e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 June 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
incorporation or organization)
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(I.R.S. Employer
Identification Number) |
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.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
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 August 3, 2009 was 10,438,619 shares.
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q
INDEX
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FINANCIAL INFORMATION |
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Financial Statements (unaudited) |
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Consolidated Balance Sheets, June 30, 2009 and December 31, 2008 (audited)
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Page 2 |
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Consolidated Statements of Income, three months ended June 30, 2009 and 2008
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Page 3 |
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Consolidated Statements of Income, six months ended June 30, 2009 and 2008
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Page 4 |
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Consolidated Statements of Changes in Shareholders Equity, six months ended June
30, 2009 and 2008
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Page 5 |
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Consolidated Statements of Cash Flows, six months ended June 30, 2009 and 2008
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Page 6 |
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Notes to Consolidated Financial Statements (Unaudited)
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Page 7 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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Page 23 |
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Quantitative and Qualitative Disclosures About Market Risk
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Page 37 |
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Controls and Procedures
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Page 38 |
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OTHER INFORMATION |
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Legal Proceedings
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Page 39 |
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Risk Factors
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Page 39 |
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Unregistered Sales of Equity Securities and Use of Proceeds
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Page 39 |
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Defaults Upon Senior Securities
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Page 39 |
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Submission of Matters to a Vote of Security Holders
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Page 40 |
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Other Information
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Page 40 |
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Exhibits
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Page 40 |
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Signatures
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Page 41 |
EX-31.1 |
EX-31.2 |
EX-32 |
1
4
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share Data)
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June 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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$ |
12,942 |
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$ |
8,785 |
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Interest-bearing deposits in other banks |
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26,820 |
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13,697 |
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Securities available for sale, at fair value |
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68,699 |
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91,015 |
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Loans held for sale, at fair value |
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107,778 |
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84,312 |
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Loans |
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505,661 |
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485,929 |
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Allowance for loan losses |
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(8,077 |
) |
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(7,462 |
) |
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Net loans |
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497,584 |
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478,467 |
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Premises and equipment, net |
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8,983 |
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9,211 |
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Accrued interest |
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2,928 |
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3,193 |
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Other real estate owned |
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3,925 |
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4,455 |
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Other assets |
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10,905 |
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9,189 |
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Total assets |
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$ |
740,564 |
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$ |
702,324 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Deposits |
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Noninterest-bearing deposits |
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$ |
97,291 |
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$ |
75,000 |
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Savings and interest-bearing deposits |
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143,730 |
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95,730 |
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Time deposits |
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303,885 |
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314,671 |
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Total deposits |
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544,906 |
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485,401 |
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Other liabilities |
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Short-term borrowings |
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60,606 |
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103,575 |
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Long-term borrowings |
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53,270 |
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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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11,977 |
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8,110 |
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Total liabilities |
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676,945 |
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644,379 |
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SHAREHOLDERS EQUITY |
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Common stock, par value, $0.835; authorized, 60,000,000 shares; issued
and
outstanding,10,438,619 shares at June 30, 2009 and 10,240,747 shares at
December 31, 2008 |
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8,716 |
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8,551 |
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Surplus |
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18,080 |
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17,410 |
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Retained earnings |
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36,386 |
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31,157 |
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Accumulated other comprehensive income, net |
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437 |
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827 |
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Total shareholders equity |
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63,619 |
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57,945 |
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Total liabilities and shareholders equity |
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$ |
740,564 |
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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 June 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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$ |
8,781 |
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$ |
8,626 |
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Interest on deposits in other banks |
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46 |
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96 |
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Interest and dividends on securities |
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861 |
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789 |
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Total interest and dividend income |
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9,688 |
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9,511 |
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Interest Expense |
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Interest on deposits |
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2,737 |
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3,301 |
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Interest on short-term borrowings |
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332 |
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233 |
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Interest on long-term borrowings |
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515 |
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639 |
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Interest on subordinated debentures |
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65 |
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89 |
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Total interest expense |
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3,649 |
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4,262 |
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Net interest income |
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6,039 |
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5,249 |
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Provision for loan losses |
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2,060 |
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1,399 |
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Net interest income after provision for loan losses |
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3,979 |
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3,850 |
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Non-interest Income |
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Service fees on deposit accounts |
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130 |
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113 |
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Gain on sale of loans |
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14,550 |
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6,239 |
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Mortgage broker fee income |
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189 |
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524 |
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Other income |
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3,183 |
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1,146 |
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Total non-interest income |
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18,052 |
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8,022 |
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Non-interest Expense |
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Salaries and employee benefits |
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7,929 |
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5,508 |
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Occupancy and equipment |
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648 |
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568 |
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Other operating expenses |
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8,972 |
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4,139 |
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Total non-interest expense |
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17,549 |
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10,215 |
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Income before income taxes |
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4,482 |
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1,657 |
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Income tax expense |
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1,712 |
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595 |
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NET INCOME |
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$ |
2,770 |
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$ |
1,062 |
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Earnings per common share: |
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Basic |
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$ |
0.27 |
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$ |
0.10 |
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Diluted |
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$ |
0.27 |
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$ |
0.10 |
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Average outstanding shares: |
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Basic |
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10,345,890 |
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10,170,174 |
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Diluted |
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10,403,850 |
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10,315,127 |
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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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Six Months Ended June 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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$ |
17,448 |
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$ |
17,529 |
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Interest on deposits in other banks |
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78 |
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361 |
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Interest and dividends on securities |
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1,841 |
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1,640 |
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Total interest and dividend income |
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19,367 |
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19,530 |
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Interest Expense |
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Interest on deposits |
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5,818 |
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7,569 |
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Interest on short-term borrowings |
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|
648 |
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|
539 |
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Interest on long-term borrowings |
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|
991 |
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|
1,189 |
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Interest on subordinated debentures |
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128 |
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202 |
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Total interest expense |
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7,585 |
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9,499 |
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Net interest income |
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11,782 |
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|
10,031 |
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Provision for loan losses |
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3,429 |
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|
1,807 |
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Net interest income after provision for loan losses |
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8,353 |
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|
8,224 |
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Noninterest Income |
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|
|
|
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|
Service fees on deposit accounts |
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264 |
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|
216 |
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Gain on sale of loans |
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28,339 |
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|
13,093 |
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Mortgage broker fee income |
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329 |
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|
1,086 |
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Other income |
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|
4,280 |
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|
2,069 |
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Total noninterest income |
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33,212 |
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|
16,464 |
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Noninterest Expense |
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Salaries and employee benefits |
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15,434 |
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|
11,438 |
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Occupancy and equipment |
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1,280 |
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|
1,204 |
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Other operating expenses |
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15,715 |
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|
7,754 |
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Total noninterest expense |
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32,429 |
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|
20,396 |
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Income before income taxes |
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9,136 |
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|
4,292 |
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Income tax expense |
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|
3,702 |
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|
1,539 |
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NET INCOME |
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$ |
5,434 |
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|
$ |
2,753 |
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Earnings per common share: |
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Basic |
|
$ |
0.53 |
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$ |
0.26 |
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Diluted |
|
$ |
0.52 |
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$ |
0.26 |
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Average outstanding shares: |
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Basic |
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|
10,306,638 |
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|
|
10,395,002 |
|
Diluted |
|
|
10,357,752 |
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|
|
10,555,463 |
|
See accompanying notes to consolidated financial statements (Unaudited).
4
ACCESS NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders Equity
For the Six Months Ended June 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) |
|
|
Total |
|
Balance, December 31, 2008 |
|
$ |
8,551 |
|
|
$ |
17,410 |
|
|
$ |
31,157 |
|
|
$ |
827 |
|
|
$ |
57,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
5,434 |
|
|
|
|
|
|
|
5,434 |
|
Other comprehensive income,
unrealized holdings gains
(losses)
arising during the period
(net of tax, $201) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(390 |
) |
|
|
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,044 |
|
Stock option exercises (148,452 shares) |
|
|
124 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
501 |
|
Dividend reinvestment plan (74,550
shares) |
|
|
62 |
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
352 |
|
Repurchased under share
repurchase program
(25,130 shares) |
|
|
(21 |
) |
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
(116 |
) |
Cash dividend |
|
|
|
|
|
|
|
|
|
|
(205 |
) |
|
|
|
|
|
|
(205 |
) |
Stock-based compensation
expense recognized in earnings |
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Balance, June 30, 2009 |
|
$ |
8,716 |
|
|
$ |
18,080 |
|
|
$ |
36,386 |
|
|
$ |
437 |
|
|
$ |
63,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
Balance, December 31, 2007 |
|
$ |
9,052 |
|
|
$ |
21,833 |
|
|
$ |
26,846 |
|
|
$ |
230 |
|
|
$ |
57,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
2,753 |
|
|
|
|
|
|
|
2,753 |
|
Other comprehensive income,
unrealized holdings gains
(losses)
arising during the period
(net of tax, $78) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152 |
) |
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,601 |
|
Stock option exercises (85,398 shares) |
|
|
71 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
222 |
|
Repurchased under share
repurchase program
(808,411 shares) |
|
|
(675 |
) |
|
|
(5,169 |
) |
|
|
|
|
|
|
|
|
|
|
(5,844 |
) |
Cash dividend |
|
|
|
|
|
|
|
|
|
|
(230 |
) |
|
|
|
|
|
|
(230 |
) |
Stock-based compensation
expense recognized in earnings |
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008 |
|
$ |
8,448 |
|
|
$ |
16,879 |
|
|
$ |
29,369 |
|
|
$ |
78 |
|
|
$ |
54,774 |
|
|
|
|
See accompanying notes to consolidated financial statements (Unaudited).
5
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,434 |
|
|
$ |
2,753 |
|
Adjustments to reconcile net income to net cash
(used in) provided by
operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses- net of recoveries |
|
|
3,429 |
|
|
|
1,807 |
|
Deferred tax benefit |
|
|
(1,028 |
) |
|
|
(428 |
) |
Stock based compensation |
|
|
98 |
|
|
|
64 |
|
Provision for hedging |
|
|
27 |
|
|
|
(179 |
) |
Net premium amortization/discount accretion
on securities |
|
|
3 |
|
|
|
|
|
Depreciation and amortization |
|
|
306 |
|
|
|
385 |
|
Loss on Disposal of assets |
|
|
|
|
|
|
5 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Valuation of loans held for sale
carried at fair value |
|
|
1,386 |
|
|
|
1,271 |
|
Increase in loans held for sale |
|
|
(24,852 |
) |
|
|
(5,440 |
) |
Decrease in other assets |
|
|
237 |
|
|
|
83 |
|
Increase in other liabilities |
|
|
3,867 |
|
|
|
1,341 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities |
|
|
(11,093 |
) |
|
|
1,662 |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls of securities
available for sale |
|
|
42,489 |
|
|
|
37,340 |
|
Purchases of securities available for sale |
|
|
(20,766 |
) |
|
|
(27,311 |
) |
Net increase in loans |
|
|
(22,546 |
) |
|
|
(19,854 |
) |
Proceeds from sale of equipment |
|
|
|
|
|
|
35 |
|
Proceeds from sales of other real estate owned |
|
|
|
|
|
|
187 |
|
Purchases of premises and equipment |
|
|
(34 |
) |
|
|
(129 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(857 |
) |
|
|
(9,732 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase in demand, interest-bearing demand and
savings deposits |
|
|
70,190 |
|
|
|
17,321 |
|
Net decrease in time deposits |
|
|
(10,685 |
) |
|
|
(41,357 |
) |
Net decrease in securities sold under agreement to
repurchase |
|
|
(7,888 |
) |
|
|
(2,101 |
) |
Net (decrease) increase in short-term borrowings |
|
|
(35,081 |
) |
|
|
33,180 |
|
Net increase in long-term borrowings |
|
|
12,163 |
|
|
|
21,381 |
|
Proceeds from issuance of common stock |
|
|
852 |
|
|
|
222 |
|
Purchase of common stock |
|
|
(116 |
) |
|
|
(5,844 |
) |
Dividends Paid |
|
|
(205 |
) |
|
|
(230 |
) |
|
|
|
|
|
|
|
Net cash provided by financing
activities |
|
|
29,230 |
|
|
|
22,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
17,280 |
|
|
|
14,502 |
|
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
Beginning |
|
|
22,482 |
|
|
|
19,504 |
|
|
|
|
|
|
|
|
Ending |
|
$ |
39,762 |
|
|
$ |
34,006 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
7,629 |
|
|
$ |
9,521 |
|
|
|
|
|
|
|
|
Cash payments for income taxes |
|
$ |
3,550 |
|
|
$ |
2,150 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Investing
Activities |
|
|
|
|
|
|
|
|
Unrealized (loss) gain on securities available for
sale |
|
$ |
(590 |
) |
|
$ |
(230 |
) |
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 three wholly-owned subsidiaries, Access
National Bank (the Bank), which is an independent commercial bank chartered under federal laws as
a national banking association, Access Capital Trust I, 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 six
months ended June 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.
7
NOTE 3 STOCK-BASED COMPENSATION PLANS
During the first six months of 2009, the Corporation granted 104,250 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 six
months of 2009 was approximately $98 thousand and $64 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 six months ended June 30, 2009 is
presented as follows:
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2009 |
Expected life of options granted |
|
|
3.50 |
|
Risk-free interest rate |
|
|
1.08 |
% |
Expected volatility of stock |
|
|
47 |
% |
Annual expected dividend yield |
|
|
1 |
% |
|
Fair Value of Granted Options |
|
$ |
179,771 |
|
Non-Vested Options |
|
|
248,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
104,250 |
|
|
$ |
4.03 |
|
|
|
3.09 |
|
|
$ |
|
|
Exercised |
|
|
148,452 |
|
|
$ |
3.36 |
|
|
|
0.01 |
|
|
$ |
|
|
Lapsed or Canceled |
|
|
42,586 |
|
|
$ |
7.03 |
|
|
|
0.92 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
502,829 |
|
|
$ |
6.23 |
|
|
|
1.85 |
|
|
$ |
339,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable June 30, 2009 |
|
|
254,554 |
|
|
$ |
6.20 |
|
|
|
1.49 |
|
|
$ |
139,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTE 4 SECURITIES
Amortized costs and fair values of securities available for sale as of June 30, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
(In Thousands) |
|
U.S. Government
Agencies |
|
$ |
60,091 |
|
|
$ |
754 |
|
|
$ |
(36 |
) |
|
$ |
60,809 |
|
Mortgage Backed
Securities |
|
|
1,204 |
|
|
|
4 |
|
|
|
(46 |
) |
|
|
1,162 |
|
Municipals taxable |
|
|
690 |
|
|
|
2 |
|
|
|
|
|
|
|
692 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(17 |
) |
|
|
1,483 |
|
Restricted
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve
Bank Stock |
|
|
894 |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
FHLB Stock |
|
|
3,659 |
|
|
|
|
|
|
|
|
|
|
|
3,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
$ |
68,038 |
|
|
$ |
760 |
|
|
$ |
(99 |
) |
|
$ |
68,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Governmental
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 June 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 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 |
|
|
10,190 |
|
|
|
10,198 |
|
|
|
25,000 |
|
|
|
25,121 |
|
Due after five
through ten
years |
|
|
49,901 |
|
|
|
50,611 |
|
|
|
49,934 |
|
|
|
51,233 |
|
Municipals-taxable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one
through five
years |
|
|
690 |
|
|
|
692 |
|
|
|
905 |
|
|
|
907 |
|
Due after five
through ten
years |
|
|
|
|
|
|
|
|
|
|
4,101 |
|
|
|
4,013 |
|
Mortgage Backed
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year
or less |
|
|
358 |
|
|
|
362 |
|
|
|
381 |
|
|
|
382 |
|
Due after one
through five
years |
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
128 |
|
Due after
fifteen years |
|
|
846 |
|
|
|
800 |
|
|
|
920 |
|
|
|
881 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
1,483 |
|
|
|
1,500 |
|
|
|
1,448 |
|
Restricted Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve |
|
|
894 |
|
|
|
894 |
|
|
|
894 |
|
|
|
894 |
|
Bank stock
FHLB stock |
|
|
3,659 |
|
|
|
3,659 |
|
|
|
5,002 |
|
|
|
5,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68,038 |
|
|
$ |
68,699 |
|
|
$ |
89,763 |
|
|
$ |
91,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTE 4 SECURITIES (continued)
Investment securities available for sale that have an unrealized loss position at June 30, 2009 and
December 31, 2008 are as follows:
June 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 |
|
Investment securities available for sale: |
|
(In Thousands) |
U.S. Government
Agencies |
|
$ |
9,939 |
|
|
$ |
(36 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
9,939 |
|
|
$ |
(36 |
) |
Mortgage Backed
Securities |
|
|
|
|
|
|
|
|
|
|
800 |
|
|
|
(46 |
) |
|
|
800 |
|
|
|
(46 |
) |
CRA Mutual Fund |
|
|
|
|
|
|
|
|
|
|
1,483 |
|
|
|
(17 |
) |
|
|
1,483 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,939 |
|
|
$ |
(36 |
) |
|
$ |
2,283 |
|
|
$ |
(63 |
) |
|
$ |
12,222 |
|
|
$ |
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Investment securities available for sale: |
|
(In Thousands) |
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 June 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 loan portfolio at June 30, 2009 and December
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
(In Thousands) |
|
Loans secured by real estate: |
|
|
|
|
|
|
|
|
Construction and land development |
|
$ |
51,616 |
|
|
$ |
42,600 |
|
Secured by residential real estate |
|
|
148,872 |
|
|
|
151,993 |
|
Secured by multi-family residential |
|
|
1,735 |
|
|
|
1,747 |
|
Secured by commercial real estate |
|
|
223,691 |
|
|
|
218,539 |
|
Commercial and industrial loans |
|
|
78,261 |
|
|
|
69,537 |
|
Consumer loans |
|
|
1,486 |
|
|
|
1,513 |
|
|
|
|
|
|
|
|
Total loans |
|
|
505,661 |
|
|
|
485,929 |
|
Less allowance for loan losses |
|
|
8,077 |
|
|
|
7,462 |
|
|
|
|
|
|
|
|
Net loans |
|
$ |
497,584 |
|
|
$ |
478,467 |
|
|
|
|
|
|
|
|
NOTE 6 SEGMENT REPORTING
The Corporation has two reportable segments: traditional commercial banking and a mortgage banking
business. Revenues from commercial banking operations consist primarily of interest earned on loans
and investment 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 June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Other |
|
|
Elimination |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9,231 |
|
|
$ |
1,015 |
|
|
$ |
9 |
|
|
$ |
(567 |
) |
|
$ |
9,688 |
|
Gain on sale of loans |
|
|
|
|
|
|
14,550 |
|
|
|
|
|
|
|
|
|
|
|
14,550 |
|
Other revenues |
|
|
1,240 |
|
|
|
2,228 |
|
|
|
288 |
|
|
|
(254 |
) |
|
|
3,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
10,471 |
|
|
|
17,793 |
|
|
|
297 |
|
|
|
(821 |
) |
|
|
27,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,547 |
|
|
|
492 |
|
|
|
177 |
|
|
|
(567 |
) |
|
|
3,649 |
|
Salaries and employee benefits |
|
|
1,966 |
|
|
|
5,963 |
|
|
|
|
|
|
|
|
|
|
|
7,929 |
|
Other |
|
|
4,388 |
|
|
|
7,045 |
|
|
|
501 |
|
|
|
(254 |
) |
|
|
11,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
9,901 |
|
|
|
13,500 |
|
|
|
678 |
|
|
|
(821 |
) |
|
|
23,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
570 |
|
|
$ |
4,293 |
|
|
$ |
(381 |
) |
|
$ |
|
|
|
$ |
4,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
707,227 |
|
|
$ |
112,126 |
|
|
$ |
45,568 |
|
|
$ |
(124,357 |
) |
|
$ |
740,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Other |
|
|
Elimination |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9,246 |
|
|
$ |
526 |
|
|
$ |
9 |
|
|
$ |
(270 |
) |
|
$ |
9,511 |
|
Gain on sale of loans |
|
|
|
|
|
|
6,239 |
|
|
|
|
|
|
|
|
|
|
|
6,239 |
|
Other revenues |
|
|
364 |
|
|
|
1,713 |
|
|
|
270 |
|
|
|
(564 |
) |
|
|
1,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
9,610 |
|
|
|
8,478 |
|
|
|
279 |
|
|
|
(834 |
) |
|
|
17,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
4,068 |
|
|
|
262 |
|
|
|
202 |
|
|
|
(270 |
) |
|
|
4,262 |
|
Salaries and employee benefits |
|
|
1,975 |
|
|
|
3,533 |
|
|
|
|
|
|
|
|
|
|
|
5,508 |
|
Other |
|
|
2,531 |
|
|
|
3,647 |
|
|
|
492 |
|
|
|
(564 |
) |
|
|
6,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
8,574 |
|
|
|
7,442 |
|
|
|
694 |
|
|
|
(834 |
) |
|
|
15,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
1,036 |
|
|
$ |
1,036 |
|
|
$ |
(415 |
) |
|
$ |
|
|
|
$ |
1,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
613,954 |
|
|
$ |
45,711 |
|
|
$ |
43,268 |
|
|
$ |
(53,979 |
) |
|
$ |
648,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTE 6 SEGMENT REPORTING (continued)
The following table presents segment information for the six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Other |
|
|
Elimination |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
18,428 |
|
|
$ |
1,930 |
|
|
$ |
19 |
|
|
$ |
(1,010 |
) |
|
$ |
19,367 |
|
Gain on sale of loans |
|
|
|
|
|
|
28,339 |
|
|
|
|
|
|
|
|
|
|
|
28,339 |
|
Other revenues |
|
|
1,616 |
|
|
|
3,486 |
|
|
|
596 |
|
|
|
(825 |
) |
|
|
4,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
20,044 |
|
|
|
33,755 |
|
|
|
615 |
|
|
|
(1,835 |
) |
|
|
52,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7,363 |
|
|
|
882 |
|
|
|
350 |
|
|
|
(1,010 |
) |
|
|
7,585 |
|
Salaries and employee benefits |
|
|
3,814 |
|
|
|
11,620 |
|
|
|
|
|
|
|
|
|
|
|
15,434 |
|
Other |
|
|
7,285 |
|
|
|
13,008 |
|
|
|
956 |
|
|
|
(825 |
) |
|
|
20,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
18,462 |
|
|
|
25,510 |
|
|
|
1,306 |
|
|
|
(1,835 |
) |
|
|
43,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
1,582 |
|
|
$ |
8,245 |
|
|
$ |
(691 |
) |
|
$ |
|
|
|
$ |
9,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
707,227 |
|
|
$ |
112,126 |
|
|
$ |
45,568 |
|
|
$ |
(124,357 |
) |
|
$ |
740,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Other |
|
|
Elimination |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
19,083 |
|
|
$ |
1,040 |
|
|
$ |
46 |
|
|
$ |
(639 |
) |
|
$ |
19,530 |
|
Gain on sale of loans |
|
|
|
|
|
|
13,097 |
|
|
|
|
|
|
|
(4 |
) |
|
|
13,093 |
|
Other revenues |
|
|
916 |
|
|
|
3,042 |
|
|
|
536 |
|
|
|
(1,123 |
) |
|
|
3,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
19,999 |
|
|
|
17,179 |
|
|
|
582 |
|
|
|
(1,766 |
) |
|
|
35,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
9,097 |
|
|
|
613 |
|
|
|
429 |
|
|
|
(640 |
) |
|
|
9,499 |
|
Salaries and employee benefits |
|
|
3,938 |
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
|
11,438 |
|
Other |
|
|
4,290 |
|
|
|
6,725 |
|
|
|
876 |
|
|
|
(1,126 |
) |
|
|
10,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
17,325 |
|
|
|
14,838 |
|
|
|
1,305 |
|
|
|
(1,766 |
) |
|
|
31,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
2,674 |
|
|
$ |
2,341 |
|
|
$ |
(723 |
) |
|
$ |
|
|
|
$ |
4,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
613,954 |
|
|
$ |
45,711 |
|
|
$ |
43,268 |
|
|
$ |
(53,979 |
) |
|
$ |
648,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 six months ended June 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 |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
(In thousands except for share data) |
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,770 |
|
|
$ |
1,062 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,345,890 |
|
|
|
10,170,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.27 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,770 |
|
|
$ |
1,062 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,345,890 |
|
|
|
10,170,174 |
|
Stock options and warrants |
|
|
57,960 |
|
|
|
144,953 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
10,403,850 |
|
|
|
10,315,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.27 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
(In thousands except for share data) |
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,434 |
|
|
$ |
2,753 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,306,638 |
|
|
|
10,395,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.53 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,434 |
|
|
$ |
2,753 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,306,638 |
|
|
|
10,395,002 |
|
Stock options and warrants |
|
|
51,114 |
|
|
|
160,461 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
10,357,752 |
|
|
|
10,555,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.52 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
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 whereby 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 the loan and rate in 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 rate lock commitments
and delivery contracts by measuring the fair value of the underlying asset, which is impacted by
current interest rates and takes into consideration the probability that the 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 Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities.
At June 30, 2009 and December 31, 2008, the Mortgage Corporation had derivative financial
instruments with a notional value of $122.3 million and $131.8 million respectively. The fair
value of these derivative instruments at June 30, 2009 and December 31, 2008 was $64 thousand and
$91 thousand respectively and was included in other assets.
Included in other non-interest income for the six months ended June 30, 2009 and June 30, 2008 was
a net gain of $213 thousand and $309 thousand, respectively, relating to derivative instruments.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities an amendment of FASB statement No. 133.
SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related items are accounted for under SFAS
133, 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 SFAS 161 did not have an impact on the Corporations consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures About Fair Value of
Financial Instruments (FSP FAS 107-1) which amends SFAS No. 107, Disclosures about Fair Value
of Financial Instruments to require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual financial statements.
This FSP also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to
require those disclosures in summarized financial information at interim reporting periods. FSP FAS
107-1 is effective for interim reporting periods ending after June 15, 2009, and was effective for
the Corporation on June 30, 2009 and did not have any effect on the Corporations consolidated
financial condition or results of operation.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary-Impairment (FSP FAS 115-2) which 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
16
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS (continued)
impairments on debt and equity securities in the financial statements. This FSP requires that the
annual disclosures in
FAS 115 and FSP FAS 115-1 and FAS 124-1 The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments be made for interim periods. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments of equity
securities. FSP FAS 115-2 is effective for interim and annual reporting periods ending after June
15, 2009 and 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 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 (FSP FAS 157-4) which provides additional guidance for
estimating fair value in accordance with SFAS No. 157 Fair Value Measurement when the volume and
level of activity for the asset or liability have significantly decreased. This FSP also includes
guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009 and became effective
for the Corporation for the period ended June 30, 2009. The adoption of FSP FAS 157-4 did not have
a material impact on the Corporations consolidated financial condition or results of operations.
In June 2009, the FASB issued SFAS 166 Accounting for Transfers of Financial Assets, an amendment
of FASB Statement No. 140. SFAS 166 removes the concept of a qualifying special-purpose entity
(QSPE) from Statement 140, and eliminates the exception for QSPEs from the consolidation guidance
of FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities (FIN 46 (R)).
Concurrent with the issuance of SFAS 166, the FASB issued SFAS 167, Amendment to FASB
Interpretation No. 46(R). SFAS 167 addresses the effect of eliminating the QSPE concept from
Statement 140 and enhances the transparency of an entitys involvement in a variable interest
entity (VIE). SFAS 166 is effective as of the beginning of the Corporations first annual
reporting period beginning after November 15, 2009. Earlier adoption is prohibited. The Corporation
does not expect the adoption of the provisions of SFAS 166 to have a material effect on the
Corporations financial condition or results of operations.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. SFAS 168 establishes the FASB Accounting
Standards Codification (the Codification) as the single source of authoritative, nongovernmental
GAAP. The Codification does not change GAAP. All existing accounting standard documents will be
superseded and all other accounting literature not included in the Codification will be considered
non-authoritative. SFAS 168 is effective for interim and annual periods ending after September 15,
2009. Accordingly, the Corporation will adopt the provision of SFAS 168 in the third quarter 2009.
The Corporation does not expect the adoption of the provisions of SFAS 168 to have any effect on
the Corporations financial condition or results of operations.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS
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 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 167 is effective
for fiscal years beginning after November 15, 2009. Accordingly, the Corporation will adopt the
provisions of SFAS 167 in the first quarter of 2010. The Corporation is currently evaluating the
impact of the provisions of SFAS 167 on the Corporations consolidated financial condition and
results of operations.
NOTE 10 FAIR VALUE
Fair value pursuant to SFAS No. 157, Fair Value
Measurements, 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
17
NOTE 10 FAIR VALUE (continued)
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. SFAS 157 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, SFAS 157 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 determined by quoted
market prices from active markets (Level 1).
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 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, which is included in
other assets on the balance sheet, and 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 SFAS 157 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 June 30, 2009 Using |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
|
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
Other Observable |
|
Unobservable Inputs |
Description |
|
Carrying Value |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
|
|
|
|
|
|
|
|
(In Thousands) |
Financial Assets-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investment
securities (1) |
|
$ |
64,146 |
|
|
$ |
64,146 |
|
|
$ |
|
|
|
$ |
|
|
Residential loans held for
sale |
|
|
107,778 |
|
|
|
|
|
|
|
107,778 |
|
|
|
|
|
Derivative financial
instruments |
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
426 |
|
Financial
Liabilities-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial
instruments |
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Non-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (2) |
|
|
6,885 |
|
|
|
|
|
|
|
|
|
|
|
6,885 |
|
Other real estate owned (3) |
|
|
3,925 |
|
|
|
|
|
|
|
3,925 |
|
|
|
|
|
|
|
|
(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 June 30, 2009.
|
|
|
|
|
|
|
Net |
|
|
|
Derivatives |
|
Balance March 31, 2009 |
|
$ |
265 |
|
Realized and unrealized
losses included in earnings |
|
|
(201 |
) |
Unrealized gains (losses)
included in other
comprehensive income |
|
|
|
|
Purchases, settlements,
paydowns, and maturities |
|
|
|
|
Transfer into Level 3 |
|
|
|
|
|
|
|
|
Balance June 30, 2009 |
|
$ |
64 |
|
|
|
|
|
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are
summarized as follows for the six
month peroid ended June 30, 2009.
|
|
|
|
|
|
|
Net Derivatives |
|
|
|
(In Thousands) |
|
Balance December
31, 2008 |
|
$ |
91 |
|
Realized and
unrealized gains
(losses) included
in earnings |
|
|
(27 |
) |
Unrealized gains
(losses) included
in other
comprehensive
income |
|
|
|
|
Purchases,
settlements,
paydowns, and
maturities |
|
|
|
|
Transfer into Level
3 |
|
|
|
|
|
|
|
|
Balance June 30,
2009 |
|
$ |
64 |
|
|
|
|
|
Financial instruments recorded using SFAS 159
Under SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, 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 of SFAS 159, 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 June 30, 2009, measured at fair value under SFAS 159 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 |
|
$ |
107,778 |
|
|
$ |
1,386 |
|
|
$ |
106,392 |
|
The Corporation elected to account for residential loans held for sale 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. The change to fair value accounting for loans
held for sale resulted in a pre-tax increase in income of $612 thousand
after considering loan origination fees and costs that were previously deferred in accordance with
SFAS No. 91, Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases-an amendment of FASB Statements No. 13, 60, and 65 and a rescission of FASB
Statement No. 17.
20
NOTE 10 FAIR VALUE (continued)
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of the
fair value of financial assets and financial liabilities, including those 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
For securities, fair values are based on quoted market prices or dealer quotes.
Loans Held for Sale
Loans held for sale and 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 June 30, 2009 and December 31, 2008, the majority of off-balance-sheet items are variable rate
instruments or converts 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
Unaudited |
|
|
|
(In Thousands) |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
39,762 |
|
|
$ |
39,762 |
|
|
$ |
22,482 |
|
|
$ |
22,482 |
|
Securities available
for sale |
|
|
64,146 |
|
|
|
64,146 |
|
|
|
85,119 |
|
|
|
85,119 |
|
Restricted stock |
|
|
4,553 |
|
|
|
4,553 |
|
|
|
5,896 |
|
|
|
5,896 |
|
Loans held for sale |
|
|
107,778 |
|
|
|
107,778 |
|
|
|
84,312 |
|
|
|
84,312 |
|
Loans, net of allowance for loan losses |
|
|
497,584 |
|
|
|
495,924 |
|
|
|
478,467 |
|
|
|
478,118 |
|
Derivatives |
|
|
426 |
|
|
|
426 |
|
|
|
273 |
|
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Assets |
|
$ |
714,249 |
|
|
$ |
712,589 |
|
|
$ |
676,549 |
|
|
$ |
676,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
544,906 |
|
|
$ |
544,846 |
|
|
$ |
485,401 |
|
|
$ |
486,989 |
|
Securities sold under
agreement
to repurchase |
|
|
23,499 |
|
|
|
23,491 |
|
|
|
31,388 |
|
|
|
31,613 |
|
Borrowings |
|
|
90,377 |
|
|
|
90,321 |
|
|
|
113,294 |
|
|
|
114,928 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,251 |
|
|
|
6,186 |
|
|
|
6,321 |
|
Derivatives |
|
|
362 |
|
|
|
362 |
|
|
|
182 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial
Liabilities |
|
$ |
665,330 |
|
|
$ |
665,271 |
|
|
$ |
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 six months ended June 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) SFAS No. 5
Accounting for Contingencies, which requires that losses be accrued when they are probable of
occurring and estimatable, and (ii) SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, 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 investment portfolio is classified as available-for-sale. 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 June 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 June 30,
2009, these commitments amounted to $28.7 million. These commitments do not necessarily represent
cash requirements, since many commitments are expected to expire without being drawn on.
At June 30, 2009, the Bank had approximately $73.0 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. As the Corporation continues
24
Off-Balance Sheet Items (continued)
the planned expansion of the loans held for investment portfolio, the volume of commitments and
unfunded lines of credit are expected to increase accordingly. The Bank maintains a reserve for
potential off-balance sheet credit losses that is included in other liabilities on the balance
sheet. At June 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 that totaled $3.5 million at June 30, 2009 and $1.4 million at
December 31, 2008.
Subsequent Events
On June 30, 2009, the Corporation adopted FASB Statement No. 165, Subsequent Events. SFAS 165
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, SFAS 165 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 August 13,
2009, the date the second quarter financial statements were filed on Form 10Q and no subsequent
events have occurred requiring accrual or disclosure.
FINANCIAL CONDITION (June 30, 2009 compared to December 31, 2008)
At June 30, 2009, the Corporations assets totaled $740.6 million compared to $702.3 million at
December 31, 2008, an increase of $38.3 million. Loans held for investment totaled $505.7 million
up from $485.9 million at year end 2008 primarily due to increases in construction, commercial and
industrial and commercial real estate loans. Loans held for sale totaled $107.8 million, up from
$84.3 million at December 31, 2008, an increase of $23.5 million, primarily due to lower interest
rates. Total deposits increased $59.5 million to $544.9 million, 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 June 30, 2009 the securities portfolio totaled $68.7 million, down
from $91.0 million on December 31, 2008. The decrease is due in part to the sale of $5 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.
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. During the six months ended June 30, 2009, we were
able to increase loans held for investment while applying stricter credit standards and
conservative loan-to-value requirements. Loans held for investment totaled $505.7 million, an
increase of $19.8 million from $485.9 million at December 31, 2008. The increase in loans
demonstrates the Banks commitment to providing credit to small businesses, professionals and
consumers in the greater Washington, D.C. metropolitan area. Commercial loans increased $8.7
million and residential real estate loans decreased $3.1 million. Commercial real estate loans
increased $5.2 million and construction and land development loans increased $9.0 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 June 30, 2009.
25
Commercial Loans: Commercial Loans represent 15.5% of the loans held for investment
portfolio as of June 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 44.2% of the loans held for investment portfolio as of June 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 10.2% of the loans held for investment portfolio as of June
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 29.8% of the loans held for
investment portfolio as of June 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,
15.3%; first trust mortgage loans, 70.1%; junior trust loans, 12.0%; and multi-family loans and
loans secured by farmland 2.6%.
Home equity lines of credit are extended to borrowers in our target market. Real estate equity is
the largest component of consumer wealth in our marketplace. Once approved, this consumer finance
tool allows the borrowers to access the equity in their home or investment property 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 June 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 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.
26
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 six months ended June 30, 2009 we originated $953.4
million 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 June 30, 2009, LHFS at fair value totaled $107.8 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 six months of 2009, $16.9
million in residential mortgage loans were originated under this type of delivery method, as
compared to $51.6 million for the same period of 2008. Brokered loans accounted for 1.8% of the
total loan volume for the first six months of 2009 compared to 11.4% 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 $8.1 million at June 30, 2009 compared to $7.5
million at year end 2008. The allowance for loan losses is equivalent to approximately 1.6% of
total consolidated loans held for investment at June 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, 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
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,
27
Allowance for Loan Losses (continued)
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.
An analysis of the Banks allowance for loan losses as of the dates and for the periods indicated
is set forth in the following tables:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Allowance for Loan Losses |
|
June 30, |
|
(In Thousands) |
|
2009 |
|
|
2008 |
|
Balance at beginning of period |
|
$ |
7,462 |
|
|
$ |
7,462 |
|
Charge offs |
|
|
(3,062 |
) |
|
|
(87 |
) |
Recoveries |
|
|
248 |
|
|
|
128 |
|
Provision |
|
|
3,429 |
|
|
|
1,807 |
|
|
|
|
|
|
|
|
Balance at the end of period |
|
$ |
8,077 |
|
|
$ |
9,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of the Allowance for Loan Losses |
|
|
(Dollars In Thousands) |
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for |
|
|
|
|
Amount |
|
Percentage |
|
Loss |
|
Percentage |
|
Amount |
|
Percentage |
|
Loan Loss |
|
Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial |
|
$ |
78,261 |
|
|
|
15.48 |
% |
|
$ |
1,806 |
|
|
|
22.36 |
% |
|
$ |
69,537 |
|
|
|
14.31 |
% |
|
$ |
1,816 |
|
|
|
24.34 |
% |
Commercial real
estate |
|
|
223,691 |
|
|
|
44.24 |
|
|
|
3,277 |
|
|
|
40.57 |
|
|
|
218,539 |
|
|
|
44.97 |
|
|
|
2,948 |
|
|
|
39.51 |
|
Real estate
construction |
|
|
51,616 |
|
|
|
10.21 |
|
|
|
936 |
|
|
|
11.59 |
|
|
|
42,600 |
|
|
|
8.77 |
|
|
|
805 |
|
|
|
10.79 |
|
Residential real
estate |
|
|
150,607 |
|
|
|
29.78 |
|
|
|
2,045 |
|
|
|
25.32 |
|
|
|
153,740 |
|
|
|
31.64 |
|
|
|
1,880 |
|
|
|
25.19 |
|
Consumer |
|
|
1,486 |
|
|
|
0.29 |
|
|
|
13 |
|
|
|
0.16 |
|
|
|
1,513 |
|
|
|
0.31 |
|
|
|
13 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
$ |
505,661 |
|
|
|
100.00 |
% |
|
$ |
8,077 |
|
|
|
100.00 |
% |
|
$ |
485,929 |
|
|
|
100.00 |
% |
|
$ |
7,462 |
|
|
|
100.00 |
% |
|
|
|
|
|
Non-performing Assets
At June 30, 2009, the Bank had non-performing assets totaling $10.8 million consisting of
non-accrual loans and other real estate owned. Non-accrual loans totaled approximately $6.9 million
at June 30, 2009 and are composed of commercial loans in the amount of $652 thousand, commercial
real estate loans in the amount of $3.4 million, one residential construction loans totaling $1.8
million, and residential real estate first trust loans in the amount of $1.0 million. Other real
estate owned consists of two commercial properties totaling $3.9 million.
28
Deposits
Deposits are one of the primary sources of funding loan growth. At June 30, 2009, deposits totaled
$544.9 million compared to $485.4 million on December 31, 2008, an increase of $59.5 million.
Savings and interest-bearing deposits increased $48.0 million from December 31, 2008 as a result of
increased core deposits. Time deposits decreased $10.8 million from $314.7 million at December 31,
2008 to $303.9 million at June 30, 2009 as maturing wholesale and rate sensitive deposits were not
renewed. Non-interest-bearing deposits increased $22.3 million from $75.0 million at December 31,
2008 to $97.3 million at June 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 was $63.6 million at June 30, 2009 compared to approximately $57.9 million at
December 31, 2008. Shareholders equity increased by $5.7 million during the six month period ended
June 30, 2009. The increase in shareholders equity is primarily due to retained earnings for the
six months ended June 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.
29
The following table outlines the regulatory components of capital and risk based capital ratios.
Risk Based Capital Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
Tier 1 Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
8,716 |
|
|
$ |
8,551 |
|
|
|
|
|
Capital surplus |
|
|
18,080 |
|
|
|
17,411 |
|
|
|
|
|
Retained earnings |
|
|
36,386 |
|
|
|
31,157 |
|
|
|
|
|
Less: Net unrealized loss on
equity securities |
|
|
(11 |
) |
|
|
(34 |
) |
|
|
|
|
Subordinated debentures |
|
|
6,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 capital |
|
|
69,171 |
|
|
|
63,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures not
included in Tier 1 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
6,942 |
|
|
|
6,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk based capital |
|
$ |
76,113 |
|
|
$ |
69,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
553,892 |
|
|
$ |
532,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
737,206 |
|
|
$ |
649,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Minimum |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
12.49 |
% |
|
|
11.85 |
% |
|
|
4.00 |
% |
Total risk based capital ratio |
|
|
13.74 |
% |
|
|
13.11 |
% |
|
|
8.00 |
% |
Leverage ratio |
|
|
9.38 |
% |
|
|
9.71 |
% |
|
|
4.00 |
% |
RESULTS OF OPERATIONS
Summary
Net income for the three months ended June 30, 2009 increased 160.8% and totaled $2.8 million
compared to $1.1 million at June 30, 2008. Diluted earnings per share were $0.27 and $0.10 for the
quarter ended June 30, 2009 and June 30, 2008 respectively. Contributing to the record earnings was
an $8.3 million increase in gains on the sale of loans. Earnings were impacted during the second
quarter of 2009 by a provision for loan losses of $2.1 million, up from $1.4 million for the same
period in 2008 as a result of continuously conducting risk assessments of the loan portfolio. Also
during the quarter we expensed $524 thousand and reduced the carrying value of OREO properties.
FDIC insurance expense increased $540 thousand as a result of a special assessment. These expenses
were partially offset by securities gains of $649 thousand.
30
Net income for six months ended June 30, 2009 totaled $5.4 million compared to $2.8 million for the
same period in 2008. Diluted
earnings per share were $0.52 and $0.26 for the six months ended June 30, 2009 and 2008
respectively. Annualized return on average assets and average common equity for the six months
ended June 30, 2009 were 1.48% and 16.94% respectively. Net income for the six months ended June
30, 2009 was enhanced due in part to a $15.2 million increase in gains on sale of loans, as lower
interest rates contributed to a $498.4 million increase in mortgage loans originations of compared
to the same period in 2008.
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
increased $787 thousand for the three months ended June 30, 2009 over the same period in 2008. Net
interest margin was 3.41% for the second quarter of 2009 compared with 3.54% for the second quarter
of 2008. The yield on interest earning assets decreased 94 basis points from 6.42% for the second
quarter of 2008 to 5.48% for the same period in 2009. The cost of interest-bearing liabilities
decreased 99 basis points from 3.51% for the second quarter of 2008 to 2.52% during the same period
in 2009. Average earning assets for the three month period ending June 30, 2009 totaled $707.4
million compared to $593.1 million for the same period in 2008, an increase of $114.3 million. The
increase in average earning assets is due to a $10.4 million increase in investment securities, a
$64.9 million increase in loans, and a $39.1 million increase in interest-bearing balances.
Net interest income for the six months ended June 30, 2009 totaled $11.8 million, an increase of
$1.8 million over $10.0 million recorded for the same period in 2008. The volume rate analysis
table below details the change in net interest income. Net interest margin was 3.33% for the six
month period ended June 30, 2009 compared to 3.36% for the same period in 2008. Net interest
margin is impacted by $10.8 million in non-performing assets and the level of cash reserves.
Average earning assets for the six month period ended June 30, 2009 totaled $707.9 million up from
$598.4 million for the same period in 2008. Average loans outstanding increased approximately
$60.0 million, largely due to an increase in the volume of loans held for sale. Average interest
bearing balances increased approximately $40.6 million providing liquidity for increased loan
production. Average investment securities increased $9.0 million over 2008 levels.
31
The following table presents volume and rate analysis for the six months ended June 30, 2009 and
2008:
Volume and Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 compared to 2008 |
|
|
|
Change Due To: |
|
|
|
Increase / |
|
|
|
|
|
|
|
|
|
(Decrease) |
|
|
Volume |
|
|
Rate |
|
|
|
(In Thousands) |
|
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
189 |
|
|
$ |
222 |
|
|
$ |
(33 |
) |
Loans |
|
|
(81 |
) |
|
|
1,963 |
|
|
|
(2,044 |
) |
Interest bearing deposits |
|
|
(283 |
) |
|
|
233 |
|
|
|
(516 |
) |
|
|
|
Total Increase (Decrease) in
Interest Income |
|
|
(175 |
) |
|
|
2,418 |
|
|
|
(2,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
deposits |
|
|
70 |
|
|
|
78 |
|
|
|
(8 |
) |
Money market deposit accounts |
|
|
(943 |
) |
|
|
(419 |
) |
|
|
(524 |
) |
Savings accounts |
|
|
(21 |
) |
|
|
24 |
|
|
|
(45 |
) |
Time deposits |
|
|
(857 |
) |
|
|
1,716 |
|
|
|
(2,573 |
) |
|
|
|
Total
interest-
bearing
deposits |
|
|
(1,751 |
) |
|
|
1,399 |
|
|
|
(3,150 |
) |
FHLB Advances |
|
|
298 |
|
|
|
287 |
|
|
|
11 |
|
Securities sold under
agreements to repurchase |
|
|
(75 |
) |
|
|
73 |
|
|
|
(148 |
) |
Other short-term borrowings |
|
|
(114 |
) |
|
|
(3 |
) |
|
|
(111 |
) |
Long-term borrowings |
|
|
(198 |
) |
|
|
(96 |
) |
|
|
(102 |
) |
Subordinated debentures |
|
|
(74 |
) |
|
|
|
|
|
|
(74 |
) |
|
|
|
Total Increase (Decrease) in
Interest Expense |
|
|
(1,914 |
) |
|
|
1,660 |
|
|
|
(3,574 |
) |
|
|
|
Increase (Decrease) in Net
Interest Income |
|
$ |
1,739 |
|
|
$ |
758 |
|
|
$ |
981 |
|
|
|
|
32
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 six months ended June 30, 2009 and
2008.
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars In Thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities(1) |
|
$ |
71,915 |
|
|
$ |
861 |
|
|
|
4.79 |
% |
|
$ |
61,541 |
|
|
$ |
792 |
|
|
|
5.15 |
% |
Loans held for sale |
|
|
83,011 |
|
|
|
1,015 |
|
|
|
4.89 |
% |
|
|
31,246 |
|
|
|
526 |
|
|
|
6.73 |
% |
Loans(2) |
|
|
493,395 |
|
|
|
7,766 |
|
|
|
6.30 |
% |
|
|
480,298 |
|
|
|
8,100 |
|
|
|
6.75 |
% |
Interest bearing balances |
|
|
59,112 |
|
|
|
46 |
|
|
|
0.31 |
% |
|
|
20,025 |
|
|
|
96 |
|
|
|
1.92 |
% |
|
|
|
|
|
Total interest earning assets |
|
|
707,433 |
|
|
|
9,688 |
|
|
|
5.48 |
% |
|
|
593,110 |
|
|
|
9,514 |
|
|
|
6.42 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
6,842 |
|
|
|
|
|
|
|
|
|
|
|
6,286 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
13,312 |
|
|
|
|
|
|
|
|
|
|
|
9,539 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
17,426 |
|
|
|
|
|
|
|
|
|
|
|
6,007 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(7,806 |
) |
|
|
|
|
|
|
|
|
|
|
(8,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest earning assets |
|
|
29,774 |
|
|
|
|
|
|
|
|
|
|
|
13,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
737,207 |
|
|
|
|
|
|
|
|
|
|
$ |
606,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
34,348 |
|
|
$ |
96 |
|
|
|
1.12 |
% |
|
$ |
8,396 |
|
|
$ |
20 |
|
|
|
0.95 |
% |
Money market deposit accounts |
|
|
90,225 |
|
|
|
393 |
|
|
|
1.74 |
% |
|
|
120,019 |
|
|
|
667 |
|
|
|
2.22 |
% |
Savings accounts |
|
|
4,298 |
|
|
|
15 |
|
|
|
1.40 |
% |
|
|
2,632 |
|
|
|
11 |
|
|
|
1.67 |
% |
Time deposits |
|
|
323,216 |
|
|
|
2,233 |
|
|
|
2.76 |
% |
|
|
235,578 |
|
|
|
2,603 |
|
|
|
4.42 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
452,087 |
|
|
|
2,737 |
|
|
|
2.42 |
% |
|
|
366,625 |
|
|
|
3,301 |
|
|
|
3.60 |
% |
FHLB Advances |
|
|
26,054 |
|
|
|
267 |
|
|
|
4.10 |
% |
|
|
9,742 |
|
|
|
65 |
|
|
|
2.67 |
% |
Securities sold under agreements to repurchase and
federal fund purchased |
|
|
24,252 |
|
|
|
28 |
|
|
|
0.46 |
% |
|
|
14,103 |
|
|
|
60 |
|
|
|
1.70 |
% |
Other short-term borrowings |
|
|
15,923 |
|
|
|
37 |
|
|
|
0.93 |
% |
|
|
24,227 |
|
|
|
108 |
|
|
|
1.78 |
% |
FHLB Long-term borrowings |
|
|
24,224 |
|
|
|
217 |
|
|
|
3.58 |
% |
|
|
65,030 |
|
|
|
639 |
|
|
|
3.93 |
% |
FDIC Term Note |
|
|
29,996 |
|
|
|
297 |
|
|
|
3.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Debentures |
|
|
6,186 |
|
|
|
66 |
|
|
|
4.27 |
% |
|
|
6,186 |
|
|
|
89 |
|
|
|
5.75 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
578,722 |
|
|
|
3,649 |
|
|
|
2.52 |
% |
|
|
485,913 |
|
|
|
4,262 |
|
|
|
3.51 |
% |
|
|
|
|
|
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
83,854 |
|
|
|
|
|
|
|
|
|
|
|
63,244 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
10,493 |
|
|
|
|
|
|
|
|
|
|
|
1,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
673,069 |
|
|
|
|
|
|
|
|
|
|
|
550,715 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
64,138 |
|
|
|
|
|
|
|
|
|
|
|
56,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity: |
|
$ |
737,207 |
|
|
|
|
|
|
|
|
|
|
$ |
606,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(3) |
|
|
|
|
|
|
|
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4) |
|
|
|
|
|
$ |
6,039 |
|
|
|
3.41 |
% |
|
|
|
|
|
$ |
5,252 |
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
33
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars In Thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities(1) |
|
$ |
74,999 |
|
|
$ |
1,841 |
|
|
|
4.91 |
% |
|
$ |
65,983 |
|
|
$ |
1,652 |
|
|
|
5.01 |
% |
Loans held for sale |
|
|
77,008 |
|
|
|
1,930 |
|
|
|
5.01 |
% |
|
|
29,611 |
|
|
|
1,040 |
|
|
|
7.02 |
% |
Loans(2) |
|
|
488,024 |
|
|
|
15,518 |
|
|
|
6.36 |
% |
|
|
475,436 |
|
|
|
16,489 |
|
|
|
6.94 |
% |
Interest bearing balances |
|
|
67,909 |
|
|
|
78 |
|
|
|
0.23 |
% |
|
|
27,346 |
|
|
|
361 |
|
|
|
2.64 |
% |
|
|
|
|
|
Total interest earning assets |
|
|
707,940 |
|
|
|
19,367 |
|
|
|
5.47 |
% |
|
|
598,376 |
|
|
|
19,542 |
|
|
|
6.53 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
6,159 |
|
|
|
|
|
|
|
|
|
|
|
6,568 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
13,465 |
|
|
|
|
|
|
|
|
|
|
|
9,603 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
16,982 |
|
|
|
|
|
|
|
|
|
|
|
5,836 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(7,751 |
) |
|
|
|
|
|
|
|
|
|
|
(7,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest earning assets |
|
|
28,855 |
|
|
|
|
|
|
|
|
|
|
|
14,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
736,795 |
|
|
|
|
|
|
|
|
|
|
$ |
612,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
23,108 |
|
|
$ |
123 |
|
|
|
1.06 |
% |
|
$ |
8,621 |
|
|
$ |
53 |
|
|
|
1.23 |
% |
Money market deposit accounts |
|
|
80,763 |
|
|
|
634 |
|
|
|
1.57 |
% |
|
|
119,430 |
|
|
|
1,577 |
|
|
|
2.64 |
% |
Savings accounts |
|
|
4,480 |
|
|
|
32 |
|
|
|
1.43 |
% |
|
|
2,693 |
|
|
|
53 |
|
|
|
3.94 |
% |
Time deposits |
|
|
344,529 |
|
|
|
5,029 |
|
|
|
2.92 |
% |
|
|
254,034 |
|
|
|
5,886 |
|
|
|
4.63 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
452,880 |
|
|
|
5,818 |
|
|
|
2.57 |
% |
|
|
384,778 |
|
|
|
7,569 |
|
|
|
3.93 |
% |
FHLB Advances |
|
|
24,963 |
|
|
|
488 |
|
|
|
3.91 |
% |
|
|
10,246 |
|
|
|
190 |
|
|
|
3.71 |
% |
Securities sold under agreements to repurchase and
fed fund purchased |
|
|
25,466 |
|
|
|
66 |
|
|
|
0.52 |
% |
|
|
13,591 |
|
|
|
141 |
|
|
|
2.07 |
% |
Other short-term borrowings |
|
|
19,958 |
|
|
|
94 |
|
|
|
0.94 |
% |
|
|
20,292 |
|
|
|
208 |
|
|
|
2.05 |
% |
FHLB Long-term borrowings |
|
|
29,395 |
|
|
|
522 |
|
|
|
3.55 |
% |
|
|
57,431 |
|
|
|
1,189 |
|
|
|
4.14 |
% |
FDIC Term Note |
|
|
23,201 |
|
|
|
469 |
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Debentures |
|
|
6,186 |
|
|
|
128 |
|
|
|
4.14 |
% |
|
|
6,186 |
|
|
|
202 |
|
|
|
6.53 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
582,049 |
|
|
|
7,585 |
|
|
|
2.61 |
% |
|
|
492,524 |
|
|
|
9,499 |
|
|
|
3.86 |
% |
|
|
|
|
|
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
83,094 |
|
|
|
|
|
|
|
|
|
|
|
60,936 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
9,269 |
|
|
|
|
|
|
|
|
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
674,412 |
|
|
|
|
|
|
|
|
|
|
|
555,086 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
62,383 |
|
|
|
|
|
|
|
|
|
|
|
57,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity: |
|
$ |
736,795 |
|
|
|
|
|
|
|
|
|
|
$ |
612,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(3) |
|
|
|
|
|
|
|
|
|
|
2.86 |
% |
|
|
|
|
|
|
|
|
|
|
2.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4) |
|
|
|
|
|
$ |
11,782 |
|
|
|
3.33 |
% |
|
|
|
|
|
$ |
10,043 |
|
|
|
3.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
34
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 $33.2 million for the six month period ended
June 30, 2009 compared to $16.5 million for the same period in 2008; the increase is primarily due
to an increase in gains on sale of loans. Gains on the sale of loans originated by the Mortgage
Corporation totaled $28.3 million for the six month period ended June 30, 2009, up from $13.1
million for the same period of 2008 as a result of an increase of $498.4 million in loans
originated during the six months ended June 30, 2009.
Non-interest Expense
Non-interest expense totaled $32.4 million for the six months ended June 30, 2009, compared to
$20.4 million for the same period in 2008. Salaries and employee benefits totaled $15.4 million for
the six month period ended June 30, 2009, compared to $11.4 million for the same period last year,
primarily due to a $4.0 million increase in salaries and commissions as a result of the increase in
mortgage loan originations. Other operating expenses totaled $15.7 million for the six months ended
June 30, 2009, up from $7.8 million for the same period in 2008, an increase of $7.9 million. The
increase is primarily attributable to an increase of $3.1 million in management fees associated
with the operation of certain offices of the Mortgage Corporation and the increase in loan
production. Advertising expenses relating to the Mortgage Corporation increased $920 thousand and
the provision for losses on loans sold increased $1.7 million. OREO expense totaled $696 thousand
in 2009 as a result of writing down property values. FDIC insurance expense increased $541
thousand for the six months ended June 30, 2009, primarily as a result of a special assessment
imposed by FDIC to replenish the FDIC Deposit Insurance Fund.
The table below provides the composition of other operating expenses.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In Thousands) |
|
Advertising |
|
$ |
2,877 |
|
|
$ |
1,957 |
|
Investor fees |
|
|
902 |
|
|
|
516 |
|
Management fees |
|
|
4,371 |
|
|
|
1,296 |
|
Provision for losses on
loans sold |
|
|
2,724 |
|
|
|
1,064 |
|
Buy down expense |
|
|
261 |
|
|
|
171 |
|
Business and franchise tax |
|
|
224 |
|
|
|
188 |
|
Accounting and auditing
service |
|
|
307 |
|
|
|
317 |
|
Consulting fees |
|
|
178 |
|
|
|
182 |
|
OREO Expense |
|
|
696 |
|
|
|
|
|
Credit report expenses |
|
|
265 |
|
|
|
142 |
|
Data processing |
|
|
247 |
|
|
|
241 |
|
FDIC insurance |
|
|
707 |
|
|
|
166 |
|
Other |
|
|
1,956 |
|
|
|
1,514 |
|
|
|
|
|
|
|
|
|
|
$ |
15,715 |
|
|
$ |
7,754 |
|
|
|
|
|
|
|
|
35
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.
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 June 30, 2009, overnight interest-bearing balances totaled $26.8 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 June 30, 2009, the Bank had $103.7 million
available under a line of credit with the FHLB and had outstanding short-term loans of $24.7
million, and an additional $23.3 million in term loans at fixed rates ranging from 2.55% to 5.07%
leaving $55.7 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. As of
June 30, 2009, outstanding repurchase agreements totaled approximately $23.5 million and commercial
paper issued and other short-term borrowings amounted to $12.4 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 June 30, 2009, these lines amounted to $21.5
million. 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.
36
The following table presents the composition of borrowings at June 30, 2009 and December 31, 2008.
Borrowed Funds Distribution
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars In Thousands) |
|
At Period End |
|
|
|
|
|
|
|
|
FHLB advances |
|
$ |
24,702 |
|
|
$ |
44,333 |
|
FHLB long-term borrowings |
|
|
23,274 |
|
|
|
41,107 |
|
Securities sold under agreements to
repurchase and federal funds purchased |
|
|
23,499 |
|
|
|
31,388 |
|
Other short-term borrowings |
|
|
12,404 |
|
|
|
27,854 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,186 |
|
FDIC term note |
|
|
29,996 |
|
|
|
|
|
|
|
|
|
|
|
|
Total at period end |
|
$ |
120,061 |
|
|
$ |
150,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Year Ended |
|
|
|
Ended |
|
|
December 31, |
|
|
|
June
30, 2009 |
|
|
2008 |
|
|
|
(Dollars In Thousands) |
|
Average Balances |
|
|
|
|
|
|
|
|
FHLB advances |
|
$ |
24,963 |
|
|
$ |
13,524 |
|
FHLB long-term borrowings |
|
|
29,395 |
|
|
|
54,173 |
|
Securities sold under agreements to
repurchase and fed fund purchased |
|
|
25,466 |
|
|
|
16,433 |
|
Other short-term borrowings |
|
|
19,958 |
|
|
|
20,697 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,186 |
|
FDIC term note |
|
|
23,201 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average balance |
|
$ |
129,169 |
|
|
$ |
111,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate paid on all borrowed funds |
|
|
2.74 |
% |
|
|
3.32 |
% |
|
|
|
|
|
|
|
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.
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
37
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 June 30, 2009. The table below reflects the outcome of these analyses at June
30, 2009, assuming budgeted growth in the balance sheet. According to the model run for the six
month period ended June 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
2.2%. 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 June 30, 2009.
|
|
|
|
|
Increase in |
|
|
|
Hypothetical Percentage |
Federal Funds |
|
Hypothetical Percentage |
|
Change in Economic |
Target Rate |
|
Change in Earnings |
|
Value of Equity |
3.00%
|
|
8.54%
|
|
-2.70% |
2.00%
|
|
5.10%
|
|
-2.40% |
1.00%
|
|
2.20%
|
|
-1.71% |
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, as 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 sell forward
commitment or a Mandatory sell forward 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 sell forward 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.
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
38
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
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
The following table provides information with respect to purchases by the Corporation of its common
shares during the quarter ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities (1) |
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number of |
|
|
(d) Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
of Shares that may |
|
|
|
(a) Total Number of |
|
|
(b) Average Price |
|
|
Part of Publicly |
|
|
yet be Purchased |
|
Period |
|
Shares Purchased |
|
|
Paid Per Share |
|
|
Announced Plan |
|
|
Under the Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1- April 30,
2009 |
|
|
4,588 |
|
|
|
4.90 |
|
|
|
4,588 |
|
|
|
404,410 |
|
May 1- May 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404,410 |
|
June 1- June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,588 |
|
|
$ |
4.90 |
|
|
|
4,588 |
|
|
|
404,410 |
|
|
|
|
(1) |
|
This table details the Corporations purchases of its common stock during the quarter ended June 30, 2009 pursuant to a Share
Repurchase Program announced on March 20, 2007. On April 22, 2008 the number of shares authorized for repurchase under
the Share Repurchase Program was increased from 2,000,000 to 2,500,000 shares. The Share Repurchase Program does not have
an
expiration
date. |
Item 3. Defaults Upon Senior Securities
None.
39
Item 4. Submission of Matters to a Vote of Security Holders
The 2009 Annual Meeting of Shareholders of the Corporation was held on May 19, 2009.
At the 2009 Annual Meeting, the following persons were elected to serve as Class I Directors
of the Corporation, to serve
until the 2012 Annual Meeting, having received the following votes:
|
|
|
|
|
|
|
|
|
Name |
|
For |
|
Withheld |
|
|
|
|
|
|
|
|
|
Michael W. Clarke |
|
|
9,455,034 |
|
|
|
27,992 |
|
James L. Jadlos |
|
|
8,551,839 |
|
|
|
931,637 |
|
The following Class II and III Directors, whose terms expire in 2010 and 2011, respectively,
continued in office: Class II Thomas M. Kody and Robert C. Shoemaker; Class III John W.
Edgemond and J. Randolph Babbitt.
Shareholders also approved the Access National Corporation 2009 Stock Option Plan with the
following votes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Non |
|
Name |
|
For |
|
|
Against |
|
|
Abstain |
|
|
-Vote |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approval of the
Access National
Corporation 2009
Stock Option Plan |
|
|
5,900,693 |
|
|
|
1,134,424 |
|
|
|
27,502 |
|
|
|
2,420,406 |
|
Item 5. Other Information
None.
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
|
|
Access National Corporation 2009 Stock Option Plan, effective
May 19, 2009 (incorporated by reference to Appendix A to
Access National Corporations Proxy Statement filed April 15,
2009) |
|
|
|
10.10.1
|
|
Form of Stock Option Agreement for Employee under 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) |
40
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: August 13, 2009 |
By: |
/s/ Michael W. Clarke
|
|
|
|
Michael W. Clarke |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: August 13, 2009 |
By: |
/s/ Charles Wimer
|
|
|
|
Charles Wimer |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial & Accounting Officer) |
|
|
41