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EX-32 - EX-32 - ACCESS NATIONAL CORPv202123_ex32.htm
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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 September 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)
N/A

(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 November 1, 2010 was 10,394,026 shares.

 
 

 
 
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q

INDEX

PART I
FINANCIAL INFORMATION
   
Item 1.
Financial Statements (Unaudited)
 
Consolidated Balance Sheets, September 30, 2010 and December 31, 2009 (Audited)
 
Page 2
 
Consolidated Statements of Income, three months ended September 30, 2010 and 2009
 
Page 3
 
Consolidated Statements of Income, nine months ended September 30, 2010 and 2009
 
Page 4
 
Consolidated Statements of Changes in Shareholders' Equity, nine months ended September 30, 2010 and 2009
 
Page 5
 
Consolidated Statements of Cash Flows, nine months ended September 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 22
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Page 38
Item 4.
Controls and Procedures
 
Page 39
       
PART II
OTHER INFORMATION
   
       
Item 1.
Legal Proceedings
 
Page 39
Item1A.
Risk Factors
 
Page 39
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Page 40
Item 3.
Defaults Upon Senior Securities
 
Page 40
Item 4.
(Removed and Reserved)
 
Page 40
Item 5.
Other Information
 
Page 40
Item 6.
Exhibits
 
Page 41
 
Signatures
 
Page 42

 
- 1 -

 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share Data)
   
September 30,
   
December 31,
 
   
2010
   
2009
 
   
(Unaudited)
       
ASSETS
           
Cash and due from banks
  $ 13,012     $ 5,965  
Interest-bearing deposits in other banks and federal funds sold
    19,493       25,256  
Securities available for sale, at fair value
    148,203       43,095  
Restricted stock
    4,572       4,743  
Loans held for sale, at fair value
    123,048       76,232  
Loans
    478,327       486,564  
Allowance for loan losses
    (9,722 )     (9,127 )
Net loans
    468,605       477,437  
Premises and equipment
    8,552       8,759  
Accrued interest receivable
    2,653       2,409  
Other real estate owned
    3,276       5,111  
Other assets
    13,424       17,872  
Total assets
  $ 800,266     $ 666,879  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Deposits
               
Noninterest-bearing deposits
  $ 87,446     $ 69,782  
Savings and interest-bearing deposits
    160,897       138,988  
Time deposits
    358,614       257,875  
Total deposits
    606,957       466,645  
Other liabilities
               
Short-term borrowings
    69,815       64,249  
Long-term borrowings
    37,587       46,330  
Subordinated debentures
    6,186       6,186  
Other liabilities and accrued expenses
    11,638       15,691  
Total liabilities
  $ 732,183     $ 599,101  
                 
SHAREHOLDERS' EQUITY
               
Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and outstanding, 10,459,826 shares at September 30, 2010 and 10,537,428 shares at December 31, 2009
  $ 8,734     $ 8,799  
Additional paid in capital
    18,207       18,552  
Retained earnings
    45,391       40,377  
Accumulated other comprehensive income, net
    323       50  
Total shareholders' equity
    72,655       67,778  
Total liabilities and shareholders' equity
  $ 804,838     $ 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 September 30,
 
   
2010
   
2009
 
Interest and Dividend Income
           
Interest and fees on loans
  $ 8,190     $ 8,470  
Interest on deposits in other banks
    58       34  
Interest and dividends on securities
    583       712  
Total interest and dividend income
    8,831       9,216  
                 
Interest Expense
               
Interest on deposits
    1,888       2,469  
Interest on short-term borrowings
    155       310  
Interest on long-term borrowings
    372       469  
Interest on subordinated debentures
    57       57  
Total interest expense
    2,472       3,305  
                 
Net interest income
    6,359       5,911  
Provision for loan losses
    575       1,387  
Net interest income after provision for loan losses
    5,784       4,524  
                 
Noninterest Income
               
Service fees on deposit accounts
    164       137  
Gain on sale of loans
    10,457       9,928  
Mortgage broker fee income
    430       244  
Other income (loss)
    (641 )     614  
Total noninterest income
    10,410       10,923  
                 
Noninterest Expense
               
Salaries and employee benefits
    5,979       6,010  
Occupancy and equipment
    613       615  
Other operating expenses
    5,677       5,408  
Total noninterest expense
    12,269       12,033  
                 
Income before income taxes
    3,925       3,414  
                 
Income tax expense
    1,489       1,260  
NET INCOME
  $ 2,436     $ 2,154  
                 
Earnings per common share:
               
Basic
  $ 0.23     $ 0.21  
Diluted
  $ 0.23     $ 0.21  
                 
Average outstanding shares:
               
Basic
    10,474,543       10,451,416  
Diluted
    10,495,734       10,486,755  

See accompanying notes to consolidated financial statements (Unaudited).

 
- 3 -

 


ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)
   
Nine Months Ended September 30,
 
   
2010
   
2009
 
Interest and Dividend Income
           
Interest and fees on loans
  $ 24,039     $ 25,918  
Interest on deposits in other banks
    172       112  
Interest and dividends on securities
    1,537       2,553  
Total interest and dividend income
    25,748       28,583  
                 
Interest Expense
               
Interest on deposits
    5,905       8,287  
Interest on short-term borrowings
    615       958  
Interest on long-term borrowings
    1,135       1,460  
Interest on subordinated debentures
    162       185  
Total interest expense
    7,817       10,890  
                 
Net interest income
    17,931       17,693  
Provision for loan losses
    1,321       4,816  
Net interest income after provision for loan losses
    16,610       12,877  
                 
Noninterest Income
               
Service fees on deposit accounts
    490       401  
Gain on sale of loans
    24,095       38,267  
Mortgage broker fee income
    1,162       573  
Other income (loss)
    (2,037 )     4,894  
Total noninterest income
    23,710       44,135  
                 
Noninterest Expense
               
Salaries and employee benefits
    16,595       21,444  
Occupancy and equipment
    1,943       1,895  
Other operating expenses
    13,276       21,123  
Total noninterest expense
    31,814       44,462  
                 
Income before income taxes
    8,506       12,550  
                 
Income tax expense
    3,176       4,962  
NET INCOME
  $ 5,330     $ 7,588  
                 
Earnings per common share:
               
Basic
  $ 0.51     $ 0.73  
Diluted
  $ 0.50     $ 0.73  
                 
Average outstanding shares:
               
Basic
    10,539,924       10,354,897  
Diluted
    10,559,122       10,400,753  

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
    -       -       5,330       -       5,330  
Other comprehensive income, unrealized holding gains arising during the period (net of tax, $141)
    -       -       -       273       273  
Total comprehensive income
                                    5,603  
Stock option exercises (15,000 shares)
    13       39       -       -       52  
Dividend reinvestment plan (74,721 shares)
    62       355       -       -       417  
Repurchased under share repurchase program (167,323 shares)
    (140 )     (875 )     -       -       (1,015 )
Cash dividend
    -       -       (316 )     -       (316 )
Stock-based compensation expense recognized in earnings
    -       136       -       -       136  
 
                                       
Balance, September 30, 2010
  $ 8,734     $ 18,207     $ 45,391     $ 323     $ 72,655  
                                         
Balance, December 31, 2008
  $ 8,551     $ 17,410     $ 31,157     $ 827     $ 57,945  
                                         
Comprehensive income:
                                       
Net income
    -       -       7,588       -       7,588  
Other comprehensive loss, unrealized holding losses arising during the period (net of tax, $179)
    -       -       -       (347 )     (347 )
Total comprehensive income
                                    7,241  
Stock option exercises (163,452 shares)
    136       415       -       -       551  
Dividend reinvestment plan (103,938 shares)
    87       440       -       -       527  
Repurchased under share repurchase program (25,130 shares)
    (21 )     (94 )     -       -       (115 )
Cash dividend
    -       -       (310 )     -       (310 )
Stock-based compensation expense recognized in earnings
    -       130       -       -       130  
                                         
Balance, September 30, 2009
  $ 8,753     $ 18,301     $ 38,435     $ 480     $ 65,969  

See accompanying notes to consolidated financial statements (Unaudited).

 
- 5 -

 

ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
   
Nine Months Ended September 30,
 
   
2010
   
2009
 
Cash Flows from Operating Activities
           
Net income
  $ 5,330     $ 7,588  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Provision for loan losses
    1,321       4,816  
Provision for losses on mortgage loans sold
    2,400       3,349  
Net gains/losses on sales and write-down of other real estate owned
    1,315       883  
Gain on sale of securities
    (186 )     (984 )
Deferred tax benefit
    (79 )     (1,008 )
Stock-based compensation
    136       130  
(Decrease) increase in valuation allowance on derivatives
    (680 )     176  
Amortization of premiums on securities
    105       38  
Depreciation and amortization
    336       443  
Loss on disposal of assets
    6       2  
Changes in assets and liabilities:
               
(Decrease) increase in valuation of loans held for sale carried at fair value
    (2,822 )     1,708  
(Increase) decrease in loans held for sale
    (43,994 )     22,204  
Decrease in other assets
    4,711       1,290  
Decrease in other liabilities
    (6,356 )     (4,140 )
Net cash  (used in) provided by operating activities
    (38,457 )     36,495  
Cash Flows from Investing Activities
               
Proceeds from maturities and calls of securities available for sale
    90,222       43,705  
Proceeds from sale of securities
    20,186       5,023  
Purchases of securities available for sale
    (214,849 )     (30,766 )
Net increase (decrease) in loans
    4,226       (7,689 )
Proceeds from sale of equipment
    -       23  
Proceeds from sales of other real estate owned
    3,805       350  
Purchases of premises and equipment
    (122 )     (37 )
Net cash (used in) provided by investing activities
    (96,532 )     10,609  
Cash Flows from Financing Activities
               
Net increase in demand, interest-bearing demand and savings deposits
    39,573       42,021  
Net increase (decrease) in time deposits
    100,740       (14,679 )
Increase (decrease) in securities sold under agreement to repurchase
    10,129       (13,080 )
Net decrease in other short-term borrowings
    (4,564 )     (34,809 )
Net (decrease) increase in long-term borrowings
    (8,743 )     6,193  
Proceeds from issuance of common stock
    469       1,078  
Repurchase of common stock
    (1,015 )     (116 )
Dividends paid
    (316 )     (310 )
Net cash provided by (used in) financing activities
    136,273       (13,702 )
                 
Increase in cash and cash equivalents
    1,284       33,402  
Cash and Cash Equivalents
               
Beginning
    31,221       22,482  
Ending
  $ 32,505     $ 55,884  
Supplemental Disclosures of Cash Flow Information
               
Cash payments for interest
  $ 7,796     $ 10,714  
Cash payments for income taxes
  $ 2,822     $ 7,112  
Supplemental Disclosures of Noncash Investing Activities
               
Unrealized gain (loss) on securities available for sale
  $ 414     $ (526 )
Transfers of loans held for investment to other real estate owned
  $ 3,285     $ 441  

See accompanying notes to consolidated financial statements (Unaudited).

 
- 6 -

 

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – COMMENCEMENT OF OPERATIONS

Access National Corporation (the “Corporation”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia.  The Corporation has 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, is a Virginia 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”), a Virginia limited liability company.   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 nine months ended September 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 nine 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 nine months of 2010 and 2009 was approximately $136 thousand and $130 thousand respectively. 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 nine months ended September 30, 2010 and September 30, 2009 is presented as follows:

   
Nine Months Ended
 
   
September 30, 2010
 
       
Expected life of options granted in years
    2.90  
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
    200,950  

                 
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       2.90     $ -  
Exercised
    (15,000 )   $ 3.45       -     $ -  
Lapsed or canceled
    (107,220 )   $ 8.24       0.26     $ -  
                                 
Outstanding at September 30, 2010
    420,359     $ 5.97       1.58     $ 195,371  
                                 
Exercisable at September 30, 2010
    219,409     $ 6.81       0.88     $ 50  

   
Nine Months Ended
 
   
September 30, 2009
 
       
Expected life of options granted in years
    2.84  
Risk-free interest rate
    1.09 %
Expected volatility of stock
    47 %
Annual expected dividend yield
    1 %
         
Fair value of granted options
  $ 182,921  
Non-vested options
    181,675  

                 
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
    105,750     $ 4.06       2.84     $ -  
Exercised
    (163,452 )   $ 3.37       0.06     $ -  
Lapsed or canceled
    (53,836 )   $ 6.85       0.74     $ -  
                                 
Outstanding at September 30, 2009
    478,079     $ 6.32       1.67     $ 329,279  
                                 
Exercisable at September 30, 2009
    296,404     $ 7.10       1.22     $ 102,233  

 
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 September 30, 2010 and December 31, 2009.

   
September 30, 2010
 
   
Amortized Cost
   
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Estimated
Fair Value
 
   
(In Thousands)
 
U.S. Government agencies
  $ 145,036     $ 526     $ (60 )   $ 145,502  
Mortgage backed securities
    706       9       -       715  
Municipals - taxable
    470       6       -       476  
CRA mutual fund
    1,500       10       -       1,510  
    $ 147,712     $ 551     $ (60 )   $ 148,203  

   
December 31, 2009
 
   
Amortized Cost
   
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Estimated
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  
    $ 43,020     $ 153     $ (78 )   $ 43,095  

 
9

 

NOTE 4 – SECURITIES (continued)

The amortized cost and fair value of securities available for sale as of September 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.

   
September 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
  $ 10,027     $ 10,068     $ 5,125     $ 5,145  
Due after one through five years
    45,080       45,234       15,000       15,023  
Due after five through ten years
    74,949       75,141       19,896       19,986  
Due after ten through  fifteen years
    14,980       15,059       -       -  
Municipals - taxable
                               
Due after one through five years
    470       476       690       699  
Mortgage backed securities
                               
Due in one year or less
    -       -       33       33  
Due after fifteen years
    706       715       776       710  
CRA Mutual Fund
    1,500       1,510       1,500       1,499  
Total
  $ 147,712     $ 148,203     $ 43,020     $ 43,095  

 
10

 

NOTE 4 – SECURITIES (continued)

Securities available for sale that have an unrealized loss position at September 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
 
 September 30, 2010
 
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available for sale:
 
(In Thousands)
 
                                     
U.S. Government agencies
  $ 4,926     $ (60 )   $ -     $ -     $ 4,926     $ (60 )
Total
  $ 4,926     $ (60 )   $ -     $ -     $ 4,926     $ (60 )

   
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 September 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 September 30, 2010 and December 31, 2009:

   
Composition of Loan Portfolio
 
   
( In Thousands)
 
   
September 30, 2010
   
December 31, 2009
 
   
Amount
   
Percentage of
Total
   
Amount
   
Percentage of
Total
 
                         
Commercial real estate
  $ 223,574       46.74 %   $ 220,301       45.28 %
Residential real estate
    137,745       28.80       150,792       30.99  
Commercial
    78,556       16.42       72,628       14.93  
Real estate construction
    37,066       7.75       41,508       8.53  
Consumer and other
    1,386       0.29       1,335       0.27  
Total loans
  $ 478,327       100.00 %   $ 486,564       100.00 %
Less allowance for loan losses
    9,722               9,127          
Net loans   $ 468,605             $ 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.

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

2010
 
Commercial
   
Mortgage
               
Consolidated
 
(In Thousands)
 
Banking
   
Banking
   
Other
   
Elimination
   
Totals
 
                               
Revenues:
                             
Interest income
  $ 8,497     $ 840     $ 3     $ (509 )   $ 8,831  
Gain on sale of loans
    185       10,272       -       -       10,457  
Other revenues
    935       (847 )     280       (415 )     (47 )
Total revenues
    9,617       10,265       283       (924 )     19,241  
                                         
Expenses:
                                       
Interest expense
    2,354       461       167       (510 )     2,472  
Salaries and employee benefits
    2,143       3,735       101       -       5,979  
Other
    2,692       4,129       458       (414 )     6,865  
Total operating expenses
    7,189       8,325       726       (924 )     15,316  
                                         
Income (loss) before income taxes
  $ 2,428     $ 1,940     $ (443 )   $ -     $ 3,925  
                                         
Total assets
  $ 763,756     $ 127,443     $ 45,982     $ (132,343 )   $ 804,838  

2009
 
Commercial
   
Mortgage
               
Consolidated
 
(In Thousands)
 
Banking
   
Banking
   
Other
   
Elimination
   
Totals
 
                               
Revenues:
                             
Interest income
  $ 8,853     $ 719     $ 10     $ (366 )   $ 9,216  
Gain on sale of loans
    401       9,527       -       -       9,928  
Other revenues
    567       551       291       (414 )     995  
Total revenues
    9,821       10,797       301       (780 )     20,139  
                                         
Expenses:
                                       
Interest expense
    3,217       287       168       (367 )     3,305  
Salaries and employee benefits
    1,967       4,043       -       -       6,010  
Other
    3,241       4,136       446       (413 )     7,410  
Total operating expenses
    8,425       8,466       614       (780 )     16,725  
                                         
Income (loss) before income taxes
  $ 1,396     $ 2,331     $ (313 )   $ -     $ 3,414  
                                         
Total assets
  $ 662,073     $ 63,322     $ 46,405     $ (76,597 )   $ 695,203  

 
12

 

NOTE 6 – SEGMENT REPORTING (continued)

The following table presents segment information for the nine months ended September 30, 2010 and 2009:

2010
 
Commercial
   
Mortgage
               
Consolidated
 
(In Thousands)
 
Banking
   
Banking
   
Other
   
Eliminations
   
Totals
 
                               
Revenues:
                             
Interest income
    24,977     $ 1,801     $ 25     $ (1,055 )   $ 25,748  
Gain on sale of loans
    269       23,826       -       -       24,095  
Other revenues
    2,123       (2,121 )     866       (1,255 )     (387 )
Total revenues
    27,369       23,506       891       (2,310 )     49,456  
                                         
Expenses:
                                       
Interest expense
    7,506       880       487       (1,056 )     7,817  
Salaries and employee benefits
    6,512       9,866       217       -       16,595  
Other
    6,877       9,469       1,448       (1,254 )     16,540  
Total operating expenses
    20,895       20,215       2,152       (2,310 )     40,952  
                                         
Income (loss) before income taxes
  $ 6,474     $ 3,291     $ (1,261 )   $ -     $ 8,504  
                                         
Total assets
  $ 763,756     $ 127,443     $ 45,982     $ (132,343 )   $ 804,838  

2009
 
Commercial
   
Mortgage
               
Consolidated
 
(In Thousands)
 
Banking