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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-49929
Access National Corporation
(Exact name of registrant as specified in its charter)
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Organized under the laws of Virginia |
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82-0545425 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number) |
1800 Robert Fulton Drive, Suite 310, Reston, Virginia 20191
(Address of principal executive office) (Zip Code)
(703) 871-2100
(Registrants telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class
n/a
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Name of each exchange on which registered
n/a |
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Securities registered pursuant to Section 12 (g) of the Act: |
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Common Stock $.835 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
Yes o No þ
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 checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K þ
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act) o Yes þ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant, computed by reference to the price at which the stock was last sold as of the last
business day of the registrants most recently completed second fiscal quarter was approximately
$41,618,000.
As of March 15, 2006, there were 8,043,130 shares of Common Stock, par value $.835 per share of
Access National Corporation issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for the Corporations Annual Meeting of
Shareholders to be held on May 23, 2006, are incorporated by reference in Part III of this Form
10-K.
Access National Corporation
FORM 10-K
INDEX
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PART I |
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Item 1 Business |
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Item 1A Risk Factors |
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10 |
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Item 1B Unresolved Staff Comments |
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Item 2 Properties |
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Item 3 Legal Proceedings |
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Item 4 Submission of Matters to a Vote of Security Holders |
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PART II |
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Item 5 Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
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Item 6 Selected Financial Data |
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Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations |
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Item 7A Quantitative and Qualitative Disclosures About Market Risk |
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Item 8 Financial Statements and Supplementary Data |
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Item 9 Changes in and Disagreements with Accountants On
Accounting and Financial Disclosure |
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Item 9A Controls and Procedures |
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Item 9B Other Information |
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PART III |
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Item 10 Directors and Executive Officers of the Registrant |
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Item 11 Executive Compensation |
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Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
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Item 13 Certain Relationships and Related Transactions |
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Item 14 Principal Accountant Fees and Services |
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70 |
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PART IV |
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Item 15 Exhibits, Financial Statement Schedules |
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Signatures |
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1
PART I
In addition to historical information, the following report contains forward looking statements
that are subject to risks and uncertainties that could cause the Corporations actual results to
differ materially from those anticipated. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect managements analysis only as of the date of the
Report.
ITEM 1 BUSINESS
Access National Corporation, (the Corporation) was organized April 17, 2002 under the laws of
Virginia to operate as a bank holding company. The Corporation has three wholly owned
subsidiaries: Access National Bank, Access Capital Trust I and Access Capital Trust II. Effective
June 15, 2002, pursuant to an Agreement and Plan of Reorganization dated April 18, 2002 between the
Corporation and Access National Bank (the Bank), the Corporation acquired all of the outstanding
stock of the Bank in a statutory share exchange transaction. The Corporation does not have any
significant operations and serves primarily as the parent company for the Bank. Access Capital
Trust I and Access Capital Trust II were formed for the purpose of issuing redeemable capital
securities. The Corporations income is primarily derived from dividends received from the Bank.
These dividends are determined by the Banks earnings and capital position.
Access National Bank is the primary operating business of the Corporation. The Bank provides
commercial credit, deposit and mortgage services to the middle market businesses and associated
professionals, primarily in the greater Washington, D.C. area. The Bank was organized under federal
law as a national banking association to engage in a general banking business to serve the
communities in and around Northern Virginia. The Bank opened for business on December 1, 1999 at
14006 Lee-Jackson Memorial Highway in Chantilly, Virginia. The headquarters for the Corporation,
Bank and Access National Mortgage Corporation (the Mortgage Corporation) is located at 1800
Robert Fulton Drive, Reston, Virginia. Deposits with the Bank are insured to the maximum amount
provided by the Federal Deposit Insurance Corporation. The Bank offers a comprehensive range of
financial services and products and specializes in providing customized financial services to small
and medium sized businesses, professionals, and associated individuals. The Bank provides its
customers with personal customized service utilizing the latest technology and delivery channels.
Bank revenues are derived from interest and fees received in connection with loans, deposits and
investments. Interest paid on deposits and borrowings are the major expenses followed by
administrative and operating expenses. Revenues from the Mortgage Corporation consist primarily of
gains from the sale of loans and loan origination fees. Major expenses of the Mortgage Corporation
consist of personnel, interest, advertising and other operating expenses.
The economy, interest rates, monetary and fiscal policies of the federal government and regulatory
policies have a significant influence on the banking industry.
The Bank has experienced consistent growth and profitability since inception. Our goal is to become
a leading provider of financial services to small to medium sized businesses, and professionals in
Northern Virginia. Our strategy is to know the needs of our clients and to deliver the
corresponding financial services. We employ highly qualified personnel and emphasize the use of
the latest technology in operations and the services we provide. Our marketing efforts are
directed to prospective clients that value high quality service and that are, or have the potential
to become, highly profitable.
Assets at year end totaled over $537.0 million and net income amounted to $5.9 million. The Bank
operates from three banking centers located in Chantilly, Tysons Corner and Reston, Virginia and
online at www.accessnationalbank.com. Additional offices may be added from time to time based upon
managements constant analysis of the market and opportunities.
On December 1, 1999, the Bank acquired Access National Mortgage Corporation, formerly known as
Mortgage Investment Corporation. The Mortgage Corporation is headquartered in Reston, Virginia. The
Mortgage Corporation specializes in the origination of conforming and non-conforming residential
mortgages primarily in the greater Washington, D.C. Metropolitan Area and the surrounding areas of
its branch locations. The Mortgage Corporation has established offices throughout Virginia, in
Roanoke, Richmond, Reston, Fredericksburg, Staunton and Vienna. Offices outside the state of
Virginia include Westminster and Bowie in Maryland, Clearwater in Florida, Nashville in Tennessee
and Denver in Colorado.
On April 10, 2002 the Bank acquired Access National Leasing Corporation (the Leasing
Corporation), formerly known as Commercial Finance Corporation. The Leasing Corporation is
presently inactive. However commercial and industrial lease financing is offered through and
managed by the Bank.
On May 19, 2003 the Bank formed Access Real Estate LLC (Access Real Estate). The sole purpose of
forming Access Real Estate was to acquire and hold title to real estate for the Corporation. On
July 10, 2003, Access Real Estate acquired a 45,000 square foot, three story office building
located at 1800 Robert Fulton Drive in Reston, Virginia at a cost of approximately $7.1 million
that serves as the corporate headquarters for the Corporation, Bank, and Mortgage Corporation.
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On July 19, 2004, the Corporations common stock commenced trading on the NASDAQ National Market
system under the ticker symbol ANCX.
On August 17, 2004, the Bank acquired 100% of the common stock in United First Mortgage Corporation
(UFM) from Community First Bank N.A of Bluefield, Virginia in a stock purchase transaction. The
transaction resulted in the Bank recognizing extraordinary income during the third quarter in the
amount $330 thousand, net of income taxes. The operations of UFM have been merged into that of the
Mortgage Corporation and the corporate entity acquired is now inactive.
On
July 25, 2005 Access Real Estate purchased Lot # 1 in the Fredericksburg Business Park at a cost of
$1.2 million. This property was purchased for future expansion of the Bank and Mortgage
Corporation. The property is presently undeveloped.
On December 23, 2005, the Corporation
issued a 2 for 1 stock split. The authorized shares of common stock increased from 30,000,000
to 60,000,000 and par value decreased from $1.67 to $.835. Prior periods have been restated to
reflect the stock split.
Our Strategy historical and prospective
We consider our business to be a young and emerging enterprise that is well positioned to be an
effective competitor in the financial services industry over the long term. Our view of the
financial services market place is that community banks must be effective in select market niches
that are under-served and stay clear of competing with large national competitors on a head to head
basis for broad based consumer business. We started by organizing a de novo national bank in 1999.
The focus of the bank was and is serving the small to middle market businesses and their
associated professionals in the greater Washington, D.C. Metropolitan Area. We find that large
national competitors are ineffective at addressing this market as it is difficult to distinguish
where a businesss financial needs stop and the personal financial needs of that businesss
professionals start. Emerging businesses and the finances of their owners are best served
hand-in-hand.
Our core competency is judgmental discipline of commercial lending based upon personnel and
practices that help our clients strategize and grow their businesses from a financial perspective.
As financial success takes hold in the business, personal goals and wealth objectives of the
business owners become increasingly important. Our second competency is a derivative of the first.
We have the personnel and know how to provide private banking services, the skills and strategy
that assist our individual clients to acquire assets, build wealth and manage their resources.
Mortgage banking and the related activities in our model goes hand-in-hand with supplying effective
private banking services. Unlike most banking companies, the heart of our Mortgage Corporation is
ingrained into our commercial bank, serving the same clients side-by-side in a coordinated and
seamless fashion. Lending is not enough in todays environment. The credit services must be
backed up by competitive deposit and cash management products and operational excellence. We have
made significant investments in skilled personnel and the latest technology to ensure we can
deliver on these promises.
We generally expect to have fewer branch locations compared to similar size banking companies. We
do not view our branch network as a significant determinant of our growth. Our marketing
strategies focus on benefits other than branch location convenience.
The acquisition of the Mortgage Corporation in 1999 provided two key benefits to our strategy: 1)
it solidified our second competency from a personnel and operational perspective that would have
taken years to replicate with organic growth alone; and 2) it provided a fee income and overhead
base from which to launch a new banking business. Strong profits and cash flow from the Mortgage
Corporation in the early years subsidized the growth and development of the Bank and allowed for
the acceleration of its growth plans and, in time, its profitability.
The long term goal was and is to generate 70-80% of the Corporations earnings from the core
business bank, with the rest of our consolidated earnings to be generated from related fee income
activities. At the present time, the sole related activity remains our Mortgage Corporation. We
will consider entering other related fee income businesses that serve our target market as
opportunities, market conditions and our capacity dictate. A detailed review of the Segment
Reporting elements of the financial statements and analysis readily reveal that contribution from
our Banking Segment has grown steadily.
The acquisition of UFM in 2004 allowed us to acquire mortgage offices and skilled professionals
that are more consistent with our core bank strategy while jettisoning other offices that no longer
fit strategically. This strategic acquisition has helped us more closely align the activity of our
two key business segments.
We expect to grow our business bank by continuing to hire skilled personnel, train our own and
provide a sound infrastructure that facilitates the success of businesses, their owners and key
personnel, not only today but tomorrow and on into the ensuing decades.
Lending Activities
The Banks lending activities involve commercial loans, commercial real estate loans, commercial
and residential real estate construction loans, residential mortgage loans, home equity loans, and
consumer loans. These lending activities provide access to
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credit to small businesses, professionals and consumers in the greater Washington, D.C.
Metropolitan Area. Loans originated by the Bank are classified as loans held for investment. The
Mortgage Corporation originates residential mortgages and home equity loans that are only held
temporarily pending their sale to third parties and in some cases the Bank. The Mortgage
Corporation also brokers loans that do not conform to existing products offered. Each of our
principal loan types are described below.
At December 31, 2005 loans held for investment totaled $369.7 million compared to $292.6 million at
year end 2004. The increase in loans is attributable to continued expansion of our customer base
and the purchase of $19.2 million in first trust mortgage loans from our mortgage subsidiary. The
Bank is predominantly a secured lender. Secured loans comprise over 99% of the total loan
portfolio. Table 4, Loan Portfolio, reflects the composition of loans held for investment.
The Banks lending activities are subject to a variety of lending limits imposed by federal law.
While differing limits apply in certain circumstances based on the type of loan, in general, the
Banks lending limit to any one borrower on loans that are not fully secured by readily marketable
or other permissible collateral is equal to 15% of the Banks capital and surplus. The Bank has
established relationships with correspondent banks to participate in loans when loan amounts exceed
the Banks legal lending limits or internal lending policies.
We have an established credit policy that includes procedures for underwriting each type of loan
and lending personnel have been assigned specific authorities based upon their experience. Loans
in excess of an individual loan officers authority are presented to our Loan Committee for
approval. The Loan Committee meets weekly to facilitate a timely approval process for our clients.
Loans are approved based on the borrowers capacity for credit, collateral and sources of
repayment. Loans are actively monitored to detect any potential performance issues. We manage our
loans within the context of a risk grading system developed by management based upon extensive
experience in administering loan portfolios in our market. Payment performance is carefully
monitored for all loans. When loan repayment is dependent upon an operating business or investment
real estate, periodic financial reports, site visits and select asset verification procedures are
used to ensure that we accurately rate the relative risk of our assets. Based upon criteria that
are established by management and the Board of Directors, the degree of monitoring is escalated or
relaxed for any given borrower based upon our assessment of the future repayment risk.
Loan Portfolio Loans Held for Investment. The composition of Loans Held for Investment is
summarized in Table 4. The table and numbers discussed in this section do not reflect information
regarding Loans Held for Sale.
Commercial Loans: Commercial Loans represent 10.4% of our held for investment portfolio as
of December 31, 2005. These loans are 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. These loans are underwritten based upon our
assessment of the obligor(s) ability to generate operating cash flow in the future necessary to
repay the loan. To address the risks associated with the uncertainties of future cash flow, 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.
Real Estate Construction Loans: Real Estate Construction Loans, also known as construction
and land development loans, comprise 10.0% of our held for investment loan portfolio, as of
December 31, 2005. These loans generally fall into one of three circumstances: 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 up-dated 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.
Commercial Real Estate Loans: Also known as Commercial Mortgages, loans in this category
represent 37.2% of our loan portfolio held for investment, as of December 31, 2005. 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.
Residential Real Estate Loans: This category includes loans secured by first or second
mortgages on one to four family residential properties and represent 42.2% of the portfolio, as of
December 31, 2005. Of this amount, the following sub-categories exist as a percentage of the whole
Residential Real Estate Loan portfolio: Home Equity Lines of Credit 14.4%; First Trust Mortgage
Loans 78.6%; Loans Secured by a Junior Trust 3.9%; Multi-family loans and loans secured by Farmland
3.1%.
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Home Equity Loans 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 borrower to access the equity in their home or investment property and use the proceeds
for virtually any purpose. Home Equity Loans are most frequently secured by a second lien on
residential property. 1-4 Family Residential First Trust Loan, or First Mortgage Loan, proceeds
are used to acquire or refinance the primary financing on owner occupied and residential investment
properties. Junior Trust Loans, or Loans Secured by a Second Trust Loans, are 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 up-dated by our management and Board of
Directors: repayment source and capacity, value of the underlying property, credit history, savings
pattern and stability.
Consumer Loans: Consumer Loans make up less than 1% of our loan portfolio. Most loans are
well secured with assets other than real estate, such as marketable securities or automobiles.
Very few 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 up-dated by our management and Board of Directors: repayment source
and capacity, collateral value, savings pattern, credit history and stability.
Loans Held for Sale (LHFS) Loans Held for Sale are originated by Access National Mortgage
Corporation, a wholly owned subsidiary of Access National Bank. Loans of these types are
residential mortgage loans extended to consumers and underwritten in accordance with standards set
forth by an institutional investor to whom we expect to sell the loan 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 in our name and carried on our books until the loan is delivered to and
purchased by an investor. In 2005, we originated $754 million of loans processed in this manner.
Repayment risk of this activity is minimal since the loans are on the books for a short time
period. Loans are sold without recourse and subject to industry standard representations and
warranties. The risks associated with this activity center around borrower fraud and failure of
our investors to purchase the loans. These risks are addressed by the on-going maintenance of an
extensive quality control program, an internal audit and verification program, and a selective
approval process for investors. To date we have been able to absorb the financial impact of these
risks without material impact on our operating performance. At December 31, 2005 loans held for
sale totaled $45.0 million compared to $36.2 million at year end 2004. The increase in loans held
for sale at year end 2005 is due to the expansion in our bulk loan sale initiative. This initiative
entails accumulating loans, the interest rate for which has not been locked with an investor, and
then obtaining bids on a large pool of loans. During the accumulation period the interest rate risk
is managed by issuing forward commitments.
Brokered Loans
Brokered loans are underwritten and closed by a third party lender. We are paid a fee for
procuring and packaging brokered loans. In 2005, we originated a total volume of $237 million in
residential mortgage loans under these types of delivery methods. Brokered loans accounted for
23.9% of the total loan volume of Access National Mortgage Corporation.
Deposits
Deposits are the primary source of funding loan growth. Average deposits totaled $337.4 million, a
43.3% increase over 2004. Deposits totaled $419.6 million on December 31, 2005, compared to $317.4
million on December 31, 2004, an increase of $102.2 million. Deposits have grown as a result of
increasing our client base and through local advertising of our deposit products. Most of our core
depositors are also borrowers or accounts related to borrowers. Table 7, Average Deposits and
Average Rates Paid, reflects the composition of deposits and interest rates.
Market Area
Access National Corporation, Access National Bank, and Access National Mortgage Corporation are
headquartered in Fairfax County and serve the Northern Virginia region. Fairfax County is a
diverse and thriving urban county. As the most populous jurisdiction in both Virginia and the
Washington D.C. Metropolitan Area, the Countys population exceeds that of seven states. The
median household income of Fairfax County is one of the highest in the nation. Northern Virginia
had a population of 2.16 million according to the 2000 Census. The proximity to Washington, D.C.
and the influence of the federal government and its spending provides somewhat of a recession
shelter.
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Competition
The Bank competes with virtually all banks and financial institutions which offer services in its
market area. Much of this competition comes from large financial institutions headquartered
outside the state of Virginia, each of which has greater financial and other resources to conduct
large advertising campaigns and offer incentives. To attract business in this competitive
environment, the Bank relies on personal contact by its officers and directors, local promotional
activities, and the ability to provide personalized custom services to small businesses and
professionals. In addition to providing full service banking, the Bank offers and promotes
alternative and modern conveniences such as internet banking, automated clearinghouse transactions
and offers courier services for commercial clients.
Employees
At December 31, 2005 the Corporation had 242 employees, 72 of whom were employed by the Bank and
170 of whom were employed by the Mortgage Corporation. The Bank recruits experienced and motivated
personnel and emphasizes the use of technology. Employee relations have been good.
Supervision and Regulation
Set forth below is a brief description of the material laws and regulations that affect the
Corporation. The description of these statutes and regulations is only a summary and does not
purport to be complete. This discussion is qualified in its entirety by reference to the statutes
and regulations summarized below. No assurance can be given that these statutes or regulations will
not change in the future.
General. The Corporation is subject to the periodic reporting requirements of the Securities and
Exchange Act of 1934, as amended (the Exchange Act), which include, but are not limited to, the
filing of annual, quarterly and other reports with the Securities and Exchange Commission (the
SEC). As an Exchange Act reporting company, the Corporation is directly affected by the
Sarbanes-Oxley Act of 2002 (the SOX), which aimed at improving corporate governance and reporting
procedures and requires expanded disclosure of the Corporations corporate operations and internal
controls. The Corporation is already complying with new SEC and other rules and regulations
implemented pursuant to the SOX and intends to comply with any applicable rules and regulations
implemented in the future. Although the Corporation has incurred, and expects to continue to incur,
additional expense in complying with the provisions of the SOX and the resulting regulations, such
compliance has not had a material impact on the Corporations financial condition or results of
operations and the management does not expect it to in the future.
The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of
1956, and is registered as such with, and subject to the supervision of, the Board of Governors of
the Federal Reserve System and the Federal Reserve Bank of Richmond (the FRB). Generally, a bank
holding company is required to obtain the approval of the FRB before it may acquire all or
substantially all of the assets of any bank, and before it may acquire ownership or control of the
voting shares of any bank if, after giving effect to the acquisition, the bank holding company
would own or control more than 5% of the voting shares of such bank. The FRBs approval is also
required for the merger or consolidation of bank holding companies.
The Corporation is required to file periodic reports with the FRB and provide any additional
information as the FRB may require. The FRB also has the authority to examine the Corporation and
the Bank, as well as any arrangements between the Corporation and the Bank, with the cost of any
such examinations to be borne by the Corporation.
Banking subsidiaries of bank holding companies are also subject to certain restrictions imposed by
Federal law in dealings with their holding companies and other affiliates. Subject to certain
restrictions set forth in the Federal Reserve Act, a bank can loan or extend credit to an
affiliate, purchase or invest in the securities of an affiliate, purchase assets from an affiliate
or issue a guarantee, acceptance or letter of credit on behalf of an affiliate, as long as the
aggregate amount of such transactions of a bank and its subsidiaries with its affiliates does not
exceed 10% of the capital stock and surplus of the bank on a per affiliate basis or 20% of the
capital stock and surplus of the bank on an aggregate affiliate basis. In addition, such
transactions must be on terms and conditions that are consistent with safe and sound banking
practices. In particular, a bank and its subsidiaries generally may not purchase from an affiliate
a low-quality asset, as defined in the Federal Reserve Act. These restrictions also prevent a bank
holding company and its other affiliates from borrowing from a banking subsidiary of the bank
holding company unless the loans are secured by marketable collateral of designated amounts.
Additionally, the Corporation and its subsidiary are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of property or furnishing of
services.
A bank holding company is prohibited from engaging in or acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company engaged in non-banking activities. A
bank holding company may, however, engage in or acquire an interest in a company that engages in
activities which the FRB has determined by regulation or order are so closely related to banking as
to be a proper incident to banking. In making these determinations, the FRB considers whether the
performance of such activities
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by a bank holding company would offer advantages to the public that outweigh possible adverse
effects.
As a national bank, the Bank is subject to regulation, supervision and regular examination by the
Office of the Comptroller of the Currency (the Comptroller). Each depositors account with the
Bank is insured by the Federal Deposit Insurance Corporation (the FDIC) to the maximum amount
permitted by law, which is currently $100,000 for each depositor. The Bank is also subject to
certain regulations promulgated by the FRB and applicable provisions of Virginia law, insofar as
they do not conflict with or are not preempted by Federal banking law.
The regulations of the FDIC, the Comptroller and FRB govern most aspects of the Corporations
business, including deposit reserve requirements, investments, loans, certain check clearing
activities, issuance of securities, payment of dividends, branching, deposit interest rate ceilings
and numerous other matters. As a consequence of the extensive regulation of commercial banking
activities in the United States, the Corporations business is particularly susceptible to changes
in state and Federal legislation and regulations, which may have the effect of increasing the cost
of doing business, limiting permissible activities or increasing competition.
Governmental Policies and Legislation. Banking is a business that depends primarily on interest
rate differentials. In general, the difference between the interest rates paid by the Bank on its
deposits and its other borrowings and the interest rates received by the Bank on loans extended to
its customers and securities held in its portfolio, comprise the major portion of the Corporations
earnings. These rates are highly sensitive to many factors that are beyond the Corporations
control. Accordingly, the Corporations growth and earnings are subject to the influence of
domestic and foreign economic conditions, including inflation, recession and unemployment.
The commercial banking business is affected not only by general economic conditions, but is also
influenced by the monetary and fiscal policies of the Federal government and the policies of its
regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with
objectives such as curbing inflation and combating recession) by its open-market operations in U.S.
Government securities, by adjusting the required level of reserves for financial institutions
subject to its reserve requirements and by varying the discount rates applicable to borrowings by
depository institutions. The actions of the FRB in these areas influence the growth of bank loans,
investments and deposits, and also affect interest rates charged on loans and paid on deposits. The
nature and impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing the cost of doing
business, limiting or expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. Proposals to change the laws and regulations governing the
operations and taxation of bank holding companies, banks and other financial institutions are
frequently made in Congress, in the Virginia Legislature and brought before various bank holding
company and bank regulatory agencies. The likelihood of any major changes and the impact such
changes might have are impossible to predict.
Dividends. There are both federal and state regulatory restrictions on dividend payments by both
the Bank and the Corporation that may affect the Corporations ability to pay dividends on its
Common Stock. As a bank holding company, the Corporation is a separate legal entity from the Bank.
Virtually all of the Corporations income results from dividends paid to the Corporation by the
Bank. The amount of dividends that may be paid by the Bank depends upon the Banks earnings and
capital position and is limited by federal and state law, regulations and policies. In addition to
specific regulations governing the permissibility of dividends, both the FRB and the Virginia
Bureau of Financial Institutions are generally authorized to prohibit payment of dividends if they
determine that the payment of dividends by the Bank would be an unsafe and unsound banking
practice. See Item 5 Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Capital Requirements. The FRB, the Comptroller and the FDIC have adopted risk-based capital
adequacy guidelines for bank holding companies and banks. These capital adequacy regulations are
based upon a risk-based capital determination, whereby a bank holding companys capital adequacy is
determined in light of the risk, both on- and off-balance sheet, contained in the companys assets.
Different categories of assets are assigned risk weightings and are counted at a percentage of
their book value.
The regulations divide capital between Tier 1 capital (core capital) and Tier 2 capital. For a bank
holding company, Tier 1 capital consists primarily of common stock, related surplus, non-cumulative
perpetual preferred stock, minority interests in consolidated subsidiaries and a limited amount of
qualifying cumulative preferred securities. Goodwill and certain other intangibles are excluded
from Tier 1 capital. Tier 2 capital consists of an amount equal to the allowance for loan and lease
losses up to a maximum of 1.25% of risk weighted assets, limited other types of preferred stock not
included in Tier 1 capital, hybrid capital instruments and term subordinated debt. Investments in
and loans to unconsolidated banking and finance subsidiaries that constitute capital of those
subsidiaries are excluded from capital. The sum of Tier 1 and Tier 2 capital constitutes qualifying
total capital. The guidelines generally require banks to maintain a total qualifying capital to
weighted risk assets level of 8% (the Risk-based Capital Ratio). Of the total 8%, at least 4% of
the total qualifying capital to weighted risk assets (the Tier 1 Risk-based Capital Ratio) must
be Tier 1 capital.
7
The FRB, the Comptroller and the FDIC have adopted leverage requirements that apply in addition to
the risk-based capital requirements. Banks and bank holding companies are required to maintain a
minimum leverage ratio of Tier 1 capital to average total consolidated assets (the Leverage
Ratio) of at least 3.0% for the most highly-rated, financially sound banks and bank holding
companies and a minimum Leverage Ratio of at least 4.0% for all other banks. The FDIC and the FRB
define Tier 1 capital for banks in the same manner for both the Leverage Ratio and the Risk-based
Capital Ratio. However, the FRB defines Tier 1 capital for bank holding companies in a slightly
different manner. An institution may be required to maintain Tier 1 capital of at least 4% or 5%,
or possibly higher, depending upon the activities, risks, rate of growth, and other factors deemed
material by regulatory authorities. As of December 31, 2005, the Corporation and Bank both met all
applicable capital requirements imposed by regulation.
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). There are five capital
categories applicable to insured institutions, each with specific regulatory consequences. If the
appropriate Federal banking agency determines, after notice and an opportunity for hearing, that an
insured institution is in an unsafe or unsound condition, it may reclassify the institution to the
next lower capital category (other than critically undercapitalized) and require the submission of
a plan to correct the unsafe or unsound condition. The Comptroller has issued regulations to
implement these provisions. Under these regulations, the categories are:
a. Well Capitalized The institution exceeds the required minimum level for each relevant
capital measure. A well capitalized institution is one (i) having a Risk-based Capital Ratio of 10%
or greater, (ii) having a Tier 1 Risk-based Capital Ratio of 6% or greater, (iii) having a Leverage
Ratio of 5% or greater and (iv) that is not subject to any order or written directive to meet and
maintain a specific capital level for any capital measure.
b. Adequately Capitalized The institution meets the required minimum level for each
relevant capital measure. No capital distribution may be made that would result in the institution
becoming undercapitalized. An adequately capitalized institution is one (i) having a Risk-based
Capital Ratio of 8% or greater, (ii) having a Tier 1 Risk-based Capital Ratio of 4% or greater and
(iii) having a Leverage Ratio of 4% or greater or a Leverage Ratio of 3% or greater if the
institution is rated composite 1 under the CAMELS (Capital, Assets, Management, Earnings, Liquidity
and Sensitivity to market risk) rating system.
c. Undercapitalized The institution fails to meet the required minimum level for any
relevant capital measure. An undercapitalized institution is one (i) having a Risk-based Capital
Ratio of less than 8% or (ii) having a Tier 1 Risk-based Capital Ratio of less than 4% or (iii)
having a Leverage Ratio of less than 4%, or if the institution is rated a composite 1 under the
CAMEL rating system, a Leverage Ratio of less than 3%.
d. Significantly Undercapitalized The institution is significantly below the required
minimum level for any relevant capital measure. A significantly undercapitalized institution is one
(i) having a Risk-based Capital Ratio of less than 6% or (ii) having a Tier 1 Risk-based Capital
Ratio of less than 3% or (iii) having a Leverage Ratio of less than 3%.
e. Critically Undercapitalized The institution fails to meet a critical capital level
set by the appropriate federal banking agency. A critically undercapitalized institution is one
having a ratio of tangible equity to total assets that is equal to or less than 2%.
An institution which is less than adequately capitalized must adopt an acceptable capital
restoration plan, is subject to increased regulatory oversight, and is increasingly restricted in
the scope of its permissible activities. Each company having control over an undercapitalized
institution must provide a limited guarantee that the institution will comply with its capital
restoration plan. Except under limited circumstances consistent with an accepted capital
restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may
not acquire another institution, establish additional branch offices or engage in any new line of
business unless determined by the appropriate Federal banking agency to be consistent with an
accepted capital restoration plan, or unless the FDIC determines that the proposed action will
further the purpose of prompt corrective action. The appropriate Federal banking agency may take
any action authorized for a significantly undercapitalized institution if an undercapitalized
institution fails to submit an acceptable capital restoration plan or fails in any material respect
to implement a plan accepted by the agency. A critically undercapitalized institution is subject to
having a receiver or conservator appointed to manage its affairs and for loss of its charter to
conduct banking activities.
An insured depository institution may not pay a management fee to a bank holding company
controlling that institution or any other person having control of the institution if, after making
the payment, the institution, would be undercapitalized. In addition, an institution cannot make a
capital distribution, such as a dividend or other distribution that is in substance a distribution
of capital to the owners of the institution if following such a distribution the institution would
be undercapitalized. Thus, if payment of such a management fee or the making of such would cause
the Bank to become undercapitalized, it could not pay a management fee or dividend to the
Corporation.
8
As of December 31, 2005, both the Corporation and the Bank were considered well capitalized.
Deposit Insurance Assessments. FDICIA also requires the FDIC to implement a risk-based assessment
system in which the insurance premium relates to the probability that the deposit insurance fund
will incur a loss and directs the FDIC to set semi-annual assessments in an amount necessary to
increase the reserve ratio of the Bank Insurance Fund to at least 1.25% of insured deposits or a
higher percentage as determined to be justified by the FDIC.
The FDIC has promulgated implementing regulations that base an institutions risk category partly
upon whether the institution is well capitalized (1), adequately capitalized (2) or less than
adequately capitalized (3), as defined under the Prompt Corrective Action Regulations described
above. In addition, each insured depository institution is assigned to one of three supervisory
subgroups. Subgroup A institutions are financially sound institutions with few minor weaknesses,
subgroup B institutions demonstrate weaknesses which, if not corrected, could result in
significant deterioration, and subgroup C institutions are those as to which there is a
substantial probability that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness.
Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act of 1999 (the GLBA) implemented major
changes to the statutory framework for providing banking and other financial services in the United
States. The GLBA, among other things, eliminated many of the restrictions on affiliations among
banks and securities firms, insurance firms and other financial service providers. A bank holding
company that qualifies as a financial holding company will be permitted to engage in activities
that are financial in nature or incidental or complimentary to financial activities. The activities
that the GLBA expressly lists as financial in nature include insurance underwriting, sales and
brokerage activities, providing financial and investment advisory services, underwriting services
and limited merchant banking activities.
To become eligible for these expanded activities, a bank holding company must qualify as a
financial holding company. To qualify as a financial holding company, each insured depository
institution controlled by the bank holding company must be well-capitalized, well-managed and have
at least a satisfactory rating under the CRA (discussed below). In addition, the bank holding
company must file with the Federal Reserve a declaration of its intention to become a financial
holding company. While the Corporation satisfies these requirements, the Corporation has not
elected for various reasons to be treated as a financial holding company under the GLBA.
We do not believe that the GLBA has had a material adverse impact on the Corporations or the
Banks operations. To the extent that it allows banks, securities firms and insurance firms to
affiliate, the financial services industry may experience further consolidation. The GLBA may have
the result of increasing competition that we face from larger institutions and other companies
offering financial products and services, many of which may have substantially greater financial
resources.
The GLBA and certain other regulations issued by federal banking agencies also provide new
protections against the transfer and use by financial institutions of consumer nonpublic personal
information. A financial institution must provide to its customers, at the beginning of the
customer relationship and annually thereafter, the institutions policies and procedures regarding
the handling of customers nonpublic personal financial information. These privacy provisions
generally prohibit a financial institution from providing a customers personal financial
information to unaffiliated third parties unless the institution discloses to the customer that the
information may be so provided and the customer is given the opportunity to opt out of such
disclosure.
Community Reinvestment Act. The Bank is subject to the requirements of the Community Reinvestment
Act (the CRA). The CRA imposes on financial institutions an affirmative and ongoing obligation to
meet the credit needs of their local communities, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of those institutions. A financial institutions
efforts in meeting community credit needs currently are evaluated as part of the examination
process pursuant to three performance tests. These factors also are considered in evaluating
mergers, acquisitions and applications to open a branch or facility.
Federal Home Loan Bank (FHLB) of Atlanta. The Bank is a member of the FHLB of Atlanta, which is one
of twelve regional FHLBS that provide funding to their members for making housing loans as well as
for affordable housing and community development lending. Each FHLB serves as a reserve or central
bank for its members within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of Directors of the FHLB. As a
member the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 4.5%
of aggregate outstanding advances in addition to the membership stock requirement of 0.2% of the
Banks total assets.
Mortgage Banking Regulation. The Banks mortgage banking subsidiary is subject to the rules and
regulations of, and examination by the Department of Housing and Urban Development (HUD), the
Federal Housing Administration, the Department of Veterans Affairs and state regulatory authorities
with respect to originating, processing and selling mortgage loans. Those rules and regulations,
among other things, establish standards for loan origination, prohibit discrimination, provide for
inspections and appraisals of
9
property, require credit reports on prospective borrowers and, in some cases, restrict certain loan
features, and fix maximum interest rates and fees. In addition to other federal laws, mortgage
origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home
Mortgage Disclosure Act, Real Estate Settlement Procedures Act, and Home Ownership Equity
Protection Act, and the regulations promulgated there under. These laws prohibit discrimination,
require the disclosure of certain basic information to mortgagors concerning credit and settlement
costs, limit payment for settlement services to the reasonable value of the services rendered and
require the maintenance and disclosure of information regarding the disposition of mortgage
applications based on race, gender, geographical distribution and income level.
USA PATRIOT Act. The USA PATRIOT Act became effective on October 26, 2001 and provides for the
facilitation of information sharing among governmental entities and financial institutions for the
purpose of combating terrorism and money laundering. Among other provisions, the USA PATRIOT Act
permits financial institutions, upon providing notice to the United States Treasury, to share
information with one another in order to better identify and report to the federal government
concerning activities that may involve money laundering or terrorists activities. The USA PATRIOT
Act is considered a significant banking law in terms of information disclosure regarding certain
customer transactions. Certain provisions of the USA PATRIOT Act impose the obligation to establish
anti-money laundering programs, including the development of a customer identification program, and
the screening of all customers against any government lists of known or suspected terrorists.
Although it does create a reporting obligation and a cost of compliance, the Bank does not expect
the USA PATRIOT Act to materially affect its products, services or other business activities.
Reporting Terrorist Activities. The Federal Bureau of Investigation (FBI) has sent, and will
send, our banking regulatory agencies lists of the names of persons suspected of involvement in
terrorist activities. The Bank has been requested, and will be requested, to search its records for
any relationships or transactions with persons on those lists. If the Bank finds any relationships
or transactions, it must file a suspicious activity report and contact the FBI.
The Office of Foreign Assets Control (OFAC), which is a division of the Department of the
Treasury is responsible for helping to insure that United States entities do not engage in
transactions with enemies of the United States, as defined by various Executive Orders and Acts
of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of names of
persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank
finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze
such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC
compliance officer to oversee the inspection of its accounts and the filing of any notifications.
The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer
files. The Bank performs these checks utilizing software, which is updated each time a modification
is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and
Blocked Persons.
Consumer Laws and Regulations. The Bank is also subject to certain consumer laws and regulations
that are designed to protect consumers in transactions with banks. While the list set forth herein
is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in
Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act and the Fair Housing Act, among others.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which
financial institutions transact business with customers. The Bank must comply with the applicable
provisions of these consumer protection laws and regulations as part of its ongoing customer
relations.
ITEM 1A RISK FACTORS
Our profitability depends on interest rates generally, and changes in monetary policy may impact
us.
Our profitability depends in substantial part on our net interest margin, which is the
difference between the rates we receive on loans and investments and the rates we pay for deposits
and other sources of funds. Our net interest margin depends on many factors that are partly or
completely outside of our control, including competition, federal economic, monetary and fiscal
policies, and economic conditions generally. Our net interest income will be adversely affected if
market interest rates change so that the interest we pay on deposits and borrowings increases
faster than the interest we earn on loans and investments. Changes in interest rates also affect
the value of our loans. An increase in interest rates could adversely affect borrowers ability to
pay the principal or interest on existing loans or reduce their desire to borrow more money. This
may lead to an increase in our nonperforming assets or a decrease in loan originations, either of
which could have a material and negative effect on our results of operations. We try to minimize
our exposure to interest rate risk, but we are unable to completely eliminate this risk.
Fluctuations in market rates are neither predictable nor controllable and may have a material and
negative effect on our business, financial condition and results of operations.
Our performance depends substantially upon our credit quality.
As a lender, we are exposed to the risk that our loan customers may not repay their loans
according to their terms and any collateral securing payment may be insufficient to fully
compensate us for the outstanding balance of the loan plus the costs we incur disposing of the
collateral. Although we have collateral for most of our loans, that collateral can fluctuate in
value and may not always cover the outstanding balance on the loan. We devote substantial
management attention to setting reserves that we believe are adequate to cover
10
potential credit quality problems. If we are wrong in our assessment, or events occur that reduce
the likelihood of loan repayment, our reserves may not be adequate. If it becomes necessary to make
material additions to our reserves, our net income could be materially decreased. In general, if
the quality of our loans and the underlying collateral decreases, that may reduce our earnings and
damage our financial condition.
Our allowance for loan losses could become inadequate.
We maintain an allowance for loan losses that we believe is adequate for absorbing any
potential losses in our loan portfolio. Management conducts a periodic review and consideration of
the loan portfolio to determine the amount of the allowance for loan losses based upon general
market conditions, credit quality of the loan portfolio and performance of our customers relative
to their financial obligations with us. The amount of future losses, however, is susceptible to
changes in economic and other market conditions, including changes in interest rates and collateral
values that are beyond our control, and these future losses may exceed our current estimates.
Although we believe the allowance for loan losses is adequate to absorb probable losses in our loan
portfolio, we cannot predict such losses or that our allowance will be adequate in the future.
Excessive loan losses could have a material impact on our financial performance.
Our profitability depends significantly on local economic conditions.
Our success depends primarily on the general economic conditions of the markets in which we
operate. Unlike larger banks that are more geographically diversified, we provide banking and
financial services to customers primarily in the Northern Virginia region. The local economic
conditions in this area have a significant impact on our business, real estate and construction
loans, the ability of the borrowers to repay these loans, the value of the collateral securing
these loans and could decrease the demand for loans and other banking services. A significant
decline in general economic conditions, caused by inflation, recession, acts of terrorism, an
outbreak of hostilities or other international or domestic calamities, unemployment or other
factors beyond our control could impact these local economic conditions and could negatively affect
the financial results of our banking operations.
Our focus on commercial and real estate loans may increase the risk of credit losses.
We offer a variety of loans including commercial lines of credit, commercial term loans, real
estate, construction, home equity, consumer and other loans. Many of these loans are secured by
real estate (both residential and commercial) in the greater Washington, D.C. metropolitan area.
Although we believe our credit underwriting adequately considers the underlying collateral in the
evaluation process, a major change in the real estate market could have an adverse effect on our
customers ability to repay their loans, which in turn could adversely affect our credit quality
and our net income. If the value of real estate serving as collateral for the loan portfolio were
to decline materially, a significant part of the loan portfolio could become under-collateralized.
If the loans that are secured by real estate become troubled when real estate market conditions are
declining or have declined, in the event of foreclosure, we may not be able to realize the amount
of collateral that we anticipated at the time of originating the loan. In that event, we might
have to increase the provision for loan losses, which could have a material adverse effect on our
operating results and financial condition. Risk of loan defaults, foreclosures and
under-collateralization is unavoidable in the banking industry, and we try to limit our exposure to
this risk by monitoring our extensions of credit carefully. We cannot, however, fully eliminate
credit risk and credit losses may occur in the future.
Our small to medium-sized business target market may have fewer financial resources to weather
a downturn in the economy.
We target our commercial development and marketing strategy primarily to serve the banking and
financial services needs of small and medium-sized businesses. These businesses generally have
fewer financial resources in terms of capital or borrowing capacity than larger entities. If
general economic conditions negatively impact this major economic sector in the markets in which we
operate, our results of operations and financial condition may be adversely affected.
We may be adversely affected by changes in government monetary policy.
As a bank holding company, our business is affected by the monetary policies established by
the Board of Governors of the Federal Reserve System, which regulates the national money supply in
order to mitigate recessionary and inflationary pressures. In setting its policy, the Federal
Reserve may utilize techniques such as the following:
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Engaging in open market transactions in United States government securities; |
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Setting the discount rate on member bank borrowings; and |
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Determining reserve requirements. |
These techniques may have an adverse effect on our deposit levels, net interest margin, loan demand
or our business and operations.
11
We may be adversely affected by unanticipated changes in government regulations.
We and our wholly-owned subsidiary, Access National Bank, are subject to extensive regulation
and supervision by the Federal Reserve Bank, the FDIC and the Virginia State Corporation
Commission. Any of these agencies, or other governmental or regulatory authorities, could revise
existing regulations or adopt new regulations at any time. We cannot predict whether or what form
of proposed statute or regulation will be adopted or the extent to which such adoption may affect
our business. Regulatory changes may increase our costs, limit the types of financial services and
products we may offer and/or increase the ability of non-banks to offer competing financial
services and products and thus place other entities that are not subject to similar regulation in
stronger, more favorable competitive positions, which could adversely affect our growth. Failure
to comply with existing or new laws, regulations or policies could result in sanctions by
regulatory agencies, civil money penalties and/or reputation damage, which could have an adverse
effect on our business, financial condition and results of operations.
Our future success will depend on our ability to compete effectively in the highly competitive
financial services industry.
We face substantial competition in all phases of our operations from a variety of different
competitors. In particular, there is very strong competition for financial services in the areas of
Virginia in which we conduct a substantial portion of our business. Our future growth and success
will depend on our ability to compete effectively in this highly competitive financial services
environment. Many of our competitors offer products and services which we do not, and many have
substantially greater resources, name recognition and market presence that benefit them in
attracting business. In addition, larger competitors may be able to price loans and deposits more
aggressively than we do. If we have to raise interest rates paid on deposits to compete
effectively, our net interest margin and income could be decreased. Some of the financial services
organizations with which we compete are not subject to the same degree of regulation as is imposed
on bank holding companies and federally insured state chartered banks. As a result, these non-bank
competitors have certain advantages over us in accessing funding and in providing various services.
Failure to compete effectively to attract new, or to retain existing, customers may reduce or limit
our net income and our market share and may adversely affect our results of operations and
financial condition.
We depend on the services of key personnel, and a loss of any of those personnel would disrupt
our operations and result in reduced revenues.
Our success depends upon the continued service of our senior management team and upon our
ability to attract and retain qualified financial services personnel. Competition for qualified
employees is intense. In our experience, it can take a significant period of time to identify and
hire personnel with the combination of skills and attributes required in carrying out our strategy.
If we lose the services of our key personnel, or are unable to attract additional qualified
personnel, our business, financial condition, results of operations and cash flows could be
materially adversely affected.
Our common stock has substantially less liquidity than the average trading market for many
other publicly traded common stock.
Although our common stock is listed for trading on the NASDAQ National Market, the trading
market in our common stock has substantially less liquidity than the average trading market for
many other publicly traded companies, including many companies quoted on the NASDAQ National Market
or traded on the New York Stock Exchange. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends on the presence in the market place of
willing buyers and sellers of our common stock at any given time. This presence depends on the
individual decisions of investors and general economic and market conditions over which we have no
control.
Although we have announced a policy of quarterly dividend payments commencing with the quarter
beginning January 1, 2006, we cannot guarantee that we will continue to pay dividends to
shareholders in the future.
We have announced our intention to commence the payment of dividends on a quarterly basis, at
a rate of $0.005 per share, beginning with the quarter commencing January 1, 2006. Nevertheless,
dividends are subject to determination and declaration by our board of directors, which takes into
account many factors. The declaration of dividends by us on our common stock is subject to the
discretion of our board and to applicable federal regulatory limitations. We cannot guarantee that
dividends will not be reduced or eliminated in future periods. Our ability to pay dividends on our
common stock depends on our receipt of dividends from our wholly-owned subsidiary bank, Access
National Bank.
Virginia law and our charter documents contain anti-takeover provisions that may make it more
difficult or expensive to acquire us in the future or may adversely affect our stock price.
Virginia corporate law and our charter documents contain several provisions that may make it
more difficult for a third party to acquire control of us without the approval of our board of
directors and may make it more difficult or expensive for a third party to acquire a majority of
our outstanding common stock. They may also delay, prevent or deter a merger, acquisition, tender
offer, proxy contest or other transaction that might otherwise result in our shareholders receiving
a premium over the market price for their common stock. Our stock price could also be negatively
affected as a result of these anti-takeover provisions.
12
ITEM 1B UNRESOLVED STAFF COMMENTS
None
ITEM 2 PROPERTIES
The Bank and the Mortgage Corporation leases offices that are used in the normal course of
business. The principal executive office of the Corporation, Bank and Mortgage Corporation is owned
by Access Real Estate, a subsidiary of the Bank and is located at 1800 Robert Fulton Drive, Reston,
Virginia. The Bank leases offices in Chantilly and Vienna, Virginia. The Mortgage Corporation
leases offices in Vienna, Richmond, Fredericksburg, and Roanoke in Virginia. The Mortgage
Corporation leases two offices in Maryland located at Bowie and Westminster in addition to the
offices in Florida, Tennessee and Colorado. On July 25, 2005, Access Real Estate purchased Lot 1
in the Fredericksburg Business Park at a cost of $1.2 million for future expansion of the Bank and
Mortgage Corporation. At present the lot is undeveloped.
All of the owned and leased properties are in good operating condition and are adequate for the
Corporations present and anticipated future needs.
ITEM 3 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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter ended December 31,
2005.
PART II
ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
In July 2004, Access National Corporations common stock became listed on the National Association
of Securities Dealers, Inc. Automated Quotations (NASDAQ) national market system and is quoted
under the symbol of ANCX.
Set forth below is certain financial information relating to the Corporations common stock price
history. Prices starting from the third quarter of 2004 reflect transactions executed on NASDAQ.
The stock prices prior to the third quarter of 2004 reflect the prices paid in the indicated
periods in the actual private trades of which the Corporation is aware. There may have been other
transactions of which the Corporation is unaware. Due to the limited volume of trading in the
Corporations common stock, these transactions do not necessarily reflect the intrinsic or market
value of the stock at the time they were completed.
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2005 |
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2004 |
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High |
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Low |
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High |
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Low |
First Quarter |
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$ |
7.16 |
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$ |
6.35 |
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$ |
8.00 |
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$ |
7.00 |
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Second Quarter |
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$ |
7.19 |
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$ |
6.50 |
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$ |
8.00 |
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$ |
7.00 |
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Third Quarter |
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$ |
9.72 |
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$ |
7.10 |
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$ |
7.48 |
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$ |
6.38 |
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Fourth Quarter |
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$ |
14.25 |
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$ |
8.75 |
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$ |
7.14 |
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$ |
6.51 |
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Prices have been adjusted for all stock splits and dividends.
As of March 15, 2006, the Corporation had 8,043,130 outstanding shares of Common Stock, par value
$.835 per share, held by
approximately 324 shareholders of record.
13
On April 10, 2002 the Bank issued 7,500 restricted shares (45,000 adjusted) of common stock (with a
market value of approximately $150,000) in exchange for 100% of the shares of Commercial Finance
Corporation (now known as Access National Leasing Corporation). These shares of common stock were
exempt from registration pursuant to Section 3(a)(2) of the Securities Act of 1933 due to the
Banks status as a National Bank. These shares were subsequently cancelled.
On April 15, 2002 the Bank sold 162,500 (975,000 adjusted, 6,000 of which were subsequently
forfeited) shares of its common stock under a rights offering to existing shareholders and
employees at a price of $18.00 per share and a par value of $5.00 ($6.00, $1.67 and $0.835 adjusted). The
total offering price was $2,925,000. The offering was not underwritten and there were no
underwriters discounts or commissions. A Series B warrant to purchase one share of common stock
accompanied each share purchased, for a total of 162,500 (975,000 adjusted) Series B warrants
issued in this rights offering. The Series B warrants were exercisable immediately at an exercise
price of $20.00 per share at any time to and including June 4, 2004. In June 2004, 97% of the
Series B Warrants were exercised that resulted in proceeds to the Corporation of $3.1 million.
Both the shares of common stock and the Series B warrants were exempt from registration pursuant to
Section 3(a)(2) of the Securities Act of 1933 due to the Banks status as a National Bank.
On July 30, 2002, Access National Capital Trust I, a Delaware business trust and a wholly-owned
subsidiary of Access National Corporation, issued $4.0 million of Floating Rate Capital Securities
in a private placement transaction with an accredited investor (in reliance upon Section 4(2) of
the Securities Act of 1933, as amended) and $125,000 of Floating Rate Common Securities to Access
National Corporation. Proceeds from the issuance of both the Floating Rate Capital Securities and
the Floating Rate Common Securities were immediately used by Access National Capital Trust I to
purchase $4.125 million of Floating Rate Junior Subordinated Deferrable Interest Debentures
maturing on September 30, 2032 from Access National Corporation. Access National Corporation paid
commissions of $120,000 in connection with the sale of the Floating Rate Capital Securities.
On September 30, 2003, Access National Capital Trust II, a Delaware business trust and a
wholly-owned subsidiary of Access National Corporation, issued $6.0 million of Floating Rate
Capital Securities in a private placement transaction with an accredited investor (in reliance upon
Section 4(2) of the Securities Act of 1933, as amended) and $186,000 of Floating Rate Common
Securities to Access National Corporation. Proceeds from the issuance of both the Floating Rate
Capital Securities and the Floating Rate Common Securities were immediately used by Access National
Capital Trust II to purchase $6.186 million of Floating Rate Junior Subordinated Deferrable
Interest Debentures maturing on December 31, 2033 from Access National Corporation. Access National
Corporation paid commissions of $144,000 in connection with the sale of the Floating Rate Capital
Securities.
On June 1, 2003, the Corporation issued a 3 for 1 stock split. The authorized shares of common
stock increased from 10,000,000 to 30,000,000 and par value decreased from $5.00 to $1.67.
On June 13, 2003, the Corporation exchanged all of its shares in Commercial Finance Corporation for
the return of 7,500 shares of Access National Corporations common stock issued in connection with
the April 10, 2002 transaction listed above.
On June 4, 2004, 473,253 shares were issued at a par value of $1.67. These shares represent the
exercise of warrants issued in conjunction with the April 15, 2002 rights offering. This resulted
in a capital injection to the Corporation of $3.1 million.
During the fourth quarter of 2004 the Corporation repurchased 5,617 shares of restricted stock from
former employees. The Corporation also repurchased 18,370 shares of unrestricted stock from a
former employee. These transactions were executed at the existing market price.
On December 23, 2005, the Corporation issued a 2 for 1 stock split. The authorized shares of
common stock increased from 30,000,000 to 60,000,000 and par value decreased from $1.67 to $.835.
14
At December 31, 2005, there were 1,018,000 outstanding Series A warrants. The Series A warrants
were issued by the Bank in December 1999 to the organizing shareholders of the Bank (in conjunction
with the organization of the Bank) and the shareholders of Mortgage Investment Company (in
conjunction with the acquisition by the Bank of Mortgage Investment Company). Each Series A
warrant is exercisable for one share of common stock at an exercise price of $1.67. As of December
31, 2005, 1,018,000 of the Series A warrants had vested and were exercisable.
On February 1, 2006, the Corporation established a Dividend Reinvestment and Stock Purchase Plan
(Plan). Under the Plan, shareholders may elect to purchase common stock of the Corporation with
automatically reinvested dividends or optional cash payments at a discount of 5% from the market
price.
The Corporation paid its first cash dividend of $.005 per share on February 24, 2006 to
shareholders of record as of February 14,
2006. Payment of dividends is at the discretion of the Corporations Board of Directors, is subject
to various federal and state, regulatory limitations. Future dividends are dependent upon the
overall performance and capital requirements of the Corporation.
Issuer Purchases of Equity Securities for the Quarter Ended September 30 2005
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Total Number |
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Maximum Number |
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Total |
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Average |
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of Shares |
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of Shares that |
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Number |
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Price |
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Purchased as |
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May Yet Be |
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of Shares |
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Paid Per |
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Part of Publicly |
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Purchased Under |
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Purchased (1) |
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Share |
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Announced Program |
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the Program |
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July 1-31, 2005 |
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$ |
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August 1-31, 2005 |
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September 1-30, 2005 |
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2,666 |
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$ |
9.38 |
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Total |
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2,666 |
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$ |
9.38 |
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(1) |
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The Bank purchased 2,666 shares of the Corporations common stock in open-market transactions
that were not part of a publicly announced plan or program. The Bank purchased the shares in
conjunction with a restricted share award to a new employee as a signing bonus. The employee
subsequently forfeited the unvested restricted shares upon termination of his employment in
December 2005. No consideration was paid to the employee for the forfeiture of the unvested
restricted shares and, therefore, the forfeiture is not disclosed as an issuer purchase for the
quarter ended December 31, 2005. |
Issuer Purchases of Equity Securities for the Quarter Ended December 31, 2005
The Corporation did not purchase any of its common stock in the fourth quarter of 2005.
15
ITEM 6 SELECTED FINANCIAL DATA
Information relating to selected financial data is in Table 1.
ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is intended to provide an overview of the significant factors
affecting the financial condition and the results of operations of Access National Corporation and
subsidiary (the Corporation) for the twelve months ended December 31, 2005 and 2004. The
consolidated financial statements and accompanying notes should be read in conjunction with this
discussion and analysis.
Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K 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: 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, U.S. Treasury and the FRB, the economy of Northern Virginia, including governmental
spending and 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. For additional discussion of risk factors that may cause our
actual future results to differ materially for the results indicated within forward looking
statements, please see Item 1A Risk Factors herein.
CRITICAL ACCOUNTING POLICIES
General
The Corporations financial statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP). The financial information contained within our
statements is, to a significant extent, financial information that is based on measures of the
financial effects of transactions and events that have already occurred. A variety of factors
could affect the ultimate value that is obtained either when earning income, recognizing an
expense, recovering an asset or relieving a liability. Actual losses could differ significantly
from the historical factors that we monitor. Additionally, GAAP itself may change from one
previously acceptable method to another method. Although the economics of our transactions would
be the same, the timing of events that would impact our transactions could change.
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 principals of accounting: (i) SFAS 5 Accounting for
Contingencies, which requires that losses be accrued when they are probable of occurring and
estimatable and (ii) SFAS 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, 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 Loans
below.
16
Derivative Financial Instruments
Access National Mortgage Corporation carries all derivative instruments at fair value as
either assets or liabilities in the consolidated balance sheets. Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities as amended
(Statement 133), provides specific accounting provisions for derivative instruments that qualify
for hedge accounting. The Mortgage Corporation has not elected to apply hedge accounting to its
derivative instruments as provided in Statement 133 as amended.
See Notes 1, 10 and 11 to the financial statements for additional information on derivatives.
FINANCIAL CONDITION
Asset Summary
The Corporation completed its sixth year of operation continuing its trend of significant growth in
assets. Total assets at December 31, 2005 were $537.0 million, an increase of $117.0 million. The
growth in assets is comprised of a $77.1 million increase in loans held for investment, an $8.8
million increase in loans held for sale, and a $36.4 million increase in investment securities.
Total assets averaged $457.3 in 2005, approximately $116.1 million higher than total average assets
for 2004.
The growth in assets was funded by a $45.8 million increase in savings and interest bearing
deposits and a $69.5 million increase in time deposits. Short term borrowings increased $11.1
million. Shareholders equity increased $5.2 million resulting from net income of $5.9 million less
the unrealized holdings losses relating to investments available for sale of $0.7 million.
Management intends to focus on strategic growth opportunities and continued emphasis on high
quality loan originations and solid core deposit growth. This will be accomplished by maintaining
and expanding our base of business in our market area.
The following discussions by major categories explain the changes in financial condition in more
detail.
Cash and Cash Equivalents
Cash and cash equivalents consisting of cash and due from banks and interest bearing deposits in
other banks totaled $23.2 million at December 31, 2005 compared to $30.5 million in 2004, a
decrease of $7.3 million. The decrease is due in part to fluctuations in deposits associated with
business operating accounts and the receipt of funds from the sale of loans.
Investment Securities
The Corporations securities portfolio is comprised of U.S. Treasury securities, U.S. Government
Agency securities, municipal securities, CRA mutual fund, mortgage backed securities, Federal
Reserve and Federal Home Loan Bank stock. The investment portfolio is used to provide liquidity
and as a tool for managing interest sensitivity in the balance sheet, while generating a reasonable
return. At December 31, 2005 the securities portfolio totaled $87.8 million, up from $51.4 million
in 2004. The increase in investments is due to the increase in deposits and short term borrowings.
All securities were classified as available for sale. The Financial Accounting Standards Board
requires that securities classified as available for sale be accounted for at fair market value.
Unrealized gains and losses are recorded directly to a separate component of stockholders equity.
The Corporations securities classified as available for sale had an unrealized loss net of
deferred taxes of $785 thousand on December 31, 2005. Table 3, Securities Available for Sale
presents the types, amounts and maturity distribution of the securities portfolio.
Loans
Loans held for investment totaled $369.7 million at December 31, 2005, an increase of $77.1 million
over 2004. Commercial loans decreased by approximately $9.9 million from last year as a result of
payoffs and increased competition for this type of loan. Loans secured by commercial real estate
increased $40.5 million, a 41.8% increase over 2004. The growth in commercial real estate loans
reflects the strong real estate market and our commitment to owner occupied commercial financing.
Our commercial loan officers have established professional relationships with our clients and are
responsive to their credit and other financial needs. This relationship with our clients is
responsible for generating new referrals and provides the basis for continued growth. Real estate
construction loans increased $4.0 million over last year. This loan category is comprised of
construction and land development loans, primarily for one to four family residences. The growth
in this category is somewhat cyclical and highly competitive. Residential real
estate loans increased $42.8 million, a 37.7% increase over 2004. This increase is primarily in
variable rate mortgage loans and reflects the strong real estate market in our area. Consumer loans
decreased from $723 thousand to $555 thousand in 2005 as a result of payoffs. The Bank
concentrates on providing banking services to the small to medium sized businesses and
professionals in our
17
market area. The Bank also offers a complete line of consumer lending
products, primarily as a service to the affiliates of our commercial and professional clients. The
Bank does not, however, actively market its consumer products at this time, which accounts for the
nominal amount of consumer type loans.
Loans held for sale totaled $45.0 million at December 31, 2005 compared to $36.2 million in 2004,
an increase of $8.8 million. The increase in loans held for sale is attributable to loans being
accumulated for a bulk sale of a pool of loans. This process improves the pricing on the loans.
Overall, volume of loan originations was up from 2004 by 26.8% from $780.8 million to $990.4
million. The increase in loan originations is due to the strong real estate market in our area and
a favorable interest rate environment.
Continued loan portfolio growth in 2006 is forecasted as we continue to focus on expanding our base
of business by serving the needs of the small to medium size businesses and professionals in our
community. Mortgage trade associations have forecasted a 20% decline in residential mortgage loan
volume in 2006 due to rising interest rates and a decline in refinance activity. None the less, we
expect that in 2006, the Mortgage Corporation will generate a similar volume as experienced in 2005
as a result of increasing its presence in the local area and by offering additional services. We
expect the industry to experience consolidation and lower margins in 2006 when compared to recent
periods.
Table 4, The Loan Portfolio, presents the major classifications and maturity distribution of loans
held for investment at December 31, 2005, 2004 and 2003.
Allowance for Loan Losses
For the year ended December 31, 2005, the allowance for loan loss was $5.2 million, an increase of
29.8% over the $4.0 million at the prior year-end. The increase is attributed to the 26.4%
increase in the Loan Portfolio as well as a detailed analysis of risk and loss potential within the
portfolio as a whole. Although actual loan losses have been insignificant, our senior credit
management, with over 60 years in collective experience in managing similar portfolios in our
marketplace, concluded the amount of our reserve and the methodology applied to arrive at the
amount of the reserve is justified and appropriate due to the lack of seasoning of the portfolio,
the relatively large dollar amount of a relatively small number of loans, portfolio growth,
staffing changes and trend analysis. Outside of our own analysis, our reserve adequacy and
methodology are reviewed on a regular basis by, internal audit program, and bank regulators and
such reviews have not resulted in any material adjustment to the reserve.
The Bank, after six years of operations, does not have a meaningful history of charge offs with
which to establish trends in loan losses by loan classifications. As of December 31, 2005 the
total net charge offs for the six years was less than $19 thousand dollars. The overall allowance
for loan losses is equivalent to approximately 1.41% of total loans held for investment. The
schedule in Table 6, 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 percentages allocation of the unallocated portion 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 allowance for Commercial loans as a percent of the total Commercial loans amounted to 4.0%,
compared to 3.0% in 2004. The allowance for Commercial Real Estate loans was 1.38% of total
Commercial Real Estate loans in 2005 compared to 1.27% in 2004. The allowance for Residential Real
Estate loans as a percent of total Residential Real Estate loans was 0.81% in 2005 compared to .76%
in 2004. Net charge offs from inception through December 31, 2005 have totaled less than $19
thousand. Since the bank does not have a meaningful charge off experience, changes in the
composition of the allowance for loan losses are due to volume and changes in individual risk
ratings on new loans.
The loss risk of each loan within a particular classification, however, is not the same. The
methodology for arriving at the allowance is not dictated by loan classification. The methodology
as to how the allowance was derived is detailed below. Unallocated amounts included in the
allowance for loan losses have been applied to the loan classifications on a percentage basis.
Adequacy of the reserve is assessed, and appropriate expense and charge offs are taken, no less
frequently than at the close of each fiscal quarter end. The methodology by which we
systematically determine the amount of our reserve is set forth by the Board of Directors in our
Credit Policy. Under this Policy, 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 (the Specific Reserve), 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 (the
General Reserve) and, finally, an Unallocated Reserve to cover any unforeseen factors not
considered above in the appropriate magnitude. Each of the reserve components, General, Specific
and Unallocated are
18
discussed in further detail below.
With respect to the General Reserve, 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 for over 60 years; and peer data contained in statistical releases
issued by both the Office of the Comptroller of the Currency and the FDIC. Although looking only
at peer data and the banks historically low write-offs would suggest a lower loan loss allowance,
our managements experience with similar portfolios in the same market combined with the fact that
our portfolio is relatively unseasoned, justify a conservative approach in contemplating external
statistical resources. Accordingly, managements collective experience at this bank and other
banks is the most heavily weighted criterion, and the weighting is subjective and varies by loan
type, amount, collateral, structure, and repayment terms. Prevailing economic condition 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. As of December 31, 2005 our evaluation of these factors supported
approximately 89.8% of the total loss reserve. As our portfolio ages and we gain more direct
experience, the direct experience will weigh more heavily in our evaluation.
When deterioration develops in an individual credit, the loan is placed on a Watch List and the
loan 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 non-performance of a particular loan, a portion of the reserve may be
specifically allocated to that individual loan. The aggregation of this loan by loan loss analysis
comprises the Specific Reserve and accounted for approximately 16.4% of the total loss reserve.
The Specific Reserve relates to three loans totaling $2.2 million as of December 31, 2005 that were
assigned additional reserves based on an evaluation of the established primary and secondary
sources of repayment, which suggested a potential degradation in those sources of repayment.
The Unallocated Reserve is maintained to absorb risk factors outside of the General and Specific
Allocations. Maximum and minimum target limits are established by us on a quarterly basis for the
Unallocated Reserve. As of December 31, 2005 the maximum amount for this component was 0.15% of
the total loan portfolio and accounted for approximately 10.2% of the total loss reserve.
Nonperforming Loans And Past Due
At December 31, 2005 there were two loans in non accrual status totaling $1.3 million. Non accrual
loans are carefully monitored and specific reserves established as necessary to ensure any
estimated loss can be absorbed by the designated reserve. Over $811 thousand of the loss reserve
was dedicated as specific reserve to these non-performing loans. In managements estimate the
specific reserve for these loans will be adequate to absorb reasonably foreseeable losses.
Management actively works with the borrowers to maximize potential for repayment and reports on the
status of the same to the Board of Directors, no less than on a monthly basis.
As of December 31, 2005 there were no loans past due more than 90 days with respect to which
interest was still being accrued.
Deposits
Deposits totaled $419.6 million at December 31, 2005 and were comprised of Non-interest bearing
demand deposits in the amount of $81.0 million, Savings and Interest Bearing deposits in the amount
of $149.1 million and Time deposits in the amount of $189.5 million. Total deposits increased
$102.2 million or 32% over December 31, 2004 and provided funds for the increases in loans and
investment securities. We offer a variety of deposit accounts that have varying rates and terms.
Our deposits are primarily from our local market. We utilize professional loan officers as our
direct sales force in marketing both loans and deposits. Our primary focus with respect to core
deposit activities is upon the business deposits in our market. Our goal is to expand the deposit
base by adding personnel, opening new offices, direct marketing and traditional media advertising.
Our customer service focus is mainly on our business and professional customers, which usually
generate more referrals for additional new business than do retail account holders. Growth in
deposits from 2004 to 2005 is attributable to the above efforts. Deposit growth is expected to
continue at a rapid yet lesser percentage of growth as the Bank continues to expand its customer
base and build name recognition. We use Wholesale deposits for specific funding requirements and
to support the short term loans held for sale program. Table 7, Average Deposits and Average Rates
Paid, details the composition of deposits.
Time Deposits represent 45.2% of total deposits on December 31, 2005, as compared to 37.8% on
December 31, 2004. Time deposits increased by 57.9% over December 31, 2004.
At December 31, 2005, non-interest bearing deposits represented 19.3% of the total deposits, down
from 29.7% last year. The composition of our non interest bearing accounts is primarily
commercial and as such, subject to fluctuations. Most of this activity relates to the operating
accounts of businesses within our target market. There is a high degree of cross-over between
these accounts
19
and our clients who are commercial loan customers or who anticipate becoming loan
customers.
Savings and Interest Bearing Deposits represent 35.5% of the total deposits and generally belong to
businesses and professionals in the target market. Many of these depositors are also borrowers.
Interest bearing demand deposits represent 3.2% of total deposits and are mostly from individuals,
professionals and non-profit organizations within the target market.
Brokered or Wholesale deposits account for 14.0% ($58.8 million) of total deposits at December
31, 2005 versus approximately $54 million at December 31, 2004. Wholesale depositors are outside
of the target market and place their deposit with us solely due to the interest rate paid.
Together with other funding sources, we use these types of deposits to fund the short term cash
needs associated with the Loans Held for Sale program discussed under Loans as well as to carry
long term investments such as Mortgage Loans Held for Investment and our real estate.
Borrowings
Borrowed funds consist of advances from the Federal Home Loan Bank of Atlanta, subordinated
debentures (trust preferred), securities sold under agreement to repurchase, federal funds
purchased and commercial paper. At December 31, 2005 borrowed funds totaled $80.3 million compared
to $74.4 million in 2004. Federal Home Loan Bank advances increased $3.8 million from 2004. The
Corporation utilizes short term advances for supplementing the Mortgage Corporations funding
requirements. Long term advances are used to match fundings and to lock in spreads on Bank term
loans. Table 9 provides a break down of all borrowed funds.
Shareholders Equity
Shareholders equity increased $5.2 million during 2005, primarily due to an increase in retained
earnings as a result of current year net income of $5.9 million and unrealized loses on investments
available for sale of $.7.
Banking regulators have defined minimum regulatory capital ratio 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. Table 10 Risk Based Capital Analysis, outlines the regulatory
components of capital and risk based capital ratios.
RESULTS OF OPERATIONS
Summary
Net income increased $2.6 million for the year ended December 31, 2005 and totaled $5.9
million compared to $3.3 million in 2004 which included extraordinary income of $330 thousand in
connection with the acquisition of UFM. Average earning assets totaled $437.7 million for 2005, up
from $321.3 million in 2004, an increase of approximately 36.2%. Return on average assets
increased from .97% in 2004 to 1.29% in 2005 due to the increase in average earning assets. Return
on average equity increased to 20.63% in 2005 from 14.48% in 2004. Diluted earnings per share for
2005 were $.63 up from the $.36 reported last year. See Table 1 Summary Financial Data.
Net Interest Income
Net interest income, the principal source of bank 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. During 2005 our net
interest margin decreased 15 basis points from 3.64% in 2004 to 3.49% in 2005. The yield on
earning assets increased .68%, reflecting the Prime rate increases during the year. The rate paid
on interest bearing liabilities increased .77% and contributed to the narrowing of our net interest
margin. Table 2 Yield on Average Earning Assets and Rates on Average Interest Bearing Liabilities
summarizes the major components of net interest income for the past three years and also provides
yields and average balances.
Net interest income increased in 2005 to $15.3 million compared to $11.7 million in 2004. Net
interest income depends upon the volume of earning assets and interest bearing liabilities and the
associated rates. Average interest earning assets increased $116.4 million over the $321.3 million
in 2004. The increase is primarily due to the growth in average loans which increased $74.9
million. See Table 2A Volume and Rate Analysis for the past three years.
Total interest expense increased approximately $6.0 million to $12.5 million in 2005, up from $6.5
million in 2004, as a result of increases in interest bearing deposits and increased cost of
borrowings. Total interest bearing deposits averaged $270.5 million in 2005 compared to $159.5
million in 2004. Borrowed funds averaged $87.2 million in 2005 compared to $79.7 million in 2004.
The
20
increase in deposits and borrowings funded the growth in earning assets. The average cost of
interest bearing liabilities was 3.5% in 2005 and 2.73% in 2004.
Provision for Loan Losses
The provision for loan losses charged to operating expense was $1.2 million in 2005 compared to
$1.5 million in 2004. Management believes the allowance for loan losses is adequate to absorb
inherent losses in the loan portfolio based on the evaluation as of December 31, 2005. In general,
we expect the base level of provision for loan loss expense to be commensurate with the increase in
the Loans Held for Investment, tempered more or less with our assessment of the underlying credit
risk in the portfolio as explained previously in detail.
Non Interest Income
Non-interest income consists of revenue generated from a broad range of financial services and
activities. The Mortgage Corporation provides the most significant contributions towards
non-interest income. Total non interest income was $31.5 million in 2005 compared to $26.0 million
in 2004, an increase of $5.5 million. Gains on the sale of loans originated by the Mortgage
Corporation totaled $24.1 million in 2005, compared to $20.0 million in 2004. Mortgage broker fees
amounted to $5.6 million in 2005 and $4.6 million in 2004. The increases are due to a combination
of a strong real estate market in our area, successful advertising of our mortgage products and an
effective loan officer program.
The volume of our Mortgage Corporation is subject to many cyclical risks against which we actively
manage. Volume and the accompanying non-interest income are subject to the risks associated with
the general interest rate environment as well as the new home and resale activity of the
residential real estate market in the communities we serve.
Non Interest Expense
Non interest expense totaled $36.3 million in 2005 compared to $31.6 million in 2004, an increase
of $4.7 million over 2004. Salaries and benefits totaled $20.5 million and comprise 56.5% of total
non operating expense. Salaries and benefits increased approximately $1.9 million from 2004. The
increase in salaries and benefits is largely due to the increase in commissions and salaries at the
Mortgage Corporation and reflects the increase in loan originations. Approximately 71.8% of the
total salaries expense is attributable to the Mortgage Corporation and 28.2% is attributable to the
Bank. The majority of compensation expense for the Mortgage Corporation is variable with loan
origination volume. Mortgage loan originations increased from $780 million in 2004 to $990 million
in 2005, a 26.9% increase.
Other operating expense increased approximately $2.8 million from $10.5 million in 2004 to $13.4
million in 2005, an increase of 26.9%. A significant portion of the other operating expense of the
Mortgage Corporation is variable with loan origination volume. Other operating expense is
comprised of advertising, investor fees, management fees, other settlement fees, and other
marketing expense.
Income Taxes
Income tax expense increased $1.7 million, or 104.1%, over last year primarily as a result of
increased net income. Note 8 to the financial statements show the components of Federal Income tax.
We expect to continue to accrue and pay taxes in accordance with all applicable tax laws and
regulations. Many of our competitors, primarily federal and state credit unions, are exempt from
the taxation against which we are subjected. The Corporations effective tax rate was 36% in 2005
compared to 35% in 2004.
Quarterly Results
Net income and per share information on a quarterly basis for 2005 and 2004 is reflected in Table
1A. The increase in net income is due to increases in earning assets funded by deposit growth and
short term borrowings. Also impacting net income is the increase in mortgage loan originations and
the subsequent gain on the sale of loans.
Liquidity Management
Liquidity is the ability of the Corporation 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
21
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 maturing interest bearing deposits with other banks are additional sources of
liquidity funding. At December 31, 2005, overnight interest bearing balances totaled $13.3 million
and securities available for sale totaled $87.8 million.
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 December 31, 2005, the Corporation had a line of
credit with the Federal Home Loan Bank of Atlanta totaling $135 million and outstanding variable
rate loans of $35 million, and an additional $22.8 million in term loans at fixed rates ranging
from 2.70% to 4.97% leaving $62.9 million available on the line. In addition to the line of credit
at the Federal Home Loan Bank, the Bank and its mortgage bank subsidiary also issue repurchase
agreements and commercial paper. As of December 31, 2005, outstanding repurchase agreements
totaled $1.0 million and commercial paper issued amounted to $13.0 million. The interest rate on
these instruments is variable and subject to change daily. The Bank also maintains Federal Funds
lines of credit with its correspondent banks and, at December 31, 2005, these lines amounted to
$22.6 million. The Corporation also has $10.3 million in subordinated debentures to support the
growth of the organization. The table below presents the Corporations contractual obligation and
scheduled payment amounts due at various intervals over the next three years and beyond, as of
December 31, 2005. Table 9, Borrowed Funds Distribution, outlines the composition of borrowed funds
for 2005, 2004 and 2003.
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
|
|
December 31, 2005 |
|
|
|
Less Than |
|
|
1 - 3 |
|
|
More Than |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
3 Years |
|
|
Total |
|
|
|
(In Thousands) |
|
FHLB advances |
|
$ |
36,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
36,000 |
|
Securities sold under agreements to repurchase |
|
|
977 |
|
|
|
|
|
|
|
|
|
|
|
977 |
|
FHLB long term borrowings |
|
|
|
|
|
|
7,500 |
|
|
|
14,286 |
|
|
|
21,786 |
|
Other short-term borrowings |
|
|
11,219 |
|
|
|
|
|
|
|
|
|
|
|
11,219 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
|
|
|
|
|
|
|
|
10,311 |
|
Leases |
|
|
450 |
|
|
|
337 |
|
|
|
149 |
|
|
|
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
58,957 |
|
|
$ |
7,837 |
|
|
$ |
14,435 |
|
|
$ |
81,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation funded the growth in interest earning assets through a combination of deposits,
retention of earnings and borrowed funds. The Corporation expects its short and long term sources
of liquidity and capital to remain adequate to support expected growth. The Bank relies on a
variety of short and long term resources for liquidity from a variety of sources that substantially
reduces reliance upon any single provider.
Off Balance Sheet Items
During the ordinary course of business, the Bank issues commitments to extend credit and, at
December 31, 2005, these commitments amounted to $5 million. These commitments do not necessarily
represent cash requirements, since many commitments are expected to expire without being drawn on.
At December 31, 2005 the Bank had approximately $72 million in unfunded lines of credit. These
lines of credit, if drawn upon, would be funded from routine cash flows. Cash flows from financing
activities, which includes deposit growth and borrowing,
generated over $108.2 million.
22
Recent Accounting Pronouncements
In December 2004, FASB enacted Statement of Financial Accounting Standards 123revised 2004 (SFAS
123R), ''Share-Based Payment which replaces Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25 (APB 25),
''Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash
Flows. SFAS 123R requires the measurement of all employee share-based payments to employees,
including grants of employee stock options, using a fair-value based method and the recording of
such expense in our consolidated statements of income. The accounting provisions of SFAS 123R are
effective for reporting periods beginning after June 15, 2005. The new standard may be adopted in
one of three ways the modified prospective transition method, a variation of the modified
prospective transition method or the modified retrospective transition method. The Corporation
disclosed pro forma compensation expense quarterly and annually by calculating the stock option
grants fair value using the Black-Scholes model and disclosing the impact on net income and net
income per share. The adoption of SFAS 123R is not expected to have a material impact on the
Corporations financial statements.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, a Replacement of
APB Opinion 20 and FASB Statement No. 3. SFAS 154 amends the existing guidance and applies to
accounting for and reporting of a change in accounting principle. SFAS 154 also applies to changes
required by accounting pronouncements when the pronouncement does not include explicit transition
provisions. SFAS 154 is effective for accounting changes and error corrections made in fiscal
years beginning after December 15, 2005. Management does not believe the adoption of SFAS 154 will
have a material impact on the financial condition or the results of operation of the Corporation.
FASBs Emerging Issues Task Force (EITF), reached consensus on The Meaning of
Other-Than-Temporary and Its Application to Certain Investments in EITF Issue No. 03-1. The
guidance included in the EITF consensus largely consisted of expanded disclosures and the guidance
was intended to be fully effective in 2003, except for loss-recognition guidance which had a
delayed effective date into 2004. In 2004, the FASB has further delayed the loss recognition
provisions of Issue No. 03-1. In June 2005, the FASB announced plans to supersede the EITF guidance
with a revised standard in late 2005. Because of the inconclusive status of the guidance on the
loss recognition aspects of Issue No. 03-1, the Corporations management is unable to determine at
this time the potential impact of this matter on the consolidated financial statements.
AICPA Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer (SOP 03-3), addresses the accounting for differences between contractual cash flows and
cash flows expected to be collected from the initial investment in loans acquired in a transfer if
those differences are attributable, at least in part, to credit quality. It includes such loans
acquired in purchase business combinations and does not apply to loans originated by the entity.
SOP 03-3 prohibits carrying over or creation of valuation allowances in the initial accounting for
loans acquired in a transfer. It is effective for loans acquired in fiscal years beginning after
December 15, 2004. This new guidance had no material effect on the Corporations consolidated
financial statements upon implementation.
23
Statistical Information
The following statistical information is provided pursuant to the requirements of Guide 3,
promulgated by the Securities Act of 1933:
Table # 1
Summary Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
(In Thousands, Except Per Share Data) |
|
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
15,271 |
|
|
$ |
11,694 |
|
|
$ |
9,138 |
|
|
$ |
5,848 |
|
|
$ |
3,115 |
|
Provision for loan losses |
|
|
1,196 |
|
|
|
1,462 |
|
|
|
526 |
|
|
|
841 |
|
|
|
720 |
|
Non-interest income |
|
|
31,467 |
|
|
|
25,952 |
|
|
|
33,765 |
|
|
|
22,494 |
|
|
|
11,082 |
|
Non-interest expense |
|
|
36,340 |
|
|
|
31,580 |
|
|
|
36,432 |
|
|
|
23,447 |
|
|
|
12,060 |
|
Income taxes |
|
|
3,305 |
|
|
|
1,619 |
|
|
|
2,129 |
|
|
|
1,359 |
|
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before extraordinary items |
|
|
5,897 |
|
|
|
2,985 |
|
|
|
3,816 |
|
|
|
2,695 |
|
|
|
887 |
|
Extra-ordinary income, net of income tax |
|
|
|
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
|
$ |
2,695 |
|
|
$ |
887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, before extraordinary income |
|
$ |
0.75 |
|
|
$ |
0.40 |
|
|
$ |
0.55 |
|
|
$ |
0.41 |
|
|
$ |
0.15 |
|
Basic |
|
|
0.75 |
|
|
|
0.44 |
|
|
|
0.55 |
|
|
|
0.41 |
|
|
|
0.15 |
|
Diluted, before extraordinary income |
|
|
0.63 |
|
|
|
0.33 |
|
|
|
0.43 |
|
|
|
0.36 |
|
|
|
0.14 |
|
Diluted |
|
|
0.63 |
|
|
|
0.36 |
|
|
|
0.43 |
|
|
|
0.36 |
|
|
|
0.14 |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value at period end |
|
|
3.92 |
|
|
|
3.29 |
|
|
|
2.84 |
|
|
|
2.32 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
537,050 |
|
|
$ |
420,098 |
|
|
$ |
257,390 |
|
|
$ |
240,348 |
|
|
$ |
132,069 |
|
Loans held for sale |
|
|
45,019 |
|
|
|
36,245 |
|
|
|
29,756 |
|
|
|
93,852 |
|
|
|
38,615 |
|
Total loans |
|
|
369,733 |
|
|
|
292,594 |
|
|
|
189,320 |
|
|
|
114,835 |
|
|
|
68,736 |
|
Total securities |
|
|
87,771 |
|
|
|
51,378 |
|
|
|
23,178 |
|
|
|
15,637 |
|
|
|
10,582 |
|
Total deposits |
|
|
419,629 |
|
|
|
317,393 |
|
|
|
198,183 |
|
|
|
178,251 |
|
|
|
104,876 |
|
Shareholders equity |
|
|
31,185 |
|
|
|
25,998 |
|
|
|
19,755 |
|
|
|
16,291 |
|
|
|
10,465 |
|
Average shares outstanding, basic |
|
|
7,867,135 |
|
|
|
7,509,536 |
|
|
|
6,986,680 |
|
|
|
6,594,000 |
|
|
|
6,000,000 |
|
Average shares outstanding, diluted |
|
|
9,423,087 |
|
|
|
9,155,778 |
|
|
|
8,822,372 |
|
|
|
7,478,064 |
|
|
|
6,581,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
1.29 |
% |
|
|
0.97 |
% |
|
|
1.45 |
% |
|
|
1.64 |
% |
|
|
0.98 |
% |
Return on average equity |
|
|
20.63 |
% |
|
|
14.48 |
% |
|
|
20.48 |
% |
|
|
20.17 |
% |
|
|
8.75 |
% |
Net interest margin (1) |
|
|
3.49 |
% |
|
|
3.64 |
% |
|
|
3.58 |
% |
|
|
3.73 |
% |
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to period end loans |
|
|
1.41 |
% |
|
|
1.37 |
% |
|
|
1.35 |
% |
|
|
1.78 |
% |
|
|
1.73 |
% |
Allowance to nonperforming loans |
|
|
397.78 |
% |
|
|
185.07 |
% |
|
|
310.93 |
% |
|
|
|
|
|
|
127.87 |
% |
Net charge-offs to average loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I risk-based capital |
|
|
10.78 |
% |
|
|
10.97 |
% |
|
|
12.54 |
% |
|
|
12.09 |
% |
|
|
10.96 |
% |
Total risk-based capital |
|
|
12.11 |
% |
|
|
12.80 |
% |
|
|
15.47 |
% |
|
|
13.33 |
% |
|
|
12.20 |
% |
Leverage capital ratio |
|
|
7.60 |
% |
|
|
8.83 |
% |
|
|
10.28 |
% |
|
|
8.12 |
% |
|
|
8.91 |
% |
24
Table # 1A
The following is a summary of the results of operations for each quarter of 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
|
|
|
|
(In Thousands, Except Per Share Data) |
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
5,619 |
|
|
$ |
6,368 |
|
|
$ |
7,561 |
|
|
$ |
8,245 |
|
Total interest expense |
|
|
2,435 |
|
|
|
2,801 |
|
|
|
3,350 |
|
|
|
3,936 |
|
Net interest income |
|
|
3,184 |
|
|
|
3,567 |
|
|
|
4,211 |
|
|
|
4,309 |
|
Provision for loan losses |
|
|
114 |
|
|
|
383 |
|
|
|
325 |
|
|
|
374 |
|
Net interest income after provision for loan losses |
|
|
3,070 |
|
|
|
3,184 |
|
|
|
3,886 |
|
|
|
3,935 |
|
Total noninterest income |
|
|
6,153 |
|
|
|
9,147 |
|
|
|
9,375 |
|
|
|
6,792 |
|
Total noninterest expense |
|
|
7,655 |
|
|
|
10,000 |
|
|
|
10,641 |
|
|
|
8,044 |
|
Income tax expense |
|
|
533 |
|
|
|
827 |
|
|
|
911 |
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,035 |
|
|
$ |
1,504 |
|
|
$ |
1,709 |
|
|
$ |
1,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.13 |
|
|
$ |
0.19 |
|
|
$ |
0.22 |
|
|
$ |
0.21 |
|
Diluted |
|
|
0.12 |
|
|
|
0.16 |
|
|
|
0.18 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
3,598 |
|
|
$ |
4,300 |
|
|
$ |
4,753 |
|
|
$ |
5,574 |
|
Total interest expense |
|
|
1,180 |
|
|
|
1,419 |
|
|
|
1,810 |
|
|
|
2,122 |
|
Net interest income |
|
|
2,418 |
|
|
|
2,881 |
|
|
|
2,943 |
|
|
|
3,452 |
|
Provision for loan losses |
|
|
175 |
|
|
|
204 |
|
|
|
212 |
|
|
|
871 |
|
Net interest income after provision for loan losses |
|
|
2,243 |
|
|
|
2,677 |
|
|
|
2,731 |
|
|
|
2,581 |
|
Total noninterest income |
|
|
6,261 |
|
|
|
6,781 |
|
|
|
7,133 |
|
|
|
5,777 |
|
Total noninterest expense |
|
|
7,634 |
|
|
|
7,937 |
|
|
|
8,784 |
|
|
|
7,225 |
|
Income tax expense |
|
|
328 |
|
|
|
513 |
|
|
|
361 |
|
|
|
417 |
|
Net income before extra-ordinary items |
|
|
542 |
|
|
|
1,008 |
|
|
|
719 |
|
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extra-ordinary income |
|
|
|
|
|
|
|
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
542 |
|
|
$ |
1,008 |
|
|
$ |
1,049 |
|
|
$ |
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, before extra-ordinary income |
|
$ |
0.08 |
|
|
$ |
0.14 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
Basic |
|
|
0.08 |
|
|
|
0.14 |
|
|
|
0.13 |
|
|
|
0.09 |
|
Diluted, before extra-ordinary-income |
|
|
0.06 |
|
|
|
0.12 |
|
|
|
0.07 |
|
|
|
0.08 |
|
Diluted |
|
|
0.06 |
|
|
|
0.12 |
|
|
|
0.10 |
|
|
|
0.08 |
|
25
Table # 2
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
64,862 |
|
|
$ |
2,489 |
|
|
|
3.84 |
% |
|
$ |
25,385 |
|
|
$ |
905 |
|
|
|
3.57 |
% |
|
$ |
14,160 |
|
|
$ |
378 |
|
|
|
2.67 |
% |
Loans(3) |
|
|
364,126 |
|
|
|
25,043 |
|
|
|
6.88 |
% |
|
|
289,225 |
|
|
|
17,228 |
|
|
|
5.96 |
% |
|
|
227,015 |
|
|
|
13,522 |
|
|
|
5.96 |
% |
Interest bearing deposits & federal funds sold |
|
|
8,739 |
|
|
|
279 |
|
|
|
3.19 |
% |
|
|
6,715 |
|
|
|
92 |
|
|
|
1.37 |
% |
|
|
14,358 |
|
|
|
142 |
|
|
|
0.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
|
437,727 |
|
|
|
27,811 |
|
|
|
6.35 |
% |
|
|
321,325 |
|
|
|
18,225 |
|
|
|
5.67 |
% |
|
|
255,533 |
|
|
|
14,042 |
|
|
|
5.50 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
10,579 |
|
|
|
|
|
|
|
|
|
|
|
8,169 |
|
|
|
|
|
|
|
|
|
|
|
5,437 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
9,260 |
|
|
|
|
|
|
|
|
|
|
|
8,466 |
|
|
|
|
|
|
|
|
|
|
|
724 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
4,118 |
|
|
|
|
|
|
|
|
|
|
|
6,138 |
|
|
|
|
|
|
|
|
|
|
|
4,084 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(4,433 |
) |
|
|
|
|
|
|
|
|
|
|
(2,945 |
) |
|
|
|
|
|
|
|
|
|
|
(2,363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest earning assets |
|
|
19,524 |
|
|
|
|
|
|
|
|
|
|
|
19,828 |
|
|
|
|
|
|
|
|
|
|
|
7,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
457,251 |
|
|
|
|
|
|
|
|
|
|
$ |
341,153 |
|
|
|
|
|
|
|
|
|
|
$ |
263,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
10,630 |
|
|
$ |
200 |
|
|
|
1.88 |
% |
|
$ |
9,075 |
|
|
$ |
93 |
|
|
|
1.02 |
% |
|
$ |
6,212 |
|
|
$ |
68 |
|
|
|
1.09 |
% |
Money market deposit accounts |
|
|
130,147 |
|
|
|
4,256 |
|
|
|
3.27 |
% |
|
|
40,506 |
|
|
|
838 |
|
|
|
2.07 |
% |
|
|
18,748 |
|
|
|
269 |
|
|
|
1.43 |
% |
Savings accounts |
|
|
450 |
|
|
|
4 |
|
|
|
0.89 |
% |
|
|
470 |
|
|
|
4 |
|
|
|
0.85 |
% |
|
|
539 |
|
|
|
3 |
|
|
|
0.56 |
% |
Time deposits |
|
|
129,314 |
|
|
|
4,560 |
|
|
|
3.53 |
% |
|
|
109,453 |
|
|
|
3,420 |
|
|
|
3.12 |
% |
|
|
117,803 |
|
|
|
3,626 |
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
270,541 |
|
|
|
9,020 |
|
|
|
3.33 |
% |
|
|
159,504 |
|
|
|
4,355 |
|
|
|
2.73 |
% |
|
|
143,302 |
|
|
|
3,966 |
|
|
|
2.77 |
% |
FHLB Advances |
|
|
43,375 |
|
|
|
1,610 |
|
|
|
3.71 |
% |
|
|
44,598 |
|
|
|
662 |
|
|
|
1.48 |
% |
|
|
10,788 |
|
|
|
175 |
|
|
|
1.62 |
% |
Securities sold under agreements to repurchase |
|
|
925 |
|
|
|
19 |
|
|
|
2.05 |
% |
|
|
2,290 |
|
|
|
25 |
|
|
|
1.09 |
% |
|
|
1,381 |
|
|
|
9 |
|
|
|
0.65 |
% |
Other short-term borrowings |
|
|
8,520 |
|
|
|
250 |
|
|
|
2.93 |
% |
|
|
4,741 |
|
|
|
121 |
|
|
|
2.55 |
% |
|
|
4,510 |
|
|
|
39 |
|
|
|
0.86 |
% |
Long-term borrowings |
|
|
24,028 |
|
|
|
917 |
|
|
|
3.82 |
% |
|
|
17,801 |
|
|
|
854 |
|
|
|
4.80 |
% |
|
|
13,762 |
|
|
|
421 |
|
|
|
3.06 |
% |
Subordinated Debentures |
|
|
10,311 |
|
|
|
706 |
|
|
|
6.85 |
% |
|
|
10,311 |
|
|
|
514 |
|
|
|
4.98 |
% |
|
|
5,593 |
|
|
|
294 |
|
|
|
5.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
357,700 |
|
|
|
12,522 |
|
|
|
3.50 |
% |
|
|
239,245 |
|
|
|
6,531 |
|
|
|
2.73 |
% |
|
|
179,336 |
|
|
|
4,904 |
|
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
66,862 |
|
|
|
|
|
|
|
|
|
|
|
75,883 |
|
|
|
|
|
|
|
|
|
|
|
60,538 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
4,103 |
|
|
|
|
|
|
|
|
|
|
|
3,124 |
|
|
|
|
|
|
|
|
|
|
|
4,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
428,665 |
|
|
|
|
|
|
|
|
|
|
|
318,252 |
|
|
|
|
|
|
|
|
|
|
|
244,778 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
28,586 |
|
|
|
|
|
|
|
|
|
|
|
22,901 |
|
|
|
|
|
|
|
|
|
|
|
18,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity: |
|
$ |
457,251 |
|
|
|
|
|
|
|
|
|
|
$ |
341,153 |
|
|
|
|
|
|
|
|
|
|
$ |
263,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(1) |
|
|
|
|
|
|
|
|
|
|
2.85 |
% |
|
|
|
|
|
|
|
|
|
|
2.94 |
% |
|
|
|
|
|
|
|
|
|
|
2.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(2)* |
|
|
|
|
|
$ |
15,289 |
|
|
|
3.49 |
% |
|
|
|
|
|
$ |
11,694 |
|
|
|
3.64 |
% |
|
|
|
|
|
$ |
9,138 |
|
|
|
3.58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities. |
|
(2) |
|
Net interest margin is net interest income, expressed as a percentage of average earning assets. |
|
(3) |
|
Loans placed on nonaccrual status are included in loan balances |
|
* |
|
Note: Interest income and yields are presented on a fully taxable equivalent basis using 34% tax rate. |
26
Table # 2A
Volume and Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 compared to 2004 |
|
|
2004 compared to 2003 |
|
|
|
|
|
|
2003 compared to 2002 |
|
|
|
|
|
|
Change Due To: |
|
|
|
|
|
|
Change Due To: |
|
|
|
|
|
|
Change Due To: |
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
|
|
|
(Decrease) |
|
|
Volume |
|
|
Rate |
|
|
(Decrease) |
|
|
Volume |
|
|
Rate |
|
|
(Decrease) |
|
|
Volume |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
1,584 |
|
|
$ |
1,511 |
|
|
$ |
73 |
|
|
$ |
527 |
|
|
$ |
369 |
|
|
$ |
158 |
|
|
$ |
(15 |
) |
|
$ |
158 |
|
|
$ |
(173 |
) |
Loans |
|
|
7,815 |
|
|
|
4,897 |
|
|
|
2,918 |
|
|
|
3,706 |
|
|
|
3,699 |
|
|
|
7 |
|
|
|
3,991 |
|
|
|
5,464 |
|
|
|
(1,473 |
) |
Interest bearing deposits |
|
|
187 |
|
|
|
35 |
|
|
|
152 |
|
|
|
(52 |
) |
|
|
(93 |
) |
|
|
41 |
|
|
|
(2 |
) |
|
|
69 |
|
|
|
(71 |
) |
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
(17 |
) |
|
|
(8 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) in Interest
Income |
|
|
9,586 |
|
|
|
6,443 |
|
|
|
3,143 |
|
|
|
4,183 |
|
|
|
3,975 |
|
|
|
208 |
|
|
|
3,957 |
|
|
|
5,683 |
|
|
|
(1,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
|
107 |
|
|
|
18 |
|
|
|
89 |
|
|
|
25 |
|
|
|
30 |
|
|
|
(5 |
) |
|
|
(97 |
) |
|
|
(23 |
) |
|
|
(74 |
) |
Money market deposit accounts |
|
|
3,418 |
|
|
|
2,709 |
|
|
|
709 |
|
|
|
569 |
|
|
|
410 |
|
|
|
159 |
|
|
|
(1 |
) |
|
|
121 |
|
|
|
(122 |
) |
Savings accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
(2 |
) |
|
|
1 |
|
|
|
(3 |
) |
Time deposits |
|
|
1,140 |
|
|
|
662 |
|
|
|
478 |
|
|
|
(206 |
) |
|
|
(253 |
) |
|
|
47 |
|
|
|
319 |
|
|
|
1,395 |
|
|
|
(1,076 |
) |
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
4,665 |
|
|
|
3,389 |
|
|
|
1,276 |
|
|
|
389 |
|
|
|
187 |
|
|
|
202 |
|
|
|
219 |
|
|
|
1,494 |
|
|
|
(1,275 |
) |
FHLB Advances |
|
|
948 |
|
|
|
(19 |
) |
|
|
967 |
|
|
|
487 |
|
|
|
503 |
|
|
|
(16 |
) |
|
|
(32 |
) |
|
|
40 |
|
|
|
(72 |
) |
Securities sold under agreements to
repurchase |
|
|
(6 |
) |
|
|
(20 |
) |
|
|
14 |
|
|
|
16 |
|
|
|
8 |
|
|
|
8 |
|
|
|
(15 |
) |
|
|
(7 |
) |
|
|
(8 |
) |
Other short-term borrowings |
|
|
129 |
|
|
|
109 |
|
|
|
20 |
|
|
|
82 |
|
|
|
2 |
|
|
|
80 |
|
|
|
(118 |
) |
|
|
1 |
|
|
|
(119 |
) |
Long-term borrowings |
|
|
63 |
|
|
|
260 |
|
|
|
(197 |
) |
|
|
433 |
|
|
|
147 |
|
|
|
286 |
|
|
|
421 |
|
|
|
421 |
|
|
|
|
|
Trust Preferred |
|
|
192 |
|
|
|
0 |
|
|
|
192 |
|
|
|
220 |
|
|
|
236 |
|
|
|
(16 |
) |
|
|
192 |
|
|
|
208 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) in Interest
Expense |
|
|
5,991 |
|
|
|
3,719 |
|
|
|
2,272 |
|
|
|
1,627 |
|
|
|
1,083 |
|
|
|
544 |
|
|
|
667 |
|
|
|
2,157 |
|
|
|
(1,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest
Income |
|
$ |
3,595 |
|
|
$ |
2,724 |
|
|
$ |
871 |
|
|
$ |
2,556 |
|
|
$ |
2,892 |
|
|
$ |
(336 |
) |
|
$ |
3,290 |
|
|
$ |
3,526 |
|
|
$ |
(236 |
) |
|
|
|
|
|
|
|
27
Table # 3
Investment Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Investment Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Securities |
|
$ |
1,602 |
|
|
$ |
1,638 |
|
|
$ |
1,692 |
|
US Government Agency Securities |
|
|
75,260 |
|
|
|
44,261 |
|
|
|
15,776 |
|
Mortgage Backed Securities |
|
|
1,393 |
|
|
|
2,235 |
|
|
|
3,912 |
|
Tax Exempt Municipals |
|
|
2,840 |
|
|
|
|
|
|
|
|
|
Taxable Municipals |
|
|
1,466 |
|
|
|
|
|
|
|
|
|
Mutual Fund |
|
|
1,471 |
|
|
|
|
|
|
|
|
|
Other |
|
|
3,739 |
|
|
|
3,244 |
|
|
|
1,798 |
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
$ |
87,771 |
|
|
$ |
51,378 |
|
|
$ |
23,178 |
|
|
|
|
|
|
|
|
|
|
|
Table # 3A
Investment Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
After One Year |
|
|
After Five Years |
|
|
After TenYears |
|
|
|
|
|
|
Within |
|
|
But Within |
|
|
But Within |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year |
|
|
Five Years |
|
|
Ten Years |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Available for Sale (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Securities |
|
$ |
|
|
|
|
|
|
|
$ |
1,602 |
|
|
|
3.49 |
% |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
1,602 |
|
|
|
3.49 |
% |
US Government Agency Securities |
|
|
1,968 |
|
|
|
3.05 |
% |
|
|
71,808 |
|
|
|
4.02 |
% |
|
|
1,484 |
|
|
|
5.15 |
% |
|
|
|
|
|
|
|
|
|
|
75,260 |
|
|
|
4.02 |
% |
Mortgage Backed Securities |
|
|
|
|
|
|
|
|
|
|
1,393 |
|
|
|
4.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,393 |
|
|
|
4.88 |
% |
Tax Exempt Municipals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,330 |
|
|
|
5.26 |
% |
|
|
510 |
|
|
|
5.69 |
% |
|
|
2,840 |
|
|
|
4.35 |
% |
Taxable Municipals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,466 |
|
|
|
4.30 |
% |
|
|
|
|
|
|
|
|
|
|
1,466 |
|
|
|
4.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,968 |
|
|
|
3.05 |
% |
|
$ |
74,803 |
|
|
|
4.03 |
% |
|
$ |
5,280 |
|
|
|
4.96 |
% |
|
$ |
510 |
|
|
|
5.69 |
% |
|
$ |
82,561 |
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes CRA Mutual Fund, Federal Reserve Bank Stock and FHLB Stock |
28
Table # 4
Loan Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
2002 |
|
|
|
|
|
|
2001 |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
38,516 |
|
|
|
10.42 |
% |
|
$ |
48,427 |
|
|
|
16.55 |
% |
|
$ |
31,759 |
|
|
|
16.78 |
% |
|
$ |
17,324 |
|
|
|
15.09 |
% |
|
$ |
9,115 |
|
|
|
13.26 |
% |
Commercial real estate |
|
|
137,423 |
|
|
|
37.17 |
|
|
|
96,939 |
|
|
|
33.13 |
|
|
|
69,128 |
|
|
|
36.51 |
|
|
|
41,081 |
|
|
|
35.77 |
|
|
|
26,184 |
|
|
|
38.09 |
|
Real estate construction |
|
|
37,054 |
|
|
|
10.02 |
|
|
|
33,073 |
|
|
|
11.30 |
|
|
|
13,766 |
|
|
|
7.27 |
|
|
|
10,057 |
|
|
|
8.76 |
|
|
|
10,821 |
|
|
|
15.75 |
|
Residential real estate |
|
|
156,185 |
|
|
|
42.24 1 |
|
|
|
13,432 |
|
|
|
38.77 |
|
|
|
73,846 |
|
|
|
39.01 |
|
|
|
45,591 |
|
|
|
39.70 |
|
|
|
20,724 |
|
|
|
30.15 |
|
Consumer |
|
|
555 |
|
|
|
0.15 |
|
|
|
723 |
|
|
|
0.25 |
|
|
|
821 |
|
|
|
0.43 |
|
|
|
782 |
|
|
|
0.68 |
|
|
|
1,892 |
|
|
|
2.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
369,733 |
|
|
|
100.00 |
% |
|
$ |
292,594 |
|
|
|
100.00 |
% |
|
$ |
189,320 |
|
|
|
100.00 |
% |
|
$ |
114,835 |
|
|
|
100.00 |
% |
|
$ |
68,736 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
Table # 4A
Loan Maturity Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
Three Months or |
|
|
Over Three Months |
|
|
Over One Year |
|
|
Over |
|
|
|
|
|
|
Less |
|
|
Through One Year |
|
|
Through Five Years |
|
|
Five Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
3,395 |
|
|
$ |
17,736 |
|
|
$ |
12,673 |
|
|
$ |
4,712 |
|
|
$ |
38,516 |
|
Commercial real estate |
|
|
9,500 |
|
|
|
13,663 |
|
|
|
44,771 |
|
|
|
69,489 |
|
|
|
137,423 |
|
Real estate construction |
|
|
7,384 |
|
|
|
23,396 |
|
|
|
2,912 |
|
|
|
3,362 |
|
|
|
37,054 |
|
Residential real estate |
|
|
3,384 |
|
|
|
15,854 |
|
|
|
41,150 |
|
|
|
95,797 |
|
|
|
156,185 |
|
Consumer |
|
|
|
|
|
|
287 |
|
|
|
239 |
|
|
|
29 |
|
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,663 |
|
|
$ |
70,936 |
|
|
$ |
101,745 |
|
|
$ |
173,389 |
|
|
$ |
369,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Table # 5
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
|
(In Thousands) |
|
Balance, beginning of period |
|
$ |
4,019 |
|
|
$ |
2,565 |
|
|
$ |
2,048 |
|
|
$ |
1,192 |
|
|
$ |
489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,196 |
|
|
|
1,462 |
|
|
|
526 |
|
|
|
841 |
|
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeoffs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
8 |
|
|
|
11 |
|
|
|
|
|
|
|
17 |
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total chargeoffs |
|
|
|
|
|
|
8 |
|
|
|
11 |
|
|
|
|
|
|
|
17 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
15 |
|
|
|
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs |
|
|
|
|
|
|
8 |
|
|
|
9 |
|
|
|
(15 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
5,215 |
|
|
$ |
4,019 |
|
|
$ |
2,565 |
|
|
$ |
2,048 |
|
|
$ |
1,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table # 6
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
2005 |
|
|
of total |
|
|
2004 |
|
|
of total |
|
|
2003 |
|
|
of total |
|
|
2002 |
|
|
of total |
|
|
2001 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
1,546 |
|
|
|
29.64 |
% |
|
$ |
1,475 |
|
|
|
36.70 |
% |
|
$ |
508 |
|
|
|
19.81 |
% |
|
$ |
311 |
|
|
|
15.19 |
% |
|
$ |
244 |
|
|
|
20.47 |
% |
Commercial real estate |
|
|
1,896 |
|
|
|
36.36 |
|
|
|
1,235 |
|
|
|
30.73 |
|
|
|
1,054 |
|
|
|
41.09 |
|
|
|
797 |
|
|
|
38.92 |
|
|
|
467 |
|
|
|
39.18 |
|
Real estate construction |
|
|
500 |
|
|
|
9.59 |
|
|
|
438 |
|
|
|
10.90 |
|
|
|
220 |
|
|
|
8.58 |
|
|
|
158 |
|
|
|
7.71 |
|
|
|
229 |
|
|
|
19.21 |
|
Residential real estate |
|
|
1,267 |
|
|
|
24.29 |
|
|
|
862 |
|
|
|
21.45 |
|
|
|
772 |
|
|
|
30.10 |
|
|
|
768 |
|
|
|
37.50 |
|
|
|
172 |
|
|
|
14.43 |
|
Consumer |
|
|
6 |
|
|
|
0.12 |
|
|
|
9 |
|
|
|
0.22 |
|
|
|
11 |
|
|
|
0.42 |
|
|
|
14 |
|
|
|
0.68 |
|
|
|
80 |
|
|
|
6.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,215 |
|
|
|
100.00 |
% |
|
$ |
4,019 |
|
|
|
100.00 |
% |
|
$ |
2,565 |
|
|
|
100.00 |
% |
|
$ |
2,048 |
|
|
|
100.00 |
% |
|
$ |
1,192 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
30
Table # 7
Average Deposits and Average Rates Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
Interest bearing liabilities: |
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
10,630 |
|
|
$ |
200 |
|
|
|
1.88 |
% |
|
$ |
9,075 |
|
|
$ |
93 |
|
|
|
1.02 |
% |
|
$ |
6,212 |
|
|
$ |
68 |
|
|
|
1.09 |
% |
Money market deposit accounts |
|
|
130,147 |
|
|
|
4,256 |
|
|
|
3.27 |
% |
|
|
40,506 |
|
|
|
838 |
|
|
|
2.07 |
% |
|
|
18,748 |
|
|
|
269 |
|
|
|
1.43 |
% |
Savings accounts |
|
|
450 |
|
|
|
4 |
|
|
|
0.89 |
% |
|
|
470 |
|
|
|
4 |
|
|
|
0.85 |
% |
|
|
539 |
|
|
|
3 |
|
|
|
0.56 |
% |
Time deposits |
|
|
129,314 |
|
|
|
4,560 |
|
|
|
3.53 |
% |
|
|
109,453 |
|
|
|
3,420 |
|
|
|
3.12 |
% |
|
|
117,803 |
|
|
|
3,626 |
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
270,541 |
|
|
|
9,020 |
|
|
|
3.33 |
% |
|
|
159,504 |
|
|
|
4,354 |
|
|
|
2.73 |
% |
|
|
143,302 |
|
|
|
3,966 |
|
|
|
2.77 |
% |
Non-interest bearing demand deposits |
|
|
66,862 |
|
|
|
|
|
|
|
|
|
|
|
75,883 |
|
|
|
|
|
|
|
|
|
|
|
60,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
337,403 |
|
|
|
|
|
|
|
|
|
|
$ |
235,387 |
|
|
|
|
|
|
|
|
|
|
$ |
203,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table # 7A
Certificate of Deposit Maturity Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
Three months |
|
Over three |
|
Over six |
|
Over |
|
|
|
|
or less |
|
through six months |
|
through twelve months |
|
twelve months |
|
Total |
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
Less than $100,000
|
|
$ |
20,622 |
|
|
$ |
9,540 |
|
|
$ |
13,513 |
|
|
$ |
16,602 |
|
|
$ |
60,277 |
|
Greater than or equal to $100,000
|
|
|
46,549 |
|
|
|
17,084 |
|
|
|
21,986 |
|
|
|
43,605 |
|
|
|
129,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,171 |
|
|
$ |
26,624 |
|
|
$ |
35,499 |
|
|
$ |
60,207 |
|
|
$ |
189,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Table # 8
Return on Average Assets and Return on Average Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
(In Thousands) |
|
Average total assets |
|
$ |
457,251 |
|
|
$ |
341,153 |
|
|
$ |
263,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders equity |
|
$ |
28,586 |
|
|
$ |
22,901 |
|
|
$ |
18,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
1.29 |
% |
|
|
0.97 |
% |
|
|
1.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
shareholders equity |
|
|
20.63 |
% |
|
|
14.48 |
% |
|
|
20.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders equity
to
average total assets |
|
|
6.25 |
% |
|
|
6.71 |
% |
|
|
7.08 |
% |
|
|
|
|
|
|
|
|
|
|
32
Table # 9
Borrowed Funds Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(Dollars In Thousands) |
|
At Period End |
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Advances |
|
$ |
36,000 |
|
|
$ |
27,000 |
|
|
$ |
5,000 |
|
Securities sold under agreements to repurchase |
|
|
977 |
|
|
|
2,862 |
|
|
|
1,803 |
|
Other short term borrowings |
|
|
11,219 |
|
|
|
7,217 |
|
|
|
4,253 |
|
FHLB Long Term Borrowings |
|
|
21,786 |
|
|
|
27,000 |
|
|
|
14,965 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
|
|
10,311 |
|
|
|
|
|
|
|
|
|
|
|
Total at period end |
|
$ |
80,293 |
|
|
$ |
74,390 |
|
|
$ |
36,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Advances |
|
$ |
43,375 |
|
|
$ |
44,598 |
|
|
$ |
10,788 |
|
Securities sold under agreements to repurchase |
|
|
925 |
|
|
|
2,290 |
|
|
|
1,381 |
|
Other Short term borrowings |
|
|
8,520 |
|
|
|
4,741 |
|
|
|
4,510 |
|
FHLB Long Term Borrowings |
|
|
24,028 |
|
|
|
17,801 |
|
|
|
13,762 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
|
|
5,593 |
|
|
|
|
|
|
|
|
|
|
|
Total average balance |
|
$ |
87,159 |
|
|
$ |
79,741 |
|
|
$ |
36,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate paid on all borrowed funds |
|
|
4.02 |
% |
|
|
2.73 |
% |
|
|
2.60 |
% |
|
|
|
|
|
|
|
|
|
|
33
Table # 10
Risk Based Capital Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Tier 1 Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
6,644 |
|
|
$ |
6,608 |
|
|
$ |
5,796 |
|
Capital surplus |
|
|
9,099 |
|
|
|
9,067 |
|
|
|
6,856 |
|
Retained earnings |
|
|
16,227 |
|
|
|
10,330 |
|
|
|
7,015 |
|
Subordinated Debt (Trust Preferred Debenture) |
|
|
10,000 |
|
|
|
8,500 |
|
|
|
6,500 |
|
Disallowed Goodwill & Intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tier 1 capital |
|
|
41,970 |
|
|
|
34,505 |
|
|
|
26,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt not included in Tier I |
|
|
311 |
|
|
|
1,811 |
|
|
|
3,500 |
|
Allowance for loan losses |
|
|
4,874 |
|
|
|
3,934 |
|
|
|
2,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk Based Capital |
|
$ |
47,155 |
|
|
$ |
40,250 |
|
|
$ |
32,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
389,381 |
|
|
$ |
314,494 |
|
|
$ |
208,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
552,292 |
|
|
$ |
390,735 |
|
|
$ |
254,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
10.78 |
% |
|
|
10.97 |
% |
|
|
12.54 |
% |
Total risk based capital ratio |
|
|
12.11 |
% |
|
|
12.80 |
% |
|
|
15.47 |
% |
Leverage ratio |
|
|
7.60 |
% |
|
|
8.83 |
% |
|
|
10.28 |
% |
34
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporations market risk is composed primarily of interest rate risk. The Funds Management
Committee is responsible for reviewing the interest rate sensitivity position and establishes
policies to monitor and coordinate the Corporations sources, uses and pricing of funds.
Interest Rate Sensitivity Management
The Corporation uses a simulation model to analyze, manage and formulate operating strategies that
address net interest income sensitivity to movements in interest rates. The simulation model
projects net interest income based on various interest rate scenarios over a twelve month period.
The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets
and liabilities. The model incorporates certain assumptions which management believes to be
reasonable regarding the impact of changing interest rates and the prepayment assumption of certain
assets and liabilities as of December 31, 2005. The model assumes changes in interest rates without
any management intervention to change the composition of the balance sheet. The table below
reflects the outcome of these analyses at December 31, 2005. According to the model run for the
period ended December 31, 2005 over a twelve month period, an immediate 100 basis points increase
in interest rates would result in an increase in net interest income by 1.09%. An immediate 200
basis points decline in interest rates would result in a decrease in net interest income by .06%.
While management carefully monitors the exposure to changes in interest rates and takes actions as
warranted to decrease any adverse impact, there can be no assurance about the actual effect of
interest rate changes on net interest income.
Rate Shock Analysis
December 31, 2005
|
|
|
|
|
Change in |
|
Hypothetical |
|
Hypothetical Percentage |
Federal Funds |
|
Percentage Change |
|
Change In Economic |
Target Rate |
|
In Earnings |
|
Value of Equity |
3.00% |
|
3.01% |
|
-18.14% |
2.00% |
|
2.06% |
|
-11.88% |
1.00% |
|
1.09% |
|
-6.01% |
-1.00% |
|
0.76% |
|
5.66% |
-2.00% |
|
-0.06% |
|
9.90% |
-3.00% |
|
-0.51% |
|
16.22% |
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 Asset/Liability Committee. The
Asset Liability 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 (locked) by both the Corporation and the borrower for specified
periods of time. When the borrower locks their 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 commitments 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 mortgage revenue. 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.
Impact of Inflation and Changing Prices
A banks asset and liability structure is substantially different from that of a non financial
company in that virtually all assets and liabilities of a bank are monetary in nature. The impact
of inflation on financial results depends upon the Banks ability to react to changes in interest
rates and, by such reaction, reduce the inflationary impact on performance. Interest rates do not
necessarily move in the same direction, or at the same magnitude, as the prices of other goods and
services. Management seeks to manage the
35
relationship between interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those
resulting from inflation.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
|
BDO Seldom, LLP
Accountant and Consultants
|
|
300 Arboretum Place Suite 520
Richmond Virginia 23236
Telephone: (804) 330-3092
Fax: (804) 330-7753 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Access National Corporation
Reston, Virginia
We have audited the accompanying consolidated balance sheets of Access
National Corporation as of December 31, 2005 and 2004 and the related
consolidated statements of income, shareholders equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Corporations management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statetments are free of material
misstatement. The Corporation is not required to haves nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Corporations internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Access National Corporation, at December 31, 2005 and 2004, and the
results of its operations and its cash flows for the years then ended,
in conformity with accounting principles generally accepted in the
United States of America
Richmond. Virginia
February 22, 2006
36
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders
Access National Corporation
Reston, Virginia
We have audited the accompanying consolidated balance sheets of Access National Corporation
and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of income,
changes in shareholders equity, and cash flows for the years then ended. These financial
statements are the
responsibility of the Corporations management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Access National Corporation and subsidiary as of
December 31, 2003 and 2002, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the United States of
America.
|
/s/ Yount, Hyde & Barbour, P.C. |
|
Winchester,Virginia
February 5, 2004 |
37
ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
December 31, 2005 and 2004
(In Thousands, Except for Per Share Data)
|
|
|
|
|
|
|
|
|
Assets |
|
2005 |
|
|
2004 |
|
Cash and due from banks |
|
$ |
9,854 |
|
|
$ |
10,998 |
|
Interest-bearing deposits in other banks |
|
|
13,329 |
|
|
|
19,534 |
|
Securities available for sale, at fair value |
|
|
87,771 |
|
|
|
51,378 |
|
Loans held for sale |
|
|
45,019 |
|
|
|
36,245 |
|
Loans, net of allowance for loan losses 2005, $5,215; 2004, $4,019 |
|
|
364,518 |
|
|
|
288,575 |
|
Premises and equipment, net |
|
|
9,650 |
|
|
|
8,822 |
|
Other assets |
|
|
6,909 |
|
|
|
4,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
537,050 |
|
|
$ |
420,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
$ |
81,034 |
|
|
$ |
94,108 |
|
Savings and interest-bearing deposits |
|
|
149,094 |
|
|
|
103,274 |
|
Time deposits |
|
|
189,501 |
|
|
|
120,011 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
419,629 |
|
|
|
317,393 |
|
|
|
|
|
|
|
|
|
|
Short term borrowings |
|
|
48,196 |
|
|
|
37,079 |
|
Long term borrowings |
|
|
21,786 |
|
|
|
27,000 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
Other liabilities and accrued expenses |
|
|
5,943 |
|
|
|
2,317 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
505,865 |
|
|
|
394,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
|
|
|
|
|
|
Common stock, par value, $0.835, authorized 60,000,000 shares,
issued and outstanding, 7,956,556 in 2005 and 7,914,148 in 2004 |
|
|
6,644 |
|
|
|
6,608 |
|
Surplus |
|
|
9,099 |
|
|
|
9,067 |
|
Retained earnings |
|
|
16,227 |
|
|
|
10,330 |
|
Accumulated other comprehensive income (loss), net |
|
|
(785 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
31,185 |
|
|
|
25,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
537,050 |
|
|
$ |
420,098 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Interest and Dividend Income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
25,043 |
|
|
$ |
17,228 |
|
|
$ |
13,522 |
|
Interest on federal funds sold |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
Interest on deposits in other banks |
|
|
278 |
|
|
|
90 |
|
|
|
142 |
|
Interest and dividends on securities |
|
|
2,471 |
|
|
|
905 |
|
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
27,793 |
|
|
|
18,225 |
|
|
|
14,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
9,020 |
|
|
|
4,355 |
|
|
|
3,966 |
|
Interest on short-term borrowings |
|
|
1,879 |
|
|
|
808 |
|
|
|
223 |
|
Interest on long-term borrowings |
|
|
917 |
|
|
|
854 |
|
|
|
421 |
|
Interest on trust preferred capital notes |
|
|
706 |
|
|
|
514 |
|
|
|
294 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
12,522 |
|
|
|
6,531 |
|
|
|
4,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
15,271 |
|
|
|
11,694 |
|
|
|
9,138 |
|
Provision for loan losses |
|
|
1,196 |
|
|
|
1,462 |
|
|
|
526 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
loan losses |
|
|
14,075 |
|
|
|
10,232 |
|
|
|
8,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Service fees on deposit accounts |
|
|
260 |
|
|
|
145 |
|
|
|
266 |
|
Gain on sale of loans |
|
|
24,095 |
|
|
|
20,015 |
|
|
|
27,818 |
|
Mortgage broker fee income |
|
|
5,634 |
|
|
|
4,601 |
|
|
|
4,890 |
|
Other income |
|
|
1,478 |
|
|
|
1,191 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
31,467 |
|
|
|
25,952 |
|
|
|
33,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
20,537 |
|
|
|
18,627 |
|
|
|
21,398 |
|
Occupancy expense |
|
|
1,222 |
|
|
|
1,367 |
|
|
|
1,291 |
|
Furniture and equipment expense |
|
|
1,204 |
|
|
|
1,048 |
|
|
|
871 |
|
Other operating expenses |
|
|
13,377 |
|
|
|
10,538 |
|
|
|
12,872 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
36,340 |
|
|
|
31,580 |
|
|
|
36,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
9,202 |
|
|
|
4,604 |
|
|
|
5,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
3,305 |
|
|
|
1,619 |
|
|
|
2,129 |
|
|
|
|
|
|
|
|
|
|
|
Net income before extra-ordinary items |
|
|
5,897 |
|
|
|
2,985 |
|
|
|
3,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extra-ordinary Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on acquisition of subsidiary, net of income tax |
|
|
|
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic, before extra-ordinary income |
|
$ |
0.75 |
|
|
$ |
0.40 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.75 |
|
|
$ |
0.44 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
Diluted, before extra-ordinary income |
|
$ |
0.63 |
|
|
$ |
0.33 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.63 |
|
|
$ |
0.36 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,867,135 |
|
|
|
7,509,536 |
|
|
|
6,986,680 |
|
Diluted |
|
|
9,423,087 |
|
|
|
9,155,778 |
|
|
|
8,822,372 |
|
See accompanying notes to consolidated financial statements.
39
ACCESS NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders Equity
(In Thousands, Except for Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre- |
|
|
Compre- |
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Retained |
|
|
hensive |
|
|
hensive |
|
|
|
|
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Income |
|
|
Total |
|
Balance, December 31, 2002 |
|
$ |
5,850 |
|
|
$ |
7,148 |
|
|
$ |
3,199 |
|
|
$ |
94 |
|
|
$ |
|
|
|
$ |
16,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(54 |
) |
|
|
(292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,816 |
|
|
|
|
|
|
|
3,816 |
|
|
|
3,816 |
|
Other comprehensive income,
unrealized holdings losses
arising during the period
(net of tax, $2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
|
|
5,796 |
|
|
|
6,856 |
|
|
|
7,015 |
|
|
|
88 |
|
|
|
|
|
|
|
19,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, |
|
|
854 |
|
|
|
2,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,383 |
|
Repurchase of common stock |
|
|
(42 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,315 |
|
|
|
|
|
|
|
3,315 |
|
|
|
3,315 |
|
Other comprehensive income,
unrealized holdings losses
arising during the period
(net of tax, $49) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
(95 |
) |
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
|
6,608 |
|
|
|
9,067 |
|
|
|
10,330 |
|
|
|
(7 |
) |
|
|
|
|
|
|
25,998 |
|
Issuance of common stock, |
|
|
38 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Repurchase of common stock |
|
|
(2 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
5,897 |
|
|
|
|
|
|
|
5,897 |
|
|
|
5,897 |
|
Other comprehensive income,
unrealized holdings losses
arising during the period
(net of tax, $402) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(778 |
) |
|
|
(778 |
) |
|
|
(778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
$ |
6,644 |
|
|
$ |
9,099 |
|
|
$ |
16,227 |
|
|
$ |
(785 |
) |
|
|
|
|
|
$ |
31,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
Adjustments to reconcile net income to net cash provided by (used
in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,196 |
|
|
|
1,462 |
|
|
|
526 |
|
Deferred tax benefit |
|
|
(908 |
) |
|
|
(538 |
) |
|
|
(55 |
) |
Provision for hedging |
|
|
30 |
|
|
|
|
|
|
|
|
|
Net amortization on securities |
|
|
|
|
|
|
71 |
|
|
|
239 |
|
Depreciation and amortization |
|
|
697 |
|
|
|
553 |
|
|
|
413 |
|
Loss on disposal of assets |
|
|
81 |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in loans held for sale |
|
|
(9,010 |
) |
|
|
(6,489 |
) |
|
|
64,096 |
|
(Increase) decrease in other assets |
|
|
(904 |
) |
|
|
(932 |
) |
|
|
1,213 |
|
Increase (decrease) in other liabilities |
|
|
3,626 |
|
|
|
(215 |
) |
|
|
(2,301 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
705 |
|
|
|
(2,773 |
) |
|
|
67,947 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and calls of securities available for sale |
|
|
25,523 |
|
|
|
24,878 |
|
|
|
10,978 |
|
Proceeds from sale of security available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
|
(63,095 |
) |
|
|
(53,294 |
) |
|
|
(18,750 |
) |
Increase in federal funds sold |
|
|
|
|
|
|
|
|
|
|
19 |
|
Net increase in loans |
|
|
(76,902 |
) |
|
|
(103,282 |
) |
|
|
(74,494 |
) |
Proceeds from sale of equipment |
|
|
7 |
|
|
|
|
|
|
|
|
|
Purchases of premises and equipment |
|
|
(1,793 |
) |
|
|
(1,382 |
) |
|
|
(7,632 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(116,260 |
) |
|
|
(133,080 |
) |
|
|
(89,879 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in demand, interest-bearing demand and savings deposits |
|
|
32,746 |
|
|
|
108,635 |
|
|
|
5,812 |
|
Net increase in time deposits |
|
|
69,490 |
|
|
|
10,575 |
|
|
|
14,120 |
|
Increase (decrease) in securities sold under agreement to repurchase |
|
|
(1,885 |
) |
|
|
1,059 |
|
|
|
(937 |
) |
Net increase (decrease) in short-term borrowings |
|
|
12,002 |
|
|
|
24,964 |
|
|
|
(24,392 |
) |
Net increase (decrease) in long term borrowings |
|
|
(4,215 |
) |
|
|
12,035 |
|
|
|
14,965 |
|
Increase in trust preferred capital notes |
|
|
|
|
|
|
|
|
|
|
6,000 |
|
Proceeds from issuance of common stock |
|
|
93 |
|
|
|
3,383 |
|
|
|
|
|
Repurchase of common stock |
|
|
(25 |
) |
|
|
(360 |
) |
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
108,206 |
|
|
|
160,291 |
|
|
|
15,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(7,349 |
) |
|
|
24,438 |
|
|
|
(6,710 |
) |
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
30,532 |
|
|
|
6,094 |
|
|
|
12,804 |
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
23,183 |
|
|
$ |
30,532 |
|
|
$ |
6,094 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
12,553 |
|
|
$ |
6,071 |
|
|
$ |
3,891 |
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes |
|
$ |
3,830 |
|
|
$ |
1,739 |
|
|
$ |
2,905 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities available for sale |
|
$ |
(1,180 |
) |
|
$ |
(145 |
) |
|
$ |
(8 |
) |
See accompanying notes to consolidated financial statements.
41
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Nature of Operations - Access National Corporation is a bank holding company incorporated under the
laws of the Commonwealth of Virginia. The holding company was formed on April 17, 2002. The
Corporation owns all of the stock of its subsidiaries: Access National Bank, Access National
Capital Trust I and Access National Capital Trust II. Access National Bank is an independent
commercial bank chartered under federal laws as a national banking association. The Trust
subsidiaries were formed for the purpose of issuing redeemable capital securities.
Access National Bank has four wholly-owned subsidiaries: Access National Mortgage Corporation
(Mortgage Corporation), a mortgage banking company, Access Leasing, a leasing company, Access Real
Estate, L.L.C., a real estate company and United First Mortgage, a mortgage banking company.
Principles of Consolidation - The accompanying consolidated financial statements include the
accounts of Access National Corporation and its wholly-owned subsidiaries, Access National Bank,
Access National Capital Trust I and Access National Capital Trust II. Prior to the adoption of FIN
46R the Corporation consolidated the trusts and the balance sheet included the guaranteed
beneficial interest in the subordinated debentures of the trusts. At the adoption of FIN 46R the
trusts were deconsolidated and the subordinated debentures of Access National Corporation owned by
the subsidiary trusts were recorded. Application of FIN 46R to its investment in subsidiary trust
did not have a material impact on the Corporations financial statements. All significant
inter-company accounts and transactions have been eliminated in consolidation. The accounting and
reporting policies of Access National Corporation and subsidiaries (the Corporation) conform to
accounting principles generally accepted in the United States of America and to predominant
practices within the banking industry.
Securities - Debt securities that management has both the positive intent and ability to hold to
maturity are classified as held to maturity and are recorded at amortized cost. Securities not
classified as held to maturity, including equity securities with readily determinable fair values,
are classified as available for sale and recorded at fair value, with unrealized gains and losses
excluded from earnings and reported in other comprehensive income. Restricted stock, such as
Federal Reserve Bank and FHLB stock, is carried at cost.
Purchase premiums and discounts are recognized in interest income using the interest method over
the terms of the securities. Declines in the fair value of held to maturity and available for sale
securities below their cost that are deemed to be other than temporary are reflected in earnings as
realized losses. Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method. All securities were classified as available
for sale at December 31, 2005 and 2004.
Loans - The Corporation grants commercial, real estate, and consumer loans to customers in the
community in and around Northern Virginia. The loan portfolio is well diversified and generally is
collateralized by assets of the customers. The loans are expected to be repaid from cash flow or
proceeds from the sale of selected assets of the borrowers. The ability of the Corporations
debtors to honor their contracts is dependent upon the real estate and general economic conditions
in the Corporations market area.
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off generally are reported at their outstanding unpaid principal balances less the
allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is
accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination
costs, are deferred and recognized as an adjustment of the related loan yield using the interest
method.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90
days delinquent unless the credit is well-secured and in process of collection. Consumer loans and
other loans are typically charged off no later than 180 days past due. In all cases, loans are
placed on non-accrual or charged-off at an earlier date if collection of principal or interest is
considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged-off is
reversed against interest income. The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status
when all of the principal and interest amounts contractually due are brought current and future
payments are reasonably assured.
Loans Held for Sale All one to four unit residential loans originated and intended for sale in
the secondary market do not qualify for hedging under SFAS No. 133 and are carried at the lower of
aggregate cost or fair market value as determined by aggregate outstanding commitments from
investors or current investor yield requirements. Net unrealized losses are recognized in a
valuation allowance by charges to income. Substantially all loans originated by Access National
Mortgage Corporation are held for sale to outside investors. The Bank does not retain the servicing
upon the sale of these loans.
42
Notes to Consolidated Financial Statements
Allowance for Loan Losses - The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance represents an amount that, in managements judgment, will be adequate to absorb any
losses on existing loans that may become uncollectible. Managements judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans while taking into
consideration such factors as changes in the nature and volume of the loan portfolio, current
economic conditions which may affect a borrowers ability to repay, overall portfolio quality, and
review of specific potential losses. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component
relates to loans that are classified as doubtful, substandard or special mention. For such loans
that are also classified as impaired, an allowance is established when the discounted cash flows
(or collateral value or observable market price) of the impaired loan is lower than the carrying
value of that loan. The general component covers non-classified loans and is based on historical
loss experience adjusted for qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect managements estimate of probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in
the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that
the Corporation will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value of the expected future cash
flows discounted at the loans effective interest rate, the loans obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Corporation does not separately identify individual consumer and residential loans
for impairment disclosures.
Derivative Financial Instruments The Mortgage Corporation enters into commitments to fund
residential mortgage loans with the intention of selling them in the secondary market. The company
also enters into forward sales agreements for certain funded loans and loan commitments. The
company records unfunded commitments intended for loans held for sale and forward sales agreements
at fair value with changes in fair value recorded as a component of other income. Loans originated
and intended for sale in the secondary market are carried with residential loans at the lower of
cost or estimated fair value in the aggregate.
For pipeline loans which are not pre-sold to an investor, the Mortgage Corporation manages the
interest rate risk on rate lock commitments by entering into forward sale contracts of mortgage
backed securities, whereby the Mortgage Corporation obtains the right to deliver securities to
investors in the future at a specified price. Such contracts are accounted for as derivatives and
are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded
in other income.
The Corporation has determined these derivative financial instruments do not meet the hedging
criteria required by FASB 133 and has not designated these derivative financial instruments as
hedges. Accordingly, changes in fair value are recognized currently in income.
Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation.
Premises and equipment are depreciated over their estimated useful lives; leasehold improvements
are amortized over the lives of the respective leases or the estimated useful life of the leasehold
improvement, whichever is less. Depreciation is computed using the straight-line method over the
estimated useful lives of 39 years for office buildings and 3 to 15 years for furniture, fixtures,
and equipment. Costs of maintenance and repairs are expensed as incurred; improvements and
betterments are capitalized. When items are retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from the accounts and any resulting gains or losses are
included in the determination of net income.
43
Notes to Consolidated Financial Statements
Income Taxes - Deferred income tax assets and liabilities are determined using the balance sheet
method. Under this method, the net deferred tax asset or liability is determined based on the tax
effects of the temporary differences between the book and tax bases of the various balance sheet
assets and liabilities and gives current recognition to changes in tax rates and laws. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be realized.
Goodwill and Other Intangibles - The Corporation adopted Statement of Financial Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142), effective January 1, 2002. Accordingly,
goodwill is no longer subject to amortization over its estimated useful life, but is subject to at
least an annual assessment for impairment by applying a fair value based test. Additionally, under
SFAS 142, acquired intangible assets (such as core deposit intangibles) are separately recognized
if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized
over their useful life.
44
Notes to Consolidated Financial Statements
Stock-Based Compensation Plans - The Corporation applies Accounting Principles Bulletin (APB)
Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations to account for
employee stock compensation plans, and accordingly, does not recognize compensation expense for
stock options granted when the option price is greater than or equal to the underlying stock price
on the date of grant. The Corporation presents the pro forma disclosures required by SFAS 123,
Accounting for Stock Based Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
(In Thousands, Except for Per Share Data)* |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net income, as reported |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
Total stock-based compensation expense determined under fair value
based method for all awards, net of related tax effects |
|
|
(285 |
) |
|
|
(209 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
5,612 |
|
|
$ |
3,106 |
|
|
$ |
3,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic - as reported |
|
$ |
0.75 |
|
|
$ |
0.44 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
Basic - pro forma |
|
$ |
0.71 |
|
|
$ |
0.41 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
Diluted - as reported |
|
$ |
0.63 |
|
|
$ |
0.36 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
Diluted - pro forma |
|
$ |
0.60 |
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Prior periods adjusted for stock split effective December 12, 2005 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Model
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
2005 |
|
2004 |
|
2003 |
Expected life |
|
6.78 years |
|
7 years |
|
7 years |
Risk-free interest rate |
|
|
4.70 |
% |
|
|
3.52 |
% |
|
|
3.69 |
% |
Volatility |
|
|
18.37 |
% |
|
|
19.50 |
% |
|
|
22.82 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2006, the Corporation adopted the provisions of SFAS 123R which requires
compensation expense to be recognized for share based payments.
45
Notes to Consolidated Financial Statements
Earnings Per Share - Basic earnings per share represents income available to common shareholders
divided by the weighted-average number of shares outstanding during the period. Diluted earnings
per share reflect additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income that would result from the
assumed issuance. Common equivalent shares are excluded from the computation if their effect is
anti-dilutive.
During the year ended December 31, 2004, the Corporation realized a gain from the excess of the
fair value of net assets acquired over the purchase price of United First Mortgage Inc. upon the
acquisition of a subsidiary.
Cash and Cash Equivalents - For purposes of the statements of cash flows, cash and cash equivalents
consists of cash and due from banks and interest-bearing deposits in other banks.
Advertising Costs The Corporation follows the policy of charging the production costs of
advertising to expense as incurred.
Use of Estimates - The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses and the valuation of deferred tax assets.
Shareholders Equity In December 2005, the Corporation declared a 2 for 1 stock split. The
authorized shares of common stock increased from 30,000,000 to 60,000,000 and par value per share
decreased from $1.67 to $0.835.
Recent Accounting Pronouncements In December 2003, the FASB issued FASB Interpretation No.46
(revised December 2003) Consolidation of Variable Interest Entities (FIN 46R), which addresses how
a business enterprise should evaluate whether it has a controlling financial interest in an entity.
Access National Corporation has determined that the provisions of FIN 46R required the
de-consolidation of the subsidiary trusts which issued guaranteed preferred beneficial interests in
subordinated debentures (Trust Preferred Securities). Prior to the adoption of FIN 46R the
Corporation consolidated the trusts and the balance sheet included the guaranteed beneficial
interest in the subordinated debentures of the trusts. At the adoption of FIN 46R, the trusts were
de-consolidated and the junior subordinated debentures of Access National Corporation owned by the
subsidiary trusts were recorded. Application of FIN 46R to its investment in subsidiary trusts did
not materially impact the financial statements of the Corporation
In December 2004, FASB enacted Statement of Financial Accounting Standards 123revised 2004 (SFAS
123R), ''Share-Based Payment which replaces Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25 (APB 25),
''Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash
Flows. SFAS 123R requires the measurement of all employee share-based payments to employees,
including grants of employee stock options, using a fair-value based method and the recording of
such expense in our consolidated statements of income. The accounting provisions of SFAS 123R are
effective for reporting periods beginning after June 15, 2005. The new standard may be adopted in
one of three ways the modified prospective transition method, a variation of the modified
prospective transition method or the modified retrospective transition method. The Corporation
disclosed pro forma compensation expense quarterly and annually by calculating the stock option
grants fair value using the Black-Scholes model and disclosing the impact on net income and net
income per share. The adoption of SFAS 123R is not expected to have a material impact on the
Corporations financial statements.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, a Replacement of
APB Opinion 20 and FASB Statement No. 3. SFAS 154 amends the existing guidance and applies to
accounting for and reporting of a change in accounting principle. SFAS 154 also applies to changes
required by accounting pronouncements when the pronouncement does not include explicit transition
provisions. SFAS 154 is effective for accounting changes and error corrections made in fiscal
years beginning after December 15, 2005. Management does not believe the adoption of SFAS 154 will
have a material impact on the financial condition or the results of operation of the Corporation.
FASBs Emerging Issues Task Force (EITF), reached consensus on The Meaning of
Other-Than-Temporary and Its Application to Certain Investments in EITF Issue No. 03-1. The
guidance included in the EITF consensus largely consisted of expanded disclosures and the guidance
was intended to be fully effective in 2003, except for loss-recognition guidance which had a
delayed effective date into 2004. In 2004, the FASB has further delayed the loss recognition
provisions of Issue No. 03-1. In June 2005, the FASB announced plans to supersede the EITF guidance
with a revised standard in late 2005. Because of the inconclusive status of the guidance on the
loss recognition aspects of Issue No. 03-1, the Corporations management is unable to determine at
this time the potential impact of this matter on the consolidated financial statements.
46
Notes to Consolidated Financial Statements
AICPA Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer (SOP 03-3), addresses the accounting for differences between contractual cash flows and
cash flows expected to be collected from the initial investment in loans acquired in a transfer if
those differences are attributable, at least in part, to credit quality. It includes such loans
acquired in purchase business combinations and does not apply to loans originated by the entity.
SOP 03-3 prohibits carrying over or creation of valuation allowances in the initial accounting for
loans acquired in a transfer. It is effective for loans acquired in fiscal years beginning after
December 15, 2004. This new guidance had no material effect on the Corporations consolidated
financial statements upon implementation.
Reclassifications - Certain reclassifications have been made to prior period amounts to conform to
the current year presentation.
Note 2. Securities
Amortized costs and fair values of the securities available for sale as of December 31, 2005 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
U.S. Treasury Notes |
|
$ |
1,606 |
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
1,602 |
|
U.S. Governmental Agencies |
|
|
76,329 |
|
|
|
|
|
|
|
(1,069 |
) |
|
|
75,260 |
|
Mortgage Backed Securities |
|
|
1,392 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
1,393 |
|
Tax Exempt Municipals |
|
|
2,895 |
|
|
|
|
|
|
|
(55 |
) |
|
|
2,840 |
|
Taxable Municipals |
|
|
1,500 |
|
|
|
|
|
|
|
(34 |
) |
|
|
1,466 |
|
Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(29 |
) |
|
|
1,471 |
|
Restricted Stock - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
300 |
|
FHLB Stock |
|
|
3,439 |
|
|
|
|
|
|
|
|
|
|
|
3,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
88,961 |
|
|
$ |
3 |
|
|
$ |
(1,193 |
) |
|
$ |
87,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
U.S. Treasury Notes |
|
$ |
1,623 |
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
1,638 |
|
U.S. Governmental Agencies |
|
|
44,331 |
|
|
|
33 |
|
|
|
(103 |
) |
|
|
44,261 |
|
Mortgage Backed Securities |
|
|
2,191 |
|
|
|
44 |
|
|
|
|
|
|
|
2,235 |
|
Restricted Stock - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
300 |
|
FHLB Stock |
|
|
2,944 |
|
|
|
|
|
|
|
|
|
|
|
2,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,389 |
|
|
$ |
92 |
|
|
$ |
(103 |
) |
|
$ |
51,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities available for sale as of December 31, 2005 by
contractual maturities, are shown below. Maturities may differ from contractual maturities because
the securities may be called or prepaid without any penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
|
(In Thousands) |
|
US Treasury & Agencies |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
3,606 |
|
|
$ |
3,570 |
|
Due after one through five years |
|
|
71,831 |
|
|
|
70,846 |
|
Due after five through ten years |
|
|
2,498 |
|
|
|
2,446 |
|
Municipals |
|
|
|
|
|
|
|
|
Due after five through ten years |
|
|
3,880 |
|
|
|
3,796 |
|
Due after ten through fifteen years |
|
|
515 |
|
|
|
510 |
|
Mortgage Backed Securities: |
|
|
|
|
|
|
|
|
Due after one through five years |
|
|
1,392 |
|
|
|
1,393 |
|
Mutual Fund |
|
|
1,500 |
|
|
|
1,471 |
|
Restricted Stock: |
|
|
|
|
|
|
|
|
Federal Reserve Bank stock |
|
|
300 |
|
|
|
300 |
|
FHLB stock |
|
|
3,439 |
|
|
|
3,439 |
|
|
|
|
|
|
|
|
|
|
$ |
88,961 |
|
|
$ |
87,771 |
|
|
|
|
|
|
|
|
For the years ended December 31, 2005 and 2004, there were no sales of securities available
for sale.
The book value of securities pledged to secure securities sold under agreement to repurchase and
for other purposes amounted to $41,439,000 at December 31, 2005 and $19,288,000 at December 31,
2004.
Investment securities available for sale that have an unrealized loss position at December 31, 2005
are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a loss |
|
|
Securities in a loss |
|
|
|
|
|
|
Position for less than |
|
|
Position for 12 Months |
|
|
|
|
|
|
12 Months |
|
|
or Longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Security |
|
$ |
1,602 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,602 |
|
|
$ |
4 |
|
Mortgage Backed Security |
|
|
485 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
485 |
|
|
|
2 |
|
U.S. Government Agencies |
|
|
28,950 |
|
|
|
377 |
|
|
|
29,309 |
|
|
|
691 |
|
|
|
58,259 |
|
|
|
1,068 |
|
Municipals-Taxable |
|
|
1,465 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
1,465 |
|
|
|
35 |
|
Municipals-Tax Exempt |
|
|
2,840 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
2,840 |
|
|
|
55 |
|
CRA Mutual Fund |
|
|
1,471 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
1,471 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36,813 |
|
|
$ |
502 |
|
|
$ |
29,309 |
|
|
$ |
691 |
|
|
$ |
66,122 |
|
|
$ |
1,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management does not believe that any individual unrealized loss as of December 31, 2005 represents
other than 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.
48
Notes to Consolidated Financial Statements
Note 3. Loans
Net loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In Thousands) |
|
Loans secured by real estate: |
|
|
|
|
|
|
|
|
Construction and land development |
|
$ |
37,054 |
|
|
$ |
33,073 |
|
Residential properties |
|
|
156,185 |
|
|
|
113,432 |
|
Secured by commercial properties |
|
|
137,423 |
|
|
|
96,939 |
|
Commercial loans |
|
|
38,516 |
|
|
|
48,427 |
|
Consumer loans |
|
|
555 |
|
|
|
723 |
|
|
|
|
|
|
|
|
Total loans |
|
|
369,733 |
|
|
|
292,594 |
|
Less allowance for loan losses |
|
|
5,215 |
|
|
|
4,019 |
|
|
|
|
|
|
|
|
Net loans |
|
$ |
364,518 |
|
|
$ |
288,575 |
|
|
|
|
|
|
|
|
Note 4. Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Balance at beginning of year |
|
$ |
4,019 |
|
|
$ |
2,565 |
|
|
$ |
2,048 |
|
Provision charged to operating expense |
|
|
1,196 |
|
|
|
1,462 |
|
|
|
526 |
|
Loan recoveries |
|
|
|
|
|
|
|
|
|
|
2 |
|
Loan charge-offs |
|
|
|
|
|
|
(8 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
5,215 |
|
|
$ |
4,019 |
|
|
$ |
2,565 |
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans amounted to $1,311,000 at December 31, 2005 and $2,158,000 at December 31, 2004.
If interest had been accrued, such income would have been approximately $189,000 and $139,000
respectively. At December 31, 2005 and 2004 there were no impaired loans.
49
Notes to Consolidated Financial Statements
Note 5. Premises and Equipment, net
Premises and equipment, net are summarized as follow:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In Thousands) |
|
Land |
|
$ |
2,549 |
|
|
$ |
1,341 |
|
Premises |
|
|
6,162 |
|
|
|
6,126 |
|
Leasehold improvements |
|
|
386 |
|
|
|
381 |
|
Furniture & Equipment |
|
|
2,182 |
|
|
|
2,211 |
|
|
|
|
|
|
|
|
|
|
|
11,279 |
|
|
|
10,059 |
|
Less accumulated depreciation |
|
|
1,629 |
|
|
|
1,237 |
|
|
|
|
|
|
|
|
|
|
$ |
9,650 |
|
|
$ |
8,822 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense included in operating expenses for the years ended December
31, 2005, 2004 and 2003 was $697,000, $553,000 and $413,000 respectively.
50
Notes to Consolidated Financial Statements
Note 6. Deposits
The aggregate amount of time deposits with a minimum denomination of $100,000 was $129,224,000 and
$83,047,000 at December 31, 2005 and 2004, respectively.
At December 31, 2005, the scheduled maturities of time deposits were as follows:
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
(In Thousands) |
|
2006 |
|
|
|
|
|
$ |
129,294 |
|
2007 |
|
|
|
|
|
|
29,455 |
|
2008 |
|
|
|
|
|
|
14,496 |
|
2009 |
|
|
|
|
|
|
10,036 |
|
2010 |
|
|
|
|
|
|
3,344 |
|
Later years |
|
|
|
|
|
|
2,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
189,501 |
|
|
|
|
|
|
|
|
|
Brokered deposits totaled $58,773,000 and $53,997,000 at December 31, 2005 and 2004
respectively.
Note 7. Borrowings
Short-term borrowings consist of the following at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars In Thousands) |
|
Securities sold under agreements to repurchase |
|
$ |
977 |
|
|
$ |
2,862 |
|
Commercial paper arrangements |
|
|
11,219 |
|
|
|
7,216 |
|
FHLB borrowings |
|
|
36,000 |
|
|
|
27,000 |
|
Fed Funds Purchased |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
Total |
|
$ |
48,196 |
|
|
$ |
37,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted interest rate |
|
|
4.21 |
% |
|
|
2.27 |
% |
|
|
|
|
|
|
|
|
|
Average for the year ended December 31: |
|
|
|
|
|
|
|
|
Outstanding |
|
$ |
52,820 |
|
|
$ |
51,629 |
|
Interest rate |
|
|
3.54 |
% |
|
|
1.56 |
% |
|
|
|
|
|
|
|
|
|
Maximum month-end outstanding |
|
$ |
87,519 |
|
|
$ |
61,862 |
|
51
Notes to Consolidated Financial Statements
Short-term borrowings consist of securities sold under agreements to repurchase, which are secured
transactions with customers and generally mature the day following the date sold. Short-term
borrowings also include short-term advances from the Federal Home Loan Bank of Atlanta, which are
secured by mortgage-related loans and U.S. Government Agencies securities. The carrying value of
the loans pledged as collateral for FHLB advances total $199,000,000 at December 31, 2005. In
addition, the Corporation engaged in commercial paper arrangements with investors payable on
demand.
At December 31, 2005, the Corporations fixed-rate long-term debt with the Federal Home Loan Bank
totals $21,786,000 and matures through 2014. The interest rate on the fixed-rate notes payable
ranges from 2.70% to 4.97%.
The contractual maturities of long-term debt at December 31, 2005 are as follows:
|
|
|
|
|
|
|
Amount |
|
|
|
(In Thousands) |
|
Due in 2008 |
|
$ |
7,500 |
|
Due in 2009 |
|
|
7,000 |
|
Due in 2010 |
|
|
3,036 |
|
Due in 2014 |
|
|
4,250 |
|
|
|
|
|
Total Due |
|
$ |
21,786 |
|
|
|
|
|
The Company has remaining lines of credit available with Federal Home Loan Bank which totaled
$84,466,000 at December 31, 2005.
During 2002, Access National Capital Trust I, a wholly-owned subsidiary of the Corporation, was
formed for the purpose of issuing redeemable Capital Securities. On July 30, 2002, $4.1 million of
trust preferred securities were issued. The securities have a LIBOR-indexed floating rate of
interest. The interest rate as of December 31, 2005 was 8.179%. Interest is payable quarterly. The
securities have a mandatory redemption date of July 30, 2032, and are subject to varying call
provisions beginning July 30, 2007. The principal asset of the Trust is $4.1 million of the
Corporations junior subordinated debt securities with the like maturities and like interest rates
to the Capital Securities.
During 2003, Access National Capital Trust II, a wholly-owned subsidiary of the Corporation was
formed for the purpose of issuing redeemable Capital Securities. On September 29, 2003, $6.2
million of trust preferred securities were issued. The securities have a LIBOR-indexed floating
rate of interest. The interest rate at December 31, 2005 was 7.350%. Interest is payable quarterly.
The securities have a mandatory redemption date of September 29, 2034 and are subject to varying
call provisions beginning January 7, 2009. The principal asset of the Trust is $6.2 million of the
Corporations junior subordinated debt securities with the like maturities and like interest rates
to the Capital securities.
The Trust Preferred Securities may be included in Tier 1 capital for regulatory capital adequacy
determination purposes up to 25% of Tier I capital after its inclusion. The portion of the Trust
Preferred not considered as Tier I capital may be included in Tier II capital.
The obligations of the Corporation with respect to the issuance of the Capital Securities
constitute a full and unconditional guarantee by the Corporation of the Trusts obligations with
respect to the Capital Securities.
52
Notes to Consolidated Financial Statements
Subject to certain exceptions and limitations, the Corporation may elect from time to time to defer
interest payments on the junior subordinated debt securities, which would result in a deferral of
distribution payments on the related Capital Securities.
Note 8. Income Taxes
Net deferred tax assets consisted of the following components as of December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In Thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
1,344 |
|
|
$ |
938 |
|
Accrual to cash basis adjustment |
|
|
28 |
|
|
|
56 |
|
Securities available for sale |
|
|
405 |
|
|
|
4 |
|
Deferred fees |
|
|
408 |
|
|
|
322 |
|
Other |
|
|
588 |
|
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
2,773 |
|
|
|
1,538 |
|
|
|
|
|
|
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
216 |
|
|
|
249 |
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
249 |
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included in other assets |
|
$ |
2,557 |
|
|
$ |
1,289 |
|
|
|
|
|
|
|
|
The provision for income taxes charged to operations for the years ended December 31, 2005,
2004 and 2003 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Current tax expense |
|
$ |
4,213 |
|
|
$ |
2,327 |
|
|
$ |
2,184 |
|
Deferred tax (benefit) |
|
|
(908 |
) |
|
|
(538 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,305 |
|
|
$ |
1,789 |
|
|
$ |
2,129 |
|
|
|
|
|
|
|
|
|
|
|
53
Notes to Consolidated Financial Statements
The income tax provision differs from the amount of income tax determined by applying the U.S.
Federal income tax rate to pretax income for the years ended December 31, 2005, 2004 and 2003 as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Computed expected tax expense |
|
$ |
3,078 |
|
|
$ |
1,565 |
|
|
$ |
2,021 |
|
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes |
|
|
150 |
|
|
|
110 |
|
|
|
190 |
|
Other |
|
|
77 |
|
|
|
(56 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,305 |
|
|
|
1,619 |
|
|
|
2,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase due to tax resulting from gain on
acquisition of subsidiary |
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,305 |
|
|
$ |
1,789 |
|
|
$ |
2,129 |
|
|
|
|
|
|
|
|
|
|
|
Note 9. Commitments and Contingent Liabilities
The Corporation was committed under non-cancelable and month-to-month operating leases for its
office locations. Rent expense associated with these operating leases for the years ended December
31, 2005, 2004 and 2003 totaled $776,000, $719,000 and $900,000.
The following is a schedule of future minimum lease payments required under operating leases that
have initial or remaining lease terms in excess of one year.
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
(In Thousands) |
|
2006 |
|
|
|
|
|
$ |
450 |
|
2007 |
|
|
|
|
|
|
191 |
|
2008 |
|
|
|
|
|
|
146 |
|
2009 |
|
|
|
|
|
|
98 |
|
2010 |
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
936 |
|
|
|
|
|
|
|
|
|
In the normal course of business, there are outstanding various commitments and contingent
liabilities, which are not reflected in the accompanying financial statements. The Corporation does
not anticipate any material loss as a result of these transactions. See Note 11 for additional
information.
As a member of the Federal Reserve System, the Bank is required to maintain certain average reserve
balances. Those balances include usable vault cash and amounts on deposit with the Federal Reserve.
At December 31, 2005 and 2004, the amount of daily average required balances were approximately
$4,980,000 and $5,094,000 respectively.
54
Notes to Consolidated Financial Statements
Note 10. Derivatives
During 2005 and 2004, the Mortgage Corporation entered 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 also has
corresponding forward sales commitments related to these interest rate lock commitments, which are
recorded at fair value with changes in fair value recorded in non-interest income. The market value
of rate lock commitments and best efforts contracts is not readily ascertainable with precision
because rate lock commitments and best efforts contracts are not actively traded in stand-alone
markets. The Mortgage Corporation determines the fair value of rate lock commitments and best
efforts contracts by measuring the change in the value of the underlying asset while taking into
consideration the probability that the rate lock commitments will close.
For derivative instruments not designated as hedging instruments, the derivative is recorded as a
freestanding asset or liability with the change in value being recognized in current earnings
during the period of change.
At December 31, 2005 and 2004 the Mortgage Corporation had derivative financial instruments with a
notional value of $96,809,000 and $55,828,000 respectively. The fair value of these derivative
instruments was $96,731,000 and $55,765,000 respectively.
55
Notes to Consolidated Financial Statements
Note 11. Financial Instruments with Off-Balance-Sheet Risk
The Corporation is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments
consist primarily of commitments to extend credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the Corporation has in
particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customers creditworthiness on a
case-by-case basis. The amount of collateral, if deemed necessary by the Corporation upon extension
of credit, is based on managements credit evaluation of the counterparty. Collateral normally
consists of real property, liquid assets or business assets. The Corporation had approximately
$5,000,000 and $16,970,000 in outstanding commitments at December 31, 2005 and 2004, respectively.
The Corporations exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit is represented by the contractual notional
amount of those instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments. The Corporation had
approximately $71,995,000 and $45,278,000 in unfunded lines of credit whose contract amounts
represent credit risk at December 31, 2005 and 2004, respectively.
The Mortgage Corporation had locked rate commitments to originate mortgage loans amounting to
approximately $46,809,000 and $29,834,000 at December 31, 2005 and 2004 respectively. Loans held
for sale totaled $45,019,000 and $36,245,000 at December 31, 2005 and 2004 respectively. The
Mortgage Corporation had entered into commitments, on a best-effort basis to sell loans of
approximately $17,624,000 at December 31, 2005 and $15,039,000 at December 31, 2004. The Mortgage
Corporation had entered into forward loan sale commitments totaling $4,077,000 and $30,768,000 as
of December 31, 2005 and 2004 respectively. Risks arise from the possible inability of
counterparties to meet the terms of their contracts. The Mortgage Corporation does not expect any
counterparty to fail to meet its obligations.
Standby letters of credit are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support
public and private borrowing arrangements. Essentially all letters of credit issued have expiration
dates within one year. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The Corporation generally holds
collateral supporting those commitments if deemed necessary. The Corporation had standby letters of
credit outstanding in the amount of $3,847,000 and $2,525,000 at December 31, 2005 and 2004,
respectively.
The Corporation has cash accounts in other commercial banks. The amount of deposit at these banks
at December 31, 2005 and 2004 exceeded the insurance limits of the Federal Deposit Insurance
Corporation by approximately $13,279,000 and $19,434,000 respectively.
56
Notes to Consolidated Financial Statements
Note 12. Related Party Transactions
The Corporation has had, and may be expected to have in the future, banking transactions in the
ordinary course of business with directors, principal officers, their immediate families and
affiliated companies in which they are principal shareholders (commonly referred to as related
parties), on the same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others. These persons and firms were indebted to the
Corporation for loans totaling $4,215,000 and $1,064,000 at December 31, 2005 and 2004,
respectively. During 2005, total principal additions were $3,959,000 and total principal payments
were $808,000. The aggregate amount of deposits at December 31, 2005 and 2004 from directors and
officers was $6,556,000 and $3,855,000 respectively.
Stock Option Plan
The Corporations shareholders approved the Corporations 1999 Stock Option Plan at the 2000 Annual
Meeting of Shareholders. The plan reserves 975,000 shares of Common Stock. The Stock Plan allows
for incentive stock options to be granted with an exercise price equal to the fair market value at
the date of grant. Option expiration dates range from three to seven years from the date of grant.
All shares have been restated to reflect the 10 for 1 stock split declared in April 2001, the 3 for
1 stock split of June 1, 2003 and the 2 for 1 stock split of December 2005.
Changes in the stock options outstanding under the Stock Plan are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Exercise |
|
|
Number of |
|
|
Exercise |
|
|
Number of |
|
|
Exercise |
|
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
Outstanding at beginning of year |
|
|
1,121,818 |
|
|
$ |
2.85 |
|
|
|
1,104,136 |
|
|
$ |
2.47 |
|
|
|
990,528 |
|
|
$ |
2.21 |
|
Granted |
|
|
182,458 |
|
|
|
9.52 |
|
|
|
137,414 |
|
|
|
7.35 |
|
|
|
120,148 |
|
|
|
4.67 |
|
Exercised |
|
|
(13,854 |
) |
|
|
2.91 |
|
|
|
(51,500 |
) |
|
|
3.12 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(13,014 |
) |
|
|
7.02 |
|
|
|
(68,232 |
) |
|
|
5.38 |
|
|
|
(6,540 |
) |
|
|
3.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
1,277,408 |
|
|
$ |
3.76 |
|
|
|
1,121,818 |
|
|
$ |
2.85 |
|
|
|
1,104,136 |
|
|
$ |
2.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end |
|
|
1,159,598 |
|
|
$ |
3.59 |
|
|
|
777,174 |
|
|
$ |
2.43 |
|
|
|
517,698 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value
per option granted during year |
|
|
|
|
|
$ |
3.44 |
|
|
|
|
|
|
$ |
2.26 |
|
|
|
|
|
|
$ |
1.66 |
|
57
Notes to Consolidated Financial Statements
Summary information pertaining to options outstanding at December 31, 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Weighted |
|
Range of |
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Remaining |
|
|
Average |
|
Exercise |
|
Number |
|
|
Contractual |
|
|
Exercise |
|
|
Number |
|
|
Contractual |
|
|
Exercise |
|
Price |
|
Outstanding |
|
|
Life (in yrs) |
|
|
Price |
|
|
Outstanding |
|
|
Life (in yrs) |
|
|
Price |
|
$1.67-1.85 |
|
|
661,080 |
|
|
|
1.1 |
|
|
$ |
1.68 |
|
|
|
628,074 |
|
|
|
1.1 |
|
|
$ |
1.68 |
|
2.84-3.45 |
|
|
309,936 |
|
|
|
3.6 |
|
|
|
3.39 |
|
|
|
309,936 |
|
|
|
3.6 |
|
|
|
3.39 |
|
6.55-6.94 |
|
|
133,308 |
|
|
|
5.3 |
|
|
|
6.58 |
|
|
|
75,238 |
|
|
|
6.2 |
|
|
|
6.55 |
|
7.36-7.54 |
|
|
101,734 |
|
|
|
4.6 |
|
|
|
7.52 |
|
|
|
75,000 |
|
|
|
5.1 |
|
|
|
7.54 |
|
14.05 |
|
|
71,350 |
|
|
|
3.0 |
|
|
|
14.05 |
|
|
|
71,350 |
|
|
|
3.0 |
|
|
|
14.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,277,408 |
|
|
|
2.5 |
|
|
$ |
3.76 |
|
|
|
1,159,598 |
|
|
|
2.4 |
|
|
$ |
3.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13. Warrants
As of December 31, 2005, there were 1,018,000 warrants at an exercise price of $1.67 issued and
outstanding. Of this amount, 150,540 warrants were held by the organizing shareholders of the
Corporation and vested at the date of issuance. The remaining 867,460 warrants were held by the
former shareholders of Access National Mortgage Corporation, pursuant to the merger agreement
dated June 10, 1999. Under the merger agreement, the vesting of these warrants is subject to future
financial performance of the mortgage business unit. Based upon performance through December 31,
2005, all of these warrants were vested and exercisable.
58
Notes to Consolidated Financial Statements
Note 14. Capital Requirements
The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Corporations and the
Banks financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that
involve quantitative measures of the Corporations and the Banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Corporations and
the Banks capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation
and Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital
(as defined) to average assets (as defined). Management believes, as of December 31, 2005 and 2004,
that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.
At December 31, 2005 the Corporation and Bank exceeded the minimum required ratios for well
capitalized as defined by the federal banking regulators. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
set forth in the table. There are no conditions or events that management believes have changed the
institutions category.
59
Notes to Consolidated Financial Statements
The Corporations and Banks actual capital amounts and ratios as of December 31, 2005 and 2004, in
thousands, are also presented in the table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
|
Minimum Capital |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Requirement |
|
|
Action Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(In Thousands) |
|
December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
|
$ |
47,155 |
|
|
|
12.11 |
% |
|
$ |
31,151 |
|
|
|
8.00 |
% |
|
$ |
38,939 |
|
|
|
10.00 |
% |
Bank |
|
$ |
45,238 |
|
|
|
11.63 |
% |
|
$ |
31,110 |
|
|
|
8.00 |
% |
|
$ |
38,887 |
|
|
|
10.00 |
% |
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
|
$ |
41,970 |
|
|
|
10.78 |
% |
|
$ |
15,576 |
|
|
|
4.00 |
% |
|
$ |
23,363 |
|
|
|
6.00 |
% |
Bank |
|
$ |
40,371 |
|
|
|
10.38 |
% |
|
$ |
15,555 |
|
|
|
4.00 |
% |
|
$ |
23,332 |
|
|
|
6.00 |
% |
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
|
$ |
41,970 |
|
|
|
7.60 |
% |
|
$ |
22,092 |
|
|
|
4.00 |
% |
|
$ |
27,615 |
|
|
|
5.00 |
% |
Bank |
|
$ |
40,371 |
|
|
|
7.32 |
% |
|
$ |
22,070 |
|
|
|
4.00 |
% |
|
$ |
27,587 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
` |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
|
$ |
40,250 |
|
|
|
12.80 |
% |
|
$ |
25,160 |
|
|
|
8.00 |
% |
|
$ |
31,449 |
|
|
|
10.00 |
% |
Bank |
|
$ |
35,084 |
|
|
|
11.17 |
% |
|
$ |
25,120 |
|
|
|
8.00 |
% |
|
$ |
31,401 |
|
|
|
10.00 |
% |
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
|
$ |
34,505 |
|
|
|
10.97 |
% |
|
$ |
12,580 |
|
|
|
4.00 |
% |
|
$ |
18,870 |
|
|
|
6.00 |
% |
Bank |
|
$ |
31,156 |
|
|
|
9.92 |
% |
|
$ |
12,560 |
|
|
|
4.00 |
% |
|
$ |
18,841 |
|
|
|
6.00 |
% |
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation |
|
$ |
34,505 |
|
|
|
8.83 |
% |
|
$ |
15,629 |
|
|
|
4.00 |
% |
|
$ |
19,537 |
|
|
|
5.00 |
% |
Bank |
|
$ |
31,156 |
|
|
|
7.99 |
% |
|
$ |
15,603 |
|
|
|
4.00 |
% |
|
$ |
19,504 |
|
|
|
5.00 |
% |
60
Notes to Consolidated Financial Statements
Note 15. Dividend Restrictions
Federal regulations limit the amount of dividends that the Corporation can pay without obtaining
prior approval and additionally require that the Corporation maintain a ratio of total capital to
assets, as defined by regulatory authorities.
Note 16. Earnings Per Share
The following shows the weighted average number of shares used in computing earnings per share and
the effect on weighted average number of shares of diluted potential common stock. Potential
dilutive common stock has no effect on income available to common shareholders. All shares and per
share amounts have been restated to reflect a 2 for 1 stock split declared in December 2005 and a
3 for 1 stock split declared in June 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Net |
|
|
|
|
|
|
Per Share |
|
|
Net |
|
|
|
|
|
|
Per Share |
|
|
Net |
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
(In Thousands, Except Per Share Data) |
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, before extra-ordinary income |
|
$ |
5,897 |
|
|
|
7,867 |
|
|
$ |
0.75 |
|
|
$ |
2,985 |
|
|
|
7,510 |
|
|
$ |
0.40 |
|
|
$ |
3,816 |
|
|
|
6,987 |
|
|
$ |
0.55 |
|
Basic |
|
$ |
5,897 |
|
|
|
|
|
|
$ |
0.75 |
|
|
$ |
3,315 |
|
|
|
|
|
|
$ |
0.44 |
|
|
$ |
3,816 |
|
|
|
|
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants |
|
|
|
|
|
|
1,556 |
|
|
|
|
|
|
|
|
|
|
|
1,646 |
|
|
|
|
|
|
|
|
|
|
|
1,835 |
|
|
|
|
|
Diluted, before extra-ordinary income |
|
|
|
|
|
|
|
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
$ |
0.43 |
|
Diluted |
|
|
|
|
|
|
|
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
5,897 |
|
|
|
9,423 |
|
|
$ |
0.63 |
|
|
$ |
3,315 |
|
|
|
9,156 |
|
|
$ |
0.36 |
|
|
$ |
3,816 |
|
|
|
8,822 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17. Employee Benefits
The Corporation maintains a Defined Contribution 401(k) Profit Sharing Plan, which authorizes a
maximum voluntary salary deferral of up to IRS limitations. All full-time employees are eligible to
participate after 6 months of employment. The Corporation reserves the right for an annual
discretionary contribution to the account of each eligible employee based in part on the
Corporations profitability for a given year, and on each participants yearly earnings.
Approximately $495,000, $187,000, and $81,000 were charged to expense under the Plan for 2005,
2004, and 2003 respectively.
61
Notes to Consolidated Financial Statements
Note 18. Other Expenses
The Corporation had the following other expenses for the years ended December 31, 2005, 2004, and
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Advertising and promotional expense |
|
$ |
3,969 |
|
|
$ |
2,048 |
|
|
$ |
3,859 |
|
Investor fees |
|
|
864 |
|
|
|
595 |
|
|
|
979 |
|
Other settlement fees |
|
|
295 |
|
|
|
718 |
|
|
|
709 |
|
Management fees |
|
|
1,957 |
|
|
|
1,824 |
|
|
|
2,542 |
|
Provision for branch expenses |
|
|
680 |
|
|
|
327 |
|
|
|
|
|
Other |
|
|
5,612 |
|
|
|
5,026 |
|
|
|
4,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,377 |
|
|
$ |
10,538 |
|
|
$ |
12,872 |
|
|
|
|
|
|
|
|
|
|
|
Note 19. Fair Value of Financial Instruments and Interest Rate Risk
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
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
Fair values are based on quoted market prices of similar loans sold on the secondary market.
Loan Receivables
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.
62
Notes to Consolidated Financial Statements
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 December 31, 2005 and 2004, the majority of off-balance-sheet items is 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
(In Thousands) |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term
investments |
|
$ |
23,183 |
|
|
$ |
23,183 |
|
|
$ |
30,532 |
|
|
$ |
30,532 |
|
Securities |
|
|
87,771 |
|
|
|
87,771 |
|
|
|
51,378 |
|
|
|
51,378 |
|
Loans held for sale |
|
|
45,019 |
|
|
|
45,019 |
|
|
|
36,245 |
|
|
|
36,245 |
|
Loans, net of allowance |
|
|
364,518 |
|
|
|
365,911 |
|
|
|
288,575 |
|
|
|
284,600 |
|
Accrued interest receivable |
|
|
3,068 |
|
|
|
3,068 |
|
|
|
2,214 |
|
|
|
2,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
419,629 |
|
|
$ |
418,249 |
|
|
$ |
317,393 |
|
|
$ |
316,749 |
|
Short-term borrowings |
|
|
48,196 |
|
|
|
48,196 |
|
|
|
37,079 |
|
|
|
37,061 |
|
Long-term borrowings |
|
|
21,786 |
|
|
|
21,410 |
|
|
|
27,000 |
|
|
|
25,982 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
|
|
10,311 |
|
|
|
10,311 |
|
Accrued interest payable |
|
|
1 |
|
|
|
1 |
|
|
|
83 |
|
|
|
83 |
|
63
Notes to Consolidated Financial Statements
The Corporation assumes interest rate risk (the risk that general interest rate levels will change)
as a result of its normal operations. As a result, the fair values of the Corporations financial
instruments will change when interest rate levels change and that change may be either favorable or
unfavorable to the Corporation. Management attempts to match maturities of assets and liabilities
to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate
obligations are less likely to prepay in a rising rate environment and more likely to prepay in a
falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to
withdraw funds before maturity in a rising rate environment and less likely to do so in a falling
rate environment. Management monitors rates and maturities of assets and liabilities and attempts
to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Corporations overall interest rate risk.
Note 20. Segment Reporting
Access National 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 bank 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 a premium over their cost to borrow funds. These transactions are
eliminated in the consolidation process.
64
Notes to Consolidated Financial Statements
The following table presents segment information for the years ended December 31, 2005, 2004 and
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Elimination |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
27,708 |
|
|
$ |
3,085 |
|
|
$ |
(3,000 |
) |
|
$ |
27,793 |
|
Gain on sale of loans |
|
|
|
|
|
|
24,198 |
|
|
|
(103 |
) |
|
|
24,095 |
|
Other |
|
|
2,701 |
|
|
|
6,065 |
|
|
|
(1,394 |
) |
|
|
7,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
30,409 |
|
|
$ |
33,348 |
|
|
$ |
(4,497 |
) |
|
$ |
59,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
12,762 |
|
|
$ |
2,760 |
|
|
$ |
(3,000 |
) |
|
$ |
12,522 |
|
Salaries and employee benefits |
|
|
5,798 |
|
|
|
14,739 |
|
|
|
|
|
|
|
20,537 |
|
Other |
|
|
5,971 |
|
|
|
12,525 |
|
|
|
(1,497 |
) |
|
|
16,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
24,531 |
|
|
$ |
30,024 |
|
|
$ |
(4,497 |
) |
|
$ |
50,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
5,878 |
|
|
$ |
3,324 |
|
|
|
|
|
|
$ |
9,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
523,910 |
|
|
$ |
48,883 |
|
|
$ |
(35,743 |
) |
|
$ |
537,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
$ |
1,672 |
|
|
$ |
121 |
|
|
$ |
|
|
|
$ |
1,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Elimination |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
17,402 |
|
|
$ |
2,195 |
|
|
$ |
(1,372 |
) |
|
$ |
18,225 |
|
Gain on sale of loans |
|
|
|
|
|
|
20,208 |
|
|
|
(193 |
) |
|
|
20,015 |
|
Other |
|
|
2,094 |
|
|
|
4,986 |
|
|
|
(1,143 |
) |
|
|
5,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
19,496 |
|
|
$ |
27,389 |
|
|
$ |
(2,708 |
) |
|
$ |
44,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
6,854 |
|
|
$ |
1,049 |
|
|
$ |
(1,372 |
) |
|
$ |
6,531 |
|
Salaries and employee benefits |
|
|
3,993 |
|
|
|
14,634 |
|
|
|
|
|
|
|
18,627 |
|
Other |
|
|
5,579 |
|
|
|
10,172 |
|
|
|
(1,336 |
) |
|
|
14,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
16,426 |
|
|
$ |
25,855 |
|
|
$ |
(2,708 |
) |
|
$ |
39,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
3,070 |
|
|
$ |
1,534 |
|
|
$ |
|
|
|
$ |
4,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
407,597 |
|
|
$ |
61,252 |
|
|
$ |
(48,751 |
) |
|
$ |
420,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
$ |
890 |
|
|
$ |
492 |
|
|
$ |
|
|
|
$ |
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Elimination |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
12,396 |
|
|
$ |
3,788 |
|
|
$ |
(2,142 |
) |
|
$ |
14,042 |
|
Gain on sale of loans |
|
|
|
|
|
|
27,818 |
|
|
|
|
|
|
|
27,818 |
|
Other |
|
|
840 |
|
|
|
5,107 |
|
|
|
|
|
|
|
5,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
13,236 |
|
|
$ |
36,713 |
|
|
$ |
(2,142 |
) |
|
$ |
47,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
4,812 |
|
|
$ |
2,234 |
|
|
$ |
(2,142 |
) |
|
$ |
4,904 |
|
Salaries and employee benefits |
|
|
3,128 |
|
|
|
18,270 |
|
|
|
|
|
|
|
21,398 |
|
Other |
|
|
2,915 |
|
|
|
12,645 |
|
|
|
|
|
|
|
15,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
10,855 |
|
|
$ |
33,149 |
|
|
$ |
(2,142 |
) |
|
$ |
41,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
2,381 |
|
|
$ |
3,564 |
|
|
$ |
|
|
|
$ |
5,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
268,131 |
|
|
$ |
32,611 |
|
|
$ |
(43,352 |
) |
|
$ |
257,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
$ |
7,446 |
|
|
$ |
186 |
|
|
$ |
|
|
|
$ |
7,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Notes to Consolidated Financial Statements
Note 21. Parent Only Statements
ACCESS NATIONAL CORPORATION
(Parent Corporation Only)
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In Thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
10 |
|
|
$ |
9 |
|
Other investments |
|
|
1,825 |
|
|
|
3,713 |
|
Investment in subsidiaries |
|
|
39,605 |
|
|
|
31,150 |
|
Other assets |
|
|
590 |
|
|
|
1,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
42,030 |
|
|
$ |
36,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Subordinated debentures |
|
$ |
10,311 |
|
|
$ |
10,311 |
|
Other liabilities |
|
|
534 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
10,845 |
|
|
|
10,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
|
|
|
|
|
|
Common stock |
|
|
6,644 |
|
|
|
6,608 |
|
Capital surplus |
|
|
9,099 |
|
|
|
9,067 |
|
Retained earnings |
|
|
16,227 |
|
|
|
10,330 |
|
Accumulated other comprehensive income |
|
|
(785 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
31,185 |
|
|
|
25,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
42,030 |
|
|
$ |
36,513 |
|
|
|
|
|
|
|
|
66
Notes to Consolidated Financial Statements
ACCESS NATIONAL CORPORATION
(Parent Corporation Only)
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries |
|
$ |
1,014 |
|
|
$ |
795 |
|
|
$ |
|
|
Interest |
|
|
91 |
|
|
|
88 |
|
|
|
54 |
|
Management fees from subsidiaries |
|
|
|
|
|
|
|
|
|
|
422 |
|
Other |
|
|
84 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,189 |
|
|
|
963 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on subordinated debentures |
|
|
706 |
|
|
|
514 |
|
|
|
294 |
|
Other expenses |
|
|
845 |
|
|
|
421 |
|
|
|
197 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,551 |
|
|
|
935 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and undistributed income of subsidiaries |
|
|
(362 |
) |
|
|
28 |
|
|
|
(15 |
) |
Income tax (benefit) |
|
|
(525 |
) |
|
|
(289 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before undistributed
income of subsidiaries |
|
|
163 |
|
|
|
317 |
|
|
|
(9 |
) |
Undistributed income of subsidiaries |
|
|
5,734 |
|
|
|
2,998 |
|
|
|
3,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
|
|
|
|
|
|
|
|
|
|
67
Notes to Consolidated Financial Statements
ACCESS NATIONAL CORPORATION
(Parent Corporation Only)
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands) |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,897 |
|
|
$ |
3,315 |
|
|
$ |
3,816 |
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed income of subsidiaries |
|
|
(5,734 |
) |
|
|
(2,998 |
) |
|
|
(3,825 |
) |
(Increase) decrease in other assets |
|
|
1,142 |
|
|
|
(730 |
) |
|
|
(569 |
) |
Increase (decrease) in other liabilities |
|
|
241 |
|
|
|
(410 |
) |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
1,546 |
|
|
|
(823 |
) |
|
|
(502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in investment in subsidiaries |
|
|
(3,500 |
) |
|
|
|
|
|
|
(3,209 |
) |
(Increase) decrease in other investments |
|
|
1,888 |
|
|
|
(2,191 |
) |
|
|
(6,101 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(1,612 |
) |
|
|
(2,191 |
) |
|
|
(9,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(25 |
) |
|
|
(360 |
) |
|
|
(346 |
) |
Net proceeds from issuance of common stock |
|
|
92 |
|
|
|
3,383 |
|
|
|
|
|
Proceeds from subordinated debentures |
|
|
|
|
|
|
|
|
|
|
6,186 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
67 |
|
|
|
3,023 |
|
|
|
5,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
1 |
|
|
|
9 |
|
|
|
(3,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
9 |
|
|
|
|
|
|
|
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
10 |
|
|
$ |
9 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
68
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
As
discussed in the Corporations current report on Form 8-K filed on January 21, 2005, the
Corporation engaged BDO Seidman, LLP as its independent auditors for the fiscal year ending
December 31, 2004, and chose not to renew the engagement of Yount,
Hyde & Barbour, PC, which
served as the Companys independent auditors for the fiscal year ended December 31, 2003.
ITEM 9A CONTROLS AND PROCEDURES
The Corporation maintains a system of disclosure controls and procedures that is designed to ensure
that material information relating to the Corporation and its consolidated subsidiaries is
accumulated and communicated to management, including the Corporations Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As
required, management, with the participation of the Corporations Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of the Corporations
disclosure controls and procedures as of the end of the period covered by this report. Based on
this evaluation, the Corporations Chief Executive Officer and Chief Financial Officer concluded
that the Corporations disclosure controls and procedures were operating effectively to ensure that
information required to be disclosed by the Corporation in reports that it files or submits under
the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported
within the time periods specified in the rules and forms of the SEC.
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 otherwise required to be set forth in the Corporations periodic and current reports.
The Corporations management is also responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. 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.
ITEM 9B OTHER INFORMATION
None.
69
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions Election of Directors, Executive Officers Who Are
Not Directors, Corporate Governance and the Board of Directors and Section 16(a) Beneficial
Ownership Reporting Compliance in the 2006 Proxy Statement that is required to be disclosed in
this Item 10 is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information contained under the captions Director Compensation, Executive Compensation and
Related Party Transactions and Stock Performance in the 2006 Proxy Statement that is required to
be disclosed in this Item 11 is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information contained under the captions Security Ownership of Management, Security
Ownership of Certain Beneficial Owners and Equity Compensation Plan Information in the 2006
Proxy Statement that is required to be disclosed in this Item 12 is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships between the Corporation and its directors and officers
is contained under the caption Certain Relationships and Related Transactions in the 2006 Proxy
Statement and is incorporated herein by reference.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information under the captions Audit and Non-Audit Fees and Audit Committee Pre-Approval
Policies in the 2006 Proxy Statement is incorporated herein by reference.
70
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibit Index:
|
|
|
Exhibit No. |
|
Description |
3.1*
|
|
Articles of Incorporation of Access National Corporation. |
|
|
|
3.2
|
|
Bylaws of Access National Corporation (incorporated by reference
to Exhibit 3.2 to Form 8-K dated August 1, 2005 (file number
000-49929)) |
|
|
|
4
|
|
Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.0 to Form 10-KSB filed March 31, 2003 (file number
000-49929)) |
|
|
|
10.1+
|
|
Employment Letter Agreement between Access National Bank and
Michael W. Clarke (incorporated by reference to Exhibit 10.1 to
Form 10-K filed March 31, 2005) |
|
|
|
10.2+
|
|
Employment Letter Agreement between Access National Bank and
Robert C. Shoemaker (incorporated by reference to Exhibit 10.2
to Form 10-K filed March 31, 2005) |
|
|
|
10.3+
|
|
Employment Letter Agreement between Access National Bank and
Charles Wimer (incorporated by reference to Exhibit 10.3 to Form
10-KSB filed March 31, 2003) |
|
|
|
10.4+
|
|
Employment Agreement between Access National Mortgage
Corporation and Dean Hackemer (incorporated by reference to
Exhibit 10.4 to Form 10-K filed March 31, 2005) |
|
|
|
10.5*+
|
|
Schedule of Non-Employee Directors Annual Compensation |
|
|
|
10.6*+
|
|
Base Salaries for Named Executive Officers |
|
|
|
10.7+
|
|
Access National Bank 1999 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Form 10-KSB filed March 31, 2003
(file number 000-49929)) |
|
|
|
10.8
|
|
Lease agreement between Access National Bank and William and
Blanca Spencer (incorporated by reference to Exhibit 10.6 to
Form 10-KSB filed March 31, 2003 (file number 000-49929)) |
|
|
|
10.9
|
|
Lease agreement between Access National Mortgage Corporation and
WJG, LLC (incorporated by reference to Exhibit 10.7 to Form
10-KSB filed March 31, 2003 (file number 000-49929)) |
|
|
|
14
|
|
Code of Ethics (incorporated by reference to Exhibit 14 to Form
10-KSB filed March 30, 2004 (file number 333-109125)) |
|
|
|
21*
|
|
Subsidiaries of Access National Corporation |
|
|
|
23.1*
|
|
Consent of BDO Seidman, LLP |
|
|
|
23.2*
|
|
Consent of Yount, Hyde and Barbour, P. C. |
|
|
|
24
|
|
Power of Attorney (included on the signature page of this report) |
|
|
|
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) |
|
|
|
* |
|
filed herewith |
|
+ |
|
indicates a management contract or compensatory plan or arrangement |
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 2006
|
|
By:
|
|
/s/ Michael W. Clarke
Michael W. Clarke
|
|
|
|
|
|
|
|
|
President & CEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 28, 2006
|
|
By:
|
|
/s/ Charles Wimer
Charles Wimer
|
|
|
|
|
|
|
|
|
Executive Vice President & CFO |
|
|
72
SIGNATURES
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael W. Clarke, his true and
lawful attorney-in-fact as agent with full power of substitution and re-substitution for him and in
his name, place and stead, in any and all capacities, to sign any or all amendments to this Form
10-K and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do fully and to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
/s/ J. Randolph Babbitt
J. Randolph Babbitt
|
|
Director
|
|
March 28,
2006 |
|
|
|
|
|
/s/ Michael W. Clarke
Michael W. Clarke
|
|
President / CEO & Director
(Principal Executive Officer)
|
|
March 28,
2006 |
|
|
|
|
|
/s/ John W. Edgemond
|
|
|
|
|
John W. (Skip) Edgemond
|
|
Director
|
|
March 28, 2006 |
|
|
|
|
|
/s/ James L. Jadlos
|
|
|
|
|
James L. Jadlos
|
|
Director
|
|
March 28, 2006 |
|
|
|
|
|
/s/ Thomas M. Kody
|
|
|
|
|
Thomas M. Kody
|
|
Director
|
|
March 28, 2006 |
|
|
|
|
|
/s/ Jacques Rebibo
|
|
|
|
|
Jacques Rebibo
|
|
Chairman of the Board of Directors
|
|
March 28, 2006 |
|
|
Director |
|
|
|
|
|
|
|
/s/ Robert C. Shoemaker
|
|
|
|
|
Robert C. Shoemaker
|
|
Executive Vice President,
Chief Credit Officer & Director
|
|
March 28, 2006 |
|
|
|
|
|
/s/ Charles Wimer
|
|
|
|
|
Charles Wimer
|
|
Executive Vice President & Chief
Financial Officer
(Principal Financial Officer)
|
|
March 28, 2006 |
73