarized following tables accretable yield income expected collected shown table contractually required payments receivable loans purchased credit impaired acquired year key assumptions considered evaluating expected cash flows include probability default amount actual prepayments acquisition date prepayments affect estimated life loans could change amount interest income principal expected collected reforecasting future estimated cash flows credit loss expectations adjusted necessary adjustments forecasted cash flows impacted allowance loan losses year ended december 31 2015 following tables present activity allowance loan losses portfolio segment years ended december 31 2015 2014 2013 following tables present balance allowance loan losses recorded investment loans portfolio segment based impairment method december 31 2015 2014 recorded investment loans includes unpaid principal balance unamortized loan origination fees costs excludes accrued interest receivable considered material following tables present information related impaired loans class loans year ended december 31 2015 2014 2013 recorded investment loans excludes accrued interest receivable due immateriality cash basis interest income recognized interest income recognized materially equal 2015 2014 2013 nonaccrual loans past due 90 days still accrual include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans following table presents recorded investment nonaccrual loans past due 90 days still accrual class loans december 31 2015 2014 following tables present aging recorded investment past due loans december 31 2015 2014 class loans troubled debt restructurings total troubled debt restructurings 93 million 81 million december 31 2015 2014 respectively company allocated 528 thousand 242 thousand specific reserves customers whose loan terms modified troubled debt restructurings december 31 2015 2014 commitments lend additional amounts borrowers loans classified troubled debt restructurings december 31 2015 25 thousand commitments december 31 2014 years ending december 31 2015 2014 2013 terms certain loans modified troubled debt restructurings modification terms loans included one combination following reduction stated interest rate loan extension maturity date stated rate interest lower current market rate new debt similar risk permanent reduction recorded investment loan permanent increase recorded investment loan due protective advance pay delinquent real estate taxes advance new monies deferral principal payments legal concession troubled debt restructuring modifications involved reduction notes stated interest rate range 038 1151 also extensions maturity dates troubled debt restructurings range fifteen months 126 months following tables present loans class modified troubled debt restructurings occurred years ending december 31 2015 2014 2013 troubled debt restructurings described increased allowance loan losses 101 thousand resulted charge offs 129 thousand year ended december 31 2015 troubled debt restructurings described increased allowance loan losses 11 thousand resulted charge offs 42 thousand year ended december 31 2014 troubled debt restructurings described increased allowance loan losses 66 thousand resulted charge offs 50 thousand year ended december 31 2013 one commercial real estate loan 40 thousand one residential real estate loan 1 thousand one home equity line credit 11 thousand modified troubled debt restructurings payment defaults within twelve months following modification year december 31 2015 three loans past due december 31 2015 effect provision loan losses result default 2015 four residential real estate loans payment defaults within twelve months following modification troubled debt restructuring year ending december 31 2014 one four loans past due december 31 2014 effect provision loan losses result default 2014 two commercial loans 204 thousand one commercial real estate loan 205 thousand one residential real estate loan 35 thousand modified troubled debt restructuring payment defaults within twelve months following modification year ending december 31 2013 four loans past due december 31 2013 one indirect loan modified troubled debt restructuring payment defaults within twelve months following modification year ending december 31 2013 loan past due december 31 2013 additional provision impact allowance losses associated loans credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt current financial information historical payment experience credit documentation public information current economic trends among factors company establishes risk rating origination commercial loan commercial real estate relationships 750 thousand management monitors loans ongoing basis changes borrower’s ability service debt management also affirms risk ratings loans leases respective portfolios annual basis company uses following definitions risk ratings special mention loans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date special mention assets adversely classified expose institution sufficient risk warrant adverse classification substandard loans classified substandard inadequately protected current net worth paying capacity obligor collateral pledged loans classified welldefined weakness weaknesses jeopardize liquidation debt characterized distinct possibility institution sustain loss deficiencies corrected doubtful loans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loans follows company considers performance loan portfolio impact allowance loan losses residential consumer indirect loan classes company also evaluates credit quality based aging status loan previously presented payment activity following table presents recorded investment residential consumer indirect auto loans based payment activity nonperforming loans past due 90 days still accruing interest nonaccrual loans note 5 loan servicing company began servicing loans upon acquisition first national bank’s servicing portfolio june 2015 mortgage loans serviced others reported assets principal balances loans yearend follows custodial escrow balances maintained connection serviced loans 584 thousand december 31 2015 activity mortgage servicing rights since acquisition date june 18 2015 follows valuation allowance required mortgage servicing rights december 31 2015 note 6 fair value fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date three levels inputs may used measure fair values level 1 quoted prices unadjusted identical assets liabilities active markets entity ability access measurement date level 2 significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data level 3 significant unobservable inputs reflect reporting entity’s assumptions market participants would use pricing asset liability company used following methods significant assumptions estimate fair value type financial instrument investment securities company used third party service estimate fair value available sale securities monthly basis service provider considered leading evaluation pricing service us domestic fixed income securities subscribe multiple thirdparty pricing vendors supplement information matrix pricing methods fair values investment securities determined quoted market prices active markets available level 1 securities quoted prices available fair values calculated based quoted prices similar assets active markets quoted prices similar assets markets active inputs quoted prices provide reasonable basis fair value determination inputs may include interest rates yield curves volatilities prepayment speeds credit risks default rates inputs used derived principally observable market data level 2 securities quoted prices market prices similar securities available fair values calculated using discounted cash flows market indicators level 3 fair values level 3 investment securities determined using unobservable inputs measure fair value assets little market activity measurement date using reasonable inputs assumptions based best information time extent inputs available without undue cost effort years ended december 31 2015 2014 fair value level 3 investment securities immaterial derivative instruments fair values derivative instruments based valuation models using observable market data measurement date level 2 impaired loans time loans considered impaired collateral dependent impaired loans valued lower cost fair value noncollateral dependent loans valued based discounted cash flows impaired loans carried fair value generally receive specific allocations allowance loan losses collateral dependent loans fair value commonly based recent real estate appraisals may utilize single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value nonreal estate collateral may valued using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business resulting level 3 fair value classification impaired loans evaluated quarterly basis additional impairment adjusted accordingly real estate owned assets acquired instead loan foreclosure initially recorded fair value less costs sell acquired establishing new cost basis assets subsequently accounted lower cost fair value less estimated costs sell fair values commonly based recent real estate appraisals may use single valuation approach combination approaches including comparable sales income approach adjustments routinely made appraisal process independent appraisers adjust differences comparable sales income data available adjustments usually significant typically result level 3 classification inputs determining fair value appraisals collateraldependent impaired loans real estate owned performed certified general appraisers commercial real estate properties certified residential appraisers residential properties whose qualifications licenses reviewed verified company received member appraisal department reviews assumptions approaches utilized appraisal well overall resulting fair value comparison via independent data sources recent market data industrywide statistics annual basis company compares actual selling price collateral sold recent appraised value determine adjustments made appraisals arrive fair value assets measured fair value recurring basis summarized significant transfers level 1 level 2 2015 2014 table presents reconciliation assets measured fair value recurring basis using significant unobservable inputs level 3 year ended december 31 impact earnings result fair value measurements items valued recurring basis using level 3 inputs assets measured nonrecurring basis assets measured fair value nonrecurring basis summarized impaired loans carried fair value measured impairment using fair value collateral carrying amount 34 million valuation allowance 383 thousand december 31 2015 resulting additional provision loan losses 270 thousand year ending december 31 2015 december 31 2014 impaired loans carrying amount 988 thousand valuation allowance 117 thousand loans measured fair value throughout year resulted additional provision loan losses 992 thousand year ending december 31 2014 excluded fair value impaired loans december 31 2015 2014 discussed 29 million 42 million loans specific allowance amounts allocated classified troubled debt restructurings measured using present value discounted cash flows carried fair value impaired commercial real estate loans owner occupied nonowner occupied valued independent external appraisals external appraisals prepared using sales comparison approach income approach valuation techniques management makes subsequent unobservable adjustments impaired loan appraisals impaired loans commercial real estate real estate owned considered material company related write downs year ended december 31 2015 december 31 2014 real estate owned measured fair value less costs sell net carrying amount 45 thousand year ended december 31 2014 company charged one property reflecting updated appraisal resulted writedown 5 thousand following table presents quantitative information level 3 fair value measurements financial instruments measured fair value nonrecurring basis year ended 2014 2013 fair value financial instruments carrying amounts estimated fair values financial instruments measured recurring basis previously presented december 31 2015 december 31 2014 follows methods assumptions used estimate fair value previously described follows cash equivalents carrying amounts cash shortterm instruments approximate fair values classified either level 1 level 2 company determined cash hand noninterest bearing due bank accounts level 1 whereas interest bearing federal funds sold level 2 restricted stock practical determine fair value restricted stock due restrictions placed transferability loans fair values loans excluding loans held sale estimated follows variable rate loans reprice frequently significant change credit risk fair values based carrying values resulting level 3 classification fair values loans estimated using discounted cash flow analyses using interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification impaired loans valued lower cost fair value described previously methods utilized estimate fair value loans necessarily represent exit price loans held sale fair value loans held sale estimated based upon average binding contracts quotes third party investors resulting level 2 classification loan servicing rights fair value based valuation model calculates present value estimated future net servicing income valuation model utilizes interest rate prepayment speed default rate assumptions market participants would use estimating future net servicing income level 2 accrued interest receivablepayable carrying amounts accrued interest receivable payable approximate fair value resulting level l level 2 level 3 classification result association securities loans deposits fair values disclosed demand deposits interest noninterest checking passbook savings money market accountsare definition equal amount payable demand reporting date resulting level 1 classification carrying amounts variable rate certificates deposit approximate fair values reporting date resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowings carrying amounts federal funds purchased borrowings repurchase agreements shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification longterm borrowings fair values company’s longterm borrowings estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements resulting level 2 classification offbalance sheet instruments fair value commitments considered material note 7premises equipment yearend premises equipment follows depreciation expense 15 million year ended december 31 2015 11 million year ended december 31 2014 12 million year ended december 31 2013 june 2015 company added 14 branches mostly wayne medina counties part nboh acquisition september 2015 4 branches mostly columbiana county part tristate acquisition fixed assets recorded fair market value 2014 company purchased property located adjacent canfield branch south broad street canfield 395 thousand house investment insurance mortgage lending activities building put service june 2014 company leases certain branch properties operating leases rent expense 332 323 302 thousand 2015 2014 2013 addition rent expense leases common area maintenance property taxes paid amount fluctuate according costs incurred rent commitments considering renewal options generally present follows note 8goodwill intangible assets goodwill associated company’s purchase nboh june 2015 tristate october 2015 nai july 2013 trust 2009 totaled 351 million december 31 2015 56 million december 31 2014 nboh tristate nai acquisitions fully described note 2 impairment exists reporting unit’s carrying value goodwill exceeds fair value determined twostep impairment test step 1 includes determination carrying value reporting units including existing goodwill intangible assets estimating fair value reporting units annual impairment analysis september 30 2015 company determined fair value goodwill exceeded carrying amount annual impairment testing september 30 2014 fair value nai less carrying value carrying amount reporting unit exceeds fair value second step impairment test required analysis indicated step 2 analysis necessary nai reporting unit step 2 goodwill impairment test performed measure impairment loss step 2 requires implied fair value reporting unit’s goodwill compared carrying amount goodwill carrying amount reporting unit’s goodwill exceeds implied fair value goodwill impairment loss shall recognized amount equal excess performing step 2 determined implied value goodwill less carrying costs resulting impairment charge 763 thousand year ended december 31 2014 initial valuation nai future income projections fully attained fair value reporting unit determined based discounted cash flow model additionally 763 thousand impairment offset equal reduction future payment liability associated purchase two adjustments offset resulting zero impact company’s consolidated statements income year ended december 31 2014 intangibles core deposit intangible assets associated company’s purchases nboh tristate totaled 56 million intangible assets follows year end aggregate amortization expense 983 thousand 767 thousand 624 thousand 2015 2014 2013 estimated amortization expense next five years note 9 interest bearing deposits time deposits 250 thousand 396 million 263 million yearend 2015 2014 following summary scheduled maturities certificates deposit years following december 31 2015 following summary yearend interest bearing deposits note 10 shortterm borrowings bank shortterm advances federal home loan bank maturity dates less one year time advance balances due within one year renewed time maturity federal home loan bank advances secured pledgings described following longterm borrowings footnote balances year end follows securities sold repurchase agreements secured bank’s holdings debt securities issued us government sponsored entities agencies carrying amount 793 million 617 million year ended 2015 2014 repurchase agreements financing arrangements mature within 89 days usually overnight agreements customers agree maintain funds deposit bank return acquire interest pool securities pledged collateral funds securities held segregated safekeeping accounts federal reserve bank farmers trust company information concerning securities sold agreements repurchase summarized follows following table provides disaggregation obligation class collateral pledged shortterm financing obtained sales repurchase agreements management believes risks associated agreements minimal case collateral decline company additional investment securities available adequately pledge guarantees repurchase agreements bank access lines credit amounting 25 million two major domestic banks prime rate lines terms periodically reviewed banks generally subject withdrawal discretion borrowings lines december 31 2015 2014 farmers national banc corp two unsecured revolving lines credit 65 million lines renewed annually lines interest rates prime floors 35 45 outstanding balance two lines 350 thousand december 31 2015 2014 interest rate outstanding balance december 31 2015 2014 45 note 11 longterm borrowings year end longterm advances federal home loan bank follows bank added 8 million longterm advances part two acquisitions year ended december 31 2015 bank also total 5 million putable fhlb fixedrate advances fhlb elect put bank required repay advance date without penalty shortterm longterm federal home loan bank advances secured blanket pledge residential mortgage loans totaling 2378 million 1103 million year end 2015 2014 based collateral bank eligible borrow additional 634 million year end 2015 advance subject prepayment penalty paid prior maturity date scheduled payments longterm fhlb advances follows company added special purpose entity hold 21 million trust preferred debenture part tristate acquisition debt floating rate determined quarterly based threemonth libor december 31 2015 interest rate 22 securities redeemed quarterend final maturity trust preferred debenture december 15 2036 company 21 million note payable recorded longterm borrowings section consolidated balance sheets note 12 commitments contingent liabilities financial instruments loan commitments credit lines letters credit overdraft protection issued meet customer financing needs agreements provide credit support credit others long conditions established contract met usually expiration dates commitments may expire without used offbalancesheet risk credit loss exists face amount instruments although material losses anticipated credit policies used make commitments used loans including obtaining collateral exercise commitment contractual amounts financial instruments offbalancesheet risk year end follows commitments make loans generally made periods 30 days less one fixed rate loan commitment 2015 interest rate 389 matures within fifteen years variable rate loan commitments interest rates december 31 2015 ranged 425 500 fixed rate loan commitments 2014 interest rates range 400 463 mature within thirty years fixed rate unused lines credit interest rates ranging 020 2190 december 31 2015 211 1350 december 31 2014 standby letters credit considered financial guarantees standby letters credit contractual value 56 million december 31 2015 52 million december 31 2014 carrying amount items balance sheet material note 13 stock based compensation 2012 company approval shareholders created 2012 equity incentive plan “plan” plan permits award 500 thousand shares company’s directors employees promote company’s longterm financial success motivating performance longterm incentive compensation better align interests employees shareholders restricted stock awards plan totaling 279023 shares 2015 46957 shares 2014 restricted stock awards granted fair value price equal market price company’s common stock date grant expense recognized plan 486 thousand year ended 2015 116 thousand 2014 december 31 2015 19 million total unrecognized compensation expense related nonvested shares granted plan remaining cost expected recognized next 27 years shares awarded expense recognized year ended december 31 2013 plan following activity plan years ended december 31 2015 2014 company’s stock option plan shareholderapproved since expired permitted grant share options directors officers employees 375 thousand shares common stock option awards granted exercise price equal market price company’s common stock date grant option awards vesting periods 5 years 10year contractual terms first quarter 2014 last remaining 5000 outstanding options exercised company satisfied options reissuance treasury shares options granted stock option plan 2015 2014 2013 note 14 regulatory matters banks bank holding companies subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain offbalance sheet items calculated regulatory accounting practices new minimum capital requirements associated basel committee capital liquidity regulation basel iii phased began january 1 2015 continue january 1 2019 capital amounts classifications also subject qualitative judgments regulators failure meet capital requirements initiate regulatory action regulators undertaken could direct material effect financial statements management believes december 31 2015 company bank meet capital adequacy requirements subject fdic federal banking regulators revised riskbased capital requirements applicable bank holding companies insured depository institutions including company bank make consistent agreements reached basel committee banking supervision “basel iii” common equity tier 1 capital tier 1 capital total capital ratios calculated dividing respective capital amounts riskweighted assets leverage ratio calculated dividing tier 1 capital adjusted average total assets basel iii limits capital distributions certain discretionary bonus payments banking organization hold “capital conservation buffer” consisting 25 common equity tier 1 capital tier 1 capital total capital riskweighted assets addition amount necessary meet minimum riskbased capital requirements capital conservation buffer phased beginning january 1 2016 increasing year fully implemented 25 january 1 2019 currently basel iii requires company bank maintain minimum ratio common equity tier 1 capital riskweighted assets least 45 ii minimum ratio tier 1 capital riskweighted assets least 60 iii minimum ratio total capital riskweighted assets least 80 iv minimum leverage ratio least 40 prior january 1 2015 federal state regulatory agencies required company bank maintain minimum tier 1 total capital riskweighted assets 40 80 respectively tier 1 leverage ratio least 40 prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2015 2014 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category dividend restrictions company’s principal source funds dividend payments dividends received bank trust nai bank trust subject dividend restrictions set forth comptroller currency ohio department commerce division financial institutions respectively respective regulatory agency must approve declaration dividends excess sum profits current year retained net profits preceding two years 2016 bank could declare dividends 2016 net profits retained 39 million date dividend declaration order practice trust powers trust must maintain minimum capital 3 million trust would also able without prior approval declare dividends 2016 net profits retained date dividend declaration actual required capital amounts ratios presented yearend note 15 employee benefit plans company qualified 401k deferred compensation retirement savings plan employees company completed least 90 days service meet certain eligibility requirements eligible participate plan terms plan employees may voluntarily defer portion annual compensation pursuant section 401k internal revenue code company matches percentage participants’ voluntary contributions 6 gross wages addition discretion board directors company may make additional profit sharing contribution plan total expense 431 thousand 336 thousand 336 thousand years ended december 31 2015 2014 2013 respectively 2014 company adopted profit sharing plan provide associates participating current incentive plan vehicle sharing success company outside existing wages nonmonetary benefits board directors approved profit sharing amount equal 1 annual compensation associates 2015 2014 expense 82 thousand 73 thousand years ended december 31 2015 2014 company maintains deferred compensation plan certain retirees expense plan 10 thousand three years ended december 31 2015 2014 2013 liability plan december 31 2015 149 thousand 156 thousand december 31 2014 2015 company established nonqualified deferred compensation plan select group management highly compensated eligible individuals terms plan eligible individuals may elect defer receipt compensation later taxable year company recorded asset liability equal amount represents amount contributions payable due participants plan recorded asset liability 67 thousand december 31 2015 part nboh acquisition company director retirement death benefit plan benefit prior members board directors nboh plan designed provide annual retirement benefit paid director upon retirement board attaining age 70 additional benefits participants added plan liability recorded december 31 2015 929 thousand benefit payment upon satisfying plan’s requirements benefit qualifying director death maximum 15 years expense recognized plan 2015 company assumed esop part tristate acquisition covered substantially employees officers trustee discretionary authority purchase shares common stock tristate open market contributions plan 2015 acquisition tristate shares converted company’s shares trustee held 39690 shares december 31 2015 process terminate esop begun december 31 2015 company also postretirement health care benefit plan covering individuals retired company met certain service age requirements certain active employees met similar service requirements postretirement health care plan includes limit company’s share costs recent future retirees benefit recognized plan 2015 12 thousand expense 4 thousand 2014 13 thousand 2013 accrued postretirement benefit liability plan 280 thousand 314 thousand december 31 2014 2013 due immateriality plan disclosures required us generally accepted accounting principles omitted note 16 income taxes provision income taxes credit consists following effective tax rates differ federal statutory rate 35 applied income taxes due following deferred tax assets liabilities comprised following valuation allowance deferred tax assets recorded december 31 2015 2014 december 31 2015 december 31 2014 company unrecognized tax benefits recorded company expect amount unrecognized tax benefits significantly change within next twelve months company paid penalties year ended december 31 2015 2014 amounts accrued penalties interest december 31 2015 2014 company subject us federal income tax company longer subject examination federal taxing authority years prior 2012 tax years 20122014 remain open examination us taxing authority note 17 comprehensive income loss following table represents detail comprehensive income loss years ended december 31 2015 2014 2013 1 pretax reclassification adjustments relating availableforsale securities reported security gains tax impact included income tax expense consolidated statements income note 18 related party transactions loans principal officers directors affiliates 2015 follows deposits principal officers directors affiliates yearend 2015 2014 79 million 17 million note 19 earnings per share factors used earnings per share computation follow 193105 award shares common stock issued 2015 considered computing diluted earnings per share antidilutive stock options 5000 shares common stock 2013 considered computing diluted earnings per share antidilutive note 20 interest rate swaps company uses program utilizes interestrate swaps part assetliability management strategy interestrate swaps used help manage company’s interest rate risk position derivatives trading purposes notional amount interestrate swaps represent amounts exchanged parties amount exchanged determined reference notional amount terms individual interestrate swap agreements objective interestrate swaps protect related fixed rate commercial real estate loans changes fair value due changes interest rates company program whereby lends borrowers fixed rate loan agreement containing twoway yield maintenance provision invoked event prepayment loan expected exactly offset fair value unwinding swap yield maintenance provision represents embedded derivative bifurcated host loan contract swaps embedded derivatives designated hedges accordingly instruments carried fair value changes fair value reported current period earnings summary information interestrate swaps year ended december 31 2015 2014 2013 follows fair value yield maintenance provisions interestrate swaps recorded assets liabilities respectively consolidated balance sheet changes fair value yield maintenance provisions interestrate swaps reported earnings noninterest income consolidated income statements net gains losses recognized earnings related yield maintenance provisions years ended december 31 2015 2014 2013 note 21 segment information reportable segments determined products services offered primarily distinguished banking trust retirement consulting operations also distinguished level information provided chief operating decision makers company use information review performance various components business aggregated loans investments deposits provide revenues banking operation trust service fees provide revenue trust operations consulting fees provide revenues retirement consulting operations domestic accounting policies segments described note 1 segment performance evaluated using operating income taxes calculated operating income transactions among segments made fair value significant segment totals reconciled financial statements follows bank segment includes farmers national insurance farmers canfield investment co note 22 quarterly financial data unaudited company sold certain investment securities recognized security gains 372 thousand fourth quarter 2014 note 23parent company condensed financial information condensed financial information farmers national banc corp parent company information read conjunction consolidated financial statements related notes item 9 item 15 exhibits financial statement schedules a1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp john gulas john gulas president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated index exhibits following exhibits filed incorporated reference part annual report form 10k constitutes management contract compensatory plan arrangement  accordance rule 406t regulation st xbrl extensible business reporting language information exhibits shall deemed “filed” purposes section 18 securities exchange act 1934 amended otherwise subject liability section shall incorporated reference registration statement document filed securities act 1933 amended except expressly set forth specific reference filing copies exhibits furnished shareholders upon written request directed carl culp executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules reports form 8k a1 financial statements item 8 financial statements supplementary data set forth corporation’s 2008 annual report shareholders incorporated reference part ii report 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part report listed index exhibits appears page 15 hereof incorporated herein reference financial statement schedules presented applicable b exhibits filed incorporated reference part report listed index exhibits appears page 15 hereof incorporated herein reference c financial statement schedules financial statement schedules presented section none applicable signatures pursuant requirements section 13 15d securities exchange act 1934 corporation duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden carl culp frank l paden president secretary march 16 2009 carl culp executive vice president treasurer march 16 2009 benjamin r brown director march 16 2009 benjamin r brown anne frederick crawford director march 16 2009 anne frederick crawford james r fisher director march 16 2009 james r fisher joseph lane joseph lane director march 16 2009 ralph macali ralph macali director march 16 2009 earl r scott earl r scott director march 16 2009 frank l paden frank l paden president director march 16 2009 ronald v wertz ronald v wertz director march 16 2009 index exhibits following exhibits filed incorporated reference part report 2 applicable 3i articles incorporation including amendments thereto corporation incorporated reference exhibit 41 farmers national banc corp’s form s3 registration statement dated october 3 2001 file 012055 3ii code regulations including amendments thereto corporation incorporated reference exhibit 42 farmers national banc corp’s form s3 registration state ment dated october 3 2001 file 012055 4 incorporated reference initial filing 9 applicable 101 information regarding item set forth corporation’s definitive proxy statement used connection annual meeting shareholders held april 23 2009 proxy statement incorporated reference 102 employment agreement frank l paden originally filed exhibit 101 corporation’s form 8k filed december 30 2008 103 employment agreement carl culp originally filed exhibit 101 corporation’s form 8k filed december 30 2008 104 employment agreement mark l graham originally filed exhibit 101 corporation’s form 8k filed december 30 2008 11 refer note annual report incorporated reference 12 applicable 13 annual report security holders 14 company adopted code ethics applies chief executive officer chief financial officer complies criteria provided sec rules code ethics available free charge calling bank’s corporate services 3305333341 16 applicable 18 applicable 21 farmers national bank canfield ohio 22 applicable 23a consent crowe horwath llp 24 applicable 31a certification chief executive officer filed herewith 31b certification chief financial officer filed herewith index exhibits continued 32a 1350 certification chief executive officer filed herewith 32b 1350 certification chief financial officer filed herewith 33 applicable 34 applicable 35 applicable copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kevin j helmick president chief executive officer director march 13 2014 kevin j helmick principal executive officer carl culp executive vice president secretary treasurer march 13 2014 carl culp principal financial officer joseph w sabat controller march 13 2014 joseph w sabat principal accounting officer gregory c bestic director march 13 2014 gregory c bestic anne frederick crawford director march 13 2014 anne frederick crawford lance j ciroli chairman board march 13 2014 lance j ciroli ralph macali director march 13 2014 ralph macali david z paull director march 13 2014 david z paull earl r scott director march 13 2014 earl r scott gregg strollo director march 13 2014 gregg strollo ronald v wertz director march 13 2014 ronald v wertz abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp executive vice president secretary treasurer principal financial officer index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 31 articles incorporation farmers national banc corp amended incorporated reference exhibit 41 farmers’ registration statement form s3 filed commission october 3 2001 file 33370806 reference exhibit 31 farmers’ current report form 8k filed commission may 1 2013 32 amended code regulations farmers national banc corp incorporated reference exhibit 32 farmers’ quarterly report form 10q fiscal quarter ended june 30 2011 filed commission august 9 2011 101 farmers national banc corp 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2012 filed commission august 8 2012 102 farmers national banc corp cash incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 24 2011 103 farmers national banc corp longterm incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 29 2011 104 farmers national banc corp form 2012 award agreement longterm incentive plan incorporated reference exhibit 106 farmers’ annual report form 10k year ended december 31 2012 filed commission march 13 2013 105 farmers national banc corp form 2013 award agreement longterm incentive plan filed herewith 106 nonemployee director compensation filed herewith 107 farmers national banc corp form indemnification agreement incorporated reference exhibit 101 farmers’ current report form 8k filed commission april 29 2011 108 farmers national banc corp executive separation policy incorporated reference exhibit 101 farmers’ current report form 8k filed commission november 14 2013 109 change control agreement kevin j helmick incorporated reference exhibit 102 farmers’ current report form 8k filed commission november 14 2013 1010 form change control agreements executive officers incorporated reference exhibit 103 farmers’ current report form 8k filed commission november 14 2013 subsidiaries farmers filed herewith consent independent registered public accounting firm filed herewith powers attorney directors executive officers filed herewith 311 rule 13a14a15d14a certification kevin j helmick president chief executive officer farmers principal executive officerfiled herewith 312 rule 13a14a15d14a certification carl culp executive vice president treasurer farmers principal financial officer filed herewith 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema document filed herewith exhibit number description 101cal xbrl taxonomy extension calculation linkbase document filed herewith 101lab xbrl taxonomy extension label linkbase document filed herewith 101pre xbrl taxonomy extension presentation linkbase document filed herewith 101def xbrl taxonomy extension definition linkbase document filed herewith constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp senior executive vice president secretary treasurer principal financial officer index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 31 articles incorporation farmers national banc corp amended incorporated reference exhibit 41 farmers’ registration statement form s3 filed commission october 3 2001 file 33370806 reference exhibit 31 farmers’ current report form 8k filed commission may 1 2013 32 amended code regulations farmers national banc corp incorporated reference exhibit 32 farmers’ quarterly report form 10q fiscal quarter ended june 30 2011 filed commission august 9 2011 101 farmers national banc corp 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2012 filed commission august 8 2012 102 farmers national banc corp cash incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 24 2011 103 farmers national banc corp longterm incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 29 2011 104 farmers national banc corp nonqualified deferred compensation plan amended restated effective january 1 2016 filed herewith 105 farmers national banc corp form cash longterm incentive award agreement longterm incentive plan incorporated reference exhibit 109 farmers’ annual report form 10k year ended december 31 2015 filed commission march 10 2016 106 farmers national banc corp form equity longterm incentive award agreement 2012 equity incentive plan incorporated reference exhibit 1010 farmers’ annual report form 10k year ended december 31 2015 filed commission march 10 2016 107 farmers national banc corp form notice grant restricted stock award agreement 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q filed commission november 9 2015 108 farmers national banc corp 2016 form notice grant restricted stock award agreement 2012 equity incentive plan filed herewith 109 farmers national banc corp 2016 form cash longterm incentive award agreement longterm incentive plan filed herewith 1010 farmers national banc corp 2016 form servicebased longterm equity incentive award agreement 2012 equity incentive plan filed herewith 1011 farmers national banc corp 2016 form performancebased longterm equity incentive award agreement 2012 equity incentive plan filed herewith 1012 nonemployee director compensation filed herewith 1013 farmers national banc corp form indemnification agreement incorporated reference exhibit 101 farmers’ current report form 8k filed commission april 29 2011 1014 farmers national banc corp executive separation policy incorporated reference exhibit 102 farmers’ quarterly report form 10q filed commission november 9 2015 exhibit number description 1015 change control agreement kevin j helmick incorporated reference exhibit 102 farmers’ current report form 8k filed commission november 14 2013 1016 form change control agreements executive officers incorporated reference exhibit 103 farmers’ current report form 8k filed commission november 14 2013 subsidiaries farmers filed herewith consent independent registered public accounting firm filed herewith powers attorney directors executive officers filed herewith 311 rule 13a14a15d14a certification kevin j helmick president chief executive officer farmers principal executive officer filed herewith 312 rule 13a14a15d14a certification carl culp executive vice president treasurer farmers principal financial officer filed herewith 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema document filed herewith 101cal xbrl taxonomy extension calculation linkbase document filed herewith 101lab xbrl taxonomy extension label linkbase document filed herewith 101pre xbrl taxonomy extension presentation linkbase document filed herewith 101def xbrl taxonomy extension definition linkbase document filed herewith constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp senior executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference c financial statement schedules see subparagraph a2 item 16 form 10k summary none index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 31 articles incorporation farmers national banc corp amended incorporated reference exhibit 41 company’s registration statement form s3 filed commission october 3 2001 file 33370806 32 amendment articles incorporation farmers national banc corp amended incorporated reference exhibit 31 company’s current report form 8k filed commission may 1 2013 33 amendment articles incorporation farmers national banc corp amended incorporated reference exhibit 31 company’s current report form 8k filed commission april 20 2018 34 amended code regulations farmers national banc corp incorporated reference exhibit 32 company’s quarterly report form 10q fiscal quarter ended june 30 2011 filed commission august 9 2011 101 farmers national banc corp 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2012 filed commission august 8 2012 102 farmers national banc corp cash incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 24 2011 103 farmers national banc corp longterm incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 29 2011 104 farmers national banc corp nonqualified deferred compensation plan amended restated effective january 1 2016 incorporated reference exhibit 104 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 105 farmers national banc corp 2016 form notice grant restricted stock award agreement 2012 equity incentive plan incorporated reference exhibit 108 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 106 farmers national banc corp 2016 form cash longterm incentive award agreement longterm incentive plan incorporated reference exhibit 109 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 107 farmers national banc corp 2016 form servicebased longterm equity incentive award agreement 2012 equity incentive plan incorporated reference exhibit 1010 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 108 farmers national banc corp 2016 form performancebased longterm equity incentive award agreement 2012 equity incentive plan incorporated reference exhibit 1011 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 109 farmers national banc corp 2017 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2017 filed commission august 8 2017 exhibit number description 1010 farmers national banc corp 2017 form notice grant longterm incentive plan awards 2017 equity incentive plan incorporated reference exhibit 102 farmers’ quarterly report form 10q filed commission august 8 2017 1011 farmers national banc corp 2017 form performancebased cash award agreement 2017 equity incentive plan incorporated reference exhibit 103 farmers’ quarterly report form 10q filed commission august 8 2017 1012 farmers national banc corp 2017 form servicebased restricted stock award agreement 2017 equity incentive plan incorporated reference exhibit 104 farmers’ quarterly report form 10q filed commission august 8 2017 1013 farmers national banc corp 2017 form performancebased equity award agreement 2017 equity incentive plan incorporated reference exhibit 105 farmers’ quarterly report form 10q filed commission august 8 2017 1014 farmers national banc corp 2018 form notice grant longterm incentive plan awards 2017 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q filed commission may 9 2018 1015 farmers national banc corp 2018 form performancebased equity award agreement 2017 equity incentive plan incorporated reference exhibit 102 farmers’ quarterly report form 10q filed commission may 9 2018 1016 farmers national banc corp 2018 form servicebased restricted stock award agreement 2017 equity incentive plan incorporated reference exhibit 103 farmers’ quarterly report form 10q filed commission may 9 2018 1017 farmers national banc corp 2018 form performancebased cash award agreement 2017 equity incentive plan incorporated reference exhibit 104 farmers’ quarterly report form 10q filed commission may 9 2018 1018 nonemployee director compensation year ended december 31 2018 filed herewith 1019 farmers national banc corp form indemnification agreement incorporated reference exhibit 101 farmers’ current report form 8k filed commission april 29 2011 1020 farmers national banc corp amended restated executive separation policy filed herewith 1021 change control agreement kevin j helmick incorporated reference exhibit 102 farmers’ current report form 8k filed commission november 14 2013 1022 form change control agreements executive officers incorporated reference exhibit 103 farmers’ current report form 8k filed commission november 14 2013 subsidiaries farmers filed herewith consent independent registered public accounting firm filed herewith powers attorney directors executive officers filed herewith 311 rule 13a14a15d14a certification kevin j helmick president chief executive officer farmers principal executive officer filed herewith 312 rule 13a14a15d14a certification carl culp executive vice president treasurer farmers principal financial officer filed herewith 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith exhibit number description 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema document filed herewith 101cal xbrl taxonomy extension calculation linkbase document filed herewith 101lab xbrl taxonomy extension label linkbase document filed herewith 101pre xbrl taxonomy extension presentation linkbase document filed herewith 101def xbrl taxonomy extension definition linkbase document filed herewith constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp senior executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer march 5 2019 pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp senior executive vice president secretary treasurer principal financial officer item 15 exhibits financial statement schedules reports form 8k item 15 continued a3 exhibits filed incorporated reference part report listed index exhibits appears page 13 hereof incorporated herein reference b report form 8k two form 8k’s filed fourth quarter 2003 first form 8k dated october 17 2003 applied item 5 events filing reported earnings first nine months 2003 second form 8k dated november 17 2003 also applied item 5 events filing announced quarterly dividend independent auditors’ consent incorporation reference registration statement 333111905 form s3d farmers national banc corp report dated january 9 2004 relating consolidated balance sheet farmers national banc corp december 31 2003 related consolidated statements income comprehensive income changes stockholders’ equity cash flows year ended report incorporated reference december 31 2003 annual report form 10k farmers national banc corp crowe chizek company llc cleveland ohio march 11 2004 independent auditor’s consent farmers national banc corp consent incorporation reference registration statement form s3d farmers national banc corp report dated january 17 2003 relating consolidated financial statements farmers national banc corp subsidiary years december 31 2002 2001 report incorporated reference december 31 2003 annual report form 10k farmers national banc corp hill barth king llc warren ohio march 12 2004 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized index exhibits following exhibits filed incorporated references part report 2 applicable 3i applicable 3ii applicable 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 information regarding item set forth registrant’s definitive proxy statement used connection annual meeting shareholders held march 30 2004 proxy statement attached hereto 11 applicable 12 applicable 13 annual report security holders filed herewith 14 company adopted code ethics applies chief executive officer chief financial officer complies criteria provided sec rules code ethics available calling corporate services 3305333341 16 applicable 18 applicable 21 subsidiaries registrant subsidiary registrant incorporated reference part item 1 report 22 applicable 23 applicable 24 applicable 31a certification chief executive officer filed herewith 31b certification chief financial officer filed herewith 32a 1350 certification chief executive officer filed herewith 32b 1350 certification chief financial officer filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules reports form 8k a1 financial statements item 8 financial statements supplementary data set forth registrant’s 2004 annual report shareholders incorporated reference part ii report a2 financial statement schedules financial statement schedules presented applicable a3 exhibits filed incorporated reference part report listed index exhibits appears page 12 hereof incorporated herein reference b report form 8k three form 8k’s filed fourth quarter 2004 first form 8k dated october 15 2004 reported stock dividend second form 8k dated october 22 2004 discussed earnings third quarter 2004 third form 8k dated november 12 2004 reported quarterly cash dividend signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden carl culp frank l paden carl culp president secretary executive vice president treasurer march 16 2005 march 16 2005 benjamin r brown director march 16 2005 benjamin r brown anne frederick crawford director march 16 2005 anne frederick crawford james r fisher director march 16 2005 james r fisher joseph lane director march 16 2005 joseph lane ralph macali director march 16 2005 ralph macali earl r scott director march 16 2005 earl r scott frank l paden president march 16 2005 frank l paden director ronald v wertz director march 16 2005 ronald v wertz index exhibits following exhibits filed incorporated reference part report 2 applicable 3i articles incorporation including amendments thereto registrant incorporated reference exhibit 41 farmers national banc corp’s form s3 registration statement dated october 3 2001 file 012055 3ii code regulations including amendments thereto registrant incorporated reference exhibit 42 farmers national banc corp’s form s3 registration statement dated october 3 2001 file 012055 4 incorporated reference initial filing 9 applicable 10 information regarding item set forth registrant’s definitive proxy statement used connection annual meeting shareholders held march 31 2005 proxy statement incorporated reference 11 refer note n annual report incorporated reference 12 applicable 13 annual report security holders 14 company adopted code ethics applies chief executive officer chief financial officer complies criteria provided sec rules code ethics available calling corporate services 3305333341 16 applicable 18 applicable 21 farmers national bank canfield ohio 22 applicable 23a consent crowe chizek company llc 23b consent hill barth king llc 24 applicable 31a certification chief executive officer filed herewith 31b certification chief financial officer filed herewith 32a 1350 certification chief executive officer filed herewith 32b 1350 certification chief financial officer filed herewith 99 report hill barth king llc year ended december 31 2002 copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kevin j helmick president chief executive officer director february 27 2015 kevin j helmick principal executive officer carl culp executive vice president secretary treasurer february 27 2015 carl culp principal financial officer joseph w sabat controller february 27 2015 joseph w sabat principal accounting officer gregory c bestic director february 27 2015 gregory c bestic anne frederick crawford director february 27 2015 anne frederick crawford lance j ciroli chairman board february 27 2015 lance j ciroli ralph macali director february 27 2015 ralph macali terry moore director february 27 2015 terry moore david z paull director february 27 2015 david z paull earl r scott director february 27 2015 earl r scott gregg strollo director february 27 2015 gregg strollo abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp executive vice president secretary treasurer principal financial officer index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 31 articles incorporation farmers national banc corp amended incorporated reference exhibit 41 farmers’ registration statement form s3 filed commission october 3 2001 file 33370806 reference exhibit 31 farmers’ current report form 8k filed commission may 1 2013 32 amended code regulations farmers national banc corp incorporated reference exhibit 32 farmers’ quarterly report form 10q fiscal quarter ended june 30 2011 filed commission august 9 2011 101 agreement plan merger national bancshares corporation farmers national banc corp dated january 27 2015 incorporated reference exhibit 21 farmers’ current report form 8k filed commission january 27 2015 102 farmers national banc corp 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2012 filed commission august 8 2012 103 farmers national banc corp cash incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 24 2011 104 farmers national banc corp longterm incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 29 2011 105 farmers national banc corp nonqualified deferred compensation plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission february 3 2015 106 farmers national banc corp form 2012 award agreement longterm incentive plan incorporated reference exhibit 106 farmers’ annual report form 10k year ended december 31 2012 filed commission march 13 2013 107 farmers national banc corp form 2013 award agreement longterm incentive plan incorporated reference exhibit 105 farmers’ annual report form 10k year ended december 31 2013 filed commission march 13 2014 108 farmers national banc corp form cash longterm incentive award agreement longterm incentive plan filed herewith 109 farmers national banc corp form equity longterm incentive award agreement 2012 equity incentive plan filed herewith 1010 nonemployee director compensation filed herewith 1011 farmers national banc corp form indemnification agreement incorporated reference exhibit 101 farmers’ current report form 8k filed commission april 29 2011 1012 farmers national banc corp executive separation policy incorporated reference exhibit 101 farmers’ current report form 8k filed commission november 14 2013 1013 change control agreement kevin j helmick incorporated reference exhibit 102 farmers’ current report form 8k filed commission november 14 2013 1014 form change control agreements executive officers incorporated reference exhibit 103 farmers’ current report form 8k filed commission november 14 2013 1015 separation agreement farmers national banc corp john gulas incorporated reference exhibit 101 famers’ current report form 8k filed commission march 23 2014 subsidiaries farmers filed herewith consent independent registered public accounting firm filed herewith exhibit number description powers attorney directors executive officers filed herewith 311 rule 13a14a15d14a certification kevin j helmick president chief executive officer farmers principal executive officerfiled herewith 312 rule 13a14a15d14a certification carl culp executive vice president treasurer farmers principal financial officer filed herewith 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema document filed herewith 101cal xbrl taxonomy extension calculation linkbase document filed herewith 101lab xbrl taxonomy extension label linkbase document filed herewith 101pre xbrl taxonomy extension presentation linkbase document filed herewith 101def xbrl taxonomy extension definition linkbase document filed herewith constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference c financial statement schedules see subparagraph a2 item 16 form 10k summary none index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith following materials company’s quarterly report form 10k year ended december 31 2019 formatted ixbrl inline extensible business reporting language filed herewith consolidated balance sheets ii consolidated statements income iii consolidated statements comprehensive income iv consolidated statements stockholders’ equity v consolidated statements cash flows vi notes consolidated financial statements cover page company’s annual report form 10k year ended december 31 2020 formatted inline xbrl constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp senior executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer march 4 2021 pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp senior executive vice president secretary treasurer principal financial officer item 15 exhibits financial statement schedules a1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp john gulas john gulas president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated abovenamed directors officers registrant sign annual report form 10k john gulas carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated john gulas john gulas president chief executive officer director principal executive officer carl culp carl culp executive vice president treasurer principal financial officer index exhibits following exhibits filed incorporated reference part annual report form 10k constitutes management contract compensatory plan arrangement  accordance rule 406t regulation st xbrl extensible business reporting language information exhibits shall deemed “filed” purposes section 18 securities exchange act 1934 amended otherwise subject liability section shall incorporated reference registration statement document filed securities act 1933 amended except expressly set forth specific reference filing copies exhibits furnished shareholders upon written request directed carl culp executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference c financial statement schedules see subparagraph a2 item 16 form 10k summary none index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 21 agreement plan merger among monitor bancorp inc farmers national banc corp fmnb merger subsidiary ii llc dated march 13 2017 incorporated reference exhibit 21 company’s current report form 8k filed commission march 17 2017 31 articles incorporation farmers national banc corp amended incorporated reference exhibit 41 company’s registration statement form s3 filed commission october 3 2001 file 33370806 32 amendment articles incorporation farmers national banc corp amended incorporated reference exhibit 31 company’s current report form 8k filed commission may 1 2013 33 amended code regulations farmers national banc corp incorporated reference exhibit 32 company’s quarterly report form 10q fiscal quarter ended june 30 2011 filed commission august 9 2011 101 farmers national banc corp 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2012 filed commission august 8 2012 102 farmers national banc corp cash incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 24 2011 103 farmers national banc corp longterm incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 29 2011 104 farmers national banc corp nonqualified deferred compensation plan amended restated effective january 1 2016 incorporated reference exhibit 104 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 105 farmers national banc corp 2015 form cash longterm incentive award agreement longterm incentive plan incorporated reference exhibit 109 farmers’ annual report form 10k year ended december 31 2015 filed commission march 10 2016 106 farmers national banc corp 2015 form equity longterm incentive award agreement 2012 equity incentive plan incorporated reference exhibit 1010 farmers’ annual report form 10k year ended december 31 2015 filed commission march 10 2016 107 farmers national banc corp 2015 form notice grant restricted stock award agreement 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q filed commission november 9 2015 108 farmers national banc corp 2016 form notice grant restricted stock award agreement 2012 equity incentive plan incorporated reference exhibit 108 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 109 farmers national banc corp 2016 form cash longterm incentive award agreement longterm incentive plan incorporated reference exhibit 109 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 exhibit number description 1010 farmers national banc corp 2016 form servicebased longterm equity incentive award agreement 2012 equity incentive plan incorporated reference exhibit 1010 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 1011 farmers national banc corp 2016 form performancebased longterm equity incentive award agreement 2012 equity incentive plan incorporated reference exhibit 1011 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 1012 farmers national banc corp 2017 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2017 filed commission august 8 2017 1013 farmers national banc corp 2017 form notice grant longterm incentive plan awards 2017 equity incentive plan incorporated reference exhibit 102 farmers’ quarterly report form 10q filed commission august 8 2017 1014 farmers national banc corp 2017 form notice grant longterm incentive plan awards 2017 equity incentive plan incorporated reference exhibit 103 farmers’ quarterly report form 10q filed commission august 8 2017 1015 farmers national banc corp 2017 form servicebased restricted stock award agreement 2017 equity incentive plan incorporated reference exhibit 104 farmers’ quarterly report form 10q filed commission august 8 2017 1016 farmers national banc corp 2017 form performancebased equity award agreement 2017 equity incentive plan incorporated reference exhibit 105 farmers’ quarterly report form 10q filed commission august 8 2017 1017 nonemployee director compensation incorporated reference exhibit 1012 farmers’ annual report form 10k year ended december 31 2016 filed commission march 7 2017 1018 farmers national banc corp form indemnification agreement incorporated reference exhibit 101 farmers’ current report form 8k filed commission april 29 2011 1019 farmers national banc corp amended restated executive separation policy incorporated reference exhibit 102 farmers’ quarterly report form 10q filed commission november 9 2015 1020 change control agreement kevin j helmick incorporated reference exhibit 102 farmers’ current report form 8k filed commission november 14 2013 1021 form change control agreements executive officers incorporated reference exhibit 103 farmers’ current report form 8k filed commission november 14 2013 subsidiaries farmers filed herewith consent independent registered public accounting firm filed herewith powers attorney directors executive officers filed herewith 311 rule 13a14a15d14a certification kevin j helmick president chief executive officer farmers principal executive officer filed herewith 312 rule 13a14a15d14a certification carl culp executive vice president treasurer farmers principal financial officer filed herewith exhibit number description 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema document filed herewith 101cal xbrl taxonomy extension calculation linkbase document filed herewith 101lab xbrl taxonomy extension label linkbase document filed herewith 101pre xbrl taxonomy extension presentation linkbase document filed herewith 101def xbrl taxonomy extension definition linkbase document filed herewith constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp senior executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp senior executive vice president secretary treasurer principal financial officer item 15 exhibits financial statement schedules a1 financial statements financial statements supplementary data set forth company’s 2010 annual report incorporated reference part ii annual report form 10k 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized index exhibits following exhibits filed incorporated reference part report copies exhibits furnished shareholders upon written request directed carl culp executive vice president chief financial officer farmers national banc corp 20 broad street canfield ohio 44406 item 15 exhibits financial statement schedules reports form 8k iv1 independent auditor’s consent farmers national banc corp hereby consent incorporation reference annual report form 10k report dated january 17 2003 relating consolidated financial statements farmers national banc corp subsidiary hill barth king llc warren ohio march 24 2003 iv2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf signed thereunto duly authorized farmers national banc corp farmers national banc corp frank l paden frank l paden president secretary march 27 2003 carl culp carl culp executive vice president treasurer march 27 2003 william stewart william stewart chairman march 27 2003 benjamin r brown benjamin r brown director march 27 2003 joseph lane joseph lane director march 27 2003 ralph macali ralph macali director march 27 2003 david c myers david c myers director march 27 2003 edward ort edward ort director march 27 2003 frank l paden frank l paden president director march 27 2003 ronald v wertz ronald v wertz director march 27 2003 iv3 index exhibits following exhibits filed incorporated references part report 2 applicable 3i applicable 3ii applicable 4 registrant agrees furnish commission upon request copies instruments filed herewith defining rights holders longterm debt registrant subsidiaries 9 applicable 10 applicable 11 applicable 12 applicable 13 annual report security holders filed herewith 16 applicable 18 applicable 21 subsidiaries registrant subsidiary registrant incorporated reference part item 1 report 22 applicable 23 applicable 24 applicable 99 definitive proxy statement filed herewith copies exhibits furnished shareholders upon written request directed carl culp executive vice president farmers national banc corp 20 broad street canfield ohio 44406 iv4 certifications certification chief executive officer certification annual report form 10k frank l paden chief executive officer corporation certify 1 reviewed annual report form 10k farmers national banc corp “corporation” 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weakness internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses frank l paden frank l paden chief executive officer march 27 2003 certification chief financial officer certification annual report form 10k carl culp chief financial officer corporation certify 1 reviewed annual report form 10k farmers national banc corp “corporation” 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weakness internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses carl culp carl culp chief financial officer march 27 2003 item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows incorporated herein reference c financial statement schedules see subparagraph a2 item 16 form 10k summary none index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith following materials company’s quarterly report form 10k year ended december 31 2019 formatted ixbrl inline extensible business reporting language filed herewith consolidated balance sheets ii consolidated statements income iii consolidated statements comprehensive income iv consolidated statements stockholders’ equity v consolidated statements cash flows vi notes consolidated financial statements cover page company’s annual report form 10k year ended december 31 2019 formatted inline xbrl constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp senior executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer march 5 2020 pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp senior executive vice president secretary treasurer principal financial officer item 15 exhibits financial statement schedules 1 financial statements item 8 reference made consolidated financial statements included item 8 part ii herein 2 financial statement schedules financial statement schedules presented applicable 3 exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference b exhibits filed incorporated reference part annual report form 10k listed exhibit index follows signature page incorporated herein reference c financial statement schedules see subparagraph a2 signatures pursuant requirements section 13 15d securities exchange act 1934 company duly caused report signed behalf signed thereunto duly authorized farmers national banc corp kevin j helmick kevin j helmick president chief executive officer pursuant requirements section 13 15d securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated kevin j helmick president chief executive officer director march 10 2016 kevin j helmick principal executive officer carl culp executive vice president secretary treasurer march 10 2016 carl culp principal financial officer joseph w sabat controller march 10 2016 joseph w sabat principal accounting officer gregory c bestic director march 10 2016 gregory c bestic anne frederick crawford director march 10 2016 anne frederick crawford lance j ciroli chairman board march 10 2016 lance j ciroli ralph macali director march 10 2016 ralph macali terry moore director march 10 2016 terry moore david z paull director march 10 2016 david z paull earl r scott director march 10 2016 earl r scott james r smail director march 10 2016 james r smail gregg strollo director march 10 2016 gregg strollo howard j wenger director march 10 2016 howard j wenger abovenamed directors officers registrant sign annual report form 10k kevin j helmick carl culp attorneyinfact pursuant powers attorney signed abovenamed directors officers powers attorney filed annual report form 10k exhibits capacities indicated kevin j helmick kevin j helmick president chief executive officer director principal executive officer carl culp carl culp executive vice president secretary treasurer principal financial officer index exhibits following exhibits filed incorporated reference part annual report form 10k exhibit number description 31 articles incorporation farmers national banc corp amended incorporated reference exhibit 41 farmers’ registration statement form s3 filed commission october 3 2001 file 33370806 reference exhibit 31 farmers’ current report form 8k filed commission may 1 2013 32 amended code regulations farmers national banc corp incorporated reference exhibit 32 farmers’ quarterly report form 10q fiscal quarter ended june 30 2011 filed commission august 9 2011 101 agreement plan merger national bancshares corporation farmers national banc corp dated january 27 2015 incorporated reference exhibit 21 farmers’ current report form 8k filed commission january 27 2015 102 agreement plan merger among tristate 1st banc inc farmers national banc corp fmnb merger subsidiary llc dated june 23 2015 incorporated reference exhibit 21 company’s current report form 8k filed commission june 29 2015 103 farmers national banc corp 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q quarter ended june 30 2012 filed commission august 8 2012 104 farmers national banc corp cash incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 24 2011 105 farmers national banc corp longterm incentive plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission june 29 2011 106 farmers national banc corp nonqualified deferred compensation plan incorporated reference exhibit 101 farmers’ current report form 8k filed commission february 3 2015 107 farmers national banc corp form 2012 award agreement longterm incentive plan incorporated reference exhibit 106 farmers’ annual report form 10k year ended december 31 2012 filed commission march 13 2013 108 farmers national banc corp form 2013 award agreement longterm incentive plan incorporated reference exhibit 105 farmers’ annual report form 10k year ended december 31 2013 filed commission march 13 2014 109 farmers national banc corp form cash longterm incentive award agreement longterm incentive plan filed herewith 1010 farmers national banc corp form equity longterm incentive award agreement 2012 equity incentive plan filed herewith 1011 farmers national banc corp form notice grant restricted stock award agreement 2012 equity incentive plan incorporated reference exhibit 101 farmers’ quarterly report form 10q filed commission november 9 2015 1012 nonemployee director compensation filed herewith 1013 farmers national banc corp form indemnification agreement incorporated reference exhibit 101 farmers’ current report form 8k filed commission april 29 2011 1014 farmers national banc corp executive separation policy incorporated reference exhibit 102 farmers’ quarterly report form 10q filed commission november 9 2015 1015 change control agreement kevin j helmick incorporated reference exhibit 102 farmers’ current report form 8k filed commission november 14 2013 exhibit number description 1016 form change control agreements executive officers incorporated reference exhibit 103 farmers’ current report form 8k filed commission november 14 2013 subsidiaries farmers filed herewith consent independent registered public accounting firm filed herewith powers attorney directors executive officers filed herewith 311 rule 13a14a15d14a certification kevin j helmick president chief executive officer farmers principal executive officerfiled herewith 312 rule 13a14a15d14a certification carl culp executive vice president treasurer farmers principal financial officer filed herewith 321 certification pursuant 18 usc section 1350 kevin j helmick president chief executive officer farmers principal executive officer filed herewith 322 certification pursuant 18 usc section 1350 carl culp executive vice president treasurer farmers principal financial officer filed herewith 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema document filed herewith 101cal xbrl taxonomy extension calculation linkbase document filed herewith 101lab xbrl taxonomy extension label linkbase document filed herewith 101pre xbrl taxonomy extension presentation linkbase document filed herewith 101def xbrl taxonomy extension definition linkbase document filed herewith constitutes management contract compensatory plan arrangement copies exhibits furnished shareholders upon written request directed carl culp executive vice president treasurer farmers national banc corp 20 broad street canfield ohio 44406