Farmers National Banc Corp. Announces 2019 Fourth Quarter Financial Results
Farmers National Banc Corp. (Farmers) (NASDAQ: FMNB) today reported financial results for the three months and year ended December 31, 2019.
Net income for the three months ended December 31, 2019 was $9.7 million, or $0.35 per diluted share, which compares to $8.7 million, or $0.31 per diluted share, for the three months ended December 31, 2018 and $9.2 million or $0.33 per diluted share for the linked quarter. Annualized return on average assets and annualized return on average equity were 1.58% and 12.78%, respectively, for the three month period ending December 31, 2019, compared to 1.50% and 13.65% for the same three month period in 2018, and 1.51% and 12.49% for the linked quarter. Farmers’ return on average tangible equity (non-GAAP) was 15.03% for the quarter ended December 31, 2019 compared to 16.68% for the same quarter in 2018 and 14.80% for the linked quarter.
Net income for the twelve months ended December 31, 2019 was $35.8 million, or $1.28 per diluted share, compared to $32.6 million or $1.16 per diluted share for the same twelve month period in 2018. Return on average assets and return on average equity were 1.50% and 12.56%, respectively, for the twelve months ended December 31, 2019, compared to 1.46% and 13.13% for the same period in 2018.
On January 7, 2020, Farmers announced it completed the merger of Maple Leaf Financial (“Maple Leaf”), the holding company for Geauga Savings Bank, with branches located in Cuyahoga and Geauga Counties in Ohio. The transaction increases Farmers’ market share in Cuyahoga and Geauga Counties and enables Farmers to continue building local scale throughout Northeast Ohio. As of September 30, 2019, Maple Leaf had total assets of $275.6 million, which included gross loans of $183.5 million, deposits of $183.4 million and equity of $33.4 million.
Kevin J. Helmick, President and CEO, stated, “As a result of solid loan and deposit growth over the past twelve months, 14% increase in noninterest income, careful management of our noninterest expenses and continued strong asset quality, we are pleased to report an 11% increase in net income compared to the same quarter one year ago. We are also pleased to report a 25% increase in cash dividends paid to our shareholders, from $0.08 per share paid in the fourth quarter of 2018 to $0.10 paid for the same quarter in 2019.”
2019 Fourth Quarter Financial Highlights
Loan growthTotal loans were $1.81 billion at December 31, 2019, compared to $1.74 billion at December 31, 2018, representing an increase of 4.4%. 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 agricultural, commercial, commercial real estate, and residential real estate loan portfolios. Loans now comprise 79.5% of the Bank's average earning assets for the quarter ended December 31, 2019, a slight improvement compared to 79.4% for the same period in 2018. This improvement, along with the growth in earning assets, has resulted in a 6.1% increase in tax equated loan interest income, including fees, in the fourth quarter of 2019 compared to the same quarter in 2018. Loan quality
Non-performing assets to total assets remain at a low level, currently at 0.26%. Early stage delinquencies also continue to remain at low levels, at $11.9 million, or 0.66% of total loans, at December 31, 2019. Net charge-offs for the current quarter were $374 thousand, compared to $310 thousand in the same quarter in 2018, and total net charge-offs as a percentage of average net loans outstanding is only 0.09% for the quarter ended December 31, 2019. Net interest margin
The net interest margin for the three months ended December 31, 2019 was 3.84%, a 4 basis points increase from the quarter ended December 31, 2018, and 5 basis points better than the 3.79% reported for the linked quarter. In comparing the fourth quarter of 2019 to the same period in 2018, asset yields increased 7 basis points, while the cost of interest-bearing liabilities increased just 3 basis points. Most of the increase in the asset yields was the result of higher rates earned on loans. 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 basis points for the quarter ended December 31, 2019 and 5 basis points for the quarter ended December 31, 2018. Noninterest income
Noninterest income increased 14.1% to $7.6 million for the quarter ended December 31, 2019 compared to $6.7 million in the same quarter in 2018. Gains on the sales of mortgage loans increased $685 thousand or 82%, investment commissions increased $176 thousand or 68%, trust fees increased $139 thousand or 8%, insurance agency commissions grew $54 thousand or 8%, and other operating income increased $91 thousand or 23% in comparing the fourth quarter of 2019 to the same quarter in 2018. These increases were offset by a decrease of securities gains of $232 thousand or 89%. Noninterest expenses
Farmers has remained committed to managing the level of noninterest expenses. Total noninterest expenses for the fourth quarter of 2019 increased 2.3% to $16.4 million compared to $16.0 million in the same quarter in 2018, primarily as a result of increases in merger related costs of $284 thousand and other operating expenses of $236 thousand, offset by a $316 thousand decrease in salaries and employee benefits and a $155 thousand decrease in FDIC insurance expense. Annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 2.75% in the fourth quarter of 2018 to 2.68% in the fourth quarter of 2019. Efficiency ratio
The efficiency ratio for the quarter ended December 31, 2019 decreased to 54.51% compared to 57.73% for the same quarter in 2018. The improvement in net interest income and noninterest income in the fourth quarter of 2019 was offset by a slightly higher level of noninterest expenses as explained in the preceding paragraphs.
2020 Outlook
Mr. Helmick added, “With the announcement of the completion of our acquisition of Geauga Savings Bank and our continued strong financial performance during this year, we look forward in 2020 to realize the benefits of the full integration of our new banking locations and to build on our momentum of having achieved another successful year. We remain extremely proud of our committed employees that continue to deliver strong results for our stakeholders and remain committed 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 $2.4 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, and Farmers Trust Company, which operates five trust offices and offers services in the same geographic markets. Total wealth management assets under care at December 31, 2019 are $2.5 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, 2018, 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 Twelve Months Ended
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
Dec. 31,
Dec. 31,
Percent
2019
2019
2019
2019
2018
2019
2018
Change
Total interest income
$25,847
$25,931
$25,529
$24,679
$24,447
$101,986
$91,766
11.1%
Total interest expense
4,682
5,174
5,038
4,714
4,373
19,608
13,265
47.8%
Net interest income
21,165
20,757
20,491
19,965
20,074
82,378
78,501
4.9%
Provision for loan losses
600
550
750
550
525
2,450
3,000
-18.3%
Noninterest income
7,647
7,441
6,994
6,520
6,705
28,602
25,499
12.2%
Acquisition related costs (income)
104
112
(19)
0
(180)
197
(155)
-227.1%
Other expense
16,247
16,311
16,723
15,977
16,163
65,258
62,872
3.8%
Income before income taxes
11,861
11,225
10,031
9,958
10,271
43,075
38,283
12.5%
Income taxes
2,186
2,071
1,488
1,570
1,585
7,315
5,714
28.0%
Net income
$9,675
$9,154
$8,543
$8,388
$8,686
$35,760
$32,569
9.8%
Average diluted shares outstanding
27,829
27,819
27,931
27,983
27,962
27,876
27,974
Basic earnings per share
0.35
0.33
0.31
0.30
0.31
1.29
1.18
Diluted earnings per share
0.35
0.33
0.31
0.30
0.31
1.28
1.16
Cash dividends
2,767
2,767
2,504
2,500
2,223
10,538
8,315
Cash dividends per share
0.10
0.10
0.09
0.09
0.08
0.38
0.30
Performance Ratios
Net Interest Margin (Annualized)
3.84%
3.79%
3.84%
3.81%
3.80%
3.82%
3.87%
Efficiency Ratio (Tax equivalent basis)
54.51%
55.90%
58.28%
57.83%
57.73%
56.59%
57.93%
Return on Average Assets (Annualized)
1.58%
1.51%
1.45%
1.45%
1.50%
1.50%
1.46%
Return on Average Equity (Annualized)
12.78%
12.49%
12.34%
12.71%
13.65%
12.56%
13.13%
Dividends to Net Income
28.60%
30.23%
29.31%
29.80%
25.59%
29.47%
25.53%
Other Performance Ratios (Non-GAAP)
Return on Average Tangible Assets
1.62%
1.55%
1.47%
1.46%
1.54%
1.53%
1.49%
Return on Average Tangible Equity
15.03%
14.80%
14.59%
14.99%
16.68%
14.81%
16.02%
Return on Average Tangible Equity excluding acquisition costs
15.17%
14.95%
14.55%
14.99%
16.34%
14.88%
15.95%
Consolidated Statements of Financial Condition
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
2019
2019
2019
2019
2018
Assets
Cash and cash equivalents
$70,760
$85,675
$64,007
$69,672
$57,926
Securities available for sale
432,233
423,193
424,252
403,770
402,190
Equity securities
7,909
7,856
7,222
7,460
7,130
Loans held for sale
2,600
2,079
1,093
2,360
1,237
Loans
1,811,539
1,784,125
1,780,504
1,743,651
1,735,840
Less allowance for loan losses
14,487
14,261
14,222
13,777
13,592
Net Loans
1,797,052
1,769,864
1,766,282
1,729,874
1,722,248
Other assets
138,604
144,543
143,093
142,938
138,133
Total Assets
$2,449,158
$2,433,210
$2,405,949
$2,356,074
$2,328,864
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing
$434,126
$432,609
$415,935
$415,131
$421,950
Interest-bearing
1,574,838
1,608,043
1,584,700
1,539,202
1,377,770
Total deposits
2,008,964
2,040,652
2,000,635
1,954,333
1,799,720
Other interest-bearing liabilities
122,197
76,324
96,978
109,348
250,792
Other liabilities
18,688
23,011
23,511
19,442
16,032
Total liabilities
2,149,849
2,139,987
2,121,124
2,083,123
2,066,544
Stockholders' Equity
299,309
293,223
284,825
272,951
262,320
Total Liabilities and Stockholders' Equity
$2,449,158
$2,433,210
$2,405,949
$2,356,074
$2,328,864
Period-end shares outstanding
27,671
27,669
27,768
27,777
27,792
Book value per share
$10.82
$10.60
$10.26
$9.83
$9.44
Tangible book value per share (Non-GAAP)*
9.28
9.04
8.70
8.26
7.86
* 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)
12.94%
12.70%
12.47%
12.37%
12.16%
Total Risk Based Capital Ratio (a)
13.82%
13.58%
13.34%
13.24%
13.03%
Tier 1 Risk Based Capital Ratio (a)
13.06%
12.83%
12.59%
12.50%
12.28%
Tier 1 Leverage Ratio (a)
10.69%
10.42%
10.27%
10.07%
9.91%
Equity to Asset Ratio
12.22%
12.05%
11.84%
11.58%
11.26%
Tangible Common Equity Ratio (b)
10.67%
10.47%
10.22%
9.92%
9.56%
Net Loans to Assets
73.37%
72.74%
73.41%
73.42%
73.95%
Loans to Deposits
90.17%
87.43%
89.00%
89.22%
96.45%
Asset Quality
Non-performing loans
$6,345
$6,749
$7,252
$7,578
$7,731
Other Real Estate Owned
19
74
74
208
0
Non-performing assets
6,364
6,823
7,326
7,786
7,731
Loans 30 - 89 days delinquent
11,893
9,076
10,203
9,082
8,877
Charged-off loans
519
674
588
566
753
Recoveries
145
163
283
201
443
Net Charge-offs
374
511
305
365
310
Annualized Net Charge-offs to
Average Net Loans Outstanding
0.09%
0.12%
0.07%
0.08%
0.07%
Allowance for Loan Losses to Total Loans
0.80%
0.80%
0.80%
0.79%
0.78%
Non-performing Loans to Total Loans
0.35%
0.38%
0.41%
0.43%
0.45%
Allowance to Non-performing Loans
228.32%
211.31%
196.11%
181.80%
175.81%
Non-performing Assets to Total Assets
0.26%
0.28%
0.30%
0.33%
0.33%
(a) December 31, 2019 ratio is estimated
(b) This is a non-GAAP financial measure. A reconciliation to GAAP is shown below
Reconciliation of Total Assets to Tangible Assets
For the Twelve Months
Ended
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
Dec. 31,
Dec. 31,
2019
2019
2019
2019
2018
2019
2018
Total Assets
$2,449,158
$2,433,210
$2,405,949
$2,356,074
$2,328,864
$2,449,158
$2,328,864
Less Goodwill and other intangibles
42,645
42,973
43,298
43,625
43,952
42,645
43,952
Tangible Assets
$2,406,513
$2,390,237
$2,362,651
$2,312,449
$2,284,912
$2,406,513
$2,284,912
Average Assets
2,424,574
2,409,010
2,369,388
2,338,792
2,301,847
2,383,236
2,230,380
Less average Goodwill and other intangibles
42,859
43,187
43,508
43,840
44,185
43,345
44,712
Average Tangible Assets
$2,381,715
$2,365,823
$2,325,880
$2,294,952
$2,257,662
$2,339,891
$2,185,668
For the Twelve Months
Ended
Reconciliation of Common Stockholders' Equity to Tangible Common Equity
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
Dec. 31,
Dec. 31,
2019
2019
2019
2019
2018
2019
2018
Stockholders' Equity
$299,309
$293,223
$284,825
$272,951
$262,320
$299,309
$262,320
Less Goodwill and other intangibles
42,645
42,973
43,298
43,625
43,952
42,645
43,952
Tangible Common Equity
$256,664
$250,250
$241,527
$229,326
$218,368
$256,664
$218,368
Average Stockholders' Equity
300,355
290,673
277,746
267,736
252,449
284,759
247,965
Less average Goodwill and other intangibles
42,859
43,187
43,508
43,840
44,185
43,345
44,712
Average Tangible Common Equity
$257,496
$247,486
$234,238
$223,896
$208,264
$241,414
$203,253
Reconciliation of Net Income, Excluding Acquisition Related Costs
For the Twelve Months
Ended
For the Three Months Ended
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
Dec. 31,
Dec. 31,
2019
2019
2019
2019
2018
2019
2018
Net income
$9,675
$9,154
$8,543
$8,388
$8,686
$35,760
$32,569
Acquisition related costs (income) - tax equated
90
97
(20)
0
(180)
167
(158)
Net income - Adjusted
$9,765
$9,251
$8,523
$8,388
$8,506
$35,927
$32,411
Diluted EPS excluding acquisition costs
$0.35
$0.33
$0.31
$0.30
$0.30
$1.29
$1.16
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
End of Period Loan Balances
2019
2019
2019
2019
2018
Commercial real estate
$616,778
$602,580
$614,452
$589,219
$579,481
Commercial
255,823
251,613
256,657
254,957
245,172
Residential real estate
500,024
499,996
493,529
488,854
492,887
Consumer
209,271
207,319
207,417
209,541
216,284
Agricultural loans
226,333
219,487
205,544
198,210
199,013
Total, excluding net deferred loan costs
$1,808,229
$1,780,995
$1,777,599
$1,740,781
$1,732,837
For the Three Months Ended
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
Noninterest Income
2019
2019
2019
2019
2018
Service charges on deposit accounts
$1,139
$1,208
$1,093
$1,074
$1,115
Bank owned life insurance income
192
204
208
214
221
Trust fees
1,891
1,905
1,821
1,858
1,752
Insurance agency commissions
696
681
739
803
642
Security gains (losses)
28
22
(18)
10
260
Retirement plan consulting fees
343
338
450
358
370
Investment commissions
435
384
327
260
259
Net gains on sale of loans
1,517
1,143
1,055
671
832
Debit card and EFT fees
922
935
887
778
861
Other operating income
484
621
432
494
393
Total Noninterest Income
$7,647
$7,441
$6,994
$6,520
$6,705
For the Three Months Ended
Dec. 31,
Sept. 30,
June 30,
March 31,
Dec. 31,
Noninterest Expense
2019
2019
2019
2019
2018
Salaries and employee benefits
$9,128
$9,422
$9,266
$9,356
$9,444
Occupancy and equipment
1,667
1,615
1,650
1,717
1,566
State and local taxes
416
468
472
470
474
Professional fees
787
654
887
794
734
Merger related costs (income)
104
112
(19)
0
(180)
Advertising
607
437
442
250
416
FDIC insurance
79
80
85
87
234
Intangible amortization
326
326
327
327
355
Core processing charges
876
900
803
791
762
Telephone and data
235
236
217
260
288
Other operating expenses
2,126
2,173
2,574
1,925
1,890
Total Noninterest Expense
$16,351
$16,423
$16,704
$15,977
$15,983
Average Balance Sheets and Related Yields and Rates
(Dollar Amounts in Thousands)
Three Months Ended
Three Months Ended
December 31, 2019
December 31, 2018
AVERAGE
AVERAGE
BALANCE
INTEREST
(1)
RATE (1)
BALANCE
INTEREST
(1)
RATE (1)
EARNING ASSETS
Loans (2)
$1,784,421
$22,725
5.05%
$1,706,008
$21,424
4.98%
Taxable securities
181,894
1,162
2.53
199,472
1,241
2.47
Tax-exempt securities (2)
227,259
2,205
3.85
202,241
1,936
3.80
Equity securities
12,059
130
4.28
11,822
185
6.21
Federal funds sold and other
37,914
170
1.78
29,663
154
2.06
Total earning assets
2,243,547
26,392
4.67
2,149,206
24,940
4.60
Nonearning assets
181,027
152,641
Total assets
$2,424,574
$2,301,847
INTEREST-BEARING LIABILITIES
Time deposits
$418,722
$2,089
1.98%
$324,696
$1,349
1.65%
Brokered time deposits
85,973
446
2.06
272
2
2.35
Savings deposits
402,464
320
0.32
438,008
284
0.26
Demand deposits
683,143
1,506
0.87
578,470
1,128
0.77
Short term borrowings
35,838
99
1.10
264,371
1,562
2.34
Long term borrowings
45,203
222
1.95
6,089
48
3.13
Total interest-bearing liabilities
$1,671,343
4,682
1.11
$1,611,906
4,373
1.08
NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits
434,778
423,576
Other liabilities
18,098
13,916
Stockholders' equity
300,355
252,449
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$2,424,574
$2,301,847
Net interest income and interest rate spread
$21,710
3.56%
$20,567
3.52%
Net interest margin
3.84%
3.80%
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
(2) For 2019, adjustments of $99 thousand and $446 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2018, adjustments of $92 thousand and $401 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.
Twelve Months Ended
Twelve Months Ended
December 31, 2019
December 31, 2018
AVERAGE
AVERAGE
BALANCE
INTEREST
(1)
RATE (1)
BALANCE
INTEREST
(1)
RATE (1)
EARNING ASSETS
Loans (2)
$1,757,799
$89,517
5.09%
$1,632,541
$80,192
4.91%
Taxable securities
190,944
4,840
2.53
202,270
4,928
2.44
Tax-exempt securities
216,586
8,418
3.89
194,302
7,195
3.70
Equity securities (2)
12,057
627
5.20
11,382
652
5.73
Federal funds sold and other
34,948
729
2.09
34,006
644
1.89
Total earning assets
2,212,334
104,131
4.71
2,074,501
93,611
4.51
Nonearning assets
170,902
155,879
Total assets
$2,383,236
$2,230,380
INTEREST-BEARING LIABILITIES
Time deposits
$401,317
$7,847
1.96%
$293,725
$4,210
1.43%
Brokered time deposits
83,311
1,921
2.31
68
2
2.35
Savings deposits
410,672
1,285
0.31
465,283
1,015
0.22
Demand deposits
641,461
5,807
0.91
506,099
2,912
0.58
Short term borrowings
96,145
2,250
2.34
281,063
4,936
1.76
Long term borrowings
23,318
498
2.14
6,491
190
2.93
Total interest-bearing liabilities
$1,656,224
19,608
1.18
$1,552,729
13,265
0.85
NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits
$429,289
$415,968
Other liabilities
12,964
13,718
Stockholders' equity
284,759
247,965
NONINTEREST-BEARING LIABILITIES STOCKHOLDERS' EQUITY
$2,383,236
$2,230,380
Net interest income and interest rate spread
$84,523
3.53%
$80,346
3.66%
Net interest margin
3.82%
3.87%
(1) Interest and yields are calculated on a tax-equivalent basis where applicable.
(2) For 2019, adjustments of $414 thousand and $1.7 million, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2018, adjustments of $357 thousand and $1.5 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.
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