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FMNB > SEC Filings for FMNB > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for FARMERS NATIONAL BANC CORP /OH/

Form 10-Q for FARMERS NATIONAL BANC CORP /OH/


8-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Discussions in this report that are not statements of historical fact (including statements that include terms such as "will," "may," "should," "believe," "expect," "anticipate," "estimate," "project," "intend," and "plan") are forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission, including without limitation, the risk factors disclosed in Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.


Many of these factors are beyond the Company's ability to control or predict, and readers are cautioned not to put undue reliance on those forward-looking statements. The following list, which is not intended to be an all-encompassing list of risks and uncertainties affecting the Company, summarizes several factors that could cause the Company's actual results to differ materially from those anticipated or expected in these forward-looking statements:

- general economic conditions in market areas where we conduct business, which could materially impact credit quality trends;

- business conditions in the banking industry;

- the regulatory environment;

- fluctuations in interest rates;

- demand for loans in the market areas where we conduct business;

- rapidly changing technology and evolving banking industry standards;

- competitive factors, including increased competition with regional and national financial institutions;

- new service and product offerings by competitors and price pressures; and other like items.

Other factors not currently anticipated may also materially and adversely affect the Company's results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Company does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Overview

Net income for the three months ended June 30, 2013 was $1.9 million, compared to $2.3 million for the same three month period in 2012. On a per share basis, net income for the second quarter ended June 30, 2013 was $0.10 per diluted share, compared to $0.12 for the second quarter ended June 30, 2012 and $0.11 for the first quarter ended March 31, 2013. Net income for the six months ended June 30, 2013 was $3.9 million, compared to $4.8 million for the same six month period in 2012. On a per share basis, net income for the six months ended June 30, 2013 was $0.21, a decrease of 19.2% compared to the same six month period in 2012. Farmers' total assets reported at June 30, 2013 were $1.123 billion, representing a 1.4% decrease compared to $1.140 billion in total assets recorded at December 31, 2012.

Net loans increased $25.8 million (or 5.0%) in comparing the second quarter of 2013 to the same quarter of 2012. Most of the loan growth in the past twelve months has occurred in the commercial and indirect loans portfolios. Net loans were reported at $589.2 million at June 30, 2013, which compares to $563.4 million at the same time in 2012. Securities available for sale decreased from $464 million at December 31, 2012 to $444 million at June 30, 2013. $12 million of the $20 million decrease is attributable to the decline in fair value which is due to market interest rates and not credit quality. Deposits increased $15.3 million, or 1.7%, from $886.6 million at June 30, 2012 to $901.9 million at June 30, 2013, as customers continued to seek the safety and security of FDIC insured deposit accounts. At June 30, 2013, core deposits - savings and money market accounts, time deposits less than $100 thousand, demand deposits and interest bearing demand deposits-represent approximately 90% of total deposits.

Stockholders' equity totaled $114.3 million, or 10.2% of total assets, at June 30, 2013, a decrease of $4.6 million, or 3.9%, compared to $118.9 million at June 30, 2012. The decrease is mainly the result of mark to market adjustments in securities available for sale due to increases in long term interest rates, offset by retained net income. Stockholders received a $0.06 cash dividend during the first six months of 2013. Book value per share decreased from $6.33 per share at June 30, 2012 to $6.16 per share at June 30, 2013. Farmers' tangible book value per share also decreased from $5.99 per share at June 30, 2012 to $5.85 per share at June 30, 2013. The decreases in book value and tangible book value per share were also the result of the mark to market adjustments in securities available for sale.


Results of Operations

The following is a comparison of selected financial ratios and other results at
or for the three and six months ended June 30, 2013 and 2012:





                                            At or for the Three Months          At or for the Six Months
                                                  Ended June 30,                     Ended June 30,
(In Thousands, except Per Share Data)         2013             2012             2013                2012
Total Assets                            $    1,123,489     $   1,116,833    $  1,123,489        $  1,116,833
Net Income                              $        1,868     $       2,286    $      3,873        $      4,806
Basic and Diluted Earnings Per Share    $         0.10     $        0.12    $       0.21        $       0.26
Return on Average Assets (Annualized)             0.66 %            0.82 %          0.69 %              0.88 %
Return on Average Equity (Annualized)             6.21 %            7.81 %          6.48 %              8.32 %
Efficiency Ratio (tax equivalent basis)          77.16 %           68.66 %         74.88 %             68.48 %
Equity to Asset Ratio                            10.18 %           10.65 %         10.18 %             10.65 %
Tangible Common Equity Ratio *                    9.71 %           10.15 %          9.71 %             10.15 %
Dividends to Net Income                          29.82 %           24.67 %         28.94 %             35.16 %
Net Loans to Assets                              52.45 %           50.45 %         52.45 %             50.45 %
Loans to Deposits                                66.18 %           64.57 %         66.18 %             64.57 %

*The tangible common equity ratio is calculated by dividing total common stockholders' equity by total assets, after reducing both amounts by intangible assets. The tangible common equity ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of the Company's capital levels. Since there is no authoritative requirement to calculate the tangible common equity ratio, the Company's tangible common equity ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-U.S. GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the actual unaudited tangible common equity ratio as of June 30, 2013 and 2012, reconciliations of tangible common equity to U.S. GAAP total common stockholders' equity and tangible assets to U.S. GAAP total assets are set forth below:

                                                  June 30,            December 31,           June 30,
(In Thousands of Dollars)                           2013                  2012                 2012
Reconciliation of Common Stockholders' Equity to
Tangible Common Equity
Stockholders' Equity                             $   114,316         $      120,792         $   118,938
Less Goodwill and other intangibles                    5,836                  6,032               6,237
Tangible Common Equity                           $   108,480         $      114,760         $   112,701

                                                    June 30,           December 31,            June 30,
(In Thousands of Dollars)                             2013                 2012                  2012
Reconciliation of Total Assets to Tangible Assets
Total Assets                                      $  1,123,489         $   1,139,695         $  1,116,833
Less Goodwill and other intangibles                      5,836                 6,032                6,237
Tangible Assets                                   $  1,117,653         $   1,133,663         $  1,110,596

Net Interest Income. The following schedules detail the various components of net interest income for the periods indicated. All asset yields are calculated on a tax-equivalent basis where applicable. Security yields are based on amortized cost.


              Average Balance Sheets and Related Yields and Rates

                         (Dollar Amounts in Thousands)





                                   Three Months Ended                                      Three Months Ended
                                     June 30, 2013                                           June 30, 2012
                      AVERAGE                                                 AVERAGE
                      BALANCE           INTEREST           RATE (1)           BALANCE           INTEREST           RATE (1)
EARNING ASSETS

Loans (3) (5) (6)   $    591,485        $   7,867               5.33 %      $    562,329        $   8,056               5.75 %
Taxable securities
(4)                      351,567            1,734               1.98             330,970            2,128               2.58
Tax-exempt
securities (4) (6)        86,441            1,131               5.25              73,324            1,074               5.88
Equity securities
(2)                        4,337               48               4.44               4,363               52               4.78
Federal funds sold
and other                 20,726                8               0.15              57,643               30               0.21
Total earning
assets                 1,054,556           10,788               4.10           1,028,629           11,340               4.42

NONEARNING ASSETS

Cash and due from
banks                     21,385                0                  0              19,912                0                  0
Premises and
equipment                 18,044                0                  0              17,411                0                  0
Allowance for loan
losses                    (7,550 )              0                  0              (9,242 )              0                  0
Unrealized gains
(losses) on
securities                 9,492                0                  0              13,247                0                  0
Other assets (3)          44,473                0                  0              46,098                0                  0
Total assets        $  1,140,400                0                  0        $  1,116,055                0                  0

INTEREST-BEARING
LIABILITIES

Time deposits       $    230,534        $     952               1.66 %      $    250,141        $   1,196               1.92 %
Savings deposits         418,543              165               0.16             411,859              252               0.25
Demand deposits          124,867               10               0.03             115,475               12               0.04
Short term
borrowings                95,487               13               0.05              98,187               25               0.10
Long term
borrowings                10,245               94               3.68              10,606               98               3.71
Total
interest-bearing
liabilities              879,676            1,234               0.56             886,268            1,583               0.72

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