WINDSOR, VA, April 23, 2021 – Farmers Bankshares, Inc. (OTC-PINK: FBVA) reports unaudited earnings of $1.9 million, or $0.63 per share, for the first quarter of 2021. These results increased approximately 86.35% from the $1.1 million, or $0.34 per share, earned during the first quarter of 2020.
At March 31, 2021, select financial information and key highlights include:
- Return on average assets of 1.38%, compared to 0.88% in 2020.
- Return on average equity of 12.14%, compared to 7.40% in 2020.
- Return on average tangible common equity (1) of 14.41%, compared to 9.09% in 2020.
- Net interest margin was 3.22%, reduced from 3.52% in the prior year.
- Total cost of deposits decreased to 0.35% from 0.55% at March 31, 2020.
Consolidated Balance Sheet
Net loans decreased $9.7 million, or 3.51%, as compared to December 31, 2020. The decrease was primarily driven by many small businesses using excess cash from continued stimulus programs to pay down their credit lines. The Company had approximately $16.6 million in the CARES Act’s Paycheck Protection Program (“PPP”) loans on the balance sheet as of March 31, 2021 and continues to participate in the second round of PPP. We originated approximately $11.8 million in second round PPP loans and received $12.6 million in forgiveness payments on first round PPP loans during the first quarter of 2021. Deposit balances have increased by $35.1 million to $488.4 million as of March 31, 2021 from $453.2 million as of December 31, 2020. Non-interest bearing deposits increased by $17.1 million and make up approximately 34.44% of total deposits. The influx of customer stimulus payments, PPP loan funds and seasonal municipality deposits all contributed to this increase in deposits. During the first quarter, management terminated a $10 million interest rate swap that was entered into in March 2020, which resulted in a gain of $428 thousand. The Company’s balance sheet has experienced a high amount of liquidity due to COVID-19 related stimulus programs and therefore the need for wholesale funding had greatly diminished since the swap’s inception. The termination will also aid in reducing debt service expenses.
Capital ratios at the bank level remain well within the well-capitalized guidelines of the regulatory framework.
“We have worked diligently to put excess cash to work in order to improve margin during the quarter; however, the continued influx of deposits resulting from various government stimulus programs related to COVID-19, together with sustained low interest rates, continues to make this very challenging. When long term interest rates increased mid-first quarter it made sense to terminate the interest rate swap. Excluding the gain from that transaction, we still posted a solid first quarter with non-interest income sources continuing to contribute significantly to net income. Subsequent to quarter end we closed on the sale of other real estate owned that had been on our balance sheet for several years. The sale resulted in a pre-tax net gain of approximately $3.1 million that will be recorded and reflected in the second quarter 2021 financial results. While we will enjoy the benefits of these two extraordinary items in 2021, it will not diminish our focus on protecting net interest margin, analyzing new non-interest income sources and remaining prudent in managing non-interest expenses for the long term,” stated Vernon M. Towler, President and Chief Executive Officer.
Results of Operations
Net interest income increased 5.6% in the first quarter of 2021 compared to the first quarter of 2020, while margin continues to be compressed as noted above. The increase is net interest income is primarily due to the impact of significantly lower market interest rates on deposits since the prior year, while the inflation of our balance sheet due to PPP loans and downward pressure on loan rates has caused the reduction in net interest margin.
Non-interest income in the first quarter of 2021 was approximately $2.8 million and was increased by 32.97% over the same period in the prior year due primarily to the gain from unwinding the interest rate swap discussed above and $263 thousand in securities gains. Non-interest expense was slightly reduced in the first quarter of 2021 compared to same period in 2020, decreasing by 2.66%, as management continues to focus on efficiency and reasonable expense control.
No provision for loan losses was added during the first quarter of 2021. The Company considers local and national unemployment, housing and market trends when determining the estimated allowance. Our allowance for loan losses was 2.32% of gross loans as of March 31, 2021, including loans originated through the PPP, and 2.47% of gross loans excluding loans originated through the PPP (1).
In April 2021, the Company closed on the sale of other real estate owned that it held for an extended period of time. The gross sales proceeds totaled $3.6 million and the property had a cost basis of $525 thousand, resulting in a net, pre-tax gain of $3.1 million that will be recorded in the second quarter of 2021.
Non-performing assets, which consists of nonaccrual loans and other real estate owned decreased from $844 thousand at December 31, 2020 to $833 thousand at March 31, 2021. There were no additions to nonaccrual loans during the quarter.
Loans are considered past due if the required principal and interest income have not been received as of the date such payments were due. As of March 31, 2021, loans greater than thirty days past due totaled $268 thousand, or 0.10% of total gross loans. This compared to $467 thousand or 0.13% of total gross loans as of December 31, 2020.
Of the $37.6 million in loans that were on a COVID-19 payment deferral plan during 2020, all have returned to normal payment schedules.
- Non-GAAP financial measure. Return on average tangible common equity excludes goodwill and intangibles.
Headquartered in Windsor, Virginia, Farmers Bankshares, Inc. is the holding company for Farmers Bank, Windsor, Virginia. Farmers Bank was founded in 1919, and is a community bank which operates eight 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 on the OTC Pink Marketplace under the symbol FBVA. Any stockbroker can assist with purchase of the company’s stock, as well as with sales of holdings.