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FMNB > SEC Filings for FMNB > Form 10-Q on 8-May-2014All Recent SEC Filings

Show all filings for FARMERS NATIONAL BANC CORP /OH/



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, 2013.

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.


Net income for the three months ended March 31, 2014 was $2.2 million, compared to $2.0 million for the same period last year. On a per share basis, net income for the first quarter ended March 31, 2014 was $0.12 per diluted share, compared to $0.11 for the first quarter ended March 31, 2013 and $0.12 for the fourth quarter ended December 31, 2013.

Gross loans decreased $4.5 million since December 31, 2013. Most of the decrease occurred as a result of a large commercial loan payoff offset by overall moderate loan production. Even with the decrease in loan balances during the first quarter of 2014, loans have increased 5.7% over the past twelve months, with increases experienced in each of the major loan categories. The loan to deposits ratio slipped from 68.9% at December 31, 2013 to 67.8% at March 31, 2014 but improved from 65.2% at March 31, 2013, mainly as a result of growth in loans over the twelve month period. The net loans to assets also decreased slightly from 54.8% at December 31, 2013 to 54.2% at the end of the first quarter of 2014 but did increase compared to quarter ended March 31, 2013 by 6.0%. Net loans were $623.1 million at December 31, 2013 compared to $618.8 million at March 31, 2014. Non-performing loans to total loans remained at a safe level, currently at 1.4% compared to 1.4% at December 31, 2013. Early stage delinquencies continue to decrease, down $1.1 million from $3.6 million at December 31, 2013 to $2.5 million at March 31, 2014.

Deposits increased $7.8 million, from $915.2 million at December 31, 2013 to $923.0 million at March 30, 2014, as customers continue to seek the safety and security of FDIC insured deposit accounts. At March 31, 2014, 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 $117.3 million, or 10.3% of total assets, at March 31, 2014, an increase of $4.3 million, or 9.9%, compared to $113.0 million at December 31, 2013. Contributing to the increase is $2.7 million improvement in the mark to market adjustment in the securities available for sale portfolio due to decreases in long-term interest rates and a $1.6 million increase in retained net income. Shareholders received a total of $0.12 per share in cash dividends paid in the past four quarters. Book value per share increased from $6.02 per share at December 31, 2013 to $6.25 per share at March 31, 2014. The Company's tangible book value per share also increased from $5.47 per share at December 31, 2013 to $5.71 per share at March 31, 2014. The increases in book value and tangible book value per share were also the result of the mark to market adjustments in the securities available for sale portfolio and the increases to retained earnings from profit retention.

Results of Operations

The following is a comparison of selected financial ratios and other results at
or for the three months ended March 31, 2014 and 2013:

                                                 At or for the Three Months
                                                       Ended March 31,
       (In Thousands, except Per Share Data)        2014              2013
       Total Assets                            $    1,141,000      $ 1,143,099
       Net Income                              $        2,191      $     2,005
       Basic and Diluted Earnings Per Share    $         0.12      $      0.11
       Return on Average Assets (Annualized)             0.78 %           0.72 %
       Return on Average Equity (Annualized)             7.65 %           6.70 %
       Efficiency Ratio (tax equivalent basis)          69.87 %          72.57 %
       Equity to Asset Ratio                            10.28 %          10.55 %
       Tangible Common Equity Ratio *                    9.48 %          10.08 %
       Dividends to Net Income                          25.70 %          28.13 %
       Net Loans to Assets                              54.23 %          51.18 %
       Loans to Deposits                                67.84 %          64.70 %

*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 March 31, 2014 and 2013, 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:

                                         March 31,       December 31,       March 31,
   (In Thousands of Dollars)                 2014             2013              2013
   Reconciliation of Common
   Stockholders' Equity to Tangible
   Common Equity
   Stockholders' Equity                 $   117,323     $      113,007     $   120,576
   Less Goodwill and Other Intangibles       10,151             10,343           5,934
   Tangible Common Equity               $   107,172     $      102,664     $   114,642

                                         March 31,       December 31,       March 31,
   (In Thousands of Dollars)                2014              2013             2013
   Reconciliation of Total Assets to
   Tangible Assets
   Total Assets                         $ 1,141,000     $    1,137,326     $ 1,143,099
   Less Goodwill and Other Intangibles       10,151             10,343           5,934
   Tangible Assets                      $ 1,130,849     $    1,126,983     $ 1,137,165

Net Interest Income. The following schedule details 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
                                                  March 31, 2014                               March 31, 2013
                                       AVERAGE                                      AVERAGE
                                       BALANCE       INTEREST       RATE (1)        BALANCE       INTEREST       RATE (1)
Loans (3) (5) (6)                    $   617,260     $   7,604           5.00 %   $   576,627     $   7,681           5.40 %
Taxable securities (4)                   342,682         1,871           2.21         360,971         1,908           2.14
Tax-exempt securities (4) (6)             85,334           998           4.74          81,706         1,107           5.49
Equity securities (2) (6)                  4,282            47           4.45           4,360            53           4.93
Federal funds sold and other              10,653             5           0.19          18,427            10           0.22
TOTAL EARNING ASSETS                   1,060,211        10,525           4.03       1,042,091        10,759           4.19
Cash and due from banks                   19,901                                       20,485
Premises and equipment                    17,502                                       18,331
Allowance for loan losses                 (7,367 )                                     (7,546 )
Unrealized gains (losses) on
securities                                (5,689 )                                     10,526
Other assets (3)                          50,707                                       44,204
TOTAL ASSETS                         $ 1,135,265                                  $ 1,128,091

Time deposits                        $   225,727     $     927           1.67 %   $   232,907     $     993           1.73 %
Savings deposits                         408,455           125           0.12         413,899           185           0.18
Demand deposits                          126,746             9           0.03         125,147             9           0.03
Short term borrowings                     68,787            11           0.06          81,256            12           0.06
Long term borrowings                      26,828           135           2.04          18,557            99           2.16
TOTAL INTEREST-BEARING LIABILITIES       856,543         1,207           0.57         871,766         1,298           0.60

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