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EX-32 - ACCESS NATIONAL CORPv194030_ex32.htm
EX-31.2 - ACCESS NATIONAL CORPv194030_ex31-2.htm
EX-31.1 - ACCESS NATIONAL CORPv194030_ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010

or

¨
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)

Virginia
82-0545425
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

1800 Robert Fulton Drive, Suite 300, Reston, Virginia 20191
 (Address of principal executive offices) (Zip Code)

(703) 871-2100
(Registrant's telephone number, including area code)
 

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
 
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
 
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (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 $0.835, as of August 4, 2010 was 10,478,476 shares.
 
 

 
 
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q

INDEX

PART I
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
Consolidated Balance Sheets, June 30, 2010 and December 31, 2009 (Audited)
 
Page 2
 
Consolidated Statements of Income, three months ended June 30, 2010 and 2009
 
Page 3
 
Consolidated Statements of Income, six months ended June 30, 2010 and 2009
 
Page 4
 
Consolidated Statements of Changes in Shareholders' Equity, six months ended June 30, 2010 and 2009
 
Page 5
 
Consolidated Statements of Cash Flows, six months ended June 30, 2010 and 2009
 
Page 6
 
Notes to Consolidated Financial Statements (Unaudited)
 
Page 7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Page 23
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Page 39
Item 4.
Controls and Procedures
 
Page 40
 
PART II
OTHER INFORMATION
   
       
Item 1.
Legal Proceedings
 
Page 40
Item1A.
Risk Factors
 
Page 40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Page 41
Item 3.
Defaults Upon Senior Securities
 
Page 41
Item 4.
(Removed and Reserved)
 
Page 41
Item 5.
Other Information
 
Page 41
Item 6.
Exhibits
 
Page 42
 
Signatures
 
Page 43
 
 
1

 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share Data)

   
June 30,
   
December 31,
 
    
2010
   
2009
 
   
(Unaudited)
       
ASSETS
               
Cash and due from banks
  $ 10,553     $ 5,965  
Interest-bearing deposits in other banks and federal funds sold
    75,567       25,256  
Securities available for sale, at fair value
    128,003       47,838  
Loans held for sale, at fair value
    66,156       76,232  
Loans
    468,883       486,564  
Allowance for loan losses
    (9,348 )     (9,127 )
Net loans
    459,535       477,437  
Premises and equipment
    8,640       8,759  
Accrued interest receivable
    2,313       2,409  
Other real estate owned
    5,334       5,111  
Other assets
    34,469       17,872  
Total assets
  $ 790,570     $ 666,879  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Deposits
               
Noninterest-bearing deposits
  $ 78,313     $ 69,782  
Savings and interest-bearing deposits
    177,360       138,988  
Time deposits
    352,391       257,875  
Total deposits
    608,064       466,645  
Other liabilities
               
Short-term borrowings
    57,589       64,249  
Long-term borrowings
    38,140       46,330  
Subordinated debentures
    6,186       6,186  
Other liabilities and accrued expenses
    10,138       15,691  
Total liabilities
  $ 720,117     $ 599,101  
                 
SHAREHOLDERS' EQUITY
               
Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and outstanding, 10,497,271 shares at June 30, 2010 and 10,537,428 shares at December 31, 2009
  $ 8,765     $ 8,799  
Additional paid in captal
    18,364       18,552  
Retained earnings
    43,060       40,377  
Accumulated other comprehensive income (loss), net
    264       50  
Total shareholders' equity
    70,453       67,778  
Total liabilities and shareholders' equity
  $ 790,570     $ 666,879  

See accompanying notes to consolidated financial statements (Unaudited).

 
2

 
 
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)

   
Three Months Ended June 30,
 
   
2010
   
2009
 
Interest and Dividend Income
           
Interest and fees on loans
  $ 7,977     $ 8,781  
Interest on deposits in other banks
    77       46  
Interest and dividends on securities
    604       861  
Total interest and dividend income
    8,658       9,688  
                 
Interest Expense
               
Interest on deposits
    2,049       2,737  
Interest on short-term borrowings
    195       332  
Interest on long-term borrowings
    374       515  
Interest on subordinated debentures
    53       65  
Total interest expense
    2,671       3,649  
                 
Net interest income
    5,987       6,039  
Provision for loan losses
    548       2,060  
Net interest income after provision for loan losses
    5,439       3,979  
                 
Noninterest Income
               
Service fees on deposit accounts
    166       130  
Gain on sale of loans
    8,398       14,550  
Mortgage broker fee income
    394       189  
Other income
    (1,681 )     3,183  
Total noninterest income
    7,277       18,052  
                 
Noninterest Expense
               
Salaries and employee benefits
    5,364       7,929  
Occupancy and equipment
    646       648  
Other operating expenses
    4,032       8,972  
Total noninterest expense
    10,042       17,549  
                 
Income before income taxes
    2,674       4,482  
                 
Income tax expense
    996       1,712  
NET INCOME
  $ 1,678     $ 2,770  
                 
Earnings per common share:
               
Basic
  $ 0.16     $ 0.27  
Diluted
  $ 0.16     $ 0.27  
                 
Average outstanding shares:
               
Basic
    10,573,210       10,345,890  
Diluted
    10,592,125       10,403,850  

See accompanying notes to consolidated financial statements (Unaudited).

 
3

 

ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)

   
Six Months Ended June 30,
 
   
2010
   
2009
 
Interest and Dividend Income
           
Interest and fees on loans
  $ 15,849     $ 17,448  
Interest on deposits in other banks
    114       78  
Interest and dividends on securities
    954       1,841  
Total interest and dividend income
    16,917       19,367  
                 
Interest Expense
               
Interest on deposits
    4,017       5,818  
Interest on short-term borrowings
    460       648  
Interest on long-term borrowings
    763       991  
Interest on subordinated debentures
    105       128  
Total interest expense
    5,345       7,585  
                 
Net interest income
    11,572       11,782  
Provision for loan losses
    746       3,429  
Net interest income after provision for loan losses
    10,826       8,353  
                 
Noninterest Income
               
Service fees on deposit accounts
    326       264  
Gain on sale of loans
    13,638       28,339  
Mortgage broker fee income
    732       329  
Other income
    (1,396 )     4,280  
Total noninterest income
    13,300       33,212  
                 
Noninterest Expense
               
Salaries and employee benefits
    10,616       15,434  
Occupancy and equipment
    1,330       1,280  
Other operating expenses
    7,599       15,715  
Total noninterest expense
    19,545       32,429  
                 
Income before income taxes
    4,581       9,136  
                 
Income tax expense
    1,687       3,702  
NET INCOME
  $ 2,894     $ 5,434  
                 
Earnings per common share:
               
Basic
  $ 0.27     $ 0.53  
Diluted
  $ 0.27     $ 0.52  
                 
Average outstanding shares:
               
Basic
    10,572,614       10,306,638  
Diluted
    10,590,816       10,357,752  
                 
See accompanying notes to consolidated financial statements (Unaudited).
 
 
4

 
 
ACCESS NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In Thousands, Except for Share Data)
(Unaudited)

                     
Accumulated
       
                     
Other
       
         
Additional
         
Compre-
       
   
Common
   
Paid in
   
Retained
   
hensive
       
   
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Total
 
Balance, December 31, 2009
  $ 8,799     $ 18,552     $ 40,377     $ 50     $ 67,778  
Comprehensive income:
                                       
Net income
    -       -       2,894       -       2,894  
Other comprehensive income, unrealized holding gains arising during the period (net of tax, $110)
    -       -       -       214       214  
Total comprehensive income
                                    3,108  
Stock option exercises (15,000 shares)
    13       39       -       -       52  
Dividend reinvestment plan (74,721 shares)
    62       354       -       -       416  
Repurchased under share repurchase program (129,878 shares)
    (109 )     (679 )     -       -       (788 )
Cash dividend
    -       -       (211 )     -       (211 )
Stock-based compensation expense recognized in earnings
    -       98       -       -       98  
                                         
Balance, June 30, 2010
  $ 8,765     $ 18,364     $ 43,060     $ 264     $ 70,453  
                                         
Balance, December 31, 2008
  $ 8,551     $ 17,410     $ 31,157     $ 827     $ 57,945  
                                         
Comprehensive income:
                                       
Net income
    -       -       5,434       -       5,434  
Other comprehensive loss, unrealized holding losses arising during the period (net of tax, $201)
    -       -       -       (390 )     (390 )
Total comprehensive income
                                    5,044  
Stock option exercises (148,452 shares)
    124       377       -       -       501  
Dividend reinvestment plan (74,550 shares)
    62       290       -       -       352  
Repurchased under share repurchase program (25,130 shares)
    (21 )     (95 )     -       -       (116 )
Cash dividend
    -       -       (205 )     -       (205 )
Stock-based compensation expense recognized in earnings
    -       98       -       -       98  
                                         
Balance, June 30, 2009
  $ 8,716     $ 18,080     $ 36,386     $ 437     $ 63,619  

See accompanying notes to consolidated financial statements (Unaudited).

 
5

 
 
ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

   
Six Months Ended June 30,
 
   
2010
   
2009
 
Cash Flows from Operating Activities
           
Net income
  $ 2,894     $ 5,434  
Adjustments to reconcile net income to net cash provided by (used in)operating activities:
               
Provision for loan losses
    746       3,429  
Provision for losses on mortgage loans sold
    1,100       2,724  
Net gain/losses on sales and write-down of other real estate owned
    210       525  
Deferred tax benefit (expense)
    34       (1,028 )
Stock-based compensation
    98       98  
Valuation allowance on derivatives
    (574 )     27  
Net amortization on securities
    39       3  
Depreciation and amortization
    226       306  
Changes in assets and liabilities:
               
Valuation of loans held for sale carried at fair value
    (986 )     (723 )
Decrease (increase) in loans held for sale
    11,063       (22,743 )
(Increase) in other assets
    (18,526 )     (3,012 )
(Decrease) increase in other liabilities
    (6,653 )     3,867  
Net cash (used in) operating activities
    (10,329 )     (11,093 )
Cash Flows from Investing Activities
               
Proceeds from maturities and calls of securities available for sale
    45,027       42,489  
Proceeds from sale of securities
    20,163       -  
Purchases of securities available for sale
    (145,069 )     (20,766 )
Net increase (decrease) in loans
    17,156       (22,546 )
Proceeds from sales of other real estate owned
    2,015       -  
Purchases of premises and equipment
    (104 )     (34 )
Net cash (used in) investing activities
    (60,812 )     (857 )
Cash Flows from Financing Activities
               
Net increase in demand, interest bearing demand and savings deposits
    46,903       70,190  
Net increase (decrease) in time deposits
    94,517       (10,685 )
Increase (decrease) in securities sold under agreement to repurchase
    909       (7,888 )
Net (decrease) in other short-term borrowings
    (7,569 )     (35,081 )
Net (decrease) increase in long-term borrowings
    (8,190 )     12,163  
Proceeds from issuance of common stock
    469       852  
Repurchase of common stock
    (788 )     (116 )
Dividends paid
    (211 )     (205 )
Net cash provided by financing activities
    126,040       29,230  
                 
Increase in cash and cash equivalents
    54,899       17,280  
Cash and Cash Equivalents
               
Beginning
    31,221       22,482  
Ending
  $ 86,120     $ 39,762  
Supplemental Disclosures of Cash Flow Information
               
Cash payments for interest
  $ 5,380     $ 7,629  
Cash payments for income taxes
  $ 2,416     $ 3,550  
Supplemental Disclosures of Noncash Investing Activities
               
Unrealized gain (loss) on securities available for sale
  $ 325     $ (590 )

See accompanying notes to consolidated financial statements.

 
6

 

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – COMMENCEMENT OF OPERATIONS

Access National Corporation (the “Corporation”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia.  The Corporation has two wholly-owned subsidiaries, Access National Bank (the “Bank”), which is an independent commercial bank chartered under federal laws as a national banking association, and Access Capital Trust II, which was formed for the purpose of issuing redeemable capital securities.  The Corporation does not have any significant operations and serves primarily as the parent company for the Bank.  The Corporation’s income is primarily derived from dividends received from the Bank. The amount of these dividends is determined by the Bank’s 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 three active wholly-owned subsidiaries: Access National Mortgage Corporation (the “Mortgage Corporation”), a Virginia corporation engaged in mortgage banking activities, 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 Corporation’s headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia and Access Capital Management LLC (“ACM”).   ACM became active in the second quarter of 2010 and provides a full range of wealth management services to individuals.

NOTE 2 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with rules and regulations of the Securities and Exchange Commission (“SEC”).  The statements do not include all of the information and footnotes required by GAAP for complete financial statements. All adjustments have been made which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented.  Such adjustments are all of a normal and recurring nature.  All significant inter-company accounts and transactions have been eliminated in consolidation.  Certain prior period amounts have been reclassified to conform to the current period presentation.   The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2010.  These consolidated financial statements should be read in conjunction with the Corporation’s audited financial statements and the notes thereto as of December 31, 2009, included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Accounting Standards Codification – In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162. This statement modifies the GAAP hierarchy by establishing only two levels of GAAP: authoritative and non-authoritative accounting literature. Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also known collectively as the “Codification,” is considered the single source of authoritative GAAP, except for additional authoritative rules and interpretive releases issued by the SEC. Non-authoritative guidance and literature would include, among other things, FASB Concepts Statements, American Institute of Certified Public Accountants Issue Papers and Technical Practice Aids and accounting textbooks. The Codification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance. It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation. FASB ASC 105-10, Generally Accepted Accounting Principles, became applicable beginning in the third quarter of 2009. All accounting references have been updated, and therefore SFAS references have been replaced with ASC references except for SFAS references that have not been integrated into the codification.

 
7

 

NOTE 3 – STOCK-BASED COMPENSATION PLANS

During the first six months of 2010, the Corporation granted 103,500 stock options to officers, directors, and employees under the 2009 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.  Stock–based compensation expense recognized in other operating expense during the first six months of 2010 and 2009 was approximately $98 thousand. The fair value of options is estimated on the date of grant using a Black Scholes option-pricing model with the assumptions noted below.

A summary of stock option activity under the Plan for the six months ended June 30, 2010 is presented as follows:

   
Six Months Ended
 
   
June 30, 2010
 
       
Expected life of options granted in years
    3.15  
Risk-free interest rate
    1.39 %
Expected volatility of stock
    48 %
Annual expected dividend yield
    1 %
         
Fair value of granted options
  $ 214,552  
Non-vested options
    272,025  

                 
Weighted Avg.
       
                 
Remaining
       
   
Number of
   
Weighted Avg.
   
Contractual Term
   
Aggregate Intrinsic
 
   
Options
   
Exercise Price
   
in Years
   
Value
 
                           
Outstanding at beginning of year
    439,079     $ 6.44       1.56     $ 222,770  
Granted
    103,500     $ 5.97       3.15     $ -  
Exercised
    (15,000 )   $ 3.45       -     $ -  
Lapsed or canceled
    (38,820 )   $ 6.43       0.52     $ -  
                                 
Outstanding at June 30, 2010
    488,759     $ 6.43       1.61     $ 179,517  
                                 
Exercisable at June 30, 2010
    216,734     $ 7.77       0.84     $ -  

   
Six Months Ended
 
   
June 30, 2009
 
       
Expected life of options granted in years
    3.50  
Risk-free interest rate
    1.08 %
Expected volatility of stock
    47 %
Annual expected dividend yield
    1 %
         
Fair value of granted options
  $ 179,771  
Non-vested options
    248,275  

   
 
         
Weighted Avg.
       
               
Remaining
       
   
Number of
   
Weighted Avg.
   
Contractual Term
   
Aggregate Intrinsic
 
   
Options
   
Exercise Price
   
in Years
   
Value
 
                         
Outstanding at beginning of year
    589,617     $ 5.96       1.57     $ 284,885  
Granted
    104,250     $ 4.03       3.09     $ -  
Exercised
    (148,452 )   $ 3.36       0.01     $ -  
Lapsed or canceled
    (42,586 )   $ 7.03       0.92     $ -  
                                 
Outstanding at June 30, 2009
    502,829     $ 6.23       1.85     $ 339,050  
                                 
Exercisable at June 30, 2009
    254,554     $ 6.20       1.49     $ 139,590  

 
8

 
 
NOTE 4 – SECURITIES
 
The following table provides the amortized cost and fair value for the categories of available for sale securities. Available for sale securities are carried at fair value with net unrealized gains or losses reported on an after tax basis as a component of cumulative other comprehensive income in shareholders’ equity. The fair value of securities is impacted by interest rates, credit spreads, market volatility and liquidity.
 
The following table provides the amortized costs and fair values of securities available for sale as of June 30, 2010 and December 31, 2009.

   
June 30, 2010
 
   
Amortized Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
   
(In Thousands)
 
U.S. Government agencies
  $ 120,155     $ 400     $ -     $ 120,555  
Mortgage backed securities
    734       -       (28 )     706  
Municipals - taxable
    470       7       -       477  
CRA mutual fund
    1,500       22       -       1,522  
Restricted stock:
                               
Federal Reserve Bank stock
    894       -       -       894  
FHLB stock
    3,849       -       -       3,849  
    $ 127,602     $ 429     $ (28 )   $ 128,003  

   
December 31, 2009
 
   
Amortized Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
   
(In Thousands)
 
U.S. Government agencies
  $ 40,022     $ 144     $ (12 )   $ 40,154  
Mortgage backed securities
    808       -       (65 )     743  
Municipals - taxable
    690       9       -       699  
CRA mutual fund
    1,500       -       (1 )     1,499  
Restricted stock:
                               
Federal Reserve Bank stock
    894       -       -       894  
FHLB stock
    3,849       -       -       3,849  
    $ 47,763     $ 153     $ (78 )   $ 47,838  
 
 
9

 
 
NOTE 4 – SECURITIES (continued)

The amortized cost and fair value of securities available for sale as of June 30, 2010 and December 31, 2009 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the securities may be called or prepaid without any penalties.

   
June 30, 2010
   
December 31, 2009
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
   
(In Thousands)
   
(In Thousands)
 
U.S. Government agencies
                   
Due in one year or less
  $ 5,060     $ 5,079     $ 5,125     $ 5,145  
Due after one through five years
    55,103       55,296       15,000       15,023  
Due after five through ten years
    54,992       55,179       19,896       19,986  
Due after fifteen years
    5,000       5,001                  
Municipals - taxable
                               
Due after one through five years
    470       477       690       699  
Due after five through ten years
    -       -       -       -  
Mortgage backed securities
                         
Due in one year or less
    -       -       33       33  
Due after one through five years
    -       -       -       -  
Due after fifteen years
    734       706       776       710  
CRA mutual fund
    1,500       1,522       1,500       1,499  
Restricted Stock:
                               
Federal Reserve Bank stock
    894       894       894       894  
FHLB stock
    3,849       3,849       3,849       3,849  
Total
  $ 127,602     $ 128,003     $ 47,763     $ 47,838  
 
 
10

 
 
NOTE 4 – SECURITIES (continued)

Securities available for sale that have an unrealized loss position at June 30, 2010 and December 31, 2009 are as follows:

   
Securities in a loss
   
Securities in a loss
             
   
Position for less than
   
Position for 12 Months
             
   
12 Months
   
or Longer
   
Total
 
 June 30, 2010
 
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available  for sale:
 
(In Thousands)
 
                                     
Mortgage backed securities
  $ -     $ -     $ 706     $ (28 )   $ 706     $ (28 )
Total
  $ -     $ -     $ 706     $ (28 )   $ 706     $ (28 )

   
Securities in a loss
   
Securities in a loss
             
   
Position for less than
   
Position for 12 Months
             
   
12 Months
   
or Longer
   
Total
 
 December 31, 2009
 
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available for sale:
 
(In Thousands)
 
                                     
Mortgage backed securities
  $ -     $ -     $ 710     $ (65 )   $ 710     $ (65 )
U.S. Government agencies
    9,988       (12 )     -       -       9,988       (12 )
CRA mutual fund
    -       -       1,499       (1 )     1,499       (1 )
Total
  $ 9,988     $ (12 )   $ 2,209     $ (66 )   $ 12,197     $ (78 )

Management does not believe that any individual unrealized loss as of June 30, 2010 and December 31, 2009 is other than a temporary impairment.  These unrealized losses are primarily attributable to changes in interest rates.  The Corporation has the ability to hold these securities for a time necessary to recover the amortized cost or until maturity when full repayment would be received.

NOTE 5 – LOANS

The following table presents the composition of the loans held for investment portfolio at June 30, 2010 and December 31, 2009:
 
   
June 30, 2010
   
December 31, 2009
 
   
(In Thousands)
 
             
Commercial real estate
  $ 215,391     $ 220,301  
Residential real estate
    141,389       150,792  
Commercial
    75,595       72,628  
Real estate construction
    35,085       41,508  
Consumer
    1,423       1,335  
Total loans
    468,883       486,564  
Less allowance for loan losses
    9,348       9,127  
Net loans
  $ 459,535     $ 477,437  
 
 
11

 

NOTE 6 – SEGMENT REPORTING

The Corporation has two reportable segments: traditional commercial banking and a mortgage banking segment. Revenues from commercial banking operations consist primarily of interest earned on loans and securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market and loan origination fee income.

The commercial banking segment provides the mortgage banking 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, Access Real Estate LLC and ACM. 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.  ACM is in a start-up phase and its primary source of income is expected to be from fees.

 
12

 
 
NOTE 6 – SEGMENT REPORTING (continued)

The following table presents segment information as of and for the three months ended June 30, 2010 and 2009:

2010
 
Commercial
   
Mortgage
               
Consolidated
 
(In Thousands)
 
Banking
   
Banking
   
Other
   
Eliminations
   
Totals
 
                               
Revenues:
                             
Interest income
  $ 8,414     $ 572     $ 7     $ (335 )   $ 8,658  
Gain on sale of loans
    84       8,314       -       -       8,398  
Other revenues
    795       (1,789 )     293       (420 )     (1,121 )
Total revenues
    9,293       7,097       300       (755 )     15,935  
                                         
Expenses:
                                       
Interest expense
    2,564       281       160       (334 )     2,671  
Salaries and employee benefits
    1,992       3,256       116       -       5,364  
Other
    2,151       2,986       510       (421 )     5,226  
Total operating expenses
    6,707       6,523       786       (755 )     13,261  
                                         
Income (loss) before income taxes
  $ 2,586     $ 574     $ (486 )   $ -     $ 2,674  
                                         
Total assets
  $ 759,398     $ 70,444     $ 46,677     $ (85,949 )   $ 790,570  

2009
 
Commercial
   
Mortgage
               
Consolidated
 
(In Thousands)
 
Banking