Farmers National Banc Corp. Announces 2016 Second Quarter Financial Results

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

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 1^st 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.
Kevin J. Helmick, 330-533-3341
President and CEO
Email: exec@farmersbankgroup.com

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