FARMERS NATIONAL BANC CORP /OH/ (FMNB) stock intrinsic value fair value estimate & owner earnings analysis

BUSINESS. Farmers National Banc is the holding company for The Farmers National Bank of Canfield, a community bank serving northeastern Ohio and western Pennsylvania, including the Pittsburgh market. On March 2, 2026 it absorbed Middlefield Banc Corp. in an all-stock deal (2.6 Farmers shares per Middlefield share). Assets rose from $5.25 billion to $7.14 billion and the share count rose 57%, from 37.7 million to 59.2 million. Because the company is a different size and has a different share count than in any prior year, we value it from the merger forward rather than from its history alone. EARNINGS LEVEL. For a bank we count owner earnings as cash from operations, after setting aside loan-loss provisions as a recurring cost, after removing swings in other assets and liabilities and in mortgage loans held for sale, and after stock compensation and maintenance capital spending. On that basis the old Farmers earned $1.90 per share in 2021, $1.97 in 2022, $1.43 in 2023, $1.11 in 2024 and $1.37 in 2025. In dollars, the five-year median was $53.8 million, about 1.03% of the $5.25 billion of assets at the end of 2025. Applying that same yield to the combined $7.14 billion of assets gives about $73 million, or $1.24 per share on 59.2 million shares. That is the starting level for the bear and base cases (the bull case starts higher, below). The 2025 figure of $1.37 per share is not comparable going forward because the share count is 57% higher. Owner earnings per share grew 24% in 2025, partly because 2024 capital spending was unusually heavy at $11.7 million. We assume only 2.5% growth in year one. WHAT WE LEFT OUT. The first full quarter with Middlefield (second quarter of 2026) earned $23.0 million, or $0.39 per share, with $1.7 million of pre-tax merger costs; annualized and adjusted for those costs that is roughly $98 million, well above our $73 million level. Net interest income rose to $56.0 million from $34.9 million a year earlier. Part of that jump is purchase-accounting income from marking acquired loans to fair value, which fades, and we cannot separate it from the filings we have, so one quarter does not move our starting level. Cost savings from combining the two banks are a management target rather than something already delivered, and we leave them out. Acquisitions themselves are not credited as growth: diluted shares have more than doubled since 2016 (27.2 million to 59.2 million, +118%) while owner earnings per share rose only about 50% ($0.91 to $1.37). WHAT IS CREDITED. Growth that is already in the bag: the securities portfolio. The bank holds $1.66 billion of bonds at cost carrying a $186 million net unrealized loss (fair value $1.47 billion), meaning their yields are well below today's. As they mature at face value (the legacy bank received $79 million of maturities and repayments in 2025) and are reinvested, income rises. We credit about 2.5% a year for six years and 1.5% for four more, less than the gap implies, and nothing after year ten. Loan growth, new markets, share gains and further acquisitions are not credited. Beyond year ten the base and bull cases hold earnings flat: a community deposit franchise with $5.8 billion of deposits is what demonstrably persists. BEAR CASE: $16.32 per share. Starting at $73 million, earnings stay flat for two years, then a credit cycle like the 2008 to 2011 episode arrives. For reference, industry-wide loan charge-offs ran at roughly 2.5% of loans a year at the 2009 to 2010 peak, against Farmers' own net charge-offs of $0.9 million to $6.8 million a year in 2021 to 2025 ($6.3 million in 2025 and $6.8 million in 2024). The portfolio has $1.4 billion of commercial real estate at the legacy bank alone, and two non-owner-occupied commercial real estate relationships already carry $2.1 million of specific reserves. We assume cumulative losses of about 5% of the roughly $4.8 billion loan book over four years, of which about $134 million after tax is above what the earnings level already provides for. Owner earnings fall to $46 million, $19 million, $19 million and $46 million in years three to six, each including $7 million a year of lost margin. Afterwards earnings settle 15% below the starting level ($62 million) permanently. Tangible equity ($477 million) stays at roughly $340 million or more, so we assume no share issuance, but dividends would likely stop in the worst years. Business value is $967 million; as a bank, deposits are the raw material of the business and are not subtracted as debt, giving $16.32 per share. That is about twice tangible book value of $8.05 per share because even in this case the bank keeps earning about 13% a year on its tangible equity after the cycle, on a $5.8 billion deposit base. BASE CASE: $24.16 per share. Starting at $73 million, growth from bond repricing of 2.5% a year for six years then 1.5% for four, reaching about $90 million (about $1.52 per share) in year ten and flat after that, with a mild credit episode in years five and six costing $10 million a year. Business value is $1,431 million, no debt subtracted, $24.16 per share. BULL CASE: $30.22 per share. The second-quarter run-rate largely holds: we start at $85 million (the roughly $98 million run-rate less part of the acquisition-accounting income that fades), grow 3.5% a year for six years and 2% for four, no cycle beyond normal provisions, flat afterward. Business value $1,790 million, $30.22 per share. What would make these wrong: a deeper or earlier commercial real estate downturn than the bear case; interest rates falling enough to shrink the gap that bond repricing relies on; integration problems from the Middlefield deal; and the unexplained portion of the second-quarter jump proving larger than we assume. The $186 million unrealized bond loss is a reminder that capital is thinner than it looks: tangible common equity is about 7% of tangible assets. MARGIN-OF-SAFETY PRICE: $9.50. We are fairly sure of the old Farmers' earnings level, since it comes from five years of filings and a loss record that has been low, and less sure of the combined bank: one clean quarter, a 57% larger share count, a conversion to a new core system, and acquired loans whose fair-value marks we cannot see in the filings available. The worst plausible outcome is the bear case: two years of earnings near $19 million, a dividend cut, tangible book value falling from $8.05 toward roughly $6, with no equity raise assumed. If we are wrong on the starting level by 20%, the base case falls to about $19.28 per share. The price assumes a four-year holding period. In that time the bank pays $0.68 a share annually ($0.17 a quarter), $2.72 in total if undisturbed. At $9.50 the dividend yields about 7.2% and normal earnings power of $1.24 per share is a 13% yield on the price, so a 20% annual return would require the shares to reach about $17 after four years, which is about what we estimate the shares are worth even in the bear case today. That is the margin-of-safety price; above it the analysis relies on the base case playing out. Since our previous analysis (bear $11.25, base $19.84, bull $30.45, margin-of-safety price $7.90, made before the merger closed on a different basis, so not comparable), the business has changed in three ways: the Middlefield merger completed, the share count rose 57%, and the second quarter came in strong, which we credit only in the bull case.