Acquisition of 1st NC Bank Strengthens Farmers’ Hand

CANFIELD, Ohio – Farmers National Banc Corp. will provide customers of Tri-State First Banc Inc. with financial services that Tri-State exited late last year, said the president and CEO of Farmers, Kevin J. Helmick, most notably wealth management and insurance.

Farmers and Tri-State, holding company for 1st National Community Bank of East Liverpool, announced their $14.2 million purchase and merger agreement Wednesday (READ STORY).

If approved by shareholders of both companies and regulators, the transaction is expected close in the fourth quarter. Branches of 1st National would become branches of Farmers National Bank, which then would have 38 banking offices and about $1.8 billion in assets.

The merger agreement comes with the increasing expense of regulatory compliance hitting small banks much harder than larger banks as the provisions of the Dodd-Frank Act take effect. Small providers of financial services have weighed the comparatively higher expense they’re incurring as they decide whether to accept reduced profits or seek a merger partner or acquirer.

Last December, Tri-State, spun off MDH Investment Management Inc., Gateminder Corp. and Cooper Insurance Agency to focus on the bank. All were profitable but MDH, Gateminder and Cooper made up only 1% of the holding company assets.

MDH offers wealth management services, Cooper insurance services, and Gateminder ATM support services to other financial institutions. Gateminder added 11 to its roster in 2013.

That 1st National Community Bank remains a healthy operation is reflected in the 35% premium Farmers is offering to acquire Tri-State. Shareholders have been offered $14.2 million and, assuming they accept, will receive either 1.747 common shares of Farmers for each Tri-State share or $14.20 in cash.

The offer sets caps of 75% on shares exchanged and 25% on cash.

The decision to join forces resulted from negotiations between the two companies, Helmick said. Tri-State did not put itself up for auction.

When Tri-State was formed in 1986, its founders stated, “1st National Community Bank does not attempt to be all things to all people” and noted its “survival may depend on having the flexibility to do things differently than has been done in the past. We must be able to adjust easily and quickly to changing conditions and circumstances within our industry.”

The East Liverpool company adopted the name Tri-State to reflect its physical presence in Ohio, Pennsylvania and West Virginia. It has three offices in Ohio – East Liverpool, Calcutta and Lisbon – and a fourth in Midland, Pa. It closed its office in Cumberland, W.Va., in 2013, because electronic banking – use of ATMs and banking online – had reduced traffic there and it was uneconomical to continue. The resultant $2 million in excess capital was returned to shareholders.

The president and CEO of Tri-State and 1st Community National, Steve Sant, would remain with Farmers Bank as area executive, Helmick said yesterday.

Aiding integration of the two banks is that “Both operate on the same technology platform,” he noted.

The acquisition would give Farmers National Banc Corp. a foothold in Pennsylvania. Its growth has been entirely in Ohio as it stretches from Columbiana County through Mahoning and Trumbull counties into Cuyahoga County with a presence in Alliance and north central Ohio.

The acquisition would also increase Farmers Bank deposit market share by 65% in Columbiana County and give it the second-highest deposit base there.

“Tri-State has an excellent low-cost deposit base with $54 million in noninterest-bearing accounts as of March 31,” Helmick said, “and an overall cost of funds of 0.22% for the three months ended March 31. This transaction helps Farmers continue to grow its market share, balance sheet and earnings.”

The growth of Farmer National Banc Corp. through acquisitions began in 1999 with Security Dollar Bank in Niles, and most recently, completion earlier this month of the purchase and merger National Bancshares Corp., holding company of First National Bank of Orrville.

Pro forma, the $140 million in assets 1st National Community Bank has would raise the assets of Farmers Bank to $1.8 billion. Subsidiaries of the holding company — Farmers Trust Co., Farmers National Insurance LLC and National Associates Inc. – can easily serve Tri-State customers, Helmick said. The 100 employees of 1st NC Bank are familiar with the products.

Upon closing, Farmers projects the acquisition “to be accretive to earnings per share for the first full year of operation, excluding one-time merger costs, and expects any tangible book value dilution [resulting from] the transaction to be earned back in approximately 2.3 years.”

Pictured: Kevin J. Helmick, president and CEO of Farmers National Banc Corp.

For more on the acquisition, WATCH today’s “3 Minutes With” interview with Helmick.

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