Farmers National Banc Corp. Announces 2017 Third Quarter Financial Results

Farmers National Banc Corp. (Farmers) (NASDAQ: FMNB) today reported financial results for the three and nine months ended September 30, 2017.

Net income for the three months ended September 30, 2017 was $6.0 million, or $0.22 per diluted share, which compares to $5.4 million, or $0.20 per diluted share, for the three months ended September 30, 2016 and $5.7 million or $0.21 per diluted share for the linked quarter. Excluding acquisition expenses, net income for the three month period ended September 30, 2017 would have been $6.2 million. Annualized return on average assets and return on average equity were 1.12% and 10.15%, respectively, for the three month period ending September 30, 2017, compared to 1.10% and 9.97% for the same three month period in 2016, and 1.11% and 10.25% for the linked quarter. Farmers’ return on average tangible equity (Non-GAAP) was 12.69% for the quarter ended September 30, 2017 compared to 12.73% for the same quarter in 2016 and 12.77% for the linked quarter.

Net income for the nine months ended September 30, 2017 was $17.5 million, or $0.64 per diluted share, compared to $15.2 million or $0.56 per diluted share for the same nine month period in 2016. Return on average assets and return on average equity were 1.14% and 10.41%, respectively, for the nine months ended September 30, 2017, compared to 1.06% and 9.74% for the same period in 2016. Excluding expenses related to acquisition activities, net income for the nine month period ended September 30, 2017 would have been $17.8 million or $0.66 per diluted share.

On March 13, 2017, Farmers entered into an agreement and plan of merger with Monitor Bancorp, Inc. (Monitor), the holding company for The Monitor Bank, located in Holmes County, Ohio. This transaction obtained all regulatory approvals and was completed on August 15, 2017. This transaction serves as an entrance into the attractive Holmes County market for Farmers and will help Farmers continue to grow its market share, balance sheet and earnings. As of August 15, 2017, Monitor had total assets of $42.4 million, which included loans of $19.3 million and deposits of $34.6 million.

Kevin J. Helmick, President and CEO, stated, “In addition to another strong quarter of financial performance, we are pleased to close our fourth acquisition in the past two years. This acquisition further enhances Farmers’ brand and delivers long-term value for our shareholders. We are excited about our success in expanded markets and remain focused on our strategic growth plan which has paved the way for the company to exceed $2 billion in assets in 2017. We also continue to be encouraged by our organic loan growth, which has increased 10% during the past twelve months, and our 5% increase in noninterest income on a year-to-date basis.”

2017 Third Quarter Financial Highlights

• Loan growth
  Total loans were $1.55 billion at September 30, 2017, compared to $1.40 billion at September 30, 2016, representing an increase of 11.2%. The increase in loans is a 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 mainly in the commercial real estate, residential real estate and agricultural loan categories. Loans now comprise 77.6% of the Bank's average earning assets for the quarter ended September 30, 2017, an improvement compared to 76.5% for the same period in 2016. This improvement, along with the growth in earning assets, has resulted in a 10.7% increase in tax equated loan income in the third quarter of 2017 compared to the same quarter in 2016.

• Loan quality
  Non-performing assets to total assets remain at a low level, currently 0.33%. Early stage delinquencies, which are loans 30 – 89 days delinquent, also continue to remain at low levels, at $8.7 million, or 0.56% of total loans, at September 30, 2017. Net charge-offs for the current quarter were $592 thousand, compared to $312 thousand in the same quarter in 2016 and total net charge-offs as a percentage of average net loans outstanding was only 0.16% for the quarter ended September 30, 2017. 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, 2017 was 3.96%, a 1 basis point decrease from the quarter ended September 30, 2016. In comparing the third quarter of 2017 to the same period in 2016, asset yields increased 11 basis points, while the cost of interest-bearing liabilities increased 18 basis points. 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 3 and 8 basis points for the quarters ended September 30, 2017 and 2016, respectively.

• Noninterest income
  Noninterest income decreased 6.6% to $6.1 million for the quarter ended September 30, 2017 compared to $6.5 million in 2016. Gains on the sale of mortgage loans decreased $305 thousand, or 29% in the current year’s quarter compared to the same quarter in 2016, however it is important to note that on a year-to-date basis gains on the sale of mortgage loans have increased $251 thousand or 12.5%. Investment commissions also decreased $124 thousand or 40.3%. Debit card interchange fees increased $117 thousand or 17.9% in comparing the third quarter of 2017 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 2017 increased to $15.8 million compared to $15.2 million in the same quarter in 2016, primarily as a result of increases in salaries and employee benefits of $556 thousand and merger related costs of $239 thousand, offset by a $220 thousand decrease in other operating expenses. There was also a $53 thousand loss on the sale of land and building during the current quarter compared to none in the same quarter in 2016. It is important to note that annualized noninterest expenses measured as a percentage of quarterly average assets decreased from 3.10% in the third quarter of 2016 to 2.96% in the third quarter of 2017.

• Efficiency ratio
  The efficiency ratio for the quarter ended September 30, 2017 improved to 59.9% compared to 60.9% for the same quarter in 2016. The main factors leading to this improvement were the increase in net interest income and the stabilized level of noninterest expenses relative to average assets as explained in the preceding paragraphs.

2017 Outlook

Mr. Helmick added, “We are pleased by the improvement in our financial results for the first 9 months of 2017. We will focus our energy on the seamless integration of our newly acquired bank and customers and 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 $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, Holmes 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, return on average tangible assets, return on average tangible equity and net income excluding costs related to acquisition activity expenses, 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, 2016, 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.

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

(2) For 2017, adjustments of $166 thousand and $655 thousand, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2016, adjustments of $164 thousand and $472 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 35%, less disallowances.

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

(2) For 2017, adjustments of $491 thousand and $1.8 million, respectively, were made to tax equate income on tax exempt loans and tax exempt securities. For 2016, adjustments of $488 thousand and $1.4 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 35%, less disallowances.

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