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FMNB > SEC Filings for FMNB > Form 10-Q on 7-Aug-2014All Recent SEC Filings

Show all filings for FARMERS NATIONAL BANC CORP /OH/

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


7-Aug-2014

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.

Overview

Net income for the three months ended June 30, 2014 was $2.4 million, compared to $1.9 million for the same period last year. On a per share basis, net income for the second quarter ended June 30, 2014 was $0.13 per diluted share, compared to $0.10 for the quarter ended June 30, 2013 and $0.12 for the first quarter ended March 31, 2014.

Net income for the six months ended June 30, 2014 was $4.5 million, compared to $3.9 million for the same six month period in 2013. On a per share basis, net income for the six months ended June 30, 2014 was $0.24, an increase of 14.3% compared to the same six month period in 2013. Total gross loans were $637.8 million at June 30, 2014, compared to $596.8 million at June 30, 2013. This represents an increase of 6.9%. The increase in loans is a direct result of Farmers' focus on loan growth utilizing a talented lending and credit team while adhering to a sound underwriting discipline. Most of the increase in loans has occurred in the commercial real estate, commercial and industrial and residential real estate loan portfolios. Average loan balances for the six month period ended June 30, 2014 comprised 58.5% of the Bank's average earning assets, an improvement compared to 55.6% during the same period in 2013. Non-performing assets to total assets remain at a safe level, currently at 0.75%. Early stage delinquencies also continue to remain at low levels, at $3.5 million or 0.54% of total loans at June 30, 2014.

Deposits decreased $7.8 million, from $915.2 million at December 31, 2013 to $907.4 million at June 30, 2014, as customers begin to move some cash into other investment options. At June 30, 2014, core deposits - savings and money market accounts, time deposits less than $100 thousand, demand deposits and interest bearing demand deposits - represented approximately 91% of total deposits.

Stockholders' equity totaled $121.0 million, or 10.7% of total assets, at June 30, 2014, an increase of $8.0 million, or 7.1%, compared to $113.0 million at December 31, 2013. Contributing to the increase is a $4.5 million, net of tax, improvement in the mark to market adjustment in the securities available for sale portfolio due to decreases in long-term interest rates and a $3.4 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 $6.44 per share at June 30, 2014. The Company's tangible book value per share also increased from $5.47 per share at December 31, 2013 to $5.91 per share at June 30, 2014. The increases in book value and tangible book value per share were also the result of the mark to market adjustments, net of tax, 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 and six months ended June 30, 2014 and 2013:



                                             At or for the Three Months          At or for the Six Months
                                                   Ended June 30,                     Ended June 30,
(In Thousands, except Per Share Data)           2014              2013             2014             2013
Total Assets                               $    1,133,286      $ 1,123,489     $   1,133,286     $ 1,123,489
Net Income                                 $        2,351      $     1,868     $       4,542     $     3,873
Basic and Diluted Earnings Per Share       $         0.13      $      0.10     $        0.24     $      0.21
Return on Average Assets (Annualized)                0.83 %           0.66 %            0.80 %          0.69 %
Return on Average Equity (Annualized)                7.85 %           6.21 %            7.74 %          6.48 %
Efficiency Ratio (tax equivalent basis)             69.68 %          77.16 %           69.77 %         74.88 %
Equity to Asset Ratio                               10.68 %          10.18 %           10.68 %         10.18 %
Tangible Common Equity Ratio *                       9.89 %           9.71 %            9.89 %          9.71 %
Dividends to Net Income                             23.95 %          29.82 %           24.81 %         28.94 %
Net Loans to Assets                                 55.63 %          52.45 %           55.63 %         52.45 %
Loans to Deposits                                   70.28 %          66.18 %           70.28 %         66.18 %

*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, 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:

                                                  June 30,       December 31,      June 30,
(In Thousands of Dollars)                            2014             2013            2013
Reconciliation of Common Stockholders' Equity to
Tangible Common Equity
Stockholders' Equity                              $ 121,020     $      113,007     $ 114,316
Less Goodwill and Other Intangibles                   9,960             10,343         5,836
Tangible Common Equity                            $ 111,060     $      102,664     $ 108,480




                                                   June 30,        December 31,       June 30,
(In Thousands of Dollars)                             2014              2013             2013
Reconciliation of Total Assets to Tangible Assets
Total Assets                                      $ 1,133,286     $    1,137,326     $ 1,123,489
Less Goodwill and Other Intangibles                     9,960             10,343           5,836
Tangible Assets                                   $ 1,123,326     $    1,126,983     $ 1,117,653

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
                                                  June 30, 2014                                June 30, 2013
                                       AVERAGE                                      AVERAGE
                                       BALANCE       INTEREST       RATE (1)        BALANCE       INTEREST       RATE (1)
EARNING ASSETS
Loans (3) (5) (6)                    $   625,870     $   7,709           4.94 %   $   591,485     $   7,867           5.33 %
Taxable securities (4)                   339,801         1,838           2.17         351,567         1,734           1.98
Tax-exempt securities (4) (6)             83,026           971           4.69          86,441         1,131           5.25
Equity securities (2) (6)                  4,282            48           4.50           4,337            48           4.44
Federal funds sold and other              11,214             4           0.14          20,726             8           0.15
TOTAL EARNING ASSETS                   1,064,193        10,570           3.98       1,054,556        10,788           4.10
NONEARNING ASSETS
Cash and due from banks                   19,722                                       21,385
Premises and equipment                    17,504                                       18,044
Allowance for loan losses                 (7,397 )                                     (7,550 )
Unrealized gains (losses) on
securities                                (2,556 )                                      9,492
Other assets (3)                          50,737                                       44,473
TOTAL ASSETS                         $ 1,142,203                                  $ 1,140,400

INTEREST-BEARING LIABILITIES
Time deposits                        $   220,221     $     899           1.64 %   $   230,534     $     952           1.66 %
Savings deposits                         412,107           114           0.11         418,543           165           0.16
Demand deposits                          127,901             9           0.03         124,867            10           0.03
Short term borrowings                     77,262            13           0.07          95,487            13           0.05
Long term borrowings                      19,398           131           2.71          10,245            94           3.68
TOTAL INTEREST-BEARING LIABILITIES       856,889         1,166           0.55         879,676         1,234           0.56

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