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Farmers National Banc Corp. Announces 2014 Third Quarter Financial Results

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Farmers National Banc Corp. (Farmers) (NASDAQ:FMNB) today reported financial results for the three and nine months ended September 30, 2014.

Net income for the three months ended September 30, 2014 was $2.3 million, or $0.12 per diluted share, which compares favorably to $1.6 million, or $0.09 per diluted share for the third quarter ended September 30, 2013. Net income for the nine months ended September 30, 2014 was $6.8 million, a 24.3% increase compared to $5.5 million for the same period in 2013. On a per share basis, net income for the nine months ended September 30, 2014 was $0.36, an increase of 24.1% compared to the nine month period ended September 30, 2013. Last year’s results included $1.3 million in severance expenses related to terminated employees.

Kevin J. Helmick, President and CEO, stated, “Our improvement in net income for the nine months ended September 30, 2014 and the third quarter of 2014 is a result of our continued focus on increasing noninterest income and control of noninterest expenses. The continued focus on increasing fee-based revenues and reducing expenses has also contributed to an improvement in our efficiency ratio to 69.9% from 77.2% during the first nine months of 2014 compared to the same period in 2013. It is important to note that noninterest income excluding security gains has increased 8.4% in comparing the third quarter of 2014 to the third quarter of 2013. We are also pleased to report that loans increased 5.8% in the past twelve months.”

2014 Third Quarter Financial Highlights

  • Loan growth
    Total loans were $647 million at September 30, 2014, compared to $611.3 million at September 30, 2013. This represents an increase of 5.8%. 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 and residential real estate loan portfolios. Loans comprised 59.0% of the Bank’s average earning assets in 2014, an improvement compared to 55.7% in 2013.
  • Loan quality
    Non-performing assets to total assets remain at a safe level, currently at 0.67%. Early stage delinquencies also continue to remain at low levels, at $4.9 million or 0.76% of total loans at September 30, 2014.
  • Net interest margin
    The net interest margin for the quarter ended September 30, 2014 was 3.58%, an increase of 4 basis points from 3.54% reported for the quarter ended June 30, 2014. Asset yields increased 2 basis points, while the cost of interest-bearing liabilities decreased 2 basis points.
  • Noninterest income
    Noninterest income was $3.9 million for the third quarter of 2014, an 8.4% improvement compared to the same quarter in 2013, after excluding security gains of $1 thousand in current quarter and $597 thousand in the prior year’s quarter. Trust fees increased $193 thousand or 14.1%, service charges on deposit accounts also increased $78 thousand or 12.3% and retirement plan consulting fees increased $551 thousand or 269.8%. Investment commissions also increased $205 thousand or 118.5%.
  • Noninterest expenses
    The Company underwent a cost reduction program in 2013 that included the closure of two retail branch locations and the elimination of several full time positions. During the first nine months of 2014, the company has remained committed to managing the level of noninterest expenses. As a result of these actions, the Company’s noninterest expenses were $9.8 million for the quarter ended September 30, 2014, compared to the $10.9 million reported in the third quarter in 2013. Excluding severance expenses of $1.3 million for terminated employees recorded in the quarter ended September 30, 2013, noninterest expenses would have been $9.6 million.
  • Capital Management
    On July 29, the Company announced an odd lot share buyback program with the goal of reducing servicing and administrative costs associated with shareholders who own 99 or fewer shares. This program resulted in 6,568 shares purchased for $50 thousand. In addition to the odd lot buyback program, the Company repurchased 221,500 shares in the open market at a cost of $1.7 million. Both of these programs reduced total common shares outstanding by 1.2% from June 30, 2014. The tangible common equity ratio improved to 9.88% at September 30, 2014 compared to 8.96% one year ago.

2014 Outlook
Mr. Helmick added: “We continue to experience increases in noninterest income and growth in our loan portfolio which has resulted in higher total revenue. We look forward to the ensuing quarters as the economic outlook improves. We also continue our discipline of closely monitoring levels of non-interest expense while growing non-interest revenues.”

Farmers National Banc Corp. is the bank holding company for the Farmers National Bank of Canfield, Farmers National Insurance, LLC, Farmers of Canfield Investment Co., Farmers Trust Company and National Associates, Inc. Farmers’ operates eighteen banking offices throughout Mahoning, Trumbull, Columbiana and Stark Counties and two trust offices located in Boardman and Howland. Farmers offers a wide range of banking and investment services to companies and individuals, and maintains a website at www.farmersbankgroup.com.

Non-GAAP Disclosure

This press release includes disclosures of Farmers tangible common equity ratio and pre-tax, pre-provision income, 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. 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, 2013, which has been filed with the Securities and Exchange Commission and is available on Farmers’ website (www.farmersbankgroup.com) and on the Securities and Exchange Commission’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 Nine Months Ended
Sept 30, June 30, March 31, Dec 31, Sept 30, Sept 30, Sept 30, Percent
2014 2014 2014 2013 2013 2014 2013 Change
Total interest income $10,413 $10,118 $10,063 $10,298 $10,122 $30,594 $30,661 -0.2%
Total interest expense 1,128 1,166 1,207 1,257 1,274 3,501 3,806 -8.0%
Net interest income 9,285 8,952 8,856 9,041 8,848 27,093 26,855 0.9%
Provision for loan losses 425 300 330 525 340 1,055 765 37.9%
Other income 3,880 3,797 3,433 3,641 4,173 11,110 10,273 8.1%
Other expense 9,776 9,378 9,141 9,221 10,926 28,295 29,836 -5.2%
Income before income taxes 2,964 3,071 2,818 2,936 1,755 8,853 6,527 35.6%
Income taxes 688 720 627 641 143 2,035 1,042 95.3%
Net income $2,276 $2,351 $2,191 $2,295 $1,612 $6,818 $5,485 24.3%
Average shares outstanding 18,706 18,781 18,778 18,776 18,776 18,755 18,773
Pre-tax pre-provision income $3,389 $3,371 $3,148 $3,461 $2,095 $9,908 $7,292
Basic and diluted earnings per share 0.12 0.13 0.12 0.12 0.09 0.36 0.29
Cash dividends 559 563 563 563 563 1,685 1,684
Cash dividends per share 0.03 0.03 0.03 0.03 0.03 0.09 0.09
Performance Ratios
Net Interest Margin (Annualized) 3.58% 3.54% 3.56% 3.53% 3.47% 3.57% 3.59%
Efficiency Ratio (Tax equivalent basis) 70.17% 69.68% 69.87% 67.96% 81.64% 69.91% 77.21%
Return on Average Assets (Annualized) 0.79% 0.83% 0.78% 0.78% 0.56% 0.80% 0.64%
Return on Average Equity (Annualized) 7.37% 7.85% 7.65% 7.23% 5.60% 7.61% 6.26%
Dividends to Net Income 24.56% 23.95% 25.70% 24.53% 34.93% 24.71% 30.70%
Consolidated Statements of Financial Condition
Sept 30, June 30, March 31, Dec 31, Sept 30,
2014 2014 2014 2013 2013
Assets
Cash and cash equivalents $28,294 $28,070 $29,333 $27,513 $40,303
Securities available for sale 404,895 409,285 427,625 422,985 438,127
Loans held for sale 895 275 1,026 158 1,016
Loans 646,981 637,774 626,186 630,684 611,349
Less allowance for loan losses 7,333 7,356 7,387 7,568 7,369
Net Loans 639,648 630,418 618,799 623,116 603,980
Other assets 66,007 65,238 64,217 63,554 64,693
Total Assets $1,139,739 $1,133,286 $1,141,000 $1,137,326 $1,148,119
Liabilities and Stockholders’ Equity
Deposits $913,000 $907,443 $923,033 $915,216 $903,410
Other interest-bearing liabilities 90,649 93,807 92,815 101,439 118,322
Other liabilities 14,689 11,016 7,829 7,664 13,863
Total liabilities 1,018,338 1,012,266 1,023,677 1,024,319 1,035,595
Stockholders’ Equity 121,401 121,020 117,323 113,007 112,524

Total Liabilities and Stockholders’ Equity

$1,139,739 $1,133,286 $1,141,000 $1,137,326 $1,148,119
Period-end shares outstanding 18,559 18,781 18,781 18,776 18,776
Book value per share $6.54 $6.44 $6.25 $6.02 $5.99
Tangible book value per share 6.02 5.91 5.71 5.47 5.43
Capital and Liquidity
Total Capital to Risk Weighted Assets (a)

16.64%

16.60% 16.51% 16.26% 16.28%
Tier 1 Capital to Risk Weighted Assets (a)

15.61%

15.57% 15.47% 15.19% 15.22%
Tier 1 Capital to Average Assets (a)

9.90%

9.87% 9.73% 9.36% 9.29%
Equity to Asset Ratio 10.65% 10.68% 10.28% 9.94% 9.80%
Tangible Common Equity Ratio 9.88% 9.89% 9.48% 9.11% 8.96%
Net Loans to Assets 56.12% 55.63% 54.23% 54.79% 52.61%
Loans to Deposits 70.86% 70.28% 67.84% 68.91% 67.67%
Asset Quality
Non-performing loans $7,219 $8,140 $8,494 $9,091 $9,124
Other Real Estate Owned 381 352 174 171 208
Non-performing assets 7,600 8,492 8,668 9,262 9,332
Loans 30 – 89 days delinquent 4,938 3,460 2,473 3,600 2,348
Charged-off loans 756 650 836 620 915
Recoveries 308 319 325 294 354
Net Charge-offs 448 331 511 326 561

Annualized Net Charge-offs to Average Net Loans Outstanding

0.28% 0.21% 0.34% 0.22% 0.38%
Allowance for Loan Losses to Total Loans 1.13% 1.15% 1.18% 1.20% 1.21%
Non-performing Loans to Total Loans 1.12% 1.28% 1.36% 1.44% 1.49%
Allowance to Non-performing Loans 101.58% 90.37% 86.97% 83.25% 80.77%
Non-performing Assets to Total Assets 0.67% 0.75% 0.76% 0.81% 0.81%
(a) September 30, 2014 ratio is estimated

Reconciliation of Common Stockholders’ Equity to Tangible Common Equity

Sept 30, June 30, March 31, Dec 31, Sept 30,
2014 2014 2014 2013 2013
Stockholders’ Equity $121,401 $121,020 $117,323 $113,007 $112,524
Less Goodwill and other intangibles 9,768 9,960 10,151 10,343 10,546
Tangible Common Equity $111,633 $111,060 $107,172 $102,664 $101,978
Reconciliation of Total Assets to Tangible Assets
Sept 30, June 30, March 31, Dec 31, Sept 30,
2014 2014 2014 2013 2013
Total Assets $1,139,739 $1,133,286 $1,141,000 $1,137,326 $1,148,119
Less Goodwill and other intangibles 9,768 9,960 10,151 10,343 10,546
Tangible Assets $1,129,971 $1,123,326 $1,130,849 $1,126,983 $1,137,573
Reconciliation of Income Before Taxes to Pre-Tax, Pre-Provision Income
For the Three Months Ended

For the
Nine Months Ended

Sept 30, June 30, March 31, Dec 31, Sept 30, Sept 30, Sept 30,
2014 2014 2014 2013 2013 2014 2013
Income before income taxes $2,964 $3,071 $2,818 $2,936 $1,755 $8,853 $6,527
Provision for loan losses 425 300 330 525 340 1,055 765
Pre-tax, pre-provision income $3,389 $3,371 $3,148 $3,461 $2,095 $9,908 $7,292

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