UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X]
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended June 30, 2004 | ||
[ ]
|
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
Virginia |
82-0545425 |
|
(State or other jurisdiction of
|
(I.R.S. Employer | |
incorporation or organization)
|
Identification Number) |
1800 Robert Fulton Drive, Suite 300, Reston, VA 20191
(703) 871-2100
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 [X] | No [ ] |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes [ ] | No [X] |
The number of shares outstanding of Access National Corporation’s common stock, par value $1.67, as of August 1, 2004 was 3,950,613 shares.
ACCESS NATIONAL CORPORATION
FORM 10-Q
INDEX
PART I |
FINANCIAL INFORMATION | |||
Item 1. |
Consolidated Financial Statements | |||
| Consolidated Balance Sheets June 30, 2004 and December 31, 2003 | Page 3 | |||
| Consolidated Statements of Income Three months ended June 30, 2004 and 2003 | Page 4 | |||
| Consolidated Statements of Income Six months ended June 30, 2004 and 2003 | Page 5 | |||
| Consolidated Statements of Shareholders’ Equity Six months ended June 30, 2004 and 2003 | Page 6 | |||
| Consolidated Statements of Cash Flows Six months ended June 30, 2004 and 2003 | Page 7 | |||
| Notes to Consolidated Financial Statements | Page 8 | |||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | Page 18 | ||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | Page 36 | ||
Item 4. |
Controls and Procedures | Page 37 | ||
PART II |
OTHER INFORMATION | |||
Item 1. |
Legal Proceedings | Page 38 | ||
Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities | Page 38 | ||
Item 3. |
Defaults Upon Senior Securities | Page 38 | ||
Item 4. |
Submission of Matters to a Vote of Security Holders | Page 38 | ||
Item 5. |
Other Information | Page 38 | ||
Item 6. |
Exhibits and Reports on Form 8-K | Page 38 | ||
Signatures |
Page 39 |
2
ACCESS NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Data)
| June 30 | December 31. | |||||||
| 2004 | 2003 | |||||||
| (unaudited) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 12,550 | $ | 5,808 | ||||
Interest bearing deposits in other banks |
8,312 | 286 | ||||||
Securities available for sale, at fair value |
22,896 | 23,178 | ||||||
Loans, net of allowance for loan losses of $2,944 and $2,565 respectively |
244,480 | 186,755 | ||||||
Loans held for sale |
42,548 | 29,756 | ||||||
Premises and equipment |
8,375 | 7,993 | ||||||
Other assets |
4,358 | 3,303 | ||||||
Total assets |
$ | 343,519 | $ | 257,079 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
LIABILITIES |
||||||||
Deposits |
||||||||
Non-interest bearing deposits |
$ | 91,083 | $ | 60,219 | ||||
Savings and interest-bearing deposits |
44,369 | 28,528 | ||||||
Interest bearing deposits |
112,496 | 109,436 | ||||||
Total deposits |
$ | 247,948 | $ | 198,183 | ||||
Other liabilities |
||||||||
Short-term borrowings |
$ | 29,575 | $ | 11,056 | ||||
Long-term borrowings |
29,107 | 14,965 | ||||||
Trust preferred capital notes |
10,000 | 10,000 | ||||||
Other liabilities |
2,612 | 3,120 | ||||||
Total other liabilities |
$ | 319,242 | $ | 237,324 | ||||
SHAREHOLDERS’ EQUITY |
||||||||
Common stock, par value, $1.67; authorized, 30,000,000 shares;
issued and outstanding, 3,950,613 shares in 2004 and 3,477,360 shares in 2003 |
$ | 6,586 | $ | 5,796 | ||||
Surplus |
9,222 | 6,856 | ||||||
Retained earnings |
8,565 | 7,015 | ||||||
Accumulated other comprehensive income (loss) |
(96 | ) | 88 | |||||
Total shareholders’ equity |
$ | 24,277 | $ | 19,755 | ||||
Total liabilities and shareholders’ equity |
$ | 343,519 | $ | 257,079 | ||||
See Notes to Consolidated Financial Statements
3
ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except For Share Data)
(unaudited)
| Three | Three | |||||||
| Months Ended | Months Ended | |||||||
| June 30, 2004 | June 30, 2003 | |||||||
INTEREST INCOME |
||||||||
Interest and fees on loans |
$ | 4,098 | $ | 3,336 | ||||
Interest on federal funds sold & bank balances |
16 | 30 | ||||||
Interest and dividends on investments |
187 | 85 | ||||||
Total interest income |
$ | 4,301 | $ | 3,451 | ||||
INTEREST EXPENSE |
||||||||
Interest on deposits |
$ | 970 | $ | 999 | ||||
Interest on other borrowings |
449 | 156 | ||||||
Total interest expense |
$ | 1,419 | $ | 1,155 | ||||
Net interest income |
$ | 2,882 | $ | 2,296 | ||||
Provision for loan losses |
204 | 198 | ||||||
Net interest income after provision for loan losses |
$ | 2,678 | $ | 2,098 | ||||
NON-INTEREST INCOME |
||||||||
Service charges and other fees |
$ | 46 | $ | 74 | ||||
Gains on Sale of Loans |
5,372 | 8,367 | ||||||
Broker Fees |
1,145 | 1,187 | ||||||
Other Income |
216 | 179 | ||||||
Total non-interest income |
$ | 6,779 | $ | 9,807 | ||||
NON-INTEREST EXPENSE |
||||||||
Salaries and benefits |
$ | 4,659 | $ | 5,688 | ||||
Occupancy and equipment |
664 | 492 | ||||||
Other operating expense |
2,613 | 3,757 | ||||||
Total non-interest expense |
$ | 7,936 | $ | 9,938 | ||||
Income before income tax |
$ | 1,521 | $ | 1,967 | ||||
Income tax expense |
513 | 851 | ||||||
Net income |
$ | 1,008 | $ | 1,117 | ||||
Earnings per common share, basic |
$ | 0.28 | $ | 0.32 | ||||
Earnings per common share, diluted |
$ | 0.22 | $ | 0.26 | ||||
Weighted average common shares outstanding, basic* |
3,635,111 | 3,501,500 | ||||||
Weighted average common shares outstanding, diluted* |
4,595,514 | 4,321,188 | ||||||
See Notes to Consolidated Financial Statements
4
ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except For Share Data)
(unaudited)
| Six | Six | |||||||
| Months Ended | Months Ended | |||||||
| June 30, 2004 | June 30, 2003 | |||||||
INTEREST INCOME |
||||||||
Interest and fees on loans |
$ | 7,481 | $ | 6,561 | ||||
Interest on federal funds sold & bank balances |
30 | 54 | ||||||
Interest and dividends on investments |
388 | 210 | ||||||
Total interest income |
$ | 7,899 | $ | 6,825 | ||||
INTEREST EXPENSE |
||||||||
Interest on deposits |
1,829 | 2,025 | ||||||
Interest on other borrowings |
771 | 407 | ||||||
Total interest expense |
$ | 2,600 | $ | 2,432 | ||||
Net interest income |
$ | 5,299 | $ | 4,393 | ||||
Provision for loan losses |
379 | 382 | ||||||
Net interest income after provision for loan losses |
$ | 4,920 | $ | 4,011 | ||||
NON-INTEREST INCOME |
||||||||
Service charges and fees |
106 | 124 | ||||||
Gain on Sale of Loans |
10,240 | 15,617 | ||||||
Broker Fees |
2,300 | 1,906 | ||||||
Other Income |
395 | 269 | ||||||
Total non-interest income |
$ | 13,041 | $ | 17,916 | ||||
NON-INTEREST EXPENSE |
||||||||
Salaries and benefits |
9,357 | 10,562 | ||||||
Occupancy and equipment |
1,192 | 893 | ||||||
Other operating expense |
5,021 | 6,889 | ||||||
Total non-interest expense |
$ | 15,570 | $ | 18,344 | ||||
Income before income tax |
$ | 2,391 | $ | 3,584 | ||||
Income tax expense |
841 | 1,463 | ||||||
Net income |
$ | 1,550 | $ | 2,120 | ||||
Earnings per common share, basic |
$ | 0.44 | $ | 0.60 | ||||
Earnings per common share, diluted |
$ | 0.34 | $ | 0.49 | ||||
Weighted average common shares outstanding, basic |
3,556,236 | 3,505,750 | ||||||
Weighted average common shares outstanding, diluted |
4,555,353 | 4,299,218 | ||||||
5
ACCESS NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Six Months Ended June 30,2004
(unaudited)
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Common | Retained | Comprehensive | Comprehensive | |||||||||||||||||||||
| Stock | Surplus | Earnings | Income (Loss) | Income | Total | |||||||||||||||||||
Balance, December 31, 2003 |
$ | 5,796 | $ | 6,856 | $ | 7,015 | $ | 88 | $ | — | $ | 19,755 | ||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
— | — | 1,550 | — | 1,550 | 1,550 | ||||||||||||||||||
Other comprehensive loss, unrealized
holdings losses arising
during the
period, net of tax $49 |
— | — | — | (184 | ) | (184 | ) | (184 | ) | |||||||||||||||
| $ | 1,366 | |||||||||||||||||||||||
Common Stock issued for exercise of warrants |
790 | 2,366 | 3,156 | |||||||||||||||||||||
Balance, June 30, 2004 |
$ | 6,586 | $ | 9,222 | $ | 8,565 | $ | (96 | ) | $ | 24,277 | |||||||||||||
ACCESS NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Six Months Ended June 30, 2003
(unaudited)
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Common | Retained | Comprehensive | Comprehensive | |||||||||||||||||||||
| Stock | Surplus | Earnings | Income | Income | Total | |||||||||||||||||||
Balance, December 31, 2002 |
$ | 5,850 | $ | 7,148 | $ | 3,199 | $ | 94 | $ | 16,291 | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Repurchase of common stock: |
(43 | ) | (212 | ) | $ | (255 | ) | |||||||||||||||||
Net income |
— | — | 2,121 | — | 2,121 | 2,121 | ||||||||||||||||||
Other comprehensive income, unrealized
holdings gains arising during
the period,
net of tax, $6,740 |
— | — | — | 8 | 8 | 8 | ||||||||||||||||||
| $ | 2,129 | |||||||||||||||||||||||
Balance, March 31, 2003 |
$ | 5,807 | $ | 6,936 | $ | 5,320 | $ | 102 | $ | 18,165 | ||||||||||||||
See Notes to Consolidated Financial Statements
6
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
For the Six Months Ended June 30 2004 and 2003
(unaudited)
| June | June | |||||||
| (in thousands) | 2004 | 2003 | ||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 1,550 | $ | 2,120 | ||||
Adjustments to reconcile net income to net cash (used in)
operating activities: |
||||||||
Provision for loan losses |
379 | 382 | ||||||
Net amortization (accretion) on securities |
48 | 152 | ||||||
Depreciation and amortization |
257 | 89 | ||||||
Changes in assets and liabilities: |
||||||||
(Increase) decrease in loans held for sale |
(12,792 | ) | (16,555 | ) | ||||
(Increase) decrease in other assets |
(960 | ) | (1,620 | ) | ||||
Increase (decrease) in other liabilities |
(509 | ) | 242 | |||||
Net cash (used in) operating activities |
$ | (12,027 | ) | $ | (15,190 | ) | ||
Cash Flows from Investing Activities |
||||||||
Proceeds from maturities and calls of securities available for sale |
14,105 | 12,103 | ||||||
Purchases of securities available for sale |
(14,150 | ) | (8,240 | ) | ||||
Decrease in federal funds sold |
— | 19 | ||||||
Net (increase) in loans |
(58,104 | ) | (25,923 | ) | ||||
Purchases of premises and equipment |
(638 | ) | (119 | ) | ||||
Net cash (used in) investing activities |
(58,787 | ) | (22,160 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Net increase in demand, interest-bearing demand and savings deposits |
46,705 | 48,793 | ||||||
Net increase (decrease) in time deposits |
3,060 | 11,794 | ||||||
Increase (decrease) in securities sold under agreement to repurchase |
219 | (1,757 | ) | |||||
Net increase (decrease) in short-term borrowings |
18,300 | (20,356 | ) | |||||
Net increase in long term borrowings |
14,142 | 15,820 | ||||||
Increase in trust preferred capital notes |
— | — | ||||||
Proceeds from issuance of common stock |
3,156 | — | ||||||
Repurchase of common stock |
— | (255 | ) | |||||
Net cash provided by financing activities |
85,582 | 54,039 | ||||||
Increase in cash and cash equivalents |
14,768 | 16,689 | ||||||
Cash and Cash Equivalents |
||||||||
Beginning |
6,094 | 12,804 | ||||||
Ending |
20,862 | 29,493 | ||||||
Supplemental Disclosures of Cash Flow Information |
||||||||
Cash payments for interest |
2,347 | 2,449 | ||||||
Cash payments for income taxes |
377 | 2,563 | ||||||
Supplemental Disclosures of Noncash Investing Activities |
||||||||
Unrealized gain (loss) on securities available for sale |
(280 | ) | 15 | |||||
See Notes to Consolidated Financial Statements.
7
ACCESS NATIONAL CORPORATION
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 Corporation has a strong capital base that can be used to engage in bank related businesses as provided under the Bank Holding Company Act of 1956, as amended or down streamed to the Bank to support continued growth.
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 Corporation formed Access Capital Trust I and Access Capital Trust II in 2002 and 2003 respectively for the purpose of issuing redeemable capital securities. On July 30, 2002 Access Capital Trust I, issued $4 million of trust preferred securities and on September 30, 2003, Access Capital Trust II issued $6 million of trust preferred securities. Trust preferred securities may be included in Tier 1 capital in an amount equal to 25% of Tier 1 capital and amounts in excess of 25% are includable as Tier 2 capital. As guarantor, the Corporation unconditionally guarantees payment of all distributions required to be paid on the Trust Preferred Securities.
Access National Bank opened for business on December 1, 1999 and has three wholly-owned subsidiaries: Access National Mortgage Corporation, a Virginia corporation engaged in mortgage banking activities, Access National Leasing Corporation, a Virginia corporation engaged in commercial and industrial leasing services, and Access Real Estate LLC. Access National Leasing was acquired in exchange for 7,500 shares of Access National Bank stock in the second quarter of 2002. The 7,500 shares were subsequently repurchased in 2003. The leasing subsidiary presently has no employees and its affairs are managed as a part of the bank’s commercial lending department. Access Real Estate LLC is a limited liability corporation established in July, 2003 for the purpose of holding title to the Corporation’s headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia.
8
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 and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2004. These consolidated financial statements should be read in conjunction with the Corporation’s audited financial statements and the notes thereto as of December 31, 2003, included in the Corporation’s Annual Report for the fiscal year ended December 31, 2003.
9
NOTE 3 – STOCK BASED COMPENSATION PLANS
Stock-Based Compensation Plans - The Corporation has a stock-based compensation plan. The Corporation accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.
STOCK BASED COMPENSATION PLANS
| Six Month Period Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (In Thousands Except for Share Data) | ||||||||
Net Income, as reported |
$ | 1,550 | $ | 2,120 | ||||
Total stock-based compensation
determined under fair value based method
for all awards, net of relaxed tax effects |
$ | (140 | ) | $ | (107 | ) | ||
Proforma Net Income |
$ | 1,410 | $ | 2,013 | ||||
Earnings per Share: |
||||||||
Basic - as reported |
$ | 0.44 | $ | 0.60 | ||||
Basic - pro forma |
$ | 0.40 | $ | 0.57 | ||||
Diluted - as reported |
$ | 0.34 | $ | 0.49 | ||||
Diluted - pro forma |
$ | 0.31 | $ | 0.47 | ||||
10
NOTE 4 - SECURITIES
The amortized cost and fair values of securities (in thousands) available for sale as of June 30, 2004 are as follows:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost |
Gains |
Losses |
Value |
|||||||||||||
U.S. Treasury Securities |
$ | 1,631 | $ | 24 | $ | — | $ | 1,655 | ||||||||
U.S. Government Agencies |
15,478 | — | (205 | ) | 15,273 | |||||||||||
Mortgage Backed Securities |
2,779 | 34 | — | 2,813 | ||||||||||||
Restricted Securities: |
||||||||||||||||
Federal Reserve Bank Stock |
300 | — | — | 300 | ||||||||||||
FHLB Stock |
2,855 | — | 2,855 | |||||||||||||
Total Securities |
$ | 23,043 | $ | 58 | $ | (205 | ) | $ | 22,896 | |||||||
The amortized cost and fair values of securities (in thousands) available for sale as of December 31, 2003 are as follows:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost |
Gains |
Losses |
Value |
|||||||||||||
U.S. Treasury Securities |
$ | 1,639 | $ | 53 | $ | — | $ | 1,692 | ||||||||
U.S. Government Agencies |
15,732 | 44 | — | 15,776 | ||||||||||||
Mortgage Backed Securities |
3,875 | 37 | — | 3,912 | ||||||||||||
Restricted Securities -
|
||||||||||||||||
Federal Reserve Bank Stock |
300 | — | — | 300 | ||||||||||||
FHLB Stock |
1,498 | — | — | 1,498 | ||||||||||||
Total Securities |
$ | 23,044 | $ | 134 | $ | — | $ | 23,178 | ||||||||
11
NOTE 5 - LOANS
The Corporation’s loan portfolio (in thousands) is composed of the following:
| June 30, 2004 |
December 31, 2003 |
|||||||
Real Estate Construction |
$ | 25,453 | $ | 13,766 | ||||
Residential |
76,729 | 53,325 | ||||||
Non Residential |
80,236 | 69,128 | ||||||
Home Equity |
25,857 | 20,521 | ||||||
Total Real Estate Mortgage |
$ | 208,275 | $ | 156,740 | ||||
Lease Financing |
3,926 | 3,703 | ||||||
Commercial |
34,375 | 28,056 | ||||||