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FMNB > SEC Filings for FMNB > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for FARMERS NATIONAL BANC CORP /OH/

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


7-Nov-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 September 30, 2013 was $1.6 million, compared to $2.5 million for the same period last year. On a per share basis, net income for the third quarter ended September 30, 2013 was $0.09 per diluted share, compared to $0.13 for the third quarter ended September 30, 2012 and $0.10 for the second quarter ended June 30, 2013. During the third quarter ended September 30, 2013, the Company recorded charges of $1.3 million related to severance costs for terminated employees. Excluding these severance expenses, net income for the quarter would have been $2.4 million, or $0.13 per share.

Net income for the nine months ended September 30, 2013 was $5.5 million, compared to $7.3 million for the same nine month period in 2012. On a per share basis, net income for the nine months ended September 30, 2013 was $0.29, a decrease of 25.6% compared to the same nine month period in 2012. For the nine month period ended September 30, 2013, net income excluding the severance expenses was $6.3 million, or $0.34 per share.

Net loans increased $39.7 million in comparing the third quarter of 2013 to the same quarter of 2012. Net loans were $604.0 million at September 30, 2013, compared to $564.3 million at the same time in 2012. Deposits increased $3.3 million, from $900.1 million at September 30, 2012 to $903.4 million at September 30, 2013, as customers continue to seek the safety and security of FDIC insured deposit accounts. At September 30, 2013, core deposits - savings and money market accounts, time deposits less than $100 thousand, demand deposits and interest bearing demand deposits-represented approximately 90% of total deposits.

Stockholders' equity totaled $112.5 million, or 9.8% of total assets, at September 30, 2013, a decrease of $8.5 million, or 7%, compared to $121.0 million at September 30, 2012. Contributing to the decrease are mark to market adjustments in securities available for sale due to increases in long-term interest rates, partially offset by retained net income. Another contributing factor is the issuance of $1.4 million in shares and the related goodwill associated with the acquisition of NAI, which closed at the beginning of the


third quarter. Shareholders received a total of $0.15 per share in cash dividends paid in the past four quarters, including a special $0.03 cash dividend paid on December 31, 2012. Book value per share decreased from $6.44 per share at September 30, 2012 to $5.99 per share at September 30, 2013. The Company's tangible book value per share also decreased from $6.11 per share at September 30, 2012 to $5.43 per share at September 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 and the issuance of shares and related goodwill from the acquisition of NAI.

Results of Operations

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





                                            At or for the Three Months         At or for the Nine Months
                                                Ended September 30,               Ended September 30,
 (In Thousands, except Per Share Data)        2013             2012             2013                2012
Total Assets                            $    1,148,119     $   1,132,746    $  1,148,119        $  1,132,746
Net Income                              $        1,612     $       2,489    $      5,485        $      7,295
Basic and Diluted Earnings Per Share    $         0.09     $        0.13    $       0.29        $       0.39
Return on Average Assets (Annualized)             0.56 %            0.88 %          0.64 %              0.88 %
Return on Average Equity (Annualized)             5.60 %            8.22 %          6.26 %              8.28 %
Efficiency Ratio (tax equivalent basis)          81.64 %           70.12 %         77.21 %             69.01 %
Equity to Asset Ratio                             9.80 %           10.68 %          9.80 %             10.68 %
Tangible Common Equity Ratio *                    8.96 %           10.20 %          8.96 %             10.20 %
Dividends to Net Income                          34.93 %           22.66 %         30.70 %             30.90 %
Net Loans to Assets                              52.61 %           49.82 %         52.61 %             49.82 %
Loans to Deposits                                67.67 %           63.65 %         67.67 %             63.65 %

*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 September 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:

                                                  September 30,         December 31,         September 30,
(In Thousands of Dollars)                             2013                  2012                 2012
Reconciliation of Common Stockholders' Equity to
Tangible Common Equity
Stockholders' Equity                             $       112,524       $      120,792       $       121,008
Less Goodwill and other intangibles                       10,546                6,032                 6,134
Tangible Common Equity                           $       101,978       $      114,760       $       114,874

                                                   September 30,        December 31,         September 30,
(In Thousands of Dollars)                              2013                 2012                 2012
Reconciliation of Total Assets to Tangible Assets
Total Assets                                      $     1,148,119       $   1,139,695       $     1,132,746
Less Goodwill and other intangibles                        10,546               6,032                 6,134
Tangible Assets                                   $     1,137,573       $   1,133,663       $     1,126,612

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
                                   September 30, 2013                                      September 30, 2012
                      AVERAGE                                                 AVERAGE
                      BALANCE           INTEREST           RATE (1)           BALANCE           INTEREST           RATE (1)
EARNING ASSETS

Loans (3) (5) (6)   $    597,839        $   7,851               5.21 %      $    566,382        $   8,067               5.67 %
Taxable securities
(4)                      352,213            1,598               1.80             333,909            1,901               2.26
Tax-exempt
securities (4) (6)        86,985            1,128               5.14              73,452            1,074               5.82
Equity securities
(2)                        4,307               47               4.33               4,363               50               4.56
Federal funds sold
and other                 29,596               11               0.15              61,084               29               0.19
Total earning
assets                 1,070,940           10,635               3.94           1,039,190           11,121               4.26

NONEARNING ASSETS

Cash and due from
banks                     19,532                0                  0              22,185                0                  0
Premises and
equipment                 17,797                0                  0              18,044                0                  0
Allowance for loan
losses                    (7,364 )              0                  0              (8,945 )              0                  0
Unrealized gains
(losses) on
securities                (4,703 )              0                  0              14,680                0                  0
Other assets (3)          52,538                0                  0              45,081                0                  0
Total assets        $  1,148,740                0                  0        $  1,130,235                0                  0

INTEREST-BEARING
LIABILITIES

Time deposits       $    229,675        $     960               1.66 %      $    242,025        $   1,171               1.92 %
Savings deposits         417,083              166               0.16             422,899              229               0.22
Demand deposits          124,168               10               0.03             117,045                9               0.03
Short term
borrowings                99,517               13               0.05              95,681               22               0.09
Long term
borrowings                17,654              125               2.81              10,532               98               3.70
Total
interest-bearing
liabilities              888,097            1,274               0.57             888,182            1,529               0.68

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