Farmers National Banc Corp. Announces 2017 First Quarter Financial Results

  • Earnings per diluted share increased to $0.21 for the quarter ended March 31, 2017 compared to $0.18 for same quarter in 2016
  • Exceeded $2 billion in total assets at March 31, 2017
  • 137 consecutive quarters of profitability
  • Annualized return on average assets was 1.17% and annualized return on average equity 10.87% for the quarter ended March 31, 2017
  • Noninterest income increased 19% compared to same quarter in 2016
  • Non-performing assets to total assets remain at low levels, 0.34% at March 31, 2017

CANFIELD, Ohio--()--Farmers National Banc Corp. (Farmers) (NASDAQ: FMNB) today reported financial results for the three months ended March 31, 2017.

“We are encouraged by the promising start to 2017 in our financial results. We will focus our energy on the seamless integration of our newly acquired bank and customers and we remain committed to the businesses and families we serve and to our community banking approach and culture.”

Net income for the three months ended March 31, 2017 was $5.8 million, or $0.21 per diluted share, which compares to $4.8 million, or $0.18 per diluted share, for the three months ended March 31, 2016 and $5.4 million or $0.20 per diluted share for the linked quarter. Annualized return on average assets and return on average equity were 1.17% and 10.87%, respectively, for the three month period ending March 31, 2017, compared to 1.03% and 9.41% for the same three month period in 2016, and 1.08% and 9.74% for the linked quarter. Farmers’ return on average tangible equity (Non-GAAP) also improved to 13.54% for the quarter ended March 31, 2017 compared to 11.83% for the same quarter in 2016 and 12.34% for the linked quarter.

On March 13, 2017, Farmers entered into an agreement and plan of merger with Monitor Bancorp, Inc. (Monitor), the holding company for The Monitor Bank, located in Holmes County in Ohio. This transaction is expected to close during the third quarter of 2017. This transaction will serve as an entrance into the attractive Holmes County market for Farmers. Monitor has an excellent core deposit base and has been a solid earner with strong asset quality. This transaction will help Farmers continue to grow its market share, balance sheet and earnings. As of December 31, 2016, Monitor had total assets of $43.3 million, which included net loans of $22.3 million and deposits of $37.2 million. For the year ended December 31, 2016, Monitor’s return on average assets and return on average equity were 0.74% and 5.44%, respectively.

Kevin J. Helmick, President and CEO, stated, “We are excited to announce our fourth acquisition in the past two years, which further enhances Farmers’ brand and delivers long-term value for our shareholders. We have stayed focused on our strategic growth plan which has paved the way for the company to reach over $2 billion in assets at the end of the first quarter. This growth enhances profitability by creating significant economies of scale and improved operational efficiencies. We are also pleased to report that our earnings have increased through the successful integration of our previous mergers and we continue to be encouraged by our organic loan growth, which has increased 11% during the past twelve months, and improvements in our level of noninterest income.”

2017 First Quarter Financial Highlights

  • Loan growth
    Total loans were $1.46 billion at March 31, 2017, compared to $1.32 billion at March 31, 2016, representing an increase of 11.1%. The increase in loans is a direct result of Farmers’ focus on loan growth utilizing a talented lending and credit team, while adhering to a sound underwriting discipline. The increase in loans has occurred across each of the major loan categories. Loans now comprise 77.9% of the Bank's average earning assets for the quarter ended March 31, 2017, an improvement compared to 75.3% for the same period in 2016. This improvement, along with the growth in earning assets, has resulted in an 8% increase in tax equated loan income in the first quarter of 2017 compared to the same quarter in 2016.
  • Loan quality
    Non-performing assets to total assets remain at a low level, currently at 0.34%. Early stage delinquencies also continue to remain at low levels, at $8.3 million, or 0.57% of total loans, at March 31, 2017. Net charge-offs for the current quarter were $583 thousand, compared to $368 thousand in the same quarter in 2016; however, total net charge-offs as a percentage of average net loans outstanding is only 0.16% for the quarter ended March 31, 2017. Lending to the energy sector is insignificant and less than 1% of the loan portfolio.
  • Net interest margin
    The net interest margin for the three months ended March 31, 2017 was 4.01%, a 6 basis points decrease from the quarter ended March 31, 2016. In comparing the first quarter of 2017 to the same period in 2016, asset yields decreased 1 basis point, while the cost of interest-bearing liabilities increased 8 basis points. The net interest margin is impacted by the additional accretion as a result of the discounted loan portfolios acquired in the NBOH and Tri-State mergers, which increased the net interest margin by 5 and 9 basis points for the quarters ended March 31, 2017 and 2016, respectively.
  • Noninterest income
    Noninterest income increased 19% to $5.9 million for the quarter ended March 31, 2017 compared to $4.9 million in 2016. Gains on the sale of mortgage loans increased $205 thousand, or 51% in the current year’s quarter compared to the same quarter in 2016. Insurance agency commissions increased $535 thousand in comparing the same two quarters due mainly to the acquisition of the Bowers Group. Trust fees increased $182 thousand or 12.2% in comparing the first quarter of 2017 to the same quarter in 2016.
  • Noninterest expenses
    Farmers has remained committed to managing the level of noninterest expenses. Total noninterest expenses for the first quarter of 2017 increased slightly to $14.6 million compared to $14.4 million in the same quarter in 2016, primarily as a result of an increase in salaries and employee benefits of $733 thousand, offset by a $423 thousand decrease in other operating expenses. It is important to note that annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 3.07% in the first quarter of 2016 to 2.92% in the first quarter of 2017.
  • Efficiency ratio
    The efficiency ratio for the quarter ended March 31, 2017 improved to 58.79% compared to 62.65% for the same quarter in 2016. The main factors leading to this improvement were the increase in net interest income and noninterest income, the decrease in merger related costs, along with the stabilized level of noninterest expenses relative to average assets as explained in the preceding paragraphs.

2017 Outlook

Mr. Helmick added, “We are encouraged by the promising start to 2017 in our financial results. We will focus our energy on the seamless integration of our newly acquired bank and customers and we remain committed to the businesses and families we serve and to our community banking approach and culture.”

Founded in 1887, Farmers National Banc Corp. is a diversified financial services company headquartered in Canfield, Ohio, with $2 billion in banking assets and $1 billion in trust assets. Farmers National Banc Corp.’s wholly-owned subsidiaries are comprised of The Farmers National Bank of Canfield, a full-service national bank engaged in commercial and retail banking with 38 banking locations in Mahoning, Trumbull, Columbiana, Stark, Wayne, Medina and Cuyahoga Counties in Ohio and Beaver County in Pennsylvania, Farmers Trust Company, which operates three trust offices and offers services in the same geographic markets, and National Associates, Inc. Farmers National Insurance, LLC and Bowers Insurance Agency, Inc., wholly-owned subsidiaries of The Farmers National Bank of Canfield, offer a variety of insurance products.

Non-GAAP Disclosure

This press release includes disclosures of Farmers’ tangible common equity ratio, return on average tangible assets, return on average tangible equity and net income excluding costs related to acquisition activities, which are financial measures not prepared in accordance with generally accepted accounting principles in the United States (GAAP). A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed by GAAP. Farmers believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and Farmers’ marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP. The reconciliations of non-GAAP financial measures are included in the tables following Consolidated Financial Highlights below.

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Farmers’ financial condition, results of operations, asset quality trends and profitability. Forward-looking statements are not historical facts but instead represent only management’s current expectations and forecasts regarding future events, many of which, by their nature, are inherently uncertain and outside of Farmers’ control. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions, as well as any statements related to future expectations of performance or conditional verbs, such as “will,” “would,” “should,” “could” or “may.” Farmers’ actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Factors that could cause Farmers’ actual results to differ materially from those described in the forward-looking statements can be found in Farmers’ Annual Report on Form 10-K for the year ended December 31, 2016, which has been filed with the Securities and Exchange Commission (SEC) and is available on Farmers’ website (www.farmersbankgroup.com) and on the SEC’s website (www.sec.gov). Forward-looking statements are not guarantees of future performance and should not be relied upon as representing management’s views as of any subsequent date. Farmers does not undertake any obligation to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

Farmers National Banc Corp. and Subsidiaries
Consolidated Financial Highlights
(Amounts in thousands, except per share results) Unaudited
                       
 
Consolidated Statements of Income For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
2017 2016 2016 2016 2016
Total interest income $ 18,850 $ 18,469 $ 18,332 $ 17,950 $ 17,747
Total interest expense   1,319   1,178   1,139   1,061   1,000
Net interest income 17,531 17,291 17,193 16,889 16,747
Provision for loan losses 1,050 990 1,110 990 780
Other income 5,887 6,076 6,485 5,737 4,946
Merger related costs 62 19 31 224 289
Other expense   14,551   14,981   15,194   14,559   14,155
Income before income taxes 7,755 7,377 7,343 6,853 6,469
Income taxes   1,972   2,014   1,967   1,833   1,671
Net income $ 5,783 $ 5,363 $ 5,376 $ 5,020 $ 4,798
 
Average shares outstanding 27,054 27,048 27,048 26,965 26,937
Basic and diluted earnings per share 0.21 0.20 0.20 0.19 0.18
Cash dividends 1,353 1,082 1,082 1,083 1,077
Cash dividends per share 0.05 0.04 0.04 0.04 0.04
Performance Ratios
Net Interest Margin (Annualized) 4.01 % 3.95 % 3.97 % 4.06 % 4.07 %
Efficiency Ratio (Tax equivalent basis) 58.79 % 60.37 % 60.85 % 62.60 % 62.65 %
Return on Average Assets (Annualized) 1.17 % 1.08 % 1.10 % 1.06 % 1.03 %
Return on Average Equity (Annualized) 10.87 % 9.74 % 9.97 % 9.69 % 9.41 %
Dividends to Net Income 23.40 % 20.18 % 20.13 % 21.57 % 22.45 %
Other Performance Ratios (Non-GAAP)
Return on Average Tangible Assets 1.18 % 1.11 % 1.13 % 1.08 % 1.04 %
Return on Average Tangible Equity 13.54 % 12.34 % 12.73 % 12.22 % 11.83 %
 
Consolidated Statements of Financial Condition
March 31, Dec. 31, Sept. 30, June 30, March 31,
2017 2016 2016 2016 2016
Assets
Cash and cash equivalents $ 61,251 $ 41,778 $ 67,372 $ 62,184 $ 34,619
Securities available for sale 377,072 369,995 368,729 378,432 387,093
 
Loans held for sale 1,098 355 2,148 1,737 488
Loans 1,461,461 1,427,635 1,395,620 1,358,484 1,315,501
Less allowance for loan losses   11,319   10,852   10,518   9,720   9,390
Net Loans   1,450,142   1,416,783   1,385,102   1,348,764   1,306,111
 
Other assets   136,924   137,202   137,657   134,002   131,996
Total Assets $ 2,026,487 $ 1,966,113 $ 1,961,008 $ 1,925,119 $ 1,860,307
 
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 374,399 $ 366,870 $ 352,441 $ 339,364 $ 334,391
Interest-bearing   1,165,821   1,157,886   1,139,724   1,108,078   1,111,491
Total deposits 1,540,220 1,524,756 1,492,165 1,447,442 1,445,882
Other interest-bearing liabilities 245,069 213,496 235,757 247,934 192,078
Other liabilities   23,136   14,645   17,649   17,252   18,365
Total liabilities 1,808,425 1,752,897 1,745,571 1,712,628 1,656,325
Stockholders' Equity   218,062   213,216   215,437   212,491   203,982

Total Liabilities and Stockholders' Equity

$ 2,026,487 $ 1,966,113 $ 1,961,008 $ 1,925,119 $ 1,860,307
 
Period-end shares outstanding 27,067 27,048 27,048 27,048 26,924
Book value per share $ 8.06 $ 7.88 $ 7.96 $ 7.86 $ 7.58
Tangible book value per share (Non-GAAP) * 6.40 6.21 6.29 6.17 5.99
 
* Tangible book value per share is calculated by dividing tangible common equity by average outstanding shares
 
Capital and Liquidity
Common Equity Tier 1 Capital Ratio (a) 11.79 % 11.69 % 11.67 % 11.61 % 11.82 %
Total Risk Based Capital Ratio (a) 12.51 % 12.53 % 12.51 % 12.41 % 12.63 %
Tier 1 Risk Based Capital Ratio (a) 11.79 % 11.83 % 11.81 % 11.75 % 11.97 %
Tier 1 Leverage Ratio (a) 9.37 % 9.41 % 9.35 % 9.37 % 9.34 %
Equity to Asset Ratio 10.76 % 10.84 % 10.99 % 11.04 % 10.96 %
Tangible Common Equity Ratio 8.74 % 8.75 % 8.88 % 8.87 % 8.88 %
Net Loans to Assets 71.56 % 72.06 % 70.63 % 70.06 % 70.21 %
Loans to Deposits 94.89 % 93.63 % 93.53 % 93.85 % 90.98 %
Asset Quality
Non-performing loans $ 6,553 $ 8,170 $ 8,003 $ 8,360 $ 9,710
Other Real Estate Owned 318 482 506 572 555
Non-performing assets 6,871 8,652 8,509 8,932 10,265
Loans 30 - 89 days delinquent 8,258 12,747 10,986 11,371 10,072
Charged-off loans 943 841 562 820 578
Recoveries 360 185 250 160 210
Net Charge-offs 583 656 312 660 368
Annualized Net Charge-offs to
Average Net Loans Outstanding 0.16 % 0.20 % 0.09 % 0.20 % 0.11 %
Allowance for Loan Losses to Total Loans 0.77 % 0.76 % 0.75 % 0.72 % 0.71 %
Non-performing Loans to Total Loans 0.45 % 0.57 % 0.57 % 0.62 % 0.74 %
Allowance to Non-performing Loans 172.73 % 132.83 % 131.43 % 116.27 % 96.70 %
Non-performing Assets to Total Assets 0.34 % 0.44 % 0.43 % 0.46 % 0.55 %
           
(a) March 31, 2017 ratio is estimated
 
Reconciliation of Common Stockholders' Equity to Tangible Common Equity
  March 31, Dec. 31, Sept. 30, June 30, March 31,
2017 2016 2016 2016 2016
Stockholders' Equity $ 218,062 $ 213,216 $ 215,437 $ 212,491 $ 203,982
Less Goodwill and Other Intangibles   44,789   45,154   45,299   45,718   42,574
Tangible Common Equity $ 173,273 $ 168,062 $ 170,138 $ 166,773 $ 161,408
Average Stockholders' Equity 215,819 219,028 214,484 207,776 204,986
Less Average Goodwill and Other Intangibles   45,028   45,173   45,575   43,475   42,796
Average Tangible Common Equity $ 170,791 $ 173,855 $ 168,909 $ 164,301 $ 162,190
 
Reconciliation of Total Assets to Tangible Assets
March 31, Dec. 31, Sept. 30, June 30, March 31,
2017 2016 2016 2016 2016
Total Assets $ 2,026,487 $ 1,966,113 $ 1,961,008 $ 1,925,119 $ 1,860,307
Less Goodwill and Other Intangibles   44,789   45,154   45,299   45,718   42,574
Tangible Assets $ 1,981,698 $ 1,920,959 $ 1,915,709 $ 1,879,401 $ 1,817,733
Average Assets 2,001,084 1,977,589 1,949,204 1,897,068 1,881,458
Less average Goodwill and Other Intangibles   45,028   45,173   45,575   43,475   42,796
Average Tangible Assets $ 1,956,056 $ 1,932,416 $ 1,903,629 $ 1,853,593 $ 1,838,662
 
Reconciliation of Net Income, Excluding Costs Related to Acquisition Activities
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
2017 2016 2016 2016 2016
Income before income taxes - Reported $ 7,755 $ 7,377 $ 7,343 $ 6,853 $ 6,469
Acquisition Costs   62   19   31   224   289
Income before income taxes - Adjusted 7,817 7,396 7,374 7,077 6,758
Income tax expense (b)   1,987   2,018   1,973   1,899   1,746
Net income - Adjusted $ 5,830 $ 5,378 $ 5,401 $ 5,178 $ 5,012
Average shares outstanding 27,054 27,048 27,048 26,965 26,937
EPS excluding acquisition costs $ 0.22 $ 0.20 $ 0.20 $ 0.19 $ 0.19
 
(b) The income tax expense change from actual income tax expense relates to the deductibility of certain acquisition costs.
 
Reconciliation of Return on Average Assets and Average Equity, Excluding Acquisition Costs
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
2017 2016 2016 2016 2016
ROA excluding acquisition costs (c) 1.17 % 1.09 % 1.11 % 1.09 % 1.07 %
ROE excluding acquisition costs (d) 10.81 % 9.82 % 10.07 % 9.97 % 9.78 %
 
(c) Net income -adjusted divided by average assets
(d) Net income - adjusted divided by average equity
 
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
End of Period Loan Balances

2,017

2016 2016 2016 2016
Commercial real estate $ 456,917 $ 446,975 $ 426,657 $ 418,269 $ 414,119
Commercial 208,913 204,771 207,228 201,796 197,708
Residential real estate 441,593 430,674 423,009 418,693 405,560
Consumer 216,648 212,836 205,466 192,232 180,791
Agricultural loans   133,868   128,981   129,959   124,551   114,625
Total, excluding net deferred loan costs $ 1,457,939 $ 1,424,237 $ 1,392,319 $ 1,355,541 $ 1,312,803
 
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
Noninterest Income 2017 2016 2016 2016 2016
Service charges on deposit accounts $ 951 $ 1,031 $ 1,057 $ 987 $ 935
Bank owned life insurance income 201 208 194 201 212
Trust fees 1,678 1,482 1,693 1,564 1,496
Insurance agency commissions 674 559 569 293 139
Security gains 13 1 31 41 0
Retirement plan consulting fees 513 444 561 496 489
Investment commissions 222 310 308 356 236
Net gains on sale of loans 607 838 1,063 540 402
Debit card and EFT fees 653 722 656 657 626
Other operating income   375   481   353   602   411
Total Noninterest Income $ 5,887 $ 6,076 $ 6,485 $ 5,737 $ 4,946
 
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
Noninterest Expense 2017 2016 2016 2016 2016
Salaries and employee benefits $ 8,287 $ 8,248 $ 8,366 $ 7,740 $ 7,554
Occupancy and equipment 1,587 1,748 1,587 1,616 1,664
State and local taxes 417 363 394 394 393
Professional fees 747 803 671 754 529
Merger related costs 62 19 31 224 289
Advertising 244 241 383 363 345
FDIC insurance 235 199 287 286 283
Intangible amortization 365 368 421 335 337
Core processing charges 655 743 738 580 638
Telephone and data 241 275 206 233 216
Other operating expenses   1,773   1,993   2,141   2,258   2,196
Total Noninterest Expense $ 14,613 $ 15,000 $ 15,225 $ 14,783 $ 14,444
 
Average Balance Sheets and Related Yields and Rates
(Dollar Amounts in Thousands)
               
Three Months Ended Three Months Ended
March 31, 2017 March 31, 2016
AVERAGE AVERAGE
BALANCE INTEREST (1) RATE (1) BALANCE INTEREST (1) RATE (1)
EARNING ASSETS
Loans (2) $ 1,436,494 $ 16,638 4.70 % $ 1,292,415 $ 15,430 4.80 %
Taxable securities 211,711 1,118 2.14 260,677 1,437 2.22
Tax-exempt securities (2) 152,913 1,639 4.35 128,527 1,356 4.24
Equity securities 9,924 115 4.70 9,559 113 4.75
Federal funds sold and other   34,234 63 0.75   24,957 38 0.61
Total earning assets 1,845,276 19,573 4.30 1,716,135 18,374 4.31
Nonearning assets   155,808   165,323
Total assets $ 2,001,084 $ 1,881,458
INTEREST-BEARING LIABILITIES
Time deposits $ 235,153 $ 500 0.86 % $ 243,511 $ 409 0.68 %
Savings deposits 520,081 170 0.13 529,921 151 0.11
Demand deposits 384,602 244 0.26 317,513 147 0.19
Short term borrowings 249,505 327 0.53 215,477 175 0.33
Long term borrowings   12,291 78 2.57   22,021 118 2.16
Total interest-bearing liabilities $ 1,401,632 1,319 0.38 $ 1,328,443 1,000 0.30

NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY

Demand deposits 369,477 334,919
Other liabilities 14,156 13,110
Stockholders' equity   215,819   204,986

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 2,001,084     $ 1,881,458    
Net interest income and interest rate spread $ 18,254   3.92 % $ 17,374   4.01 %
Net interest margin   4.01 %   4.07 %
 
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
(2) For 2017, adjustments of $155 thousand and $568 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2016, adjustments of $160 thousand and $467 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. These adjustments were based on a marginal federal income tax rate of 35%, less disallowances.

Contacts

Farmers National Banc Corp.
Kevin J. Helmick, President and CEO, 330-533-3341
exec@farmersbankgroup.com

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