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, 2006
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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
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
1800 Robert Fulton Drive, Suite 310, Reston, Virginia 20191
(Address of principal executive office) (Zip Code)
(703) 871-2100
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act) o Yes þ No
The number of shares outstanding of Access National Corporations common stock, par value $.835, as
of May 8, 2006 was 8,101,462 shares.
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q
INDEX
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PART I
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FINANCIAL INFORMATION |
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Item 1.
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Financial Statements |
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Consolidated Balance Sheets March 31, 2006 (Unaudited) and December 31, 2005
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Page 2 |
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Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2006 and 2005
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Page 3 |
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Consolidated Statements of Shareholders Equity (Unaudited) Three Months Ended March 31, 2006 and 2005
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Page 4 |
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Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2006 and 2005
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Page 5 |
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Notes to Consolidated Financial Statements (Unaudited)
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Page 6 |
Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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Page 16 |
Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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Page 29 |
Item 4.
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Controls and Procedures
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Page 30 |
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PART II
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OTHER INFORMATION |
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Item 1.
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Legal Proceedings
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Page 31 |
Item 1A.
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Risk Factors
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Page 31 |
Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Page 31 |
Item 3.
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Defaults Upon Senior Securities
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Page 31 |
Item 4.
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Submission of Matters to a Vote of Security Holders
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Page 31 |
Item 5.
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Other Information
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Page 31 |
Item 6.
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Exhibits
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Page 32 |
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Signatures
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Page 33 |
- 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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2006 |
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2005 |
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(Unaudited) |
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ASSETS |
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Cash and due from banks |
|
$ |
12,884 |
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$ |
9,854 |
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Interest bearing deposits in other banks |
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3,475 |
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13,329 |
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Securities available for sale, at fair value |
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110,243 |
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87,771 |
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Loans held for sale |
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70,635 |
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45,019 |
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Loans, net of allowance for loan losses of $5,339 and $5,215 respectively |
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378,268 |
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364,518 |
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Premises and equipment |
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9,656 |
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|
9,650 |
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Other assets |
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7,317 |
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6,909 |
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Total assets |
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$ |
592,478 |
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$ |
537,050 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Deposits |
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Non-interest bearing deposits |
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$ |
86,037 |
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$ |
81,034 |
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Savings and interest-bearing deposits |
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138,651 |
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149,094 |
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Time deposits |
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198,424 |
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189,501 |
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Total deposits |
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423,112 |
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419,629 |
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Other liabilities |
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Short-term borrowings |
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101,767 |
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48,196 |
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Long-term borrowings |
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20,732 |
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21,786 |
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Subordinated debentures |
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10,311 |
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10,311 |
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Other liabilities |
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3,511 |
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5,943 |
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Total liabilities |
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559,433 |
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505,865 |
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SHAREHOLDERS EQUITY |
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Common stock, par value, $0.835; authorized, 60,000,000 shares;
issued and outstanding, 8,100,724 shares in 2006 and 7,956,556
shares in 2005 |
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6,764 |
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|
6,644 |
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Surplus |
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|
9,427 |
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|
9,099 |
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Retained earnings |
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|
17,810 |
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|
16,227 |
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Accumulated other comprehensive income (loss), net |
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(956 |
) |
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(785 |
) |
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Total shareholders equity |
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33,045 |
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31,185 |
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Total liabilities and shareholders equity |
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$ |
592,478 |
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$ |
537,050 |
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See accompanying notes to consolidated financial statements (Unaudited).
- 2 -
ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except for Share Data)
(Unaudited)
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Three Months Ended March 31, |
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2006 |
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2005 |
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Interest and Dividend Income |
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Interest and fees on loans |
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$ |
7,495 |
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$ |
5,060 |
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Interest on deposits in other banks |
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|
99 |
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66 |
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Interest and dividends on securities |
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1,051 |
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493 |
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Total interest and dividend income |
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8,645 |
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5,619 |
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Interest Expense |
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Interest on deposits |
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3,299 |
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1,807 |
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Interest on short-term borrowings |
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|
846 |
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|
219 |
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Interest on long-term borrowings |
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202 |
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|
252 |
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Interest on subordinated debentures |
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201 |
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157 |
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Total interest expense |
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4,548 |
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|
2,435 |
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Net interest income |
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4,097 |
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|
3,184 |
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Provision for loan losses |
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124 |
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114 |
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Net interest income after
provision for loan losses |
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3,973 |
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|
3,070 |
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Noninterest Income |
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Service fees on deposit accounts |
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74 |
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|
34 |
|
Gain on sale of loans |
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5,115 |
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|
4,634 |
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Mortgage broker fee income |
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|
866 |
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|
931 |
|
Other income |
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|
48 |
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|
554 |
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Total noninterest income |
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|
6,103 |
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|
6,153 |
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Noninterest Expense |
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Salaries and employee benefits |
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4,706 |
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|
4,563 |
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Occupancy and equipment |
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|
526 |
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|
536 |
|
Other operating expenses |
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|
2,384 |
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|
2,556 |
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Total noninterest expense |
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|
7,616 |
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|
7,655 |
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|
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|
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Income before income taxes |
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|
2,460 |
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|
1,568 |
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Income tax expense |
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|
837 |
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|
533 |
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NET INCOME |
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$ |
1,623 |
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|
$ |
1,035 |
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Earnings per common share: |
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Basic |
|
$ |
0.20 |
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|
$ |
0.13 |
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Diluted |
|
$ |
0.17 |
|
|
$ |
0.11 |
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|
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Average outstanding shares: |
|
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|
|
|
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Basic |
|
|
8,018,133 |
|
|
|
7,917,998 |
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Diluted |
|
|
9,658,239 |
|
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|
9,345,524 |
|
See accompanying notes to consolidated financial statements (Unaudited).
- 3 -
ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For the Three Months Ended March 31, 2006 and 2005
(In Thousands)
(Unaudited)
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Accumulated |
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|
|
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|
|
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|
|
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Other |
|
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|
|
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|
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Common |
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Retained |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
|
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|
Stock |
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|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Income |
|
|
Total |
|
Balance, December 31, 2005 |
|
$ |
6,644 |
|
|
$ |
9,099 |
|
|
$ |
16,227 |
|
|
$ |
(785 |
) |
|
$ |
|
|
|
$ |
31,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income |
|
|
|
|
|
|
|
|
|
|
1,623 |
|
|
|
|
|
|
|
1,623 |
|
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other comprehensive income (loss),
unrealized holdings losses arising
during the period, net of tax $88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171 |
) |
|
|
(171 |
) |
|
|
(171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividend |
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
(40 |
) |
Common Stock issued for exercise
of warrants, shares
|
|
|
120 |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2006 |
|
$ |
6,764 |
|
|
$ |
9,427 |
|
|
$ |
17,810 |
|
|
$ |
(956 |
) |
|
|
|
|
|
$ |
33,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
$ |
6,608 |
|
|
$ |
9,067 |
|
|
$ |
10,330 |
|
|
$ |
(7 |
) |
|
$ |
|
|
|
$ |
25,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
1,035 |
|
|
|
|
|
|
|
1,035 |
|
|
|
1,035 |
|
|
Other comprehensive income (loss),
unrealized holdings losses arising
during the period, net of tax $242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(471 |
) |
|
|
(471 |
) |
|
|
(471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued for exercise of
warrants, shares |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2005 |
|
$ |
6,612 |
|
|
$ |
9,071 |
|
|
$ |
11,365 |
|
|
$ |
(478 |
) |
|
|
|
|
|
$ |
26,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements (Unaudited).
- 4 -
ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In Thousands) |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,623 |
|
|
$ |
1,035 |
|
Adjustments to reconcile net income to net cash (used in)
operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
124 |
|
|
|
114 |
|
Deferred tax (benefit) |
|
|
(77 |
) |
|
|
|
|
Stock Based Compensation |
|
|
18 |
|
|
|
|
|
Gain (loss) on derivatives |
|
|
(28 |
) |
|
|
26 |
|
Net amortization (accretion) on securities |
|
|
(1 |
) |
|
|
1 |
|
Depreciation and amortization |
|
|
197 |
|
|
|
167 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in loans held for sale |
|
|
(25,380 |
) |
|
|
(12,572 |
) |
(Increase) decrease in other assets |
|
|
(232 |
) |
|
|
(818 |
) |
Increase (decrease) in other liabilities |
|
|
(2,432 |
) |
|
|
372 |
|
|
|
|
|
|
|
|
Net cash (used in) operating activities |
|
|
(26,188 |
) |
|
|
(11,675 |
) |
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls of securities available for sale |
|
|
1,657 |
|
|
|
4,127 |
|
Purchases of securities available for sale |
|
|
(24,387 |
) |
|
|
(10,169 |
) |
Net (increase) in loans |
|
|
(14,110 |
) |
|
|
(5,861 |
) |
Purchases of premises and equipment |
|
|
(186 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(37,026 |
) |
|
|
(11,947 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in demand, interest-bearing demand and savings deposits
|
|
|
(5,439 |
) |
|
|
46,877 |
|
Net increase (decrease) in time deposits |
|
|
8,922 |
|
|
|
2,332 |
|
Net increase (decrease) in securities sold under agreement to repurchase |
|
|
250 |
|
|
|
(2,364 |
) |
Net increase (decrease) in short-term borrowings |
|
|
54,321 |
|
|
|
(19,496 |
) |
Net increase (decrease) in long term borrowings |
|
|
(2,054 |
) |
|
|
(1,054 |
) |
Proceeds from issuance of common stock |
|
|
430 |
|
|
|
7 |
|
Dividends Paid |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
56,390 |
|
|
|
26,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(6,824 |
) |
|
|
2,680 |
|
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
Beginning |
|
|
23,183 |
|
|
|
30,532 |
|
|
|
|
|
|
|
|
Ending |
|
$ |
16,359 |
|
|
$ |
33,212 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
4,530 |
|
|
$ |
2,430 |
|
|
|
|
|
|
|
|
Cash payments for income taxes |
|
$ |
1,477 |
|
|
$ |
815 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Investing Activities |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities available for sale |
|
|
(259 |
) |
|
|
(713 |
) |
See accompanying notes to consolidated financial statements (Unaudited).
- 5 -
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 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.
Access National Bank opened for business on December 1, 1999 and has four wholly-owned
subsidiaries: Access National Mortgage Corporation (the Mortgage Corporation) and United First
Mortgage Corporation (UFM), both Virginia corporations 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 Banks commercial lending department. Access Real Estate LLC
is a limited liability corporation established in July, 2003 for the purpose of holding title to
the Corporations headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia.
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.
In August 2004, Access National Bank acquired all of the common stock of UFM. The acquisition of
UFM gave the company a new location in the Richmond, Virginia market plus entry into the
Fredericksburg and Staunton markets. The new locations became branch offices of the Mortgage
Corporation.
In July 2005 Access Real Estate LLC purchased an unimproved commercial building lot in Spotsylvania
County, Virginia where the Corporation is contemplating the construction of a combined banking and
mortgage center.
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, 2006 are not
necessarily indicative of the results that may be expected for the entire year ending December 31,
2006. These consolidated financial statements should be read in conjunction with the Corporations
audited financial statements and the notes thereto as of December 31, 2005, included in the
Corporations Annual Report for the fiscal year ended December 31, 2005.
- 6 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 STOCK BASED COMPENSATION PLANS
Stock-Based Compensation Plans - On January 1, 2006, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which
requires the measurement and recognition of compensation expense for all stock-based awards made to
employees based on estimated fair values. SFAS No. 123(R) supersedes previous accounting under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees for
periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin (SAB)
No. 107, providing supplemental implementation guidance for SFAS 123(R). The Company has applied
the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).
SFAS No. 123(R) requires companies to estimate the fair value of stock-based awards on the date of
grant using an option pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite service periods. The Company adopted
SFAS No. 123(R) using the modified prospective application, which requires the application of the
standard starting from January 1, 2006, the first day of the current fiscal year.
The Companys condensed consolidated financial statements for the three months ended March 31, 2006
reflect the impact of SFAS No. 123(R). Stock-based compensation expense related to employee stock
options recognized under SFAS No. 123(R) for the three months ended March 31, 2006 was $18 thousand
and is included in other operating expenses. The total income tax benefit recognized for
share-based compensation arrangements for the three months ended March 31, 2006 was $6 thousand. As
of March 31, 2006, total unamortized stock-based compensation cost related to non-vested stock
options was $99 thousand, net of expected forfeitures, which is expected to be recognized over a
weighted-average period of 0.95 years.
Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees
using the intrinsic value method in accordance with APB No. 25, as allowed under SFAS No. 123,
Accounting for Stock-Based Compensation. Under the intrinsic value method, no stock-based
compensation expense for employee stock options had been recognized in the Companys consolidated
statements of operations because the exercise price of the Companys stock options granted to
employees equaled the fair market value of the underlying stock at the date of grant. In accordance
with the modified prospective transition method the Company used in adopting SFAS No. 123(R), the
Companys results of operations prior to fiscal 2006 have not been restated to reflect, and do not
include, the impact of SFAS No. 123(R).
Stock-based compensation expense recognized during a period is based on the value of the portion of
stock-based awards that is ultimately expected to vest during the period. Stock-based compensation
expense recognized in the three months ended March 31, 2006 included compensation expense for
stock-based awards granted prior to, but not yet vested as of December 31, 2005, based on the fair
value on the grant date estimated in accordance with the pro forma provisions of SFAS No. 123. As
stock-based compensation expense recognized for the first quarter of fiscal 2006 is based on awards
ultimately expected to vest, it has been reduced for forfeitures.
The following table illustrates the pro forma net income and earnings per share for the three
months ended March 31, 2005 as if compensation expense for stock options issued to employees had
been determined consistent with SFAS No. 123:
- 7 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
STOCK BASED COMPENSATION PLANS
|
|
|
|
|
|
|
Three Month Period |
|
|
|
Ended March 31, |
|
|
|
2005 |
|
|
|
(In Thousands Except |
|
|
|
for Share Data) |
|
Net Income, as reported |
|
$ |
1,035 |
|
|
|
|
|
|
Total stock-based compensation
determined under fair value based method
for all awards, net of realized tax effects |
|
$ |
(159 |
) |
|
|
|
|
|
|
|
|
|
Pro-forma Net Income |
|
$ |
|
|
|
|
|
876 |
|
|
|
|
|
|
|
|
|
|
Earnings per Share: |
|
|
|
|
Basic as reported |
|
$ |
0.13 |
|
|
|
|
|
Basic pro forma |
|
$ |
0.11 |
|
|
|
|
|
Diluted as reported |
|
$ |
0.11 |
|
|
|
|
|
Diluted pro forma |
|
$ |
0.10 |
|
|
|
|
|
- 8 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 SECURITIES
Amortized costs and fair values of securities available for sale as of March 31, 2006 and December
31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
|
(In Thousands) |
U.S. Treasury Securities |
|
$ |
1,602 |
|
|
$ |
|
|
|
$ |
(2 |
) |
|
$ |
1,600 |
|
U.S. Government Agencies |
|
|
96,335 |
|
|
|
|
|
|
|
(1,292 |
) |
|
|
95,043 |
|
Mortgage Backed Securities |
|
|
1,309 |
|
|
|
1 |
|
|
|
(4 |
) |
|
|
1,306 |
|
Tax Exempt Municipals |
|
|
2,895 |
|
|
|
|
|
|
|
(45 |
) |
|
|
2,850 |
|
Taxable Municipals |
|
|
1,500 |
|
|
|
|
|
|
|
(55 |
) |
|
|
1,445 |
|
Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(52 |
) |
|
|
1,448 |
|
Restricted Securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
720 |
|
FHLB Stock |
|
|
5,831 |
|
|
|
|
|
|
|
|
|
|
|
5,831 |
|
|
|
|
Total Securities |
|
$ |
111,692 |
|
|
$ |
1 |
|
|
$ |
(1,450 |
) |
|
$ |
110,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
|
Cost |
|
Gains |
|
(Losses) |
|
Fair Value |
|
|
( In Thousands) |
U.S. Treasury Notes |
|
$ |
1,606 |
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
1,602 |
|
U.S. Governmental Agencies |
|
|
76,329 |
|
|
|
|
|
|
|
(1,069 |
) |
|
|
75,260 |
|
Mortgage Backed Securities |
|
|
1,392 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
1,393 |
|
Tax Exempt Municipals |
|
|
2,895 |
|
|
|
|
|
|
|
(55 |
) |
|
|
2,840 |
|
Taxable Municipals |
|
|
1,500 |
|
|
|
|
|
|
|
(34 |
) |
|
|
1,466 |
|
Mutual Fund |
|
|
1,500 |
|
|
|
|
|
|
|
(29 |
) |
|
|
1,471 |
|
Restricted Stock -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank Stock |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
300 |
|
FHLB Stock |
|
|
3,439 |
|
|
|
|
|
|
|
|
|
|
|
3,439 |
|
|
|
|
Total Securities |
|
$ |
88,961 |
|
|
$ |
3 |
|
|
$ |
(1,193 |
) |
|
$ |
87,771 |
|
|
|
|
- 9 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
The amortized cost and fair value of securities available for sale as of March 31, 2006 and
December 31, 2005 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, 2006 |
|
|
December 31, 2005 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
(In Thousands) |
|
|
(In Thousands) |
|
US Treasury & Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
15,625 |
|
|
$ |
15,488 |
|
|
$ |
3,606 |
|
|
$ |
3,570 |
|
Due after one through five years |
|
|
80,814 |
|
|
|
79,694 |
|
|
|
72,831 |
|
|
|
71,808 |
|
Due after five through ten years |
|
|
1,498 |
|
|
|
1,461 |
|
|
|
1,498 |
|
|
|
1,484 |
|
Municipals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after five through ten years |
|
|
3,880 |
|
|
|
3,783 |
|
|
|
3,880 |
|
|
|
3,796 |
|
Due after ten through fifteen years |
|
|
515 |
|
|
|
512 |
|
|
|
515 |
|
|
|
510 |
|
Mortgage Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one through five years |
|
|
1,309 |
|
|
|
1,306 |
|
|
|
1,392 |
|
|
|
1,393 |
|
Mutual Fund |
|
|
1,500 |
|
|
|
1,448 |
|
|
|
1,500 |
|
|
|
1,471 |
|
Restricted Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank stock |
|
|
720 |
|
|
|
720 |
|
|
|
300 |
|
|
|
300 |
|
FHLB stock |
|
|
5,831 |
|
|
|
5,831 |
|
|
|
3,439 |
|
|
|
3,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
111,692 |
|
|
$ |
110,243 |
|
|
$ |
88,961 |
|
|
$ |
87,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Investment securities available for sale that have an unrealized loss position at March 31, 2006
and December 31, 2006 are detailed below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
|
|
Securities in a loss |
|
|
Securities in a loss |
|
|
|
|
|
|
Position for less than |
|
|
Position for 12 Months |
|
|
|
|
|
|
12 Months |
|
|
or Longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
(In Thousands) |
|
Investment securities available
for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Security |
|
$ |
1,600 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,600 |
|
|
$ |
(2 |
) |
Mortgage Backed Security |
|
|
1,016 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
1,016 |
|
|
|
(4 |
) |
U.S. Government Agencies |
|
|
20,261 |
|
|
|
(223 |
) |
|
|
69,781 |
|
|
|
(1,069 |
) |
|
|
90,042 |
|
|
|
(1,292 |
) |
Municipals-Taxable |
|
|
1,446 |
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
1,446 |
|
|
|
(55 |
) |
Municipals-Tax Exempt |
|
|
1,463 |
|
|
|
(14 |
) |
|
|
1,386 |
|
|
|
(31 |
) |
|
|
2,849 |
|
|
|
(45 |
) |
CRA Mutual Fund |
|
|
1,448 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
1,448 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,234 |
|
|
$ |
(350 |
) |
|
$ |
71,167 |
|
|
$ |
(1,100 |
) |
|
$ |
98,401 |
|
|
$ |
(1,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
|
Securities in a loss |
|
|
Securities in a loss |
|
|
|
|
|
|
Position for less than |
|
|
Position for 12 Months |
|
|
|
|
|
|
12 Months |
|
|
or Longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
(In Thousands) |
|
Investment securities available
for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Security |
|
$ |
1,602 |
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,602 |
|
|
$ |
(4 |
) |
Mortgage Backed Security |
|
|
485 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
485 |
|
|
|
(2 |
) |
U.S. Government Agencies |
|
|
28,950 |
|
|
|
(377 |
) |
|
|
29,309 |
|
|
|
(691 |
) |
|
|
58,259 |
|
|
|
(1,068 |
) |
Municipals-Taxable |
|
|
1,465 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
1,465 |
|
|
|
(35 |
) |
Municipals-Tax Exempt |
|
|
2,840 |
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
2,840 |
|
|
|
(55 |
) |
CRA Mutual Fund |
|
|
1,471 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
1,471 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36,813 |
|
|
$ |
(502 |
) |
|
$ |
29,309 |
|
|
$ |
(691 |
) |
|
$ |
66,122 |
|
|
$ |
(1,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management does not believe that any individual unrealized loss as of March 31, 2006 and
December 31, 2005 represents other than temporary impairment. These unrealized losses are primarily
attributable to changes in interest rates. The Corporation has the ability to hold these securities
for a time necessary to recover the amortized cost or until maturity when full repayment would be
received.
- 11 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 LOANS
The following table presents the composition of the loan portfolio at March 31, 2006 and December
31, 2005.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
|
(In Thousands) |
|
Commercial and
Industrial loans |
|
$ |
43,751 |
|
|
$ |
38,516 |
|
Real Estate Non-Residential |
|
|
143,461 |
|
|
|
137,423 |
|
Real Estate Construction |
|
|
37,463 |
|
|
|
37,054 |
|
Real Estate Residential |
|
|
157,732 |
|
|
|
156,185 |
|
Consumer loans |
|
|
1,200 |
|
|
|
555 |
|
|
|
|
|
|
|
|
Total loans |
|
|
383,607 |
|
|
|
369,733 |
|
Less allowance for loan losses |
|
|
5,339 |
|
|
|
5,215 |
|
|
|
|
|
|
|
|
Net loans |
|
$ |
378,268 |
|
|
$ |
364,518 |
|
|
|
|
|
|
|
|
NOTE 6 SEGMENT REPORTING
Access National Corporation has two reportable segments: traditional commercial banking and a
mortgage banking business. Revenues from commercial banking operations consist primarily of
interest earned on loans and investment securities and fees from deposit services. Mortgage banking
operating revenues consist principally of interest earned on mortgage loans held for sale, gains on
sales of loans in the secondary mortgage market and loan origination fee income.
The commercial bank segment provides the mortgage segment with the short term funds needed to
originate mortgage loans through a warehouse line of credit and charges the mortgage banking
segment interest based on a premium over their cost to borrow funds. These transactions are
eliminated in the consolidation process.
Other includes the operations of Access National 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 is derived from rents received from the Bank and Mortgage Corporation.
- 12 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents segment information for the three months ended March 31, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Other |
|
|
Eliminations |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
8,682 |
|
|
$ |
634 |
|
|
$ |
13 |
|
|
$ |
(684 |
) |
|
$ |
8,645 |
|
Gain on sale of loans |
|
|
|
|
|
|
5,115 |
|
|
|
|
|
|
|
|
|
|
|
5,115 |
|
Other revenues |
|
|
400 |
|
|
|
894 |
|
|
|
562 |
|
|
|
(868 |
) |
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
9,082 |
|
|
|
6,643 |
|
|
|
575 |
|
|
|
(1,552 |
) |
|
|
14,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
4,233 |
|
|
|
681 |
|
|
|
318 |
|
|
|
(684 |
) |
|
|
4,548 |
|
Salaries and employee benefits |
|
|
1,531 |
|
|
|
3,175 |
|
|
|
|
|
|
|
|
|
|
|
4,706 |
|
Other |
|
|
983 |
|
|
|
2,251 |
|
|
|
417 |
|
|
|
(617 |
) |
|
|
3,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
6,747 |
|
|
|
6,107 |
|
|
|
735 |
|
|
|
(1,301 |
) |
|
|
12,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
2,335 |
|
|
$ |
536 |
|
|
$ |
(160 |
) |
|
$ |
(251 |
) |
|
$ |
2,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
560,877 |
|
|
$ |
72,756 |
|
|
$ |
37,405 |
|
|
$ |
(78,560 |
) |
|
$ |
592,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
Commercial |
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In Thousands) |
|
Banking |
|
|
Banking |
|
|
Other |
|
|
Elimination |
|
|
Totals |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
5,579 |
|
|
$ |
507 |
|
|
$ |
21 |
|
|
$ |
(488 |
) |
|
$ |
5,619 |
|
Gain on sale of loans |
|
|
|
|
|
|
4,666 |
|
|
|
|
|
|
|
(32 |
) |
|
|
4,634 |
|
Other |
|
|
458 |
|
|
|
1,137 |
|
|
|
459 |
|
|
|
(535 |
) |
|
|
1,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
6,037 |
|
|
|
6,310 |
|
|
|
480 |
|
|
|
(1,055 |
) |
|
|
11,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
2,238 |
|
|
|
408 |
|
|
|
277 |
|
|
|
(488 |
) |
|
|
2,435 |
|
Salaries and employee benefits |
|
|
1,394 |
|
|
|
3,169 |
|
|
|
|
|
|
|
|
|
|
|
4,563 |
|
Other |
|
|
806 |
|
|
|
2,509 |
|
|
|
257 |
|
|
|
(366 |
) |
|
|
3,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
4,438 |
|
|
|
6,086 |
|
|
|
534 |
|
|
|
(854 |
) |
|
|
10,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
1,599 |
|
|
$ |
224 |
|
|
$ |
(54 |
) |
|
$ |
(201 |
) |
|
$ |
1,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
419,963 |
|
|
$ |
78,897 |
|
|
$ |
35,388 |
|
|
$ |
(86,903 |
) |
|
$ |
447,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 13 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 EARNINGS PER SHARE (EPS):
The following tables show the calculation of both Basic and Diluted earnings per share for the
three months ended March 31, 2006 and 2005 respectively. The numerator of both the Basic and
Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used in
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, 2006 |
|
|
March 31, 2005 |
|
|
|
(In thousands except for share data) |
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,623 |
|
|
$ |
1,035 |
|
Weighted average shares outstanding |
|
|
8,018,133 |
|
|
|
7,917,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.20 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,623 |
|
|
$ |
1,035 |
|
Weighted average shares outstanding |
|
|
8,018,133 |
|
|
|
7,917,998 |
|
Dilutive stock options and warrants |
|
|
1,640,106 |
|
|
|
1,427,526 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
9,658,239 |
|
|
|
9,345,524 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.17 |
|
|
$ |
0.11 |
|
- 14 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 8 DERIVATIVES
Access National Mortgage Corporation carries all derivative instruments at fair value as either
assets or liabilities in the consolidated balance sheets. Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities as amended (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, 2006 and December 31, 2005 the Mortgage Corporation had derivative financial
instruments with a notional value of $113,839,000 and $96,809,000 respectively. The fair value of
these derivative instruments at March 31, 2006 and December 31, 2005 was $113,741,000 and
$96,731,000 respectively.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, a Replacement of
APB Opinion 20 and FASB Statement No. 3. SFAS 154 amends the existing guidance and applies to
accounting for and reporting of a change in accounting principle. SFAS 154 also applies to changes
required by accounting pronouncements when the pronouncement does not include explicit transition
provisions. SFAS 154 is effective for accounting changes and error corrections made in fiscal
years beginning after December 15, 2005. The adoption of SFAS 154 didnt have a material impact on
the financial condition or the results of operation of the Corporation.
In late 2005, the FASBs staff issued Staff Position (FSP) FAS 115-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments. This FSP provides
additional guidance on when an investment in a debt or equity security should be considered
impaired and when that impairment should be considered other-than-temporary and recognized as a
loss. Additionally, the FSP requires certain disclosures about unrealized losses which have not
been recognized as other-than-temporary. The effect of this guidance did not have a material effect
on the Banks consolidated financial statements upon implementation on January 1, 2006.
- 15 -
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to provide an overview of the significant factors
affecting the financial condition and the results of operations of Access National Corporation and
subsidiaries (the Corporation) for the three months ended March 31, 2006 and 2005. The
consolidated financial statements and accompanying notes should be read in conjunction with this
discussion and analysis.
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 to our
expectations, beliefs, plans, goals, objectives and future financial or other performance or
assumptions concerning matters discussed in this document. Forward-looking statements often use
words such as believes, expects, plans, may, will, should, projects, contemplates,
anticipates, forecasts, intends or other words of similar meaning. You can also identify
them by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements are subject to numerous assumptions, risks and uncertainties, and actual results could
differ materially from historical results or those anticipated by such statements. Factors that
could have a material adverse effect on the operations and future prospects of the Corporation
include, but are not limited to, changes in: interest rates, general economic conditions, monetary
and fiscal policies of the U.S. Government, including policies of the Office of the Comptroller of
the Currency, U.S. Treasury and the FRB, the economy of Northern Virginia, including governmental
spending and real estate markets, the quality or composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating the forward-looking
statements contained herein, and readers are cautioned not to place undue reliance on such
statements. Any forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which it is made.
CRITICAL ACCOUNTING POLICIES
General
The Corporations financial statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP). The financial information contained within our
statements is, to a significant extent, financial information that is based on measures of the
financial effects of transactions and events that have already occurred. A variety of factors
could affect the ultimate value that is obtained either when earning income, recognizing an
expense, recovering an asset or relieving a liability. Actual losses could differ significantly
from the historical factors that we monitor. Additionally, GAAP itself may change from one
previously acceptable method to another method. Although the economics of our transactions would
be the same, the timing of events that would impact our transactions could change.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in our loan
portfolio. The allowance is based on two basic principals of accounting: (i) SFAS 5 Accounting for
Contingencies, which requires that losses be accrued when they are probable of occurring and
estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires
that losses be accrued based on the differences between the value of collateral, present value of
future cash flows or values that are observable in the secondary market and the loan balance.
An allowance for loan losses is established through a provision for loan losses based upon industry
standards, known risk characteristics, managements evaluation of the risk inherent in the loan
portfolio and changes in the nature and volume of loan activity. Such evaluation considers among
other factors, the estimated market value of the underlying collateral, and current economic
conditions. For further information about our practices with respect to allowance for loan losses,
please see the subsection Allowance for Loan Losses below.
Derivative Financial Instruments Access National 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
16
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
In the ordinary course of business, the Bank issues commitments to extend credit and, at March 31,
2006, these commitments amounted to $25.5 million. These commitments do not necessarily represent
cash requirements, since many commitments are expected to expire without being drawn on.
At March 31 2006, the Bank had approximately $74.5 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.
17
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
FINANCIAL CONDITION (March 31, 2006 compared to December 31, 2005)
The Corporations assets totaled $592.5 million at March 31, 2006, an increase of $55.4 million
from year end 2005. The Corporation continues to experience strong growth in assets. Net loans
held for investment, originated by the Bank, increased $13.8 million over year end. The growth in
loans held for investment is due to continued strong loan demand in our area and increased market
penetration. Loans held for sale totaled $70.6 million, up $25.6 million from December 31, 2005.
The increase in loans held for sale is due to an increase in loan originations during the month of
March 2006 and a build up of inventory to complete a bulk trade. Management continues to employ a
strategy of attracting highly qualified professional lenders to support future growth in the loans
held for investment. The future balances in the loans held for sale category will continue to
experience volatility due to fluctuations of interest rates. The balances of this short term
investment fluctuate daily as necessary to support loan origination and secondary market sales
activities.
Asset growth during the period was supported by a combination of deposit growth and short term
borrowings. Deposits totaled $423.1 million at March 31, 2006 up from $419.6 million at December
31, 2005. Short term borrowings increased by $53.6 million during the first quarter of 2006. The
increase in short term borrowings is due in part to the increase in loans held for sale. In
addition, short term borrowings are used to compensate for fluctuations in core deposits. The Bank
concentrates on commercial accounts and due to the nature of these accounts, balances can be
subject to wide fluctuations. Management has expanded the business development and marketing staff
to support future deposit growth necessary to fund loan growth. Management expects continued
utilization of wholesale Certificates of Deposits and other borrowings as necessary to fund the
loans held for sale activity and growth in financial investments.
Securities
The Corporations securities portfolio is comprised of U.S. Treasury securities, U.S. Government
Agency securities, obligations of States and Political subdivisions, mortgage backed securities, Federal Reserve and Federal Home Loan Bank stock. At
March 31, 2006 the securities portfolio totaled $110.2 million, up from $87.8 million on December
31, 2005. 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 stockholders equity, net of associated tax effect. The Corporations
securities classified as available for sale had an unrealized loss net of deferred taxes of $956
thousand on March 31, 2006.
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 Access National Bank (the
Bank), Access National Mortgage Corporation (the Mortgage Corporation) and Access National Leasing
Corporation (the Leasing Corporation) are subject to the regulations and supervision of the Office
of the Comptroller of Currency.
At March 31, 2006, loans held for investment increased by $13.9 million from December 31, 2005 and
totaled $383.6 million. The increase is due to a combination of factors, including direct
solicitation, referrals, community involvement, expansion of the Banks loan officer staffing, and
increased name recognition and acceptance of the Banks products and services within the
marketplace. Management intends to continue to increase loan officer staffing and support in order
to facilitate continued growth in the portfolio. The following is a summary of the Loan Portfolio
Held for Investment at March 31, 2006.
Commercial Loans: Commercial Loans represent 11.4% of our held for investment portfolio.
These loans are to businesses or individuals within our target market for business purposes.
Typically the loan proceeds are used to support working capital and the acquisition of fixed assets
of an operating business. These loans are underwritten based upon our assessment of the
obligor(s) ability to generate operating cash flow in the future necessary to repay the loan. To
address the risks associated with the uncertainties of future cash flow, these loans are generally
well secured by assets owned by the business or its principal shareholders and the principal
shareholders are typically required to guarantee the loan.
Real Estate Construction Loans: Real Estate Construction Loans, also known as construction
and land development loans, comprise 9.8% of our held for investment loan portfolio. These loans
generally fall into one of three circumstances: first, loans to individuals that are ultimately
used to acquire property and construct an owner occupied residence; second, loans to builders for
the purpose of acquiring property and constructing homes for sale to consumers; and third, loans to
developers for the purpose of acquiring land that is developed into finished lots for the ultimate
construction of residential or commercial buildings. Loans of these types are generally secured by
the subject property within limits established by the Board of Directors based upon an assessment
of market conditions and up-dated from time to time. The loans typically carry recourse to
principal owners. In addition to the repayment risk associated with loans to individuals and
businesses, loans in this category carry construction completion risk. To address this additional
risk, loans of this type are subject
18
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
to additional administration procedures designed to verify and
ensure progress of the project in accordance with allocated funding, project specifications and
time frames.
Real Estate Non-Residential Loans: Also known as Commercial Mortgages, loans in this
category represent 37.4% of our loan portfolio held for investment. 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 Residential Loans: This category includes loans secured by first or second
mortgages on one to four family residential properties and represent 41.1% 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 14.7%; First Trust Mortgage Loans 74.7%; Loans
Secured by a Junior Trust 7.4%; Multi-family loans and loans secured by Farmland 3.2%.
Home Equity Loans are extended to borrowers in our target market. Real estate equity is the
largest component of consumer wealth in our marketplace. Once approved, this consumer finance tool
allows the borrower to access the equity in their home or investment property and use the proceeds
for virtually any purpose. Home Equity Loans are most frequently secured by a second lien on
residential property. 1-4 Family Residential First Trust Loan, or First Mortgage Loan, proceeds
are used to acquire or refinance the primary financing on owner occupied and residential investment
properties. Junior Trust Loans, or Loans Secured by a Second Trust Loans, are to consumers
wherein the proceeds have been used for a stated consumer purpose. Examples of consumer purposes
are education, refinancing debt, or purchasing consumer goods. The loans are generally extended in
a single disbursement and repaid over a specified period of time.
Loans in the Residential Real Estate portfolio are underwritten to standards within a traditional
consumer framework that is periodically reviewed and up-dated by our management and Board of
Directors: repayment source and capacity, value of the underlying property, credit history, savings
pattern and stability.
Consumer Loans: Consumer Loans make up less than 0.3% of our loan portfolio. Most loans
are well secured with assets other than real estate, such as marketable securities or automobiles.
Very few loans are unsecured. As a matter of operation, management discourages unsecured lending.
Loans in this category are underwritten to standards within a traditional consumer framework that
is periodically reviewed and updated by our management and the Board of Directors: repayment
capacity, collateral value, savings pattern, credit history and stability.
Loans Held for Sale (LHFS)
Loans Held for Sale are originated by Access National Mortgage Corporation, a wholly owned
subsidiary of Access National Bank. Loans of these types are residential mortgage loans extended
to consumers underwritten in accordance with standards set forth by an institutional investor to
whom we expect to sell the loan for a profit. Loan proceeds are used for the purchase or refinance
of the property securing the loan. Loans are sold with the servicing released to the investor.
The LHFS loans are closed in our name and carried on our books until the loan is delivered to and
purchased by an investor. In the three month period ending March 31, 2006 we originated $155.4
million of loans processed in this manner. Repayment risk of this activity is minimal since the
loans are on the books for a short time period. Loans are sold without recourse and subject to
industry standard representations and warranties. The risks associated with this activity center
around borrower fraud and failure of our investors to purchase the loans. These risks are
addressed by the on-going maintenance of an extensive quality control program, an internal audit
and verification program, and a selective approval process for investors. To date we have been
able to absorb the financial impact of these risks without material impact on our operating
performance. At March 31, 2006 loans held for sale totaled $70.6 million compared to $45.0 million
at year end 2005. The increase in loans held for sale at is primarily due to an increase in
inventory pending a bulk loan sale, which closed subsequent to March 31, 2006.
Brokered Loans
Brokered loans are underwritten and closed by a third party lender. We are paid a fee for
procuring and packaging brokered loans. For first quarter of 2006, we originated a total volume of
$37.5 million in residential mortgage loans under this type of delivery method, as compared to
$41.7 million in the first quarter of 2005. Brokered loans accounted for 19.4% of the total loan
volume for the first quarter of 2006.
19
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Allowance for Loan Losses
The allowance for loan losses increased by $124 thousand and totaled $5.3 million at March 31, 2006
compared to $5.2 million at year end 2005. The allowance for loan losses at March 31, 2006 was
1.39% of total loans held for investment compared to 1.41% at year end 2005. The allowance for
Commercial loans as a percent of the total Commercial loans amounted to 3.6%, compared to 4.0% at
year end 2005. The allowance for Construction Loans was 1.3% at March 31, 2006 and December 31,
2005. The allowance for Commercial Real Estate loans was 1.4% of total Commercial Real Estate loans
as of March 31, 2006 and 1.4% at year end 2005. The allowance for Residential Real Estate loans
remained unchanged and was 0.8% as a percent of total Residential Real Estate loans at March 31,
2006 and
December 31, 2005. Although actual loan losses have been insignificant, our senior credit
management, with over 60 years in collective experience in managing similar portfolios in our
marketplace, concluded the amount of our reserve and the methodology applied to arrive at the
amount of the reserve is justified and appropriate due to the lack of seasoning of the portfolio,
the relatively large dollar amount of a relatively small number of loans, portfolio growth,
staffing changes, volume, changes in individual risk ratings on new loans and trend analysis.
Outside of our own analysis, our reserve adequacy and methodology are reviewed on a regular basis
by, internal audit program, and bank regulators and such reviews have not resulted in any material
adjustment to the reserve.
The Bank does not have a meaningful history of charge offs with which to establish trends in loan
losses by loan classifications. As of March 31, 2006 the total net charge offs for the six years
of operation was approximately $19 thousand. The overall allowance for loan losses is equivalent
to approximately 1.39% of total loans held for investment. The methodology as to how the
allowance was derived is a combination of specific allocations and percentages allocation of the
unallocated portion of the allowance for loan losses, as discussed below. The Bank has developed a
comprehensive risk weighting system based on individual loan characteristics that enables the Bank
to allocate the composition of the allowance for loan losses by types of loans.
The loss risk of each loan within a particular classification, however, is not the same. The
methodology for arriving at the allowance is not dictated by loan classification. The methodology
as to how the allowance was derived is detailed below. Unallocated amounts included in the
allowance for loan losses have been applied to the loan classifications on a percentage basis.
Adequacy of the reserve is assessed, and appropriate expense and charge offs are taken, no less
frequently than at the close of each fiscal quarter end. The methodology by which we
systematically determine the amount of our reserve is set forth by the Board of Directors in our
Credit Policy. Under this Policy, our Chief Credit Officer is charged with ensuring that each loan
is individually evaluated and the portfolio characteristics are evaluated to arrive at an
appropriate aggregate reserve. The results of the analysis are documented, reviewed and approved
by the Board of Directors no less than quarterly. The following elements are considered in this
analysis: loss estimates on specific problem credits (the Specific Reserve) , individual loan
risk ratings, lending staff changes, loan review and board oversight, loan policies and procedures,
portfolio trends with respect to volume, delinquency, composition/concentrations of credit, risk
rating migration, levels of classified credit, off-balance sheet credit exposure, any other factors
considered relevant from time to time (the General Reserve) and, finally, an Unallocated
Reserve to cover any unforeseen factors not considered above in the appropriate magnitude. Each
of the reserve components, General, Specific and Unallocated are 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 write-offs would
suggest a lower loan loss allowance, our managements experience with similar portfolios in the
same market combined with the fact that our portfolio is relatively unseasoned, justify a
conservative approach in contemplating external statistical resources. Accordingly, managements
collective experience at this bank and other banks is the most heavily weighted criterion, and the
weighting is subjective and varies by loan type, amount, collateral, structure, and repayment
terms. Prevailing economic condition generally and within each individual borrowers business
sector are considered, as well as any changes in the borrowers own financial position and, in the
case of commercial loans, management structure and business operations. As of March 31, 2006 our
evaluation of these factors supported approximately 64.7% 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.
20
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
When deterioration develops in an individual credit, the loan is placed on a Watch List and the
loan is monitored more closely. All loans on the watch list are evaluated for specific loss
potential based upon either an evaluation of the liquidated value of the collateral or cash flow
deficiencies. If management believes that, with respect to a specific loan, an impaired source of
repayment, collateral impairment or a change in a debtors financial condition presents a
heightened risk of non-performance of a particular loan, a portion of the reserve may be
specifically allocated to that individual loan. The aggregation of this loan by loan loss analysis
comprises the Specific Reserve and accounted for approximately 16.0% of the total loss reserve.
For the first quarter of 2006, this Specific Reserve relates to three loans totaling $2.1 million
as of March 31, 2006 that were assigned additional reserves based on an evaluation of the
established primary and secondary sources of repayment, which suggested a potential degradation in
those sources of repayment.
The Unallocated Reserve is maintained to absorb risk factors outside of the General and Specific
Allocations. Maximum and
minimum target limits are established by us on a quarterly basis for the Unallocated Reserve. As
of March 31, 2006 the threshold range for this component was 0.00% to 0.15% of the total loan
portfolio and accounted for approximately 19.3% of the total loss reserve.
An analysis of the Corporations allowance for loan losses as of and for the period indicated is
set forth in the following tables:
Allowance for Loan Losses
(In Thousands)
|
|
|
|
|
Balance as of December 31, 2005 |
|
$ |
5,215 |
|
|
|
|
|
|
Charge offs |
|
|
|
|
Recoveries |
|
|
|
|
Provision |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2006 |
|
$ |
5,339 |
|
|
|
|
|
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
Allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance |
|
|
|
|
|
|
|
|
|
|
|
|
for Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
for Loan |
|
|
|
|
Amount |
|
Percentage |
|
Loss |
|
Percentage |
|
Amount |
|
Percentage |
|
Loss |
|
Percentage |
|
|
(Dollars In Thousands) |
Commercial |
|
$ |
43,751 |
|
|
|
11.40 |
% |
|
$ |
1,588 |
|
|
|
29.74 |
% |
|
$ |
38,516 |
|
|
|
10.42 |
% |
|
$ |
1,546 |
|
|
|
29.64 |
% |
Commercial real estate |
|
|
143,461 |
|
|
|
37.40 |
% |
|
|
1,958 |
|
|
|
36.67 |
|
|
|
137,423 |
|
|
|
37.17 |
% |
|
|
1,896 |
|
|
|
36.36 |
|
Real estate construction |
|
|
37,463 |
|
|
|
9.77 |
% |
|
|
504 |
|
|
|
9.45 |
|
|
|
37,054 |
|
|
|
10.02 |
% |
|
|
499 |
|
|
|
9.58 |
|
Residential real estate |
|
|
157,732 |
|
|
|
41.12 |
% |
|
|
1,274 |
|
|
|
23.86 |
|
|
|
156,185 |
|
|
|
42.24 |
% |
|
|
1,267 |
|
|
|
24.30 |
|
Consumer |
|
|
1,200 |
|
|
|
0.31 |
% |
|
|
15 |
|
|
|
0.28 |
|
|
|
555 |
|
|
|
15.00 |
% |
|
|
6 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
$ |
383,607 |
|
|
|
100.00 |
% |
|
$ |
5,339 |
|
|
|
100.00 |
% |
|
$ |
369,733 |
|
|
|
100.00 |
% |
|
$ |
5,215 |
|
|
|
100.00 |
% |
|
|
|
|
|
Nonperforming Loans And Past Due
At March 31, 2006 there were two loans in non accrual status totaling $1.2 million. Non accrual
loans are carefully monitored and specific reserves established as necessary to ensure any
estimated loss can be absorbed by the designated reserve. Approximately $811 thousand of the loss
reserve was dedicated as specific reserve to these non-performing loans. In managements estimate
the specific reserve for these loans will be adequate to absorb reasonably foreseeable losses.
Management actively works with the borrowers to maximize potential for repayment and reports on the
status of the same to the Board of Directors, no less than on a monthly basis.
21
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Deposits
Deposits are the primary source of funding loan growth. At March 31, 2006 deposits totaled $423.1
million compared to $419.6 million on December 31, 2005, an increase of $3.5 million. Non-Interest
Bearing accounts increased $5.0 million, Savings and Money Market accounts declined $10.4 million
and Time Deposits increased $8.9 million. The decline in Savings and Money Market accounts is
partially due to transfers into Time Deposits for higher interest rates. 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. At March 31, select core commercial non
interest bearing accounts were down approximately $8.7 million from December 2005 levels. These
temporary fluctuations are typically offset by growth in deposits and short term borrowings.
We utilize our professional loan officers to market both loans and deposits. In addition,
management has expanded the business development and marketing areas of the Bank to provide
continued future growth.
Shareholders Equity
Shareholders equity was $33.0 million at March 31, 2006. A strong capital position is vital to the
continued profitability of the Corporation. It also promotes depositor and investor confidence and
provides a solid foundation for the future growth of the organization. Shareholders equity
increased by $1.9 million during the three months ended March 31, 2006. The increase is due to the
retention of $1.6 million in earnings following a $40 thousand
dividend payment. Other comprehensive income (loss) representing
unrealized losses on available for sale securities was $956 thousand net of taxes.
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. The following Risk Based Capital Analysis table outlines the
regulatory components of capital and risk based capital ratios.
22
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Risk Based Capital Analysis
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In Thousands) |
|
Tier 1 Capital: |
|
|
|
|
|
|
|
|
Common stock |
|
$ |
6,764 |
|
|
$ |
6,644 |
|
Capital surplus |
|
|
9,427 |
|
|
|
9,099 |
|
Retained earnings |
|
|
17,810 |
|
|
|
16,227 |
|
Less: Net Unrealized loss on equity Securities |
|
|
(34 |
) |
|
|
(19 |
) |
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
|
|
|
|
|
|
|
Total Tier 1 capital |
|
|
44,278 |
|
|
|
42,262 |
|
|
|
|
|
|
|
|
|
|
Subordinated debentures not included in Tier I |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
5,272 |
|
|
|
4,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk Based Capital |
|
$ |
49,550 |
|
|
$ |
47,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
421,491 |
|
|
$ |
389,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
544,073 |
|
|
$ |
552,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
|
|
|
|
|
|
|
|
|
Minimum |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
10.51 |
% |
|
|
10.85 |
% |
|
|
4.00 |
% |
Total risk based capital ratio |
|
|
11.76 |
% |
|
|
12.11 |
% |
|
|
8.00 |
% |
Leverage ratio |
|
|
8.14 |
% |
|
|
7.65 |
% |
|
|
4.00 |
% |
23
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
RESULTS OF OPERATIONS (MARCH 31, 2006)
Summary
Pretax income for the three months ended March 31, 2006 was $2.5 million compared to $1.6 million
for the corresponding period of 2005. Net income after taxes for the three months ended March 31,
2006 totaled $1.6 million compared to $1.0 million for the same period in 2005.
First quarter income before taxes in 2006 from the Banking segment was $2.3 million versus $1.6
million for the same period in 2005. Income from the banking segment
increased approximately $730
thousand over the same period last year and accounted for 70% of the
increase in earnings. This increase in income is attributable to a focus on
commercial lending, increased name recognition and the addition of experienced professional loan
officers all of which expanded our base of business. Earnings were impacted by increased interest
expense associated with an increase in short term borrowings and higher interest rates on deposits.
Income from the Mortgage segment was $536 thousand for the three months ended March 31, 2006,
compared to $224 thousand for the corresponding period in 2005. This increase was primarily due to
the gain on sale of loans in the first quarter of 2006.
In the three months ended March 31, 2006 the banking segment accounted for 94.9% of the pretax
consolidated earnings. The banking segment is the predominant contributor to growth and earnings.
Revenue from the mortgage segment is subject to fluctuations as mortgage interest rates change.
Basic earnings per common share for the first quarter of 2006 amounted to $0.20 per share, up from
$0.13 per share in 2005. Diluted earnings per share for the first quarter were $0.17 up from $0.11
per share in the first quarter of 2005.
Interest and fees on loans increased by $2.4 million in the three months ended March 31, 2006 over
the same period of 2005 reflecting the $85.1 million increase in loans held for investment from the
first quarter of 2005. Interest on investment securities increased $558 thousand due to a $53.5
million increase in investment securities over March 31, 2005. Noninterest income totaled $6.1
million for the three months ended March 31, 2006 compared to $6.2 million for the same period in
2005.
Net Interest Income
Net interest income, the principal source of bank earnings, is the amount of income generated by
earning assets (primarily loans and investment securities) less the interest expense incurred on
interest bearing liabilities (primarily deposits) used to fund earning assets. During the first
quarter of 2006 our net interest margin decreased 6 basis points from 3.20% in 2005 to 3.14% in
2006. The decrease in net interest margin is due to the flat yield curve and increased rates on
deposits.
Net interest income for three months ended March 31, 2006 increased to $4.1 million compared to
$3.2 million for the same period in 2005. Net interest income depends upon the volume of earning
assets and interest bearing liabilities and the associated rates. Average interest earning assets
increased $125.4 million from $398.3 million at March 31, 2005 to $523.7 million in 2006. The
increase is attributed to the growth in average loans which increased by $78.2 million and the
growth in average investment securities which increased by $46.6 million. The yield on earning
assets increased from 5.64% in 2005 to 6.61% in 2006 reflecting an increase in yield on all earning
asset categories and reflects the current rate environment.
Total interest expense for the first quarter of 2006 increased $2.1 million over the total of $2.4
million for the same period in 2005 as a result of increases in interest bearing deposits and
increased interest expense on borrowings. Total interest bearing deposits averaged $339.6 million
at period ended March 31, 2006 compared to $241.6 million at March 31, 2005. Borrowed funds for
three months ended March 31, 2006 averaged $107.3 million compared to $73.9 million for the
corresponding period in 2005. The increase in deposits and borrowings funded the growth in earning
assets. The average cost of interest bearing liabilities at March 31, 2006 was 4.07% up 98 basis
points from March 31, 2005.
24
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Volume and Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2006 compared to 2005 |
|
|
Change Due To: |
|
|
Increase / |
|
|
|
|
|
|
(Decrease) |
|
Volume |
|
Rate |
|
|
(In Thousands) |
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
$ |
570 |
|
|
$ |
488 |
|
|
$ |
82 |
|
Loans |
|
|
2,435 |
|
|
|
1,308 |
|
|
|
1,127 |
|
Interest bearing deposits |
|
|
33 |
|
|
|
4 |
|
|
|
29 |
|
|
|
|
Total Increase (Decrease) in Interest Income |
|
|
3,038 |
|
|
|
1,800 |
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
|
21 |
|
|
|
2 |
|
|
|
19 |
|
Money market deposit accounts |
|
|
390 |
|
|
|
124 |
|
|
|
266 |
|
Savings accounts |
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
1,081 |
|
|
|
772 |
|
|
|
309 |
|
|
|
|
Total interest-bearing deposits |
|
|
1,492 |
|
|
|
898 |
|
|
|
594 |
|
FHLB Advances |
|
|
549 |
|
|
|
370 |
|
|
|
179 |
|
Securities sold under agreements to repurchase |
|
|
4 |
|
|
|
(3 |
) |
|
|
7 |
|
Other short-term borrowings |
|
|
74 |
|
|
|
10 |
|
|
|
64 |
|
Long-term borrowings |
|
|
(50 |
) |
|
|
(46 |
) |
|
|
(4 |
) |
Subordinated debentures |
|
|
44 |
|
|
|
|
|
|
|
44 |
|
|
|
|
Total Increase (Decrease) in Interest Expense |
|
|
2,113 |
|
|
|
1,229 |
|
|
|
884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Net Interest Income |
|
$ |
925 |
|
|
$ |
571 |
|
|
$ |
354 |
|
|
|
|
25
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month |
|
|
|
Period Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars In Thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities* |
|
$ |
99,572 |
|
|
$ |
1,063 |
|
|
|
4.27 |
% |
|
$ |
52,947 |
|
|
$ |
493 |
|
|
|
3.72 |
% |
Loans(3) |
|
|
414,633 |
|
|
|
7,495 |
|
|
|
7.23 |
% |
|
|
336,443 |
|
|
|
5,060 |
|
|
|
6.02 |
% |
Interest bearing deposits |
|
|
9,504 |
|
|
|
99 |
|
|
|
4.17 |
% |
|
|
8,950 |
|
|
|
66 |
|
|
|
2.95 |
% |
|
|
|
|
|
Total interest earning assets |
|
|
523,709 |
|
|
|
8,657 |
|
|
|
6.61 |
% |
|
|
398,340 |
|
|
|
5,619 |
|
|
|
5.64 |
% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
10,284 |
|
|
|
|
|
|
|
|
|
|
|
11,202 |
|
|
|
|
|
|
|
|
|
Premises, land and equipment |
|
|
9,683 |
|
|
|
|
|
|
|
|
|
|
|
8,750 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
5,646 |
|
|
|
|
|
|
|
|
|
|
|
5,600 |
|
|
|
|
|
|
|
|
|
Less: allowance for loan losses |
|
|
(5,250 |
) |
|
|
|
|
|
|
|
|
|
|
(4,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest earning assets |
|
|
20,363 |
|
|
|
|
|
|
|
|
|
|
|
21,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
544,072 |
|
|
|
|
|
|
|
|
|
|
$ |
419,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
11,073 |
|
|
$ |
61 |
|
|
|
2.20 |
% |
|
$ |
10,580 |
|
|
$ |
40 |
|
|
|
1.51 |
% |
Money market deposit accounts |
|
|
127,282 |
|
|
|
1,221 |
|
|
|
3.84 |
% |
|
|
111,978 |
|
|
|
831 |
|
|
|
2.97 |
% |
Savings accounts |
|
|
494 |
|
|
|
1 |
|
|
|
0.81 |
% |
|
|
389 |
|
|
|
1 |
|
|
|
1.03 |
% |
Time deposits |
|
|
200,727 |
|
|
|
2,016 |
|
|
|
4.02 |
% |
|
|
118,619 |
|
|
|
935 |
|
|
|
3.15 |
% |
|
|
|
|
|
Total interest-bearing deposits |
|
|
339,576 |
|
|
|
3,299 |
|
|
|
3.89 |
% |
|
|
241,566 |
|
|
|
1,807 |
|
|
|
2.99 |
% |
FHLB Advances |
|
|
61,933 |
|
|
|
719 |
|
|
|
4.64 |
% |
|
|
25,056 |
|
|
|
170 |
|
|
|
2.71 |
% |
Securities sold under agreements to repurchase |
|
|
1,592 |
|
|
|
13 |
|
|
|
3.27 |
% |
|
|
2,100 |
|
|
|
9 |
|
|
|
1.71 |
% |
Other short-term borrowings |
|
|
11,768 |
|
|
|
114 |
|
|
|
3.87 |
% |
|
|
9,788 |
|
|
|
40 |
|
|
|
1.63 |
% |
Long-term borrowings |
|
|
21,668 |
|
|
|
202 |
|
|
|
3.73 |
% |
|
|
26,618 |
|
|
|
252 |
|
|
|
3.79 |
% |
Subordinated Debentures |
|
|
10,311 |
|
|
|
201 |
|
|
|
7.80 |
% |
|
|
10,311 |
|
|
|
157 |
|
|
|
6.09 |
% |
|
|
|
|
|
Total interest-bearing liabilities |
|
|
446,848 |
|
|
|
4,548 |
|
|
|
4.07 |
% |
|
|
315,439 |
|
|
|
2,435 |
|
|
|
3.09 |
% |
|
|
|
|
|
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
60,302 |
|
|
|
|
|
|
|
|
|
|
|
74,335 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
4,482 |
|
|
|
|
|
|
|
|
|
|
|
3,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
511,632 |
|
|
|
|
|
|
|
|
|
|
|
393,415 |
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
32,440 |
|
|
|
|
|
|
|
|
|
|
|
26,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity: |
|
$ |
544,072 |
|
|
|
|
|
|
|
|
|
|
$ |
419,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread(1) |
|
|
|
|
|
|
|
|
|
|
2.54 |
% |
|
|
|
|
|
|
|
|
|
|
2.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(2)* |
|
|
|
|
|
$ |
4,109 |
|
|
|
3.14 |
% |
|
|
|
|
|
$ |
3,184 |
|
|
|
3.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities. |
|
(2) |
|
Net interest margin is net interest income, expressed as a percentage of average earning assets. |
|
(3) |
|
Loans placed on nonaccrual status are included in loan balances |
|
* |
|
Note: Interest income and yields are presented on a fully taxable equivalent basis using 34% tax rate. |
26
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Non Interest Income
Non-interest income consists of revenue generated from a broad range of financial services and
activities. The Mortgage Corporation provides the most significant contributions towards
non-interest income. Total non-interest income was $6.1 million for the first quarter of 2006
compared to $6.2 million for the same period in 2005, a decrease of $100 thousand. Gains on the
sale of loans originated by the Mortgage Corporation totaled $5.1 million, compared to $4.6 million
in 2005. Mortgage broker fees amounted to $866 thousand compared to $931 thousand in 2005. Other
income totaled $48 thousand, down from $554 thousand at March 31, 2005. The decrease in other
income is primarily due to the decline in miscellaneous loan related fees.
Non Interest Expense
Non interest expense totaled $7.6 million for the first quarter of 2006 compared to $7.7 million
for the same period in 2005. Salaries and benefits totaled $4.7 million and comprised 61.8% of
total non operating expense. Of the $4.7 million, 67.5% of the expense is attributable to the
Mortgage Corporation and 32.5% attributable to the Bank. The majority of compensation expense for
the Mortgage Corporation is variable with loan origination volume. Other operating expenses
totaled $2.4 million at March 31, 2006, down from $2.6 million at March 31, 2005. Advertising is
the largest component of other operating expense and totaled $1.0 million at March 31, 2006
compared to $800 thousand at March 31, 2005.
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 Federal
Funds sold and maturing interest bearing deposits with other banks are additional sources of
liquidity funding. At March 31, 2006, overnight interest bearing balances totaled $3.5 million and
securities available for sale totaled $110.2 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, 2006, the Corporation had a line of
credit with the Federal Home Loan Bank of Atlanta totaling $157.8 million and outstanding variable
rate loans of $85.0 million, and an additional $21.5 million in term loans at fixed rates ranging
from 2.70% to 4.97% leaving $53.7 million available on the line. In addition to the line of credit
at the Federal Home Loan Bank, the Bank and its mortgage bank subsidiary also issue repurchase
agreements and commercial paper. As of March 31, 2006, outstanding repurchase agreements totaled
$1.2 million and commercial paper issued amounted to $17.4 million. The interest rate on these
instruments is variable and subject to change daily. The Bank also maintains Federal Funds lines
of credit with its correspondent banks and, at March 31, 2006, these lines amounted to $22.6
million. The Corporation also has $10.3 million in subordinated debentures to support the growth
of the organization.
27
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Borrowed Funds Distribution
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars In Thousands) |
|
At Period End |
|
|
|
|
|
|
|
|
FHLB Advances |
|
$ |
85,000 |
|
|
$ |
36,000 |
|
FHLB long term borrowings |
|
|
20,732 |
|
|
|
21,786 |
|
Securities sold under agreements to repurchase |
|
|
1,227 |
|
|
|
977 |
|
Other short term borrowings |
|
|
15,540 |
|
|
|
11,219 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
|
|
|
|
|
|
|
Total at period end |
|
$ |
132,810 |
|
|
$ |
80,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances |
|
|
|
|
|
|
|
|
FHLB Advances |
|
$ |
61,933 |
|
|
$ |
43,375 |
|
FHLB long term borrowings |
|
|
21,668 |
|
|
|
24,028 |
|
Securities sold under agreements to repurchase |
|
|
1,592 |
|
|
|
925 |
|
Other short term borrowings |
|
|
11,768 |
|
|
|
8,520 |
|
Subordinated debentures |
|
|
10,311 |
|
|
|
10,311 |
|
|
|
|
|
|
|
|
Total average balance |
|
$ |
107,272 |
|
|
$ |
87,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate paid on all borrowed funds |
|
|
4.66 |
% |
|
|
4.02 |
% |
|
|
|
|
|
|
|
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, 2005.
28
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
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, 2006. The table below reflects the outcome of these
analyses at March 31, 2006, assuming a flat balance sheet. According to the model run for the
period ended March 31, 2006 over a twelve month period, an immediate 100 basis points increase in
interest rates would result in a decline in net interest income by 3.00%. An immediate 100 basis
points decline in interest rates would result in an increase in net interest income by 2.05%.
While management carefully monitors the exposure to changes in interest rates and takes actions as
warranted to decrease any adverse impact, there can be no assurance about the actual effect of
interest rate changes on net interest income. The following table reflects the Corporations
earnings sensitivity profile as of March 31, 2006.
|
|
|
|
|
|
|
|
|
Rate Shock Analysis |
March 31, 2006 |
Change in |
|
Hypothetical |
|
Hypothetical Percentage |
Federal Funds |
|
Percentage Change |
|
Change In Economic |
Target Rate |
|
In Earnings |
|
Value of Equity |
3.00%
|
|
-9.40%
|
|
-19.00%
|
2.00%
|
|
-6.17%
|
|
-12.30%
|
1.00%
|
|
-3.00%
|
|
-6.20%
|
-1.00%
|
|
|
2.05 |
% |
|
|
4.60 |
% |
-2.00%
|
|
|
2.68 |
% |
|
|
7.75 |
% |
-3.00%
|
|
|
2.49 |
% |
|
|
10.84 |
% |
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 (locked) by both the Corporation and the borrower for specified
periods of time. When the borrower locks their interest rate, the Corporation effectively extends a
put option to the borrower, whereby the borrower is not obligated to enter into the loan agreement,
but the Corporation must honor the interest rate for the specified time period. The Corporation
is exposed to interest rate risk during the accumulation of interest rate lock commitments and
loans prior to sale. The Corporation utilizes either a best efforts sell forward commitment or a
mandatory sell forward commitments to economically hedge the changes in fair value of the loan due
to changes in market interest rates. Failure to effectively monitor, manage and hedge the interest
rate risk associated with the mandatory commitments subjects the Corporation to potentially
significant market risk.
Throughout the lock period the changes in the market value of interest rate lock commitments, best
efforts and mandatory sell forward commitments are recorded as unrealized gains and losses and are
included in the statement of operations in mortgage revenue. The Corporations management has
made complex judgments in the recognition of gains and losses in connection with this activity.
The Corporation utilizes a third party and its proprietary simulation model to assist in
identifying and managing the risk associated with this activity. The Corporation did not have a
material gain or loss representing the amount of hedge ineffectiveness during the reporting periods
contained in this report.
29
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
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.
Changes in Internal Controls
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.
30
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
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
Please refer to the Corporations Annual Report on Form 10-K for the year ended December 31, 2005
for disclosures with respect to the Corporations risk factors. There have been no material
changes since year-end 2005 in the specified risk factors disclosed in the Annual Report on Form
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
31
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Item 6. Exhibits
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Exhibit No. |
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Description |
3.1
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Articles of Incorporation of Access National Corporation
(incorporated by reference to Exhibit 3.1 to Form 10-K filed
March 31, 2006 (file number 000-49929)) |
|
|
|
3.2
|
|
Bylaws of Access National Corporation (incorporated by
reference to Exhibit 3.2 to Form 8-K dated August 1, 2005
(file number 000-49929)) |
|
|
|
4
|
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Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.0 to Form 10-KSB filed March 31, 2003 (file number
000-49929)) |
|
|
|
10.5+
|
|
Schedule of Non-Employee Directors Annual Compensation
(incorporated by reference to Exhibit 10.5 to Form 10-K filed
March 31, 2006 (file number 000-49929)) |
|
|
|
10.6+
|
|
Base Salaries for Named Executive Officers (incorporated by
reference to Exhibit 10.6 to Form 10-K filed March 31, 2006
(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) |
|
|
|
* |
|
filed herewith |
|
+ |
|
indicates a management contract or compensatory plan or arrangement |
32
ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
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 12, 2006
|
|
By:
|
|
/s/ Michael W. Clarke
Michael W. Clarke
|
|
|
|
|
|
|
President & Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
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Date: May 12, 2006
|
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By:
|
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/s/ Charles Wimer
Charles Wimer
|
|
|
|
|
|
|
Executive Vice President & Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial & Accounting Officer) |
|
|
33