Farmers National Banc Corp. Announces 2016 Third Quarter Financial Results

  • Record Quarterly Earnings for the quarter ended September 30, 2016 of $5.4 million compared to $5.0 million for the linked quarter
  • 12% organic loan growth since September 30, 2015
  • 135 consecutive quarters of profitability
  • Annualized return on assets was 1.06% and return on equity of 9.74% for the first nine months of 2016
  • Noninterest income increased 38.4% compared to same quarter in 2015
  • Non-performing assets to total assets remain at low levels, 0.43% at September 30, 2016

CANFIELD, Ohio--()--Farmers National Banc Corp. (Farmers) (NASDAQ: FMNB) today reported financial results for the three and nine months ended September 30, 2016.

“We are happy to report a record quarter in net income, which has been achieved through the successful integration of our recent mergers, our 12% organic loan growth, and our continued focus on increasing noninterest income and careful management of noninterest expenses.”

Net income for the three months ended September 30, 2016 was $5.4 million, or $0.20 per diluted share, which compares to $1.9 million, or $0.07 per diluted share, for the three months ended September 30, 2015. Excluding expenses related to acquisition activities, net income for the two periods was $5.4 million or $0.20 per diluted share and $3.7 million or $0.14 per diluted share, respectively. In comparing the third quarter’s results to the most recent previous quarter, net income of $5.4 million increased 7% compared to $5.0 million for the quarter ended June 30, 2016.

Annualized return on average assets and return on average equity were 1.10% and 9.97%, respectively, for the three month period ending September 30, 2016, compared to 1.06% and 9.69% for the linked quarter. Excluding expenses related to acquisition activities, the annualized return on average assets and return on average equity for the quarter ended September 30, 2016 were 1.10% and 10.02% compared to 0.87% and 7.97% for the same quarter in 2015.

Net income for the nine months ended September 30, 2016 was $15.2 million, or $0.56 per diluted share, compared to $4.9 million or $0.23 per diluted share for same nine month period in 2015. Annualized return on average assets and return on average equity were 1.06% and 9.74%, respectively, for the nine month period ending September 30, 2016, compared to 0.48% and 4.31% for the same period in 2015. Excluding expenses related to acquisition activities, net income for the two nine month periods was $15.6 million, or $0.58 per share and $8.6 million or $0.40 per share, respectively, and the annualized return on average assets and return on average equity were 1.09% and 10.0% in 2016, compared to 0.83% and 7.41% in 2015, respectively.

During 2015, Farmers completed the mergers of National Bancshares Corporation (NBOH) the holding company for the First National Bank of Orrville, and Tri-State 1st Banc Inc. (Tri-State), the holding company for 1st National Community Bank of East Liverpool. These transactions resulted in the addition of $676 million in assets and 17 full-service branches in Northeastern Ohio and 1 in Beaver County in Pennsylvania.

On June 1, 2016 Farmers completed the acquisition of Bowers Insurance Agency, Inc. (“Bowers Group”). The Bowers Group will continue to operate under its name from its current location in Cortland, Ohio as part of Farmers’ wholly-owned insurance agency subsidiary Farmers National Insurance, LLC. The strategic acquisition is expected to enhance Farmers’ current company and product line up, and offer broader options of commercial, farm, home, and auto property/casualty insurance carriers to meet all the needs of all Farmers’ customers.

Kevin J. Helmick, President and CEO, stated, “We are happy to report a record quarter in net income, which has been achieved through the successful integration of our recent mergers, our 12% organic loan growth, and our continued focus on increasing noninterest income and careful management of noninterest expenses.”

2016 Third Quarter Financial Highlights

  • Loan growth

Total loans were $1.40 billion at September 30, 2016, compared to $1.30 billion at December 31, 2015, representing an annualized growth of 10.2%. 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. Most of the increase in loans has occurred in the commercial real estate, commercial and industrial, residential real estate and consumer loan portfolios. Loans now comprise 76.5% of the Bank's third quarter average earning assets at September 30, 2016, an improvement compared to 73.8% at the same time in 2015. This improvement along with the growth in earning assets organically and through merger activity has resulted in a 20% increase in tax equated loan income from the third quarter of 2015 to the same quarter in 2016.

  • Loan quality

Non-performing assets to total assets remain at a safe level, currently at 0.43%. Early stage delinquencies also continue to remain at low levels, at $11.0 million, or 0.79% of total loans, at September 30, 2016. Net charge-offs for the current quarter were $312 thousand, up $101 thousand compared to $211 thousand in the same quarter in 2015. It is important to note that annualized net charge-offs as a percentage of average net loans outstanding decreased from 0.10% for the 3 months ended September 30, 2015 to 0.09% for the same period in 2016. 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 September 30, 2016 was 3.97%, a 13 basis points increase from the quarter ended September 30, 2015. In comparing the third quarter of 2016 to the same period in 2015, asset yields increased 13 basis points, while the cost of interest-bearing liabilities decreased 2 basis points. Another key contributor to the increase in net interest margin was the shift in the mix of earning assets from securities to loans. The increased margin is also partially due to the additional accretion as a result of the discounted loan portfolios acquired in the NBOH and Tri-State mergers. Excluding the amortization of premium on time deposits and FHLB advances along with the accretion of the acquired loan discount, the net interest margin would have been 8 basis points lower or 3.89% for the quarter ended September 30, 2016.

  • Noninterest income

Noninterest income increased 38.4% to $6.5 million for the quarter ended September 30, 2016 compared to $4.7 million in 2015. Deposit account income increased $128 thousand, or 14%, in the current year’s quarter compared to the same quarter in 2015 and gains on the sale of mortgage loans increased $648 thousand, or 156%, in comparing the same two quarters. Insurance agency commissions increased $439 thousand and debit card interchange fees also increased $147 thousand or 29% in comparing the third quarter of 2015 to the same quarter in 2016.

  • Noninterest expenses

Farmers has remained committed to managing the level of noninterest expenses. Total noninterest expenses for the third quarter of 2016 were $15.2 million compared to $14.8 million in the linked quarter, primarily as a result of increased salaries and employee benefits related to the acquisition of the Bowers Group on June 1, 2016 and increased incentive compensation resulting from improved corporate profitability. Annualized noninterest expenses measured as a percentage of quarterly average assets increased slightly from 3.06% in the third quarter of 2015 to 3.12% in the third quarter of 2016. These same ratios excluding merger related expenses increased from 3.04% in the third quarter of 2015 to 3.11% in the third quarter of 2016.

  • Efficiency ratio

The efficiency ratio for the quarter ended September 30 2016 improved to 60.9% compared to 76.6% for the same quarter in 2015. Excluding expenses related to acquisition activities, the efficiency ratios for the same periods were 60.7% and 66.5%, respectively. The main factors leading to the improvement in the efficiency ratio was the increase in net interest income and noninterest income, along with the stabilized level of noninterest expenses relative to average assets as explained in the preceding paragraphs.

2016 Outlook

Mr. Helmick added, “We are encouraged by the improvement in our profitability thus far in 2016. We will continue to remain focused on properly executing our growth oriented business model, while creating long-term value for our shareholders. 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 39 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 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, 2015, as amended, 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 For the Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30, Percent
2016   2016   2016   2015   2015   2016   2015   Change
Total interest income $ 18,332 $ 17,950 $ 17,747 $ 17,481 $ 15,594 $ 54,029 $ 36,346 48.7 %
Total interest expense   1,139       1,061       1,000       1,023       1,056       3,200       3,067     4.3 %
Net interest income 17,193 16,889 16,747 16,458 14,538 50,829 33,279 52.7 %
Provision for loan losses 1,110 990 780 990 1,220 2,880 2,520 14.3 %
Other income 6,485 5,737 4,946 5,175 4,685 17,168 13,131 30.7 %
Merger related costs 31 224 289 1,736 2,499 544 4,656 -88.3 %
Other expense   15,194       14,559       14,155       14,884       13,022       43,908       32,703     34.3 %
Income before income taxes 7,343 6,853 6,469 4,023 2,482 20,665 6,531 216.4 %
Income taxes   1,967       1,833       1,671       848       625       5,471       1,651     231.4 %
Net income $ 5,376     $ 5,020     $ 4,798     $ 3,175     $ 1,857     $ 15,194     $ 4,880     211.4 %
 
Average shares outstanding 27,048 26,965 26,937 27,027 25,672 26,983 21,176
Basic and diluted earnings per share 0.20 0.19 0.18 0.12 0.07 0.56 0.23
Cash dividends 1,082 1,083 1,077 809 770 3,242 1,876
Cash dividends per share 0.04 0.04 0.04 0.03 0.03 0.12 0.09
Performance Ratios
Net Interest Margin (Annualized) 3.97 % 4.06 % 4.07 % 3.99 % 3.84 % 4.04 % 3.72 %
Efficiency Ratio (Tax equivalent basis) 60.85 % 62.60 % 62.65 % 73.07 % 76.55 % 62.00 % 76.27 %
Return on Average Assets (Annualized) 1.10 % 1.06 % 1.03 % 0.68 % 0.43 % 1.06 % 0.48 %
Return on Average Equity (Annualized) 9.97 % 9.69 % 9.41 % 6.51 % 3.97 % 9.74 % 4.31 %
Dividends to Net Income 20.13 % 21.57 % 22.45 % 25.48 % 41.46 % 21.34 % 38.44 %
 
Consolidated Statements of Financial Condition
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2016   2016   2016   2015   2015
Assets
Cash and cash equivalents $ 67,372 $ 62,184 $ 34,619 $ 56,014 $ 34,344
Securities available for sale 368,729 378,432 387,093 394,312 379,138
 
Loans held for sale 2,148 1,737 488 1,769 566
Loans 1,395,620 1,358,484 1,315,501 1,296,865 1,183,016
Less allowance for loan losses   10,518       9,720       9,390       8,978       8,294  
Net Loans   1,385,102       1,348,764       1,306,111       1,287,887       1,174,722  
 
Other assets   137,657       134,002       131,996       129,920       119,027  
Total Assets $ 1,961,008     $ 1,925,119     $ 1,860,307     $ 1,869,902     $ 1,707,797  
 
Liabilities and Stockholders' Equity
Deposits $ 1,492,165 $ 1,447,442 $ 1,445,882 $ 1,409,047 $ 1,330,249
Other interest-bearing liabilities 235,757 247,934 192,078 247,985 179,701
Other liabilities   17,649       17,252       18,365       14,823       11,696  
Total liabilities 1,745,571 1,712,628 1,656,325 1,671,855 1,521,646
Stockholders' Equity   215,437       212,491       203,982       198,047       186,151  
Total Liabilities
and Stockholders' Equity $ 1,961,008     $ 1,925,119     $ 1,860,307     $ 1,869,902     $ 1,707,797  
 
Period-end shares outstanding 27,048 27,048 26,924 26,944 25,674
Book value per share $ 7.96 $ 7.86 $ 7.58 $ 7.35 $ 7.25
Tangible book value per share 6.29 6.17 5.99 5.76 5.72
Capital and Liquidity
Common Equity Tier 1 Capital Ratio (a) 11.67 % 11.61 % 11.82 % 11.59 % 12.24 %
Total Risk Based Capital Ratio (a) 12.36 % 12.41 % 12.63 % 12.37 % 12.87 %
Tier 1 Risk Based Capital Ratio (a) 11.67 % 11.75 % 11.97 % 11.74 % 12.24 %
Tier 1 Leverage Ratio (a) 9.32 % 9.37 % 9.34 % 9.21 % 9.59 %
Equity to Asset Ratio 10.99 % 11.04 % 10.96 % 10.59 % 10.90 %
Tangible Common Equity Ratio 8.88 % 8.87 % 8.88 % 8.49 % 8.80 %
Net Loans to Assets 70.63 % 70.06 % 70.21 % 68.87 % 68.79 %
Loans to Deposits 93.53 % 93.85 % 90.98 % 92.04 % 88.93 %
Asset Quality
Non-performing loans $ 8,003 $ 8,360 $ 9,710 $ 10,445 $ 9,620
Other Real Estate Owned 506 572 555 942 1,052
Non-performing assets 8,509 8,932 10,265 11,387 10,672
Loans 30 - 89 days delinquent 10,986 11,371 10,072 9,130 6,974
Charged-off loans 562 820 578 447 631
Recoveries 250 160 210 151 420
Net Charge-offs 312 660 368 296 211
Annualized Net Charge-offs to
Average Net Loans Outstanding 0.09 % 0.20 % 0.11 % 0.09 % 0.10 %
Allowance for Loan Losses to Total Loans 0.75 % 0.72 % 0.71 % 0.69 % 0.70 %
Non-performing Loans to Total Loans 0.57 % 0.62 % 0.74 % 0.81 % 0.81 %
Allowance to Non-performing Loans 131.43 % 116.27 % 96.70 % 85.96 % 86.22 %
Non-performing Assets to Total Assets 0.43 % 0.46 % 0.55 % 0.61 % 0.62 %
                                 
(a) September 30, 2016 ratio is estimated
 
 
Reconciliation of Common Stockholders' Equity to Tangible Common Equity
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2016 2016 2016 2015 2015
Stockholders' Equity $ 215,437 $ 212,491 $ 203,982 $ 198,047 $ 186,151
Less Goodwill and other intangibles   45,299       45,718       42,574       42,911       39,265  
Tangible Common Equity $ 170,138     $ 166,773     $ 161,408     $ 155,136     $ 146,886  
 
Reconciliation of Total Assets to Tangible Assets
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2016   2016   2016   2015   2015
Total Assets $ 1,961,008 $ 1,925,119 $ 1,860,307 $ 1,869,902 $ 1,707,797
Less Goodwill and other intangibles   45,299       45,718       42,574       42,911       39,265  
Tangible Assets $ 1,915,709     $ 1,879,401     $ 1,817,733     $ 1,826,991     $ 1,668,532  
 
Reconciliation of Net Income, Excluding Costs Related to Acquisition Activities For the Nine Months Ended
For the Three Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
2016   2016   2016   2015   2015   2016   2015
Income before income taxes - Reported $ 7,343 $ 6,853 $ 6,469 $ 4,023 $ 2,482 $ 20,665 $ 6,531
Acquisition Costs   31       224       289       1,736       2,499       544       4,656  
Income before income taxes - Adjusted 7,374 7,077 6,758 5,759 4,981 21,209 11,187
Income tax expense   1,973       1,899       1,746       1,434       1,255       5,618       2,626  
Net income - Adjusted $ 5,401     $ 5,178     $ 5,012     $ 4,325     $ 3,726     $ 15,591     $ 8,561    
 
For the Three Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
End of Period Loan Balances 2016 2016 2016 2015 2015
Commercial real estate $ 515,553 $ 503,095 $ 491,604 $ 486,771 $ 442,181
Commercial 247,842 241,040 234,369 231,068 204,726
Residential real estate 423,458 419,174 406,039 395,458 360,586
Consumer   205,466       192,232       180,791       180,837       173,041  
Total, excluding net deferred loan costs $ 1,392,319     $ 1,355,541     $ 1,312,803     $ 1,294,134     $ 1,180,534  
 
For the Three Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
Noninterest Income 2016   2016   2016   2015   2015
Service charges on deposit accounts $ 1,057 $ 987 $ 935 $ 1,049 $ 929
Bank owned life insurance income 194 201 212 214 184
Trust fees 1,693 1,564 1,496 1,518 1,482
Insurance agency commissions 569 293 139 175 130
Security gains 31 41 0 46 3
Retirement plan consulting fees 561 496 489 425 423
Investment commissions 308 356 236 286 332
Net gains on sale of loans 1,063 540 402 407 415
Other operating income   1,009       1,259       1,037       1,055       787  
Total Noninterest Income $ 6,485     $ 5,737     $ 4,946     $ 5,175     $ 4,685  
 
For the Three Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
Noninterest Expense 2016   2016   2016   2015   2015
Salaries and employee benefits $ 8,366 $ 7,740 $ 7,554 $ 8,220 $ 7,213
Occupancy and equipment 1,587 1,616 1,664 1,772 1,368
State and local taxes 394 394 393 283 400
Professional fees 671 754 529 833 738
Merger related costs 31 224 289 1,736 2,499
Advertising 383 363 345 482 344
FDIC insurance 287 286 283 326 256
Intangible amortization 421 335 337 345 304
Core processing charges 738 580 638 770 643
Other operating expenses   2,347       2,491       2,412       1,853       1,756  
Total Noninterest Expense $ 15,225     $ 14,783     $ 14,444     $ 16,620     $ 15,521  
 
Average Balance Sheets and Related Yields and Rates
(Dollar Amounts in Thousands)
 
Three Months Ended Three Months Ended
September 30, 2016   September 30, 2015
AVERAGE AVERAGE
BALANCE INTEREST (1) RATE (1) BALANCE INTEREST (1) RATE (1)
EARNING ASSETS
Loans (2) $ 1,365,637 $ 16,212 4.72 % $ 1,151,899 $ 13,530 4.66 %
Taxable securities 229,630 1,160 2.01 265,416 1,369 2.05
Tax-exempt securities (2) 131,714 1,365 4.12 116,581 1,196 4.07
Equity securities 9,607 177 7.33 7,593 48 2.51
Federal funds sold and other   47,860       54   0.45   19,615       9   0.18
Total earning assets $ 1,784,448   18,968 4.23 $ 1,561,104   16,152 4.10
 
INTEREST-BEARING LIABILITIES
Time deposits $ 250,268 $ 490 0.78 % $ 257,822 $ 616 0.95 %
Savings deposits 552,037 191 0.14 512,288 144 0.11
Demand deposits 322,511 177 0.22 267,700 149 0.22
Short term borrowings 215,859 166 0.31 109,795 59 0.21
Long term borrowings   19,404       115   2.36   51,651       88   0.68
Total interest-bearing liabilities $ 1,360,079   1,139 0.33 $ 1,199,256   1,056 0.35
 
Net interest income and interest rate spread $ 17,829       3.90 % $ 15,096       3.75 %
Net interest margin   3.97 %   3.84 %
 
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
 
(2) For 2016, adjustments of $164 thousand and $472 thousand, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. For 2015, adjustments of $145 thousand and $413 thousand, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. These adjustments are based on a marginal federal income tax rate of 35%, less disallowances.
 
Nine Months Ended Nine Months Ended
September 30, 2016   September 30, 2015
AVERAGE AVERAGE
BALANCE INTEREST (1) RATE (1) BALANCE INTEREST (1) RATE (1)
EARNING ASSETS
Loans (2) $ 1,326,536 $ 47,429 4.78 % $ 852,094 $ 30,129 4.73 %
Taxable securities 245,578 3,885 2.11 278,538 4,421 2.12
Tax-exempt securities 130,010 4,098 4.21 93,874 3,149 4.48
Equity securities (2) 9,601 403 5.61 5,564 142 3.41
Federal funds sold and other   33,625       119   0.47   21,071       20   0.13
Total earning assets $ 1,745,350   55,934 4.28 $ 1,251,141   37,861 4.05
 
INTEREST-BEARING LIABILITIES
Time deposits $ 247,327 $ 1,371 0.74 % $ 221,576 $ 2,120 1.28 %
Savings deposits 541,746 501 0.12 444,161 371 0.11
Demand deposits 321,302 486 0.20 184,057 184 0.13
Short term borrowings 213,341 485 0.30 80,721 86 0.14
Long term borrowings   20,719       357   2.30   39,449       306   1.04
Total interest-bearing liabilities $ 1,344,435   $ 3,200 0.32 $ 969,964   3,067 0.42
 
Net interest income and interest rate spread $ 52,734       3.96 % $ 34,794       3.63 %
Net interest margin   4.04 %   3.72 %
 
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
 
(2) For 2016, adjustments of $488 thousand and $1.4 million, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. For 2015, adjustments of $426 thousand and $1.1 million, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. These adjustments are based on a marginal federal income tax rate of 35%, less disallowances.
 

Contacts

Farmers National Banc Corp.
Kevin J. Helmick, President and CEO
20 South Broad Street, P.O. Box 555
Canfield, OH 44406
330-533-3341
exec@farmersbankgroup.com

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