e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
For the quarterly period ended March 31, 2008
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
For the transition period from to
Commission File Number: 000-49929
ACCESS NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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Virginia
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82-0545425 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number) |
1800 Robert Fulton Drive, Suite 310, Reston, Virginia 20191
(Address of principal executive offices) (Zip Code)
(703) 871-2100
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
(Check one)
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Large accelerated filer o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act) o Yes þ No
The number of shares outstanding of Access National Corporations common stock, par value $0.835,
as of May 7, 2008 was 10,171,341 shares.
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q
INDEX
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PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements (unaudited) |
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Consolidated Balance Sheets, March 31, 2008 and December 31, 2007 (audited) |
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Page 2 |
Consolidated Statements of Income, three months ended March 31, 2008 and 2007 |
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Page 3 |
Consolidated Statements of Changes in Shareholders Equity three months ended March 31, 2008 and 2007 |
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Page 4 |
Consolidated Statements of Cash Flows, three months ended March 31, 2008 and 2007 |
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Page 5 |
Notes to Consolidated Financial Statements |
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Page 6 |
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Page 18 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Page 28 |
Item 4. Controls and Procedures |
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Page 29 |
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PART II OTHER INFORMATION |
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Item 1. Legal Proceedings |
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Page 30 |
Item 1A. Risk Factors |
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Page 30 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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Page 30 |
Item 3. Defaults Upon Senior Securities |
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Page 30 |
Item 4. Submission of Matters to a Vote of Security Holders |
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Page 30 |
Item 5. Other Information |
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Page 31 |
Item 6. Exhibits |
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Page 31 |
Signatures |
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Page 32 |
- 1 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share Data)
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March 31, |
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December 31, |
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2008 |
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2007 |
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(unaudited) |
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ASSETS |
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Cash and due from banks |
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$ |
6,331 |
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$ |
6,238 |
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Interest-bearing deposits in other banks |
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23,036 |
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13,266 |
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Securities available for sale, at fair value |
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64,287 |
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73,558 |
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Loans held for sale Carried at fair value in 2008 |
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58,043 |
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39,144 |
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Loans |
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464,323 |
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477,598 |
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Allowance for loan losses |
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(7,906 |
) |
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(7,462 |
) |
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Net loans |
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456,417 |
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470,136 |
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Premises and equipment |
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9,586 |
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9,712 |
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Other assets |
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9,501 |
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10,322 |
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Total assets |
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$ |
627,201 |
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$ |
622,376 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Non-interest-bearing deposits |
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$ |
75,986 |
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$ |
59,415 |
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Savings and interest-bearing deposits |
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124,625 |
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142,820 |
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Time deposits |
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256,494 |
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271,183 |
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Total deposits |
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457,105 |
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473,418 |
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Short-term borrowings |
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36,267 |
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41,676 |
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Long-term borrowings |
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66,637 |
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39,524 |
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Subordinated debentures |
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6,186 |
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6,186 |
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Other liabilities |
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5,123 |
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3,611 |
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Total liabilities |
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571,318 |
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564,415 |
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SHAREHOLDERS EQUITY |
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Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and
outstanding, 10,338,741 shares at March 31, 2008 and 10,840,730 shares at
December 31, 2007 |
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8,633 |
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9,052 |
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Surplus |
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18,215 |
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21,833 |
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Retained earnings |
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28,310 |
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26,846 |
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Accumulated other comprehensive income, net |
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725 |
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230 |
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Total shareholders equity |
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55,883 |
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57,961 |
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Total liabilities and shareholders equity |
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$ |
627,201 |
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$ |
622,376 |
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See accompanying notes to consolidated financial statements unaudited).
- 2 -
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(unaudited)
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Three Months Ended March 31 |
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2008 |
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2007 |
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Interest and Dividend Income |
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Interest and fees on loans |
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$ |
8,903 |
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$ |
9,822 |
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Interest on deposits in other banks |
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265 |
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195 |
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Interest and dividends on securities |
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851 |
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1,156 |
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Total interest and dividend income |
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10,019 |
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11,173 |
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Interest Expense |
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Interest on deposits |
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4,268 |
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4,008 |
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Interest on short-term borrowings |
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306 |
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1,399 |
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Interest on long-term borrowings |
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550 |
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481 |
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Interest on subordinated debentures |
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113 |
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229 |
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Total interest expense |
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5,237 |
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6,117 |
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Net interest income |
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4,782 |
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5,056 |
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Provision for loan losses |
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408 |
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291 |
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Net interest income after provision for loan losses |
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4,374 |
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4,765 |
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Noninterest Income |
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Service fees on deposit accounts |
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103 |
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102 |
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Gain on sale of loans |
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6,854 |
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5,773 |
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Mortgage broker fee income |
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562 |
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1,279 |
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Other income |
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923 |
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710 |
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Total noninterest income |
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8,442 |
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7,864 |
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Noninterest Expense |
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Salaries and employee benefits |
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5,930 |
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5,219 |
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Occupancy and equipment |
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636 |
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498 |
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Other operating expenses |
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3,615 |
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4,953 |
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Total noninterest expense |
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10,181 |
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10,670 |
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Income before income taxes |
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2,635 |
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1,959 |
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Income tax expense |
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944 |
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633 |
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NET INCOME |
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$ |
1,691 |
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$ |
1,326 |
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Earnings per common share: |
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Basic |
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$ |
0.16 |
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$ |
0.11 |
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Diluted |
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$ |
0.16 |
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$ |
0.11 |
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Average outstanding shares: |
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Basic |
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10,619,830 |
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11,954,863 |
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Diluted |
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10,795,800 |
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12,255,330 |
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See accompanying notes to consolidated financial statements (unaudited).
- 3 -
ACCESS NATIONAL CORPORATION
Statement of Changes in Shareholders Equity
For the Three Months Ended March 31, 2008 and 2007
(In Thousands)
(unaudited)
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Accumulated |
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Other |
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Common |
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Retained |
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Comprehensive |
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Stock |
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Surplus |
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Earnings |
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Income (Loss) |
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Total |
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Balance, December 31, 2007 |
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$ |
9,052 |
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$ |
21,833 |
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$ |
26,846 |
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$ |
230 |
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$ |
57,961 |
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Comprehensive income: |
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Net income |
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1,691 |
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1,691 |
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Other comprehensive income,
unrealized holdings gains
arising during the period
(net of tax, $255) |
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495 |
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495 |
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Total comprehensive income |
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2,186 |
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Stock option exercises (85,398 Shares) |
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71 |
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137 |
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208 |
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Repurchased under share repurchase
program (587,387 Shares) |
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(490 |
) |
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(3,787 |
) |
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(4,277 |
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Cash dividend |
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(227 |
) |
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(227 |
) |
Stock-based
Compensation expense recognized in earnings |
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|
32 |
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32 |
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Balance, March 31, 2008 |
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$ |
8,633 |
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|
$ |
18,215 |
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$ |
28,310 |
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$ |
725 |
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$ |
55,883 |
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Balance, December 31, 2006 |
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$ |
9,867 |
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$ |
29,316 |
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$ |
23,641 |
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$ |
(529 |
) |
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$ |
62,295 |
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Comprehensive income: |
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Net income |
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|
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|
1,326 |
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|
1,326 |
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Other comprehensive income,
unrealized holdings gains
arising during the period
(net of tax, $81) |
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|
|
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|
157 |
|
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|
157 |
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|
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Total comprehensive income |
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|
1,483 |
|
Stock option exercises (164,820 Shares) |
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|
138 |
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|
|
138 |
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|
|
|
|
|
|
|
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|
276 |
|
Dividend Reinvestment plan (38,838
Shares) |
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32 |
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|
322 |
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|
354 |
|
Repurchased under share repurchase
program |
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Cash dividend |
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(120 |
) |
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(120 |
) |
Stock-based Compensation
expense recognized in earnings |
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|
|
20 |
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|
|
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|
20 |
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|
|
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|
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|
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|
Balance, March 31, 2007 |
|
$ |
10,037 |
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|
$ |
29,796 |
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|
$ |
24,847 |
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|
$ |
(372 |
) |
|
$ |
64,308 |
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited)
- 4 -
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(unaudited)
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Three Months Ended March 31, |
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|
2008 |
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|
2007 |
|
Cash Flows from Operating Activities |
|
|
|
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|
|
|
|
Net income |
|
$ |
1,691 |
|
|
$ |
1,326 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses net of recoveries |
|
|
408 |
|
|
|
291 |
|
Deferred tax expense (benefit) |
|
|
255 |
|
|
|
(7 |
) |
Stock based compensation |
|
|
32 |
|
|
|
21 |
|
Valuation allowance on derivatives |
|
|
(359 |
) |
|
|
(1 |
) |
Net amortization accretion on securities |
|
|
(4 |
) |
|
|
(6 |
) |
Depreciation and amortization |
|
|
192 |
|
|
|
212 |
|
Loss on disposal of assets |
|
|
5 |
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
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|
|
Valuation of loans held for sale carried at fair value |
|
|
1,486 |
|
|
|
|
|
Increase in loans held for sale |
|
|
(20,385 |
) |
|
|
(1,579 |
) |
Decrease (increase) in other assets |
|
|
1 |
|
|
|
(1,638 |
) |
Increase (decrease) in other liabilities |
|
|
1,511 |
|
|
|
(1,167 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(15,167 |
) |
|
|
(2,548 |
) |
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls of securities available for sale |
|
|
27,238 |
|
|
|
15,705 |
|
Purchases of securities available for sale |
|
|
(17,213 |
) |
|
|
(3,891 |
) |
Net decrease (increase) in loans |
|
|
13,312 |
|
|
|
(24,068 |
) |
Increase in federal fund sold |
|
|
(123 |
) |
|
|
|
|
Proceeds from sale of equipment |
|
|
32 |
|
|
|
|
|
Proceeds from sales of other real estate owned |
|
|
567 |
|
|
|
|
|
Purchases of premises and equipment |
|
|
(108 |
) |
|
|
(467 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
23,705 |
|
|
|
(12,721 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net (decrease) increase in non-interest bearing and
interest-bearing deposits |
|
|
(1,624 |
) |
|
|
6,187 |
|
Net (decrease) increase in time deposits |
|
|
(14,689 |
) |
|
|
15,568 |
|
Net decrease in short-term borrowings |
|
|
(5,409 |
) |
|
|
(2,042 |
) |
Net increase in long-term borrowings |
|
|
27,113 |
|
|
|
1,863 |
|
Proceeds from issuance of common stock |
|
|
208 |
|
|
|
630 |
|
Purchases of common stock |
|
|
(4,278 |
) |
|
|
|
|
Dividends paid |
|
|
(119 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,202 |
|
|
|
22,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
9,740 |
|
|
|
6,816 |
|
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
Beginning |
|
|
19,502 |
|
|
|
27,365 |
|
|
|
|
|
|
|
|
Ending |
|
$ |
29,242 |
|
|
$ |
34,181 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
11,459 |
|
|
$ |
6,116 |
|
|
|
|
|
|
|
|
Cash payments for income taxes |
|
$ |
850 |
|
|
$ |
2,115 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Investing Activities |
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale |
|
$ |
750 |
|
|
$ |
238 |
|
See accompanying notes to consolidated financial statements (unaudited).
- 5 -
Notes to Consolidated Financial Statements (unaudited)
NOTE 1 COMMENCEMENT OF OPERATIONS
Access National Corporation (the Corporation) is a bank holding company incorporated under the
laws of the Commonwealth of Virginia. The Corporation has three wholly-owned subsidiaries, Access
National Bank (the Bank), which is an independent commercial bank chartered under federal laws as
a national banking association, Access Capital Trust I, and Access Capital Trust II. The
Corporation does not have any significant operations and serves primarily as the parent company for
the Bank. The Corporations income is primarily derived from dividends received from the Bank. The
amount of these dividends is determined by the Banks earnings and capital position.
The Corporation acquired all of the outstanding stock of the Bank in a statutory exchange
transaction on June 15, 2002, pursuant to an Agreement and Plan of Reorganization between the
Corporation and the Bank.
The Bank opened for business on December 1, 1999 and has two active wholly-owned subsidiaries:
Access National Mortgage Corporation (the Mortgage Corporation), a Virginia corporation engaged
in mortgage banking activities, and Access Real Estate LLC. Access Real Estate LLC is a limited
liability company established in July, 2003 for the purpose of holding title to the Corporations
headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia.
NOTE 2 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and with rules and regulations of the Securities and Exchange
Commission. The statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. All adjustments have
been made, which, in the opinion of management, are necessary for a fair presentation of the
results for the interim periods presented. Such adjustments are all of a normal and recurring
nature. All significant inter-company accounts and transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform to the current
period presentation. The results of operations for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the entire year ending December 31,
2008. These consolidated financial statements should be read in conjunction with the Corporations
audited financial statements and the notes thereto as of December 31, 2007, included in the
Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
6
NOTE 3 STOCK-BASED COMPENSATION PLANS
During the first three months of 2008, the Corporation granted 89,375 stock options to officers,
directors, and employees under the 1999 Stock Option Plan (the Plan). Options granted under the
Plan have an exercise price equal to the fair market value as of the grant date. Options granted
have a vesting period of two and one half years and expire three and one half years after the issue
date. Stockbased compensation expense recognized in other operating expense during the first
three months of 2008 was approximately $32 thousand and $21 thousand for the same period in 2007.
The fair value of options is estimated on the date of grant using a Black-Scholes option-pricing
model with the assumptions noted below.
A summary of stock option activity under the Plan for the three months ended March 31, 2008 is
presented as follows:
|
|
|
|
|
|
|
Three Months ended |
|
|
March 31, 2008 |
Expected life of options granted |
|
|
3.22 |
|
Risk-free interest rate |
|
|
3.15 |
% |
Expected volatility of stock |
|
|
35 |
% |
Annual Expected dividend yield |
|
|
1 |
% |
|
|
|
|
|
Fair Value of Granted Options |
|
$ |
156,886 |
|
Non-Vested Options |
|
|
165,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
|
Number of |
|
Weighted Avg. |
|
Remaining |
|
Aggregate intrinsic |
|
|
Options |
|
Exercise Price |
|
Contractual Term |
|
Value |
Outstanding at beginning of year |
|
|
713,624 |
|
|
$ |
6.07 |
|
|
|
1.99 |
|
|
$ |
979,866 |
|
Granted |
|
|
89,375 |
|
|
$ |
6.29 |
|
|
|
3.22 |
|
|
$ |
|
|
Exercised |
|
|
85,398 |
|
|
$ |
2.59 |
|
|
|
0.60 |
|
|
$ |
|
|
Lapsed or Canceled |
|
|
3,600 |
|
|
$ |
8.33 |
|
|
|
2.60 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
714,001 |
|
|
$ |
6.50 |
|
|
|
2.07 |
|
|
$ |
1,112,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
548,226 |
|
|
$ |
6.12 |
|
|
|
1.84 |
|
|
$ |
1,036,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NOTE 4 SECURITIES
Amortized costs and fair values of securities available for sale as of March 31, 2008 and December
31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
U.S. Treasury Securities |
|
$ |
996 |
|
|
$ |
29 |
|
|
$ |
|
|
|
$ |
1,025 |
|
U.S. Government Agencies |
|
|
49,932 |
|
|
|
1,032 |
|
|
|
|
|
|
|
50,964 |
|
Mortgage Backed Securities |
|
|
741 |
|
|
|
12 |
|
|
|
|
|
|
|
753 |
|
Municipals tax exempt |
|
|
2,890 |
|
|
|
43 |
|
|
|
|
|
|
|
2,933 |
|
Municipals taxable |
|
|
2,107 |
|
|
|
5 |
|
|
|
|
|
|
|
2,112 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(23 |
) |
|
|
1,477 |
|
Restricted Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
894 |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
FHLB Stock |
|
|
4,129 |
|
|
|
|
|
|
|
|
|
|
|
4,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
$ |
63,189 |
|
|
$ |
1,121 |
|
|
$ |
(23 |
) |
|
$ |
64,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
U.S. Treasury Notes |
|
$ |
995 |
|
|
$ |
18 |
|
|
$ |
|
|
|
$ |
1,013 |
|
U.S. Governmental Agencies |
|
|
61,365 |
|
|
|
417 |
|
|
|
(62 |
) |
|
|
61,720 |
|
Mortgage Backed Securities |
|
|
793 |
|
|
|
6 |
|
|
|
|
|
|
|
799 |
|
Municipals tax exempt |
|
|
2,890 |
|
|
|
6 |
|
|
|
(5 |
) |
|
|
2,891 |
|
Municipals taxable |
|
|
1,110 |
|
|
|
|
|
|
|
(11 |
) |
|
|
1,099 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(21 |
) |
|
|
1,479 |
|
Restricted Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
894 |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
FHLB Stock |
|
|
3,663 |
|
|
|
|
|
|
|
|
|
|
|
3,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
$ |
73,210 |
|
|
$ |
447 |
|
|
$ |
(99 |
) |
|
$ |
73,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTE 4 SECURITIES (continued)
The amortized cost and fair value of securities available for sale as of March 31, 2008 and
December 31, 2007 by contractual maturity are shown below. Expected maturities may differ from
contractual maturities because the securities may be called or prepaid without any penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
(In Thousands) |
|
|
(In Thousands) |
|
U.S. Treasury and Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
20,994 |
|
|
$ |
21,211 |
|
|
$ |
38,867 |
|
|
$ |
38,879 |
|
Due after one through five years |
|
|
|
|
|
|
|
|
|
|
1,995 |
|
|
|
2,011 |
|
Due after five through ten years |
|
|
29,934 |
|
|
|
30,778 |
|
|
|
21,498 |
|
|
|
21,844 |
|
Municipals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one through five years |
|
|
1,110 |
|
|
|
1,115 |
|
|
|
1,110 |
|
|
|
1,099 |
|
Due after five through ten years |
|
|
2,890 |
|
|
|
2,933 |
|
|
|
2,890 |
|
|
|
2,891 |
|
Due after ten years |
|
|
997 |
|
|
|
997 |
|
|
|
|
|
|
|
|
|
Mortgage Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one through five years |
|
|
741 |
|
|
|
753 |
|
|
|
793 |
|
|
|
799 |
|
CRA Mutual Fund |
|
|
1,500 |
|
|
|
1,477 |
|
|
|
1,500 |
|
|
|
1,479 |
|
Restricted Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank stock |
|
|
894 |
|
|
|
894 |
|
|
|
894 |
|
|
|
894 |
|
FHLB stock |
|
|
4,129 |
|
|
|
4,129 |
|
|
|
3,663 |
|
|
|
3,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
63,189 |
|
|
$ |
64,287 |
|
|
$ |
73,210 |
|
|
$ |
73,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTE 4 SECURITIES (continued)
Investment securities available for sale that have an unrealized loss position at March 31, 2008
and December 31, 2007 are as follows:
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a Loss |
|
|
Securities in a Loss |
|
|
|
|
|
|
Position for Less than |
|
|
Position for 12 Months |
|
|
|
|
|
|
12 Months |
|
|
or Longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
Investment securities available
for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Security |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Mortgage Backed Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals-Taxable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals-Tax Exempt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRA Mutual Fund |
|
|
|
|
|
|
|
|
|
|
1,477 |
|
|
|
(23 |
) |
|
|
1,477 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,477 |
|
|
$ |
(23 |
) |
|
$ |
1,477 |
|
|
$ |
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Mortgage Backed Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
|
|
|
|
|
|
|
|
|
19,812 |
|
|
|
(62 |
) |
|
|
19,812 |
|
|
|
(62 |
) |
Municipals-Taxable |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
|
(11 |
) |
|
|
1,100 |
|
|
|
(11 |
) |
Municipals-Tax Exempt |
|
|
457 |
|
|
|
(2 |
) |
|
|
915 |
|
|
|
(3 |
) |
|
|
1,372 |
|
|
|
(5 |
) |
CRA Mutual Fund |
|
|
|
|
|
|
|
|
|
|
1,479 |
|
|
|
(21 |
) |
|
|
1,479 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
457 |
|
|
$ |
(2 |
) |
|
$ |
23,306 |
|
|
$ |
(97 |
) |
|
$ |
23,763 |
|
|
$ |
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTE 5 LOANS
The following table presents the composition of the loan portfolio at March 31, 2008 and December
31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
Percent of |
|
|
December 31 |
|
|
Percent of |
|
|
|
2008 |
|
|
Total |
|
|
2007 |
|
|
Total |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
Commercial |
|
$ |
62,758 |
|
|
|
13.52 |
% |
|
$ |
64,860 |
|
|
|
13.58 |
% |
Commercial real estate |
|
|
200,447 |
|
|
|
43.17 |
|
|
|
199,894 |
|
|
|
41.85 |
|
Real estate construction |
|
|
50,160 |
|
|
|
10.80 |
|
|
|
55,074 |
|
|
|
11.53 |
|
Residential real estate |
|
|
149,789 |
|
|
|
32.26 |
|
|
|
156,731 |
|
|
|
32.82 |
|
Consumer |
|
|
1,169 |
|
|
|
0.25 |
|
|
|
1,039 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
464,323 |
|
|
|
100.00 |
% |
|
$ |
477,598 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses |
|
|
7,906 |
|
|
|
|
|
|
|
7,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456,417 |
|
|
|
|
|
|
$ |
470,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 SEGMENT REPORTING
The Corporation has two reportable segments: traditional commercial banking and a mortgage banking
business. Revenues from commercial banking operations consist primarily of interest earned on loans
and investment securities and fees from deposit services. Mortgage banking operating revenues
consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in
the secondary mortgage market and loan origination fee income.
The commercial banking segment provides the mortgage segment with the short-term funds needed to
originate mortgage loans through a warehouse line of credit and charges the mortgage banking
segment interest based on the prime rate. These transactions are eliminated in the consolidation
process.
Other includes the operations of the Corporation and Access Real Estate LLC. The primary source of
income for the Corporation is derived from dividends from the Bank and its primary expense relates
to interest on subordinated debentures. The primary source of income for Access Real Estate LLC is
derived from rents received from the Bank and Mortgage Corporation.
11
NOTE 6 SEGMENT REPORTING (continued)
The following table presents segment information for the three months ended March 31, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Other |
|
|
Eliminations |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9,837 |
|
|
$ |
514 |
|
|
$ |
37 |
|
|
$ |
(369 |
) |
|
$ |
10,019 |
|
Gain on sale of loans |
|
|
|
|
|
|
6,858 |
|
|
|
|
|
|
|
(4 |
) |
|
|
6,854 |
|
Other revenues |
|
|
552 |
|
|
|
1,329 |
|
|
|
266 |
|
|
|
(559 |
) |
|
|
1,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
10,389 |
|
|
$ |
8,701 |
|
|
$ |
303 |
|
|
$ |
(932 |
) |
|
$ |
18,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
5,029 |
|
|
$ |
351 |
|
|
$ |
227 |
|
|
$ |
(370 |
) |
|
$ |
5,237 |
|
Salaries and employee benefits |
|
|
1,963 |
|
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
5,930 |
|
Other |
|
|
1,759 |
|
|
|
3,078 |
|
|
|
384 |
|
|
|
(562 |
) |
|
|
4,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
8,751 |
|
|
$ |
7,396 |
|
|
$ |
611 |
|
|
$ |
(932 |
) |
|
$ |
15,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
1,638 |
|
|
$ |
1,305 |
|
|
$ |
(308 |
) |
|
|
|
|
|
$ |
2,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
584,560 |
|
|
$ |
62,560 |
|
|
$ |
43,711 |
|
|
$ |
(63,630 |
) |
|
$ |
627,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Mortgage |
|
|
Other |
|
|
Eliminations |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
11,033 |
|
|
$ |
1,136 |
|
|
$ |
199 |
|
|
$ |
(1,195 |
) |
|
$ |
11,173 |
|
Gain on sale of loans |
|
|
|
|
|
|
5,773 |
|
|
|
|
|
|
|
|
|
|
|
5,773 |
|
Other revenues |
|
|
426 |
|
|
|
2,085 |
|
|
|
263 |
|
|
|
(683 |
) |
|
|
2,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
11,459 |
|
|
$ |
8,994 |
|
|
$ |
462 |
|
|
$ |
(1,878 |
) |
|
$ |
19,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
5,696 |
|
|
$ |
1,273 |
|
|
$ |
344 |
|
|
$ |
(1,196 |
) |
|
$ |
6,117 |
|
Salaries and employee benefits |
|
|
1,668 |
|
|
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
5,219 |
|
Other |
|
|
1,347 |
|
|
|
4,708 |
|
|
|
369 |
|
|
|
(682 |
) |
|
|
5,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
8,711 |
|
|
$ |
9,532 |
|
|
$ |
713 |
|
|
$ |
(1,878 |
) |
|
$ |
17,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
2,748 |
|
|
$ |
(538 |
) |
|
$ |
(251 |
) |
|
|
|
|
|
$ |
1,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
609,145 |
|
|
$ |
71,675 |
|
|
$ |
61,039 |
|
|
$ |
(74,655 |
) |
|
$ |
667,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NOTE 7 EARNINGS PER SHARE (EPS)
The following tables show the calculation of both Basic and Diluted earnings per share (EPS) for
the three months ended March 31, 2008 and 2007, respectively. The numerator of both the Basic and
Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used as
the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect
of potentially dilutive common stock options and warrants utilizing the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
March 31, 2008 |
|
|
March 31, 2007 |
|
|
|
(In thousands except for share data) |
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,691 |
|
|
$ |
1,326 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,619,830 |
|
|
|
11,954,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.16 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,691 |
|
|
$ |
1,326 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
10,619,830 |
|
|
|
11,954,863 |
|
Stock options and warrants |
|
|
175,970 |
|
|
|
300,467 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
10,795,800 |
|
|
|
12,255,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.16 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
NOTE 8 DERIVATIVES
The Mortgage Corporation carries all derivative instruments at fair value as either assets or
liabilities in the consolidated balance sheets. Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities as amended (SFAS
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 SFAS 133.
The Mortgage Corporation enters into interest rate lock commitments, which are commitments to
originate loans whereby the interest rate on the loan is determined prior to funding and the
customers have locked into that interest rate. The Mortgage Corporation 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 March 31, 2008 and December 31, 2007, the Mortgage Corporation had derivative financial
instruments with a notional value of $85.6 million and $33.7 million respectively. The fair value
of these derivative instruments at March 31, 2008 and December 31, 2007 was $85.8 million and $33.5
million respectively.
13
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements. SFAS 157 establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value measurements.
While the Statement applies under other accounting pronouncements that require or permit fair value
measurements, it does not require any new fair value measurements. SFAS 157 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability (an exit
price) in an orderly transaction between market participants at the measurement date. In addition,
the Statement establishes a fair value hierarchy, which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. Lastly, SFAS 157 requires
additional disclosures for each interim and annual period separately for each major category of
assets and liabilities. SFAS 157 became effective for the Company on January 1, 2008. See Note 10
of the accompanying notes to the consolidated financial statements for additional information.
In February 2008, the FASB issued FASB Staff Position No. 157-2. The staff position delays the
effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The delay is intended to allow additional time to consider the effect of various implementation
issues with regard to the application of SFAS 157. The new staff position defers the effective
date of SFAS No. 157 to January 1, 2009 for items within the scope of the staff position. The
Corporation is currently evaluating the impact of FASB Staff Position No. 157-2 on the consolidated
financial statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilitiesincluding an amendment of FASB Statement No. 115. This Statement permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement is expected to expand
the use of fair value measurement, which is consistent with the Boards long-term measurement
objectives for accounting for financial instruments. This Statement became effective for the
Corporation on January 1, 2008. The Corporation has elected the fair value option for residential
mortgage loans originated on or after January 1, 2008 and held for sale. See Note 10 of the accompanying notes to
the consolidated financial statements for additional information.
In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (SAB 109). SAB 109
expresses the current view of the SEC staff that the expected net future cash flows related to the
associated servicing of the loan should be included in the measurement of all written loan
commitments that are accounted for at fair value through earnings. SEC registrants are expected
to apply this guidance on a prospective basis to derivative loan commitments issued or modified in
the first quarter of 2008 and thereafter. The adoption of this standard did not have a material
impact on the Corporations consolidated financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, (SFAS 141(R)) which
replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a
business combination recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any controlling interest; recognizes and measures goodwill
acquired in the business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141(R) is effective for acquisitions by the
Company taking place on or after January 1, 2009. Early adoption is prohibited. Accordingly, a
calendar year-end company is required to record and disclose business combinations following
existing accounting guidance until January 1, 2009. The Corporation will assess the impact of SFAS
141(R) if and when a future acquisition occurs.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated
Financial Statements-an amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes new accounting
and reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Before this statement, limited guidance existed for reporting
non-controlling interests (minority interest). As a result, diversity in practice exists. In some
cases minority interest is reported as a liability and in others it is reported in the mezzanine
section between liabilities and equity. Specifically, SFAS 160 requires the recognition of a
non-controlling interest (minority interest) as equity in the consolidated
14
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS (continued)
financials statements and separate from the parents equity. The amount of net income attributable
to the non-controlling
interest will be included in consolidated net income on the face of the income statement. SFAS 160
clarifies that changes in a parents ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest.
In addition, this statement requires that a parent recognize gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment
on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the
interests of the parent
and its non-controlling interests. SFAS 160 is effective for the Company on January 1, 2009.
Earlier adoption is prohibited. The Corporation is currently evaluating the impact, if any; the
adoption of SFAS 160 will have on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB statement No. 133, SFAS 161 requires enhanced disclosures about how and
why an entity uses derivative instruments, how derivative instruments and related items are
accounted for under Statement 133 and how derivative
instruments and related hedged items affect an entitys financial position, financial performance
and cash flows. The new standard is effective for the Company on January 1, 2009. The Corporation
is currently evaluating the impact of adopting SFAS No. 161 on the consolidated financial
statements.
NOTE 10 FAIR VALUE
Effective January 1, 2008, the Corporation adopted SFAS 157 and SFAS 159. SFAS 157 defines fair
value as the exchange price that would be received for an asset or paid to transfer a liability
(exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair values:
Level 1 Quoted prices (unadjusted) for identical assets or liabilities in active markets that the
entity has the ability to access as of the measurement date.
Level 2 Significant other observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data.
Level 3- Significant unobservable inputs that reflect a companys own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
The Corporation used the following methods to determine the fair value of each type of financial
instrument:
Investment securities: The fair values for investment securities are determined by quoted
market prices (Level 1).
Residential loans held for sale: The fair value of loans held for sale is determined using
quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Derivative financial instruments: The fair values of derivative financial instruments are
based on derivative market data inputs as of the valuation date (Level 2).
15
NOTE 10 FAIR VALUE (continued)
Impaired loans: The fair values of impaired loans are measured for impairment using the
fair value of the collateral for collateral-dependent loans on a nonrecurring basis. Collateral
may be in the form of real estate or business assets including equipment, inventory and accounts
receivable. The use of discounted cash flow models and managements best judgment are significant
inputs in arriving at the fair
value measure of the underlying collateral and are therefore classified within (Level 3).
Other real estate owned: The fair value of other real estate owned,
which is included in other assets on the balance sheet, consists of real estate that has been foreclosed. Foreclosed real
estate is recorded at the lower of fair value less selling expenses or the book balance prior
to foreclosure. Write downs are provided for subsequent declines in value and are recorded in other non-interest expense
(Level 2).
Assets and liabilities measured at fair value under SFAS No. 157 on a recurring and non-recurring
basis, including financial assets and liabilities for which the Company has elected the fair value
option, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement |
|
|
|
|
|
|
at March, 31, 2008 Using |
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
Active |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
Other |
|
Significant |
(In Thousands) |
|
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
Description |
|
Carrying Value |
|
Assets (Level 1) |
|
Inputs (Level 2) |
|
Inputs (Level 3) |
Financial Assets-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investment securities (1) |
|
$ |
59,264 |
|
|
$ |
59,264 |
|
|
$ |
|
|
|
$ |
|
|
Residential loans held for sale |
|
|
58,043 |
|
|
|
|
|
|
|
58,043 |
|
|
|
|
|
Derivative assets |
|
|
242 |
|
|
|
|
|
|
|
242 |
|
|
|
|
|
Financial Liabilities-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
23 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets-Non-Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (2) |
|
|
5,199 |
|
|
|
|
|
|
|
|
|
|
|
5,199 |
|
Other real estate owned (3) |
|
|
622 |
|
|
|
|
|
|
|
622 |
|
|
|
|
|
|
|
|
(1) |
|
Excludes restricted stock. |
(2) |
|
Represents the carrying value of loans for which adjustments are based on the appraised
value of the collateral. |
(3) |
|
Represents appraised value and realtor comparables less estimated selling expenses. |
Financial instruments recorded using SFAS 159
Under SFAS 159, the Corporation may elect to report most financial instruments and certain other
items at fair value on an instrument-by instrument basis with changes in fair value reported in
net income. After the initial adoption, the election is made at the acquisition of an eligible
financial asset, financial liability or firm commitment or when certain specified
reconsideration events occur. The fair value election may not be revoked once an election is
made.
Additionally, the transaction provisions of SFAS 159 permit a one-time election for existing
positions at the adoption date with a cumulative-effect adjustment included in beginning
retained earnings and future changes in fair value reported in net income. The Corporation did
not elect the fair value option for any existing positions at January 1, 2008 and there was no
impact to equity.
16
The Corporation elected the fair value option under SFAS 159 prospectively for the following
item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
Contractual |
(In Thousands) |
|
Fair Value |
|
Difference |
|
Principal |
Residential loans held for sale |
|
$ |
58,043 |
|
|
$ |
1,486 |
|
|
$ |
56,557 |
|
The Corporation elected to account for residential loans held for sale to eliminate the mismatch in
recording changes in market value on derivative instruments used to hedge loans held for
sale while carrying the loans at the lower of cost or market. The change to fair value accounting
for loans held for sale resulted in a pre-tax increase in income of $612 thousand after considering
loan origination fees and costs that were previously deferred in accordance with SFAS No. 91,
Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leasesan amendment of FASB Statements No. 13, 60, and 65 and a rescission
of FASB Statement No. 17.
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Corporations consolidated
financial statements, and notes thereto, for the year ended December 31, 2007 included in the
Corporations Annual Report on Form 10-K. Operating results for the three months ended March 31,
2008 are not necessarily indicative of the results for the year ending December 31, 2008 or any
future period.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain
forward-looking statements. For this purpose, any statements contained herein, including documents
incorporated by reference, that are not statements of historical fact may be deemed to be
forward-looking statements. Examples of forward-looking statements include discussions as the
Corporations 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 the
Corporations competitive position, competitive actions by other financial institutions and the
competitive nature of the financial services industry and the Corporations ability to compete
effectively against other financial institutions in its banking markets; the Corporations
potential growth, including its entrance or expansion into new markets, the opportunities that may
be presented to and pursued by it and the need for sufficient capital to support that growth; the
Corporations ability to manage growth; changes in government monetary policy, interest rates,
deposit flow, the cost of funds, and demand for loan products and financial services; the strength
of the economy in the Corporations target market area, as well as general economic, market, or
business conditions; changes in the quality or composition of the Corporations loan or investment
portfolios, including adverse developments in borrower industries, decline in real estate values in
the Corporations markets, or in the repayment ability of individual borrowers or issuers; an
insufficient allowance for loan losses as a result of inaccurate assumptions; the Corporations
reliance on dividends from the Bank as a primary source of funds; the Corporations reliance on
secondary sources, such as Federal Home Loan Bank of Atlanta (FHLB) advances, sales of securities
and loans, federal funds lines of credit from correspondent banks and out-of-market time deposits,
to meet the Banks liquidity needs; changes in laws, regulations and the policies of federal or
state regulators and agencies; the Corporations mortgage loan business and the offering of
non-conforming mortgage loans; and other circumstances, many of which are beyond the Corporations
control. Standard representations and warranties issued in connection with Loans Held for Sale may
impact earnings due to the potential need to repurchase loans due to early payment defaults and for
other reasons. The subsequent cost of liquidating these loans may have a negative impact on
earnings. 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 the
Corporation undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which it is made.
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 the
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 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 the Banks loan
portfolio. The allowance is based on
two basic principles of accounting: (i) SFAS No. 5 Accounting for Contingencies, which requires
that losses be accrued when they are
probable of occurring and estimatable and (ii) SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, which requires that losses be accrued based on the differences between the
value of collateral, present value of future cash flows or values that are observable in the
secondary market and the loan balance.
18
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 Allowance for Loan Losses below.
Derivative Financial Instruments
The Mortgage Corporation carries all derivative instruments at fair value as either assets or
liabilities in the consolidated balance sheets. SFAS 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 SFAS 133.
Off-Balance Sheet Items
In the ordinary course of business, the Bank issues commitments to extend credit and, at March 31,
2008, these commitments amounted to $35.2 million. These commitments do not necessarily represent
cash requirements, since many commitments are expected to expire without being drawn on.
At March 31, 2008, the Bank had approximately $86.6 million in unfunded lines of credit and letters
of credit. These lines of credit, if drawn upon, would be funded from routine cash flows and
short-term borrowings. As the Corporation continues the planned expansion of the loan portfolio
held for investment, the volume of commitments and unfunded lines of credit are expected to
increase accordingly.
The Bank maintains a reserve for potential off-balance sheet credit
losses that is included in other liabilities on the balance sheet. At March 31, 2008 the balance in this account totaled
$277 thousand. The Mortgage Corporation maintains a similar reserve for standard representations and warranties issued
in connection with loans sold that totaled $579 thousand at March 31, 2008.
FINANCIAL CONDITION (March 31, 2008 compared to December 31, 2007)
At March 31, 2008, the Corporations assets totaled $627.2 million compared to $622.4 million at
December 31, 2007, an increase of $4.8 million. Loans held for investment decreased $13.3 million
from year end 2007 due to payoffs that exceeded new loan production during the first quarter of
2008. Loans held for sale increased approximately $18.9 million due to an increase of $15.3
million in loans originated in March 2008. Interest-bearing deposits in other banks increased $9.8
million and investment securities decreased $9.3 million from December 31, 2007 levels.
Non-interest-bearing deposits increased $16.6 million partially, offsetting a $32.9 million
decrease in interest-bearing deposits. The decrease in interest-bearing deposits was largely in
rate sensitive and wholesale deposits that were replaced with an increase in longer term borrowings
at lower interest rates.
Securities
The Corporations securities portfolio is comprised of U.S. Treasury securities, U.S. Government
Agency securities, mortgage backed securities, obligations of states and political subdivisions,
CRA mutual fund and Federal Reserve Bank and FHLB stock. At March 31, 2008 the securities portfolio
totaled $64.3 million, down from $73.6 million on December 31, 2007, as a result of maturities and
called securities that were not reinvested. All securities were classified as available for sale.
Securities classified as available for sale are accounted for at fair market value with unrealized
gains and losses recorded directly to a separate component of shareholders equity, net of
associated tax effect. The Corporations securities classified as available for sale had an
unrealized gain net of deferred taxes of $725 thousand on March 31, 2008. Investment securities are
used to provide liquidity, to generate income, and to temporarily supplement loan growth as needed.
Loans
The loans held for investment portfolio constitutes the largest component of earning assets and is
comprised of commercial loans, real estate loans, construction loans, and consumer loans. These
lending activities provide access to credit to small businesses, professionals and consumers in the
greater Washington, D.C. metropolitan area. All lending activities of the Bank and its subsidiaries
are subject to the regulations and supervision of the Office of the Comptroller of Currency. At
March 31, 2008, loans held for investment totaled $464.3 million, down $13.3 million from $477.6
million at December 31, 2007. The decrease in loans is due to payoffs that exceeded new loan
production and stricter credit standards. See Note 5 of the accompanying notes to consolidated
financial statements for a table that summarizes the composition of the Corporations loan
portfolio. The following is a summary of the loans held for investment portfolio at March 31,
2008.
Commercial Loans: Commercial Loans represent 13.5% of the loans held for investment
portfolio. These loans are made to businesses or individuals within our target market for business
purposes. Typically the loan proceeds are used to support working capital and the acquisition of
fixed assets of an operating business. We underwrite these loans based upon our assessment of the
obligor(s) ability to
generate operating cash flows in the future necessary to repay the loan. To address the risks
associated with the uncertainties of future cash flows, these loans are generally well secured by
assets owned by the business or its principal shareholders and the principal shareholders are
typically required to guarantee the loan.
19
Commercial Real Estate Loans: Also known as commercial mortgages, loans in this category
represent 43.2% of the loans held for investment portfolio. These loans generally fall into one
of three situations in order of magnitude: first, loans supporting an owner occupied commercial
property; second, properties used by non-profit organizations such as churches or schools where
repayment is dependent upon
the cash flow of the non-profit organizations; and third, loans supporting a commercial property
leased to third parties for investment. Commercial real estate loans are secured by the subject
property and underwritten to policy standards. Policy standards approved by the Board of Directors
from time to time set forth, among other considerations, loan to value limits, cash flow coverage
ratios, and the general creditworthiness of the obligors.
Real Estate Construction Loans: Real Estate Construction Loans, also known as construction
and land development loans, comprise 10.8% of the loans held for investment portfolio. These loans
generally fall into one of three categories: first, loans to individuals that are ultimately used
to acquire property and construct an owner occupied residence; second, loans to builders for the
purpose of acquiring property and constructing homes for sale to consumers; and third, loans to
developers for the purpose of acquiring land that is developed into finished lots for the ultimate
construction of residential or commercial buildings. Loans of these types are generally secured by
the subject property within limits established by the Board of Directors based upon an assessment
of market conditions and updated from time to time. The loans typically carry recourse to
principal owners. In addition to the repayment risk associated with loans to individuals and
businesses, loans in this category carry construction completion risk. To address this additional
risk, loans of this type are subject to additional administration procedures designed to verify and
ensure progress of the project in accordance with allocated funding, project specifications and
time frames.
Residential Real Estate Loans: This category includes loans secured by first or second
mortgages on one to four family residential properties and represents 32.3% of the portfolio. Of
this amount, the following sub-categories exist as a percentage of the whole Residential Real
Estate Loan portfolio: Home Equity Lines of Credit 17.2%; First Trust Mortgage Loans 73.1%; Loans
Secured by a Junior Trust 6.0%; Multi-family loans and loans secured by Farmland 3.7%.
Home Equity Lines of Credit are extended to borrowers in our target market. Real estate equity is
the largest component of consumer wealth in our marketplace. Once approved, this consumer finance
tool allows the borrower to access the equity in their home or investment property and use the
proceeds for virtually any purpose. Home Equity Lines of Credit are most frequently secured by a
second lien on residential property. The proceeds of First Trust Mortgage Loans are used to acquire
or refinance the primary financing on owner occupied and residential investment properties. Junior
Trust Loans are loans to consumers wherein the proceeds have been used for a stated consumer
purpose. Examples of consumer purposes are education, refinancing debt, or purchasing consumer
goods. The loans are generally extended in a single disbursement and repaid over a specified
period of time.
Loans in the Residential Real Estate portfolio are underwritten to standards within a traditional
consumer framework that is periodically reviewed and updated by management and Board of Directors:
repayment source and capacity, value of the underlying property, credit history, savings pattern
and stability.
Consumer Loans: Consumer Loans make up approximately 0.3% of the loans held for investment
portfolio. Most loans are well secured with assets other than real estate, such as marketable
securities or automobiles. Very few consumer loans are unsecured. As a matter of
operation, management discourages unsecured lending. Loans in this category are underwritten to
standards within a traditional consumer framework that is periodically reviewed and updated by
management and the Board of Directors and takes into consideration repayment capacity, collateral
value, savings pattern, credit history and stability.
Loans Held for Sale (LHFS)
LHFS are originated by the Mortgage Corporation. Effective January 1, 2008 LHFS are carried on the
books at fair value. These loans 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 loans for a profit. Loan proceeds are used for the purchase or refinance of the
property securing the loan. Loans are sold with the servicing released to the investor. The LHFS
loans are closed by the Mortgage Corporation and carried on its books until the loan is delivered
to and purchased by an investor. In the three months ended March 31, 2008 we originated $217.2
million of loans processed in this manner. Loans are sold without recourse and subject to
industry standard representations and warranties that may require the repurchase, by the Mortgage
Corporation, of loans previously sold. The repurchase risks associated with this activity center
around early payment defaults, and borrower fraud. There is also a risk that loans originated may
not be purchased by our investors. The Mortgage Corporation attempts to manage these risks by the
on-going maintenance of an extensive quality control program, an internal audit and verification
program, and a selective approval process for investors and programs offered. At March 31, 2008,
LHFS totaled $58.0 million (at fair value) compared to $39.1 million at year end 2007.
20
Brokered Loans
Brokered loans are underwritten and closed by a third party lender. The Mortgage Corporation is
paid a fee for procuring and packaging
brokered loans. For the first three months of 2008, $27.9 million in residential mortgage loans was
originated under this type of delivery method, as compared to $59.7 million for the same period of
2007. Brokered loans accounted for 12.8% of the total loan volume for the first three months of
2008 compared to 19.3% for the same period of 2007.
Allowance for Loan Losses
The allowance for loan losses totaled $7.9 million at March 31, 2008 compared to $7.5 million at
year end 2007. The allowance for loan losses is equivalent to approximately 1.7% of total
consolidated loans held for investment at March 31, 2008. The methodology to derive the allowance
for loan losses 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, risk ratings and
systemic risk factors.
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 the reserve is set forth by the Board of Directors in our
Credit Policy. Under this Policy, the 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, is 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 Federal Deposit Insurance
Corporation. Although looking only at peer data and the Banks historically low charge-offs would
suggest a lower loan loss allowance, managements experience with similar portfolios in the same
market combined with the fact that the 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 conditions, generally and within each individual borrowers business sector are
considered, as well as any changes in the borrowers own financial position and, in the case of
commercial loans, management structure and business operations. As of March 31, 2008, our
evaluation of these factors supported approximately 95.3% 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 analysis
comprises the Specific Reserve and accounted for 25.1% of the total loss reserve at March 31, 2008.
The Unallocated Reserve is maintained to absorb risk factors outside of the General and Specific
Reserves. Maximum and minimum target limits are established by us on a quarterly basis for the
Unallocated Reserve. As of March 31, 2008, the threshold range for this component was 0.00% to
0.15% of the total loan portfolio and accounted for approximately 4.7% of the total loss reserve.
At March 31, 2008, the unallocated reserve amounted to $0.4 million and equaled 0.08% of total
loans. Outside of the Corporations analysis, our reserve adequacy and methodology are reviewed on
a regular basis by our internal audit program and bank regulators and such reviews have not
resulted in any material adjustment to the reserve. The schedule below apportions the allowance
for loan losses by loan types.
21
An analysis of the Banks allowance for loan losses as of and for the periods indicated is set
forth in the following tables:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Allowance for Loan Losses |
|
March 31, |
|
(In Thousands) |
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
7,462 |
|
|
$ |
5,452 |
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(87 |
) |
|
|
|
|
Recoveries |
|
|
123 |
|
|
|
3 |
|
Provision |
|
|
408 |
|
|
|
291 |
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008 and 2007 |
|
$ |
7,906 |
|
|
$ |
5,746 |
|
|
|
|
|
|
|
|
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
Allowance for |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for |
|
|
|
|
Amount |
|
Percentage |
|
Loan Loss |
|
Percentage |
|
Amount |
|
Percentage |
|
Loan Loss |
|
Percentage |
|
|
(Dollars In Thousands) |
Commercial |
|
$ |
62,758 |
|
|
|
13.52 |
% |
|
$ |
1,390 |
|
|
|
17.58 |
% |
|
$ |
64,860 |
|
|
|
13.58 |
% |
|
$ |
1,341 |
|
|
|
17.97 |
% |
Commercial real estate |
|
|
200,447 |
|
|
|
43.17 |
|
|
|
4,498 |
|
|
|
56.89 |
|
|
|
199,894 |
|
|
|
41.85 |
|
|
|
3,487 |
|
|
|
46.73 |
|
Real estate construction |
|
|
50,160 |
|
|
|
10.80 |
|
|
|
693 |
|
|
|
8.77 |
|
|
|
55,074 |
|
|
|
11.53 |
|
|
|
929 |
|
|
|
12.45 |
|
Residential real estate |
|
|
149,789 |
|
|
|
32.26 |
|
|
|
1,314 |
|
|
|
16.62 |
|
|
|
156,731 |
|
|
|
32.82 |
|
|
|
1,695 |
|
|
|
22.72 |
|
Consumer |
|
|
1,169 |
|
|
|
0.25 |
|
|
|
11 |
|
|
|
0.14 |
|
|
|
1,039 |
|
|
|
0.22 |
|
|
|
10 |
|
|
|
0.13 |
|
|
|
|
|
|
|
|
$ |
464,323 |
|
|
|
100.00 |
% |
|
$ |
7,906 |
|
|
|
100.00 |
% |
|
$ |
477,598 |
|
|
|
100.00 |
% |
|
$ |
7,462 |
|
|
|
100.00 |
% |
|
|
|
|
|
Non-performing Assets and Impaired Loans
At March 31, 2008, the Bank had two loans identified as impaired in the amounts of $6.9 million and
$173 thousand in non-accrual status. A valuation allowance, based on the fair value of collateral
and discounted cash flows, in the amount of $1.9 million is included in the allowance for loan
losses. Non-performing assets at the Mortgage Corporation are comprised of one non-accrual loan in
the amount of $184 thousand and other real estate owned totaling $622 thousand. Non-performing
assets at the Mortgage Corporation decreased from $2.1 million at December 31, 2007 to $806
thousand at March 31, 2008.
Deposits
Deposits are one of the primary sources of funding loan growth. At March 31, 2008, deposits
totaled $457.1 million compared to $473.4 million on December 31, 2007, a decrease of $16.3
million. Interest-bearing deposits decreased $32.9 million, which was partially offset by a $16.6
million increase in non-interest bearing deposits from December 31, 2007 levels. The increase in
non-interest-bearing deposits is due to new commercial accounts and increased balances of existing
accounts. The decrease in interest-bearing deposits is primarily due a decrease in wholesale
interest- bearing and other interest sensitive accounts. The Banks core deposit base is comprised
primarily of commercial accounts and, due to the inherent nature of these accounts, balances can be
subject to wide fluctuations.
Shareholders Equity
Shareholders equity was $55.9 million at March 31, 2008 compared to approximately $58.0 at
December 31, 2007. Shareholders equity
decreased by $2.1 million during the three months ended March 30, 2008. The decrease is due to the
repurchase of 587,387 shares under our share repurchase program at a weighted average price of
$7.23 per share that was partially offset by retained earnings of $1.7 million and $495 thousand in
other comprehensive income. On February 25, 2008 the Corporation paid a $0.01 cash dividend to
shareholders of record February 13, 2008.
Banking regulators have defined minimum regulatory capital ratios that the Corporation and the Bank
are required to maintain. These risk based capital guidelines take into consideration risk
factors, as defined by the banking regulators, associated with various categories of assets, both
on and off the balance sheet. Both the Corporation and Bank are classified as Well Capitalized,
which is the highest rating.
22
The following table outlines the regulatory components of capital and risk based capital ratios.
Risk Based Capital Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In Thousands) |
|
Tier 1 Capital: |
|
|
|
|
|
|
|
|
Common stock |
|
$ |
8,633 |
|
|
$ |
9,052 |
|
Capital surplus |
|
|
18,215 |
|
|
|
21,833 |
|
Retained earnings |
|
|
28,310 |
|
|
|
26,846 |
|
Less: Net Unrealized loss on equity Securities |
|
|
(15 |
) |
|
|
(14 |
) |
Subordinated debentures |
|
|
6,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
|
Total Tier 1 capital |
|
|
61,143 |
|
|
|
63,717 |
|
|
|
|
|
|
|
|
|
|
Subordinated debentures not included in Tier 1 |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
6,269 |
|
|
|
6,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk based capital |
|
$ |
67,412 |
|
|
$ |
70,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
499,619 |
|
|
$ |
513,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
617,306 |
|
|
$ |
632,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
|
|
|
|
|
|
|
|
|
Minimum |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
12.24 |
% |
|
|
12.41 |
% |
|
|
4.00 |
% |
Total risk based capital ratio |
|
|
13.49 |
% |
|
|
13.66 |
% |
|
|
8.00 |
% |
Leverage ratio |
|
|
9.90 |
% |
|
|
10.07 |
% |
|
|
4.00 |
% |
23
RESULTS OF OPERATIONS (March 31, 2008)
Summary
Net income for the three months ended March 31, 2008 totaled $1.7 million, compared to $1.3
million for the same period in 2007. Basic earnings per common share amounted to $0.16 per share
for the three months ended March 31, 2007, compared to $0.11 per share for the same period in 2007.
Diluted earnings per share were $0.16 for the three month periods ended March 31, 2008 compared to
$0.11 for the three month period in 2007.
Interest and fees on loans decreased by $919 thousand in the quarter ended March 31, 2008 compared
to the same period of 2007. The decrease in interest and fees on loans is due to a combination of a
decrease in interest rates and average balances of loans outstanding during the period. Noninterest
income totaled $8.4 million for the three months ended March 31, 2008 compared to $7.9 million for
the same period in 2007. This increase is primarily due to a $1.1 million increase in gains on the
sale of mortgage loans including $612.0 thousand in unrealized gains on the sale of loans as a
result of adopting SFAS 159. Mortgage broker fee income decreased $717.0 thousand, partially
offsetting the gains on loans held for sale.
Net Interest Income
Net interest income, the principal source of earnings, is the amount of income generated by earning
assets (primarily loans and investment securities) less the interest expense incurred on
interest-bearing liabilities (primarily deposits) used to fund earning assets. Net interest income
decreased $274 thousand for the three months ended March 31, 2008 over the same period in 2007. Net
interest margin decreased 4 basis points during the first three months from 3.23% in 2007 to 3.19%
in 2008. The decrease in net interest margin is primarily due to a decrease in average earning
assets during the period.
Total interest expense for the first three months of 2008 decreased approximately $900 thousand
from $6.1 million in 2007 to $5.2 million. Total interest-bearing deposits averaged approximately
$403.0 million for the three month period ended March 31, 2008 compared to $353.0 million for the
three month period ended March 31, 2007. Borrowed funds for the three months ended March 31, 2008
averaged $96.5 million compared to $161.3 million for the corresponding period in 2007. The
average cost of interest-bearing liabilities during the three months ended March 31, 2008 was
4.19%, down from 4.76% during the three months ended March 31, 2007.
24
The following table presents volume and rate analysis for three months ended March 31, 2008 and
2007:
Volume and Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 compared to 2007 |
|
|
Change Due To: |
|
|
Increase / |
|
|
|
|
|
|
(Decrease) |
|
Volume |
|
Rate |
|
|
(In Thousands) |
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
(305 |
) |
|
$ |
(403 |
) |
|
$ |
98 |
|
Loans |
|
|
(919 |
) |
|
|
(263 |
) |
|
|
(656 |
) |
Interest-bearing deposits |
|
|
70 |
|
|
|
177 |
|
|
|
(107 |
) |
|
|
|
Total Decrease in Interest Income |
|
|
(1,154 |
) |
|
|
(489 |
) |
|
|
(665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
|
(19 |
) |
|
|
(5 |
) |
|
|
(14 |
) |
Money market deposit accounts |
|
|
(171 |
) |
|
|
120 |
|
|
|
(291 |
) |
Savings accounts |
|
|
(19 |
) |
|
|
(34 |
) |
|
|
15 |
|
Time deposits |
|
|
469 |
|
|
|
487 |
|
|
|
(18 |
) |
|
|
|
Total interest-bearing deposits |
|
|
260 |
|
|
|
568 |
|
|
|
(308 |
) |
FHLB Advances |
|
|
(1,006 |
) |
|
|
(872 |
) |
|
|
(134 |
) |
Securities sold under agreements to repurchase |
|
|
20 |
|
|
|
49 |
|
|
|
(29 |
) |
Other short-term borrowings |
|
|
(107 |
) |
|
|
(28 |
) |
|
|
(79 |
) |
Long-term borrowings |
|
|
69 |
|
|
|
94 |
|
|
|
(25 |
) |
Subordinated debentures |
|
|
(116 |
) |
|
|
(80 |
) |
|
|
(36 |
) |
|
|
|
Total Decrease in Interest Expense |
|
|
(880 |
) |
|
|
(269 |
) |
|
|
(611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in Net Interest Income |
|
$ |
(274 |
) |
|
$ |
(220 |
) |
|
$ |
(54 |
) |
|
|
|
25
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month |
|
|
|
Period Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars In Thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities(1) |
|
$ |
71,106 |
|
|
$ |
863 |
|
|
|
4.85 |
% |
|
$ |
104,921 |
|
|
$ |
1,168 |
|
|
|
4.45 |
% |
Loans(2) |
|
|
494,504 |
|
|
|
8,903 |
|
|
|
7.20 |
% |
|
|
508,378 |
|
|
|
9,822 |
|
|
|
7.73 |
% |
Interest-bearing balances |
|
|
34,668 |
|
|
|
265 |
|
|
|
3.06 |
% |
|
|
14,922 |
|
|
|
195 |
|
|
|
5.23 |
% |
|
|
|
|
|
Total interest earning assets |
|
|
600,278 |
|
|
|
10,031 |
|
|
|
6.68 |
% |
|
|
628,221 |
|
|
|
11,185 |
|
|
|
7.12 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
6,850 |
|
|
|
|
|
|
|
|
|
|
|
6,634 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
9,668 |
|
|
|
|
|
|
|
|
|
|
|
9,723 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
7,941 |
|
|
|
|
|
|
|
|
|
|
|
8,074 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(7,431 |
) |
|
|
|
|
|
|
|
|
|
|
(5,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest earning assets |
|
|
17,028 |
|
|
|
|
|
|
|
|
|
|
|
18,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
617,306 |
|
|
|
|
|
|
|
|
|
|
$ |
647,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
8,847 |
|
|
$ |
33 |
|
|
|
1.49 |
% |
|
$ |
9,770 |
|
|
$ |
52 |
|
|
|
2.13 |
% |
Money market deposit accounts |
|
|
118,841 |
|
|
|
910 |
|
|
|
3.06 |
% |
|
|
105,991 |
|
|
|
1,081 |
|
|
|
4.08 |
% |
Savings accounts |
|
|
2,754 |
|
|
|
43 |
|
|
|
6.25 |
% |
|
|
5,146 |
|
|
|
62 |
|
|
|
4.82 |
% |
Time deposits |
|
|
272,489 |
|
|
|
3,282 |
|
|
|
4.82 |
% |
|
|
232,066 |
|
|
|
2,813 |
|
|
|
4.85 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
402,931 |
|
|
|
4,268 |
|
|
|
4.24 |
% |
|
|
352,973 |
|
|
|
4,008 |
|
|
|
4.54 |
% |
FHLB Advances |
|
|
10,750 |
|
|
|
126 |
|
|
|
4.69 |
% |
|
|
83,674 |
|
|
|
1,132 |
|
|
|
5.41 |
% |
Securities sold under agreements to
repurchase |
|
|
13,080 |
|
|
|
81 |
|
|
|
2.48 |
% |
|
|
6,231 |
|
|
|
61 |
|
|
|
3.92 |
% |
Other short-term borrowings |
|
|
16,646 |
|
|
|
99 |
|
|
|
2.38 |
% |
|
|
19,707 |
|
|
|
206 |
|
|
|
4.18 |
% |
FHLB Long-term borrowings |
|
|
49,831 |
|
|
|
550 |
|
|
|
4.41 |
% |
|
|
41,401 |
|
|
|
481 |
|
|
|
4.65 |
% |
Subordinated Debentures |
|
|
6,186 |
|
|
|
113 |
|
|
|
7.31 |
% |
|
|
10,311 |
|
|
|
229 |
|
|
|
8.88 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
499,424 |
|
|
|
5,237 |
|
|
|
4.19 |
% |
|
|
514,297 |
|
|
|
6,117 |
|
|
|
4.76 |
% |
|
|
|
|
|
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
55,348 |
|
|
|
|
|
|
|
|
|
|
|
63,594 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
3,781 |
|
|
|
|
|
|
|
|
|
|
|
4,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
558,553 |
|
|
|
|
|
|
|
|
|
|
|
582,371 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
58,753 |
|
|
|
|
|
|
|
|
|
|
|
64,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity: |
|
$ |
617,306 |
|
|
|
|
|
|
|
|
|
|
$ |
647,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(3) |
|
|
|
|
|
|
|
|
|
|
2.49 |
% |
|
|
|
|
|
|
|
|
|
|
2.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4) |
|
|
|
|
|
$ |
4,794 |
|
|
|
3.19 |
% |
|
|
|
|
|
$ |
5,068 |
|
|
|
3.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest income and yields are presented on a fully taxable equivalent basis using 34% tax rate. |
|
(2) |
|
Loans placed on nonaccrual status are included in loan balances. |
|
(3) |
|
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities. |
|
(4) |
|
Net interest margin is net interest income, expressed as a percentage of average earning assets. |
26
Noninterest Income
Noninterest income consists of revenue generated from financial services and activities other than
lending and investing. The Mortgage Corporation provides the most significant contributions to
noninterest income. Total noninterest income was $8.4 million for the three month period ended
March 31, 2008 compared to $7.9 million for the same period in 2007, an increase of $578 thousand.
Gains on the sale of loans originated by the Mortgage Corporation totaled $6.9 million for the
three month periods ending March 31, 2008, compared to $5.8 million for the same periods of 2007.
The Mortgage Corporation recorded $612 thousand in unrealized gains on loans held for sale as a
result of adoption of SFAS 159. Mortgage broker fee income and other income totaled $1.5 million
for the first three months of 2008, down from $2.0 million for the same period in 2007, a decrease
of $504 thousand. The decrease of $504 thousand for the first three months of 2008 is largely due to
a $717 thousand decrease in broker fees.
Noninterest Expense
Noninterest expense totaled $10.2 million for the three months ended March 31, 2008, compared to
$10.7 million for the same periods in 2007. Salaries and benefits totaled $5.9 million for the
first three months of 2008, compared to $5.2 million for the same period last year due to growth at
both the Bank and Mortgage Corporation. Other operating expenses totaled approximately $3.6
million for the three months ended March 31, 2008, down from $5.0 million for the three months
ended March 31, 2007. The decrease in other operating expenses is primarily attributable to a
decrease of $1.2 million in wholesale broker fees.
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 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
interest-bearing deposits with other banks provide an additional source of liquidity funding. At
March 31, 2008, overnight interest-bearing balances totaled $23.0 million and securities available
for sale less restricted stock totaled $58.1 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 March 31, 2008, the Bank had a line of credit with
the FHLB totaling $186.5 million and had outstanding in short term loans of $250 thousand, and an
additional $66.6 million in term loans at fixed rates ranging from 2.55% to 5.21% leaving $119.7
million available on the line. In addition to the line of credit at the FHLB, the Bank and its
mortgage bank subsidiary also issue repurchase agreements and commercial paper. As of March 31,
2008, outstanding repurchase agreements totaled approximately $13.3 million and commercial paper
issued and short-term borrowings amounted to $36.0 million. The interest rates on these
instruments are variable and subject to change daily. The Bank also maintains Federal Funds lines
of credit with its correspondent banks and, at March 31, 2008, these lines amounted to $22.6
million. The Corporation also has $6.2 million in subordinated debentures, to support the growth
of the organization.
27
Borrowed Funds Distribution
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars In Thousands) |
|
At Period End |
|
|
|
|
|
|
|
|
FHLB Advances |
|
$ |
250 |
|
|
$ |
15,500 |
|
FHLB long-term borrowings |
|
|
66,637 |
|
|
|
39,524 |
|
Securities sold under agreements to repurchase |
|
|
13,319 |
|
|
|
14,814 |
|
Other short-term borrowings |
|
|
22,698 |
|
|
|
11,362 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
6,186 |
|
Federal Funds Purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at period end |
|
$ |
109,090 |
|
|
$ |
87,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances |
|
|
|
|
|
|
|
|
FHLB Advances |
|
$ |
10,750 |
|
|
$ |
60,224 |
|
FHLB long-term borrowings |
|
|
49,831 |
|
|
|
41,932 |
|
Securities sold under agreements to repurchase |
|
|
13,080 |
|
|
|
11,695 |
|
Other short-term borrowings |
|
|
16,646 |
|
|
|
16,629 |
|
Subordinated debentures |
|
|
6,186 |
|
|
|
9,237 |
|
|
|
|
|
|
|
|
Total average balance |
|
$ |
96,493 |
|
|
$ |
139,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate paid on all borrowed funds |
|
|
4.02 |
% |
|
|
5.14 |
% |
|
|
|
|
|
|
|
Contractual Obligations
There have been no material changes outside the ordinary course of business to the contractual
obligations disclosed in the Corporations Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporations market risk is composed primarily of interest rate risk. The Funds Management
Committee is responsible for reviewing the interest rate sensitivity position and establishes
policies to monitor and coordinate the Corporations sources, uses and pricing of funds.
Interest Rate Sensitivity Management
The Corporation uses a simulation model to analyze, manage and formulate operating strategies that
address net interest income sensitivity to movements in interest rates. The simulation model
projects net interest income based on various interest rate scenarios over a twelve month period.
The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets
and liabilities. The model incorporates certain assumptions which management believes to be
reasonable regarding the impact of changing interest rates and the prepayment assumption of certain
assets and liabilities as of March 31, 2008. The table below reflects the outcome of these
analyses at March 31, 2008, assuming budgeted growth in the balance sheet. According to the model
run for the period ended March 31, 2008, and projecting forward over a twelve month period, an
immediate 100 basis points increase in interest rates would result in an increase in net interest
income of 5.78%. An immediate 100 basis points decline in interest rates would result in a
decrease in net interest income of 5.06%. While management carefully monitors the exposure to
changes in interest rates and takes actions as warranted to mitigate any adverse impact, there can
be no assurance about the actual effect of interest rate changes on net interest income. The
following table
reflects the Corporations earnings sensitivity profile as of March 31, 2008.
28
Rate Shock Analysis
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hypothetical Percentage |
|
|
Change in Federal |
|
Hypothetical Percentage |
|
Change in Economic Value |
|
|
Funds Target Rate |
|
Change in Earnings |
|
of Equity |
|
|
|
3.00 |
% |
|
|
17.81 |
% |
|
|
-12.04 |
% |
|
|
|
2.00 |
% |
|
|
11.79 |
% |
|
|
-8.03 |
% |
|
|
|
1.00 |
% |
|
|
5.78 |
% |
|
|
-4.13 |
% |
|
|
|
-1.00 |
% |
|
|
-5.06 |
% |
|
|
3.95 |
% |
|
|
|
-2.00 |
% |
|
|
-9.85 |
% |
|
|
8.67 |
% |
|
|
|
-3.00 |
% |
|
|
-11.14 |
% |
|
|
12.78 |
% |
The Corporations net interest income and the fair value of its financial instruments are
influenced by changes in the level of interest rates. The Corporation manages its exposure to
fluctuations in interest rates through policies established by its Funds Management Committee. The
Funds Management Committee meets periodically and has responsibility for formulating and
implementing strategies to improve balance sheet positioning and earnings and reviewing interest
rate sensitivity.
The Mortgage Corporation is party to mortgage rate lock commitments to fund mortgage loans at
interest rates previously agreed to, as locked by both the Corporation and the borrower for
specified periods of time. When the borrower locks its interest rate, the Corporation effectively
extends a put option to the borrower, whereby the borrower is not obligated to enter into the loan
agreement, but the Corporation must honor the interest rate for the specified time period. The
Corporation is exposed to interest rate risk during the accumulation of interest rate lock
commitments and loans prior to sale. The Corporation utilizes either a best efforts sell forward
commitment or a mandatory sell forward commitment to economically hedge the changes in fair value
of the loan due to changes in market interest rates. Failure to effectively monitor, manage and
hedge the interest rate risk associated with the mandatory commitments subjects the Corporation to
potentially significant market risk.
Throughout the lock period, the changes in the market value of interest rate lock commitments, best
efforts and mandatory sell forward commitments are recorded as unrealized gains and losses and are
included in the statement of operations in 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. The Corporation did not have a material gain or loss representing the amount of hedge
ineffectiveness during the reporting periods contained in this report.
Item 4. Controls and Procedures
Evaluation of Disclosure 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.
29
Changes in Internal Control
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.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Bank is a party to legal proceedings arising in the ordinary course of business. Management is
of the opinion that these legal proceedings will not have a material adverse effect on the
Corporations financial condition or results of operations. From time to time the Bank may
initiate legal actions against borrowers in connection with collecting defaulted loans. Such
actions are not considered material by management unless otherwise disclosed.
Item 1A. Risk Factors
There have been no material changes from the risk factors as previously disclosed in the
Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 19, 2008 the Corporations Board of Directors approved an increase in its share
repurchase program to 2,000,000 shares. Shares may be purchased on the open market or through
privately negotiated transactions. No termination date was set for the program. As of March 31,
2008, a total of 1,833,011 shares have been repurchased.
The following table provides information with respect to purchases the Corporation made of its
common shares during the first quarter of the 2008 fiscal year:
Subsequent to the period covered by the table below, the Board of Directors increased the program
size by 500,000 shares, effective April 22, 2008, bringing the total shares authorized under the
program to 2,500,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number of |
|
(d) Maximum Number |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
of Shares that may |
|
|
(a) Total Number of |
|
(b) Average Price |
|
Part of Publicly |
|
yet be Purchased |
Period |
|
Shares Purchased |
|
Paid Per Share |
|
Announced Plan |
|
Under the Plan |
January 1- January 31, 2008
|
|
|
69,183 |
|
|
$ |
6.20 |
|
|
|
69,183 |
|
|
|
185,193 |
|
February 1- February 29, 2008 *
|
|
|
240,804 |
|
|
|
7.19 |
|
|
|
240,804 |
|
|
|
444,389 |
|
March 1- March 31, 2008
|
|
|
277,400 |
|
|
|
7.52 |
|
|
|
277,400 |
|
|
|
166,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
587,387 |
|
|
$ |
7.23 |
|
|
|
587,387 |
|
|
|
166,989 |
|
|
|
|
* |
|
Reflects the 500,000 share increase on February 19,
2008 |
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
30
Item 5. Other Information
None
Item 6. Exhibits
|
|
|
Exhibit No. |
|
Description |
3.1
|
|
Amended and Restated Articles of Incorporation of Access
National Corporation (incorporated by reference to Exhibit 3.1
to Form 8-K filed July 18, 2006 (file number 000-49929)) |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Access National Corporation
(incorporated by reference to Exhibit 3.2 to Form 8-K filed
October 24, 2007 (file number 000-49929)) |
|
|
|
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) |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Access National Corporation
(Registrant)
|
|
Date: May 9, 2008 |
By: |
/s/ Michael W. Clarke
|
|
|
|
Michael W. Clarke |
|
|
|
President & Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: May 9, 2008 |
By: |
/s/ Charles Wimer
|
|
|
|
Charles Wimer |
|
|
|
Executive Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer) |
|
|
32