Add
FRAF to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FRAF > SEC Filings for FRAF > Form 10-Q on 10-May-2012 | All Recent SEC Filings |
10-May-2012
Quarterly Report
Forward Looking Statements
Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements refer to a future period or periods, reflecting management's current views as to likely future developments, and use words such as "may," "will," "expect," "believe," "estimate," "anticipate," or similar terms. Because forward-looking statements involve certain risks, uncertainties and other factors over which the Corporation has no direct control, actual results could differ materially from those contemplated in such statements. These factors include (but are not limited to) the following: general economic conditions, changes in interest rates, changes in the Corporation's cost of funds, changes in government monetary policy, changes in government regulation and taxation of financial institutions, changes in the rate of inflation, changes in technology, the intensification of competition within the Corporation's market area, and other similar factors.
Critical Accounting Policies
Management has identified critical accounting policies for the Corporation to include Allowance for Loan Losses, Mortgage Servicing Rights, Financial Derivatives, Temporary Investment Impairment and Stock-based Compensation. There were no changes to the critical accounting policies disclosed in the 2011 Annual Report on Form 10-K in regards to application or related judgements and estimates used. Please refer to Item 7 of the Corporation's 2011 Annual Report on Form 10-K for a more detailed disclosure of the critical accounting policies.
Results of Operations
Year-to-Date Summary
At March 31, 2012, total assets were $1.036 billion, an increase of $45.7 million from December 31, 2011. Net loans decreased to $754.1 million and total deposits increased to $835.5 million. The Corporation reported net income for the first three months of 2012 of $1.4 million. This is a 26.0% decrease versus net income of $1.8 million for the same period in 2011. Total revenue (interest income and noninterest income) decreased $308 thousand year-over-year. Interest income decreased $349 thousand, but was more than offset by a decrease of $438 thousand in interest expense, resulting in a 1.1% increase in net interest income. Noninterest income improved 1.6% due to an increase in ATM fees and other nonrecurring income. Noninterest expense remained relatively flat year over year. The provision for loan losses was $1.9 million for the period, $1.0 million more than in 2011. Diluted earnings per share decreased to $.34 in 2012 from $.47 in 2011.
Key performance ratios as of, or for the three months ended March 31, 2012 and 2011 are listed below:
March 31
2012 2011
Performance measurements
Return on average assets* 0.55 % 0.78 %
Return on average equity* 6.33 % 8.98 %
Return on average tangible assets (1)* 0.58 % 0.81 %
Return on average tangible equity (1)* 7.79 % 10.74 %
Efficiency ratio (2) 64.15 % 65.88 %
Net interest margin* 3.57 % 3.71 %
Current dividend yield* 6.84 % 6.10 %
Shareholders' Value (per common share)
Diluted earnings per share $ 0.34 $ 0.47
Regular cash dividends paid $ 0.27 $ 0.27
Book value $ 21.75 $ 21.44
Tangible book value (3) $ 19.17 $ 18.76
Market value $ 15.80 $ 17.70
Market value/book value ratio 72.64 % 82.56 %
Price/earnings multiple* 11.62 9.42
Safety and Soundness
Leverage ratio (Tier 1) 8.39 % 8.27 %
Risk-based capital ratio (Tier 1) 12.18 % 11.74 %
Common equity ratio 8.52 % 8.68 %
Tangible common equity ratio (4) 7.59 % 7.67 %
Nonperforming loans/gross loans 3.38 % 3.46 %
Nonperforming assets/total assets 2.79 % 2.79 %
Allowance for loan losses as a % of loans 1.24 % 1.20 %
Net charge-offs/average loans* 1.14 % 0.27 %
Trust assets under management (market value) $ 503,336 $ 503,328
|
* Annualized
(1) Excludes goodwill, intangibles and intangible amortization expense, net of tax
(2)Noninterest expense / tax equivalent net interest income plus noninterest income less net securities gains
(3) Total shareholders' equity less goodwill and intangibles / shares outsanding
(4)Total shareholders' equity less goodwill and intangibles / total assets less goodwill and intangibles
GAAP versus Non-GAAP Presentations. The Corporation supplements its traditional GAAP measurements with Non-GAAP measurements. The Non-GAAP measurements include Return on Average Tangible Assets and Return on Average Tangible Equity. As a result of merger transactions, intangible assets (primarily goodwill and core deposit intangibles) were created. The Non-GAAP disclosures are intended to eliminate the effects of the intangible assets and allow for better comparisons to periods when such assets did not exist. The following table shows the adjustments made between the GAAP and NON-GAAP measurements:
GAAP Measurement Calculation
Return on Average Assets Net Income / Average Assets
Return on Average Equity Net Income / Average Equity
Non- GAAP Measurement Calculation
Return on Average Tangible Assets Net Income plus Intangible
Amortization /
Average Assets less Average Intangible
Assets
Return on Average Tangible Equity Net Income plus Intangible
Amortization /
Average Equity less Average Intangible
Assets
Efficiency Ratio Noninterest Expense / Tax Equivalent
Net Interest Income
plus Noninterest Income (excluding
Security Gains/Losses and Other Than
Temporary Impairment)
|
A more detailed discussion of the operating results for the three months ended March 31, 2012 follows:
Comparison of the three months ended March 31, 2012 to the three months ended March 31, 2011:
Net Interest Income
The most important source of the Corporation's earnings is net interest income, which is defined as the difference between income on interest-earning assets and the expense of interest-bearing liabilities supporting those assets. Principal categories of interest-earning assets are loans and securities, while deposits, securities sold under agreements to repurchase (Repos), short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities. Demand deposits enhance net interest income because they are noninterest-bearing deposits. For the purpose of this discussion, balance sheet items refer to the average balance for the period and net interest income is adjusted to a fully taxable-equivalent basis. This tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Corporation's 34% Federal statutory rate.
Tax equivalent interest income for the first quarter of 2012 decreased $222 thousand quarter over quarter. Average interest-earning assets increased $46.9 million from 2011, but the yield on these assets decreased by 39 basis points. The average balance of investment securities increased $1.5 million while average loans increased $4.6 million (.6%) quarter over quarter. Average commercial loans increased $24.9 million, but the increase was partially offset by a decrease in the average balance of mortgage and consumer loans. Average mortgage loans decreased $9.2 million, as the majority of new mortgage originations are sold in the secondary market and the portfolio continues to runoff. Average consumer loans, including home equity loans, decreased $11.1 million, as consumers continue to borrow less.
Interest expense was $2.0 million for the first quarter, a decrease of $438 thousand from the 2011 total of $2.4 million. Average interest-bearing liabilities increased $39.9 million to $806.8 million for 2012 from an average balance of $766.9 million in 2011. The average cost of these liabilities decreased from 1.27% in 2011 to .98% in 2012. Average interest-bearing deposits increased $62.5 million, due to increases in interest checking and savings accounts ($13.0 million), and money management deposits ($48.6 million). The cost of interest-bearing deposits decreased from 1.05% to .83%. Securities sold under agreements to repurchase (Repos) decreased $1.6 million on average over the prior year quarter while the average rate decreased from .25% in 2011 to .15% in 2012. The average balance of long-term debt decreased by $20.2 million due to scheduled amortization and maturities, as well as prepayments of $15.6 million on three Federal Home Loan Bank of Pittsburgh (FHLB) advances in 2011.
The changes in the balance sheet and interest rates resulted in an increase in tax equivalent net interest income of $216 thousand to $8.4 million in 2012 compared to $8.1 million in 2011. The Bank's net interest margin decreased from 3.71% in 2011 to 3.57% in 2012. The decrease in the net interest margin is the result of a decrease in the rate on interest-earning assets of 39 basis points, while the yield on interest-bearing liabilities only decreased 29 basis points. Net interest income increased $89 thousand during the quarter, with a $218 thousand increase from volume, which was offset by $129 thousand decrease from rates.
The following table shows a comparative analysis of average balances, asset yields and funding costs for the three months ended March 31, 2012 and 2011. These components drive changes in net interest income.
2012 2011
Average Income or Average Average Income or Average
(Dollars in thousands) balance expense yield/rate balance expense yield/rate
Interest-earning assets:
Interest-bearing obligations of
other banks and federal funds sold $ 52,048 $ 37 0.29 % $ 10,908 $ 7 0.26 %
Investment securities:
Taxable 88,061 450 2.05 % 91,678 622 2.75 %
Nontaxable 38,833 538 5.56 % 34,043 506 6.03 %
Loans:
Commercial, industrial and
agricultural 620,033 7,292 4.72 % 595,088 7,034 4.79 %
Residential mortgage 55,427 714 5.17 % 64,623 917 5.75 %
Home equity loans and lines 70,988 1,077 6.09 % 81,159 1,242 6.21 %
Consumer 13,256 223 6.75 % 14,222 225 6.42 %
Loans 759,704 9,306 4.91 % 755,092 9,418 5.08 %
Total interest-earning assets 938,646 10,331 4.41 % 891,721 10,553 4.80 %
Other assets 71,445 69,806
Total assets $ 1,010,091 $ 961,527
Interest-bearing liabilities:
Deposits:
Interest-bearing checking $ 115,033 22 0.08 % $ 105,975 26 0.10 %
Money Management 341,422 632 0.74 % 292,776 794 1.10 %
Savings 53,247 15 0.11 % 49,282 16 0.13 %
Time 197,628 786 1.60 % 196,845 834 1.72 %
Total interest-bearing deposits 707,330 1,455 0.83 % 644,878 1,670 1.05 %
Securities sold under agreements
to repurchase 52,671 20 0.15 % 54,268 33 0.25 %
Short- term borrowings - - - 722 1 0.73 %
Long- term debt 46,827 492 4.21 % 67,062 701 4.24 %
Total interest-bearing liabilities 806,828 1,967 0.98 % 766,930 2,405 1.27 %
Noninterest-bearing deposits 103,476 97,105
Other liabilities 12,331 13,848
Shareholders' equity 87,456 83,644
Total liabilities and
shareholders' equity $ 1,010,091 $ 961,527
Tax equivalent net interest
income/Net interest margin 8,364 3.57 % 8,148 3.71 %
Tax equivalent adjustment (380 ) (253 )
Net interest income $ 7,984 $ 7,895
|
All nontaxable interest income has been adjusted to a tax-equivalent basis, using a tax rate of 34%.
Provision for Loan Losses
For the first quarter of 2012, the provision expense was $1.9 million versus $900 thousand in 2011. The provision expense includes approximately $1.1 million needed to restore the ALL after charging off $1.6 million on one nonperforming commercial real estate loan. For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.
Noninterest Income
For the first quarter of 2012, noninterest income increased $41 thousand from the same period in 2011. Investment and trust service fees increased $35 thousand due to higher recurring asset management fees. Loan service charges decreased $209 thousand as 2011 contained a $243 thousand prepayment penalty. Mortgage banking fees increased $37 thousand, as the 2012 reversal of previously recorded impairment charges was $48 thousand more than the prior year. Deposit service charges decreased $62 thousand due to lower retail overdraft fees and less retail checking service charge fees. Other service charges and fees increased $108 thousand primarily due to an increase in ATM fees, while debit card income increased $40 thousand. Other income increased $101 thousand primarily due to a gain on the sale of a property held in other real estate owned and an insurance recovery on a prior period loss. No securities gains were recorded during 2012, compared to $11 thousand during 2011 on the sale of equity securities. There were no other than temporary impairment charges recorded during either period.
The following table presents a comparison of noninterest income for the three months ended March 31, 2012 and 2011:
For the Three Months Ended
(Dollars in thousands) March 31 Change
2012 2011 Amount %
Noninterest Income
Investment and trust services fees $ 967 $ 932 $ 35 3.8
Loan service charges 272 481 (209 ) (43.5 )
Mortgage banking activities 47 10 37 370.0
Deposit service charges and fees 474 536 (62 ) (11.6 )
Other service charges and fees 235 127 108 85.0
Debit card income 275 235 40 17.0
Increase in cash surrender value of
life insurance 167 165 2 1.2
Other 126 25 101 404.0
Securities gains (losses), net - 11 (11 ) -
Total noninterest income $ 2,563 $ 2,522 $ 41 1.6
|
Noninterest Expense
Noninterest expense for the first quarter of 2012 and 2011 totaled $7.0 million. The increase in salaries and benefits was primarily due to annual salary adjustments ($270 thousand) and pension expense ($82 thousand), but these increases were partially offset by a $249 thousand decrease in health insurance expense, due lower claims expense during the quarter from the Bank's participation in a self-insured health insurance plan. Occupancy, advertising, legal and professional, data processing fees and shares tax expense remained relatively flat year over year. FDIC insurance decreased $50 thousand, as the FDIC assessment decreased due to a new calculation method implemented by the FDIC in 2011, while other expenses decreased $102 thousand due to a prepayment penalty of $172 thousand on an FHLB term loan in the first quarter of 2011.
The following table presents a comparison of noninterest expense for the three months ended March 31, 2012 and 2011:
(Dollars in thousands) For the Three Months Ended
March 31 Change
2012 2011 Amount %
Noninterest Expense
Salaries and benefits $ 3,796 $ 3,713 $ 83 2.2
Net occupancy expense 519 531 (12 ) (2.3 )
Furniture and equipment expense 209 223 (14 ) (6.3 )
Advertising 315 292 23 7.9
Legal and professional fees 279 271 8 3.0
Data processing 413 381 32 8.4
Pennsylvania bank shares tax 187 165 22 13.3
Intangible amortization 109 111 (2 ) (1.8 )
FDIC insurance 261 311 (50 ) (16.1 )
Other 922 1,024 (102 ) (10.0 )
Total noninterest expense $ 7,010 $ 7,022 $ (12 ) (0.2 )
|
Income taxes
For the first quarter of 2012 the Corporation recorded a Federal income tax expense of $218 thousand compared to $646 thousand for the same quarter in 2011. Pre-tax income declined due primarily to a higher provision for loan loss expense and consequently, a higher ratio of tax free income resulted in less tax expense. The effective tax rate decreased year over year to 13.7% for the first quarter of 2012 compared to 25.9% for 2011. All taxable income for the Corporation is taxed at a rate of 34%.
Financial Condition
Summary:
At March 31, 2012, assets totaled $1.036 million, an increase of $45.7 million from the 2011 year-end balance of $990.2 million. Investment securities decreased $3.6 million, while net loans decreased $2.6 million. Deposits were up $47.5 million in 2012 due primarily to increases in noninterest-bearing and money management deposits. Shareholders' equity increased $1.1 million during the first three months as retained earnings increased approximately $279 thousand, other comprehensive loss improved $312 thousand and the Corporation's Dividend Reinvestment Plan (DRIP) added an additional $489 thousand in new capital.
Investment Securities:
The investment portfolio totaled $121.7 million at March 31, down 2.9% from the prior year-end balance of $125.3 million. The composition of the portfolio has not changed significantly during the year with a significant portion of the portfolio (42%) being held in U.S. Agency mortgage-backed securities. Only $6.5 million was reinvested in the portfolio during the quarter with the purchases consisting primarily of U.S. Agency mortgage-backed securities and municipal securities (both tax-free and taxable). The investment portfolio had a net unrealized gain of $1.7 million at the end of the quarter, an improvement of $262 thousand over year-end 2011. The municipal bond sector shows the largest unrealized gain, while the trust-preferred sector has the largest unrealized loss. The portfolio averaged $126.9 million for the quarter with a yield of 3.12% compared to an average of $125.7 million and a yield of 3.64% for the first quarter of 2011. The Bank expects the yield on the portfolio to continue to decline as higher yielding bonds pay-down or mature and reinvestment yields remain low.
The equity portfolio is comprised of bank stocks and the Bank and the Corporation each maintain separate equity investment portfolios. The municipal bond portfolio is well diversified geographically (issuers from within 25 states) and is comprised primarily of general obligation bonds (72%). Most municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest municipal bond exposure is to nineteen issuers in the state of Texas with a fair value of $8.3 million and ten issuers in the state of Pennsylvania with a fair value of $6.5 million. The municipal bond portfolio contains a fair value of $43.0 million of bonds rated A or higher and a fair value of $2.1 million of bonds that are not rated by a nationally recognized rating agency. No municipal bonds are rated below investment grade. Included in the municipal portfolio are four taxable municipal bonds with a value of $5.4 million.
The Bank has corporate bonds with a fair value $2.5 million spread between three issuers representing financial services companies. These bonds are fixed and floating rate bonds with ratings ranging from A1 to B1. The trust preferred investments are comprised of seven single issuer trust preferred securities with an amortized cost of $5.9 million and a fair value of $4.6 million. The majority of the mortgage-backed security portfolio is comprised of U.S. Government Agency products. However, the Bank has seven private-label mortgage backed securities (PLMBS) with an amortized cost of $3.1 million and a fair value of $2.8 million.
The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2012 and December 31, 2011 are:
(Dollars in thousands) Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 2012 Cost Gains Losses Value
Equity securities $ 2,105 $ 77 $ (213 ) $ 1,969
U.S. Government agency securities 11,380 83 (27 ) 11,436
Municipal securities 44,488 2,529 (16 ) 47,001
Corporate debt securities 2,484 51 (49 ) 2,486
Trust preferred securities 5,895 - (1,290 ) 4,605
Agency mortgage-backed securities 50,473 1,034 (127 ) 51,380
Private-label mortgage-backed securities 3,144 - (346 ) 2,798
Asset-backed securities 64 - (17 ) 47
$ 120,033 $ 3,774 $ (2,085 ) $ 121,722
Gross Gross Estimated
(Dollars in thousands) Amortized Unrealized Unrealized Fair
December 31, 2011 Cost Gains Losses Value
Equity securities $ 2,105 $ 11 $ (357 ) $ 1,759
U.S. Government agency securities 13,159 75 (5 ) 13,229
Municipal securities 42,490 2,598 (7 ) 45,081
Corporate debt securities 2,484 49 (119 ) 2,414
Trust preferred securities 5,890 - (1,272 ) 4,618
Agency mortgage-backed securities 54,314 1,159 (188 ) 55,285
Private-label mortgage-backed securities 3,366 1 (500 ) 2,867
Asset-backed securities 66 - (18 ) 48
$ 123,874 $ 3,893 $ (2,466 ) $ 125,301
|
The following table provides additional detail about the Bank's trust preferred securities as of March 31, 2012:
Trust Preferred Securities
(Dollars in thousands)
Deferrals Expected Deferral/
Lowest Number of and Defaults Defaults as a
Single Gross Credit Banks as % Percentage of
Issuer or Amortized Unrealized Rating Currently of Original Remaining Performing
Deal Name Pooled Class Cost Fair Value Gain (Loss) Assigned Performing Collateral Collateral
Huntington Cap Trust Single Preferred Stock $ 931 $ 729 $ (202 ) B 1 None None
Huntington Cap Trust II Single Preferred Stock 877 702 (175 ) B 1 None None
BankAmerica Cap III Single Preferred Stock 957 701 (256 ) BB 1 None None
. . .
|
|
|