Farmers National Banc Corp. Announces 2016 Second Quarter Financial Results

  • 14% organic loan growth since June 30, 2015
  • 134 consecutive quarters of profitability
  • Net income for quarter ended June 30, 2016 was $5.0 million compared to $4.8 million for the linked quarter
  • Annualized return on assets was 1.05% for the first six months of 2016
  • Noninterest income increased 30.1% compared to same quarter in 2015
  • Non-performing assets to total assets remain at low levels, 0.46% at June 30, 2016

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

Net income for the three months ended June 30, 2016 was $5.0 million, or $0.19 per diluted share, which compares to $812 thousand, or $0.04 per diluted share, for the three months ended June 30, 2015. Excluding expenses related to acquisition activities, net income for the two periods was $5.2 million or $0.19 and $2.4 million or $0.12, respectively. In comparing the first quarter’s results to the most recent previous quarter, net income of $5.0 million increased 4.6% compared to $4.8 million for the quarter ended March 31, 2016.

Annualized return on average assets and return on average equity were 1.06% and 9.69%, respectively, for the three month period ending June 30, 2016, compared to 1.03% and 9.41% 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 June 30, 2016 were 1.10% and 10.02% compared to 0.82% and 8.33% for the same quarter in 2015.

Net income for the six months ended June 30, 2016 was $9.8 million, or $0.36 per diluted share, compared to $3.0 million or $0.16 per diluted share for same six month period in 2015. Excluding expenses related to acquisition activities, net income for the two six month periods was $10.2 million, or $0.38 per share and $4.7 million or $0.25 per share, respectively, and the annualized return on average assets and return on average equity were 1.08% and 9.98% in 2016, compared to 0.78% and 6.81% 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. (The Bowers Group). The Bowers Group will continue to operate under its name from its current location in Cortland, Ohio, but is expected to merge with Farmers National Insurance, LLC, Farmers’ wholly-owned insurance agency subsidiary. 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 pleased to report that our earnings have increased through the successful integration of both bank mergers, and we are encouraged by the early results of our merger with The Bowers Group. We also continue to be encouraged by our organic loan growth, which has increased 9.5% on an annualized basis during the past six months, and improvements in our level of noninterest income.”

2016 Second Quarter Financial Highlights

  • Loan growth
    Total loans were $1.36 billion at June 30, 2016, compared to $1.30 billion at December 31, 2015, representing an annualized growth of 9.5%. 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 76.3% of the Bank's first quarter average earning assets at June 30, 2016, an improvement compared to 65.9% at the same time in 2015. This improvement along with the growth in earning assets organically and through merger activity has resulted in an 80% increase in tax equated loan income from the second quarter of 2015 to the same quarter in 2016.
  • Loan quality
    Non-performing assets to total assets remain at a safe level, currently at 0.46%. Early stage delinquencies also continue to remain at low levels, at $11.4 million, or 0.84% of total loans, at June 30, 2016. Net charge-offs for the current quarter were $660 thousand, down $627 thousand compared to $1.3 million 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 0.71% for the 3 months ended June 30, 2015 to 0.20% 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 June 30, 2016 was 4.06%, a 40 basis points increase from the quarter ended June 30, 2015. In comparing the second quarter of 2016 to the same period in 2015, asset yields increased 28 basis points, while the cost of interest-bearing liabilities decreased 13 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 as explained previously. 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 9 basis points lower or 3.97% for the quarter ended June 30, 2016.
  • Noninterest income
    Noninterest income increased 30.1% to $5.7 million for the quarter ended June 30, 2016 compared to $4.4 million in 2015. Deposit account income increased $315 thousand, or 47%, in the current year’s quarter compared to the same quarter in 2015 and gains on the sale of mortgage loans increased $384 thousand, or 246%, in comparing the same two quarters. Investment commissions increased $100 thousand or 39% and insurance agency commissions increased $175 thousand or 148%. Debit card interchange fees also increased $593 thousand or 86% in comparing the second quarter of 2015 to the same quarter in 2016. The Company also recognized a $262 thousand gain from the sale of land during the second quarter of 2016, compared to none in the same quarter in 2015.
  • Noninterest expenses
    Farmers has remained committed to managing the level of noninterest expenses. Total noninterest expenses for the second quarter of 2016 were $14.8 million. Excluding expenses related to acquisition activities of $224 thousand, noninterest expenses were $14.6 million. Excluding expenses related to acquisition activities, annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 3.39% in the second quarter of 2015 to 3.07% in the second quarter of 2016. Annualized salaries and employee benefits as a percent of average assets also decreased from 1.89% to 1.63% in comparing the second quarter of 2015 and 2016.
  • Efficiency ratio
    The efficiency ratio for the quarter ended June 30 2016 improved to 62.6% compared to 81.03% for the same quarter in 2015. Excluding expenses related to acquisition activities, the efficiency ratio for the same periods was 61.6% and 69.9%, 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 promising start to 2016 in our financial results. We will continue to focus our energy on the seamless integration of the newly acquired companies and customers. 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 $1.9 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 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 Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30, Percent
2016   2016   2015   2015   2015   2016   2015   Change
Total interest income $ 17,950 $ 17,747 $ 17,481 $ 15,594 $ 10,753 $ 35,697 $ 20,752 72.0 %
Total interest expense   1,061       1,000       1,023       1,056       1,004       2,061       2,011     2.5 %
Net interest income 16,889 16,747 16,458 14,538 9,749 33,636 18,741 79.5 %
Provision for loan losses 990 780 990 1,220 850 1,770 1,300 36.2 %
Other income 5,737 4,946 5,175 4,685 4,409 10,683 8,446 26.5 %
Merger related costs 224 289 1,736 2,499 1,912 513 2,157 -76.2 %
Other expense   14,559       14,155       14,884       13,022       10,175       28,714       19,681     45.9 %
Income before income taxes 6,853 6,469 4,023 2,482 1,221 13,322 4,049 229.0 %
Income taxes   1,833       1,671       848       625       409       3,504       1,026     241.5 %
Net income $ 5,020     $ 4,798     $ 3,175     $ 1,857     $ 812     $ 9,818     $ 3,023     224.8 %
 
Average shares outstanding 26,965 26,937 27,027 25,672 19,366 26,951 18,890
Basic and diluted earnings per share 0.19 0.18 0.12 0.07 0.04 0.36 0.16
Cash dividends 1,083 1,077 809 770 552 2,160 1,104
Cash dividends per share 0.04 0.04 0.03 0.03 0.03 0.08 0.06
Performance Ratios
Net Interest Margin (Annualized) 4.06 % 4.07 % 3.99 % 3.84 % 3.66 % 4.07 % 3.65 %
Efficiency Ratio (Tax equivalent basis) 62.60 % 62.65 % 73.07 % 76.55 % 81.03 % 62.63 % 76.08 %
Return on Average Assets (Annualized) 1.06 % 1.03 % 0.68 % 0.43 % 0.27 % 1.05 % 0.52 %
Return on Average Equity (Annualized) 9.69 % 9.41 % 6.51 % 3.97 % 2.74 % 9.61 % 4.53 %
Dividends to Net Income 21.57 % 22.45 % 25.48 % 41.46 % 67.98 % 22.00 % 36.52 %
 
Consolidated Statements of Financial Condition
June 30, March 31, Dec. 31, Sept. 30, June 30,
2016   2016   2015   2015   2015
Assets
Cash and cash equivalents $ 62,184 $ 34,619 $ 56,014 $ 34,344 $ 37,028
Securities available for sale 378,432 387,093 394,312 379,138 386,319
 
Loans held for sale 1,737 488 1,769 566 399
Loans 1,358,484 1,315,501 1,296,865 1,183,016 1,134,838
Less allowance for loan losses   9,720       9,390       8,978       8,294       7,286  
Net Loans   1,348,764       1,306,111       1,287,887       1,174,722       1,127,552  
 
Other assets   134,002       131,996       129,920       119,027       121,105  
Total Assets $ 1,925,119     $ 1,860,307     $ 1,869,902     $ 1,707,797     $ 1,672,403  
 
Liabilities and Stockholders' Equity
Deposits $ 1,447,442 $ 1,445,882 $ 1,409,047 $ 1,330,249 $ 1,320,569
Other interest-bearing liabilities 247,934 192,078 247,985 179,701 155,591
Other liabilities   17,252       18,365       14,823       11,696       13,668  
Total liabilities 1,712,285 1,656,325 1,671,855 1,521,646 1,489,828
Stockholders' Equity   212,491       203,982       198,047       186,151       182,575  

Total Liabilities and Stockholders' Equity

$ 1,925,119     $ 1,860,307     $ 1,869,902     $ 1,707,797     $ 1,672,403  
 
Period-end shares outstanding 27,048 26,924 26,944 25,674 25,672
Book value per share $ 7.86 $ 7.58 $ 7.35 $ 7.25 $ 7.11
Tangible book value per share 6.17 5.99 5.77 5.72 5.57
Capital and Liquidity
Common Equity Tier 1 Capital Ratio (a) 11.60 % 11.82 % 11.59 % 12.12 % 12.61 %
Total Risk Based Capital Ratio (a) 12.26 % 12.63 % 12.37 % 12.77 % 13.20 %
Tier 1 Risk Based Capital Ratio (a) 11.60 % 11.97 % 11.74 % 12.12 % 12.61 %
Tier 1 Leverage Ratio (a) 9.20 % 9.34 % 9.21 % 9.27 % 9.27 %
Equity to Asset Ratio 11.04 % 10.96 % 10.59 % 10.90 % 10.92 %
Tangible Common Equity Ratio 8.87 % 8.88 % 8.50 % 8.80 % 8.76 %
Net Loans to Assets 70.06 % 70.21 % 68.87 % 68.79 % 67.42 %
Loans to Deposits 93.85 % 90.98 % 92.04 % 88.93 % 85.94 %
Asset Quality
Non-performing loans $ 8,360 $ 9,710 $ 10,445 $ 9,620 $ 7,984
Other Real Estate Owned 572 555 942 1,052 1,128
Non-performing assets 8,932 10,265 11,387 10,672 9,112
Loans 30 - 89 days delinquent 11,371 10,072 9,130 6,974 7,146
Charged-off loans 820 578 447 631 1,496
Recoveries 160 210 151 420 209
Net Charge-offs 660 368 296 211 1,287
Annualized Net Charge-offs to
Average Net Loans Outstanding 0.20 % 0.11 % 0.09 % 0.10 % 0.71 %
Allowance for Loan Losses to Total Loans 0.72 % 0.71 % 0.69 % 0.70 % 0.64 %
Non-performing Loans to Total Loans 0.62 % 0.74 % 0.81 % 0.81 % 0.70 %
Allowance to Non-performing Loans 116.27 % 96.70 % 85.96 % 86.22 % 91.26 %
Non-performing Assets to Total Assets 0.46 % 0.55 % 0.61 % 0.62 % 0.54 %
                                 
(a) June 30, 2016 ratio is estimated
 
       
Reconciliation of Common Stockholders' Equity to Tangible Common Equity
  June 30,   March 31,   Dec. 31, Sept. 30, June 30,
2016   2016   2015   2015   2015
Stockholders' Equity $ 212,491 $ 203,982 $ 198,047 $ 186,151 $ 182,575
Less Goodwill and other intangibles   45,718     42,604     42,661     39,265     39,569
Tangible Common Equity $ 166,773   $ 161,378   $ 155,386   $ 146,886   $ 143,006
 
Reconciliation of Total Assets to Tangible Assets
June 30, March 31, Dec. 31, Sept. 30, June 30,
2016   2016   2015   2015   2015
Total Assets $ 1,925,119 $ 1,860,307 $ 1,869,902 $ 1,707,797 $ 1,672,403
Less Goodwill and other intangibles   45,718     42,604     42,661     39,265     39,569
Tangible Assets $ 1,879,401   $ 1,817,703   $ 1,827,241   $ 1,668,532   $ 1,632,834
 
Reconciliation of Net Income, Excluding Costs Related to Acquisition Activities

For the Six Months
Ended

For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
2016   2016   2015   2015   2015   2016   2015
Income before income taxes - Reported $ 6,853 $ 6,469 $ 4,023 $ 2,482 $ 1,221 $ 13,322 $ 4,049
Acquisition Costs   224     289     1,736     2,499     1,912     513     2,157
Income before income taxes - Adjusted 7,077 6,758 5,759 4,981 3,133 13,835 6,206
Income tax expense   1,899     1,746     1,434     1,255     698     3,645     1,371
Net income - Adjusted $ 5,178   $ 5,012   $ 4,325   $ 3,726   $ 2,435   $ 10,190   $ 4,835
 
For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
End of Period Loan Balances 2016   2016   2015   2015   2015
Commercial real estate $ 503,095 $ 491,605 $ 492,430 $ 442,181 $ 427,028
Commercial 241,040 234,369 228,455 204,726 202,552
Residential real estate 419,174 406,039 392,849 360,586 319,820
Consumer   192,232     180,791     180,525     173,041     183,785
Total, excluding net deferred loan costs $ 1,355,541   $ 1,312,804   $ 1,294,259   $ 1,180,534   $ 1,133,185
 
For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
Noninterest Income 2016   2016   2015   2015   2015
Service charges on deposit accounts $ 987 $ 935 $ 1,049 $ 929 $ 672
Bank owned life insurance income 201 212 214 184 165
Trust fees 1,564 1,496 1,518 1,482 1,509
Insurance agency commissions 293 139 175 130 118
Security gains 41 0 46 3 35
Retirement plan consulting fees 496 489 425 423 778
Investment commissions 356 236 286 332 256
Net gains on sale of loans 540 402 407 415 156
Other operating income   1,259     1,037     1,055     787     720
Total Noninterest Income $ 5,737   $ 4,946   $ 5,175   $ 4,685   $ 4,409
 
For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
Noninterest Expense 2016   2016   2015   2015   2015
Salaries and employee benefits $ 7,740 $ 7,554 $ 8,220 $ 7,213 $ 5,663
Occupancy and equipment 1,616 1,664 1,772 1,368 1,201
State and local taxes 394 393 283 400 243
Professional fees 754 529 833 738 546
Merger related costs 224 289 1,736 2,499 1,912
Advertising 363 345 482 344 282
FDIC insurance 286 283 326 256 178
Intangible amortization 335 337 345 304 167
Core processing charges 580 638 770 643 382
Other operating expenses   2,491     2,412     1,853     1,756     1,513
Total Noninterest Expense $ 14,783   $ 14,444   $ 16,620   $ 15,521   $ 12,087
 
Average Balance Sheets and Related Yields and Rates
(Dollar Amounts in Thousands)
           
Three Months Ended Three Months Ended
June 30, 2016 June 30, 2015
AVERAGE AVERAGE
BALANCE

INTEREST
(1)

RATE (1) BALANCE

INTEREST
(1)

RATE (1)
EARNING ASSETS
Loans (2) $ 1,324,761 $ 15,787 4.79 % $ 733,249 $ 8,780 4.75 %
Taxable securities 246,590 1,288 2.10 273,799 1,405 2.04
Tax-exempt securities (2) 129,772 1,377 4.26 84,970 1,014 4.73
Equity securities 9,637 113 4.70 4,771 46 3.66
Federal funds sold and other   26,137     27 0.41   14,310     6 0.17
Total earning assets $ 1,736,897 18,592 4.30 $ 1,111,099 11,251 4.02
 
INTEREST-BEARING LIABILITIES
Time deposits $ 249,491 $ 472 0.76 % $ 203,193 $ 736 1.44 %
Savings deposits 540,251 159 0.12 420,315 117 0.11
Demand deposits 323,869 162 0.20 152,372 26 0.07
Short term borrowings 208,660 144 0.28 70,260 16 0.09
Long term borrowings   20,746     124 2.40   35,114     109 1.22
Total interest-bearing liabilities $ 1,343,017 1,061 0.32 $ 881,254 1,004 0.45
 
Net interest income and interest rate spread $ 17,531   3.98 % $ 10,247   3.57 %
Net interest margin 4.06 % 3.66 %
 
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
 
(2) For 2016, adjustments of $164 thousand and $478 thousand, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. For 2015, adjustments of $146 thousand and $352 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.
 
   
Six Months Ended Six Months Ended
June 30, 2016 June 30, 2015
AVERAGE     AVERAGE    
BALANCE

INTEREST
(1)

RATE (1)

BALANCE

INTEREST
(1)

RATE (1)

EARNING ASSETS

Loans (2)

$ 1,306,617 $ 31,217 4.80 % $ 698,777 $ 16,599 4.79 %

Taxable securities

253,635 2,725 2.16 285,209 3,052 2.16

Tax-exempt securities (2)

129,149 2,733 4.26 85,154 1,953 4.62

Equity securities

9,599 226 4.73 4,528 94 4.10
Federal funds sold and other   27,340     65 0.48   15,319     11 0.14
Total earning assets $ 1,726,340 36,966 4.31 $ 1,088,987 21,709 4.02
 
INTEREST-BEARING LIABILITIES
Time deposits $ 246,219 $ 882 0.72 % $ 202,993 $ 1,504 1.49 %
Savings deposits 536,543 310 0.12 409,534 227 0.11
Demand deposits 320,691 309 0.19 141,544 35 0.05
Short term borrowings 212,068 316 0.30 63,314 28 0.09
Long term borrowings   21,384     242 2.28   35,876     217 1.23
Total interest-bearing liabilities $ 1,336,905 $ 2,059 0.31 $ 853,261 2,011 0.48
 
Net interest income and interest rate spread $ 34,907   4.00 % $ 19,698   3.54 %
Net interest margin 4.07 % 3.65 %
 
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
 
(2) For 2016, adjustments of $324 thousand and $945 thousand, respectively, are made to tax equate income on tax exempt loans and tax exempt securities. For 2015, adjustments of $281 thousand and $676 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.

Contacts

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

Contacts

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