Q3 2025 Farmers National Banc Corp Earnings Call
Operator: Before we continue, I remind you that forward-looking statements made during this presentation are made to the safe harbor statement found in the presentation and our filings with the Securities and Exchange Commission, including Farmers' 2024 annual report on Form 10-K and subsequent SEC filings. These statements are not historical facts, but rather statements based on Farmers' current expectations regarding its business strategies and its intended results and future performance, including the intended benefits of the merger. Forward-looking statements are not guarantees of future performance, and actual future results could differ materially from those contained in forward-looking information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside Farmers' control.
[Company Representative] (Farmers National Banc Corp.): Before we continue, I remind you that forward-looking statements made during this presentation are made to the safe harbor statement found in the presentation and our filings with the Securities and Exchange Commission, including Farmers' 2024 annual report on Form 10-K and subsequent SEC filings. These statements are not historical facts, but rather statements based on Farmers' current expectations regarding its business strategies, its intended results, and future performance, including the intended benefits of the merger. Forward-looking statements are not guarantees of future performance, and actual future results could differ materially from those contained in forward-looking information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, many of which are outside Farmers' control.
[Company Representative] (Farmers National Banc Corp.): Numerous risks, uncertainties, and changes could cause or contribute to Farmers' actual results, performance, and achievements, and the intended benefits of the merger to be materially different from those expressed or implied by the forward-looking statements. For further information concerning factors that could materially affect actual results, performance, and achievements related to the forward-looking statements, please refer to the factors disclosed periodically in Farmers' filings with the SEC, as well as the disclosure statement in the presentation in Farmers and Middlefield's joint press release dated 22 October 2025. Forward-looking statements speak as of the date made, and Farmers assumes no obligation to update any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this presentation. A joint press release and presentation on the merger with Middlefield are available on the Investor Relations section of Farmers' website.
Operator: Numerous risks, uncertainties, and changes could cause or contribute to Farmers' actual results, performance, and achievements, and the intended benefits of the merger to be materially different from those expressed or implied by the forward-looking statements. For further information concerning factors that could materially affect actual results, performance, and achievements related to the forward-looking statements, please refer to the factors disclosed periodically in Farmers' filings with the SEC, as well as this disclosure statement in the presentation in Farmers and Middlefield's joint press release dated 22 October 2025. Forward-looking statements speak as of the date made. Farmers assumes no obligation to update any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this presentation. A joint press release and presentation on the merger with Middlefield are available on the investor relations section of Farmers' website.
[Company Representative] (Farmers National Banc Corp.): In addition, this call is being webcast, and a replay will be available on Farmers' Investor Relations website. Now, I'm pleased to introduce Kevin Helmick, Farmers' Chief Executive Officer. Kevin, please go ahead.
Operator: In addition, this call is being webcast and a replay will be available on Farmers' investor relations website. Now I'm pleased to introduce Kevin Helmick, Farmers' Chief Executive Officer. Kevin, please go ahead.
Kevin Helmick: Good morning, and thank you for your time today. We are excited to share with you that this morning Farmers National Banc Corp. and Middlefield Banc Corp. jointly announced the signing of a merger agreement to merge Middlefield into Farmers. Middlefield Banc Corp. is headquartered in Middlefield, Ohio, and is the holding company for The Middlefield Banking Company. On a consolidated basis, Middlefield has $2 billion in assets with 21 full-service locations and 1 loan production office throughout multiple compelling Ohio markets. When added to Farmers $5.2 billion in assets, this transaction will increase our assets to $7.2 billion. At this scale, we believe our financial model will quickly benefit from significant operating leverage and drive increased financial performance. Today, I wanna share with you the strategic rationale and financial implications of this exciting opportunity.
Kevin J. Helmick: Good morning, and thank you for your time today. We are excited to share with you that this morning, Farmers National Bancorp and Middlefield Bancorp jointly announced the signing of a merger agreement to merge Middlefield into Farmers. Middlefield Bancorp is headquartered in Middlefield, Ohio, and is the holding company for the Middlefield Banking Company. On a consolidated basis, Middlefield has $2 billion in assets, with 21 full-service locations and one loan production office throughout multiple compelling Ohio markets. When added to Farmers' $5.2 billion in assets, this transaction will increase our assets to $7.2 billion. At this scale, we believe our financial model will quickly benefit from significant operating leverage and drive increased financial performance. Today, I want to share with you the strategic rationale and financial implications of this exciting opportunity.
Kevin J. Helmick: Our transaction with Middlefield is strategically important as it provides a unique opportunity to acquire scale in several attractive Ohio communities and creates a foundation for future success as the community bank of choice in our markets. With six established locations and $163 million of deposit market share in greater Columbus markets, Middlefield will meaningfully expand our presence throughout Central Ohio. Coupled with the establishment of our Dublin, Ohio, loan production office and the fourth quarter 2024 acquisition of Dublin-based Crest Retirement Advisors by our subsidiary, National Associates, our Columbus strategic growth plan will be significantly accelerated. The Columbus market is a natural fit for our diversified financial services platform, and Middlefield's strong community presence is well aligned with our strategic initiatives to grow in Ohio's largest and fastest-growing region. Middlefield is also highly complementary to our Northeast Ohio franchise, creating significant market fill-in opportunities.
Kevin Helmick: Our transaction with Middlefield is strategically important as it provides a unique opportunity to acquire scale in several attractive Ohio communities and creates a foundation for future success as the community bank of choice in our markets. With 6 established locations and $163 million of deposit market share in Greater Columbus markets, Middlefield will meaningfully expand our presence throughout central Ohio. Coupled with the establishment of our Dublin, Ohio loan production office and the Q4 2024 acquisition of Dublin-based Crest Retirement Advisors by our subsidiary, National Associates, our Columbus strategic growth plan will be significantly accelerated. The Columbus market is a natural fit for our diversified financial services platform, and Middlefield's strong community presence is well aligned with our strategic initiatives to grow in Ohio's largest and fastest-growing region. Middlefield is also highly complementary to our Northeast Ohio franchise, creating significant market fill-in opportunities.
Kevin J. Helmick: For example, Geauga County has one of the highest median household incomes in the state. While Farmers currently maintains one office in the county and a modest share of local deposits, Middlefield is the number one community bank and number two in deposit market share overall. The combination will establish Farmers as the leading community bank in Geauga County while broadening our reach and deepening relationships across key Northeast Ohio markets. We are very familiar with Middlefield's markets, culture, and communities. It is a well-run institution with an emphasis on strong core and lower-cost deposits. There are a number of benefits that will transpire from this transaction, such as an opportunity to better compete for loan growth in new demographically rich markets with a larger legal lending limit.
Kevin Helmick: For example, Geauga County has one of the highest median household incomes in the state. Farmers currently maintains one office in the county and a modest share of local deposits, Middlefield is the number one community bank and number two in deposit market share overall. The combination will establish Farmers as the leading community bank in Geauga County while broadening our reach and deepening relationships across key Northeast Ohio markets. We are very familiar with Middlefield's markets, culture, and communities. It is a well-run institution with an emphasis on strong core and lower cost deposits. There are a number of benefits that will transpire from this transaction, such as an opportunity to better compete for loan growth in new demographically rich markets with a larger legal lending limit.
Kevin J. Helmick: We are also excited to offer Farmers robust wealth management services to Middlefield's customers, to include Farmers Trust Company, Farmers National Investments, Farmers National Insurance, Farmers Retirement Services, and our private banking program. Both Middlefield and Farmers take pride in their strong customer-centric cultures, making this transaction a great fit for both organizations. Like Farmers, Middlefield has a 100-plus-year history of serving its communities. The combined company will consist of 83 branch locations throughout Northeast, Central, and Western Ohio, and Western Pennsylvania. We will acquire Middlefield Bank and merge into one combined company that will operate under the Farmers National Bank of Canfield name. We look forward to welcoming our esteemed Middlefield colleagues into the Farmers family. Additionally, two Middlefield board members will join the Farmers board to represent the legacy franchise and provide thoughtful guidance as we combine these two great companies.
Kevin Helmick: We're also excited to offer Farmers' robust wealth management services to Middlefield's customers to include Farmers Trust Company, Farmers National Investments, Farmers National Insurance, Farmers Retirement Services, and our private banking program. Both Middlefield and Farmers take pride in their strong customer-centric cultures, making this transaction a great fit for both organizations. Like Farmers, Middlefield has a 100-plus year history of serving its communities. The combined company will consist of 83 branch locations throughout Northeast, Central, and Western Ohio and Western Pennsylvania. We will acquire The Middlefield Banking Company and merge into one combined company that will operate under The Farmers National Bank of Canfield name. We look forward to welcoming our esteemed Middlefield colleagues into the Farmers family. Two Middlefield board members will join the Farmers board to represent the legacy franchise and provide thoughtful guidance as we combine these two great companies.
Kevin J. Helmick: The transaction is expected to close in the first quarter of 2026, and we are working towards a conversion date in August 2026, where both organizations will transition to Jack Henry, a new core platform. The core conversion will offer enhanced digital capabilities for our customers, as well as a significant cost savings for our combined company. This will be the largest transaction in Farmers' history when measured by banking assets, bringing our total acquisitions to nine in the last 10 years, to include seven bank acquisitions. We have demonstrated a successful track record on our previous mergers, as experience, talent, and passion run deep in the Farmers ranks. We have confidence that our acquisition experience should help mitigate integration risk with this transaction. Additionally, we expect our growth rates and profitability to be significantly enhanced as a combined company.
Kevin Helmick: The transaction is expected to close in Q1 2026, and we are working towards a conversion date in August 2026, where both organizations will transition to Jack Henry, a new core platform. The core conversion will offer enhanced digital capabilities for our customers, as well as a significant cost savings for our combined company. This will be the largest transaction in Farmers history when measured by banking assets, bringing our total acquisitions to 9 in the last 10 years to include 7 bank acquisitions. We have demonstrated a successful track record on our previous mergers as experience, talent, and passion run deep in the Farmers ranks. We have confidence that our acquisition experience should help mitigate integration risk with this transaction. Additionally, we expect our growth rates and profitability to be significantly enhanced as a combined company.
Kevin J. Helmick: I'm now happy to turn the call over to Troy Adair, our CFO, to review our third-quarter financial results and provide additional details around the financial implications of this deal. Troy?
Kevin Helmick: I'm now happy to turn the call over to Troy Adair, our CFO, to review our Q3 financial results and provide additional details around the financial implications of this deal. Troy?
Troy Adair: Thank you, Kevin. Good morning, everyone. We're very excited to make this announcement this morning. In conjunction with this announcement, we're also going to talk a little bit about our Q3 financial results, which reflect solid operating and financial performance. Some highlights from our Q3. We had our 171st consecutive quarter of profitability, well over 40 years of profitability that we've seen. We experienced solid loan growth of $34.4 million, representing an annualized growth rate of 4.2%. We had commercial loans which led our growth in the quarter increased by $30.1 million or 6% at an annualized rate. Over the past 3 months, we've seen our net interest margin expand to 3%, which is the first time we've been over 3% in almost 2.5 years.
Troy Adair: Thank you, Kevin. Good morning, everyone. We're very excited to make this announcement this morning. In conjunction with this announcement, we're also going to talk a little bit about our third-quarter financial results, which reflect solid operating and financial performance. Some highlights from our third quarter: we had our 171st consecutive quarter of profitability, well over 40 years of profitability that we've seen. We experienced solid loan growth of $34.4 million, representing an annualized growth rate of 4.2%. We had commercial loans, which led our growth in the quarter, increased by $30.1 million, or 6% at an annualized rate. Over the past three months, we've seen our net interest margin expand to 3%, which is the first time we've been over 3% in almost two and a half years.
Troy Adair: We opportunistically restructured $28.5 million worth of securities, and we've expanded the yield on this amount by 220 basis points on the reinvestment. As Kevin mentioned, Farmers also made the strategic decision to transition to a new core platform. While we incurred an upfront charge of $3.1 million associated with this action during the third quarter, it will result in over $2 million of annual savings once the conversion is complete in August of 2026. Our efforts drove another strong quarter of profitability and earnings growth. We're proud of our performance in the third quarter and excited by the opportunities the Middlefield acquisition will have on our future financial performance. The Middlefield acquisition is structured as an all-stock transaction whereby shareholders of Middlefield will receive 2.60 shares of Farmers common stock for each share of Middlefield that they hold.
Troy Adair: We opportunistically restructured $28.5 million worth of securities, and we've expanded the yield on this amount by 220 basis points on the reinvestment. As Kevin mentioned, Farmers also made the strategic decision to transition to a new core platform. While we incurred an upfront charge of $3.1 million associated with this action during Q3, it will result in over $2 million of annual savings once the conversion is complete in August 2026. Our efforts drove another strong quarter of profitability and earnings growth. We're proud of our performance in Q3 and excited by the opportunities the Middlefield acquisition will have on our future financial performance.
Troy Adair: The Middlefield acquisition is structured as an all-stock transaction whereby shareholders of Middlefield will receive 2.60 shares of Farmers common stock for each share of Middlefield that they hold. Based on Farmers closing share price of $13.91 on 20 October, the total value of the transaction is $299 million or $36.17 per share. The purchase price was approximately 163.5% of tangible book value and 14.1x Middlefield's earnings for the last 12 months. This purchase price represents an attractive pay-to-trade ratio of 87.4%. We published a presentation that is available on the investor section of our website in which we lay out several key assumptions. Regarding credit due diligence, management completed an in-depth review of Middlefield's $1.6 billion loan portfolio.
Troy Adair: Based on Farmers' closing share price of $13.91 on 20 October 2023, the total value of the transaction is $299 million, or $36.17 per share. The purchase price was approximately 163.5% of tangible book value and 14.1x Middlefield's earnings for the last 12 months. This purchase price represents an attractive pay-to-trade ratio of 87.4%. We published a presentation that is available on the investor section of our website, in which we lay out several key assumptions. Regarding credit due diligence, management completed an in-depth review of Middlefield's $1.6 billion loan portfolio. Our due diligence team consisted of senior commercial credit and commercial banking personnel, as well as senior consumer, mortgage underwriting, and collections personnel. Management also engaged a third-party specialist to assess the loan due diligence, portfolio analytics, and development of the credit mark.
Troy Adair: Our due diligence team consisted of senior commercial credit and commercial banking personnel, as well as senior consumer, mortgage underwriting, and collections personnel. Management also engaged a third-party specialist to assess the loan due diligence, portfolio analytics, and development of the credit mark. This gross credit mark is estimated at $28.5 million and represents 1.74% of Middlefield's gross loan portfolio. The due diligence team reviewed approximately 57% of the target's loan portfolio, including the bank's classified and delinquent loans. We believe this comprehensive review provides an accurate assessment of the loan portfolio, and the credit mark is both conservative and prudent in today's environment.
Troy Adair: This gross credit mark is estimated at $28.5 million and represents 1.74% of Middlefield's gross loan portfolio. The due diligence team reviewed approximately 57% of the target's loan portfolio, including the bank's classified and delinquent loans. We believe this comprehensive review provides an accurate assessment of the loan portfolio, and the credit mark is both conservative and prudent in today's environment. Diluted earnings per share accretion for 2027 is estimated at approximately 7%. The tangible book value per share dilution of approximately 4.4% is expected to be earned back in approximately three years using the crossover method. This includes a cost savings estimate of 38% based upon Middlefield's expense run rate. The acquisition will also push us over $6 billion in deposits and approximately $5 billion in loans, while our capital levels will remain strong.
Troy Adair: Diluted earnings per share accretion for 2027 is estimated at approximately 7%, and the tangible book value per share dilution of approximately 4.4% is expected to be earned back in approximately 3 years using the crossover method. This includes a cost savings estimate of 38% based upon Middlefield's expense run rate. The acquisition will also push us over $6 billion in deposits and approximately $5 billion in loans, while our capital levels will remain strong. We anticipate our pro forma total risk-based capital ratio to be approximately 13.7%, and TCE to tangible assets will increase to approximately 6.4%. I will now turn the call back over to Kevin for his final comments.
Troy Adair: We anticipate our pro forma total risk-based capital ratio to be approximately 13.7%, and TCE to tangible assets will increase to approximately 6.4%. I will now turn the call back over to Kevin for his final comments.
Kevin Helmick: Well, very good. Thank you, Troy. As you can see, we are very excited about this opportunity. That will help us expand into the demographically attractive central and western Ohio markets, while deepening our commitment to our legacy markets in Northeast Ohio and Western Pennsylvania. Middlefield is a high quality company that offers tremendous upside for our shareholders. Farmers has continued to demonstrate a successful track record for executing on M&A and will strive to complete another successful transaction. We would like to say thank you for joining our call today, and that's all for now.
Kevin J. Helmick: Well, very good, and thank you, Troy. As you can see, we are very excited about this opportunity that will help us expand into the demographically attractive Central and Western Ohio markets, while deepening our commitment to our legacy markets in Northeast Ohio and Western Pennsylvania. Middlefield is a high-quality company that offers tremendous upside for our shareholders. Farmers has continued to demonstrate a successful track record for executing on M&A, and will strive to complete another successful transaction. We would like to thank you for joining our call today, and that's all for now.
Operator: At this time, we will begin the question and answer session. During today's Q&A, management will only take questions from Farmers and Middlefield's analysts. Analysts that would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask analysts to limit themselves to one question and one follow-up so that others may have the opportunity to do so as well. One moment please while we poll for questions. Thank you. Our first question comes from the line of Daniel Tamayo with Raymond James. Please proceed with your question.
Operator: At this time, we will begin the question-and-answer session. During today's Q&A, management will only take questions from Farmers and Middlefield's analysts. Analysts that would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. We ask analysts to limit themselves to one question and one follow-up, so that others may have the opportunity to do so as well. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Daniel Tomeo with Ram & James. Please proceed with your question.
Daniel Tamayo: Thank you. Good morning, everyone. Congratulations on the deal. I guess first, just on the balance sheet, curious what you think, if any, the deal has, the impact has on the growth rate for Farmers. Obviously, you guys haven't been growing a whole lot for a while, but does this accelerate your ability and willingness to grow the balance sheet? Where do you think that shakes out going forward?
Daniel Tamayo: Thank you. Good morning, everyone. Congratulations on the deal. I guess first, just on the balance sheet, you know, curious what you think, if any, the impact has on the growth rate for Farmers? Obviously, you guys haven't been growing a whole lot for a while, but, you know, does this accelerate your ability and willingness to grow the balance sheet? You know, where do you think that shakes out going forward?
Troy Adair: Daniel, hi. This is Troy Adair. This was one of the reasons that we found Middlefield to be attractive. With the Columbus market, the way they've been growing loans over the last couple of years, we felt that this would enhance our ability to grow organically. We opened up the LPO in Columbus earlier this year, obviously it's a smaller operation. We really think that it will enhance our organic growth capabilities moving forward.
Troy Adair: Danny, hi. This is Troy Adair. This was one of the reasons that we found Middlefield to be attractive with the Columbus market. The way they've been growing loans over the last couple of years, we felt that this would enhance our ability to grow organically. We'd opened up the LPO in Columbus earlier this year, obviously, it's a smaller operation. We really think that it will enhance our organic growth capabilities moving forward.
Daniel Tamayo: Great. Thanks, Troy. You know, just from a balance sheet actions perspective, any anticipated changes to the balance sheet once the deal closes or going into the close on either side of from either bank?
Daniel Tamayo: Great. Thanks, Troy. Just from a balance sheet actions perspective, any anticipated changes to the balance sheet once the deal closes or going into the close on either side, from either bank?
Troy Adair: I think the marketplace is really creating opportunities for us in regards to our investment portfolio. You know, I think restructuring opportunities will be possible. I think rates are down another 20 basis points since the end of the quarter. If we get even better loan growth, we've got easy opportunities to fund that growth. We can restructure, reduce some of our asset or liability sensitivity moving forward. We just think it opens up a lot of possibilities for us over the next 12 to 18 months.
Troy Adair: I think the marketplace is really creating opportunities for us. In regards to our investment portfolio, I think restructuring opportunities will be possible. I think rates are down another 20 basis points since the end of the quarter. If we get even better loan growth, we've got easy opportunities to fund that growth. We can restructure, reduce some of our asset or liability sensitivity moving forward. We just think it opens up a lot of possibilities for us over the next 12 to 18 months.
Kevin Helmick: Yeah, Danny, this is Kevin. Thanks for the questions. You know, I think just to add on a little bit to what Troy said, he said it well. Obviously in our earlier comments. You know, Columbus, we recognize, is on a national stage from their economic development and growth perspective. You know, adding it to what we now consider the triangle of Cleveland, Pittsburgh, and Columbus, you know, creates a fair bit of excitement for us. It's well documented that we've been able to acquire and execute on a number of transactions in the past.
Kevin J. Helmick: Yeah, Danny, this is Kevin. Thanks for the questions. I think just to add on a little bit to what Troy said, and he said it well. Obviously, in our earlier comments, Columbus, we recognize, is on a national stage from their economic development and growth perspective. Adding it to what we now consider the triangle of Cleveland, Pittsburgh, and Columbus creates a fair bit of excitement for us. It's well documented that we've been able to acquire and execute on a number of transactions in the past. I think thinking about just loan growth in this transaction maybe undersells it a bit in that one of the things we're really excited about is wealth management that just doesn't grow fees, it grows relationships.
Kevin Helmick: I think, you know, thinking about just loan growth in this transaction, maybe undersells it a bit, in that, you know, one of the things we're really excited about is wealth management. That just doesn't grow fees, it grows relationships. I think, you know, based on what we've been able to do in Pittsburgh and some of the early returns there and the early wins we're seeing in the market, you know, the playbook will continue to be similar in Columbus. We did close the fee acquisition in early January with Crest Retirement, then, as Troy mentioned, the LPO.
Kevin J. Helmick: I think based on what we've been able to do in Pittsburgh and some of the early returns there and the early wins we're seeing in the market, the playbook will continue to be similar in Columbus. We did close the fee acquisition in early January with Crest Retirement. Then, as Troy mentioned, the LPO, and just being able to add to our kind of the spark we've created down and around the greater Columbus market with this, as well as the western markets in Hardin and Logan counties that Middlefield had, is very exciting. We love the fill-in opportunities. The fill-in opportunities in Northeast Ohio are communities that we know, great sources of funding. We think it's the right opportunity. We often talk about the strategic aspects of our acquisitions, and that's first and foremost.
Kevin Helmick: Just being able to add to our kind of the spark we've created down and around the greater Columbus market with this, as well as the western markets in Hardin and Logan counties that Middlefield had is very exciting. We love the fill-in opportunities. The fill-in opportunities in Northeast Ohio are communities that we know, great sources of funding. We think it's the right opportunity and we often talk about the strategic aspects of our acquisitions, and that's first and foremost. Loan growth on its own, we're optimistic about, but I think as it fits into the overall plan is what makes us particularly excited. Daniel, as always, we appreciate the thoughtful questions.
Kevin J. Helmick: Loan growth on its own, we're optimistic about, but I think as it fits into the overall plan, that's what makes us particularly excited. Danny, as always, we appreciate the thoughtful questions.
Daniel Tamayo: That's helpful color. Kevin, Troy, thank you. I'll step back.
Daniel Tamayo: That's helpful, Troy. Kevin and Troy, thank you. I'll step back.
Operator: Thank you. As a reminder, if you would like to ask a question, press star one on your telephone keypad. One moment, please, while we re-poll for any additional questions. Thank you. Our next question comes from line of Daniel Cardenas with Janney. Please proceed with your question.
Operator: Thank you. As a reminder, if you would like to ask a question, press Star 1 on your telephone keypad. One moment, please, while we repoll for any additional questions. Thank you. Our next question comes from a line of Daniel Cardenas with Janny. Please proceed with your question.
Daniel Cardenas: Hey, morning, guys. Congratulations on the transaction. Just quickly, what does this deal do to your CRE concentration ratio?
Daniel Cardenas: Hey, morning, guys. Congratulations on the transaction. Just quickly, what does this deal do to your CRE concentration ratio?
Troy Adair: Dan, it raises it a little bit, but we're still well below the 300% regulatory limit. We think we've got a lot of opportunities, not only in the CRE space, but really more so in the C&I space. Middlefield has been doing a very nice job of growing that book of business. We think it will augment our efforts. We think we've got a lot of runway with both of those buckets in the loan portfolio.
Troy Adair: Danny, it raises it a little bit, but we're still well below the 300% regulatory limit. We think we've got a lot of opportunities, not only in the CRE space, but really more so in the C&I space. Middlefield has been doing a very nice job of growing that book of business. We think it will augment our efforts, and we think we've got a lot of runway with both of those buckets in the loan portfolio.
Kevin Helmick: Dan, I would just add that, you know, Middlefield has done a great job in the last couple of years of focus in C&I too, which is of particular interest to us. I think it'll be a balanced approach. As Troy said, as opportunities come up with CRE, you know, we have ample room there. As excited about the C&I prospects as anything in this.
Kevin J. Helmick: Danny, I would just add that Middlefield has done a great job in the last couple of years of focus in C&I too, which is of particular interest to us. I think it'll be a balanced approach, as Troy said, as opportunities come up with CRE. We have ample room there, but as excited about the C&I prospects as anything in this.
Daniel Cardenas: Great. Then, in terms of additional deals or do you guys have capacity or appetite to look at multiple deals at once? If you did, would these be pure play Ohio deals, or would you look at expanding in Pennsylvania as well?
Daniel Cardenas: Great. In terms of additional deals, do you guys have capacity or appetite to look at multiple deals at once? If you did, would these be PurePlay Ohio deals, or would you look at expanding in Pennsylvania as well?
Kevin Helmick: Yeah. Thanks again, Daniel. You know, our thought process here is just it's really solely on Middlefield and their stakeholders. We have, as we mentioned in the release, our core conversion that we're very excited about as well. The Middlefield and Farmers sides both have Jack Henry histories. You might remember the Cortland acquisition. They were on Jack Henry. We still have a number of associates, as well as Middlefield's acquisition of Liberty, where CEO Ronald L. Zimmerly, Jr. came from. They also have, they were on Jack Henry. We're very excited about the resources we have there and the ability to convert successfully in August. I think we're solely focused on, as I said, Middlefield and stakeholders in that conversion right now.
Troy Adair: Yeah. Thanks again, Dan. Our thought process here is just it's really solely on Middlefield and their stakeholders. We have, as we mentioned in the release, our core conversion that we're very excited about as well. The Middlefield and Farmers sides both have Jack Henry histories. You might remember the Cortland acquisition. They were on Jack Henry. We still have a number of associates, as well as Middlefield's acquisition of Liberty, where CEO Ron Zimmerle came from. They also have, they were on Jack Henry. We're very excited about the resources we have there and the ability to convert successfully in August. I think we're solely focused on, as I said, Middlefield and their stakeholders in that conversion right now. I'll kind of punt on that question for now. You know us well, and we've been inquisitive, but for right now, that's where our focus is.
Kevin Helmick: We'll kind of punt on that question for now. You know, you know as well and we've been inquisitive, but for right now, that's where our focus is.
Daniel Cardenas: Okay. Makes sense. Thank you. I'll step back.
Daniel Cardenas: Okay, makes sense. Thank you. I'll step back.
Operator: Our next question is a follow-up from Daniel Tamayo with Raymond James. Please proceed with your question.
Operator: Our next question is a follow-up from Daniel Tomeo with Ram & James. Please proceed with your question.
Daniel Tamayo: Hello again.
Daniel Tamayo: Hello again. Well.
Kevin Helmick: Hey, Daniel.
Kevin J. Helmick: Hey, Danny.
Daniel Tamayo: If I've got the floor here, I'll ask a few questions. Excuse me. Maybe just a follow-up on the expense, the expense side, the cost savings. You talked about, I think Troy mentioned, $2 million annual savings from the core conversion, and that's happening in August. Maybe just walk us through the timing of the cost savings as a whole, if you're gonna get some, you know, initially in Q1 or in Q2, kind of post-closing and then the bulk of it post-conversion. Is that the best way to think about it? That $2 million you're talking about, I'm assuming that's, you know, fully baked into the cost savings you're talking about.
Daniel Tamayo: If I've got the floor here, I'll ask a few questions. Excuse me. Maybe just a follow-up on the expense side, the cost savings. You talked about, I think Troy mentioned, $2 million annual savings from the core conversion, and that's happening in August. Maybe just walk us through the timing of the cost savings as a whole, if you're going to get some initially in the first quarter or in the second quarter, kind of post-closing, and then the bulk of it post-conversion. Is that the best way to think about it? That $2 million you're talking about, I'm assuming that's fully baked into the cost savings you're talking about.
Kevin Helmick: Yeah. Daniel, that's a great question. I'm sure, you know, many people on the call wanna understand that. Let me lay out the timing, so you understand, and then Troy will comment on the, you know, kind of the financials behind it that we've talked a lot about. You know, it's not unusual for us to see, you know, this length of time between, you know, signing and a conversion. We've managed through other transactions, benefit of doing a number of transactions recently with the same team. We're excited about that, but that, you know, that we have that scheduled for August. You know, as you can imagine, you know, we're thinking about, you know, end of Q1 close.
Kevin J. Helmick: Yeah. Danny, that's a great question. I'm sure many people on the call want to understand that. Let me lay out the timing so you understand, and then Troy will comment on kind of the financials behind it that we've talked a lot about. It's not unusual for us to see this length of time between signing and the conversion. We've managed through other transactions, benefit of doing a number of transactions recently with the same team. We're excited about that, and we have that scheduled for August. As you can imagine, we're thinking about end of first quarter close, and we'll be running out the balance of that through conversion. I think that would extend the time of the cost saves out to the end of the quarter, but Troy has some more specifics. I just wanted to make sure that we kind of painted a picture there.
Kevin Helmick: We'll be, you know, running out the balance of that through conversion. You know, I think that would extend the time of the cost saves out to the end of the quarter, but Troy has some more specifics. I just wanted to make sure that, you know, we kind of painted a picture there. Our last transaction with Farmers of Emlenton in our experience was, you know, from announcement till conversion was about 11 months, and we actually anticipate that this one will be based on that August timeframe, even shorter than that. Again, we're well-versed, we're well-prepared, you know, for that type of timeframe. It's not unusual for us. It does have an impact on those expenses, as you said, though.
Kevin J. Helmick: Our last transaction with Farmers, in our experience, was from announcement till conversion was about 11 months, and we actually anticipate that this one will be, based on that August timeframe, even shorter than that. Again, we're well-versed, we're well-prepared for that type of timeframe. It's not unusual for us. It does have an impact on those expenses, as you said, though.
Troy Adair: Yeah. Danny, you know, the $2 million that we referenced in the press release, that is relative to Farmers on a standalone basis. The cost savings associated with Middlefield's core would be part of their 38% cost savings that we referenced. The two really are additive. Significant cost savings with this contract negotiation. We were gonna have to go through this anyway. Our core was gonna be sunsetting over the next several years. This was gonna be a necessary step for both organizations, one of the benefits of this merger too in the conversion, Middlefield is on the same exact core as us. They're using the same exact general ledger system.
Troy Adair: Yeah. Danny, the $2 million that we referenced in the press release, that is relative to Farmers on a standalone basis. The cost savings associated with Middlefield's core would be part of their 38% cost savings that we referenced. The two really are additive. Significant cost savings with this contract negotiation, and we were going to have to go through this anyway. Our core was going to be sunsetting over the next several years. This was going to be a necessary step for both organizations because one of the benefits of this merger too in the conversion, Middlefield is on the same exact core as us. They're using the same exact general ledger system, so it creates some ease in the conversion process.
Troy Adair: It creates some ease in the conversion process. Relative to your question pertaining to cost savings, because of the longer time between close and conversion, a lot of the cost savings will be a little more back-end loaded in 2026. It's really why we were referencing 2027 earning run rate, because 2026 results are going to be so lumpy. We will have some cost savings immediately post-close, certain contracts, things of that nature, but a lot of the cost saves will be H2 of the year, about Q4.
Troy Adair: Relative to your question pertaining to cost savings, because of the longer time between close and conversion, a lot of the cost savings will be a little more back-end loaded in 2026. It's really why we were referencing 2027 earning run rate, because 2026 results are going to be so lumpy. We will have some cost savings immediately post-close, certain contracts, things of that nature, but a lot of the cost savings will be back half of the year, back fourth quarter.
Daniel Tamayo: Okay. All right. Very helpful. The $2 million in savings are incremental to the deal cost savings. Is it fair to say there'll be additional kind of one-time costs related to the core conversion that you'll recognize later in the year?
Daniel Tamayo: All right. Very helpful. The $2 million in savings are incremental to the deal cost savings. Is it fair to say there'll be additional kind of one-time cost then related to the core conversion that you'll recognize later in the year?
Troy Adair: We will have some costs. I would estimate probably $750,000, you know, later in 2026, related to that. Again, that run rate will improvement will start immediately post-conversion.
Troy Adair: We will have some costs. I would estimate probably $750,000 later in 2026 related to that. Again, that run rate improvement will start immediately post-conversion.
Daniel Tamayo: Okay, great. Are those savings in the 2027 numbers that you gave, the 150-?
Daniel Tamayo: Okay. Great. Are those savings in the 2027 numbers that you gave, the 1.50 ROA?
Troy Adair: Yeah
Daniel Tamayo: ROA? Those are. Okay. Okay.
Troy Adair: Yeah.
Daniel Tamayo: Those are? Okay. Okay.
Troy Adair: Yep.
Daniel Tamayo: Great. All right.
Troy Adair: Yep.
Daniel Tamayo: Great.
Troy Adair: Yeah, we anticipate most of the cost savings being in our run rate by December and into the first quarter of 2027.
Troy Adair: Yeah. We anticipate most of the cost savings being in our run rate by December and into Q1 2027.
Daniel Tamayo: Okay. All right. Helpful. All right. On the funding side, Middlefield's got a little bit higher cost funding than Farmers does. You know, how do you think about your ability to lower that to kind of match what you've got happening now in terms of and in terms of timing as well on that?
Daniel Tamayo: Okay. All right. Helpful. All right. On the funding side, Middlefield's got a little bit higher cost funding than Farmers does. How do you think about your ability to lower that to kind of match what you've got happening now in terms of, and in terms of timing as well on that?
Troy Adair: Sure. I, you know, I think there's 2 things going on. Number 1, on the Farmers side, we've got a pretty long history of managing expenses, both operating expenses as well as deposit costs. Middlefield's had the benefit of growing their loan book fairly rapidly. They've been a little bit more aggressive on pricing. Obviously, our deposit base, our loan-to-deposit ratio offers us some opportunities to continue to allow that group to grow the loan book, but manage the deposit costs in a more efficient way. We think there's some opportunities there, some possible additional margin expansion additive to our liability sensitivity that we could see over the next 18 to 24 months.
Troy Adair: Sure. I think there are two things going on. Number one, on the Farmers side, we've got a pretty long history of managing expenses, both operating expenses as well as deposit costs. Middlefield's had the benefit of growing their loan book fairly rapidly. They've been a little bit more aggressive on pricing. Obviously, our deposit base, our low loan-to-deposit ratio, offers us some opportunities to continue to allow that group to grow the loan book but manage the deposit costs in a more efficient way. We think there are some opportunities there, some possible additional margin expansion, additive to our liability sensitivity that we could see over the next 18 to 24 months.
Daniel Tamayo: Okay, great. Lastly, just to follow up on that, the loan-to-deposit ratio goes up for you guys, as you mentioned. What's a comfortable number for you now post the merger?
Daniel Tamayo: Okay. Great. Lastly, just to follow up on that, the loan-to-deposit ratio goes up for you guys. As you mentioned, what's a comfortable number for you now post the merger?
Kevin Helmick: Daniel, I think it, yeah, it goes, you know, we're say roughly 82%. I mean, we've been, you know, 90% to 95% before. I mean, I'll tell you near term, it's probably 90%. I think that presents a lot of opportunity, as Troy said, on both sides of the balance sheet. If I had to give you a number, thinking about it today, you know, it would probably be 90%.
Kevin J. Helmick: Danny, I think it, yeah, it goes. We're going to say roughly 82. I mean, we've been 90 to 95 before. I mean, I'll tell you, near term, it's probably 90. I think that presents a lot of opportunity, as Troy said, on both sides of the balance sheet. If I had to give you a number, thinking about it today, it would probably be 90.
Daniel Tamayo: Terrific. Okay. Well, I think that's all for me. I don't know if Dan has any other follow-ups as well. I appreciate the time today, guys.
Daniel Tamayo: Terrific. Okay. Well, I think that's all for me. I don't know if Dan has any other follow-ups as well, but I appreciate the time today, guys.
Kevin J. Helmick: Absolutely, Danny. Thanks again.
Kevin Helmick: Absolutely, Daniel. Thanks again.
Operator: A final reminder, if you would like to ask a question, press star one on your telephone keypad. One moment please while we re-poll for any additional questions. Thank you. It appears we have no further questions at this time. With that, the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: A final reminder, if you would like to ask a question, press Star 1 on your telephone keypad. One moment, please, while we repoll for any additional questions. Thank you. It appears we have no further questions at this time. With that, the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Forward looking statements made during this presentation are made to the safe Harbor statement found in the presentation and our filings with the Securities and Exchange Commission, including Farmers 2024 annual report on Form 10-K, and subsequent SEC filings.
These statements are not historical facts, but rather statements based on farmers current expectations regarding its business strategies and its intended results and future performance, including the intended benefits of the merger.
Forward looking statements are not guarantees of future performance and actual future results could differ materially from those contained in forward looking information.
Because forward looking statements relate to the future. They are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict and many of which are outside farmer's control.
Numerous risks uncertainties and changes could cause or contribute to farmers actual results performance and achievements and the intended benefits of the merger to be materially different from those expressed or implied by the forward looking statements.
For further information concerning factors that could return really affect actual results performance and achievements related to the forward looking statements. Please refer to the factors disclosed periodically and farmers filings with the S. E C as well as the disclosure statement in the presentation and farmers in middle fields Joint press.
Release dated October 22025.
Forward looking statements speak as of the date made and farmers assumes no obligation to update update any forward looking statements to reflect future events information or circumstances that arise. After the date of this presentation.
A joint press release and presentation on the merger with Middle field are available on the Investor Relations section of farmers website.
In addition, this call is being webcast and a replay will be available on farmers Investor Relations website.
And now I'm pleased to introduce Kevin helmet farmers, Chief Executive Officer, Kevin. Please go ahead.
Good morning, and thank you for your time today.
We're excited to share with you that this morning farmers National Bank Corp. In Middlefield Bancorp jointly announced the signing of a merger agreement to merge metal field into farmers.
They don't feel Bank Corp is headquartered in Middletown, Ohio, and at the holding company for the Middle feel banking company.
On a consolidated basis Middlefield has $2 billion in assets with 21 full service locations and one loan production office throughout multiple compelling Ohio markets.
When added to farmers $5 2 billion in assets. This transaction will increase our assets to $7 2 billion.
At this scale, we believe our financial model will quickly benefit from significant operating leverage and drive increased financial performance.
So today.
Want to share with you the strategic rationale and financial implications of this exciting opportunity.
Our transaction with Middle field is strategically important as it provides a unique opportunity to acquire scale several attractive, Ohio communities and creates a foundation for future success as the community bank of choice in our markets.
With six established locations and $163 million of deposit market share and greater Columbus markets Middle field will meaningfully expand our presence throughout central hub.
Coupled with the establishment of our Dublin, Ohio loan production office in the fourth quarter of 2020 for acquisition of Dublin based crest retirement advisors by our subsidiary National Associates, Our Columbus.
T J growth plan will be significantly accelerated.
The Columbus market is a natural fit for our diversified financial services platform and middle field strong community presence is well aligned with our strategic initiatives to grow in Ohio is largest and fastest growing region.
Middlefield is also highly complementary to our northeast, Ohio franchise, creating significant market fill in opportunities.
For example, Giaga County has one of the highest median household incomes in the state while farmers currently maintains one office in the county, and a modest share of local deposits middle field is the number one community bank and number two.
In deposit market share overall.
The combination will establish farmers as the leading community bank in GL County, while broadening our reach and deepening relationships across key northeast, Ohio markets.
We are very familiar with metal fields markets culture and communities it.
It is a well run institution with an emphasis on strong core and lower cost deposits.
There are a number of benefits that will transpire from this transaction.
Such as an opportunity to better compete for loan growth in new demographically rich markets with a larger legal lending limit.
We're also excited to offer farmers robust wealth management services to middle fields customers to include Farmers Trust company farmers National investments farmers National insurance farmers retirement services.
And our private banking program.
Both littlefield and farmers take pride in their strong customer centric cultures, making this transaction a great fit for both organizations like farmers Middlefield has a 100 plus year history of serving its communities.
The combined company will consist of 83 branch locations throughout North East Central and Western Ohio, and Western Pennsylvania.
We will acquire Middlefield bank and merge into one combined company will operate under the farmers National Bank of canceled name.
We look forward to welcoming our steam middlefield colleagues into the Farmer's family.
Additionally, two metal field board members will join the farmers board to represent the legacy franchise and provide thoughtful guidance as we combine these two great companies.
The transaction is expected to close in the first quarter of 2026, and we're working towards a conversion date in August of 2026, where both organizations will transition to Jack Henry a new core platform.
The core conversion will offer enhanced digital capabilities for our customers as well as a significant cost savings for our combined company.
This will be the largest transaction in farmers history, when measured by our by banking assets, bringing our total acquisitions to nine in the last 10 years to include seven bank acquisitions we.
We have demonstrated a successful track record on our previous mergers as experience talent and passion run deep and the farmers ranks, we have confidence that our acquisition experience and should help mitigate integration risk with this transaction. Additionally, we expect our growth rates and profitability to be significantly.
<unk>.
A combined company.
I'm now happy to turn the call over to Troy there our CFO to review, our third quarter financial results and provide additional details around the financial implications of this deal.
Thank you Kevin and good morning, everyone. We're very excited to make this announcement this morning and in conjunction with this announcement. We're also going to talk a little bit about our third quarter financial results, which reflect solid operating and financial performance.
Some highlights from our third quarter, we had our 170 <unk> consecutive quarter of profitability well over 40 years of profitability that we've seen we experienced solid loan growth of $34 $4 million, representing an annualized growth rate of four 2%.
We had commercial loans, which led our growth in the quarter increased by $31 million or 6% at an annualized rate.
Over the past three months, we've seen our net interest margin expand to 3%, which is the first time, we have been over 3% and almost two and a half years, we opportunistically restructured 28, $28 $5 million worth of Securities and we've expanded the yield on this amount by 220 basis points on the reinvestment.
As Kevin mentioned farmers also made the strategic decision to transfer position to a new core platform.
While we incurred an upfront charge of $3 $1 million associated with this action during the third quarter. It will result in over $2 million of annual savings. Once the conversion is complete in August of 2026.
Our efforts drove another strong quarter of profitability and earnings growth.
We're proud of our performance in the third quarter and excited by the opportunities the middle field acquisition will have on our future financial performance.
The middle fueled acquisition is structured as an all stock transaction whereby shareholders of middle field will receive 2.60 shares of farmers common stock for each share of middle field that they hold based on farmers closing share price of $13 91 on October 20th.
The total value of the transaction is $299 million or $36 17 per share.
The purchase price was approximately 163, 5% of tangible book value and 14, one times middle fields earnings for the last 12 months.
This purchase price represents an attractive pay to trade ratio of 87, 4%.
We published a presentation that is available on the investors section of our website and which we lay out several key assumptions.
Regarding credit due diligence management completed an in depth review of middle fields, one $6 billion loan portfolio.
Our due diligence team consisted of senior commercial credit and commercial banking personnel as well as senior consumer mortgage underwriting and collections personnel.
Management also engaged a third party specialist to assess the loan due diligence portfolio analytics and development of the credit Mark. This gross credit Mark is estimated at $28 $5 million and represents 174% of middle fields gross loan portfolio.
The due diligence team reviewed approximately 57% of the targets loan portfolio, including the banks classified and delinquent loans. We believe this comprehensive review provides an accurate assessment of the loan portfolio and the credit Mark is both conservative and prudent in today's environment.
Diluted earnings per share accretion for 2027 is estimated at approximately 7%.
And the tangible book value per share dilution of approximately four 4% is expected to be earned back in approximately three years using the crossover method.
This includes a cost savings estimate of 38% based upon middlefield expense run rate.
The acquisition will also pushes over 6 billion in deposits and approximately $5 billion in loans.
Our capital levels will remain strong we anticipate our pro forma total risk based capital ratio to be approximately 13, 7%.
And TCE to tangible assets will increase to approximately six 4%.
Now I'll turn the call back over to Kevin for his final comments.
Well very good and thank you Troy.
As you can see we are very excited about this opportunity that will help us expand into the demographically attractive central and western Ohio markets, while deepening our commitment to our legacy markets in northeast, Ohio, and Western Pennsylvania.
Middlefield as a high quality company that offers tremendous upside for our shareholders.
Farmers has continued to demonstrate a successful track record for executing on M&A and we will strive to complete another successful transaction.
So we would like to take thank you for joining our call today and that's all for now.
At this time, we will begin the question and answer session. During today's Q&A management will only take questions from farmers in middle fields analyst.
Analysts that would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Analysts to limit themselves to one question and one follow up so that others may have the opportunity to do so as well.
Moment, please while we poll for questions.
Thank you. Our first question comes from the line of Daniel Tamayo with Raymond James. Please proceed with your question.
Thank you good morning, everyone. Congratulations on the deal.
I guess first just on the on the balance sheet.
Curious.
What do you think if any.
This deal has the impact on the growth rate for for farmers. Obviously, you guys haven't been growing a whole lot for for a while but.
Does this accelerate your ability and willingness to grow the balance sheet.
Where do you think that shakes out going forward.
Jamie Hi, this is Troy there.
This was one of the reasons, we found middle field to be attractive.
The Columbus market.
The way they've been growing loans over the last couple of years, we felt that this would enhance our ability to grow organically.
We opened up the MTO in Columbus earlier, this year, but obviously, it's a <unk>.
Smaller operation. So we really think that it will enhance our organic growth capabilities moving forward.
Great. Thanks Troy.
And then you know.
Just from a.
Our balance sheet actions perspective any anticipated.
<unk> to the balance sheet once the deal closes or going into the close on either side of that for me the bank.
Hi.
I think the marketplace is really creating opportunities for us.
In regards to our investment portfolio.
I think restructuring opportunities will be possible.
I think rates are down another 20 basis points since the end of the quarter.
So if we get even even better loan growth, we've got easy opportunities to fund that growth.
So we can restructure.
<unk> reduced some of our asset or liability sensitivity moving forward. We just think it opens up a lot of possibilities for us over the next 12 months to 18 months.
Yes, Dan this is Kevin thanks for the questions.
I think just to add a little bit to what Troy said, he said it well.
And obviously in our earlier comments.
Columbus, we recognize on a national stage from there.
Economic development and growth perspective, and so adding it to what we now consider the triangle of Cleveland, Pittsburgh and Columbus.
It creates a fair bit of excitement for us, it's well documented that we.
<unk> been able to acquire and execute on a number of transactions in the past and I think.
Thinking about just loan growth.
This transaction.
Maybe under sells at a bid in the one of the things. We're really excited about is wealth management that just doesn't grow fees. It grows relationships and I think.
Based on what we've been able to do in Pittsburgh and some of the early returns there and the early wins, we're seeing in the market.
The playbook, we will continue to be similar in Columbus, We did close the.
Fee acquisition.
In early January with crest retirement, and then as Troy mentioned, the <unk> and so just being able to add to our.
Kind of a spark we've created down and around the greater Columbus market with this as well.
The.
Western markets.
And hardened and Logan counties that metal field had its very exciting and we love to fill in opportunities to fill in opportunities in northeast, Ohio, our communities that we know.
<unk> sources of funding.
So we think it's the right opportunity and we often talk about the strategic aspects of our acquisitions.
And that's first and foremost in them so.
Loan growth on its own we're optimistic about it but I think as it fits into the overall plan.
It makes us, particularly excited.
Danny as always we appreciate.
The thoughtful questions.
That's helpful color, Kevin and Troy, Thank you I'll step back.
Thank you as a reminder, if you would like to ask a question press star one on your telephone keypad.
One moment, please while we repo for any additional questions.
Thank you. Our next question comes from the line of Daniel Cardenas with Janney. Please proceed with your question.
Hey, good morning, guys congratulations on the on the transaction.
Just just quickly or does this deal do to your CRE concentration ratio.
Yeah.
Got it.
Danny it raises it a little bit, but we're still well below the 300% regulatory limit.
We think we've got a lot of opportunities.
Not only in the CRE space, but really more so in the C&I space Middlefield as <unk> been doing a very nice job of growing that book of business.
We think it will augment our efforts.
We think we've got a lot of runway with both of those buckets in the loan portfolio.
Dan I would just add that.
<unk> has done a great job in the last couple of years.
Focus in C&I, too, which is of particular interest to us and so.
It'll be a balanced approach as choice that as opportunities come up with CRE.
We have ample room there but.
As excited about.
About the C&I prospects as anything in this.
Okay, Great and then.
In terms of.
Additional deals or do you guys have capacity or appetite to.
Look at multiple deals at once.
Would you dig would these be pure play, Ohio deals and would you are looking at expanding in Pennsylvania as well.
Yes.
Thanks again, Dan so.
Kind of our thought process here is just is really solely on middle field and their stakeholders.
We have as we mentioned in the release.
Our core conversion.
But we're very excited about as well.
The middle field.
And farmers.
<unk>, both have Jack Henry histories.
You might remember the Portland acquisition they were on Jack Henry We still have a number of associates as well as middle fields acquisition of Liberty, We're a CEO Ron Zimmerly came from they also have.
<unk>.
They were on Jack Henry So we're very excited about the resources, we have there and the ability to convert successfully in August.
So I think we're solely focused on as I said middlefield stakeholders in that conversion right now so we'll kind of.
I'll kind of punt on that question for now.
You know as well and we've been acquisitive, but for right now that's where our focus is.
Okay makes sense. Thank you I'll step back.
Our next question is a follow up from Daniel Tamayo with Raymond James. Please proceed with your question.
Hello again.
Well, Danny if I've got if I've got the floor here I'll ask a few questions.
Excuse me.
Maybe just a follow up on the expense.
On the expense side the cost savings. So you talked about I think Troy mentioned.
2 million annual savings from the from the core conversion.
And thats happening in August.
Maybe just walk us through the timing of the of the cost savings as a whole if youre going to get some.
Initially in the first quarter in the.
Second quarter kind of post closing and then the bulk of it post conversion is that is that the best way to think about it in that $2 million youre talking about I'm assuming that that's.
Fully baked into the the cost savings you're talking about.
Yes, that's a great question I'm sure many people on the call want to understand that so let me lay out the timing. So you understand and then comment on the financials behind that we've talked a lot about so.
<unk>.
We know it's not unusual for us to see.
This length of time between signing and conversion we've managed through other transactions benefit of doing a number of transactions recently with the same team.
We're excited about that but that that we have that scheduled for August so.
As you can imagine.
We're thinking about.
And the first quarter close and so we will be.
Running out the balance of that through conversion.
And so I think that would extend the time of the cost saves out to the end of the quarter, but Troy has some more specifics, but I just wanted to make sure that we've kind of painted a picture there.
Our last transaction with farmers have edmondson our experience was.
Announcements so conversion was about 11 months and we actually anticipate that this one will be.
Based on that August timeframe, even shorter than that so again, we're well versed were well prepared.
That type of timeframe, it's not unusual for us it does have an impact on those expenses as you said, though.
And Danny.
The 2 million that we referenced in the press release.
That is relative to armours on a standalone basis.
The cost savings associated with middle fields core would be part of their 38% cost savings that we referenced so the two really are additive.
So a significant cost savings with this contract negotiation and.
And we were going to have to go through this any way our core was going to be sunsetting over the next several years. So this was going to be a necessary step for both organizations.
Because one of the benefits of this merger to index conversion.
Middle feel is on the same exact quarters us they're using the same exact general ledger system. So it creates some ease in the conversion process.
Relative to your question pertaining to cost savings because of the longer time between closing conversion.
A lot of the cost savings will be a little more backend loaded in 2006.
It's really why we were referencing 2007.
Earnings run rate.
26 results are willing to be so lumpy.
We'll have some cost savings immediately post close certain contracts things of that nature, but a lot of the cost saves will be back half of the year that fourth quarter. So.
Okay Alright.
Helpful.
So the $2 million.
Savings are incremental to the.
Deal cost savings.
Is it fair to say there'll be additional kind of onetime costs related to the core conversion that youll recognize later in the year.
We will have some costs.
I would estimate probably <unk>.
750000.
Later in 2006.
Related to that.
But again that run rate will improvement will start immediately post conversion.
Okay, great and are those.
Savings in the.
The 2027 numbers that you gave the.
150 ROA in.
Those are okay. Okay great.
Great.
Yes, we anticipate most of the cost savings being in our run rate by December.
And into the first quarter of 2007 so.
Okay.
Alright helpful.
Alright, and then.
So.
On the funding side.
<unk> got a little bit higher cost funding and farmers does.
How do you think about your ability to to lower that too to kind of match, what you've got happening now in terms of and in terms of timing as well on that.
Sure.
I think theres two things going on.
One on the farmers' side, we've got a pretty long history of managing expenses, both operating expenses as well as deposit cost.
Middle fields had the benefit of growing their loan book fairly rapidly and they've been a little bit more aggressive on pricing.
Obviously, our deposit base, our low loan to deposit ratio offers us some opportunities to continue to allow that group to grow the loan book, but manage the deposit costs and a more efficient way. So we think there's some opportunities there some possible additional margin expansion.
Added to our liability sensitivity that we could see over the next 18 months to 24 months.
Okay great.
And lastly, just just a follow up on that the loan to deposit ratio goes up for you guys.
As you mentioned.
What's a comfortable number for you for you know post the merger.
Danny I think yes it goes.
We're going to say roughly 82, I mean, we've been.
90%, 95% before so I mean, I would say near term, it's probably 90.
And I think that presents a lot of opportunity as Troy said on both sides of the balance sheet. So.
If I had to give you a number thinking about it today.
It would probably be 90.
Terrific Okay.
Well I think that's all for me I don't know if Dan has any other follow ups as well, but I appreciate the time today guys.
Absolutely Dan.
Again.
A final reminder, if you would like to ask a question press star one on your telephone keypad.
One moment, please while repo for any additional questions.
Thank you. It appears we have no further questions at this time and with that the conclusion of today's call.
You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.