Farmers National Banc Corp. Announces 2018 First Quarter Financial Results

  • Record net income for the quarter of $7.7 million, 34% higher than the same quarter in 2017
  • 141 consecutive quarters of profitability
  • Annualized return on average assets was 1.45% and annualized return on average equity 13.03% for the quarter ended March 31, 2018
  • 9.4% loan growth since March 31, 2017
  • Non-performing assets to total assets remain at low levels, 0.37% at March 31, 2018

CANFIELD, Ohio--()--Farmers National Banc Corp. (Farmers) (NASDAQ: FMNB) today reported financial results for the three months ended March 31, 2018.

“We are pleased to report record earnings which are a result of the successful integration of previous mergers, continued strong loan growth, higher levels of noninterest income and a lower effective income tax rate.”

Net income for the three months ended March 31, 2018 was $7.7 million, or $0.28 per diluted share, which compares to $5.8 million, or $0.21 per diluted share, for the three months ended March 31, 2017 and $5.2 million or $0.19 per diluted share for the linked quarter. Annualized return on average assets and return on average equity were 1.45% and 13.03%, respectively, for the three month period ending March 31, 2018, compared to 1.17% and 10.87% for the same three month period in 2017, and 0.96% and 8.60% for the linked quarter. Farmers’ return on average tangible equity (Non-GAAP) also improved to 15.84% for the quarter ended March 31, 2018 compared to 13.54% for the same quarter in 2017 and 10.69% for the linked quarter.

On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law. H.R.1, among other things, reduced the corporate income tax rate to 21% effective January 1, 2018. As a result of passage of the new tax law, Farmers effective tax rate decreased from 25.43% for the quarter ended March 31, 2017 to 14.96% for the quarter ended March 31, 2018. It is important to note that also as a result of the new tax law, Farmers determined that its net deferred tax assets needed to be reduced in the fourth quarter of 2017 by approximately $1.8 million, representing an impact on earnings per share of approximately $0.06 per diluted share for that fourth quarter, based on that quarter’s weighted average diluted shares outstanding of approximately 27.5 million.

Kevin J. Helmick, President and CEO, stated, “We are pleased to report record earnings which are a result of the successful integration of previous mergers, continued strong loan growth, higher levels of noninterest income and a lower effective income tax rate.”

2018 First Quarter Financial Highlights

  • Loan growth
    Total loans were $1.60 billion at March 31, 2018, compared to $1.46 billion at March 31, 2017, representing an increase of 9.4%. 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 in the commercial and commercial real estate, residential real estate and agricultural loan portfolios. Loans now comprise 78.1% of the Bank's average earning assets for the quarter ended March 31, 2018, an improvement compared to 77.9% for the same period in 2017. This improvement, along with the growth in earning assets, has resulted in an 11% increase in tax equated loan income in the first quarter of 2018 compared to the same quarter in 2017.
  • Loan quality
    Non-performing assets to total assets remain at a low level, currently at 0.37%. Early stage delinquencies also continue to remain at low levels, at $7.0 million, or 0.44% of total loans, at March 31, 2018. Net charge-offs for the current quarter were $540 thousand, compared to $583 thousand in the same quarter in 2017 and total net charge-offs as a percentage of average net loans outstanding is only 0.14% for the quarter ended March 31, 2018. 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, 2018 was 3.92%, a 9 basis points decrease from the quarter ended March 31, 2017. In comparing the first quarter of 2018 to the same period in 2017, asset yields increased 10 basis points, while the cost of interest-bearing liabilities increased 25 basis points. Most of this increase was the result of higher rates paid on short-term borrowings and time deposits, consistent with increases in the federal funds sold rate. The net interest margin is impacted by the additional accretion as a result of the discounted loan portfolios acquired in the previous mergers, which increased the net interest margin by 4 and 5 basis points for the quarters ended March 31, 2018 and 2017, respectively.
  • Noninterest income
    Noninterest income increased 2.1% to $6.0 million for the quarter ended March 31, 2018 compared to $5.9 million in 2017. Debit card interchange fees increased $153 thousand or 23.4% and trust fees increased $129 thousand or 7.7% in comparing the first quarter of 2018 to the same quarter in 2017. These increases were offset by a drop in retirement plan consulting fees of $134 thousand or 26.1% and gains on the sale of mortgage loans of $120 thousand or 19.8%.
  • Noninterest expenses
    Farmers has remained committed to managing the level of noninterest expenses. Total noninterest expenses for the first quarter of 2018 increased 3.3% to $15.1 million compared to $14.6 million in the same quarter in 2017, primarily as a result of an increase in salaries and employee benefits of $451 thousand and occupancy and equipment expense of $117 thousand, offset by a $128 thousand decrease in other operating expenses and a $49 thousand decrease in professional fees. It is important to note that annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 2.92% in the first quarter of 2017 to 2.83% in the first quarter of 2018.
  • Efficiency ratio
    The efficiency ratio for the quarter ended March 31, 2018 improved to 57.98% compared to 58.79% for the same quarter in 2017. The main factors leading to this improvement were the increase in net interest income and noninterest income and the stabilized level of noninterest expenses relative to average assets as explained in the preceding paragraphs.

2018 Outlook

Mr. Helmick added, “We are encouraged by the promising start to 2018 in our financial results. We will focus our energy on the seamless execution of our strategic plan as 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 $2.2 billion in banking assets and over $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 41 banking locations in Mahoning, Trumbull, Columbiana, Stark, Wayne, Medina and Cuyahoga Counties in Ohio and Beaver County in Pennsylvania, Farmers Trust Company, which operates four 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, 2017, 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,
2018   2017   2017   2017   2017
Total interest income $21,282 $21,084 $20,551 $20,042 $18,850
Total interest expense 2,336   2,017   1,876   1,669   1,319
Net interest income 18,946 19,067 18,675 18,373 17,531
Provision for loan losses 775 400 950 950 1,050
Noninterest income 6,010 6,051 6,058 6,055 5,887
Acquisition related costs 25 88 270 104 62
Other expense 15,071   15,311   15,521   15,660   14,551
Income before income taxes 9,085 9,319 7,992 7,714 7,755
Income taxes 1,359   4,084   2,009   2,004   1,972
Net income $7,726   $5,235   $5,983   $5,710   $5,783
 
Average shares outstanding 27,718 27,941 27,654 27,337 27,278
Basic and diluted earnings per share 0.28 0.19 0.22 0.21 0.21
Cash dividends 1,935 1,653 1,653 1,353 1,353
Cash dividends per share 0.07 0.06 0.06 0.05 0.05
Performance Ratios
Net Interest Margin (Annualized) 3.92% 3.98% 3.96% 4.05% 4.01%
Efficiency Ratio (Tax equivalent basis) 57.98% 59.13% 59.93% 60.79% 58.79%
Return on Average Assets (Annualized) 1.45% 0.96% 1.12% 1.11% 1.17%
Return on Average Equity (Annualized) 13.03% 8.60% 10.15% 10.25% 10.87%
Dividends to Net Income 25.05% 31.58% 27.63% 23.70% 23.40%
Other Performance Ratios (Non-GAAP)
Return on Average Tangible Assets 1.46% 0.99% 1.15% 1.14% 1.18%
Return on Average Tangible Equity 15.84% 10.69% 12.69% 12.77% 13.54%
Return on Average Tangible Equity excluding acquisition costs and deferred tax asset adjustments 15.88% 14.25% 13.09% 12.98% 13.65%
 
Consolidated Statements of Financial Condition
March 31, Dec. 31, Sept. 30, June 30, March 31,
2018   2017   2017   2017   2017
Assets
Cash and cash equivalents $52,149 $57,614 $84,006 $64,640 $61,251
Securities available for sale 384,812 393,331 395,235 391,628 377,072
 
Loans held for sale 399 272 502 583 1,098
Loans 1,599,339 1,577,381 1,551,437 1,505,273 1,461,461
Less allowance for loan losses 12,550   12,315   12,104   11,746   11,319
Net Loans 1,586,789   1,565,066   1,539,333   1,493,527   1,450,142
 
Other assets 143,368   142,786   142,949   135,286   136,924
Total Assets $2,167,517   $2,159,069   $2,162,025   $2,085,664   $2,026,487
 
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $402,499 $412,346 $413,991 $387,596 $374,399
Interest-bearing 1,234,660   1,192,373   1,195,533   1,153,407   1,165,821
Total deposits 1,637,159 1,604,719 1,609,524 1,541,003 1,540,220
Other interest-bearing liabilities 274,816 296,559 295,270 298,827 245,069
Other liabilities 14,302   15,717   19,348   19,147   23,136
Total liabilities 1,926,277 1,916,995 1,924,142 1,858,977 1,808,425
Stockholders' Equity 241,240   242,074   237,883   226,687   218,062
Total Liabilities
and Stockholders' Equity $2,167,517   $2,159,069   $2,162,025   $2,085,664   $2,026,487
 
Period-end shares outstanding 27,641 27,544 27,544 27,067 27,067
Book value per share $8.73 $8.79 $8.64 $8.38 $8.06
Tangible book value per share (Non-GAAP)* 7.10 7.14 6.98 6.73 6.40
 
* 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) 12.04% 11.86% 12.00% 11.80% 11.75%
Total Risk Based Capital Ratio (a) 12.78% 12.73% 12.86% 12.67% 12.61%
Tier 1 Risk Based Capital Ratio (a) 12.04% 11.99% 12.13% 11.93% 11.89%
Tier 1 Leverage Ratio (a) 9.50% 9.50% 9.70% 9.47% 9.47%
Equity to Asset Ratio 11.13% 11.21% 11.00% 10.87% 10.76%
Tangible Common Equity Ratio 9.24% 9.31% 9.08% 8.93% 8.74%
Net Loans to Assets 73.21% 72.49% 71.20% 71.61% 71.56%
Loans to Deposits 97.69% 98.30% 96.39% 97.68% 94.89%
Asset Quality
Non-performing loans $7,893 $7,695 $6,900 $6,355 $6,553
Other Real Estate Owned 59 171 219 236 318
Non-performing assets 7,952 7,866 7,119 6,591 6,871
Loans 30 - 89 days delinquent 6,973 10,191 8,680 7,052 8,258
Charged-off loans 782 809 809 725 943
Recoveries 242 620 217 202 360
Net Charge-offs 540 189 592 523 583
Annualized Net Charge-offs to
Average Net Loans Outstanding 0.14% 0.05% 0.16% 0.14% 0.16%
Allowance for Loan Losses to Total Loans 0.78% 0.78% 0.78% 0.78% 0.77%
Non-performing Loans to Total Loans 0.49% 0.49% 0.44% 0.42% 0.45%
Allowance to Non-performing Loans 159.00% 160.04% 175.42% 184.83% 172.73%
Non-performing Assets to Total Assets 0.37% 0.36% 0.33% 0.32% 0.34%
                     
(a) March 31, 2018 ratio is estimated
 
 
Reconciliation of Total Assets to Tangible Assets
March 31, Dec. 31, Sept. 30, June 30, March 31,
2018   2017   2017   2017   2017
Total Assets $2,167,517 $2,159,069 $2,162,025 $2,085,664 $2,026,487
Less Goodwill and other intangibles 45,015   45,369   45,755   44,425   44,789
Tangible Assets $2,122,502   $2,113,700   $2,116,270   $2,041,239   $1,981,698
Average Assets 2,162,706 2,158,895 2,118,170 2,055,758 2,001,084
Less average Goodwill and other intangibles 45,248   45,622   45,263   44,665   45,028
Average Tangible Assets $2,117,458   $2,113,273   $2,072,907   $2,011,093   $1,956,056
 
 
Reconciliation of Common Stockholders' Equity to Tangible Common Equity
March 31, Dec. 31, Sept. 30, June 30, March 31,
2018   2017   2017   2017   2017
Stockholders' Equity $241,240 $242,074 $237,883 $226,687 $218,062
Less Goodwill and other intangibles 45,015   45,369   45,755   44,425   44,789
Tangible Common Equity $196,225   $196,705   $192,128   $182,262   $173,273
Average Stockholders' Equity 240,387 241,554 233,843 223,544 215,819
Less Average Goodwill and other intangibles 45,248   45,622   45,263   44,665   45,028
Average Tangible Common Equity $195,139   $195,932   $188,580   $178,879   $170,791
 
 
Reconciliation of Net Income, Excluding Acquisition Related Costs and Deferred Tax Asset Adjustments
 
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
2018   2017   2017   2017   2017
Net income $7,726 $5,235 $5,983 $5,710 $5,783
Acquisition related costs - tax equated 22 (48) 190 94 47
Deferred tax asset adjustments 0   1,793   0   0   0
Net income - Adjusted $7,748   $6,980   $6,173   $5,804   $5,830
Average shares outstanding 27,718 27,941 27,654 27,337 27,278
EPS excluding acquisition costs and deferred tax asset adjustments $0.28   $0.25   $0.22   $0.21   $0.21
 
 
March 31, Dec. 31, Sept. 30, June 30, March 31,
End of Period Loan Balances 2018   2017   2017   2017   2017
Commercial real estate $511,629 $513,708 $500,426 $476,844 $456,917
Commercial 231,498 220,440 218,946 215,676 208,913
Residential real estate 472,350 469,442 459,702 445,991 441,593
Consumer 210,088 207,851 213,918 220,454 216,648
Agricultural loans 170,725   163,081   155,336   142,687   133,868
Total, excluding net deferred loan costs $1,596,290   $1,574,522   $1,548,328   $1,501,652   $1,457,939
 
 
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
Noninterest Income 2018   2017   2017   2017   2017
Service charges on deposit accounts $1,003 $1,060 $1,077 $989 $951
Bank owned life insurance income 222 246 193 191 201
Trust fees 1,807 1,622 1,608 1,523 1,678
Insurance agency commissions 699 530 531 672 674
Security gains 18 5 0 (14) 13
Retirement plan consulting fees 379 465 480 399 513
Investment commissions 256 260 184 253 222
Net gains on sale of loans 487 810 758 891 607
Debit card and EFT fees 806 830 770 836 653
Other operating income 333   223   457   315   375
Total Noninterest Income $6,010   $6,051   $6,058   $6,055   $5,887
 
 
For the Three Months Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
Noninterest Expense 2018   2017   2017   2017   2017
Salaries and employee benefits $8,738 $8,697 $8,922 $8,853 $8,287
Occupancy and equipment 1,704 1,528 1,546 1,631 1,587
State and local taxes 459 386 436 424 417
Professional fees 698 643 726 775 747
Merger related costs 25 88 270 104 62
Litigation settlement expense 0 0 0 155 0
Advertising 275 561 405 317 244
FDIC insurance 222 165 235 234 235
Intangible amortization 354 386 379 364 365
Core processing charges 739 806 702 717 655
Telephone and data 237 241 249 242 241
Other operating expenses 1,645   1,898   1,921   1,948   1,773
Total Noninterest Expense $15,096   $15,399   $15,791   $15,764   $14,613
 
 
Average Balance Sheets and Related Yields and Rates
(Dollar Amounts in Thousands)
 
Three Months Ended Three Months Ended
March 31, 2018   March 31, 2017
AVERAGE AVERAGE
BALANCE

INTEREST
(1)

RATE (1)

BALANCE

INTEREST
(1)

RATE (1)
EARNING ASSETS
Loans (2) $1,564,990 $18,509 4.80% $1,436,494 $16,638 4.70%
Taxable securities 206,345 1,233 2.42 211,711 1,118 2.14
Tax-exempt securities (2) 185,560 1,680 3.67 152,913 1,639 4.35
Equity securities 10,887 146 5.44 9,924 115 4.70
Federal funds sold and other 35,070   145 1.68 34,234   63 0.75
Total earning assets 2,002,852 21,713 4.40 1,845,276 19,573 4.30
Nonearning assets 159,854 155,808
Total assets $2,162,706 $2,001,084
INTEREST-BEARING LIABILITIES
Time deposits $271,473 $813 1.21% $235,153 $500 0.86%
Savings deposits 482,404 182 0.15 520,081 170 0.13
Demand deposits 451,295 416 0.37 384,602 244 0.26
Short term borrowings 282,408 881 1.27 249,505 327 0.53
Long term borrowings 6,863   44 2.60 12,291   78 2.57
Total interest-bearing liabilities $1,494,443 2,336 0.63 $1,401,632 1,319 0.38

NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY

Demand deposits 411,805 369,477
Other liabilities 16,071 14,156
Stockholders' equity 240,387 215,819

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$2,162,706     $2,001,084    
Net interest income and interest rate spread $19,377   3.77% $18,254   3.92%
Net interest margin 3.92% 4.01%
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
 
(2) For 2018, adjustments of $82 thousand and $349 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2017, adjustments of $155 thousand and $568 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 21% in 2018 and 35% in 2017, less disallowances.

Contacts

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

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