e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 000-49929
ACCESS NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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Virginia
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82-0545425 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
1800 Robert Fulton Drive, Suite 300, Reston, Virginia 20191
(Address of principal executive offices) (Zip Code)
(703) 871-2100
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of Access National Corporations common stock, par value $0.835,
as of November 4, 2009 was 10,486,407 shares.
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q
INDEX
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Page 2 |
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Page 3 |
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Page 4 |
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Page 5 |
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Page 6 |
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Page 7 |
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Page 23 |
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Page 40 |
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Page 41 |
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Page 41 |
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Page 41 |
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Page 41 |
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Page 41 |
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Page 41 |
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Page 41 |
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Page 42 |
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Page 43 |
EX-31.1 |
EX-31.2 |
EX-32 |
- 1 -
PART I FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share Data)
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September 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS |
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Cash and due from banks |
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$ |
8,719 |
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$ |
8,785 |
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Interest-bearing deposits in other banks and federal funds sold |
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47,165 |
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13,697 |
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Securities available for sale, at fair value |
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73,474 |
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91,015 |
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Loans held for sale, at fair value |
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60,400 |
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84,312 |
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Loans |
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489,077 |
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485,929 |
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Allowance for loan losses |
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(8,179 |
) |
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(7,462 |
) |
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Net loans |
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480,898 |
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478,467 |
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Premises and equipment, net |
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8,843 |
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9,211 |
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Accrued interest |
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2,675 |
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3,193 |
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Other real estate owned |
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3,665 |
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4,455 |
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Other assets |
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9,364 |
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9,189 |
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Total assets |
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$ |
695,203 |
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$ |
702,324 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Deposits |
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Non-interest-bearing deposits |
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$ |
84,296 |
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$ |
75,000 |
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Savings and interest-bearing deposits |
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128,556 |
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95,730 |
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Time deposits |
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299,891 |
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314,671 |
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Total deposits |
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512,743 |
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485,401 |
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Other liabilities |
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Short-term borrowings |
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55,685 |
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103,575 |
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Long-term borrowings |
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47,300 |
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41,107 |
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Subordinated debentures |
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6,186 |
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6,186 |
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Other liabilities and accrued expenses |
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7,320 |
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8,110 |
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Total liabilities |
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$ |
629,234 |
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$ |
644,379 |
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SHAREHOLDERS EQUITY |
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Common
stock, par value, $0.835; authorized, 60,000,000 shares; issued and
outstanding, 10,483,007 shares at September 30, 2009 and 10,240,747 shares at December 31, 2008 |
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$ |
8,753 |
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$ |
8,551 |
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Surplus |
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18,301 |
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17,410 |
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Retained earnings |
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38,435 |
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31,157 |
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Accumulated other comprehensive income, net |
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480 |
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827 |
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Total shareholders equity |
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65,969 |
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57,945 |
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Total liabilities and shareholders equity |
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$ |
695,203 |
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$ |
702,324 |
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See accompanying notes to consolidated financial statements (Unaudited).
- 2 -
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)
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Three Months Ended September 30, |
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2009 |
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2008 |
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Interest and Dividend Income |
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Interest and fees on loans |
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$ |
8,470 |
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$ |
8,849 |
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Interest on deposits in other banks |
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34 |
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82 |
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Interest and dividends on securities |
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712 |
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796 |
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Total interest and dividend income |
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9,216 |
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9,727 |
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Interest Expense |
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Interest on deposits |
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2,469 |
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3,243 |
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Interest on short-term borrowings |
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310 |
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280 |
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Interest on long-term borrowings |
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469 |
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558 |
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Interest on subordinated debentures |
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57 |
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91 |
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Total interest expense |
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3,305 |
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4,172 |
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Net interest income |
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5,911 |
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5,555 |
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Provision for loan losses |
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1,387 |
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1,855 |
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Net interest income after provision for loan losses |
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4,524 |
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3,700 |
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Non-interest Income |
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Service fees on deposit accounts |
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137 |
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106 |
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Gain on sale of loans |
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9,928 |
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4,828 |
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Mortgage broker fee income |
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244 |
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305 |
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Other income |
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614 |
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401 |
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Total non-interest income |
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10,923 |
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5,640 |
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Non-interest Expense |
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Salaries and employee benefits |
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6,010 |
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4,490 |
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Occupancy and equipment |
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615 |
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677 |
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Other operating expenses |
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5,408 |
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2,980 |
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Total non-interest expense |
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12,033 |
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8,147 |
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Income before income taxes |
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3,414 |
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1,193 |
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Income tax expense |
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1,260 |
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424 |
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NET INCOME |
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$ |
2,154 |
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$ |
769 |
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Earnings per common share: |
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Basic |
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$ |
0.21 |
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$ |
0.08 |
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Diluted |
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$ |
0.21 |
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$ |
0.07 |
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Average outstanding shares: |
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Basic |
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10,451,416 |
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10,179,177 |
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Diluted |
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10,486,755 |
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10,278,763 |
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See accompanying notes to consolidated financial statements (Unaudited).
- 3 -
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)
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Nine Months Ended September 30, |
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2009 |
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2008 |
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Interest and Dividend Income |
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Interest and fees on loans |
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$ |
25,918 |
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$ |
26,378 |
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Interest on deposits in other banks |
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112 |
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443 |
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Interest and dividends on securities |
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2,553 |
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2,436 |
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Total interest and dividend income |
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28,583 |
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29,257 |
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Interest Expense |
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Interest on deposits |
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8,287 |
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10,812 |
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Interest on short-term borrowings |
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958 |
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|
819 |
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Interest on long-term borrowings |
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1,460 |
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1,747 |
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Interest on subordinated debentures |
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185 |
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293 |
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Total interest expense |
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10,890 |
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13,671 |
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Net interest income |
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17,693 |
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15,586 |
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Provision for loan losses |
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4,816 |
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3,662 |
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Net interest income after provision for loan losses |
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12,877 |
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11,924 |
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Non-interest Income |
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Service fees on deposit accounts |
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401 |
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|
322 |
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Gain on sale of loans |
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38,267 |
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17,921 |
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Mortgage broker fee income |
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|
573 |
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|
1,391 |
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Other income |
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4,894 |
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2,470 |
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Total non-interest income |
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44,135 |
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22,104 |
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Non-interest Expense |
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Salaries and employee benefits |
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21,444 |
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15,928 |
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Occupancy and equipment |
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1,895 |
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|
1,881 |
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Other operating expenses |
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21,123 |
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10,734 |
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Total non-interest expense |
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44,462 |
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28,543 |
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Income before income taxes |
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12,550 |
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5,485 |
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Income tax expense |
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4,962 |
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1,963 |
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NET INCOME |
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$ |
7,588 |
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$ |
3,522 |
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Earnings per common share: |
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Basic |
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$ |
0.73 |
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$ |
0.34 |
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Diluted |
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$ |
0.73 |
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$ |
0.34 |
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Average outstanding shares: |
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Basic |
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10,354,897 |
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10,323,060 |
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Diluted |
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10,400,753 |
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10,463,230 |
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See accompanying notes to consolidated financial statements (Unaudited).
- 4 -
ACCESS NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders Equity
For the Nine Months Ended September 30, 2009 and 2008
(In Thousands, Except For Share Data)
(Unaudited)
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Accumulated |
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Other |
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Common |
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Retained |
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Comprehensive |
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Stock |
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Surplus |
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Earnings |
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Income (Loss) |
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Total |
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Balance, December 31, 2008 |
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$ |
8,551 |
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$ |
17,410 |
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$ |
31,157 |
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$ |
827 |
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$ |
57,945 |
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Comprehensive income: |
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Net income |
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7,588 |
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7,588 |
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Other comprehensive income,
unrealized holdings gains (losses)
arising during the period
(net of tax, $179) |
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(347 |
) |
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(347 |
) |
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Total comprehensive income |
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|
7,241 |
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Stock option exercises (163,452 shares) |
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|
136 |
|
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
551 |
|
Dividend reinvestment plan (103,938 shares) |
|
|
87 |
|
|
|
440 |
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|
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|
527 |
|
Repurchased under share repurchase
program
(25,130 shares) |
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(21 |
) |
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(94 |
) |
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|
(115 |
) |
Cash dividend |
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(310 |
) |
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(310 |
) |
Stock-based compensation
expense recognized in earnings |
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|
|
|
130 |
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|
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|
130 |
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|
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|
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|
Balance, September 30, 2009 |
|
$ |
8,753 |
|
|
$ |
18,301 |
|
|
$ |
38,435 |
|
|
$ |
480 |
|
|
$ |
65,969 |
|
|
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Accumulated |
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Other |
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Common |
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Retained |
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Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
Balance, December 31, 2007 |
|
$ |
9,052 |
|
|
$ |
21,833 |
|
|
$ |
26,846 |
|
|
$ |
230 |
|
|
$ |
57,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,522 |
|
|
|
|
|
|
|
3,522 |
|
Other comprehensive income,
unrealized holdings gains (losses)
arising during the period
(net of tax, $104) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202 |
) |
|
|
(202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,320 |
|
Stock option exercises (119,632 shares) |
|
|
100 |
|
|
|
239 |
|
|
|
|
|
|
|
|
|
|
|
339 |
|
Dividend reinvestment plan (60,218 shares) |
|
|
50 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
329 |
|
Repurchased under share repurchase
program
(808,411 shares) |
|
|
(675 |
) |
|
|
(5,169 |
) |
|
|
|
|
|
|
|
|
|
|
(5,844 |
) |
Cash dividend |
|
|
|
|
|
|
|
|
|
|
(331 |
) |
|
|
|
|
|
|
(331 |
) |
Stock-based compensation
expense recognized in earnings |
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
$ |
8,527 |
|
|
$ |
17,278 |
|
|
$ |
30,037 |
|
|
$ |
28 |
|
|
$ |
55,870 |
|
|
|
|
See accompanying notes to consolidated financial statements (Unaudited).
- 5 -
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,588 |
|
|
$ |
3,522 |
|
Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
4,816 |
|
|
|
3,662 |
|
Deferred tax benefit |
|
|
(1,008 |
) |
|
|
(569 |
) |
Stock-based compensation |
|
|
130 |
|
|
|
96 |
|
Increase (decrease) in valuation allowance for derivatives |
|
|
176 |
|
|
|
(340 |
) |
Amortization of premiums on securities |
|
|
38 |
|
|
|
2 |
|
Depreciation and amortization |
|
|
443 |
|
|
|
570 |
|
Loss on disposal of assets |
|
|
2 |
|
|
|
5 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Valuation of loans held for sale carried at fair value |
|
|
1,708 |
|
|
|
1,023 |
|
Decrease (increase) in loans held for sale |
|
|
22,204 |
|
|
|
(8,523 |
) |
Decrease (increase) in other assets |
|
|
2,082 |
|
|
|
(7,171 |
) |
(Decrease) increase in other liabilities |
|
|
(791 |
) |
|
|
7,078 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
37,388 |
|
|
|
(645 |
) |
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls of securities available for sale |
|
|
43,705 |
|
|
|
50,711 |
|
Proceeds from sale of securities |
|
|
4,039 |
|
|
|
2,927 |
|
Purchases of securities available for sale |
|
|
(30,766 |
) |
|
|
(40,003 |
) |
Net increase in loans |
|
|
(7,247 |
) |
|
|
(24,052 |
) |
Decrease in federal funds sold |
|
|
|
|
|
|
2 |
|
Proceeds from sale of equipment |
|
|
23 |
|
|
|
35 |
|
Proceeds from sale of other real estate owned |
|
|
|
|
|
|
781 |
|
Purchases of premises and equipment |
|
|
(37 |
) |
|
|
(164 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
9,717 |
|
|
|
(9,763 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in demand, interest-bearing demand and savings deposits |
|
|
42,021 |
|
|
|
(1,699 |
) |
Net (decrease) increase in time deposits |
|
|
(14,679 |
) |
|
|
16,492 |
|
Net decrease in securities sold under agreement to repurchase |
|
|
(13,080 |
) |
|
|
(107 |
) |
Net (decrease) increase in short-term borrowings |
|
|
(34,809 |
) |
|
|
1,264 |
|
Net increase in long-term borrowings |
|
|
6,193 |
|
|
|
13,149 |
|
Proceeds from issuance of common stock |
|
|
1,078 |
|
|
|
667 |
|
Purchase of common stock |
|
|
(116 |
) |
|
|
(5,844 |
) |
Dividends paid |
|
|
(310 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(13,702 |
) |
|
|
23,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
33,403 |
|
|
|
13,183 |
|
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
Beginning |
|
|
22,481 |
|
|
|
19,502 |
|
|
|
|
|
|
|
|
Ending |
|
$ |
55,884 |
|
|
$ |
32,685 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
10,714 |
|
|
$ |
13,685 |
|
Cash payments for income taxes |
|
$ |
7,112 |
|
|
$ |
3,300 |
|
Supplemental Disclosures of Noncash Investing Activities |
|
|
|
|
|
|
|
|
Unrealized loss on securities available for sale |
|
$ |
(526 |
) |
|
$ |
(306 |
) |
See accompanying notes to consolidated financial statements (Unaudited).
- 6 -
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 COMMENCEMENT OF OPERATIONS
Access National Corporation (the Corporation) is a bank holding company incorporated under the
laws of the Commonwealth of Virginia. The Corporation has two wholly-owned subsidiaries, Access
National Bank (the Bank), which is an independent commercial bank chartered under federal laws as
a national banking association, and Access Capital Trust II. The Corporation does not have any
significant operations and serves primarily as the parent company for the Bank. The Corporations
income is primarily derived from dividends received from the Bank. The amount of these dividends is
determined by the Banks earnings and capital position.
The Corporation acquired all of the outstanding stock of the Bank in a statutory exchange
transaction on June 15, 2002, pursuant to an Agreement and Plan of Reorganization between the
Corporation and the Bank.
The Bank opened for business on December 1, 1999 and has two active wholly-owned subsidiaries:
Access National Mortgage Corporation (the Mortgage Corporation), a Virginia corporation engaged
in mortgage banking activities, and Access Real Estate LLC. Access Real Estate LLC is a limited
liability company established in July, 2003 for the purpose of holding title to the Corporations
headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia.
NOTE 2 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP)
for interim financial information and with rules and regulations of the Securities and Exchange
Commission (SEC). The statements do not include all of the information and footnotes required by
GAAP for complete financial statements. All adjustments have been made, which, in the opinion of
management, are necessary for a fair presentation of the results for the interim periods presented.
Such adjustments are all of a normal and recurring nature. All significant inter-company accounts
and transactions have been eliminated in consolidation. Certain prior period amounts have been
reclassified to conform to the current period presentation. The results of operations for the
nine months ended September 30, 2009 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2009. These consolidated financial statements
should be read in conjunction with the Corporations audited financial statements and the notes
thereto as of December 31, 2008, included in the Corporations Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.
Accounting Standards Codification In June 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS) No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement
of FASB Statement No. 162. This statement modifies the GAAP hierarchy by establishing only two
levels of GAAP: authoritative and non-authoritative accounting literature. Effective July 2009, the
FASB Accounting Standards Codification (ASC), also known collectively as the Codification, is
considered the single source of authoritative U.S. GAAP, except for additional authoritative rules
and interpretive releases issued by the SEC. Non-authoritative guidance and literature would
include, among other things, FASB Concepts Statements, American Institute of Certified Public
Accountants Issue Papers and Technical Practice Aids and accounting textbooks. The Codification was
developed to organize GAAP pronouncements by topic so that users can more easily access
authoritative accounting guidance. It is organized by topic, subtopic, section, and paragraph, each
of which is identified by a numerical designation. FASB ASC 105-10, Generally Accepted Accounting
Principles, became applicable beginning in the third quarter of 2009. All accounting references
have been updated, and therefore SFAS references have been replaced with ASC references except for
SFAS references that have not been integrated into the codification.
7
NOTE 3 STOCK-BASED COMPENSATION PLANS
During the first nine months of 2009, the Corporation granted 105,750 stock options to officers,
directors, and employees under the 1999 Stock Option Plan (the Plan). Options granted under the
Plan have an exercise price equal to the fair market value as of the grant date. Options granted
have a vesting period of two and one half years and expire three and one half years after the issue
date. Stockbased compensation expense recognized in other operating expense during the first
nine months of 2009 was approximately $130 thousand and $96 thousand for the same period in 2008.
The fair value of options is estimated on the date of grant using a Black-Scholes option-pricing
model with the assumptions noted below.
A summary of stock option activity under the Plan for the nine months ended September 30, 2009 is
presented as follows:
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, 2009 |
Expected life of options granted |
|
|
2.84 |
|
Risk-free interest rate |
|
|
1.09 |
% |
Expected volatility of stock |
|
|
47 |
% |
Annual expected dividend yield |
|
|
1 |
% |
|
|
|
|
|
Fair Value of Granted Options |
|
$ |
182,921 |
|
Non-Vested Options |
|
$ |
181,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
Number of |
|
Weighted Avg. |
|
Remaining |
|
Aggregate Intrinsic |
|
|
Options |
|
Exercise Price |
|
Contractual Term |
|
Value |
Outstanding at beginning of year |
|
|
589,617 |
|
|
$ |
5.96 |
|
|
|
1.57 |
|
|
$ |
284,885 |
|
Granted |
|
|
105,750 |
|
|
$ |
4.06 |
|
|
|
2.84 |
|
|
$ |
|
|
Exercised |
|
|
163,452 |
|
|
$ |
3.37 |
|
|
|
0.06 |
|
|
$ |
|
|
Lapsed or Canceled |
|
|
53,836 |
|
|
$ |
6.85 |
|
|
|
0.74 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
478,079 |
|
|
$ |
6.32 |
|
|
|
1.67 |
|
|
$ |
329,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009 |
|
|
296,404 |
|
|
$ |
7.10 |
|
|
|
1.22 |
|
|
$ |
102,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTE 4 SECURITIES
The following table provides the amortized cost and fair value for the categories of
available-for-sale securities. Available-for-sale securities are carried at fair value with net
unrealized gains or losses reported on an after-tax basis as a component of cumulative other
comprehensive income in shareholders equity. The fair value of investment securities is impacted
by interest rates, credit spreads, market volatility and liquidity.
The following table provides the amortized costs and fair values of securities available for sale
as of September 30, 2009 and
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
(In Thousands) |
|
U.S. Government Agencies |
|
$ |
65,056 |
|
|
$ |
746 |
|
|
$ |
(2 |
) |
|
$ |
65,800 |
|
Mortgage-Backed Securities |
|
|
949 |
|
|
|
1 |
|
|
|
(28 |
) |
|
|
922 |
|
Municipals-taxable |
|
|
690 |
|
|
|
1 |
|
|
|
|
|
|
|
691 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
8 |
|
|
|
|
|
|
|
1,508 |
|
Restricted Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
894 |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
FHLB Stock |
|
|
3,659 |
|
|
|
|
|
|
|
|
|
|
|
3,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
$ |
72,748 |
|
|
$ |
756 |
|
|
$ |
(30 |
) |
|
$ |
73,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
(In Thousands) |
|
U.S. Treasury Notes |
|
$ |
999 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
1,006 |
|
U.S. Government Agencies |
|
|
74,934 |
|
|
|
1,420 |
|
|
|
|
|
|
|
76,354 |
|
Mortgage-Backed Securities |
|
|
1,428 |
|
|
|
2 |
|
|
|
(39 |
) |
|
|
1,391 |
|
Municipals-taxable |
|
|
5,006 |
|
|
|
3 |
|
|
|
(89 |
) |
|
|
4,920 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(52 |
) |
|
|
1,448 |
|
Restricted Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
894 |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
FHLB Stock |
|
|
5,002 |
|
|
|
|
|
|
|
|
|
|
|
5,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
$ |
89,763 |
|
|
$ |
1,432 |
|
|
$ |
(180 |
) |
|
$ |
91,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTE 4 SECURITIES (continued)
The amortized cost and fair value of securities available for sale as of September 30, 2009 and
December 31, 2008 by contractual maturity are shown below. Actual maturities may differ from
contractual maturities because the securities may be called or prepaid without any penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
(In Thousands) |
|
|
(In Thousands) |
|
U.S. Treasury and Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
$ |
|
|
|
$ |
999 |
|
|
$ |
1,006 |
|
Due after one through five years |
|
|
15,158 |
|
|
|
15,200 |
|
|
|
25,000 |
|
|
|
25,121 |
|
Due after five through ten years |
|
|
49,898 |
|
|
|
50,600 |
|
|
|
49,934 |
|
|
|
51,233 |
|
Municipals-taxable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one through five years |
|
|
690 |
|
|
|
691 |
|
|
|
905 |
|
|
|
907 |
|
Due after five through ten years |
|
|
|
|
|
|
|
|
|
|
4,101 |
|
|
|
4,013 |
|
Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
|
145 |
|
|
|
146 |
|
|
|
381 |
|
|
|
382 |
|
Due after one through five years |
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
128 |
|
Due after fifteen years |
|
|
804 |
|
|
|
776 |
|
|
|
920 |
|
|
|
881 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
1,508 |
|
|
|
1,500 |
|
|
|
1,448 |
|
Restricted Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank stock |
|
|
894 |
|
|
|
894 |
|
|
|
894 |
|
|
|
894 |
|
FHLB stock |
|
|
3,659 |
|
|
|
3,659 |
|
|
|
5,002 |
|
|
|
5,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
72,748 |
|
|
$ |
73,474 |
|
|
$ |
89,763 |
|
|
$ |
91,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTE 4 SECURITIES (continued)
Securities available for sale that have an unrealized loss position at September 30, 2009 and
December 31, 2008 are as follows:
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a Loss |
|
|
Securities in a Loss |
|
|
|
|
|
|
Position for Less than |
|
|
Position for 12 Months |
|
|
|
|
|
|
12 Months |
|
|
or Longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
(In Thousands) |
|
Investment
securities
available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
Agencies |
|
$ |
4,998 |
|
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,998 |
|
|
$ |
(2 |
) |
Mortgage-Backed
Securities |
|
|
|
|
|
|
|
|
|
|
775 |
|
|
|
(28 |
) |
|
|
775 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,998 |
|
|
$ |
(2 |
) |
|
$ |
775 |
|
|
$ |
(28 |
) |
|
$ |
5,773 |
|
|
$ |
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a Loss |
|
|
Securities in a Loss |
|
|
|
|
|
|
Position for Less than |
|
|
Position for 12 Months |
|
|
|
|
|
|
12 Months |
|
|
or Longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
(In Thousands) |
|
Investment securities
available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities |
|
$ |
881 |
|
|
$ |
(39 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
881 |
|
|
$ |
(39 |
) |
Municipals-taxable |
|
|
4,012 |
|
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
4,012 |
|
|
|
(89 |
) |
CRA Mutual Fund |
|
|
|
|
|
|
|
|
|
|
1,448 |
|
|
|
(52 |
) |
|
|
1,448 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,893 |
|
|
$ |
(128 |
) |
|
$ |
1,448 |
|
|
$ |
(52 |
) |
|
$ |
6,341 |
|
|
$ |
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management does not believe that any individual unrealized loss as of September 30, 2009 and
December 31, 2008 is other than a temporary impairment. These unrealized losses are primarily
attributable to changes in interest rates. The Corporation has the ability to hold these
securities for a time necessary to recover the amortized cost or until maturity when full repayment
would be received.
11
NOTE 5 LOANS
The following table presents the composition of the loans held for investment portfolio at
September 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
(In Thousands) |
|
Commercial |
|
$ |
69,997 |
|
|
$ |
69,537 |
|
Commercial real estate |
|
|
222,229 |
|
|
|
218,539 |
|
Real estate construction |
|
|
45,310 |
|
|
|
42,600 |
|
Residential real estate |
|
|
150,204 |
|
|
|
153,740 |
|
Consumer |
|
|
1,337 |
|
|
|
1,513 |
|
|
|
|
|
|
|
|
Total loans |
|
|
489,077 |
|
|
|
485,929 |
|
Less allowance for loan losses |
|
|
8,179 |
|
|
|
7,462 |
|
|
|
|
|
|
|
|
Net loans |
|
$ |
480,898 |
|
|
$ |
478,467 |
|
|
|
|
|
|
|
|
NOTE 6 SEGMENT REPORTING
The Corporation has two reportable segments: traditional commercial banking and a mortgage banking
segment. Revenues from commercial banking operations consist primarily of interest earned on loans
and securities and fees from deposit services. Mortgage banking operating revenues consist
principally of interest earned on mortgage loans held for sale, gains on sales of loans in the
secondary mortgage market and loan origination fee income.
The commercial banking segment provides the mortgage segment with the short-term funds needed to
originate mortgage loans through a warehouse line of credit and charges the mortgage banking
segment interest based on the prime rate. These transactions are eliminated in the consolidation
process.
Other includes the operations of the Corporation and Access Real Estate LLC. The primary source of
income for the Corporation is derived from dividends from the Bank and its primary expense relates
to interest on subordinated debentures. The primary source of income for Access Real Estate LLC is
derived from rents received from the Bank and Mortgage Corporation.
12
NOTE 6 SEGMENT REPORTING (continued)
The following table presents segment information for the three months ended September 30, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Other |
|
|
Elimination |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
8,853 |
|
|
$ |
719 |
|
|
$ |
10 |
|
|
$ |
(366 |
) |
|
$ |
9,216 |
|
Gain on sale of loans |
|
|
401 |
|
|
|
9,527 |
|
|
|
|
|
|
|
|
|
|
|
9,928 |
|
Other revenues |
|
|
567 |
|
|
|
551 |
|
|
|
291 |
|
|
|
(414 |
) |
|
|
995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
9,821 |
|
|
|
10,797 |
|
|
|
301 |
|
|
|
(780 |
) |
|
|
20,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,217 |
|
|
|
287 |
|
|
|
168 |
|
|
|
(367 |
) |
|
|
3,305 |
|
Salaries and employee benefits |
|
|
1,967 |
|
|
|
4,043 |
|
|
|
|
|
|
|
|
|
|
|
6,010 |
|
Other |
|
|
3,241 |
|
|
|
4,136 |
|
|
|
446 |
|
|
|
(413 |
) |
|
|
7,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
8,425 |
|
|
|
8,466 |
|
|
|
614 |
|
|
|
(780 |
) |
|
|
16,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
1,396 |
|
|
$ |
2,331 |
|
|
$ |
(313 |
) |
|
$ |
|
|
|
$ |
3,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
662,073 |
|
|
$ |
63,322 |
|
|
$ |
46,405 |
|
|
$ |
(76,597 |
) |
|
$ |
695,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Other |
|
|
Eliminations |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9,555 |
|
|
$ |
309 |
|
|
$ |
13 |
|
|
$ |
(150 |
) |
|
$ |
9,727 |
|
Gain on sale of loans |
|
|
|
|
|
|
4,828 |
|
|
|
|
|
|
|
|
|
|
|
4,828 |
|
Other revenues |
|
|
488 |
|
|
|
547 |
|
|
|
325 |
|
|
|
(548 |
) |
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
10,043 |
|
|
|
5,684 |
|
|
|
338 |
|
|
|
(698 |
) |
|
|
15,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,997 |
|
|
|
120 |
|
|
|
206 |
|
|
|
(151 |
) |
|
|
4,172 |
|
Salaries and employee benefits |
|
|
1,924 |
|
|
|
2,566 |
|
|
|
|
|
|
|
|
|
|
|
4,490 |
|
Other |
|
|
3,275 |
|
|
|
2,354 |
|
|
|
430 |
|
|
|
(547 |
) |
|
|
5,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
9,196 |
|
|
|
5,040 |
|
|
|
636 |
|
|
|
(698 |
) |
|
|
14,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
847 |
|
|
$ |
644 |
|
|
$ |
(298 |
) |
|
$ |
|
|
|
$ |
1,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
620,008 |
|
|
$ |
48,721 |
|
|
$ |
44,738 |
|
|
$ |
(57,006 |
) |
|
$ |
656,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTE 6 SEGMENT REPORTING (continued)
The following table presents segment information for the nine months ended September 30, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Other |
|
|
Eliminations |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
27,281 |
|
|
$ |
2,649 |
|
|
$ |
29 |
|
|
$ |
(1,376 |
) |
|
$ |
28,583 |
|
Gain on sale of loans |
|
|
401 |
|
|
|
37,866 |
|
|
|
|
|
|
|
|
|
|
|
38,267 |
|
Other revenues |
|
|
2,183 |
|
|
|
4,037 |
|
|
|
887 |
|
|
|
(1,239 |
) |
|
|
5,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
29,865 |
|
|
|
44,552 |
|
|
|
916 |
|
|
|
(2,615 |
) |
|
|
72,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
10,580 |
|
|
|
1,169 |
|
|
|
518 |
|
|
|
(1,377 |
) |
|
|
10,890 |
|
Salaries and employee benefits |
|
|
5,781 |
|
|
|
15,663 |
|
|
|
|
|
|
|
|
|
|
|
21,444 |
|
Other |
|
|
10,526 |
|
|
|
17,144 |
|
|
|
1,402 |
|
|
|
(1,238 |
) |
|
|
27,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
26,887 |
|
|
|
33,976 |
|
|
|
1,920 |
|
|
|
(2,615 |
) |
|
|
60,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
2,978 |
|
|
$ |
10,576 |
|
|
$ |
(1,004 |
) |
|
$ |
|
|
|
$ |
12,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
662,073 |
|
|
$ |
63,322 |
|
|
$ |
46,405 |
|
|
$ |
(76,597 |
) |
|
$ |
695,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Other |
|
|
Eliminations |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
28,638 |
|
|
$ |
1,349 |
|
|
$ |
59 |
|
|
$ |
(789 |
) |
|
$ |
29,257 |
|
Gain on sale of loans |
|
|
|
|
|
|
17,925 |
|
|
|
|
|
|
|
(4 |
) |
|
|
17,921 |
|
Other revenues |
|
|
1,404 |
|
|
|
3,589 |
|
|
|
861 |
|
|
|
(1,671 |
) |
|
|
4,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
30,042 |
|
|
|
22,863 |
|
|
|
920 |
|
|
|
(2,464 |
) |
|
|
51,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
13,094 |
|
|
|
733 |
|
|
|
635 |
|
|
|
(791 |
) |
|
|
13,671 |
|
Salaries and employee benefits |
|
|
5,862 |
|
|
|
10,066 |
|
|
|
|
|
|
|
|
|
|
|
15,928 |
|
Other |
|
|
7,565 |
|
|
|
9,079 |
|
|
|
1,306 |
|
|
|
(1,673 |
) |
|
|
16,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
26,521 |
|
|
|
19,878 |
|
|
|
1,941 |
|
|
|
(2,464 |
) |
|
|
45,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
3,521 |
|
|
$ |
2,985 |
|
|
$ |
(1,021 |
) |
|
$ |
|
|
|
$ |
5,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
620,008 |
|
|
$ |
48,721 |
|
|
$ |
44,738 |
|
|
$ |
(57,006 |
) |
|
$ |
656,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NOTE 7 EARNINGS PER SHARE (EPS)
The following tables show the calculation of both basic and diluted earnings per share (EPS) for
the three and nine months ended September 30, 2009 and 2008, respectively. The numerator of both
the basic and diluted EPS is equivalent to net income. The weighted average number of shares
outstanding used as the denominator for diluted EPS is increased over the denominator used for
basic EPS by the effect of potentially dilutive common stock options utilizing the treasury stock
method.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
(In thousands except for share data) |
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,154 |
|
|
$ |
769 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,451,416 |
|
|
|
10,179,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.21 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,154 |
|
|
$ |
769 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,451,416 |
|
|
|
10,179,177 |
|
Stock options and warrants |
|
|
35,339 |
|
|
|
99,586 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
10,486,755 |
|
|
|
10,278,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.21 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
(In thousands except for share data) |
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,588 |
|
|
$ |
3,522 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,354,897 |
|
|
|
10,323,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.73 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,588 |
|
|
$ |
3,522 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,354,897 |
|
|
|
10,323,060 |
|
Stock options and warrants |
|
|
45,856 |
|
|
|
140,170 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
10,400,753 |
|
|
|
10,463,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.73 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
15
NOTE 8 DERIVATIVES
As part of its mortgage banking activities, the Mortgage Corporation enters into interest rate lock
commitments, which are commitments to originate loans where the interest rate on the loan is
determined prior to funding and the customers have locked into that interest rate. The Mortgage
Corporation then either locks in the loan and rate with an investor and commits to deliver the loan
if settlement occurs (Best Efforts) or commits to deliver the locked loan in a binding
(Mandatory) delivery program with an investor. Certain loans under rate lock commitments are
covered under forward sales contracts of mortgage-backed securities (MBS). Forward sales
contracts of MBS are recorded at fair value with changes in fair value recorded in non-interest
income. Interest rate lock commitments and commitments to deliver loans to investors are
considered derivatives. The market value of interest rate lock commitments and Best Efforts
contracts are not readily ascertainable with precision because they are not actively traded in
stand-alone markets. The Mortgage Corporation determines the fair value of interest rate lock
commitments and delivery contracts by measuring the fair value of the underlying asset, which is
impacted by current interest rates, taking into consideration the probability that the interest
rate lock commitments will close or will be funded.
Certain additional risks arise from these forward delivery contracts in that the counterparties to
the contracts may not be able to meet the terms of the contracts. The Mortgage Corporation does
not expect any counterparty to fail to meet its obligation. Additional risks inherent in Mandatory
delivery programs include the risk that if the Mortgage Corporation does not close the loans
subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the
counterparty under the forward sales agreement. Should this be required, the Mortgage Corporation
could incur significant costs in acquiring replacement loans or MBS and such costs could have an
adverse effect on mortgage banking operations.
Since the Mortgage Corporations derivative instruments are not designated as hedging instruments,
the fair value of the derivatives are recorded as a freestanding asset or liability with the change
in value being recognized in current earnings during the period of change. The Mortgage Corporation
has not elected to apply hedge accounting to its derivative instruments as provided in FASB ASC
815, Derivatives and Hedging.
At September 30, 2009 and December 31, 2008, the Mortgage Corporation had derivative financial
instruments with a notional value of $112.1 million and $131.8 million, respectively. The fair
value of these derivative instruments at September 30, 2009 and December 31, 2008 was $(86)
thousand and $91 thousand, respectively, and was included in other assets.
Included in other non-interest income for the nine months ended September 30, 2009 and September
30, 2008 was a net loss of $834 thousand and a net gain of $99 thousand, respectively, relating to
derivative instruments.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued ASC 815-10, Derivatives and Hedging (previously SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB statement
No. 133). FASB ASC 815-10 requires enhanced disclosures about how and why an entity uses
derivative instruments, how derivative instruments and related items are accounted for and how
derivative instruments and related hedged items affect an entitys financial position, financial
performance and cash flows. The new standard became effective for the Corporation on January 1,
2009. The adoption of this standard did not have an impact on the Corporations consolidated
financial condition or results of operations.
In April 2009, the FASB issued ASC 825-10-50; Financial Instruments (previously FSP FAS 107-1 and
APB 28-1, Interim Disclosures About Fair Value of Financial Instruments). FASB ASC 825-10-50
requires disclosures about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. The new standard was effective
for the Corporation on June 30, 2009 and the Corporation has included the required disclosures in
its notes to the unaudited condensed consolidated financial statements.
16
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In April 2009, the FASB issued ASC 320-10, Investments-Debt and Equity Securities (previously FSP
FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary-Impairment). FASB
ASC 320-10 amends the other-than-temporary impairment guidance under GAAP for debt securities to
make the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial statements. FASB
ASC 320-10 requires that the annual disclosures in existing GAAP be made for interim reporting
periods. This guidance does not amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. FASB 320-10 was effective June 30, 2009, for
the Corporation. The adoption did not have a material impact on the Corporations consolidated
financial condition or results of operations.
In April 2009, the FASB issued ASC 820, Fair Value Measurements and Disclosures (previously FSP FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has
Significantly Decreased and Identifying Transactions that are Not Orderly). FASB ASC 820 provides
guidance for estimating fair value when the volume and level of activity for the asset or liability
have significantly decreased. FASB ASC 820 also includes guidance on identifying circumstances that
indicate a transaction is not orderly. FASB ASC 820 became effective for the Corporation for the
period ended June 30, 2009. The adoption of this guidance did not have a material impact on the
Corporations consolidated financial condition or results of operations.
In May 2009, the FASB issued FASB ASC 855, Subsequent Events (previously Statement No. 165
Subsequent Events). FASB ASC 855 establishes the period after the balance sheet date during which
management shall evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements and the circumstances under which an entity shall recognize
events or transactions that occur after the balance sheet date. FASB ASC 855 also requires
disclosure of the date through which subsequent events have been evaluated. The Corporation adopted
this standard for the interim reporting period ending June 30, 2009. The adoption of this standard
did not have a material impact on the Companys consolidated financial position or results of
operations.
In June 2009, the FASB issued SFAS No. 166 Accounting for Transfers of Financial Assets,
an amendment of FASB Statement No. 140. (The FASB has yet to incorporate SFAS No. 166 in the
ASC.) SFAS No. 166 removes the concept of a qualifying special-purpose entity from existing GAAP
and removes the exception from applying the accounting and reporting standards within ASC 810,
Consolidation, to qualifying special purpose entities. SFAS No. 166 also establishes conditions for
accounting and reporting of a transfer of a portion of a financial asset, modifies the asset sale/
derecognition criteria, and changes how retained interests are initially measured. SFAS No. 166 is
expected to provide greater transparency about transfers of financial assets and a transferors
continuing involvement, if any, with the transferred assets. This guidance will be effective for
the Corporation beginning January 1, 2010. The Corporation does not expect its adoption to have a
material effect on the Corporations consolidated financial condition and results of operations.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). (The
FASB has yet to incorporate SFAS No. 167 in the ASC.) SFAS No. 167 replaces the quantitative-based
risks and rewards calculation for determining which enterprise, if any, has a controlling financial
interest in a variable interest entity with a qualitative approach focused on identifying which
enterprise has both the power to direct the activities of the variable interest entity that most
significantly impacts the entitys economic performance and has the obligation to absorb losses or
the right to receive benefits that could be significant to the entity. In addition, SFAS No. 167
requires reconsideration of whether an entity is a variable interest entity when any changes in
facts and circumstances occur such that the holders of the equity investment at risk, as a group,
lose the power from voting rights or similar rights of those investments to direct the activities
of the entity
that most significantly impact the entitys economic performance. It also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a variable interest entity and
additional disclosures about an enterprises involvement in variable interest entities. SFAS No.
167 is effective for fiscal years beginning after November 15, 2009. Accordingly, the Corporation
will adopt the provisions of SFAS No. 167 in the first quarter of 2010. The Corporation is
currently evaluating the impact of the provisions of SFAS No. 167 on the Corporations consolidated
financial condition or results of operations.
17
NOTE 10 FAIR VALUE
Fair value pursuant to FASB ASC 820-10, Fair Value Measurements and Disclosures, is the exchange
price, in an orderly
transaction that is not a forced liquidation or distressed sale, between market participants to
sell an asset or transfer a liability in the market in which the reporting entity would transact
for the asset or liability, that is, the principal or most advantageous market for the asset or
liability. The transaction to sell the asset or transfer the liability is a hypothetical
transaction at the measurement date, considered from the perspective of a market participant that
holds the asset or liability. FASB ASC 820-10 provides a consistent definition of fair value which
focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based
inputs over entity-specific inputs. In addition, FASB ASC 820-10 provides a framework for
measuring fair value and establishes a three-level hierarchy for fair value measurements based upon
the transparency of inputs to the valuation of an asset or liability as of the measurement date.
The standard describes three levels of inputs that may be used to measure fair values:
Level 1 Quoted prices (unadjusted) for identical assets or liabilities in active markets that the
entity has the ability to access as of the measurement date.
Level 2 Significant other observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data.
Level 3- Significant unobservable inputs that reflect a companys own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
The Corporation used the following methods to determine the fair value of each type of financial
instrument:
Investment securities: The fair values for investment securities are valued using the
prices obtained from an independent pricing service. The prices are not adjusted. The independent
pricing service uses industry-standard models to price U.S. Government agency obligations and
mortgage backed securities that consider various assumptions, including time value, yield curves,
volatility factors, prepayment speeds, default rates, loss severity, current market and contractual
prices for the underlying financial instruments, as well as other relevant economic measures.
Securities of obligations of state and political subdivisions are valued using a type of matrix, or
grid, pricing in which securities are benchmarked against the treasury rate based on credit rating.
Substantially all assumptions used by the independent pricing service are observable in the
marketplace, can be derived from observable data, or are supported by observable levels at which
transactions are executed in the marketplace. (Level 2).
Residential loans held for sale: The fair value of loans held for sale is determined using
quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Derivative financial instruments: Derivative instruments are used to hedge residential
mortgage loans held for sale and the related interest rate lock commitments and include forward
commitments to sell mortgage loans and mortgage-backed securities. The fair values of derivative
financial instruments are based on derivative market data inputs as of the valuation date and the
underlying value of mortgage loans for interest rate lock commitments (Level 3).
Impaired loans: The fair values of impaired loans are measured for impairment using the
fair value of the collateral for
collateral-dependent loans on a nonrecurring basis. Collateral may be in the form of real estate
or business assets including
equipment, inventory and accounts receivable. The use of discounted cash flow models and
managements best judgment are significant inputs in arriving at the fair value measure of the
underlying collateral. (Level 3).
Other real estate owned: The fair value of other real estate owned consists of real estate
that has been foreclosed, is recorded at the lower of fair value less selling expenses or the book
balance prior to foreclosure. Write downs are provided for subsequent declines in value and are
recorded in other non-interest expense (Level 2).
18
NOTE 10 FAIR VALUE (continued)
Assets and liabilities measured at fair value under FASB ASC 820-10 on a recurring and
non-recurring basis, including financial assets and liabilities for which the Corporation has
elected the fair value option, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement |
|
|
|
|
|
|
at September 30, 2009 Using |
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
|
|
|
Significant |
|
|
Carrying |
|
Identical |
|
Other Observable |
|
Unobservable |
|
|
Value |
|
Assets (Level 1) |
|
Inputs (Level 2) |
|
Inputs (Level 3) |
|
|
(In Thousands) |
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities (1) |
|
$ |
68,921 |
|
|
$ |
|
|
|
$ |
68,921 |
|
|
$ |
|
|
Residential loans held for sale |
|
|
60,400 |
|
|
|
|
|
|
|
60,400 |
|
|
|
|
|
Derivative financial instruments |
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
306 |
|
Financial Liabilities-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Non-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (2) |
|
|
12,181 |
|
|
|
|
|
|
|
|
|
|
|
12,181 |
|
Other real estate owned (3) |
|
|
3,665 |
|
|
|
|
|
|
|
3,665 |
|
|
|
|
|
|
|
|
(1) |
|
Excludes restricted stock. |
|
(2) |
|
Represents the carrying value of loans for which adjustments are based on the appraised
value of the collateral. |
|
(3) |
|
Represents appraised value and realtor comparables less estimated selling expenses. |
19
NOTE 10 FAIR VALUE (continued)
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are
summarized as follows for the three month period ended September 30, 2009.
|
|
|
|
|
|
|
Net Derivatives |
|
|
|
(In Thousands) |
|
Balance June 30, 2009 |
|
$ |
64 |
|
Realized and unrealized losses included in earnings |
|
|
(150 |
) |
Unrealized gains (losses) included in other comprehensive income |
|
|
|
|
Purchases, settlements, paydowns, and maturities |
|
|
|
|
Transfer into Level 3 |
|
|
|
|
|
|
|
|
Balance September 30, 2009 |
|
$ |
(86 |
) |
|
|
|
|
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are
summarized as follows for the nine month period ended September 30, 2009.
|
|
|
|
|
|
|
Net Derivatives |
|
|
|
(In Thousands) |
|
Balance December 31, 2008 |
|
$ |
91 |
|
Realized and unrealized losses included in earnings |
|
|
(177 |
) |
Unrealized gains (losses) included in other comprehensive income |
|
|
|
|
Purchases, settlements, paydowns, and maturities |
|
|
|
|
Transfer into Level 3 |
|
|
|
|
|
|
|
|
Balance September 30, 2009 |
|
$ |
(86 |
) |
|
|
|
|
Financial instruments recorded using FASB ASC 825-10
Under FASB ASC 825-10, Financial Instruments, the Corporation may elect to report most financial
instruments and certain other items at fair value on an instrument-by-instrument basis with changes
in fair value reported in net income. After the initial adoption the election is made at the
acquisition of an eligible financial asset, financial liability or firm commitment or when certain
specified reconsideration events occur. The fair value election, with respect to an item, may not
be revoked once an election is made.
The following table reflects the differences between the fair value carrying amount of residential
mortgage loans held for sale at September 30, 2009, measured at fair value under FASB ASC 825-10
and the aggregate unpaid principal amount the Corporation is contractually entitled to receive at
maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
Contractual |
(In Thousands) |
|
Fair Value |
|
Difference |
|
Principal |
Residential mortgage loans
held for sale |
|
$ |
60,400 |
|
|
$ |
1,708 |
|
|
$ |
58,692 |
|
The Corporation elected to account for residential loans held for sale at fair value to eliminate
the mismatch in recording changes in market value on derivative instruments used to hedge loans
held for sale while carrying the loans at the lower of cost or market.
20
NOTE 10 FAIR VALUE (continued)
The following methods and assumptions were used in estimating the fair value of financial assets
and financial liabilities that are not measured and reported at fair value on a recurring basis or
non-recurring basis. The methodologies for estimating the fair value of financial assets and
financial liabilities that are measured at fair value on a recurring or non-recurring basis are
discussed above. The estimated fair value approximates carrying value for cash and cash
equivalents, and accrued interest. The methodologies for other financial assets and financial
liabilities are discussed below:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities
The fair values for investment securities are valued using the prices obtained from an independent
pricing service.
Loans Held for Sale
Loans held for sale are recorded at fair value, determined individually, as of the balance sheet
date.
Loans
For certain homogeneous categories of loans, such as some residential mortgages, and other
consumer loans, fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value of other types of
loans is estimated by discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain money market deposits is the
amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of similar remaining
maturities. The fair value of all other deposits and borrowings is determined using the discounted
cash flow method. The discount rate was equal to the rate currently offered on similar products.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using the fees currently charged to
enter similar agreements, taking into account the remaining terms of the agreements and the present
credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed rates. The fair value of
stand-by letters of credit is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with the counterparties at the
reporting date.
At September 30, 2009 and December 31, 2008, the majority of off-balance-sheet items are variable
rate instruments or convert to variable rate instruments if drawn upon. Therefore, the fair value
of these items is largely based on fees, which are nominal and immaterial.
21
The carrying amounts and estimated fair values of financial instruments at September 30, 2009 and
December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
Unaudited |
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
55,884 |
|
|
$ |
55,884 |
|
|
$ |
22,482 |
|
|
$ |
22,482 |
|
Securities available for sale |
|
|
68,921 |
|
|
|
68,921 |
|
|
|
85,119 |
|
|
|
85,119 |
|
Restricted stock |
|
|
4,553 |
|
|
|
4,553 |
|
|
|
5,896 |
|
|
|
5,896 |
|
Loans held for sale |
|
|
60,400 |
|
|
|
60,400 |
|
|
|
84,312 |
|
|
|
84,312 |
|
Loans, net of allowance for loan losses |
|
|
480,898 |
|
|
|
478,310 |
|
|
|
478,467 |
|
|
|
478,118 |
|
Derivatives |
|
|
306 |
|
|
|
306 |
|
|
|
273 |
|
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Assets |
|
$ |
670,962 |
|
|
$ |
668,374 |
|
|
$ |
676,549 |
|
|
$ |
676,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
512,743 |
|
|
$ |
512,811 |
|
|
$ |
485,401 |
|
|
$ |
486,989 |
|
Securities sold under agreement
to repurchase |
|
|
18,307 |
|
|
|
18,313 |
|
|
|
31,388 |
|
|
|
31,613 |
|
Borrowings |
|
|
84,678 |
|
|
|
84,740 |
|
|
|
113,294 |
|
|
|
114,928 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,187 |
|
|
|
6,186 |
|
|
|
6,321 |
|
Derivatives |
|
|
392 |
|
|
|
392 |
|
|
|
182 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Liabilities |
|
$ |
622,306 |
|
|
$ |
622,443 |
|
|
$ |
636,451 |
|
|
$ |
640,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the Corporations consolidated
financial statements, and notes thereto, included in the Corporations Annual Report on Form 10-K
for the fiscal year ended December 31, 2008. Operating results for the nine months ended September
30, 2009 are not necessarily indicative of the results for the year ending December 31, 2009 or any
future period.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain
forward-looking statements. For this purpose, any statements contained herein, including documents
incorporated by reference, that are not statements of historical fact may be deemed to be
forward-looking statements. Examples of forward-looking statements include discussions as to our
expectations, beliefs, plans, goals, objectives and future financial or other performance or
assumptions concerning matters discussed in this document. Forward-looking statements often use
words such as believes, expects, plans, may, will, should, projects, contemplates,
anticipates, forecasts, intends or other words of similar meaning. You can also identify
them by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements are subject to numerous assumptions, risks and uncertainties, and actual results could
differ materially from historical results or those anticipated by such statements. Factors that
could have a material adverse effect on the operations and future prospects of the Corporation
include, but are not limited to, changes in: continued deterioration in general business and
economic conditions and in the financial markets, the impact of any policies or programs
implemented pursuant to the Emergency Economic Stabilization Act of 2008 (the EESA), as amended
by the American Recovery and Reinvestment Act of 2009 (the ARRA), branch expansion plans,
interest rates, general economic conditions, monetary and fiscal policies of the U.S. Government,
including policies of the Office of the Comptroller of the Currency (Comptroller), the U.S.
Department of the Treasury and the Board of Governors of the Federal Reserve System and the Federal
Reserve Bank of Richmond,
the economy of Northern Virginia, including governmental spending and commercial and residential
real estate markets, the quality or composition of the loan or investment portfolios, demand for
loan products, deposit flows, competition, and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating the forward-looking statements
contained herein, and readers are cautioned not to place undue reliance on such statements. Any
forward-looking statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the
date on which it is made.
In addition, a continuation of the recent turbulence in significant portions of the global
financial markets, particularly if it worsens, could impact our performance, both directly by
affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our
counterparties and the economy generally. Dramatic declines in the commercial and residential real
estate markets have resulted in significant write-downs of asset values by financial institutions
in the United States. Concerns about the stability of the U.S. financial markets generally have
reduced the availability of funding to certain financial institutions, leading to a tightening of
credit, reduction of business activity, and increased market volatility. There can be no assurance
that the EESA, the ARRA or other actions taken by the federal government will stabilize the U.S.
financial system or alleviate the industry or economic factors that may adversely affect our
business. In addition, our business and financial performance could be impacted as the financial
industry restructures in the current environment, both by changes in the creditworthiness and
performance of our counterparties and by changes in the competitive and regulatory landscape. For
additional discussion of risk factors that may cause our actual future results to differ materially
from the results indicated within forward looking statements, please see Item 1A Risk Factors
of the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
CRITICAL ACCOUNTING POLICIES
The Corporations consolidated financial statements have been prepared in accordance with GAAP. In
preparing the Corporations financial statements management makes estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, and expenses. Management believes
that the most significant subjective judgments that it makes include the following:
23
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in our loan
portfolio. The allowance is based on two basic principles of accounting: (i) FASB ASC 450-10,
which requires that losses be accrued when they are probable of occurring and estimatable, and (ii)
FASB ASC 310-10, which requires that losses be accrued based on the differences between the value
of collateral, present value of future cash flows or values that are observable in the secondary
market and the loan balance. An allowance for loan losses is established through a provision for
loan losses based upon industry standards, known risk characteristics, and managements evaluation
of the risk inherent in the loan portfolio and changes in the nature and volume of loan activity.
Such evaluation considers, among other factors, the estimated market value of the underlying
collateral and current economic conditions. For further information about our practices with
respect to allowance for loan losses, please see the subsection Allowance for Loan Losses below.
Other-Than-Temporary Impairment of Investment Securities
The Banks securities portfolio is classified as available-for-sale. There are no non-agency
mortgage-backed securities in the portfolio. The estimated fair value of the portfolio fluctuates
due to changes in market interest rates and other factors. Changes in estimated fair value are
recorded in stockholders equity as a component of comprehensive income. Securities are monitored
to determine whether a decline in their value is other-than-temporary. Management evaluates the
investment portfolio on a quarterly basis to determine the collectability of amounts due per the
contractual terms of the investment security. Once a decline in value is determined to be
other-than-temporary, the value of the security is reduced and a corresponding charge to earnings
is recognized. At September 30, 2009, there were no securities with other-than-temporary
impairment.
Income Taxes
The Corporation uses the liability method of accounting for income taxes. This method results
in the recognition of deferred tax assets and liabilities that are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes. The deferred provision
for income taxes is the result of the net change in the deferred tax asset and deferred tax
liability balances during the year. This amount combined with the current taxes payable or
refundable results in the income tax expense for the current year.
Fair Value
Fair values of financial instruments are estimated using relevant market information and other
assumptions. Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on and off-balance sheet
financial instruments do not include the value of anticipated future business or the values of
assets and liabilities not considered financial instruments. For additional information about our
financial assets carried at fair value, refer to Note 10 of the accompanying notes to the
consolidated financial statements.
Off-Balance Sheet Items
In the ordinary course of business, the Bank issues commitments to extend credit and, at September
30, 2009, these commitments amounted to $27.3 million. These commitments do not necessarily
represent cash requirements, since many commitments are expected to expire without being drawn on.
At September 30, 2009, the Bank had approximately $102.8 million in unfunded lines of credit and
letters of credit. These lines of credit, if drawn upon, would be funded from routine cash flows
and short-term borrowings.
24
Off-Balance Sheet Items (continued)
The Bank maintains a reserve for potential off-balance sheet credit losses that is included in
other liabilities on the balance sheet. At September 30, 2009 and December 31, 2008 the balance in
this account totaled $297 thousand. The Mortgage Corporation maintains a similar reserve for
standard representations and warranties issued in connection with loans sold. This reserve totaled
$1.8 million at September 30, 2009 and $1.4 million at December 31, 2008. During the third quarter
of 2009 the Mortgage Corporation charged $1.9 million to the Allowance for Losses on Loans Sold as
a result of an agreement with two investors to eliminate future liability in connection with loans
previously sold.
Subsequent Events
On June 30, 2009, the Corporation adopted FASB ACS 855-10 (previously SFAS No. 165, Subsequent
Events). This guidance establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are issued or are available
to be issued. Specifically, FASB ACS 855-10 defines: (1) the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, (2) the circumstances under
which an entity should recognize events or transactions occurring after the balance sheet date in
its financial statements, and (3) the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. Management has reviewed events occurring
through November 13, 2009, the date the third quarter financial statements were filed in this Form
10-Q and no subsequent events have occurred requiring accrual or disclosure.
FINANCIAL CONDITION (September 30, 2009 compared to December 31, 2008)
At September 30, 2009, the Corporations assets totaled $695.2 million, down $7.1 million from
$702.3 million at December 31, 2008. Loans held for investment totaled $489.1 million at September
30, 2009 compared to $485.9 million at year end 2008. Loans held for sale totaled $60.4 million,
compared to $84.3 million at December 31, 2008, a decrease of $23.9 million. Total deposits
increased $27.3 million to $512.7 million at September 30, 2009, compared to $485.4 million at
December 31, 2008.
Securities
The Corporations securities portfolio is comprised of U.S. government agency securities,
mortgage-backed securities, taxable municipal securities, a CRA mutual fund and Federal Reserve
Bank and Federal Home Loan Bank stock. At September 30, 2009 the securities portfolio totaled
approximately $73.5 million, down from $91.0 million on December 31, 2008. The decrease is due in
part to the sale of $4.0 million in taxable municipal securities during the second quarter with a
pre-tax gain of approximately $649 thousand. The remaining decrease is due to maturities and
called securities that were not reinvested. All securities were classified as available for sale.
Securities classified as available for sale are accounted for at fair market value with unrealized
gains and losses recorded directly to a separate component of shareholders equity, net of
associated tax effect. Investment securities are used to provide liquidity, to generate income, and
to temporarily supplement loan growth as needed. The investment portfolio does not contain any
non-agency mortgage backed securities.
Loans
The loans held for investment portfolio constitutes the largest component of earning assets and is
comprised of commercial and industrial loans, real estate loans, construction and land development
loans, and consumer loans. All lending activities of the Bank and its subsidiaries are subject to
the regulations and supervision of the Comptroller. The loan portfolio does not have any pay
option adjustable rate mortgages, loans with teaser rates or subprime loans or any other loans
considered high risk loans. Loan growth during the nine months ended September 30, 2009 has been
modest due in part to the economy and continued focus on credit quality with stricter credit
standards and conservative loan-to-value requirements. Loans held for investment averaged $491.4
million for the nine months ended September 30, 2009 compared to $483.1 million for the same period
in 2008, an increase of $8.3 million. See Note 5 of the accompanying notes to the consolidated
financial statements for
a table that summarizes the composition of the Corporations loan portfolio. The following is a
summary of the loans held for investment portfolio at September 30, 2009.
25
Commercial Loans: Commercial loans represent 14.31% of the loans held for investment
portfolio as of September 30, 2009. These loans are made to businesses or individuals within our
target market for business purposes. Typically the loan proceeds are used to support working
capital and the acquisition of fixed assets of an operating business. We underwrite these loans
based upon our assessment of the obligor(s) ability to generate operating cash flows in the future
necessary to repay the loan. To address the risks associated with the uncertainties of future cash
flows, these loans are generally well secured by assets owned by the business or its principal
shareholders and the principal shareholders are typically required to guarantee the loan.
Commercial Real Estate Loans: Also known as commercial mortgages, loans in this category
represent 45.44% of the loans held for investment portfolio as of September 30, 2009. These loans
generally fall into one of three situations in order of magnitude: first, loans supporting an owner
occupied commercial property; second, properties used by non-profit organizations such as churches
or schools where repayment is dependent upon the cash flow of the non-profit organizations; and
third, loans supporting a commercial property leased to third parties for investment. Commercial
real estate loans are
secured by the subject property and underwritten to policy standards. Policy standards approved by
the Board of Directors from time to time set forth, among other considerations, loan-to-value
limits, cash flow coverage ratios, and the general creditworthiness of the obligors.
Real Estate Construction Loans: Real estate construction loans, also known as construction
and land development loans, comprise 9.27% of the loans held for investment portfolio as of
September 30, 2009. These loans generally fall into one of three categories: first, loans to
individuals that are ultimately used to acquire property and construct an owner occupied residence;
second, loans to builders for the purpose of acquiring property and constructing homes for sale to
consumers; and third, loans to developers for the purpose of acquiring land that is developed into
finished lots for the ultimate construction of residential or commercial buildings. Loans of these
types are generally secured by the subject property within limits established by the Board of
Directors based upon an assessment of market conditions and updated from time to time. The loans
typically carry recourse to principal owners. In addition to the repayment risk associated with
loans to individuals and businesses, loans in this category carry construction completion risk. To
address this additional risk, loans of this type are subject to additional administration
procedures designed to verify and ensure progress of the project in accordance with allocated
funding, project specifications and time frames.
Residential Real Estate Loans: This category includes loans secured by first or second
mortgages on one to four family residential properties and represents 30.71% of the loans held for
investment portfolio as of September 30, 2009. Of this amount, the following sub-categories exist
as a percentage of the whole residential real estate loan portfolio: home equity lines of credit,
14.72%; first trust mortgage loans, 70.13%; junior trust loans, 12.48%; and multi-family loans and
loans secured by farmland, 2.68%.
Home equity lines of credit are extended to borrowers in our target market. Real estate equity is
often the largest component of consumer wealth in our marketplace. Once approved, this consumer
finance tool allows the borrowers to access the equity in their homes or investment properties and
use the proceeds for virtually any purpose. Home equity lines of credit are most frequently
secured by a second lien on residential property. The proceeds of first trust mortgage loans are
used to acquire or refinance the primary financing on owner occupied and residential investment
properties. Junior trust loans are loans to consumers wherein the proceeds have been used for a
stated consumer purpose. Examples of consumer purposes are education, refinancing debt, or
purchasing consumer goods. The loans are generally extended in a single disbursement and repaid
over a specified period of time.
Loans in the residential real estate portfolio are underwritten to standards within a traditional
consumer framework that is periodically reviewed and updated by management and Board of Directors
and takes into consideration repayment source and capacity, value of the underlying property,
credit history, savings pattern and stability.
Consumer Loans: Consumer Loans make up approximately 0.3% of the loans held for investment
portfolio as of September 30, 2009. Most loans are well secured with assets other than real
estate, such as marketable securities or automobiles. Very
few consumer loans are unsecured. As a matter of operation, management discourages unsecured
lending. Loans in this
26
category are underwritten to standards within a traditional consumer framework that is periodically
reviewed and updated by
management and the Board of Directors and takes into consideration repayment capacity, collateral
value, savings pattern, credit history and stability.
Loans Held for Sale (LHFS)
LHFS are residential mortgage loans originated by the Mortgage Corporation to consumers and
underwritten in accordance with standards set forth by an institutional investor to whom we expect
to sell the loans for a profit. Loan proceeds are used for the purchase or refinance of the
property securing the loan. Loans are sold with the servicing released to the investor. The LHFS
loans are closed by the Mortgage Corporation and carried on its books until the loan is delivered
to and purchased by an investor. In the nine months ended September 30, 2009 we originated $1.2
billion of loans processed in this manner. Loans are sold without recourse and subject to
industry standard representations and warranties that may require the repurchase, by the Mortgage
Corporation, of loans previously sold. The repurchase risks associated with this activity center
around early payment defaults and borrower fraud. There is also a risk that loans originated may
not be purchased by our investors. The Mortgage Corporation attempts to manage these risks by the
on-going maintenance of an extensive quality control program, an internal audit and verification
program, and a selective approval process for investors and programs
offered. At September 30, 2009, LHFS at fair value totaled $60.4 million compared to $84.3 million
at December 31, 2008.
Brokered Loans
Brokered loans are underwritten and closed by a third party lender. The Mortgage Corporation is
paid a fee for procuring and packaging brokered loans. For the first nine months of 2009, $29.8
million in residential mortgage loans were originated under this type of delivery method, as
compared to $64.3 million for the same period of 2008. Brokered loans accounted for 2.4% of the
total loan volume for the first nine months of 2009 compared to 10.5% for the same period of 2008.
We typically broker loans that do not conform to the products offered by the Mortgage Corporation
and for this reason the level of brokered loans is subject to wide fluctuations.
Allowance for Loan Losses
The allowance for loan losses totaled approximately $8.2 million at September 30, 2009 compared to
$7.5 million at year end 2008. The allowance for loan losses is equivalent to approximately 1.7%
of total consolidated loans held for investment at September 30, 2009. The level of the allowance
for loan losses is determined by management through an ongoing detailed analysis of risk and loss
potential within the portfolio as a whole and management has concluded the amount of our reserve
and the methodology applied to arrive at the amount of the reserve is justified and appropriate.
Outside of our own analysis, our reserve adequacy and methodology are reviewed on a regular basis
by an internal audit program and bank regulators, and such reviews have not resulted in any
material adjustment to the reserve. The table below, Allocation of the Allowance for Loan Losses,
reflects the allocation by the different loan types. The methodology as to how the allowance was
derived is a combination of specific allocations and percentage allocations of the allowance for
loan losses, as discussed below.
The Bank has developed a comprehensive risk weighting system based on individual loan
characteristics that enables the Bank to allocate the composition of the allowance for loan losses
by types of loans. The methodology as to how the allowance was derived is detailed below. Adequacy
of the allowance is assessed monthly and increased by provisions for loan losses charged to
expense. Charge-offs are taken, no less frequently than at the close of each fiscal quarter. The
methodology by which we systematically determine the amount of our allowance is set forth by the
Board of Directors in our Credit Policy, pursuant to which our Chief Credit Officer is charged with
ensuring that each loan is individually evaluated and the portfolio characteristics are evaluated
to arrive at an appropriate aggregate reserve. The results of the analysis are documented,
reviewed and approved by the Board of Directors no less than quarterly. The following elements
are considered in this analysis: loss estimates on specific problem credits, individual loan risk
ratings, lending staff changes, loan review and board oversight, loan policies and procedures,
portfolio trends with respect to volume, delinquency, composition/concentrations of credit, risk
rating migration, levels of classified credit, off-balance sheet credit exposure, and any other
factors considered relevant from time to time. All loans are graded or Risk Rated individually
for loss potential at the time of origination and as warranted thereafter, but no less frequently
than quarterly. Loss potential factors are applied based upon a blend of the following criteria:
our own direct experience at this Bank; our collective management experience in administering
similar loan portfolios in the market; and peer data contained in statistical releases issued by
both the
27
Allowance for Loan Losses (continued)
Comptroller and the Federal Deposit Insurance Corporation (FDIC). Managements collective
experience at this Bank and
other banks is the most heavily weighted criterion, and the weighting is subjective and varies by
loan type, amount, collateral,
structure, and repayment terms. Prevailing economic conditions generally and within each
individual borrowers business
sector are considered, as well as any changes in the borrowers own financial position and, in the
case of commercial loans, management structure and business
operations. When deterioration develops in an individual credit, the loan is placed on a watch list and is
monitored more closely. All loans on the watch list are evaluated for specific loss potential
based upon either an evaluation of the liquidated value of the collateral or cash flow
deficiencies. If management believes that, with respect to a specific loan, an impaired source of
repayment, collateral impairment or a change in a debtors financial condition presents a
heightened risk of loss, the loan is classified as impaired and the book balance of the loan is
reduced to the expected liquidation value by charging the allowance for loan losses.
The following is a summary of changes in the allowance for loan losses for the three and nine
months ended September 30, 2009 and for the year ended December 31, 2008.
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
Year ended |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
( In Thousands) |
|
Allowance for loan
losses-beginning of
period |
|
$ |
8,077 |
|
|
$ |
9,310 |
|
|
$ |
7,462 |
|
|
$ |
7,251 |
|
|
$ |
7,251 |
|
Loans Charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
314 |
|
|
|
168 |
|
|
|
1,455 |
|
|
|
168 |
|
|
|
168 |
|
Commercial real
estate |
|
|
537 |
|
|
|
2,805 |
|
|
|
1,648 |
|
|
|
2,804 |
|
|
|
4,038 |
|
Real estate
construction |
|
|
519 |
|
|
|
54 |
|
|
|
612 |
|
|
|
54 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real
estate |
|
|
157 |
|
|
|
479 |
|
|
|
851 |
|
|
|
479 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
57 |
|
Total Charge-offs |
|
|
1,527 |
|
|
|
3,506 |
|
|
|
4,588 |
|
|
|
3,505 |
|
|
|
5,473 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
206 |
|
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
Commercial real
estate |
|
|
|
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
|
|
Real estate
construction |
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
Residential real
estate |
|
|
36 |
|
|
|
6 |
|
|
|
51 |
|
|
|
257 |
|
|
|
261 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries |
|
|
242 |
|
|
|
6 |
|
|
|
489 |
|
|
|
257 |
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs |
|
|
1,285 |
|
|
|
3,500 |
|
|
|
4,099 |
|
|
|
3,248 |
|
|
|
5,212 |
|
Provision for loan
losses |
|
|
1,387 |
|
|
|
1,855 |
|
|
|
4,816 |
|
|
|
3,662 |
|
|
|
5,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
losses-end of
period |
|
$ |
8,179 |
|
|
$ |
7,665 |
|
|
$ |
8,179 |
|
|
$ |
7,665 |
|
|
$ |
7,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The following table allocates the allowance for loan losses by loan classifications.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for |
|
|
|
|
|
Amount |
|
Percentage |
|
Losses |
|
Percentage |
|
Amount |
|
Percentage |
|
Loan Losses |
|
Percentage |
|
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
Commercial |
|
$ |
69,997 |
|
|
|
14.31 |
% |
|
$ |
1,599 |
|
|
|
19.55 |
% |
|
$ |
69,537 |
|
|
|
14.31 |
% |
|
$ |
1,816 |
|
|
|
24.34 |
% |
Commercial real estate |
|
|
222,229 |
|
|
|
45.44 |
|
|
|
3,484 |
|
|
|
42.60 |
|
|
|
218,539 |
|
|
|
44.97 |
|
|
|
2,948 |
|
|
|
39.51 |
|
Real estate construction |
|
|
45,310 |
|
|
|
9.27 |
|
|
|
534 |
|
|
|
6.53 |
|
|
|
42,600 |
|
|
|
8.77 |
|
|
|
805 |
|
|
|
10.79 |
|
Residential real estate |
|
|
150,204 |
|
|
|
30.71 |
|
|
|
2,549 |
|
|
|
31.16 |
|
|
|
153,740 |
|
|
|
31.64 |
|
|
|
1,880 |
|
|
|
25.19 |
|
Consumer |
|
|
1,337 |
|
|
|
0.27 |
|
|
|
13 |
|
|
|
0.16 |
|
|
|
1,513 |
|
|
|
0.31 |
|
|
|
13 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
$ |
489,077 |
|
|
|
100.00 |
% |
|
$ |
8,179 |
|
|
|
100.00 |
% |
|
$ |
485,929 |
|
|
|
100.00 |
% |
|
$ |
7,462 |
|
|
|
100.00 |
% |
|
|
|
|
|
Non-performing Assets
At September 30, 2009, the Bank had non-performing assets totaling $15.8 million compared to $7.3
million at December 31, 2008. The increase in non-performing assets is due to isolated credits
previously on our watch list that have deteriorated largely due to economic conditions. All
non-performing assets are carried at the expected liquidation value of the underlying collateral.
Non-performing assets consist of non-accrual loans and other real estate owned. Non-accrual loans
totaled approximately $12.2 million at September 30, 2009 and are comprised of three commercial
loans totaling approximately $154 thousand, five commercial real estate loans totaling
approximately $6.9 million, two construction loans totaling $4.3 million, and two residential real
estate loans in the amount of $810 thousand. Other real estate owned consists of two commercial
properties totaling $3.2 million and one residential property in the amount of $.4 million.
29
The following table is a summary of our non-performing assets at September 30, 2009 and December
31, 2008.
Non-performing Assets and Accruing Loans Past Due 90 Days or More
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
Non-accrual loans: |
|
|
|
|
|
|
|
|
Commercial |
|
$ |
154 |
|
|
$ |
74 |
|
Commercial real estate |
|
|
6,953 |
|
|
|
22 |
|
Real estate construction |
|
|
4,264 |
|
|
|
2,678 |
|
Residential real estate |
|
|
810 |
|
|
|
|
|
Consumer |
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
Total non-accrual loans |
|
|
12,181 |
|
|
|
2,875 |
|
|
|
|
|
|
|
|
|
|
Restructured loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned (OREO) |
|
|
3,665 |
|
|
|
4,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
15,846 |
|
|
$ |
7,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of non-performing assets to: |
|
|
|
|
|
|
|
|
Total loans plus OREO |
|
|
3.22 |
% |
|
|
1.49 |
% |
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
2.28 |
% |
|
|
1.04 |
% |
|
|
|
|
|
|
|
|
|
Accruing past due loans: |
|
|
|
|
|
|
|
|
90 or more days past due |
|
$ |
|
|
|
$ |
|
|
Deposits
Deposits are one of the primary sources of funding loan growth. At September 30, 2009, deposits
totaled $512.7 million compared to $485.4 million on December 31, 2008, an increase of $27.3
million. Savings and interest-bearing deposits increased $32.8 million from December 31, 2008 and
totaled $128.6 million at September 30, 2009. Time deposits decreased
$14.8 million from $314.7 million at December 31, 2008 to $299.9 million at September 30, 2009 as
maturing wholesale and rate sensitive deposits were not renewed. Non-interest-bearing deposits
increased $9.3 million from $75.0 million at December 31, 2008 to $84.3 million at September 30,
2009. The increase in non-interest-bearing deposits is largely due to fluctuations in balances of
commercial accounts and an increase in core deposit relationships.
Shareholders Equity
Shareholders equity totaled approximately $66.0 million at September 30, 2009 compared to
approximately $57.9 million at December 31, 2008. Shareholders equity increased by $8.1 million
during the nine month period ended September 30, 2009. The increase in shareholders equity is
primarily due to $7.6 million in net income for the nine months ended September 30, 2009.
Banking regulators have defined minimum regulatory capital ratios that the Corporation and the Bank
are required to maintain. These risk based capital guidelines take into consideration risk
factors, as defined by the banking regulators, associated with various categories of assets, both
on and off the balance sheet. Both the Corporation and Bank are classified as well capitalized,
which is the highest rating.
30
The following table outlines the regulatory components of capital and risk based capital ratios.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars In Thousands) |
|
Tier 1 Capital: |
|
|
|
|
|
|
|
|
Common stock |
|
$ |
8,753 |
|
|
$ |
8,551 |
|
Capital surplus |
|
|
18,301 |
|
|
|
17,410 |
|
Retained earnings |
|
|
38,436 |
|
|
|
31,157 |
|
Less: Net unrealized loss on equity securities |
|
|
|
|
|
|
(34 |
) |
Subordinated debentures |
|
|
6,000 |
|
|
|
6,000 |
|
Less: Dissallowed servicing assets |
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 capital |
|
|
71,404 |
|
|
|
63,084 |
|
|
|
|
|
|
|
|
|
|
Subordinated debentures not included in Tier 1 |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
6,664 |
|
|
|
6,662 |
|
Unrealized gain on available for sale equity securities |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,668 |
|
|
|
6,662 |
|
|
|
|
|
|
|
|
|
|
Total risk based capital |
|
$ |
78,072 |
|
|
$ |
69,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
531,286 |
|
|
$ |
532,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
708,679 |
|
|
$ |
649,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
|
|
|
|
|
|
|
|
|
Minimum to be |
|
|
|
|
|
|
|
|
|
|
Well Capitalized |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
13.44 |
% |
|
|
11.85 |
% |
|
|
6.00 |
% |
Total risk based capital ratio |
|
|
14.69 |
% |
|
|
13.11 |
% |
|
|
10.00 |
% |
Leverage ratio |
|
|
10.08 |
% |
|
|
9.71 |
% |
|
|
5.00 |
% |
RESULTS OF OPERATIONS
Summary
Net income for the third quarter of 2009 totaled $2.2 million or $0.21 diluted earnings per
share. This compares with $0.8 million or $0.07 diluted earnings per share for the same quarter in
2008. Net income for the nine months ended September 30, 2009 totaled $7.6 million or $0.73 diluted
earnings per share, up from $3.5 million or $0.34 diluted earnings per share for the nine months
ended September 30, 2008. Annualized return on average assets and average common equity for the
three months ended September 30, 2009 were 1.22% and 13.12%, respectively, compared to 0.50% and
5.41%, respectively, for the same period in 2008. Annualized return on average assets and average
common equity for the nine months ended September 30, 2009 were 1.39% and 15.92% respectively,
compared to 0.76% and 8.18%, respectively, for the same period in 2008.
31
Earnings have been favorably impacted in 2009 by an increase in gains on the sale of loans
originated by the Mortgage Corporation as a result of the low interest rate environment and
homeowners refinancing existing mortgages at lower rates. Mortgage loan originations during the
nine months ended September 30, 2009 totaled $1.2 billion compared to $613.2 million for the same
period in 2008. Gains on the sale of these loans totaled $38.3 million for the nine months ended
September 30, 2009 compared $17.9 million for the same period last year. This increase in earnings
offset the $4.8 million in provisions for loan losses on loans held for investment and a $3.3
million provision for losses on loans sold by the Mortgage Corporation.
Net Interest Income
Net interest income, the principal source of earnings, is the amount of income generated by earning
assets (primarily loans and investment securities) less the interest expense incurred on
interest-bearing liabilities (primarily deposits) used to fund earning assets. Net interest income
for the three months ended September 30, 2009 totaled $5.9 million compared to $5.6 million for the
same period in 2008. Net interest margin on a taxable equivalent basis was 3.46% for the third
quarter of 2009 compared with 3.70% for the third quarter of 2008. The decrease in net interest
margin is due in part to the increase in interest-bearing balances at lower interest rates and an
increase in non-earning assets. Average earning assets for the three month period ending September
30, 2009 totaled $682.6 million compared to $600.9 million for the same period in 2008, an increase
of $81.7 million. The increase in average earning assets is primarily due to a $34.0 million
increase in loans held for sale as a result of the lower interest rate environment and refinancing
activity. Average interest-bearing balances increased $43.8 million primarily due to the increase
in deposits. Interest-bearing balances provide liquidity to support future loan growth.
Net interest income for the nine months ended September 30, 2009 totaled $17.7 million, an increase
of $2.1 million over the $15.6 million recorded for the same period in 2008. The volume rate
analysis table below reflects the changes in net interest income due to changes in volume and
rates. Net interest margin on a taxable equivalent basis was 3.37% for the nine month period ended
September 30, 2009 compared to 3.48% for the same period in 2008. Average earning assets for the
nine month period ended September 30, 2009 totaled $699.4 million up from $597.3 million for the
same period in 2008, an increase of $102.1 million. The increase in average earning assets is
primarily due to a $43.3 million increase in average loans held for sale, a $41.6 million increase
in interest-bearing balances, an $8.8 million increase in investment securities and an $8.2 million
increase in average outstanding loans held for investment.
32
The following table presents volume and rate analysis for the three months ended September 30, 2009
and 2008:
Volume and Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2009 compared to 2008 |
|
|
|
|
|
|
|
Change Due To: |
|
|
|
Increase / |
|
|
|
|
|
|
(Decrease) |
|
Volume |
|
Rate |
|
|
|
|
|
|
(In Thousands) |
|
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
(84 |
) |
|
$ |
73 |
|
|
$ |
(157 |
) |
Loans |
|
|
(378 |
) |
|
|
518 |
|
|
|
(896 |
) |
Interest-bearing deposits |
|
|
(48 |
) |
|
|
71 |
|
|
|
(119 |
) |
|
|
|
Total Increase (Decrease) in Interest Income |
|
|
(510 |
) |
|
|
662 |
|
|
|
(1,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
|
75 |
|
|
|
75 |
|
|
|
|
|
Money market deposit accounts |
|
|
(347 |
) |
|
|
(123 |
) |
|
|
(224 |
) |
Savings accounts |
|
|
(6 |
) |
|
|
10 |
|
|
|
(16 |
) |
Time deposits |
|
|
(496 |
) |
|
|
513 |
|
|
|
(1,009 |
) |
|
|
|
Total interest-bearing deposits |
|
|
(774 |
) |
|
|
475 |
|
|
|
(1,249 |
) |
FHLB Advances |
|
|
117 |
|
|
|
27 |
|
|
|
90 |
|
Securities sold under agreements to repurchase |
|
|
(26 |
) |
|
|
21 |
|
|
|
(47 |
) |
Other short-term borrowings |
|
|
(61 |
) |
|
|
(21 |
) |
|
|
(40 |
) |
Long-term borrowings |
|
|
(89 |
) |
|
|
(53 |
) |
|
|
(36 |
) |
Subordinated debentures |
|
|
(34 |
) |
|
|
|
|
|
|
(34 |
) |
|
|
|
Total Increase (Decrease) in Interest Expense |
|
|
(867 |
) |
|
|
449 |
|
|
|
(1,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Income |
|
$ |
357 |
|
|
$ |
213 |
|
|
$ |
144 |
|
|
|
|
33
The following table presents volume and rate analysis for the nine months ended September 30, 2009
and 2008:
Volume and Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 compared to 2008 |
|
|
|
|
|
|
|
Change Due To: |
|
|
|
Increase / |
|
|
|
|
|
|
|
|
(Decrease) |
|
Volume |
|
Rate |
|
|
|
|
|
|
(In Thousands) |
|
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
105 |
|
|
$ |
317 |
|
|
$ |
(212 |
) |
Loans |
|
|
(459 |
) |
|
|
2,535 |
|
|
|
(2,994 |
) |
Interest-bearing deposits |
|
|
(331 |
) |
|
|
311 |
|
|
|
(642 |
) |
|
|
|
Total Increase (Decrease) in Interest Income |
|
|
(685 |
) |
|
|
3,163 |
|
|
|
(3,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
|
145 |
|
|
|
152 |
|
|
|
(7 |
) |
Money market deposit accounts |
|
|
(1,291 |
) |
|
|
(537 |
) |
|
|
(754 |
) |
Savings accounts |
|
|
(28 |
) |
|
|
35 |
|
|
|
(63 |
) |
Time deposits |
|
|
(1,351 |
) |
|
|
2,211 |
|
|
|
(3,562 |
) |
|
|
|
Total interest-bearing deposits |
|
|
(2,525 |
) |
|
|
1,861 |
|
|
|
(4,386 |
) |
FHLB Advances |
|
|
413 |
|
|
|
319 |
|
|
|
94 |
|
Securities sold under agreements to repurchase |
|
|
(105 |
) |
|
|
94 |
|
|
|
(199 |
) |
Other short-term borrowings |
|
|
(169 |
) |
|
|
(26 |
) |
|
|
(143 |
) |
Long-term borrowings |
|
|
(287 |
) |
|
|
(149 |
) |
|
|
(138 |
) |
Subordinated debentures |
|
|
(108 |
) |
|
|
|
|
|
|
(108 |
) |
|
|
|
Total Increase (Decrease) in Interest Expense |
|
|
(2,781 |
) |
|
|
2,099 |
|
|
|
(4,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Income |
|
$ |
2,096 |
|
|
$ |
1,064 |
|
|
$ |
1,032 |
|
|
|
|
34
The following tables present average balances, the yield on average earning assets and the rates on
average interest-bearing liabilities for the three months and nine months ended September 30, 2009
and 2008.
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
70,276 |
|
|
$ |
712 |
|
|
|
4.05 |
% |
|
$ |
64,058 |
|
|
$ |
796 |
|
|
|
4.97 |
% |
Loans held for sale |
|
|
52,967 |
|
|
|
718 |
|
|
|
5.42 |
% |
|
|
18,954 |
|
|
|
309 |
|
|
|
6.52 |
% |
Loans(2) |
|
|
497,969 |
|
|
|
7,752 |
|
|
|
6.23 |
% |
|
|
500,390 |
|
|
|
8,540 |
|
|
|
6.83 |
% |
Interest-bearing balances |
|
|
61,345 |
|
|
|
34 |
|
|
|
0.22 |
% |
|
|
17,547 |
|
|
|
82 |
|
|
|
1.87 |
% |
|
|
|
|
|
Total interest earning assets |
|
|
682,557 |
|
|
|
9,216 |
|
|
|
5.40 |
% |
|
|
600,949 |
|
|
|
9,727 |
|
|
|
6.47 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
6,708 |
|
|
|
|
|
|
|
|
|
|
|
6,808 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
12,862 |
|
|
|
|
|
|
|
|
|
|
|
10,237 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
14,802 |
|
|
|
|
|
|
|
|
|
|
|
9,724 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(8,250 |
) |
|
|
|
|
|
|
|
|
|
|
(9,712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest earning
assets |
|
|
26,122 |
|
|
|
|
|
|
|
|
|
|
|
17,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
708,679 |
|
|
|
|
|
|
|
|
|
|
$ |
618,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
35,376 |
|
|
$ |
100 |
|
|
|
1.13 |
% |
|
$ |
8,832 |
|
|
$ |
25 |
|
|
|
1.13 |
% |
Money market deposit accounts |
|
|
100,023 |
|
|
|
377 |
|
|
|
1.51 |
% |
|
|
124,065 |
|
|
|
724 |
|
|
|
2.33 |
% |
Savings accounts |
|
|
4,408 |
|
|
|
16 |
|
|
|
1.45 |
% |
|
|
2,602 |
|
|
|
22 |
|
|
|
3.38 |
% |
Time deposits |
|
|
302,287 |
|
|
|
1,976 |
|
|
|
2.61 |
% |
|
|
243,310 |
|
|
|
2,472 |
|
|
|
4.06 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
442,094 |
|
|
|
2,469 |
|
|
|
2.23 |
% |
|
|
378,809 |
|
|
|
3,243 |
|
|
|
3.42 |
% |
FHLB Advances |
|
|
22,535 |
|
|
|
253 |
|
|
|
4.49 |
% |
|
|
19,185 |
|
|
|
136 |
|
|
|
2.84 |
% |
Securities sold under agreements to
repurchase and federal funds purchased |
|
|
22,193 |
|
|
|
25 |
|
|
|
0.45 |
% |
|
|
13,930 |
|
|
|
51 |
|
|
|
1.46 |
% |
Other short-term borrowings |
|
|
13,697 |
|
|
|
32 |
|
|
|
0.93 |
% |
|
|
19,064 |
|
|
|
93 |
|
|
|
1.95 |
% |
FHLB Long-term borrowings |
|
|
20,210 |
|
|
|
170 |
|
|
|
3.36 |
% |
|
|
55,674 |
|
|
|
558 |
|
|
|
4.01 |
% |
FDIC Term Note |
|
|
29,996 |
|
|
|
299 |
|
|
|
3.99 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
Subordinated Debentures |
|
|
6,186 |
|
|
|
57 |
|
|
|
3.69 |
% |
|
|
6,186 |
|
|
|
91 |
|
|
|
5.88 |
% |
|
|
|
|
|
Total interest-bearing
liabilities |
|
|
556,911 |
|
|
|
3,305 |
|
|
|
2.37 |
% |
|
|
492,848 |
|
|
|
4,172 |
|
|
|
3.39 |
% |
|
|
|
|
|
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
74,878 |
|
|
|
|
|
|
|
|
|
|
|
65,719 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
11,208 |
|
|
|
|
|
|
|
|
|
|
|
2,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
642,997 |
|
|
|
|
|
|
|
|
|
|
|
561,148 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
65,682 |
|
|
|
|
|
|
|
|
|
|
|
56,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders
Equity: |
|
$ |
708,679 |
|
|
|
|
|
|
|
|
|
|
$ |
618,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(3) |
|
|
|
|
|
|
|
|
|
|
3.03 |
% |
|
|
|
|
|
|
|
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4) |
|
|
|
|
|
$ |
5,911 |
|
|
|
3.46 |
% |
|
|
|
|
|
$ |
5,555 |
|
|
|
3.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest income and yields are presented on a fully taxable equivalent basis using
34% tax rate. |
|
(2) |
|
Loans placed on nonaccrual status are included in loan balances. |
|
(3) |
|
Interest spread is the average yield earned on earning assets, less the average rate
incurred on interest bearing liabilities. |
|
(4) |
|
Net interest margin is net interest income, expressed as a percentage of average
earning assets. |
35
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
|
|
|
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
73,407 |
|
|
$ |
2,553 |
|
|
|
4.64 |
% |
|
$ |
64,655 |
|
|
$ |
2,448 |
|
|
|
5.05 |
% |
Loans held for sale |
|
|
68,906 |
|
|
|
2,648 |
|
|
|
5.12 |
% |
|
|
25,561 |
|
|
|
1,349 |
|
|
|
7.04 |
% |
Loans(2) |
|
|
491,375 |
|
|
|
23,270 |
|
|
|
6.31 |
% |
|
|
483,135 |
|
|
|
25,028 |
|
|
|
6.91 |
% |
Interest-bearing balances |
|
|
65,697 |
|
|
|
112 |
|
|
|
0.23 |
% |
|
|
23,987 |
|
|
|
443 |
|
|
|
2.46 |
% |
|
|
|
|
|
Total interest
earning assets |
|
|
699,385 |
|
|
|
28,583 |
|
|
|
5.45 |
% |
|
|
597,338 |
|
|
|
29,268 |
|
|
|
6.53 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
6,345 |
|
|
|
|
|
|
|
|
|
|
|
6,648 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
9,050 |
|
|
|
|
|
|
|
|
|
|
|
9,539 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
18,676 |
|
|
|
|
|
|
|
|
|
|
|
8,767 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(7,919 |
) |
|
|
|
|
|
|
|
|
|
|
(8,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
earning assets |
|
|
26,152 |
|
|
|
|
|
|
|
|
|
|
|
16,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
725,537 |
|
|
|
|
|
|
|
|
|
|
$ |
613,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
27,242 |
|
|
$ |
223 |
|
|
|
1.09 |
% |
|
$ |
8,692 |
|
|
$ |
78 |
|
|
|
1.20 |
% |
Money market deposit accounts |
|
|
87,254 |
|
|
|
1,011 |
|
|
|
1.54 |
% |
|
|
120,986 |
|
|
|
2,302 |
|
|
|
2.54 |
% |
Savings accounts |
|
|
4,456 |
|
|
|
48 |
|
|
|
1.44 |
% |
|
|
2,662 |
|
|
|
76 |
|
|
|
3.81 |
% |
Time deposits |
|
|
330,293 |
|
|
|
7,005 |
|
|
|
2.83 |
% |
|
|
250,434 |
|
|
|
8,356 |
|
|
|
4.45 |
% |
|
|
|
|
|
Total
interest-bearing
deposits |
|
|
449,245 |
|
|
|
8,287 |
|
|
|
2.46 |
% |
|
|
382,774 |
|
|
|
10,812 |
|
|
|
3.77 |
% |
FHLB Advances |
|
|
24,144 |
|
|
|
740 |
|
|
|
4.09 |
% |
|
|
13,247 |
|
|
|
327 |
|
|
|
3.29 |
% |
Securities sold under agreements to
repurchase and federal funds
purchased |
|
|
24,363 |
|
|
|
91 |
|
|
|
0.50 |
% |
|
|
13,815 |
|
|
|
196 |
|
|
|
1.89 |
% |
Other short-term borrowings |
|
|
17,848 |
|
|
|
127 |
|
|
|
0.95 |
% |
|
|
19,754 |
|
|
|
296 |
|
|
|
2.00 |
% |
FHLB Long-term borrowings |
|
|
26,300 |
|
|
|
692 |
|
|
|
3.51 |
% |
|
|
56,841 |
|
|
|
1,747 |
|
|
|
4.10 |
% |
FDIC Term Note |
|
|
25,491 |
|
|
|
768 |
|
|
|
4.02 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
Subordinated Debentures |
|
|
6,186 |
|
|
|
185 |
|
|
|
3.99 |
% |
|
|
6,186 |
|
|
|
293 |
|
|
|
6.32 |
% |
|
|
|
|
|
Total
interest-bearing
liabilities |
|
|
573,577 |
|
|
|
10,890 |
|
|
|
2.53 |
% |
|
|
492,617 |
|
|
|
13,671 |
|
|
|
3.70 |
% |
|
|
|
|
|
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
78,535 |
|
|
|
|
|
|
|
|
|
|
|
62,086 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
9,866 |
|
|
|
|
|
|
|
|
|
|
|
1,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
661,978 |
|
|
|
|
|
|
|
|
|
|
|
556,507 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
63,559 |
|
|
|
|
|
|
|
|
|
|
|
57,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders
Equity: |
|
$ |
725,537 |
|
|
|
|
|
|
|
|
|
|
$ |
613,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(3) |
|
|
|
|
|
|
|
|
|
|
2.92 |
% |
|
|
|
|
|
|
|
|
|
|
2.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4) |
|
|
|
|
|
$ |
17,693 |
|
|
|
3.37 |
% |
|
|
|
|
|
$ |
15,597 |
|
|
|
3.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest income and yields are presented on a fully taxable equivalent basis using 34% tax rate. |
|
(2) |
|
Loans placed on nonaccrual status are included in loan
balances. |
|
(3) |
|
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities. |
|
(4) |
|
Net interest margin is net interest income, expressed as a percentage of average earning assets. |
36
Non-interest Income
Non-interest income consists of revenue generated from financial services and activities other than
lending and investing. The Mortgage Corporation provides the most significant contributions to
non-interest income. Total non-interest income was $10.9 million for the third quarter of 2009
compared to $5.6 million for the same period in 2008. Non-interest income totaled $44.1 million for
the nine month period ended September 30, 2009, up from $22.1 million for the same period in 2008.
Gains on the sale of loans originated by the Mortgage Corporation totaled $9.9 million and $38.3
million for the three and nine month periods ended September 30, 2009, up from $4.8 million and
$17.9 for the same periods of 2008. The increase in gains on the sale of loans is due to the
increased volume of mortgage loans originated as a result of lower interest rates and
refinancing activity. During the nine months ended September 30, 2009, the Mortgage Corporation
originated $1.237 billion in mortgage loans up from $613.2 million for the same period in 2008.
Non-interest Expense
Non-interest expense totaled $12.0 million and $44.5 million for the three and nine months ended
September 30, 2009, compared to $8.1 and $28.5 million and for the same period in 2008. Salaries
and employee benefits totaled $6.0 million and $21.4 million for the three and nine months ended
September 30, 2009, up from $4.5 million and $15.9 million for the same period last year. The
increase is primarily due to commissions related to the increase in mortgage loan originations.
Other operating expenses totaled $5.4 million and $21.1 million for the three and nine months ended
September 30, 2009, compared to $3.0 million and $10.7 million for the same period in 2008.
Advertising expense increased $1.5 million for the nine months ended September 30, 2009 compared to
the same period in 2008, due to an increase in direct mail marketing of mortgage loans. Management
fees increased $3.9 million for the nine months ended September 30, 2009 compared to the same
period in 2008. Management fees relate to the operation of certain Mortgage Corporation branches
and fluctuate with the volume of loan production. The provision for losses on loans sold increased
$2.0 million for the nine months ended September 30, 2009 compared to the same period in 2008. This
provision relates to potential expenses associated with standard representation and warranties on
mortgage loans sold. OREO expense increased $1.0 million for the nine months ended September 30,
2009 and relates to expenses and valuation adjustments to OREO properties.
37
The table below provides the composition of other operating expenses.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In Thousands) |
|
Advertising |
|
$ |
4,255 |
|
|
$ |
2,751 |
|
Investor fees |
|
|
1,237 |
|
|
|
676 |
|
Management fees |
|
|
5,573 |
|
|
|
1,681 |
|
Provision for losses on loans sold |
|
|
3,349 |
|
|
|
1,318 |
|
Business and franchise tax |
|
|
336 |
|
|
|
297 |
|
Accounting and auditing service |
|
|
460 |
|
|
|
470 |
|
Consulting fees |
|
|
260 |
|
|
|
263 |
|
OREO expense |
|
|
1,052 |
|
|
|
|
|
Credit report expenses |
|
|
382 |
|
|
|
198 |
|
Data processing |
|
|
364 |
|
|
|
357 |
|
Loan and collection expense |
|
|
284 |
|
|
|
|
|
FDIC insurance expense |
|
|
947 |
|
|
|
246 |
|
Other |
|
|
2,624 |
|
|
|
2,477 |
|
|
|
|
|
|
|
|
|
|
$ |
21,123 |
|
|
$ |
10,734 |
|
|
|
|
|
|
|
|
Liquidity Management
Liquidity is the ability of the Corporation to meet current and future cash flow requirements. The
liquidity of a financial institution reflects its ability to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing liabilities.
Liquidity management involves maintaining the Corporations ability to meet the daily cash flow
requirements of both depositors and borrowers. Management monitors liquidity through a regular
review of asset and liability maturities, funding sources and loan and deposit forecasts.
Asset and liability management functions not only serve to assure adequate liquidity in order to
meet the needs of the Corporations customers, but also to maintain an appropriate balance between
interest sensitive assets and interest sensitive liabilities so that the Corporation can earn an
appropriate return for its shareholders.
The asset portion of the balance sheet provides liquidity primarily through loan principal
repayments and maturities of investment securities. Other short-term investments such as federal
funds sold and interest-bearing deposits with other banks provide an additional source of liquidity
funding. At September 30, 2009, overnight interest-bearing balances totaled $47.1 million compared
to $13.7 at December 31, 2008.
The liability portion of the balance sheet provides liquidity through various interest-bearing and
non-interest-bearing deposit accounts, federal funds purchased, securities sold under agreement to
repurchase and other short-term borrowings. At September 30, 2009, the Bank had a line of credit
with the FHLB totaling $100.7 million and had outstanding short-term loans of $22.4 million, and an
additional $17.3 million in term loans at fixed rates ranging from 2.55% to 4.97% leaving $61.0
million available on the line. In addition to the line of credit at the FHLB, the Bank and the
Mortgage Corporation also issue repurchase agreements and commercial paper.
38
As of September 30, 2009, outstanding repurchase agreements totaled approximately $18.3 million and
commercial paper issued and other short-term borrowings amounted to $14.9 million. The interest
rates on these instruments are variable and subject to change daily. The Bank also maintains
federal funds lines of credit with its correspondent banks and, at September 30, 2009, these lines
totaled $28.5 million and were available as an additional funding source. The Corporation also has
$6.2 million in subordinated debentures to support the growth of the organization.
On February 11, 2009 the Bank issued $30.0 million in long term debt that is backed by the full
faith and credit of the United States under the FDICs Temporary Liquidity Guarantee Program. The
note bears interest at 2.74% plus a 1% guarantee fee and matures February 15, 2012. The proceeds
were used to supplement traditional sources of liquidity and to provide funding for loans.
The following table presents the composition of borrowings at September 30, 2009 and December 31,
2008.
Borrowed Funds Distribution
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
( In Thousands) |
|
At Period End |
|
|
|
|
|
|
|
|
FHLB advances |
|
$ |
22,440 |
|
|
$ |
44,333 |
|
FHLB long-term borrowings |
|
|
17,304 |
|
|
|
41,107 |
|
Securities sold under agreements to
repurchase and federal funds purchased |
|
|
18,307 |
|
|
|
31,388 |
|
Other short-term borrowings |
|
|
14,938 |
|
|
|
27,854 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,186 |
|
FDIC term note |
|
|
29,996 |
|
|
|
|
|
|
|
|
|
|
|
|
Total at period end |
|
$ |
109,171 |
|
|
$ |
150,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
(In Thousands) |
Average Balances |
|
|
|
|
|
|
|
|
FHLB advances |
|
$ |
24,144 |
|
|
$ |
13,524 |
|
FHLB long-term borrowings |
|
|
26,300 |
|
|
|
54,173 |
|
Securities sold under agreements
to repurchase and federal funds
purchased |
|
|
24,363 |
|
|
|
16,433 |
|
Other short-term borrowings |
|
|
17,848 |
|
|
|
20,697 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,186 |
|
FDIC term note |
|
|
25,491 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average balance |
|
$ |
124,332 |
|
|
$ |
111,013 |
|
|
|
|
|
|
|
|
Contractual Obligations
There have been no material changes outside the ordinary course of business to the contractual
obligations disclosed in the Corporations Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.
39
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporations market risk is composed primarily of interest rate risk. The Funds Management
Committee is responsible for reviewing the interest rate sensitivity position and establishes
policies to monitor and coordinate the Corporations sources, uses and pricing of funds.
Interest Rate Sensitivity Management
The Corporation uses a simulation model to analyze, manage and formulate operating strategies that
address net interest income sensitivity to movements in interest rates. The simulation model
projects net interest income based on various
interest rate scenarios over a twelve month period. The model is based on the actual maturity and
re-pricing characteristics of
rate sensitive assets and liabilities. The model incorporates certain assumptions which management
believes to be reasonable
regarding the impact of changing interest rates and the prepayment assumption of certain assets and
liabilities as of September 30, 2009. The table below reflects the outcome of these analyses at
September 30, 2009, assuming budgeted growth in the balance sheet. According to the model run for
the nine month period ended September 30, 2009, and projecting
forward over a twelve month period, an immediate 100 basis point increase in interest rates would
result in an increase in net interest income of 2.04%. Modeling for an immediate 100 basis point
decrease in interest rates has been suspended due to the current rate environment. While
management carefully monitors the exposure to changes in interest rates and takes actions as
warranted to mitigate any adverse impact, there can be no assurance about the actual effect of
interest rate changes on net interest income.
The following table reflects the Corporations earnings sensitivity profile as of September 30,
2009.
|
|
|
|
|
|
|
|
|
Hypothetical Percentage |
Increase in Federal |
|
Hypothetical Percentage |
|
Change in Economic Value |
Funds Target Rate |
|
Change in Earnings |
|
of Equity |
3.00%
|
|
9.03%
|
|
-2.23% |
2.00%
|
|
6.08%
|
|
-1.85% |
1.00%
|
|
2.04%
|
|
-1.80% |
The Corporations net interest income and the fair value of its financial instruments are
influenced by changes in the level of interest rates. The Corporation manages its exposure to
fluctuations in interest rates through policies established by its Funds Management Committee. The
Funds Management Committee meets periodically and has responsibility for formulating and
implementing strategies to improve balance sheet positioning and earnings and reviewing interest
rate sensitivity.
The Mortgage Corporation is party to mortgage rate lock commitments to fund mortgage loans at
interest rates previously agreed to, and locked by both the Corporation and the borrower for
specified periods of time. When the borrower locks its interest rate, the Corporation effectively
extends a put option to the borrower, whereby the borrower is not obligated to enter into the loan
agreement, but the Corporation must honor the interest rate for the specified time period. The
Corporation is exposed to interest rate risk during the accumulation of interest rate lock
commitments and loans prior to sale. The Corporation utilizes either a Best Efforts forward sale
commitment or a Mandatory forward sale commitment to economically hedge the changes in fair value
of the loan due to changes in market interest rates. Failure to effectively monitor, manage and
hedge the interest rate risk associated with the mandatory commitments subjects the Corporation to
potentially significant market risk.
Throughout the lock period, the changes in the market value of interest rate lock commitments, Best
Efforts, and Mandatory forward sale commitments are recorded as unrealized gains and losses and are
included in the statement of operations in other income. The Corporations management has made
complex judgments in the recognition of gains and losses in connection with this activity. The
Corporation utilizes a third party and its proprietary simulation model to assist in identifying
and managing the risk associated with this activity.
40
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Corporations management evaluated, with the participation of the Chief Executive Officer and
Chief Financial Officer, the effectiveness of the Corporations disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of the end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Corporations disclosure controls
and procedures are effective as of the end of the period covered by this report to ensure that
information required to be disclosed in the reports that the Corporation files or submits under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to the Corporations management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Because of the inherent limitations in all control
systems, no evaluation of
controls can provide absolute assurance that the Corporations disclosure controls and procedures
will detect or uncover every situation involving the failure of persons within the Corporation to
disclose material information required to be set
forth in the Corporations periodic and current reports.
Changes in Internal Control over Financial Reporting
The Corporations management is also responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). No changes
in our internal control over financial reporting occurred during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Bank is a party to legal proceedings arising in the ordinary course of business. Management is
of the opinion that these legal proceedings will not have a material adverse effect on the
Corporations financial condition or results of operations. From time to time the Bank may
initiate legal actions against borrowers in connection with collecting defaulted loans. Such
actions are not considered material by management unless otherwise disclosed.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in the Corporations
Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
41
Item 6. Exhibits
|
|
|
Exhibit No. |
|
Description |
|
3.1 |
|
Amended and Restated Articles of Incorporation of Access
National Corporation (incorporated by reference to Exhibit 3.1
to Form 8-K filed July 18, 2006 (file number 000-49929)) |
|
|
|
3.2 |
|
Amended and Restated Bylaws of Access National Corporation
(incorporated by reference to Exhibit 3.2 to
Form 8-K filed
October 24, 2007 (file number 000-49929)) |
|
|
|
4.0 |
|
Certain instruments relating to long-term debt as to which the
total amount of securities authorized thereunder does not
exceed 10% of Access National Corporations total assets have
been omitted in accordance with Item 601(b)(4)(iii) of
Regulation S-K. The registrant will furnish a copy of any
such instrument to the Securities and Exchange Commission upon
its request. |
|
|
|
10.10.1 |
|
Form of Stock Option Agreement for Employee under Access
National Corporations 2009 Stock Option Plan (incorporated by
reference to Exhibit 10.10.1 to Form 8-K filed July 6, 2009) |
|
|
|
31.1* |
|
CEO Certification Pursuant to Rule 13a-14(a) |
|
|
|
31.2* |
|
CFO Certification Pursuant to Rule 13a-14(a) |
|
|
|
32* |
|
CEO/CFO Certification Pursuant to § 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. § 1350) |
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Access National Corporation
(Registrant)
|
|
Date: November 13, 2009 |
By: |
/s/ Michael W. Clarke
|
|
|
|
Michael W. Clarke |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: November 13, 2009 |
By: |
/s/ Charles Wimer
|
|
|
|
Charles Wimer |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial & Accounting Officer) |
|
43