Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FRAF > SEC Filings for FRAF > Form 10-Q on 9-May-2014All Recent SEC Filings




Quarterly Report

Management's Discussion and Analysis of Results of Operations and Financial Condition

For the Three Months Ended March 31, 2014 and 2013

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 2013 Annual Report on Form 10-K in regards to application or related judgments and estimates used. Please refer to Item 7 of the Corporation's 2013 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, 2014, total assets were $1.026 billion, an increase of $41.9 million from December 31, 2013. Net loans increased to $716.3 million and total deposits increased to $892.9 million. The Corporation reported net income for the first three months of 2014 of $1.8 million. This is a 17.7% increase versus net income of $1.6 million for the same period in 2013. Total revenue (interest income and noninterest income) decreased $532 thousand year-over-year. Interest income decreased $528 thousand, while interest expense decreased by $412 thousand, resulting in a $116 thousand decrease in net interest income. The provision for loan losses was $198 thousand for the period, $605 thousand less than in 2013. Noninterest income remained steady at $2.4 million, while noninterest expense increased 1.4% due primarily to increases in net occupancy expense. Diluted earnings per share increased to $.44 in 2014 from $.38 in 2013.

Key performance ratios as of, or for the three months ended March 31, 2014 and 2013 are listed below:

                                                               March 31,
                                                          2014         2013

Performance measurements
Return on average assets*                                  0.74%        0.60%
Return on average equity*                                  7.72%        6.85%
Return on average tangible assets (1)*                     0.76%        0.63%
Return on average tangible equity (1)*                     8.78%        7.91%
Efficiency ratio (1)                                      72.64%       71.30%
Net interest margin*                                       3.57%        3.45%
Current dividend yield*                                    3.70%        4.25%
Dividend payout ratio                                     38.83%       45.00%

Shareholders' Value (per common share)
Diluted earnings per share                             $    0.44    $    0.38
Basic earnings per share                                    0.44         0.38
Regular cash dividends paid                                 0.17         0.17
Book value                                                 23.37        22.55
Tangible book value (1)                                    21.07        20.12
Market value                                               18.38        16.01
Market value/book value ratio                             78.65%       71.00%
Price/earnings multiple*                                   10.44        10.53

Safety and Soundness
Risk-based capital ratio (Total)                          14.53%       13.06%
Leverage ratio (Tier 1)                                    9.26%        8.40%
Common equity ratio                                        9.52%        8.81%
Tangible common equity ratio (1)                           8.66%        7.94%
Nonperforming loans/gross loans                            3.39%        4.64%
Nonperforming assets/total assets                          2.82%        3.80%
Allowance for loan losses as a % of loans                  1.34%        1.47%
Net charge-offs/average loans*                             0.09%        0.13%

Trust assets under management (fair value)             $ 569,810    $ 547,212

* Annualized
(1) See GAAP versus Non-GAAP disclosures that follow

GAAP versus Non-GAAP Disclosure - The Corporation supplements its traditional GAAP measurements with Non-GAAP measurements. The Non-GAAP measurements include Return on Average Tangible Assets, Return on Average Tangible Equity, Tangible Book Value and Tangible Common Equity ratio. As a result of merger transactions, intangible assets (primarily goodwill, core deposit intangibles and customer list) 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. However, not all companies use the same calculation methods for the same non-GAAP measurements and therefore may not be comparable. 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
Book Value                Total Shareholders' Equity / Shares Outstanding
Common Equity Ratio       Total Shareholders' Equity / Total Assets
  Non- GAAP Measurement                         Calculation
Return on Average         Net Income plus Intangible Amortization (net of tax) /
Tangible Assets           Average Assets less Average Intangible Assets
Return on Average         Net Income plus Intangible Amortization (net of tax) /
Tangible Equity           Average Equity less Average Intangible Assets
Tangible Book Value       Total Shareholders' Equity less Intangible Assets /
                          Shares outstanding
Tangible Common Equity    Total Shareholders' Equity less Intangible Assets /
Ratio                     Total Assets less Intangible Assets

Comparison of the three months ended March 31, 2014 to the three months ended March 31, 2013:

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 year 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 net interest income for the first quarter of 2014 decreased $47 thousand quarter over quarter. Average interest-earning assets decreased $40.2 million from 2013, and the yield on these assets decreased by 3 basis points. The average balance of investment securities increased $25.1 million while average loans decreased $28.6 million (4.0%) quarter over quarter. Average mortgage loans increased $9.3 million, but the increase was offset by a decrease in the average balance of commercial loans and consumer loans. Average commercial loans decreased $33.4 million, as commercial loans continue to run-off. Average consumer loans, including home equity loans, decreased $4.6 million, as consumers continue to borrow less.

Interest expense was $830 thousand for the first quarter, a decrease of $412 thousand from the 2013 total of $1.2 million. Average interest-bearing liabilities decreased $47.4 million to $783.4 million for 2014 from an average balance of $830.8 million in 2013. The average cost of these liabilities decreased from .61% in 2013 to .43% in 2014. Average interest-bearing deposits decreased $18.2 million, due to decreases in time deposits ($66.0 million). The cost of interest-bearing deposits decreased from .58% to .38%. Securities sold under agreements to repurchase (Repos) decreased $29.2 million on average over the prior year quarter while the average rate remained constant at .15% in both years. The average balance of long-term debt decreased by $19 thousand, due to amortizations.

The changes in the balance sheet and interest rates resulted in a decrease in tax equivalent net interest income of $47 thousand to $8.2 million in 2014 compared to $8.3 million in 2013. This decrease was due to an $87 thousand decrease from lower volume, which was partially offset by a $40 thousand increase in rates.

The Bank's net interest margin increased from 3.45% in 2013 to 3.57% in 2014. The increase in the net interest margin is the result of a decrease in the rate on interest-earning assets of 3 basis points, compared to a larger decrease in the yield on interest-bearing liabilities of 18 basis points.

The following table presents average balances, tax-equivalent (T/E) interest income, and yields earned or rates paid on the assets or liabilities. All nontaxable interest income has been adjusted to a tax-equivalent basis using a tax rate of 34%.

                                                     For the Three Months Ended March 31,
                                               2014                                        2013

                               Average       Income or      Average        Average       Income or      Average
(Dollars in thousands)         balance        expense      yield/rate      balance        expense      yield/rate

Interest-earning assets:
obligations of other
banks and federal funds
sold                         $    46,183     $      39          0.34%    $    82,889     $      58          0.28%
Investment securities:
Taxable                          120,526           666          2.24%         95,341           371          1.58%
Nontaxable                        41,084           537          5.23%         41,130           553          5.45%
Commercial                       573,238         5,994          4.18%        606,596         6,583          4.40%
Residential mortgage              82,727           860          4.22%         73,417           854          4.72%
Home equity loans and
lines                             59,376           786          5.37%         61,213           900          5.96%
Consumer                           8,370           151          7.32%         11,107           173          6.32%
Loans                            723,711         7,791          4.31%        752,333         8,510          4.59%

Total interest-earning
assets                           931,504         9,033          3.93%        971,693         9,492          3.96%
Other assets                      71,207                                      73,189
Total assets                 $ 1,002,711                                 $ 1,044,882

Interest-bearing checking    $   188,008            49          0.11%    $   146,276            24          0.07%
Money Management                 391,350           422          0.44%        387,988           548          0.57%
Savings                           60,930            12          0.08%         58,145            17          0.12%
Time                             112,385           219          0.79%        178,432           514          1.17%
Total interest-bearing
deposits                         752,673           702          0.38%        770,841         1,103          0.58%

Securities sold under
agreements to repurchase          18,303             7          0.15%         47,521            18          0.15%
Long- term debt                   12,401           121          3.91%         12,420           121          3.95%
Total interest-bearing
liabilities                      783,377           830          0.43%        830,782         1,242          0.61%
deposits                         116,076                                     114,633
Other liabilities                  7,272                                       7,625
Shareholders' equity              95,986                                      91,842
Total liabilities and
shareholders' equity         $ 1,002,711                                 $ 1,044,882
T/E net interest
income/Net interest margin                       8,203          3.57%                        8,250          3.45%
Tax equivalent adjustment                         (459)                                       (390)
Net interest income                          $   7,744                                   $   7,860

Provision for Loan Losses

For 2014, the Bank recorded net charge-offs of $155 thousand compared to $239 thousand in 2013. The charge-offs were offset by the first quarter provision expense of $198 thousand and as a result, the allowance for loan losses (ALL) increased $43 thousand over year-end 2013. 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 2014, noninterest income decreased $4 thousand from the same period in 2013. Investment and trust service fees increased due to higher recurring asset management fees and higher estate fees. Loan service charges decreased as mortgage production declined in 2014 compared to 2013, and from lower service charges on commercial and consumer loans. Mortgage banking fees increased, as 2014 had a reversal of previously recorded impairment charges compared to an impairment charge in the prior year, as well as lower amortization costs in 2014 compared to 2013. Deposit service charges increased due to higher account analysis fees and higher retail and commercial overdraft fees. Other service charges and fees increased primarily due to increases in ATM fees, while debit card income also increased. Other real estate owned decreased from prior year due to a write-down in 2014, while no write-downs were taken in 2013. No securities gains or other than temporary impairment charges were recorded during either period.

The following table presents a comparison of noninterest income for the three months ended March 31, 2014 and 2013:

                                          March 31                   Change
(Dollars in thousands)                2014         2013        Amount         %
Noninterest Income
Investment and trust services
fees                               $   1,091    $   1,019    $      72          7.1
Loan service charges                     167          250          (83)       (33.2)
Mortgage banking activities               12          (22)          34       (154.5)
Deposit service charges and fees         464          436           28          6.4
Other service charges and fees           267          221           46         20.8
Debit card income                        306          285           21          7.4
Increase in cash surrender value
of life insurance                        143          152           (9)        (5.9)
Other real estate owned                 (122)            -        (122)          N/A
Other                                     52           43            9         20.9
Total noninterest income           $   2,380    $   2,384    $      (4)        (0.2)

Noninterest Expense

Noninterest expense for the first quarter of 2014 increased $106 thousand compared to the same period in 2013. The increase in salaries and benefits was primarily due to annual salary adjustments ($142 thousand) and an incentive program ($135 thousand), but these increases were partially offset by a $199 thousand decrease in health insurance and a $65 thousand decrease in pension expense. Health insurance expense declined due to lower claims expense during the quarter from the Bank's participation in a self-insured health insurance plan. Occupancy and equipment expense increased due to higher costs for snow removal and utilities in 2014 compared to 2013. Banks shares tax expense decreased year over year due to a change in the calculation. Other expenses increased due to increases in supply expenses and directors fees.

The following table presents a comparison of noninterest expense for the three months ended March 31, 2014 and 2013:

(Dollars in thousands)                 March 31               Change
Noninterest Expense                 2014       2013     Amount       %
Salaries and benefits             $ 4,251    $ 4,214     $  37        0.9
Net occupancy expense                 675        568       107       18.8
Furniture and equipment expense       254        247         7        2.8
Advertising                           316        335       (19)      (5.7)
Legal and professional fees           265        279       (14)      (5.0)
Data processing                       391        394        (3)      (0.8)
Pennsylvania bank shares tax          173        205       (32)     (15.6)
Intangible amortization               104        106        (2)      (1.9)
FDIC insurance                        232        245       (13)      (5.3)
ATM/debit card processing             179        181        (2)      (1.1)
Other                                 848        808        40        5.0
Total noninterest expense         $ 7,688    $ 7,582     $ 106        1.4

Provision for Income Taxes

For the first quarter of 2014 the Corporation recorded a Federal income tax expense of $412 thousand compared to $308 thousand for the same quarter in 2013.
While pretax income was higher in 2014 due to less provision expense, this was partially offset by a larger benefit from tax exempt income during the quarter. As a result, the effective tax rate increased year over year to 18.4% for the first quarter of 2014 compared to 16.6% for 2013. All taxable income for the Corporation is taxed at a rate of 34%.

Financial Condition


At March 31, 2014, assets totaled $1.026 billion, an increase of $41.9 million from the 2013 year-end balance of $984.6 million. Investment securities increased $2.0 million, while net loans increased $2.6 million. Deposits were up $47.2 million in the first quarter of 2014 due to increases in noninterest bearing, interest bearing and money management deposits. Shareholders' equity increased $2.3 million during the first three months as retained earnings increased approximately $1.1 million, other comprehensive loss improved $994 thousand and the Corporation's Dividend Reinvestment Plan (DRIP) added an additional $170 thousand in new capital.

Cash and Cash Equivalents:

Cash and cash equivalents totaled $79.4 million at March 31, 2014, an increase of $38.6 million from the prior year-end balance of $40.7 million. The increase is due to large inflows of deposits as well as slow loan growth opportunities. Interest-bearing deposits are held primarily at the Federal Reserve.

Investment Securities:

The composition of the investment portfolio is unchanged since year-end 2013. Municipal securities and U.S. Agency mortgage-backed securities continue to comprise the greatest portion of the portfolio at 35% and 50% of the portfolio, respectively. The Bank invested $6.8 million during the first quarter divided almost equally between U.S. Agency securities and U.S. Agency mortgage-backed securities.

The investment portfolio had a net unrealized loss of $679 thousand at the end of the quarter, slightly lower than at year-end 2013. The trust-preferred sector continues to report the largest net unrealized loss.

The portfolio averaged $161.6 million with a yield of 3.0% for the first quarter. This compares to an average of $136.5 million and a yield of 2.74% for the same period in 2013. The improvement in the yield is primarily the result of a slow-down in prepayments on mortgage-backed securities.

The equity portfolio is comprised of bank stocks and the Bank and the Corporation each maintain separate equity portfolios. In April 2014, the equity portfolio was reduced by approximately 30% as the Corporation took advantage of

price increases and sold selected holdings. The municipal bond portfolio is well diversified geographically (issuers from within 27 states) and is comprised primarily of general obligation bonds (71%). Most municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest geographic municipal bond exposure is to nineteen issuers in the state of Texas with a fair value of $9.0 million and eleven issuers in the state of Pennsylvania with a fair value of $6.0 million. The municipal bond portfolio contains $53.7 million of bonds rated A or higher, $623 thousand rated lower than A (but above noninvestment grade), and $1.8 million that are not rated by Moody's rating agency. No municipal bonds are rated below investment grade. The Bank holds one variable rate corporate bond in the financial services sector, rated A3 by Moody's and is scheduled to mature in 2014.

The holdings of trust preferred investments and private-label mortgage-backed securities are unchanged since year-end and are detailed in tables included in this note.

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2014 and December 31, 2013 is as follows:

(Dollars in thousands)                             Gross          Gross
                                   Amortized     unrealized     unrealized        Fair
        March 31, 2014               cost          gains          losses         value
Equity securities                 $    1,472     $      544     $         -   $     2,016
U.S. Government agency
securities                            14,547             88            (96)        14,539
Municipal securities                  55,531          1,568           (976)        56,123
Corporate debt securities              1,001              1               -         1,002
Trust preferred securities             5,928               -          (833)         5,095
Agency mortgage-backed
securities                            80,500            826           (444)        80,882
Private-label mortgage-backed
securities                             1,918             48            (44)         1,922
Asset-backed securities                   50               -            (3)            47
                                  $  160,947     $    3,075     $   (2,396)   $   161,626

(Dollars in thousands)                             Gross          Gross
                                   Amortized     unrealized     unrealized        Fair
       December 31, 2013             cost          gains          losses         value
Equity securities                 $    1,472     $      499     $       (1)   $     1,970
U.S. Government agency
securities                            11,771             94           (114)        11,751
Municipal securities                  56,861          1,400         (1,404)        56,857
Corporate debt securities              1,002               -            (1)         1,001
Trust preferred securities             5,922               -          (871)         5,051
Agency mortgage-backed
securities                            81,352            726         (1,051)        81,027
Private-label mortgage-backed
securities                             1,984             16            (31)         1,969
Asset-backed securities                   51               -            (3)            48
                                  $  160,415     $    2,735     $   (3,476)   $   159,674

The following table provides additional detail about the Bank's trust preferred securities as of March 31, 2014:

(Dollars in
                                                                                                                         Deferrals      Deferral/
                                                                                                                            and       Defaults as a
                   Single                                                                         Lowest    Number of     Defaults    Percentage of
                   Issuer                                                           Gross         Credit      Banks       as % of       Remaining
                     or                                                        Unrealized Gain    Rating    Currently     Original     Performing
Deal Name          Pooled        Class        Amortized Cost     Fair Value        (Loss)        Assigned   Performing   Collateral    Collateral

Huntington Cap
Trust              Single   Preferred Stock    $         937     $      811        $     (126)     BB+          1           None          None
Huntington Cap
Trust II           Single   Preferred Stock              886            780              (106)     BB+          1           None          None
BankAmerica Cap
III                Single   Preferred Stock              961            795              (166)     BB+          1           None          None
Wachovia Cap
Trust II           Single   Preferred Stock              276            245               (31)     BBB+         1           None          None
Corestates Captl
Tr II              Single   Preferred Stock              933            830              (103)     BBB+         1           None          None
Chase Cap VI JPM   Single   Preferred Stock              961            830              (131)     BBB          1           None          None
Fleet Cap Tr V     Single   Preferred Stock              974            804              (170)     BB+          1           None          None
                                               $       5,928     $    5,095        $     (833)

. . .

  Add FRAF to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FRAF - All Recent SEC Filings
Copyright © 2015 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.