Farmers National Banc Corp. Announces 2018 Second Quarter Financial Results

  • Record net income for the quarter of $8.1 million, 41% higher than the same quarter in 2017
  • 142 consecutive quarters of profitability
  • Annualized return on average assets was 1.47% and annualized return on average equity 13.28% for the quarter ended June 30, 2018
  • 8.9% loan growth since June 30, 2017
  • Non-performing assets to total assets remain at low levels, 0.38% at June 30, 2018

CANFIELD, Ohio--()--Farmers National Banc Corp. (Farmers) (NASDAQ: FMNB) today reported financial results for the three months ended June 30, 2018.

Net income for the three months ended June 30, 2018 was $8.1 million, or $0.29 per diluted share, which compares to $5.7 million, or $0.21 per diluted share, for the three months ended June 30, 2017 and $7.7 million, or $0.28 per diluted share, for the linked quarter. Annualized return on average assets and return on average equity were 1.47% and 13.28%, respectively, for the three month period ending June 30, 2018, compared to 1.11% and 10.25% for the same three month period in 2017, and 1.45% and 13.03% for the linked quarter. Farmers’ return on average tangible equity (Non-GAAP) also improved to 16.24% for the quarter ended June 30, 2018 compared to 12.77% for the same quarter in 2017 and 15.84% for the linked quarter.

Net income for the six months ended June 30, 2018 was $15.8 million, or $0.57 per diluted share, compared to $11.5 million or $0.42 per diluted share for the same six month period in 2017. Return on average assets and return on average equity were 1.46% and 13.13%, respectively, for the six months ended June 30, 2018, compared to 1.14% and 10.52% for the same period in 2017.

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 25.7% for the six months ended June 30, 2017 to 15.7% for the six months ended June 30, 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 the 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 Second Quarter Financial Highlights

  • Loan growth
    Total loans were $1.64 billion at June 30, 2018, compared to $1.51 billion at June 30, 2017, representing an increase of 8.9%. 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 78.6% of the Bank's average earning assets for the quarter ended June 30, 2018, an improvement compared to 77.6% for the same period in 2017. This improvement, along with the growth in earning assets, has resulted in a 12.3% increase in loan income in the second 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 0.38%. Early stage delinquencies also continue to remain at low levels, at $10.6 million, or 0.65% of total loans, at June 30, 2018. Net charge-offs for the current quarter were $536 thousand, compared to $523 thousand in the same quarter in 2017 and annualized net charge-offs as a percentage of average net loans outstanding is only 0.13% for the quarter ended June 30, 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 June 30, 2018 was 3.93%, a 12 basis points decrease from the quarter ended June 30, 2017, but 1 basis point higher than the first quarter of 2018. In comparing the second quarter of 2018 to the same period in 2017, asset yields increased 9 basis points, while the cost of interest-bearing liabilities increased 30 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 5 and 2 basis points for the quarters ended June 30, 2018 and 2017, respectively.
  • Noninterest income
    Noninterest income increased 4.2% to $6.3 million for the quarter ended June 30, 2018 compared to $6.1 million in the same quarter of 2017. Trust fees increased $217 thousand or 14.3% in comparing the second quarter of 2018 to the same quarter in 2017, retirement plan consulting fees increased $66 thousand or 16.5% and investment commissions increased $62 thousand or 24.5%. These increases were offset by a drop in the gains on the sale of mortgage loans of $285 thousand or 32%; however, the current quarter’s income of $606 thousand was $119 thousand or 24% higher than the linked quarter.
  • Noninterest expenses
    Farmers has remained committed to managing its level of noninterest expenses. Total noninterest expenses for the second quarter of 2018 decreased 1.9% to $15.5 million compared to $15.8 million in the same quarter in 2017, primarily a result of decreases in other operating expenses of $136 thousand and merger related costs of $104 thousand. It is important to note that annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 3.08% in the first quarter of 2017 to 2.82% in the first quarter of 2018.
  • Efficiency ratio
    The efficiency ratio for the quarter ended June 30, 2018 improved to 57.31% compared to 60.79% for the same quarter in 2017. The main factors leading to this improvement were the increase in net interest income and noninterest income and a slightly lower level of noninterest expenses relative to average assets as explained in the preceding paragraphs.

2018 Outlook

Mr. Helmick added, “We are encouraged by our financial results for the first half of 2018 and look to use this momentum to sustain strong performance for all of 2018. As always, we will remain focused on delivering for the businesses, families and communities we serve.”

Founded in 1887, Farmers National Banc Corp. is a diversified financial services company headquartered in Canfield, Ohio, with $2.2 billion in banking 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. Total wealth management assets under care at June 30, 2018 are $2.6 billion. 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   For the Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30, Percent
2018   2018   2017   2017   2017   2018   2017   Change
Total interest income $22,474 $21,282 $21,084 $20,551 $20,042 $43,756 $38,892 12.5%
Total interest expense 2,912   2,336   2,017   1,876   1,669   5,248   2,988   75.6%
Net interest income 19,562 18,946 19,067 18,675 18,373 38,508 35,904 7.3%
Provision for loan losses 750 775 400 950 950 1,525 2,000 -23.8%
Noninterest income 6,306 6,010 6,051 6,058 6,055 12,316 11,942 3.1%
Acquisition related costs 0 25 88 270 104 25 166 -84.9%
Other expense 15,458   15,071   15,311   15,521   15,660   30,529   30,211   1.1%
Income before income taxes 9,660 9,085 9,319 7,992 7,714 18,745 15,469 21.2%
Income taxes 1,587   1,359   4,084   2,009   2,004   2,946   3,976   -25.9%
Net income $8,073   $7,726   $5,235   $5,983   $5,710   $15,799   $11,493   37.5%
 
Average shares outstanding 27,641 27,918 27,941 27,654 27,395 27,610 27,371
Basic and diluted earnings per share 0.29 0.28 0.19 0.22 0.21 0.57 0.42
Cash dividends 1,935 1,935 1,653 1,653 1,353 3,870 2,707
Cash dividends per share 0.07 0.07 0.06 0.06 0.05 0.14 0.10
Performance Ratios
Net Interest Margin (Annualized) 3.93% 3.92% 3.98% 3.96% 4.05% 3.92% 4.03%
Efficiency Ratio (Tax equivalent basis) 57.31% 57.98% 59.13% 59.93% 60.79% 57.64% 59.81%
Return on Average Assets (Annualized) 1.47% 1.45% 0.96% 1.12% 1.11% 1.46% 1.14%
Return on Average Equity (Annualized) 13.28% 13.03% 8.60% 10.15% 10.25% 13.13% 10.52%
Dividends to Net Income 23.97% 25.05% 31.58% 27.63% 23.70% 24.50% 23.55%
Other Performance Ratios (Non-GAAP)
Return on Average Tangible Assets 1.50% 1.46% 0.99% 1.15% 1.14% 1.48% 1.16%
Return on Average Tangible Equity 16.24% 15.84% 10.69% 12.69% 12.77% 15.99% 13.10%
Return on Average Tangible Equity excluding acquisition costs and deferred tax asset adjustments 16.24% 15.88% 14.25% 13.09% 12.98% 16.01% 13.26%
 
         
Consolidated Statements of Financial Condition
June 30, March 31, Dec. 31, Sept. 30, June 30,
2018   2018   2017   2017   2017
Assets
Cash and cash equivalents $76,623 $52,149 $57,614 $84,006 $64,640
Securities available for sale 389,325 384,396 392,937 395,235 391,628
 
Loans held for sale 1,987 399 272 502 583
Loans 1,639,191 1,599,339 1,577,381 1,551,437 1,505,273
Less allowance for loan losses 12,764   12,550   12,315   12,104   11,746
Net Loans 1,626,427   1,586,789   1,565,066   1,539,333   1,493,527
 
Other assets 143,577   143,784   143,180   142,949   135,286
Total Assets $2,237,939   $2,167,517   $2,159,069   $2,162,025   $2,085,664
 
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $420,991 $402,499 $412,346 $413,991 $387,596
Interest-bearing 1,229,346   1,234,660   1,192,373   1,195,533   1,153,407
Total deposits 1,650,337 1,637,159 1,604,719 1,609,524 1,541,003
Other interest-bearing liabilities 322,565 274,816 296,559 295,270 298,827
Other liabilities 17,527   14,302   15,717   19,348   19,147
Total liabilities 1,990,429 1,926,277 1,916,995 1,924,142 1,858,977
Stockholders' Equity 247,510   241,240   242,074   237,883   226,687

 

Total Liabilities and Stockholders' Equity

$2,237,939   $2,167,517   $2,159,069   $2,162,025   $2,085,664
 
Period-end shares outstanding 27,544 27,641 27,544 27,544 27,067
Book value per share $8.99 $8.73 $8.79 $8.64 $8.38
Tangible book value per share (Non-GAAP)* 7.36 7.10 7.14 6.98 6.73
 
* 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) 12.16% 12.06% 11.86% 12.00% 11.80%
Total Risk Based Capital Ratio (a) 12.89% 12.94% 12.73% 12.86% 12.67%
Tier 1 Risk Based Capital Ratio (a) 12.16% 12.19% 11.99% 12.13% 11.93%
Tier 1 Leverage Ratio (a) 9.73% 9.68% 9.50% 9.70% 9.47%
Equity to Asset Ratio 11.06% 11.13% 11.21% 11.00% 10.87%
Tangible Common Equity Ratio 9.25% 9.24% 9.31% 9.08% 8.93%
Net Loans to Assets 72.68% 73.21% 72.49% 71.20% 71.61%
Loans to Deposits 99.32% 97.69% 98.30% 96.39% 97.68%
Asset Quality
Non-performing loans $8,406 $7,893 $7,695 $6,900 $6,355
Other Real Estate Owned 0 59 171 219 236
Non-performing assets 8,406 7,952 7,866 7,119 6,591
Loans 30 - 89 days delinquent 10,636 6,973 10,191 8,680 7,053
Charged-off loans 777 782 809 809 725
Recoveries 241 242 620 217 202
Net Charge-offs 536 540 189 592 523

Annualized Net Charge-offs to Average Net Loans Outstanding

0.13% 0.14% 0.05% 0.16% 0.14%
Allowance for Loan Losses to Total Loans 0.78% 0.78% 0.78% 0.78% 0.78%
Non-performing Loans to Total Loans 0.51% 0.49% 0.49% 0.44% 0.42%
Allowance to Non-performing Loans 151.84% 159.00% 160.04% 175.42% 184.83%
Non-performing Assets to Total Assets 0.38% 0.37% 0.36% 0.33% 0.32%
                     

(a) June 30, 2018 ratio is estimated

 
           

For the Six Months
Ended

Reconciliation of Total Assets to Tangible Assets
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30,   June 30,
2018   2018   2017   2017   2017   2018   2017
Total Assets $2,237,939 $2,167,517 $2,159,069 $2,162,025 $2,085,664 $2,237,939 $2,085,664
Less Goodwill and other intangibles 44,661   45,015   45,369   45,755   44,425   44,661   44,425
Tangible Assets $2,193,278   $2,122,502   $2,113,700   $2,116,270   $2,041,239   $2,193,278   $2,041,239
Average Assets 2,199,960 2,162,706 2,158,895 2,118,170 2,055,758 2,181,431 2,025,939
Less average Goodwill and other intangibles 44,893   45,248   45,622   45,263   44,665   45,070   44,845
Average Tangible Assets $2,155,067   $2,117,458   $2,113,273   $2,072,907   $2,011,093   $2,136,361   $1,981,094
 
 

For the Six Months
Ended

Reconciliation of Common Stockholders' Equity to Tangible Common Equity
June 30,

March 31,

Dec. 31, Sept. 30, June 30, June 30, June 30,
2018   2018   2017   2017   2017   2018   2017
Stockholders' Equity $247,510 $241,240 $242,074 $237,883 $226,687 $247,510 $226,687
Less Goodwill and other intangibles 44,661   45,015   45,369   45,755   44,425   44,661   44,425
Tangible Common Equity $202,849   $196,225   $196,705   $192,128   $182,262   $202,849   $182,262
Average Stockholders' Equity 243,792 240,387 241,554 233,843 223,544 242,682 220,308
Less Average Goodwill and other intangibles 44,893   45,248   45,622   45,263   44,665   45,070   44,845
Average Tangible Common Equity $198,899   $195,139   $195,932   $188,580   $178,879   $197,612   $175,463
 
 
Reconciliation of Net Income, Excluding Acquisition Related Costs and Deferred Tax Asset Adjustments

For the Six Months
Ended

For the Three Months Ended  
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
2018   2018   2017   2017   2017   2018   2017
Net income $8,073 $7,726 $5,235 $5,983 $5,710 $15,799 $11,493
Acquisition related costs - tax equated 0 22 (48) 190 94 22 141
Deferred tax asset adjustments 0   0   1,793   0   0   0   0
Net income - Adjusted $8,073   $7,748   $6,980   $6,173   $5,804   $15,821   $11,634
Average shares outstanding 27,641 27,918 27,941 27,654 27,395 27,610 27,371
EPS excluding acquisition costs and deferred tax asset adjustments $0.29   $0.28   $0.25   $0.22   $0.21   $0.57   $0.43
 
         
For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
End of Period Loan Balances 2018   2018   2017   2017   2017
Commercial real estate $523,417 $511,628 $513,707 $500,426 $476,844
Commercial 232,672 231,498 220,441 218,946 215,676
Residential real estate 479,486 472,350 469,442 459,702 445,991
Consumer 219,138 210,088 207,851 213,918 220,454
Agricultural loans 181,173   170,725   163,081   155,336   142,687
Total, excluding net deferred loan costs $1,635,886   $1,596,289   $1,574,522   $1,548,328   $1,501,652
 
For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
Noninterest Income 2018   2018   2017   2017   2017
Service charges on deposit accounts $985 $1,003 $1,060 $1,077 $989
Bank owned life insurance income 219 222 246 193 191
Trust fees 1,740 1,807 1,622 1,608 1,523
Insurance agency commissions 713 699 530 531 672
Security gains 27 18 5 0 (14)
Retirement plan consulting fees 465 379 465 480 399
Investment commissions 315 256 260 184 253
Net gains on sale of loans 606 487 810 758 891
Debit card and EFT fees 870 806 830 770 836
Other operating income 366   333   223   457   315
Total Noninterest Income $6,306   $6,010   $6,051   $6,058   $6,055
 
For the Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
Noninterest Expense 2018   2018   2017   2017   2017
Salaries and employee benefits $8,828 $8,738 $8,697 $8,922 $8,853
Occupancy and equipment 1,611 1,704 1,528 1,546 1,631
State and local taxes 479 459 386 436 424
Professional fees 737 698 643 726 775
Merger related costs 0 25 88 270 104
Litigation settlement expense 0 0 0 0 155
Advertising 379 275 561 405 317
FDIC insurance 225 222 165 235 234
Intangible amortization 355 354 386 379 364
Core processing charges 794 739 806 702 717
Telephone and data 238 237 241 249 242
Other operating expenses 1,812   1,645   1,898   1,921   1,948

Total Noninterest Expense

$15,458   $15,096   $15,399   $15,791   $15,764
 
           
Average Balance Sheets and Related Yields and Rates
(Dollar Amounts in Thousands)
 
Three Months Ended Three Months Ended
June 30, 2018   June 30, 2017
AVERAGE AVERAGE
INTEREST INTEREST
BALANCE (1) RATE (1) BALANCE (1) RATE (1)
EARNING ASSETS
Loans (2) $1,606,993 $19,636 4.90% $1,472,575 $17,572 4.79%
Taxable securities 202,588 1,228 2.43 216,414 1,265 2.34
Tax-exempt securities (2) 190,494 1,737 3.66 164,369 1,791 4.37
Equity securities 11,214 154 5.51 10,216 123 4.83
Federal funds sold and other 33,541   167 2.00 33,053   82 1.00
Total earning assets 2,044,830 22,922 4.50 1,896,627 20,833 4.41
Nonearning assets 155,130 159,131
Total assets $2,199,960 $2,055,758
INTEREST-BEARING LIABILITIES
Time deposits $283,429 $957 1.35% $234,952 $652 1.11%
Savings deposits 477,365 256 0.22 526,398 183 0.14
Demand deposits 469,609 510 0.44 399,413 281 0.28
Short term borrowings 298,802 1,140 1.53 271,313 501 0.74
Long term borrowings 6,674   49 2.94 9,705   52 2.15
Total interest-bearing liabilities $1,535,879 2,912 0.76 $1,441,781 1,669 0.46

NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY

Demand deposits 408,567 378,499
Other liabilities 11,722 11,934
Stockholders' equity 243,792 223,544

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$2,199,960     $2,055,758    
Net interest income and interest rate spread $20,010   3.74% $19,164   3.95%
Net interest margin 3.93% 4.05%
 

(1)

 

Interest and yields are calculated on a tax-equivalent basis where applicable.

 

(2)

For 2018, adjustments of $91 thousand and $357 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2017, adjustments of $170 thousand and $621 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%, less disallowances.

     
Six Months Ended Six Months Ended
June 30, 2018   June 30, 2017
AVERAGE     AVERAGE    
INTEREST INTEREST
BALANCE (1) RATE (1) BALANCE (1) RATE (1)
EARNING ASSETS
Loans (2) $1,586,140 $38,145 4.85% $1,454,599 $34,210 4.74%
Taxable securities 204,455 2,461 2.43 214,076 2,383 2.24
Tax-exempt securities 188,041 3,417 3.66 158,674 3,430 4.36
Equity securities (2) 11,051 300 5.47 10,071 238 4.77
Federal funds sold and other 34,308   312 1.83 33,637   145 0.87
Total earning assets 2,023,995 44,635 4.45 1,871,057 40,406 4.35
Nonearning assets 157,436 154,882
Total assets $2,181,431 $2,025,939
INTEREST-BEARING LIABILITIES
Time deposits $277,408 $1,770 1.29% $235,036 $1,152 0.99%
Savings deposits 479,870 438 0.18 523,257 353 0.14
Demand deposits 460,503 926 0.41 392,049 525 0.27
Short term borrowings 290,617 2,021 1.40 260,469 828 0.64
Long term borrowings 6,768   93 2.77 10,991   130 2.39
Total interest-bearing liabilities $1,515,166 5,248 0.70 $1,421,802 2,988 0.42

NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY

Demand deposits $409,705 $370,790
Other liabilities 13,878 13,039
Stockholders' equity 242,682 220,308

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$2,181,431     $2,025,939    
Net interest income and interest rate spread $39,387   3.75% $37,418   3.93%
Net interest margin 3.92% 4.03%
 

(1)

 

Interest and yields are calculated on a tax-equivalent basis where applicable.

 

(2)

For 2018, adjustments of $173 thousand and $706 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2017, adjustments of $325 thousand and $1.2 million, 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%, 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