WINDSOR, VA, April 24, 2020 – Farmers Bankshares, Inc. (OTC-PINK: FBVA) reports unaudited earnings of $1.1 million, or $0.34 per share, for the first quarter of 2020. These results decreased approximately 22.10% from the $1.4 million, or $0.44 per share, earned during the first quarter of 2019. Net interest margin compression was the primary driver of reduced earnings in the current quarter.
Return on average assets was 0.88% for the first quarter of 2020, a decrease from 1.17% for the first quarter of 2019. Return on average equity during the first quarter of 2020 was 7.40% as compared to the prior year first quarter of 11.07%. Return on average tangible common equity (1) was 9.09% as of March 31, 2020 and compared to 13.43% as of March 31, 2019.
Net loans increased $15.7 million, or 6.03%, as compared to December 31, 2019. The increase was driven by organic loan growth in both traditional and newer markets. Deposit balances increased by $4.5 million to $391.1 million as of March 31, 2020 from $386.6 million as of December 31, 2019. Non-interest bearing deposits remained stable at $116.6 million and make up approximately 29.82% of total deposits. In early March, prior to the March 3rd federal funds rate cut, we used excess cash to repay $10 million in Federal Home Loan Bank advances with an average rate of 2.05% to reduce our costs of funding. Subsequent to the second reduction in the federal funds rate to near zero later in March, we locked in $10 million of new ten-year funding through the FHLB that will enable us to benefit immediately and longer term from the current, low interest rate environment. Net interest income decreased 7.20% in the first quarter of 2020 compared to the first quarter of 2019.
“Although we had meaningful loan growth during the first quarter, our variable rate loans make up approximately thirty percent of our loan portfolio and the yield decline on that book of business impacted our first quarter margin. While we cannot control market rates we have employed strategies to hold net interest margin as much as possible. We deployed excess cash into loans and high quality investments during the first quarter to take advantage of the additional spread from the new federal funds rate. We also locked in low, longer term funding that should benefit us now and in future periods. We had also been successful in keeping our deposit portfolio short term, and as such, deposit repricing during the second quarter should help to improve margin” stated Kristy DeJarnette, Chief Financial Officer.
Non-interest income in the first quarter of 2020 was approximately $2.0 million and was increased slightly by 5.66% over the same period in the prior year due primarily to increased insurance revenues from Manry Rawls Insurance.
Non-interest expense remained stable and increased by approximately 1.25% during the first quarter 2020 compared to same period in 2019. Provision expense of $125 thousand was added during the first quarter. The majority of this expense was due to the growth in the loan portfolio during the quarter. Our allowance for loan losses was 2.01% of total loans as of March 31, 2020 and we feel accurately reflects the credit metrics and economic information we had at the end of the quarter. While we have not seen a significant increase in past due loans we are cautiously monitoring and reaching out to customers, especially those in at-risk industries, such as retail and hospitality. Client requests for deferrals related to COVID-19 totaled less than 12% of the total loan portfolio as of March 31, 2020.
The Bank has also serviced customers through the CARES Act’s Paycheck Protection Program (“PPP”) with 175 loans totaling approximately $19 million processed in April through the first round of available funds.
“While standing up the program was challenging, we feel that our participation in the Paycheck Protection Program will benefit our customers and the communities we serve in a meaningful way. We processed approximately $19 million in PPP loans that positively impacted over 2,400 jobs. Payment deferrals processed to date have a manageable effect on our cash flow and give our small business customers another way to weather the storm. We are committed to managing our capital in a safe and sound manner and all capital ratios remain strong and well above regulatory requirements for “Well Capitalized” financial institutions” said Vernon M. Towler, President and Chief Executive Officer.
(1) Non-GAAP financial measure. This calculation excludes goodwill and intangibles.
Farmers Bank, founded in 1919, is headquartered in Windsor, VA, and is a community bank which operates seven branches and services areas throughout Tidewater Virginia. Additional information is available at the company’s website, www.farmersbankva.com.
The common stock of Farmers Bankshares, Inc. trades as an Over-the-Counter Bulletin Board stock under the symbol FBVA. Any stockbroker can assist with purchase of the company’s stock, as well as with sales of holdings.