Kevin Helmick sees a lot of opportunity for community banks in a shifting industry undergoing much consolidation.
It’s largely why the president and CEO of Farmers National Bank of Canfield was motivated to pursue two acquisitions this year — some big moves for a company that’s quietly grown margins but cut no deals since the late-1990s — bolstering its share of the Northeast Ohio market and providing a cheap entry into western Pennsylvania.
As the banking industry continues along a path of consolidation, big banks will buy up smaller players. But in many cases, that’s leaving a hole in smaller markets as community banks fade into larger companies that tend to prioritize on their largest markets.
Expect Farmers to plug some gaps.
“As you see Fifth Third and other banks exit smaller communities, that’s where we are ready to step in,” said Mark Witmer, senior executive vice president and chief banking officer for Farmers.
“Whether it’s buying or building, we’re looking to take advantage where others are leaving town.”
Witmer previously served as president and CEO of National Bancshares Corp., parent company of the First National Bank of Orrville, which was acquired by Farmers earlier this year.
The combination made perfect sense in the books for both successful banks, but also preserves First National’s presence in the smaller markets it serves, which happen to be the regions of great strategic interest to Farmers.
“We thought this was the best way to ensure our long-term standing as a community bank,” Witmer said. “We didn’t want to get into a position where we’d have to join a regional or big bank.”
Feeding the hunger
Farmers acquired First National for $74 million. Just a few months later, Farmers announced its acquisition of East Liverpool-based Tri-State First Banc Inc., which operates 1st National Community Bank, in a $14 million deal.
Those moves combined have grown the bank to about $1.8 billion in banking assets today, a 60% increase over this time last year.
Besides instantly placing Farmers among the top three market controllers in Columbiana County in Ohio and adding $50 million in deposits — a bucket Farmers aims to grow as it expands its total loan portfolio — the Tri-State deal also pushes the Farmers brand into western Pennsylvania through Beaver County.
That area is particularly promising because of its prominent location in the heart of the Utica and Marcellus shale regions, Helmick said. The bank has no direct exposure to oil and gas, but it’s eyeing the small business growth that comes along with the industry’s activity.
“That’s why we like those locations,” Helmick said. “There’s lots of infrastructure building going on there.”
He added that the opportunities in the Wellsville area, in the York region east of Beaver County, are “looking good” as well.
“Our take on it is it’s been a nice, slow and steady rise (in the local economies), which is healthier for sustainability,” Helmick said. “We’re pleased with the development in that sector.”
While Tri-State positions Farmers for fresh opportunities in new markets, the merger with First National does even more for overall margins.
Helmick has been focusing on Farmers’ wealth management line and growing the company through fee income. Bringing First National into the mix helps achieve a goal of spurring growth of the banking business as Witmer and his team add talent on the lending front.
“The two of us being able to drive organizational growth and acquisition opportunities in itself is kind of a unique partnership for a community bank,” Helmick said.
Punching above their weight class
At the third quarter, Farmers already has logged loan growth (largely in real estate, residential mortgages and commercial and industrial lending) of 15%, relatively high compared with peers, and growth in noninterest income of 20%.
Noninterest expense was up nearly 28%, but that reflects the presence of new blood and offices from First National. Total staff has grown about 30%, Helmick said.
Stock price has also grown about 8% over last year through a tough market. Some projections indicate that Farmers could break into the Russell 2000 next year.
This year’s rapid-fire acquisitions combined with already strong performance positions Farmers for a promising future, said Scott Siefers, an analyst at Sandler O’Neill + Partners L.P.
“They’re not necessarily in an advantageous position from a scale perspective,” Siefers said, “but if they compete effectively enough, they’ll find a way to be winners punching above their weight class.”
Organic growth in the company’s legacy Northeast Ohio markets will certainly continue. Helmick said the bank prefers to have between 15%-20% of the markets in which it operates.
More deals for this community bank can be anticipated, particularly in Pennsylvania, even though the company is looking for the dust to settle from this year’s deals.
“I think for the time being, they’ve got a pretty good opportunity to export their model into recently acquired franchises,” Siefers said.
But it’s clear the leadership at Farmers is looking to feed a hunger for growth as the banking landscape evolves.
“One competitive advantage we have against regionals is that towns and cities between larger metro areas … some banks have left as their focus,” Helmick said.
“We’re doing very well in those markets. Don’t expect us in larger metro areas.
“But we do like the contiguous nature of acquisitions and feel like there are some opportunities in both the bank and wealth management divisions.”