UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31,
2015
or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______
to __________
Commission File Number: 000-49929
ACCESS NATIONAL CORPORATION
(Exact name of registrant as specified
in its charter)
Virginia |
82-0545425 |
(State
or other jurisdiction of |
(I.R.S.
Employer |
incorporation
or organization) |
Identification
No.) |
1800 Robert Fulton Drive, Suite 300,
Reston, Virginia 20191
(Address of principal
executive offices) (Zip Code)
(703) 871-2100
(Registrant's telephone number, including
area code)
N/A |
(Former
name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x
No ¨
Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ |
Accelerated
filer x |
Non-accelerated
filer ¨ (Do not
check if a smaller reporting company) |
Smaller
reporting company ¨ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
The number of shares outstanding of Access National Corporation’s
common stock, par value $0.835, as of May 7, 2015 was 10,519,376 shares.
Table of Contents
ACCESS NATIONAL CORPORATION
FORM 10-Q
INDEX
PART
I |
FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements (Unaudited) |
|
Consolidated Balance Sheets, March 31, 2015 and December 31, 2014 |
Page
2 |
|
Consolidated Statements of Income, three months ended March 31, 2015 and 2014 |
Page 3 |
|
Consolidated Statements of Comprehensive Income, three months ended March 31, 2015 and 2014 |
Page 4 |
|
Consolidated Statements of Changes in Shareholders' Equity, three months ended March 31, 2015 and 2014 |
Page 5 |
|
Consolidated Statements of Cash Flows, three months ended March 31, 2015 and 2014 |
Page 6 |
|
Notes to Consolidated Financial Statements (Unaudited) |
Page 7 |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
Page 30 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Page 42 |
Item 4. |
Controls and Procedures |
Page 43 |
|
PART
II |
OTHER INFORMATION |
|
|
|
|
Item 1. |
Legal Proceedings |
Page 43 |
Item1A. |
Risk Factors |
Page 44 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Page 44 |
Item 3. |
Defaults Upon Senior Securities |
Page 44 |
Item 4. |
Mine Safety Disclosures |
Page 44 |
Item 5. |
Other Information |
Page 44 |
Item 6. |
Exhibits |
Page 44 |
|
|
|
|
Signatures |
Page 46 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
(In Thousands, Except for Share and Per
Share Data)
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Cash and due from banks | |
$ | 11,324 | | |
$ | 9,804 | |
Interest-bearing deposits in other banks and federal funds sold | |
| 33,602 | | |
| 46,225 | |
Securities: | |
| | | |
| | |
Securities available-for-sale, at fair value | |
| 122,027 | | |
| 125,080 | |
Securities held-to-maturity, at amortized cost (fair value of $14,524 and $14,378) | |
| 14,304 | | |
| 14,309 | |
Total investment securities | |
| 136,331 | | |
| 139,389 | |
| |
| | | |
| | |
Restricted stock | |
| 8,321 | | |
| 8,961 | |
Loans held for sale, at fair value | |
| 57,151 | | |
| 45,026 | |
Loans | |
| 794,214 | | |
| 776,603 | |
Allowance for loan losses | |
| (13,331 | ) | |
| (13,399 | ) |
Net loans | |
| 780,883 | | |
| 763,204 | |
Premises and equipment, net | |
| 6,889 | | |
| 6,926 | |
Accrued interest receivable | |
| 2,907 | | |
| 2,907 | |
Other assets | |
| 31,794 | | |
| 30,438 | |
Total assets | |
$ | 1,069,202 | | |
$ | 1,052,880 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
Deposits | |
| | | |
| | |
Noninterest-bearing deposits | |
$ | 290,294 | | |
$ | 252,875 | |
Savings and interest-bearing deposits | |
| 246,806 | | |
| 233,773 | |
Time deposits | |
| 249,219 | | |
| 268,795 | |
Total deposits | |
| 786,319 | | |
| 755,443 | |
Other liabilities | |
| | | |
| | |
Short-term borrowings | |
| 160,529 | | |
| 185,635 | |
Long-term borrowings | |
| 10,000 | | |
| - | |
Other liabilities and accrued expenses | |
| 9,764 | | |
| 12,898 | |
Total liabilities | |
$ | 966,612 | | |
$ | 953,976 | |
| |
| | | |
| | |
SHAREHOLDERS' EQUITY | |
| | | |
| | |
Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and outstanding, 10,517,876 shares at March 31, 2015 and 10,469,569 shares at December 31, 2014 | |
$ | 8,782 | | |
$ | 8,742 | |
Additional paid in capital | |
| 19,378 | | |
| 18,538 | |
Retained earnings | |
| 74,276 | | |
| 72,168 | |
Accumulated other comprehensive income (loss), net | |
| 154 | | |
| (544 | ) |
Total shareholders' equity | |
| 102,590 | | |
| 98,904 | |
Total liabilities and shareholders' equity | |
$ | 1,069,202 | | |
$ | 1,052,880 | |
See accompanying notes to consolidated financial statements
(unaudited).
ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share and Per
Share Data)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Interest and Dividend Income | |
| | | |
| | |
Interest and fees on loans | |
$ | 9,434 | | |
$ | 8,459 | |
Interest on deposits in other banks | |
| 27 | | |
| 18 | |
Interest and dividends on securities | |
| 815 | | |
| 468 | |
Total interest and dividend income | |
| 10,276 | | |
| 8,945 | |
| |
| | | |
| | |
Interest Expense | |
| | | |
| | |
Interest on deposits | |
| 733 | | |
| 728 | |
Interest on short-term borrowings | |
| 99 | | |
| 71 | |
Interest on long-term borrowings | |
| 2 | | |
| - | |
Total interest expense | |
| 834 | | |
| 799 | |
| |
| | | |
| | |
Net interest income | |
| 9,442 | | |
| 8,146 | |
Provision for loan losses | |
| - | | |
| - | |
Net interest income after provision for loan losses | |
| 9,442 | | |
| 8,146 | |
| |
| | | |
| | |
Noninterest Income | |
| | | |
| | |
Service fees on deposit accounts | |
| 197 | | |
| 177 | |
Gain on sale of loans | |
| 3,571 | | |
| 1,728 | |
Other income | |
| 2,537 | | |
| 1,351 | |
Total noninterest income | |
| 6,305 | | |
| 3,256 | |
| |
| | | |
| | |
Noninterest Expense | |
| | | |
| | |
Salaries and employee benefits | |
| 6,717 | | |
| 4,887 | |
Occupancy and equipment | |
| 754 | | |
| 707 | |
Other operating expenses | |
| 2,775 | | |
| 2,068 | |
Total noninterest expense | |
| 10,246 | | |
| 7,662 | |
| |
| | | |
| | |
Income before income taxes | |
| 5,501 | | |
| 3,740 | |
| |
| | | |
| | |
Income tax expense | |
| 1,928 | | |
| 1,326 | |
NET INCOME | |
$ | 3,573 | | |
$ | 2,414 | |
| |
| | | |
| | |
Earnings per common share: | |
| | | |
| | |
Basic | |
$ | 0.34 | | |
$ | 0.23 | |
Diluted | |
$ | 0.34 | | |
$ | 0.23 | |
| |
| | | |
| | |
Average outstanding shares: | |
| | | |
| | |
Basic | |
| 10,473,366 | | |
| 10,391,080 | |
Diluted | |
| 10,517,222 | | |
| 10,447,085 | |
See
accompanying notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Comprehensive Income
(In
Thousands)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Net income | |
$ | 3,573 | | |
$ | 2,414 | |
| |
| | | |
| | |
Other comprehensive income: | |
| | | |
| | |
Unrealized gains (losses) on securities | |
| | | |
| | |
Unrealized holding gains (losses) arising during period | |
| 1,075 | | |
| 1,002 | |
Less: reclassification adjustment for gains included in net income | |
| - | | |
| - | |
Tax effect | |
| (377 | ) | |
| (351 | ) |
Net of tax amount | |
| 698 | | |
| 651 | |
| |
| | | |
| | |
Comprehensive income | |
$ | 4,271 | | |
$ | 3,065 | |
See
accompanying notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Changes in Shareholders' Equity
(In
Thousands, Except for Share Data)
(Unaudited)
| |
| | |
| | |
| | |
Accumulated | | |
| |
| |
| | |
| | |
| | |
Other | | |
| |
| |
| | |
Additional | | |
| | |
Compre- | | |
| |
| |
Common | | |
Paid in | | |
Retained | | |
hensive | | |
| |
| |
Stock | | |
Capital | | |
Earnings | | |
Income (Loss) | | |
Total | |
Balance, December 31, 2014 | |
$ | 8,742 | | |
$ | 18,538 | | |
$ | 72,168 | | |
$ | (544 | ) | |
$ | 98,904 | |
Net income | |
| - | | |
| - | | |
| 3,573 | | |
| - | | |
| 3,573 | |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| 698 | | |
| 698 | |
Stock options exercised (3,100 shares) | |
| 3 | | |
| 33 | | |
| - | | |
| - | | |
| 36 | |
Issuance of restricted common stock (7,500 shares) | |
| 6 | | |
| 122 | | |
| - | | |
| - | | |
| 128 | |
DRSPP shares issued from reserve (37,707) | |
| 31 | | |
| 607 | | |
| - | | |
| - | | |
| 638 | |
Cash dividend ($0.14 per share) | |
| - | | |
| - | | |
| (1,465 | ) | |
| - | | |
| (1,465 | ) |
Stock-based compensation expense recognized in earnings | |
| - | | |
| 78 | | |
| - | | |
| - | | |
| 78 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2015 | |
$ | 8,782 | | |
$ | 19,378 | | |
$ | 74,276 | | |
$ | 154 | | |
$ | 102,590 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
$ | 8,659 | | |
$ | 17,320 | | |
$ | 67,121 | | |
$ | (1,966 | ) | |
$ | 91,134 | |
Net income | |
| - | | |
| - | | |
| 2,414 | | |
| - | | |
| 2,414 | |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| 651 | | |
| 651 | |
Stock options exercised (8,887 shares) | |
| 7 | | |
| 70 | | |
| - | | |
| - | | |
| 77 | |
Issuance of restricted common stock (24,017 shares) | |
| 20 | | |
| 365 | | |
| - | | |
| - | | |
| 385 | |
Cash dividend ($0.11 per share) | |
| - | | |
| - | | |
| (1,143 | ) | |
| - | | |
| (1,143 | ) |
Stock-based compensation expense recognized in earnings | |
| - | | |
| 59 | | |
| - | | |
| - | | |
| 59 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2014 | |
$ | 8,686 | | |
$ | 17,814 | | |
$ | 68,392 | | |
$ | (1,315 | ) | |
$ | 93,577 | |
See
accompanying notes to consolidated financial statements (unaudited).
ACCESS
NATIONAL CORPORATION
Consolidated
Statements of Cash Flows
(In
Thousands)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Cash Flows from Operating Activities | |
| | | |
| | |
Net income | |
$ | 3,573 | | |
$ | 2,414 | |
Adjustments to reconcile net income to net cash provided by (used in) | |
| | | |
| | |
operating activities: | |
| | | |
| | |
Provision for off balance sheet losses | |
| 10 | | |
| - | |
Income from bank-owned life insurance | |
| 117 | | |
| - | |
Deferred tax benefit | |
| (6 | ) | |
| (3 | ) |
Stock-based compensation | |
| 78 | | |
| 59 | |
Valuation allowance on derivatives | |
| (302 | ) | |
| 10 | |
Net amortization (accretion) on securities | |
| 235 | | |
| (203 | ) |
Depreciation and amortization | |
| 119 | | |
| 118 | |
Changes in assets and liabilities: | |
| | | |
| | |
Increase in valuation of loans held for sale carried at fair value | |
| (325 | ) | |
| (246 | ) |
Increase in loans held for sale | |
| (11,800 | ) | |
| (2,618 | ) |
Increase in other assets | |
| (1,251 | ) | |
| (1,380 | ) |
Decrease in other liabilities | |
| (3,441 | ) | |
| (53 | ) |
Net cash used in operating activities | |
| (12,993 | ) | |
| (1,902 | ) |
Cash Flows from Investing Activities | |
| | | |
| | |
Proceeds from maturities, calls, and prepayments of securities available for sale | |
| 3,897 | | |
| 1,680 | |
Proceeds from sale of securities | |
| - | | |
| 9,379 | |
Purchases of securities available for sale | |
| - | | |
| (23,892 | ) |
Proceeds from maturities and calls of securities held to maturity | |
| - | | |
| 5,000 | |
Purchases of Federal Reserve and Federal Home Loan Bank stock | |
| (1,985 | ) | |
| (1,575 | ) |
Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock | |
| 2,625 | | |
| 8,373 | |
Purchase of bank owned life insurance | |
| - | | |
| (5,000 | ) |
Net increase in loans | |
| (17,680 | ) | |
| (29,767 | ) |
Purchases of premises and equipment | |
| (75 | ) | |
| (107 | ) |
Net cash used in investing activities | |
| (13,218 | ) | |
| (35,909 | ) |
Cash Flows from Financing Activities | |
| | | |
| | |
Net increase in demand, interest-bearing demand and savings deposits | |
| 50,453 | | |
| 78,750 | |
Net (decrease) increase in time deposits | |
| (19,576 | ) | |
| 153,702 | |
Decrease in securities sold under agreement to repurchase | |
| (5,106 | ) | |
| (10,209 | ) |
Net decrease in other short-term borrowings | |
| (20,000 | ) | |
| (145,000 | ) |
Net increase in long-term borrowings | |
| 10,000 | | |
| - | |
Proceeds from issuance of common stock | |
| 802 | | |
| 462 | |
Dividends paid | |
| (1,465 | ) | |
| (1,143 | ) |
Net cash provided by financing activities | |
| 15,108 | | |
| 76,562 | |
| |
| | | |
| | |
(Decrease) increase in cash and cash equivalents | |
| (11,103 | ) | |
| 38,751 | |
Cash and Cash Equivalents | |
| | | |
| | |
Beginning | |
| 56,029 | | |
| 23,419 | |
Ending | |
$ | 44,926 | | |
$ | 62,170 | |
Supplemental Disclosures of Cash Flow Information | |
| | | |
| | |
Cash payments for interest | |
$ | 786 | | |
$ | 785 | |
Cash payments for income taxes | |
$ | 393 | | |
$ | 16 | |
Supplemental Disclosures of Noncash Investing Activities | |
| | | |
| | |
Unrealized gain on securities available for sale | |
$ | 1,075 | | |
$ | 1,002 | |
See
accompanying notes to consolidated financial statements (unaudited).
Notes
to Consolidated Financial Statements (Unaudited)
NOTE
1 – BASIS OF PRESENTATION
Access
National Corporation (the “Corporation”) is a bank holding company incorporated under the laws of the Commonwealth
of Virginia. The Corporation owns all of the stock of its subsidiary, Access National Bank (the “Bank”), which is
an independent commercial bank chartered under federal laws as a national banking association. The Bank has three active wholly
owned subsidiaries: Access Real Estate LLC (“Access Real Estate”), a real estate company; ACME Real Estate LLC, a
real estate holding company of foreclosed property; and Access Capital Management Holding LLC (“ACM”), a holding company
for Capital Fiduciary Advisors, L.L.C., Access Investment Services, L.L.C. and Access Insurance Group, L.L.C.
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial information and with rules and regulations
of the Securities and Exchange Commission (“SEC”). The statements do not include all of the information and footnotes
required by GAAP for complete financial statements. All adjustments have been made which, in the opinion of management, are necessary
for a fair presentation of the results for the interim periods presented. Such adjustments are all of a normal and recurring nature.
All significant inter-company accounts and transactions have been eliminated in consolidation. Certain prior period amounts have
been reclassified to conform to the current period presentation. The results of operations for the three months ended March 31,
2015 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2015. These consolidated
financial statements should be read in conjunction with the Corporation’s audited financial statements and the notes thereto
as of December 31, 2014, included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31,
2014.
The
Corporation has evaluated subsequent events for potential recognition and/or disclosure in this Quarterly Report on Form 10-Q
through the date these consolidated financial statements were issued.
NOTE
2 – STOCK-BASED COMPENSATION PLANS
During
the first three months of 2015, the Corporation granted 121,434 stock options to officers, directors, and employees under the
2009 Stock Option Plan (the “Plan”). Options granted under the Plan have an exercise price equal to the fair market
value as of the grant date. Options granted vest over various periods ranging from two and one-half years to four years and expire
one year after the full vesting date. Stock–based compensation expense recognized in other operating expense during the
first three months of 2015 and 2014 was $78 thousand and $59 thousand, respectively. The fair value of options is estimated on
the date of grant using a Black Scholes option-pricing model with the assumptions noted below.
The
total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan as of
March 31, 2015 was $671,165. The cost is expected to be recognized over a weighted average period of 1.43 years.
NOTE
2 – STOCK-BASED COMPENSATION PLANS (continued)
A
summary of stock option activity under the Plan for the three months ended March 31, 2015 and 2014 is presented as follows:
| |
Three Months Ended | |
| |
March 31, 2015 | |
| |
| |
Expected life of options granted, in years | |
| 4.81 | |
Risk-free interest rate | |
| 1.06 | % |
Expected volatility of stock | |
| 30 | % |
Annual expected dividend yield | |
| 3 | % |
| |
| | |
Fair Value of Granted Options | |
$ | 342,570 | |
Non-Vested Options | |
| 310,344 | |
| |
| | |
| | |
Weighted Avg. | | |
| |
| |
Number of | | |
Weighted Avg. | | |
Remaining Contractual | | |
Aggregate Intrinsic | |
| |
Options | | |
Exercise Price | | |
Term, in years | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding at beginning of year | |
| 316,423 | | |
$ | 14.02 | | |
| 3.20 | | |
$ | 917,215 | |
Granted | |
| 121,434 | | |
| 17.95 | | |
| 4.81 | | |
| - | |
Exercised | |
| (3,100 | ) | |
| 11.50 | | |
| 2.32 | | |
| 20,771 | |
Lapsed or Canceled | |
| (450 | ) | |
$ | 15.55 | | |
| 3.27 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding at March 31, 2015 | |
| 434,307 | | |
$ | 15.14 | | |
| 3.48 | | |
$ | 1,564,733 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at March 31, 2015 | |
| 123,963 | | |
$ | 13.26 | | |
| 2.70 | | |
$ | 679,184 | |
| |
Three Months Ended | |
| |
March 31, 2014 | |
| |
| |
Expected life of options granted, in years | |
| 4.82 | |
Risk-free interest rate | |
| 0.69 | % |
Expected volatility of stock | |
| 36 | % |
Annual expected dividend yield | |
| 3 | % |
| |
| | |
Fair value of granted options | |
$ | 300,152 | |
Non-vested options | |
| 287,965 | |
| |
| | |
| | |
Weighted Avg. | | |
| |
| |
Number of | | |
Weighted Avg. | | |
Remaining Contractual | | |
Aggregate Intrinsic | |
| |
Options | | |
Exercise Price | | |
Term, in years | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding at beginning of year | |
| 281,380 | | |
$ | 11.77 | | |
| 3.20 | | |
$ | 951,526 | |
Granted | |
| 120,500 | | |
| 15.96 | | |
| 4.82 | | |
| - | |
Exercised | |
| (8,887 | ) | |
| 8.72 | | |
| 1.97 | | |
| 65,010 | |
Lapsed or canceled | |
| (250 | ) | |
$ | 6.68 | | |
| 0.32 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding at March 31, 2014 | |
| 392,743 | | |
$ | 13.13 | | |
| 3.55 | | |
$ | 1,210,095 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at March 31, 2014 | |
| 104,778 | | |
$ | 10.23 | | |
| 2.25 | | |
$ | 627,082 | |
NOTE
3 – SECURITIES
The
following table provides the amortized cost and fair value for the categories of available-for-sale securities and held-to-maturity
securities at March 31, 2015 and December 31, 2014. Held-to-maturity securities are carried at amortized cost, which reflects
historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at
estimated fair value with net unrealized gains or losses reported on an after tax basis as a component of accumulated other comprehensive
income in shareholders’ equity. The estimated fair value of available-for-sale securities is impacted by interest rates,
credit spreads, market volatility, and liquidity.
NOTE
3 – SECURITIES (continued)
| |
March 31, 2015 | |
| |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized (Losses) | | |
Estimated Fair Value | |
| |
| | |
(In Thousands) | | |
| |
Available-for-sale: | |
| | |
| | |
| |
U.S. Government agencies | |
$ | 18,998 | | |
$ | - | | |
$ | (135 | ) | |
$ | 18,863 | |
Mortgage backed securities | |
| 67,267 | | |
| 439 | | |
| (208 | ) | |
| 67,498 | |
Corporate bonds | |
| 13,223 | | |
| 160 | | |
| - | | |
| 13,383 | |
Asset backed Securities | |
| 16,766 | | |
| 92 | | |
| (101 | ) | |
| 16,757 | |
Municipals - nontaxable | |
| 4,037 | | |
| 47 | | |
| - | | |
| 4,084 | |
CRA Mutual fund | |
| 1,500 | | |
| - | | |
| (58 | ) | |
| 1,442 | |
| |
$ | 121,791 | | |
$ | 738 | | |
$ | (502 | ) | |
$ | 122,027 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
$ | 9,986 | | |
$ | 130 | | |
$ | - | | |
$ | 10,116 | |
Municipals | |
| 2,624 | | |
| 83 | | |
| - | | |
| 2,707 | |
Municipals - nontaxable | |
| 1,694 | | |
| 7 | | |
| - | | |
| 1,701 | |
| |
$ | 14,304 | | |
$ | 220 | | |
$ | - | | |
$ | 14,524 | |
| |
December 31, 2014 | |
| |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized (Losses) | | |
Estimated Fair Value | |
| |
| | |
(In Thousands) | | |
| |
Available-for-sale: | |
| | |
| | |
| |
U.S. Government agencies | |
$ | 18,998 | | |
$ | - | | |
$ | (473 | ) | |
$ | 18,525 | |
Mortgage backed securities | |
| 70,001 | | |
| 136 | | |
| (439 | ) | |
| 69,698 | |
Corporate bonds | |
| 13,304 | | |
| 95 | | |
| (27 | ) | |
| 13,372 | |
Asset backed Securities | |
| 18,072 | | |
| 83 | | |
| (172 | ) | |
| 17,983 | |
Municipals - nontaxable | |
| 4,042 | | |
| 24 | | |
| (1 | ) | |
| 4,065 | |
CRA Mutual fund | |
| 1,500 | | |
| - | | |
| (63 | ) | |
| 1,437 | |
| |
$ | 125,917 | | |
$ | 338 | | |
$ | (1,175 | ) | |
$ | 125,080 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
$ | 9,985 | | |
$ | 46 | | |
| (25 | ) | |
$ | 10,006 | |
Municipals | |
| 2,627 | | |
| 41 | | |
| - | | |
| 2,668 | |
Municipals - nontaxable | |
| 1,697 | | |
| 10 | | |
| (3 | ) | |
| 1,704 | |
| |
$ | 14,309 | | |
$ | 97 | | |
$ | (28 | ) | |
$ | 14,378 | |
NOTE
3 – SECURITIES (continued)
The
amortized cost and estimated fair value of securities available-for-sale and held-to-maturity as of March 31, 2015 and December
31, 2014 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because some of the
securities may be called or prepaid without any penalties.
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
Estimated | | |
| | |
Estimated | |
| |
Amortized | | |
Fair | | |
Amortized | | |
Fair | |
| |
Cost | | |
Value | | |
Cost | | |
Value | |
| |
(In Thousands) | | |
| | |
| |
Available-for-sale: | |
| | |
| | |
| |
US Government agencies: | |
| | | |
| | | |
| | | |
| | |
Due after five through ten years | |
$ | 18,998 | | |
$ | 18,863 | | |
$ | 18,998 | | |
$ | 18,525 | |
Mortgage backed securities: | |
| | | |
| | | |
| | | |
| | |
Due after five through ten years | |
| 6,428 | | |
| 6,462 | | |
| 6,533 | | |
| 6,481 | |
Due after ten through fifteen years | |
| 37,758 | | |
| 37,860 | | |
| 39,311 | | |
| 39,115 | |
Due after fifteen years | |
| 23,081 | | |
| 23,176 | | |
| 24,157 | | |
| 24,102 | |
Corporate bonds: | |
| | | |
| | | |
| | | |
| | |
Due in one year or less | |
| 1,999 | | |
| 2,017 | | |
| 1,998 | | |
| 2,023 | |
Due after one through five years | |
| 11,224 | | |
| 11,366 | | |
| 11,306 | | |
| 11,349 | |
Asset backed securities: | |
| | | |
| | | |
| | | |
| | |
Due after five through ten years | |
| 5,098 | | |
| 5,172 | | |
| 6,134 | | |
| 6,199 | |
Due after fifteen years | |
| 11,668 | | |
| 11,585 | | |
| 11,938 | | |
| 11,784 | |
Municipals - nontaxable: | |
| | | |
| | | |
| | | |
| | |
Due after five through ten years | |
| 403 | | |
| 417 | | |
| 404 | | |
| 413 | |
Due after ten through fifteen years | |
| 1,364 | | |
| 1,381 | | |
| 1,366 | | |
| 1,381 | |
Due after fifteen years | |
| 2,270 | | |
| 2,286 | | |
| 2,272 | | |
| 2,271 | |
| |
| | | |
| | | |
| | | |
| | |
CRA Mutual fund | |
| 1,500 | | |
| 1,442 | | |
| 1,500 | | |
| 1,437 | |
Total | |
$ | 121,791 | | |
$ | 122,027 | | |
$ | 125,917 | | |
$ | 125,080 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
US Government agencies: | |
| | | |
| | | |
| | | |
| | |
Due after one through five years | |
$ | 5,000 | | |
$ | 5,099 | | |
$ | 5,000 | | |
$ | 5,046 | |
Due after ten through fifteen years | |
| 4,986 | | |
| 5,017 | | |
| 4,985 | | |
| 4,960 | |
Municipals: | |
| | | |
| | | |
| | | |
| | |
Due after five through ten years | |
| 428 | | |
| 449 | | |
| 428 | | |
| 444 | |
Due after ten through fifteen years | |
| 2,196 | | |
| 2,258 | | |
| 1,638 | | |
| 1,666 | |
Due after fifteen years | |
| - | | |
| - | | |
| 561 | | |
| 558 | |
Municipals - nontaxable: | |
| | | |
| | | |
| | | |
| | |
Due after ten through fifteen years | |
| 1,411 | | |
| 1,418 | | |
| 1,414 | | |
| 1,421 | |
Due after fifteen years | |
| 283 | | |
| 283 | | |
| 283 | | |
| 283 | |
Total | |
$ | 14,304 | | |
$ | 14,524 | | |
$ | 14,309 | | |
$ | 14,378 | |
The
estimated fair value of securities pledged to secure public funds, securities sold under agreements to repurchase, and for other
purposes amounted to $106.0 million at March 31, 2015 and $102.6 million at December 31, 2014.
NOTE
3 – SECURITIES (continued)
Securities
available-for-sale and held-to-maturity that have an unrealized loss position at March 31, 2015 and December 31, 2014 are as follows:
| |
Securities in a
loss | | |
Securities in a
loss | | |
| | |
| |
| |
Position for less
than | | |
Position for 12
Months | | |
| | |
| |
| |
12 Months | | |
or Longer | | |
Total | |
March 31, 2015 | |
Estimated | | |
| | |
Estimated | | |
| | |
Estimated | | |
| |
| |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
| |
(In Thousands) | |
Investment securities available-for-sale: | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| |
Mortgage backed securities | |
$ | 5,974 | | |
$ | (25 | ) | |
$ | 13,945 | | |
$ | (183 | ) | |
$ | 19,919 | | |
$ | (208 | ) |
U.S. Government agencies | |
| 14,890 | | |
| (108 | ) | |
| 3,973 | | |
| (27 | ) | |
| 18,863 | | |
| (135 | ) |
Asset backed securities | |
| 4,192 | | |
| (32 | ) | |
| 2,893 | | |
| (69 | ) | |
| 7,085 | | |
| (101 | ) |
CRA Mutual fund | |
| - | | |
| - | | |
| 1,442 | | |
| (58 | ) | |
| 1,442 | | |
| (58 | ) |
Total | |
$ | 25,056 | | |
$ | (165 | ) | |
$ | 22,253 | | |
$ | (337 | ) | |
$ | 47,309 | | |
$ | (502 | ) |
| |
Securities in a
loss | | |
Securities in a
loss | | |
| | |
| |
| |
Position for less
than | | |
Position for 12
Months | | |
| | |
| |
| |
12 Months | | |
or Longer | | |
Total | |
December 31, 2014 | |
Estimated | | |
| | |
Estimated | | |
| | |
Estimated | | |
| |
| |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
| |
(In Thousands) | |
Investment securities available-for-sale: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mortgage backed securities | |
$ | 19,252 | | |
$ | (74 | ) | |
$ | 17,141 | | |
$ | (365 | ) | |
$ | 36,393 | | |
$ | (439 | ) |
U.S. Government agencies | |
| - | | |
| - | | |
| 18,525 | | |
| (473 | ) | |
| 18,525 | | |
| (473 | ) |
Municipals - nontaxable | |
| 2,271 | | |
| (1 | ) | |
| - | | |
| - | | |
| 2,271 | | |
| (1 | ) |
Corporate bonds | |
| 4,480 | | |
| (27 | ) | |
| - | | |
| - | | |
| 4,480 | | |
| (27 | ) |
Asset backed securities | |
| 6,289 | | |
| (71 | ) | |
| 2,995 | | |
| (101 | ) | |
| 9,284 | | |
| (172 | ) |
CRA Mutual fund | |
| - | | |
| - | | |
| 1,437 | | |
| (63 | ) | |
| 1,437 | | |
| (63 | ) |
Total | |
$ | 32,292 | | |
$ | (173 | ) | |
$ | 40,098 | | |
$ | (1,002 | ) | |
$ | 72,390 | | |
$ | (1,175 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Investment securities held-to-maturity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
$ | - | | |
$ | - | | |
$ | 4,960 | | |
$ | (25 | ) | |
$ | 4,960 | | |
$ | (25 | ) |
Municipals - nontaxable | |
| 842 | | |
| (3 | ) | |
| - | | |
| - | | |
| 842 | | |
| (3 | ) |
Total | |
$ | 842 | | |
$ | (3 | ) | |
$ | 4,960 | | |
$ | (25 | ) | |
$ | 5,802 | | |
$ | (28 | ) |
The
Corporation evaluates securities for other than temporary impairment (“OTTI”) on a quarterly basis and more frequently
when economic or market conditions warrant such evaluation. Consideration is given to various factors in determining whether the
Corporation anticipates a recovery in fair value such as: the length of time and extent to which the fair value has been less
than cost, and the financial condition and underlying credit quality of the issuer. When analyzing an issuer’s financial
condition, the Corporation may consider whether the securities are issued by the federal government or its agencies, the sector
or industry trends affecting the issuer, and whether any recent downgrades by bond rating agencies have occurred.
NOTE
3 – SECURITIES (continued)
U.S.
Government agencies
The
Corporation’s unrealized losses on U.S. Government Agency obligations were caused by interest rate fluctuations. On March
31, 2015, there were four available-for-sale securities had unrealized losses of $135 thousand. The severity and duration of these
unrealized losses will fluctuate with interest rates in the economy. As the securities are obligations of government agencies,
it is the Corporation’s intent to hold these securities until a market price recovery or maturity, and it is more-likely-than
not that the Corporation will not be required to sell the securities before their anticipated recovery, the Corporation does not
consider these investments other than temporarily impaired.
Mortgage-backed
The
Corporation’s unrealized losses on mortgage backed securities were caused by interest rate fluctuations. At March 31, 2015,
eight securities had unrealized losses of $208 thousand. As these securities are Ginnie Mae and government sponsored entity securities
backed by the United States Government, the Corporation’s intent to hold these securities until a market price recovery
or maturity, and the determination that it is more-likely-than not that the Corporation will not be required to sell these securities
before their anticipated recoveries, the Corporation does not consider these investments other than temporarily impaired.
Asset-backed
Securities
The
Corporation’s unrealized loss on its other investments was caused by interest rate fluctuations. At March 31, 2015, four
securities had unrealized losses of $101 thousand. Based on the credit quality of the issuers, the Corporation’s intent
to hold these securities until a market price recovery, and the determination that it is more likely than not that the Corporation
will not be required to sell the securities before their anticipated recoveries, the Corporation does not consider these investments
other than temporarily impaired.
Mutual
fund
The
Corporation’s unrealized loss on its mutual fund investment was caused by interest rate fluctuations. At March 31, 2015,
this one security had an unrealized loss of $58 thousand. Based on the credit quality of the issuer, the Corporation’s intent
to hold this security until a market price recovery, and the determination that it is more-likely-than not that the Corporation
will not be required to sell this security before its anticipated recovery, the Corporation does not consider this investment
other than temporarily impaired.
Restricted
Stock
The
Corporation’s restricted stock consists of Federal Home Loan Bank of Atlanta (“FHLB”) stock and Federal Reserve
Bank (“FRB”) stock. The amortized costs of the restricted stock as of March 31, 2015 and December 31, 2014 are as
follows:
| |
March 31, 2015 | | |
December 31, 2014 | |
Restricted Stock: | |
(In Thousands) | |
| |
| | |
| |
Federal Reserve Bank stock | |
$ | 999 | | |
$ | 999 | |
| |
| | | |
| | |
FHLB stock | |
| 7,322 | | |
| 7,962 | |
| |
$ | 8,321 | | |
$ | 8,961 | |
NOTE
3 – SECURITIES (continued)
Securities
Sold Under Agreements to Repurchase (Repurchase Agreements)
The
Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or
similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain
effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. As a
result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and
not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a
liability in the Corporation’s consolidated balance sheets, while the securities underlying the
repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting
or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Corporation
does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase
agreements.
The
right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle
the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to
the counterparty). The collateral is held by a third-party financial institution in the Corporation’s custodial
account. The Corporation has the right to sell or repledge the investment securities. The risks and rewards associated with
the investment securities pledged as collateral (e.g. a decline or rise in the fair value of the investments) remains with
the Corporation. As of March 31, 2015 and December 31, 2014, the obligations outstanding under these repurchase agreements
totaled $20.5 million and $25.6 million, respectively, while the fair value of the securities pledged in connection with
these repurchase agreements was $24.8 million and $26.1 million at March 31, 2015 and December 31, 2014,
respectively.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
The
following table presents the composition of the loans held for investment portfolio at March 31, 2015 and December 31, 2014:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Amount | | |
Percentage of Total | | |
Amount | | |
Percentage of Total | |
| |
(Dollars In Thousands) | |
Commercial real estate-owner occupied | |
$ | 210,131 | | |
| 26.46 | % | |
$ | 199,442 | | |
| 25.68 | % |
Commercial real estate-non owner occupied | |
| 123,387 | | |
| 15.54 | | |
| 125,442 | | |
| 16.15 | |
Residential real estate | |
| 191,914 | | |
| 24.16 | | |
| 194,213 | | |
| 25.01 | |
Commercial | |
| 219,623 | | |
| 27.65 | | |
| 210,278 | | |
| 27.08 | |
Real estate construction | |
| 43,290 | | |
| 5.45 | | |
| 41,080 | | |
| 5.29 | |
Consumer | |
| 5,869 | | |
| 0.74 | | |
| 6,148 | | |
| 0.79 | |
Total loans | |
$ | 794,214 | | |
| 100.00 | % | |
$ | 776,603 | | |
| 100.00 | % |
Less allowance for loan losses | |
| 13,331 | | |
| | | |
| 13,399 | | |
| | |
| |
$ | 780,883 | | |
| | | |
$ | 763,204 | | |
| | |
Unearned
income and net deferred loan fees and costs totaled $1.6 million at March 31, 2015 and December 31, 2014. Loans pledged to secure
borrowings at the FHLB totaled $209.6 million and $215.8 million at March 31, 2015 and December 31, 2014, respectively.
Allowance
for Loan Losses
The
allowance for loan losses totaled $13.3 million at March 31, 2015 compared to $13.4 million at year end December 31, 2014. The
allowance for loan losses was equivalent to 1.68% and 1.73% of total loans held for investment at March 31, 2015 and December
31, 2014, respectively. Adequacy of the allowance is assessed and the allowance is increased by provisions for loan losses charged
to expense no less than quarterly. Charge-offs are taken when a loan is identified as uncollectible.
The
methodology by which we systematically determine the amount of our allowance is set forth by the Board of Directors in our Loan
Policy and implemented by management. The results of the analysis are documented, reviewed, and approved by the Board of Directors
no less than quarterly.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
The
level of the allowance for loan losses is determined by management through an ongoing, detailed analysis of historical loss rates
and risk characteristics. During each quarter, management evaluates the collectability of all loans in the portfolio and ensures
an accurate risk rating is assigned to each loan. The risk rating scale and definitions commonly adopted by the Federal Banking
Agencies is contained within the framework prescribed by the Bank’s Loan Policy. Any loan that is deemed to have potential
or well defined weaknesses that may jeopardize collection in full is then analyzed to ascertain its level of weakness. If appropriate,
the loan may be charged-off or a specific reserve may be assigned if the loan is deemed to be impaired.
During
the risk rating verification process, each loan identified as inadequately protected by the current sound worth and paying capacity
of the obligor or of the collateral pledged is considered impaired and is placed on non-accrual status. On these loans, management
analyzes the potential impairment of the individual loan and may set aside a specific reserve. Any amounts deemed uncollectible
during that analysis are charged-off.
For
the remaining loans in each segment, the Bank calculates the probability of loss as a group using the risk rating for each of
the following loan types: Commercial Real Estate - Owner Occupied, Commercial Real Estate - Non-Owner Occupied, Residential Real
Estate, Commercial, Real Estate Construction, and Consumer. Management calculates the historical loss rate in each group by risk
rating using a period of at least six years. This historical loss rate may then be adjusted based on management’s assessment
of internal and external environmental factors. While management may consider other factors, the analysis generally includes factors
such as unemployment, office vacancy rates, and any concentrations that exist within the portfolio. This adjustment is meant to
account for changes between the historical economic environment and current conditions and for changes in the ongoing management
of the portfolio which affects the loans’ potential losses.
Once
complete, management compares the condition of the portfolio using several different characteristics, as well as its experience,
to the experience of other banks in its peer group in order to determine if it is directionally consistent with others’
experience in our area and line of business. Based on that analysis, management aggregates the probabilities of loss of the remaining
portfolio based on the specific and general allowances and may provide additional amounts to the allowance for loan losses as
needed. Since this process involves estimates, the allowance for loan losses may also contain an amount that is non-material which
is not allocated to a specific loan or to a group of loans but is deemed necessary to absorb additional losses in the portfolio.
Management
and the Board of Directors subject the reserve adequacy and methodology to a review on a regular basis by internal auditors, external
auditors and bank regulators, and such reviews have not resulted in any material adjustment to the allowance.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
The
following tables provide detailed information about the allowance for loan losses as of and for the periods indicated.
Three months ended March 31, 2015 | |
Commercial real
estate - owner
occupied | | |
Commercial real
estate - non-owner
occupied | | |
Residential
real estate | | |
Commercial | | |
Real estate
construction | | |
Consumer | | |
Total | |
Allowance for credit losses: | |
(In Thousands) | |
Beginning Balance | |
$ | 3,229 | | |
$ | 1,894 | | |
$ | 3,308 | | |
$ | 4,284 | | |
$ | 596 | | |
$ | 88 | | |
$ | 13,399 | |
Charge-offs | |
| - | | |
| - | | |
| - | | |
| (114 | ) | |
| - | | |
| - | | |
| (114 | ) |
Recoveries | |
| - | | |
| - | | |
| 24 | | |
| 22 | | |
| - | | |
| - | | |
| 46 | |
Provisions | |
| 109 | | |
| (143 | ) | |
| (150 | ) | |
| 146 | | |
| 40 | | |
| (2 | ) | |
| - | |
Ending Balance | |
$ | 3,338 | | |
$ | 1,751 | | |
$ | 3,182 | | |
$ | 4,338 | | |
$ | 636 | | |
$ | 86 | | |
$ | 13,331 | |
Three months ended March 31, 2014 | |
Commercial real
estate – owner
occupied | | |
Commercial real
estate - non-owner
occupied | | |
Residential
real estate | | |
Commercial | | |
Real estate
construction | | |
Consumer | | |
Total | |
Allowance for credit losses: | |
(In Thousands) | |
Beginning Balance | |
$ | 3,763 | | |
$ | 1,734 | | |
$ | 3,320 | | |
$ | 3,484 | | |
$ | 743 | | |
$ | 92 | | |
$ | 13,136 | |
Charge-offs | |
| - | | |
| - | | |
| - | | |
| (16 | ) | |
| - | | |
| - | | |
| (16 | ) |
Recoveries | |
| - | | |
| - | | |
| 40 | | |
| 11 | | |
| - | | |
| - | | |
| 51 | |
Provisions | |
| (2 | ) | |
| (19 | ) | |
| (109 | ) | |
| 66 | | |
| 43 | | |
| 21 | | |
| - | |
Ending Balance | |
$ | 3,761 | | |
$ | 1,715 | | |
$ | 3,251 | | |
$ | 3,545 | | |
$ | 786 | | |
$ | 113 | | |
$ | 13,171 | |
| |
Recorded Investment in Loans | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
March 31, 2015 | |
Commercial
real estate -
owner occupied | | |
Commercial
real estate -
non-owner occupied | | |
Residential
real estate | | |
Commercial | | |
Real estate
construction | | |
Consumer | | |
Total | |
| |
(In Thousands) | |
Allowance | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: | |
$ | 3,338 | | |
$ | 1,751 | | |
$ | 3,182 | | |
$ | 4,338 | | |
$ | 636 | | |
$ | 86 | | |
$ | 13,331 | |
Ending balance: individually evaluated for
impairment | |
$ | - | | |
$ | - | | |
$ | - | | |
| | | |
$ | - | | |
$ | - | | |
$ | - | |
Ending balance: collectively evaluated for
impairment | |
$ | 3,338 | | |
$ | 1,751 | | |
$ | 3,182 | | |
$ | 4,338 | | |
$ | 636 | | |
$ | 86 | | |
$ | 13,331 | |
Ending balance: loans acquired with deteriorated
credit quality | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance | |
$ | 210,131 | | |
$ | 123,387 | | |
$ | 191,914 | | |
$ | 219,623 | | |
$ | 43,290 | | |
$ | 5,869 | | |
$ | 794,214 | |
Ending balance: individually evaluated for
impairment | |
$ | 355 | | |
$ | 6,040 | | |
$ | 318 | | |
$ | 1,321 | | |
$ | - | | |
$ | - | | |
$ | 8,034 | |
Ending balance: collectively evaluated for
impairment | |
$ | 209,776 | | |
$ | 117,347 | | |
$ | 191,596 | | |
$ | 218,302 | | |
$ | 43,290 | | |
$ | 5,869 | | |
$ | 786,180 | |
Ending balance: loans acquired with deteriorated
credit quality | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
Commercial
real estate -
owner occupied | | |
Commercial
real estate -
non-owner occupied | | |
Residential
real estate | | |
Commercial | | |
Real estate
construction | | |
Consumer | | |
Total | |
| |
(In Thousands) | |
Allowance | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: | |
$ | 3,229 | | |
$ | 1,894 | | |
$ | 3,308 | | |
$ | 4,284 | | |
$ | 596 | | |
$ | 88 | | |
$ | 13,399 | |
Ending balance: individually evaluated for
impairment | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 115 | | |
$ | - | | |
$ | - | | |
$ | 115 | |
Ending balance: collectively evaluated for
impairment | |
$ | 3,229 | | |
$ | 1,894 | | |
$ | 3,308 | | |
$ | 4,169 | | |
$ | 596 | | |
$ | 88 | | |
$ | 13,284 | |
Ending balance: loans acquired with deteriorated
credit quality | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: | |
$ | 199,442 | | |
$ | 125,442 | | |
$ | 194,213 | | |
$ | 210,278 | | |
$ | 41,080 | | |
$ | 6,148 | | |
$ | 776,603 | |
Ending balance: individually evaluated for
impairment | |
$ | 356 | | |
$ | - | | |
$ | 320 | | |
$ | 1,515 | | |
$ | - | | |
$ | - | | |
$ | 2,191 | |
Ending balance: collectively evaluated for
impairment | |
$ | 199,086 | | |
$ | 125,442 | | |
$ | 193,893 | | |
$ | 208,763 | | |
$ | 41,080 | | |
$ | 6,148 | | |
$ | 774,412 | |
Ending balance: loans acquired with deteriorated
credit quality | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
Identifying
and Classifying Portfolio Risks by Risk Rating
At
origination, loans are categorized into risk categories based upon original underwriting. Subsequent to origination, management
evaluates the collectability of all loans in the portfolio and assigns a proprietary risk rating. Ratings range from the highest
to lowest quality based on factors including measurements of ability to pay, collateral type and value, borrower stability, management
experience, and credit enhancements. These ratings are consistent with the bank regulatory rating
system.
A
loan may have portions of its balance in one rating and other portions in a different rating. The Bank may use these “split
ratings” when factors cause loan loss risk to exist for part but not all of the principal balance. Split ratings may also
be used where cash collateral or a government agency has provided a guaranty that partially covers a loan.
For
clarity of presentation, the Corporation’s loan portfolio is profiled below in accordance with the risk rating framework
that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:
Pass
- The condition of the borrower and the performance of the loan is satisfactory or better.
Special
mention - A special mention asset has one or more potential weaknesses that deserve management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s
credit position at some future date.
Substandard
- A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral
pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
Doubtful
- An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
Loss
- Assets classified loss are considered uncollectible and their continuance as bankable assets is not warranted. This classification
does not mean that the asset has absolutely no recovery or salvage value, and a partial recovery may be effected in the future.
The
Bank did not have any loans classified as loss at March 31, 2015 or December 31, 2014. It is the Bank’s policy to charge-off
any loan once the risk rating is classified as loss.
The
profile of the loan portfolio, as indicated by risk rating, as of March 31, 2015 and December 31, 2014 is shown below.
Credit Risk Profile by Risk Rating | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Commercial real estate -
owner occupied | | |
Commercial real estate -
non-owner occupied | | |
Residential real estate | | |
Commercial | | |
Real estate construction | | |
Consumer | | |
Totals | |
| |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | |
| |
(In Thousands) | |
Pass | |
$ | 204,900 | | |
$ | 194,007 | | |
$ | 112,159 | | |
$ | 111,301 | | |
$ | 189,840 | | |
$ | 191,512 | | |
$ | 203,939 | | |
$ | 194,585 | | |
$ | 43,489 | | |
$ | 41,253 | | |
$ | 5,869 | | |
$ | 6,148 | | |
$ | 760,196 | | |
$ | 738,806 | |
Special mention | |
| 1,996 | | |
| 2,115 | | |
| - | | |
| 2,627 | | |
| 1,932 | | |
| 2,100 | | |
| 13,054 | | |
| 10,519 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16,982 | | |
| 17,361 | |
Substandard | |
| 3,742 | | |
| 3,767 | | |
| 11,564 | | |
| 11,751 | | |
| 342 | | |
| 936 | | |
| 2,959 | | |
| 5,540 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 18,607 | | |
| 21,994 | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Unearned income | |
| (507 | ) | |
| (447 | ) | |
| (336 | ) | |
| (237 | ) | |
| (200 | ) | |
| (335 | ) | |
| (329 | ) | |
| (366 | ) | |
| (199 | ) | |
| (173 | ) | |
| - | | |
| - | | |
| (1,571 | ) | |
| (1,558 | ) |
Total | |
$ | 210,131 | | |
$ | 199,442 | | |
$ | 123,387 | | |
$ | 125,442 | | |
$ | 191,914 | | |
$ | 194,213 | | |
$ | 219,623 | | |
$ | 210,278 | | |
$ | 43,290 | | |
$ | 41,080 | | |
$ | 5,869 | | |
$ | 6,148 | | |
$ | 794,214 | | |
$ | 776,603 | |
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
Loans
listed as non-performing are also placed on non-accrual status. The accrual of interest is discontinued at the time a loan is
90 days delinquent or when the credit deteriorates and there is doubt that the credit will be paid as agreed, unless the credit
is well-secured and in process of collection. Once the loan is on non-accrual status, all accrued but unpaid interest is also
charged-off, and all payments are used to reduce the principal balance. Once the principal balance is repaid in full, additional
payments are taken into income. A loan may be returned to accrual status if the borrower shows renewed willingness and ability
to repay under the term of the loan agreement. The risk profile based upon payment activity is shown below.
Credit Risk Profile Based on Payment Activity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Commercial real estate -
owner occupied | | |
Commercial real estate -
non-owner occupied | | |
Residential real estate | | |
Commercial | | |
Real estate construction | | |
Consumer | | |
Totals | |
| |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | | |
3/31/15 | | |
12/31/14 | |
| |
(In Thousands) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Performing | |
$ | 210,131 | | |
$ | 199,442 | | |
$ | 117,347 | | |
$ | 125,442 | | |
$ | 191,785 | | |
$ | 194,084 | | |
$ | 219,008 | | |
$ | 208,785 | | |
$ | 43,290 | | |
$ | 41,080 | | |
$ | 5,869 | | |
$ | 6,148 | | |
$ | 787,430 | | |
$ | 774,981 | |
Non-performing | |
| - | | |
| - | | |
| 6,040 | | |
| - | | |
| 129 | | |
| 129 | | |
| 615 | | |
| 1,493 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,784 | | |
| 1,622 | |
Total | |
$ | 210,131 | | |
$ | 199,442 | | |
$ | 123,387 | | |
$ | 125,442 | | |
$ | 191,914 | | |
$ | 194,213 | | |
$ | 219,623 | | |
$ | 210,278 | | |
$ | 43,290 | | |
$ | 41,080 | | |
$ | 5,869 | | |
$ | 6,148 | | |
$ | 794,214 | | |
$ | 776,603 | |
Loans
are considered past due if a contractual payment is not made by the calendar day after the payment is due. However, for reporting
purposes loans past due 1 to 29 days are excluded from loans past due and are included in the total for current loans in the table
below. The delinquency status of the loans in the portfolio is shown below as of March 31, 2015 and December 31, 2014. Loans that
were on non-accrual status are not included in any past due amounts.
| |
Age Analysis of Past Due Loans | |
| |
| |
| |
March 31, 2015 | |
| |
30-59 Days
Past Due | | |
60-89 Days
Past Due | | |
Greater than
90 Days | | |
Total Past
Due | | |
Non-accrual
Loans | | |
Current
Loans | | |
Total
Loans | |
| |
(In Thousands) | |
Commercial real estate - owner occupied | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 210,131 | | |
$ | 210,131 | |
Commercial real estate - non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,040 | | |
| 117,347 | | |
| 123,387 | |
Residential real estate | |
| - | | |
| - | | |
| - | | |
| - | | |
| 129 | | |
| 191,785 | | |
| 191,914 | |
Commercial | |
| 796 | | |
| - | | |
| - | | |
| 796 | | |
| 615 | | |
| 218,212 | | |
| 219,623 | |
Real estate construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 43,290 | | |
| 43,290 | |
Consumer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,869 | | |
| 5,869 | |
Total | |
$ | 796 | | |
$ | - | | |
$ | - | | |
$ | 796 | | |
$ | 6,784 | | |
$ | 786,634 | | |
$ | 794,214 | |
| |
December 31, 2014 | |
| |
30-59 Days
Past Due | | |
60-89 Days
Past Due | | |
Greater than
90 Days | | |
Total Past
Due | | |
Non-accrual
Loans | | |
Current
Loans | | |
Total
Loans | |
| |
(In Thousands) | |
Commercial real estate - owner occupied | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 199,442 | | |
$ | 199,442 | |
Commercial real estate - non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 125,442 | | |
| 125,442 | |
Residential real estate | |
| - | | |
| 217 | | |
| - | | |
| 217 | | |
| 129 | | |
| 193,867 | | |
| 194,213 | |
Commercial | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,493 | | |
| 208,785 | | |
| 210,278 | |
Real estate construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 41,080 | | |
| 41,080 | |
Consumer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,148 | | |
| 6,148 | |
Total | |
$ | - | | |
$ | 217 | | |
$ | - | | |
$ | 217 | | |
$ | 1,622 | | |
$ | 774,764 | | |
$ | 776,603 | |
During
the first quarter of 2015, one $6 million loan was added to non-accrual status increasing the total of non-accrual loans to $6.8
million from $1.6 million at December 31, 2014.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
Troubled
Debt Restructurings
A
troubled debt restructuring ("TDR") is a formal restructure of a loan when the Bank, for economic or legal reasons related
to the borrower's financial difficulties, grants a concession to a borrower. The Bank classifies these transactions as a TDR if
the transaction meets the following conditions: an existing credit agreement must be formally renewed, extended and/or modified;
the borrower must be experiencing financial difficulty; and the Bank has granted a concession that it would not otherwise consider.
Once
identified as a TDR, a loan is considered to be impaired, and an impairment analysis is performed for the loan individually, rather
than under a general loss allowance based on the loan type and risk rating. Any resulting shortfall is charged-off. This method
is used consistently for all segments of the portfolio.
Normally,
loans identified as TDRs would be placed on non-accrual status and considered non-performing until sufficient history of timely
collection or payment has occurred that allows them to return to performing status, generally 6 months.
No
loans were modified in connection with a troubled debt restructuring during the three month periods ended March 31, 2015 and
March 31, 2014.
Impaired
Loans
A
loan is classified as impaired when it is deemed probable by management’s analysis that the Bank will be unable to collect
all amounts due according to the contractual terms of the loan agreement, or the recorded investment in the impaired loan is greater
than the present value of expected future cash flows, discounted at the loan's effective interest rate. In the case of an impaired
loan, management conducts an analysis which identifies if a quantifiable potential loss exists, and takes the necessary steps
to record that loss when it has been identified as uncollectible.
As
the ultimate collectability of the total principal of an impaired loan is in doubt, the loan is placed on nonaccrual status with
all payment applied to principal under the cost-recovery method. As such, the Bank did not recognize any interest income on its
impaired loans for the three month periods ended March 31, 2015 and 2014.
NOTE
4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
The
table below shows the results of management’s analysis of impaired loans as of March 31, 2015 and December 31, 2014.
| |
Impaired Loans | |
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Recorded investment | | |
Unpaid principal balance | | |
Related allowance | | |
Recorded investment | | |
Unpaid principal balance | | |
Related allowance | |
| |
(In Thousands) | |
With no specific related allowance recorded: | |
| |
Commercial real estate - owner occupied | |
$ | 355 | | |
$ | 355 | | |
$ | - | | |
$ | 356 | | |
$ | 356 | | |
$ | - | |
Commercial real estate - non-owner occupied | |
| 6,040 | | |
| 6,040 | | |
| - | | |
| - | | |
| - | | |
| - | |
Residential real estate | |
| 318 | | |
| 360 | | |
| - | | |
| 320 | | |
| 362 | | |
| - | |
Commercial | |
| 1,321 | | |
| 1,421 | | |
| - | | |
| 1,401 | | |
| 1,913 | | |
| - | |
Real estate construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Consumer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
With a specific related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate - owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Commercial real estate - non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Residential real estate | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Commercial | |
| - | | |
| - | | |
| - | | |
| 114 | | |
| 120 | | |
| 115 | |
Real estate construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Consumer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate - owner occupied | |
| 355 | | |
| 355 | | |
| - | | |
| 356 | | |
| 356 | | |
| - | |
Commercial real estate - non-owner occupied | |
| 6,040 | | |
| 6,040 | | |
| - | | |
| - | | |
| - | | |
| - | |
Residential real estate | |
| 318 | | |
| 360 | | |
| - | | |
| 320 | | |
| 362 | | |
| - | |
Commercial | |
| 1,321 | | |
| 1,421 | | |
| - | | |
| 1,515 | | |
| 2,033 | | |
| 115 | |
Real estate construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Consumer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
$ | 8,034 | | |
$ | 8,176 | | |
$ | - | | |
$ | 2,191 | | |
$ | 2,751 | | |
$ | 115 | |
The
table below shows the average recorded investment in impaired loans for the periods presented.
| |
Three Months Ended | |
| |
March 31, 2015 | | |
March 31, 2014 | |
| |
Average Recorded Investment | | |
Average Recorded Investment | |
| |
| | |
| |
Commercial real estate - owner occupied | |
$ | 355 | | |
$ | 362 | |
Commercial real estate - non-owner occupied | |
| 6,101 | | |
| - | |
Residential real estate | |
| 403 | | |
| 850 | |
Commercial | |
| 1,534 | | |
| 2,036 | |
Real estate construction | |
| - | | |
| - | |
Consumer | |
| - | | |
| - | |
Total | |
$ | 8,393 | | |
$ | 3,248 | |
NOTE
5 – SEGMENT REPORTING
The
Corporation has three reportable segments: traditional commercial banking, mortgage banking, and wealth management.
Revenues from commercial banking operations consist primarily of interest earned on loans and securities and fees from
deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage loans held for sale,
gains on sales of loans in the secondary mortgage market, and loan origination fee income. Wealth management operating
revenues consist principally of transactional fees charged to clients as well as fees for portfolio asset management.
NOTE
5 – SEGMENT REPORTING (continued)
The
commercial banking segment provides the mortgage banking segment with the short-term funds needed to originate mortgage loans
through a warehouse line of credit and charges the mortgage banking segment interest based on the prime rate. These transactions
are eliminated in the consolidation process.
The
“Other” column in the following table includes the operations of the Corporation and Access Real Estate. The primary
source of income for the Corporation is derived from dividends from the Bank and its primary expenses relate to costs incurred
by the Corporation in connection with its annual audits and directors fees. The primary source of income for Access Real Estate
is derived from rents received from the Bank.
The
following table presents segment information as of and for the three months ended March 31, 2015 and 2014:
| |
Commercial | | |
Mortgage | | |
Wealth | | |
| | |
| | |
Consolidated | |
March 31, 2015 | |
Banking | | |
Banking | | |
Management | | |
Other | | |
Eliminations | | |
Totals | |
| |
(In Thousands) | |
Revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest income | |
$ | 10,080 | | |
$ | 362 | | |
$ | - | | |
$ | 3 | | |
$ | (169 | ) | |
$ | 10,276 | |
Gain on sale of loans | |
| - | | |
| 3,571 | | |
| - | | |
| - | | |
| - | | |
| 3,571 | |
Other revenues | |
| 719 | | |
| 1,425 | | |
| 545 | | |
| 346 | | |
| (301 | ) | |
| 2,734 | |
Total revenues | |
| 10,799 | | |
| 5,358 | | |
| 545 | | |
| 349 | | |
| (470 | ) | |
| 16,581 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 838 | | |
| 95 | | |
| 6 | | |
| 64 | | |
| (169 | ) | |
| 834 | |
Salaries and employee benefits | |
| 3,227 | | |
| 3,026 | | |
| 464 | | |
| - | | |
| - | | |
| 6,717 | |
Other expenses | |
| 1,804 | | |
| 1,225 | | |
| 207 | | |
| 594 | | |
| (301 | ) | |
| 3,529 | |
Total operating expenses | |
| 5,869 | | |
| 4,346 | | |
| 677 | | |
| 658 | | |
| (470 | ) | |
| 11,080 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
$ | 4,930 | | |
$ | 1,012 | | |
$ | (132 | ) | |
$ | (309 | ) | |
$ | - | | |
$ | 5,501 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total assets | |
$ | 1,010,045 | | |
$ | 60,042 | | |
$ | 1,284 | | |
$ | 15,741 | | |
$ | (17,910 | ) | |
$ | 1,069,202 | |
| |
Commercial | | |
Mortgage | | |
Wealth | | |
| | |
| | |
Consolidated | |
March 31, 2014 | |
Banking | | |
Banking | | |
Management | | |
Other | | |
Eliminations | | |
Totals | |
| |
(In Thousands) | |
Revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest income | |
$ | 8,848 | | |
$ | 202 | | |
$ | - | | |
$ | 3 | | |
$ | (108 | ) | |
$ | 8,945 | |
Gain on sale of loans | |
| - | | |
| 1,728 | | |
| - | | |
| - | | |
| - | | |
| 1,728 | |
Other revenues | |
| 483 | | |
| 549 | | |
| 509 | | |
| 287 | | |
| (300 | ) | |
| 1,528 | |
Total revenues | |
| 9,331 | | |
| 2,479 | | |
| 509 | | |
| 290 | | |
| (408 | ) | |
| 12,201 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 802 | | |
| 10 | | |
| 0 | | |
| 95 | | |
| (108 | ) | |
| 799 | |
Salaries and employee benefits | |
| 2,800 | | |
| 1,800 | | |
| 287 | | |
| - | | |
| - | | |
| 4,887 | |
Other expenses | |
| 1,548 | | |
| 666 | | |
| 230 | | |
| 631 | | |
| (300 | ) | |
| 2,775 | |
Total operating expenses | |
| 5,150 | | |
| 2,476 | | |
| 517 | | |
| 726 | | |
| (408 | ) | |
| 8,461 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
$ | 4,181 | | |
$ | 3 | | |
$ | (8 | ) | |
$ | (436 | ) | |
$ | - | | |
$ | 3,740 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total assets | |
$ | 893,580 | | |
$ | 33,461 | | |
$ | 1,895 | | |
$ | 14,354 | | |
$ | (16,490 | ) | |
$ | 926,800 | |
NOTE
6 – EARNINGS PER SHARE
The
following table shows the calculation of both basic and diluted earnings per share (“EPS”) for the three months ended
March 31, 2015 and 2014, respectively. The numerator of both the basic and diluted EPS is equivalent to net income. The weighted
average number of shares outstanding used as the denominator for diluted EPS is increased over the denominator used for basic
EPS by the effect of potentially dilutive common stock options utilizing the treasury stock method.
| |
Three Months | | |
Three Months | |
| |
Ended | | |
Ended | |
| |
March 31, 2015 | | |
March 31, 2014 | |
| |
(In Thousands, Except for Share and Per Share Data) | |
| |
| | |
| |
BASIC EARNINGS PER SHARE: | |
| | | |
| | |
Net income | |
$ | 3,573 | | |
$ | 2,414 | |
Weighted average shares outstanding | |
| 10,473,366 | | |
| 10,391,080 | |
| |
| | | |
| | |
Basic earnings per share | |
$ | 0.34 | | |
$ | 0.23 | |
| |
| | | |
| | |
DILUTED EARNINGS PER SHARE: | |
| | | |
| | |
Net income | |
$ | 3,573 | | |
$ | 2,414 | |
Weighted average shares outstanding | |
| 10,473,366 | | |
| 10,391,080 | |
Dilutive stock options | |
| 43,856 | | |
| 56,005 | |
Weighted average diluted shares outstanding | |
| 10,517,222 | | |
| 10,447,085 | |
| |
| | | |
| | |
Diluted earnings per share | |
$ | 0.34 | | |
$ | 0.23 | |
NOTE
7 - DERIVATIVES
As
part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate
loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate.
The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs (“best
efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor.
Certain loans under interest rate lock commitments are covered under forward sales contracts of mortgage backed securities (“MBS”).
Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income. Interest
rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate
lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded
in stand-alone markets. The Bank determines the fair value of interest rate lock commitments and delivery contracts by measuring
the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability
that the interest rate lock commitments will close or will be funded.
Certain
additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet
the terms of the contracts. The Bank does not expect any counterparty to any MBS to fail to meet its obligation. Additional risks
inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to interest rate risk
lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this
be required, the Bank could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse
effect on mortgage banking operations in future periods.
Since
the Bank’s derivative instruments are not designated as hedging instruments, the fair value of the derivatives are recorded
as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.
The Bank has not elected to apply hedge accounting to its derivative instruments as provided in Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging.
NOTE
7 – DERIVATIVES (continued)
At
March 31, 2015 and December 31, 2014, the Bank had open forward contracts with a notional value of $77.3 million and $45.3 million,
respectively. At March 31, 2015 and December 31, 2014, the Mortgage Division did not have any open mandatory delivery contracts.
The open forward delivery contracts are composed of forward sales of MBS. The fair value of these open forward contracts was ($557)
thousand and ($349) thousand at March 31, 2015 and December 31, 2014, respectively.
Interest
rate lock commitments totaled $57.7 million and $23.5 million at March 31, 2015 and December 31, 2014, respectively, and included
$9.0 million and $5.3 million that were made on a best efforts basis at March 31, 2015 and December 31, 2014, respectively. Fair
values of these best efforts commitments were $70 thousand and $39 thousand at March 31, 2015 and December 31, 2014, respectively.
The remaining hedged interest rate lock commitments totaling $48.7 million and $18.2 million at March 31, 2015 and December 31,
2014 had a fair value of $679 thousand and $200 thousand, respectively.
Included
in other noninterest income for the three months ended March 31, 2015 and March 31, 2014 was a net gain of $439 thousand and a
net loss of $25 thousand, respectively, relating to derivative instruments. The amount included in other noninterest income for
the three months ended March 31, 2015 and March 31, 2014 pertaining to its hedging activities was a net realized loss of $513
thousand and a net realized loss of $343 thousand, respectively.
NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, “Revenue from
Contracts with Customers: Topic 606”. This ASU supersedes the revenue recognition requirements in Topic 605, “Revenue
Recognition” as well as most industry-specific guidance. The amendments also create a new Subtopic 340-40 “Other Assets
and Deferred Costs – Contracts with Customers”. In summary, entities are to recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The provisions of ASU 2014-09 are effective for annual periods beginning after December
15, 2016 and interim periods within 2017. The adoption of this guidance should not have a material effect on the Corporation’s
financial condition or results of operations.
In June 2014, the FASB issued ASU 2014-11, “Transfers
and Servicing (Topic 860)” which changes the accounting for repurchase financing agreements. It also requires additional
disclosures about repurchase agreements and other similar transactions. Under this ASU, transactions would all be accounted for
as secured borrowings as the guidance eliminates sale accounting for repurchase-to-maturity transactions. The amendments in the
ASU require new disclosures for transactions that are economically similar to repurchase agreements in which the transferor retains
substantially all of the exposure to the economic return on the transferred financial assets throughout the transaction term as
well as expanded disclosures on the nature of pledged collateral in repurchase agreements. The provisions of ASU 2014-11 are effective
for annual periods beginning after December 15, 2014. The adoption of this guidance should not have a material effect on the Corporation’s
financial condition or results of operations.
In June 2014, the FASB issued ASU 2014-12,
“Compensation – Stock Compensation (Topic 718)”. The amendments in this ASU require a performance target
that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The
performance target should not be reflected in estimating the grant-date fair values of the award, and compensation cost
should be recognized in the period in which it becomes probable that the performance target will be achieved and should
represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The
amendments in the ASU are effective for annual periods beginning after December 15, 2015. The adoption of this guidance
should not have a material effect on the Corporation’s financial condition or results of operations.
In
January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20)”.
This ASU eliminates extraordinary items from US GAAP and will align more closely with International Accounting Standards 1, “Presentation
of Financial Statements”. The amendments in the ASU are effective beginning after December 15, 2015. The adoption of this
guidance should not have a material effect on the Corporation’s financial condition or results of operations.
In
February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810)”. This ASU focuses on the consolidation evaluation
for reporting organizations that are required to evaluate consolidation of certain legal entities by reducing the number of consolidation
models from four to two and is intended to improve current GAAP. The amendments in the ASU are effective beginning after December
15, 2016. The adoption of this guidance should not have a material effect on the Corporation’s financial condition or results
of operations.
In
April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30)”. This ASU requires
debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability. The amendments
in the ASU are effective beginning after December 15, 2015. The adoption of this guidance should not have a material effect on
the Corporation’s financial condition or results of operations.
NOTE
9 - FAIR VALUE
Fair
value pursuant to FASB ASC 820-10, Fair Value Measurements and Disclosures, is the exchange price, in an orderly
transaction
that is not a forced liquidation or distressed sale, between market participants to sell an asset or transfer a liability in the
market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market
for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction
at the measurement date, considered from the perspective of a market participant that holds the asset or liability. FASB ASC 820-
10
provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value,
the use of market-based inputs over entity specific inputs. In addition, FASB ASC 820-10 provides a framework for measuring
fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date. The standard describes three levels of inputs that may be used to measure
fair values:
Level
1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access
as of the measurement date.
Level
2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level
3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
The
Corporation used the following methods to determine the fair value of each type of financial instrument:
Investment
securities: Fair values for securities available-for-sale are obtained from an independent pricing service. The prices are
not adjusted. The independent pricing service uses industry-standard models to price U.S. Government agency obligations and mortgage
backed securities that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds,
default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other
relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or
grid, pricing in which securities are benchmarked against the treasury rate based on credit rating.
Substantially
all assumptions used by the independent pricing service are observable in the marketplace, can be derived from
observable
data, or are supported by observable levels at which transactions are executed in the marketplace (Level 2).
Residential
loans held for sale: The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted
for specific attributes of that loan (Level 2).
NOTE
9 - FAIR VALUE (continued)
Derivative
financial instruments: Derivative instruments are used to hedge residential mortgage loans held for sale and the related interest-rate
lock commitments and include forward commitments to sell mortgage loans and mortgage-backed securities as further described in
Note 7. The fair values of derivative financial instruments are based on derivative market data inputs as of the valuation date
and the underlying value of mortgage loans for interest rate lock commitments (Level 3).
Impaired
loans: The fair values of impaired loans are measured on a nonrecurring basis as the fair value of the loan’s collateral
for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment,
inventory, and accounts receivable. The use of discounted cash flow models and management’s best judgment are
significant inputs in arriving at the fair value measure of the underlying collateral (Level 3).
Other
real estate owned: The fair value of other real estate owned, which consists of real estate that has been foreclosed, is recorded
at the lower of fair value less selling expenses or the book balance prior to foreclosure. Write downs are provided for subsequent
declines in value and are recorded in other operating expenses (Level 2).
Assets
and liabilities measured at fair value under FASB ASC 820-10 on a recurring and non-recurring basis, including financial assets
and liabilities for which the Corporation has elected the fair value option as of March 31, 2015 and December 31, 2014, are summarized
below:
| |
Fair Value Measurement | |
| |
at March 31, 2015 Using | |
Description | |
Carrying Value | | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | | |
Other
Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | |
| |
(In Thousands) | |
Financial Assets-Recurring | |
| | | |
| | | |
| | | |
| | |
Available-for-sale investment securities | |
| | | |
| | | |
| | | |
| | |
US Government agency | |
$ | 18,863 | | |
$ | - | | |
$ | 18,863 | | |
$ | - | |
Mortgage backed securities | |
| 67,498 | | |
| - | | |
| 67,498 | | |
| - | |
Corporate bonds | |
| 13,383 | | |
| - | | |
| 13,383 | | |
| - | |
Asset backed securities | |
| 16,757 | | |
| - | | |
| 16,757 | | |
| - | |
Municipals - nontaxable | |
| 4,084 | | |
| - | | |
| 4,084 | | |
| - | |
CRA Mutual fund | |
| 1,442 | | |
| - | | |
| 1,442 | | |
| - | |
Total available-for-sale investment securities | |
| 122,027 | | |
| - | | |
| 122,027 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Residential loans held for sale | |
| 57,151 | | |
| - | | |
| 57,151 | | |
| - | |
Derivative assets | |
| 929 | | |
| - | | |
| - | | |
| 929 | |
Total Financial Assets-Recurring | |
$ | 180,107 | | |
$ | - | | |
$ | 179,178 | | |
$ | 929 | |
| |
| | | |
| | | |
| | | |
| | |
Financial Liabilities-Recurring | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
$ | 737 | | |
$ | - | | |
$ | - | | |
$ | 737 | |
Total Financial Liabilities-Recurring | |
$ | 737 | | |
$ | - | | |
$ | - | | |
$ | 737 | |
| |
| | | |
| | | |
| | | |
| | |
Financial Assets-Non-Recurring | |
| | | |
| | | |
| | | |
| | |
Impaired loans (1) | |
$ | 8,034 | | |
$ | - | | |
$ | - | | |
$ | 8,034 | |
Total Financial Assets-Non-Recurring | |
$ | 8,034 | | |
$ | - | | |
$ | - | | |
$ | 8,034 | |
(1) Represents
the carrying value of loans for which adjustments are based on the appraised value of the collateral, if collateral
dependent, or the present value of expected future cash flows, discounted at the loan’s effective interest rate.
NOTE 9 - FAIR VALUE (continued)
| |
Fair Value Measurement | |
| |
at December 31, 2014 Using | |
Description | |
Carrying Value | | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | | |
Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | |
| |
(In Thousands) | |
Financial Assets-Recurring | |
| | | |
| | | |
| | | |
| | |
Available-for-sale investment securities | |
| | | |
| | | |
| | | |
| | |
US Government agency | |
$ | 18,525 | | |
$ | - | | |
$ | 18,525 | | |
$ | - | |
Mortgage backed | |
| 69,698 | | |
| - | | |
| 69,698 | | |
| - | |
Corporate bonds | |
| 13,372 | | |
| - | | |
| 13,372 | | |
| - | |
Asset backed securities | |
| 17,983 | | |
| - | | |
| 17,983 | | |
| - | |
Municipals - nontaxable | |
| 4,065 | | |
| - | | |
| 4,065 | | |
| - | |
CRA Mutual fund | |
| 1,437 | | |
| - | | |
| 1,437 | | |
| - | |
Total available-for-sale investment securities | |
| 125,080 | | |
| - | | |
| 125,080 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Residential loans held for sale | |
| 45,026 | | |
| - | | |
| 45,026 | | |
| - | |
Derivative assets | |
| 330 | | |
| - | | |
| - | | |
| 330 | |
Total Financial Assets-Recurring | |
$ | 170,436 | | |
$ | - | | |
$ | 170,106 | | |
$ | 330 | |
| |
| | | |
| | | |
| | | |
| | |
Financial Liabilities-Recurring | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
$ | 440 | | |
$ | - | | |
$ | - | | |
$ | 440 | |
Total Financial Liabilities-Recurring | |
$ | 440 | | |
$ | - | | |
$ | - | | |
$ | 440 | |
| |
| | | |
| | | |
| | | |
| | |
Financial Assets-Non-Recurring | |
| | | |
| | | |
| | | |
| | |
Impaired loans (1) | |
$ | 2,191 | | |
$ | - | | |
$ | - | | |
$ | 2,191 | |
Total Financial Assets-Non-Recurring | |
$ | 2,191 | | |
$ | - | | |
$ | - | | |
$ | 2,191 | |
| |
| | | |
| | | |
| | | |
| | |
(1) Represents the carrying value of loans for which adjustments are based on the appraised
value of the collateral, if collateral dependent, or the present value of expected future cash flows, discounted at the loan’s effective rate.
|
It is the Corporation’s policy to recognize transfers
between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers
between Level 1 and Level 2 during the three month periods ended March 31, 2015 and 2014.
The changes in Level 3 net derivatives measured at fair value
on a recurring basis are summarized as follows:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(In Thousands) | |
Balance, beginning of period | |
$ | (110 | ) | |
$ | 95 | |
Realized and unrealized gains (losses) included in earnings | |
| 302 | | |
| (10 | ) |
Unrealized gains (losses) included in other comprehensive income | |
| - | | |
| - | |
Purchases, settlements, paydowns, and maturities | |
| - | | |
| - | |
Transfer into Level 3 | |
| - | | |
| - | |
Balance, end of period | |
$ | 192 | | |
$ | 85 | |
NOTE 9 - FAIR VALUE (Continued)
The following table presents qualitative information about
level 3 fair value measurements for financial instruments measured at fair value at March 31, 2015 and December 31, 2014:
Description | |
Fair Value
Estimate | | |
Valuation Techniques | |
Unobservable Input | |
Range (Weighted
Average) | |
| |
(In Thousands) | |
Financial Assets - Recurring | |
| | | |
| |
| |
| | |
Derivative assets | |
$ | 929 | | |
Market pricing (3) | |
Estimated pullthrough | |
| 75%
- 90% (85.7%) | |
Derivative liabilities | |
$ | 737 | | |
Market pricing (3) | |
Estimated pullthrough | |
| 75%
- 90% (85.7%) | |
| |
| | | |
| |
| |
| | |
Financial Assets - Non-recurring | |
| | | |
| |
| |
| | |
Impaired loans - Real estate secured | |
$ | 6,713 | | |
Appraisal of collateral (1) | |
Liquidation expenses (2) | |
| 0%
- 20% (14%) | |
Impaired loans - Non-real estate secured | |
$ | 1,321 | | |
Cash flow basis | |
Liquidation expenses (2) | |
| 0%
- 10% (0%) | |
(1) |
Fair
value is generally determined through independent appraisals of the underlying collateral on real estate secured loans, which
generally include various level 3 inputs which are not identifiable. |
(2) |
Valuations
of impaired loans may be adjusted by management for qualitative factors such as liquidation expenses. The range
and weighted average of liquidation expense adjustments are presented as a percent of the appraisal. |
(3) |
Market pricing
on derivative assets and liabilities is adjusted by management for the anticipated percent of derivative assets and liabilities
that will create a realized gain or loss. The range and weighted average of estimated pull-through is presented. |
| |
December 31,
2014 | |
Description | |
Fair Value
Estimate | | |
Valuation Techniques | |
Unobservable Input | |
Range (Weighted
Average) | |
| |
(In Thousands) | |
Financial Assets - recurring | |
| | | |
| |
| |
| | |
Derivative assets | |
$ | 330 | | |
Market pricing (3) | |
Estimated pullthrough | |
| 75%
- 90% (84.5%) | |
Derivative liabilities | |
$ | 440 | | |
Market pricing (3) | |
Estimated pullthrough | |
| 75%
- 90% (84.5%) | |
| |
| | | |
| |
| |
| | |
Financial Assets - Non-recurring | |
| | | |
| |
| |
| | |
Impaired loans - Real estate secured | |
$ | 676 | | |
Appraisal of collateral (1) | |
Liquidation expenses (2) | |
| 0%
- 20% (8%) | |
Impaired loans - Non-real estate secured | |
$ | 1,515 | | |
Cash flow basis | |
Liquidation expenses (2) | |
| 0%
- 10% (0%) | |
| (1) | Fair value is generally determined through independent appraisals of the underlying collateral on real estate secured loans,
which generally include various level 3 inputs which are not identifiable. |
| (2) | Valuations of impaired loans may be adjusted by management for qualitative factors such as liquidation expenses. The range
and weighted average of liquidation expense adjustments are presented as a percent of the appraisal. |
| (3) | Market pricing on derivative assets and liabilities is adjusted by management for the anticipated percent of derivative assets
and liabilities that will create a realized gain or loss. The range and weighted average of estimated pull-through is presented. |
Financial instruments recorded using FASB ASC 825-10
Under FASB ASC 825-10, Financial Instruments, the Corporation
may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with
changes in fair value reported in net income. After the initial adoption the election is made at the acquisition of an eligible
financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value
election, with respect to an item, may not be revoked once an election is made.
The following table reflects the differences between the fair
value carrying amount of residential mortgage loans held for sale at March 31, 2015, measured at fair value under FASB ASC 825-10,
and the aggregate unpaid principal amount the Corporation is contractually entitled to receive at maturity.
(In Thousands) | |
Aggregate Fair Value | | |
Difference | | |
Contractual Principal | |
Residential mortgage loans held for sale | |
$ | 57,151 | | |
$ | 2,239 | | |
$ | 54,912 | |
The Corporation has elected to account for residential loans
held for sale at fair value to eliminate the mismatch that would occur by recording changes in market value on derivative instruments
used to hedge loans held for sale while carrying the loans at the lower of cost or market.
The following methods and assumptions not previously presented
were used in estimating the fair value of financial assets and financial liabilities that are not measured and reported at fair
value on a recurring basis or non-recurring basis:
NOTE 9 - FAIR VALUE (Continued)
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value. As such they are classified as Level 1 for noninterest-bearing deposits and Level 2 for interest-bearing
deposits due from banks or federal funds sold.
Restricted Stock
It is not practical to determine the fair value of restricted
stock due to the restrictions placed on its transferability.
Loans, Net of Allowance
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics resulting in a Level 3 classification. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities resulting in a Level 3 classification.
Accrued Interest
The carrying amounts of accrued interest approximate fair value
resulting in a Level 2 or Level 3 classification depending upon the level of the asset or liability, with which, the accrual is
associated.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date resulting in a Level 1 classification. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities
also resulting in a Level 1 classification. The fair value of all other deposits and borrowings is determined using the discounted
cash flow method thereby resulting in a Level 2 classification. The discount rate was equal to the rate currently offered on similar
products.
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated
using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed interest rates. The fair value of stand-by letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
At March 31, 2015 and December 31, 2014, the majority of off-balance-sheet
items are variable rate instruments or convert to variable rate instruments if drawn upon. Therefore, the fair value of these
items is largely based on fees, which are nominal and immaterial.
NOTE 9 - FAIR VALUE (Continued)
The carrying amounts and estimated fair values of financial
instruments at March 31, 2015 and December 31, 2014 were as follows:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
Estimated | | |
| | |
Estimated | |
| |
Carrying | | |
Fair | | |
Carrying | | |
Fair | |
| |
Amount | | |
Value | | |
Amount | | |
Value | |
| |
(In Thousands) | |
Financial assets: | |
| | | |
| | | |
| |
|
|
|
| |
Cash and short-term investments | |
$ | 44,926 | | |
$ | 44,926 | | |
$ | 56,029 | | |
$ | 56,029 | |
Securities available-for-sale | |
| 122,027 | | |
| 122,027 | | |
| 125,080 | | |
| 125,080 | |
Securities held-to-maturity | |
| 14,304 | | |
| 14,524 | | |
| 14,309 | | |
| 14,378 | |
Restricted stock | |
| 8,321 | | |
| 8,321 | | |
| 8,961 | | |
| 8,961 | |
Loans, net of allowance | |
| 838,034 | | |
| 865,339 | | |
| 808,230 | | |
| 837,937 | |
Derivatives | |
| 929 | | |
| 929 | | |
| 330 | | |
| 330 | |
Total financial assets | |
$ | 1,028,541 | | |
$ | 1,056,066 | | |
$ | 1,012,939 | | |
$ | 1,042,715 | |
| |
| | | |
| | | |
| | | |
| | |
Financial liabilities: | |
| | | |
| | | |
| | | |
| | |
Deposits | |
$ | 786,319 | | |
$ | 784,659 | | |
$ | 755,443 | | |
$ | 753,675 | |
Short-term borrowings | |
| 160,529 | | |
| 160,313 | | |
| 185,635 | | |
| 185,396 | |
Long-term borrowings | |
| 10,000 | | |
| 9,985 | | |
| - | | |
| - | |
Derivatives | |
| 737 | | |
| 737 | | |
| 440 | | |
| 440 | |
Total financial liabilities | |
$ | 957,585 | | |
$ | 955,694 | | |
$ | 941,518 | | |
$ | 939,511 | |
NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily
of commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation
has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee by the customer. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation
evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral, if any, deemed necessary by
the Corporation upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral normally
consists of real property, liquid assets or business assets. The Corporation had $13.8 million and $16.8 million in outstanding
commitments at March 31, 2015 and December 31, 2014, respectively.
The Corporation’s exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual
notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. The Corporation had $245.3 million and $249.4 million in unfunded lines of credit
whose contract amounts represent credit risk at March 31, 2015 and December 31, 2014, respectively.
NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK (continued)
Standby letters of credit are conditional commitments
issued by the Corporation to guarantee the performance of a customer to a third party. Those letters of credit are primarily
issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates
within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Corporation generally holds collateral supporting those commitments if deemed necessary.
The Corporation had standby letters of credit outstanding in the amount of $4.1 million and $4.2 million at March 31, 2015
and December 31, 2014, respectively.
The Bank maintains a reserve for potential off-balance sheet
credit losses that is included in other liabilities on the balance sheet. At March 31, 2015 and December 31, 2014 the balance
in this account totaled $651 thousand and $641 thousand, respectively.
The mortgage division of the Bank makes representations and
warranties that loans sold to investors meet its program’s guidelines and that the information provided by the borrowers
is accurate and complete. In the event of a default on a loan sold, the investor may make a claim for losses due to document deficiencies,
program compliance, early payment default, and fraud or borrower misrepresentations. The mortgage division maintains a reserve
in other liabilities for potential losses on mortgage loans sold. At March 31, 2015 and December 31, 2014, the balance in this
reserve totaled $1.2 million.
The following table shows the changes to the allowance for
losses on mortgage loans sold.
| |
Allowance for Losses on Mortgage Loans Sold | |
| |
| |
| |
Three Months ended March 31, | | |
Year ended | |
| |
2015 | | |
2014 | | |
December 31, 2014 | |
| |
(In Thousands) | |
| |
| | |
| | |
| |
Allowance for losses on mortgage loans sold -beginning of period | |
$ | 1,198 | | |
$ | 4,645 | | |
$ | 4,645 | |
Provision charged to (released from) operating expense | |
| - | | |
| - | | |
| (3,250 | ) |
Recoveries | |
| - | | |
| - | | |
| 5 | |
Charge-offs | |
| (11 | ) | |
| - | | |
| (202 | ) |
Allowance for losses on mortgage loans sold - end of period | |
$ | 1,187 | | |
$ | 4,645 | | |
$ | 1,198 | |
NOTE 11 – BANK-OWNED LIFE INSURANCE POLICIES
The Corporation had $15.4 million and $15.3 million in bank-owned
life insurance (“BOLI”) at March 31, 2015 and December 31, 2014, respectively. The Corporation recognized interest
income, which is included in other noninterest income, of $117 thousand for the three months ended March 31, 2015. The Corporation
did not recognize any interest income in relation to its BOLI for the three months ended March 31, 2014.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with Access National Corporation’s (“Corporation”, “we”, “us”) consolidated financial
statements, and notes thereto, included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December
31, 2014. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results for the year
ending December 31, 2015 or any future period.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical
information, this Quarterly Report on Form 10-Q contains 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. Forward-looking statements in this Quarterly Report on Form 10-Q include,
without limitation, statements regarding the Corporation’s beliefs regarding the future strength of the economy and labor
markets and anticipated interest rates and the effect of such rates on the Corporation’s performance and net interest margin
and the volume of future mortgage refinancing, as well as the Corporation’s expectations concerning operating losses and
the profitability of its mortgage segment. 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: collateral values,
especially in the real estate market; continued challenging economic conditions or deterioration in general business and economic
conditions and in the financial markets; the impact of any laws, regulations, policies or programs implemented pursuant to
the Dodd-Frank Act, the Emergency Economic Stabilization Act of 2008,
as amended by the American Recovery and Reinvestment Act of 2009; branch expansion plans; interest rates; monetary and fiscal
policies of the U.S. Government, including policies of the Office of the Comptroller of the Currency (“Comptroller”),
the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of Richmond;
the economy of Northern Virginia, including governmental spending and commercial and residential real estate markets; the quality
or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; the liquidity of the
Corporation; 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.
For additional discussion of risk factors that may cause our
actual future results to differ materially from the results indicated within forward looking statements, please see “Item
1A – Risk Factors” of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
CRITICAL ACCOUNTING POLICIES
The Corporation’s consolidated financial statements have
been prepared in accordance with GAAP. In preparing the Corporation’s financial statements management makes estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. Management believes that the most significant
subjective judgments that it makes include the following:
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 principles of accounting: (i) FASB ASC 450-10,
which requires that losses be accrued when they are probable of occurring and can be estimated, and (ii) FASB ASC 310-10, 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, management’s 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 Note 4 to the consolidated financial statements.
Other Than Temporary Impairment of Securities
Securities in the Corporation’s securities portfolio
are classified as either available-for-sale or held-to-maturity. At March 31, 2015, there were no non-agency mortgage backed securities
or trust preferred securities in the portfolio. The estimated fair value of the portfolio fluctuates due to changes in market
interest rates and other factors. Changes in estimated fair value are recorded in shareholders’ equity as a component of
other comprehensive income. Securities are monitored to determine whether a decline in their value is other than temporary. Management
evaluates the securities portfolio on a quarterly basis to determine the collectability of amounts due per the contractual terms
of each security. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a
corresponding charge to net income is recognized. At March 31, 2015, there were no securities with other than temporary impairment.
Income Taxes
The Corporation uses the liability method of accounting for
income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income
taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability
balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense
for the current year. The Corporation’s evaluation of the deductibility or taxability of items included in the Corporation’s
tax returns has not resulted in the identification of any material, uncertain tax positions.
Fair Value
Fair values of financial instruments are estimated using relevant
market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on and off-balance
sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not
considered financial instruments. For additional information about our financial assets carried at fair value, please see Note
9 to the consolidated financial statements.
FINANCIAL CONDITION
Executive Summary
At March 31, 2015, the Corporation’s assets remained
steady at $1.1 billion from December 31, 2014. Loans held for investment increased by $17.6 million while loans held for sale
increased by $12.1 million. These increases were offset by a decrease in interest-bearing balances of $12.6 million. The first
quarter of 2015 reflected loan growth in the commercial real estate – owner occupied, commercial and real estate construction
categories of the loans held for investment portfolio. Overall, the portfolio of loans held for investment grew at an annualized
rate of 9.1%. At March 31, 2015, loans secured by real estate collateral comprised 71.6% of our total loan portfolio, with loans
secured by commercial real estate contributing 42.0% of our total loan portfolio, loans secured by residential real estate contributing
24.2% and real estate construction loans contributing 5.4%. Loans held for sale totaled $57.2 million at March 31, 2015, compared
to $45.0 million at December 31, 2014. Loans held for sale fluctuates with the volume of loans originated during any given month
and the length of time the loans are held prior to selling them in the secondary market. Deposits totaled $786.3 million at March
31, 2015, compared to $755.4 million at December 31, 2014, an increase of $30.9 million. Noninterest-bearing deposits increased
$37.4 million from $252.9 million at December 31, 2014 to $290.3 million at March 31, 2015. Savings and interest-bearing deposits
increased to $246.8 million at March 31, 2015 from $233.8 million at December 31, 2014, an increase of $13.0 million. These increases
were offset by a decrease in time deposits of $19.6 million due mainly to a decrease in Certificate of Deposit Account Registry
Service (CDARS) deposits totaling $20.3 million.
Net income for the first quarter of 2015 totaled $3.6 million
compared to $2.4 million for the same period in 2014. Earnings per diluted share were $0.34 for the first quarter of 2015, compared
to $0.23 per diluted share in the same period of 2014. First quarter 2015 pretax earnings increased $1.8 million or 47.1% when
compared to first quarter 2014 pretax earnings. The increase was primarily due to increases in pretax income for both the banking
and mortgage segments from first quarter 2014 of $749 thousand and $1.0 million, respectively. The banking segment’s increase
was due to an increase in net interest income over first quarter 2014 of $1.2 million and was partially offset by an increase
in salaries and employee benefits of $427 thousand. The mortgage segment’s increase over first quarter 2014 was due to an
increase in mortgage loan originations of $44.0 million or 62.3%.
Non-performing assets (“NPA”) totaled $6.8 million,
or 0.63%, of total assets at March 31, 2015, up from 0.15% of total assets at December 31, 2014. This increase in NPAs was due
to the addition of one $6 million loan to non-accrual status. NPAs are comprised solely of non-accrual loans at March 31, 2015.
The unemployment rate for Fairfax County, Virginia was at 4.0%
as of February 2015 and still well below the 4.8% for the state of Virginia at the end of March 2015 and 5.5% for the nation at
the end of March 2015. Information reviewed at the Federal Open Market Committee’s (FOMC) March 2015 meeting suggested economic
growth has moderated since January 2015. Labor market indicators showed further improvement with strong gains and a lower unemployment
rate suggesting underutilization of labor resources continues to diminish. The FOMC reaffirmed its view that the current target
rate for the federal funds rate remains appropriate. The historically low interest rate environment continues to negatively impact
yields of variable loans and the securities portfolio. The Corporation’s net interest margin for the three months ended
March 31, 2015 decreased to 3.72% from the March 31, 2014 percentage of 3.78%. While there is no certainty to the magnitude of
any impact, the continued extended period of low short-term interest rates, as presently forecasted by the Federal Reserve, will
continue to have an adverse effect on the net interest margin.
While we continue to see price appreciation in the local residential
real estate market, there is no guarantee that these positive trends will continue, and contrasting the real estate market price
appreciation are mixed results in the labor markets. As such, we remain cautious as to the macro-economic risks, many openly identified
by the Federal Open Market Committee, including persistently high rates of underemployment. As a consequence, we have generally
retained more cautious loan underwriting criteria established during the financial crisis period of 2007 – 2009. In spite
of these challenges, we are proactive in seeking new client relationships driven by our target market profile: business-to-business
and business-to-government companies with annual revenue of $1 million to $100 million and the various banking services needed
by the business and the professionals associated with the businesses. The Corporation is optimistic with a strong capital base
and being positioned for continued growth.
Securities
The Corporation’s securities portfolio is comprised of
U.S. government agency securities, mortgage backed securities, corporate bonds, a CRA mutual fund, and other asset backed securities
as well as municipal bonds. The portfolio does not have any non-agency mortgage backed securities or trust preferred securities.
At March 31, 2015 the fair value of the securities portfolio
totaled $136.6 million, compared to $139.5 million at December 31, 2014. Included in the fair value totals are held-to-maturity
securities with an amortized cost of $14.3 million (fair value of $14.5 million) and $14.3 million (fair value of $14.4 million)
at March 31, 2015 and December 31, 2014, respectively. Securities classified as available-for-sale are accounted for at fair market
value with unrealized gains and losses recorded directly to a separate component of shareholders' equity, net of associated tax
effect while held-to-maturity securities are carried at amortized cost. Investment securities are used to provide liquidity, to
generate income, and to temporarily supplement loan growth as needed.
Restricted Stock
Restricted stock consists of FHLB stock and FRB stock. These
stocks are classified as restricted stocks because their ownership is restricted to certain types of entities and they lack a
market. Restricted stock is carried at cost on the Corporation’s financial statements. Dividends are paid semiannually on
FRB stock and quarterly on FHLB stock.
Loans
The loan portfolio constitutes the largest component of earning
assets and is comprised of commercial real estate – owner occupied, commercial real estate – non-owner occupied, residential
real estate, commercial, real estate construction, and consumer loans. All lending activities of the Bank and its subsidiaries
are subject to the regulations and supervision of the Comptroller. The loan portfolio does not have any pay option adjustable
rate mortgages, loans with teaser rates or subprime loans or any other loans considered “high risk loans”. Loans totaled
$794.2 million at March 31, 2015 compared to $776.6 million at December 31, 2014, an increase of $17.6 million or 2.3%. Comprising
the majority of the growth, commercial real estate – owner occupied loans increased $10.7 million, commercial loans increased
$9.3 million and real estate construction loans increased $2.2 million. These increases were offset by a decrease in commercial
real estate – non-owner occupied of $2.1 million, a decrease in residential real estate loans of $2.3 million and a decrease
in consumer loans of $279 thousand. The overall increase in loans reflects results from our marketing outreach as well as continued
improvement in loan demand by local businesses. Please see Note 4 to the consolidated financial statements for a table that summarizes
the composition of the Corporation’s loan portfolio. The following is a summary of the loan portfolio at March 31, 2015.
Commercial Real Estate Loans – Owner Occupied:
This category of loans represented the second largest segment of the loan portfolio and was comprised of owner occupied loans
secured by the commercial property, totaling $210.1 million, representing 26.46% of the loan portfolio at March 31, 2015. 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.
Commercial Real Estate Loans – Non-Owner Occupied:
This category of loans represented the fourth largest segment of the loan portfolio and was comprised of loans secured by
income producing commercial property, totaling $123.4 million and representing 15.54% of the loan portfolio at March 31, 2015.
Commercial real estate loans are secured by the subject property and underwritten to policy standards as listed above.
Residential Real Estate Loans: This category represented
the third largest segment of the loan portfolio and included loans secured by first or second mortgages on one to four family
residential properties. This segment totaled $191.9 million and comprised 24.16% of the loan portfolio at March 31, 2015. Of this
amount, the following sub-categories existed as a percentage of the whole residential real estate loan portfolio as of March 31,
2015: home equity lines of credit, 19.3%; first trust mortgage loans, 72.5%; and junior trust loans, 8.2%.
Home equity lines of credit are extended to borrowers in our
target market. Real estate equity is often the largest component of consumer wealth in our marketplace. Once approved, this consumer
finance tool allows the borrowers to access the equity in their homes or investment properties and use the proceeds for virtually
any purpose. Home equity lines of credit are most frequently secured by a second lien on residential property. The proceeds of
first trust mortgage loans are used to acquire or refinance the primary financing on owner occupied and residential investment
properties. Junior trust loans are loans to consumers wherein the proceeds have been used for a stated consumer purpose. Examples
of consumer purposes are education, refinancing debt, or purchasing consumer goods. The loans are generally extended in a single
disbursement and repaid over a specified period of time. Loans in the residential real estate portfolio are underwritten to standards
within a traditional consumer framework that is periodically reviewed and updated by management and the Board of Directors and
takes into consideration repayment source and capacity, value of the underlying property, credit history, savings pattern, and
stability.
Commercial Loans: Commercial Loans represented the largest
segment of the loan portfolio, totaling $219.6 million and representing 27.65% of the loan portfolio at March 31, 2015. These
loans are made to businesses or individuals within our target market for business purposes. Typically the loan proceeds are used
to support working capital and the acquisition of fixed assets of an operating business. We underwrite these loans based upon
our assessment of the obligor(s)’ ability to generate operating cash flows in the future necessary to repay the loan. To
address the risks associated with the uncertainties of future cash flows, these loans are generally well secured by assets owned
by the business or its principal shareholders/owners and the principal shareholders/owners are typically required to guarantee
the loan.
Real Estate Construction Loans: Real estate construction
loans, also known as construction and land development loans represented the fifth largest segment of the loan portfolio and totaled
$43.3 million and represented 5.45% of the loan portfolio at March 31, 2015. These loans generally fall into one of three categories:
first, loans to individuals that are ultimately used to acquire property and construct an owner occupied residence; second, loans
to builders for the purpose of acquiring property and constructing homes for sale to consumers; and third, loans to developers
for the purpose of acquiring land that is developed into finished lots for the ultimate construction of residential or commercial
buildings. Loans of these types are generally secured by the subject property within limits established by the Board of Directors
based upon an assessment of market conditions and updated from time to time. The loans typically carry recourse to principal
owners. In addition to the repayment risk associated with loans to individuals and businesses, loans in this category carry construction
completion risk. To address this additional risk, loans of this type are subject to additional administration procedures designed
to verify and ensure progress of the project in accordance with allocated funding, project specifications and time frames.
Consumer Loans: Consumer loans, which was the smallest
segment of the loan portfolio, totaled $5.9 million and represented 0.74% of the loan portfolio at March 31, 2015. Most loans
in this category are well secured with assets other than real estate, such as marketable securities or automobiles. Very few consumer
loans are unsecured. As a matter of operation, management discourages unsecured lending. Loans in this category are underwritten
to standards within a traditional consumer framework that is periodically reviewed and updated by management and the Board of
Directors and takes into consideration repayment capacity, collateral value, savings pattern, credit history, and stability.
Loans Held for Sale (“LHFS”)
LHFS are residential mortgage loans originated by the mortgage
division of the Bank to consumers and underwritten in accordance with standards set forth by an institutional investor to whom
we expect to sell the loans for a profit. Loan proceeds are used for the purchase or refinance of the property securing the loan.
Loans are sold with the servicing released to the investor. At March 31, 2015, LHFS at fair value totaled $57.2 million compared
to $45.0 million at December 31, 2014.
The LHFS loans are closed by the Bank and held on average fifteen
to thirty days pending their sale to government sponsored entities as well as mortgage banking subsidiaries of large financial
institutions. During the first quarter of 2015 we originated $114.5 million of loans processed in this manner, compared to $70.6
million for the first quarter of 2014. Loans are sold without recourse and subject to industry standard representations and warranties
that may require the repurchase by the Bank of loans previously sold. The repurchase risks associated with this activity center
around early payment defaults and borrower fraud.
Allowance for Loan Losses
The allowance for loan losses totaled $13.3 million at March
31, 2015 compared to $13.4 million at December 31, 2014. The allowance for loan losses was equivalent to 1.68% and 1.73% of total
loans held for investment at March 31, 2015 and December 31, 2014, respectively. Adequacy of the allowance is assessed and increased
by provisions for loan losses charged to expense no less than quarterly. Charge-offs are taken when a loan is identified as uncollectible.
For additional information about the allowance for loan losses, please see Note 4 to the consolidated financial statements.
Non-performing Assets
At March 31, 2015 and December 31, 2014, the Bank had
non-performing assets totaling $6.8 million and $1.6 million, respectively. This increase in NPAs since December 31, 2014 was
due to the addition of one $6 million loan to non-accrual status. Non-performing assets consist of non-accrual loans. All
non-performing loans are carried at the expected liquidation value of the underlying collateral.
The following table is a summary of the Bank’s non-performing
assets at March 31, 2015 and December 31, 2014.
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
(Dollars In Thousands) | |
Non-accrual loans : | |
| | | |
| | |
Commercial real estate - owner occupied | |
$ | - | | |
$ | - | |
Commercial real estate - non-owner occupied | |
| 6,040 | | |
| - | |
Residential real estate | |
| 129 | | |
| 129 | |
Commercial | |
| 615 | | |
| 1,493 | |
Real estate construction | |
| - | | |
| - | |
Consumer | |
| - | | |
| - | |
Total non-accrual loans | |
$ | 6,784 | | |
$ | 1,622 | |
| |
| | | |
| | |
Other real estate owned ("OREO") | |
| - | | |
| - | |
| |
| | | |
| | |
Total non-performing assets | |
$ | 6,784 | | |
$ | 1,622 | |
| |
| | | |
| | |
Restructured loans included above in non-accrual loans | |
$ | - | | |
$ | 698 | |
| |
| | | |
| | |
Ratio of non-performing assets to: | |
| | | |
| | |
Total loans plus OREO | |
| 0.85 | % | |
| 0.21 | % |
| |
| | | |
| | |
Total Assets | |
| 0.63 | % | |
| 0.15 | % |
| |
| | | |
| | |
Accruing Past due loans: | |
| | | |
| | |
90 or more days past due | |
$ | - | | |
$ | - | |
Not included in the table above is other
real estate owned in the amount of $500 thousand. During 2014, Access Real Estate LLC (ARE) transferred an undeveloped commercial
lot that was originally purchased for possible future banking center expansion to other assets available for sale when management
listed the property for sale. The land, originally purchased for $1.2 million, was recorded at its appraised value less costs
to sell.
At March 31, 2015 and December 31, 2014,
the Bank had no loans past due 90 days or more and still accruing interest.
Deposits
Deposits are the primary sources of funding loan growth. At
March 31, 2015, deposits totaled $786.3 million compared to $755.4 million on December 31, 2014, an increase of $30.9 million.
Noninterest-bearing deposits increased $37.4 million from $252.9 million at December 31, 2014 to $290.3 million at March 31, 2015.
Savings and interest-bearing deposits increased to $246.8 million at March 31, 2015 from $233.8 million at December 31, 2014,
an increase of $13.0 million. Offsetting these increases was a decrease in time deposits of $19.6 million due mainly to a decrease
in Certificate of Deposit Account Registry Service (CDARS) deposits totaling $20.3 million.
Shareholders’ Equity
Shareholders’ equity totaled $102.6 million at March
31, 2015 compared to $98.9 million at December 31, 2014. The increase in shareholders’ equity is due mainly to retained
earnings net of dividends paid. 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.
Beginning January 1, 2015, the Corporation calculates its regulatory
capital under the Basel III Final Rules which modified the definition of “well capitalized” and implemented changes
in the risk weights of assets. The following table outlines the regulatory components of the Corporation’s capital and risk
based capital ratios under these new rules.
| |
March 31, | | |
December 31, | | |
| |
| |
2015 | | |
2014 | | |
| |
| |
(In Thousands) | | |
| |
| |
| | |
| | |
| |
Tier 1 Capital: | |
| | | |
| | | |
| | |
Common Stock | |
$ | 8,782 | | |
$ | 8,742 | | |
| | |
Capital surplus | |
| 19,378 | | |
| 18.538 | | |
| | |
Retained earnings | |
| 74,276 | | |
| 72,168 | | |
| | |
Less: Disallowed goodwill and intangibles net of associated deferred tax liabilities | |
| (1,526 | ) | |
| (1,694 | ) | |
| | |
Less: Net unrealized loss on available for sale equity securities | |
| (58 | ) | |
| (41 | ) | |
| | |
Total Tier 1 capital | |
| 100,852 | | |
| 97,713 | | |
| | |
| |
| | | |
| | | |
| | |
Allowance for loan losses | |
| 10,924 | | |
| 10,980 | | |
| | |
| |
| | | |
| | | |
| | |
Total risk based capital | |
$ | 111,776 | | |
$ | 108,693 | | |
| | |
| |
| | | |
| | | |
| | |
Risk weighted assets | |
$ | 870,841 | | |
$ | 875,862 | | |
| | |
| |
| | | |
| | | |
| | |
Quarterly average assets | |
$ | 1,050,484 | | |
$ | 1,007,628 | | |
| | |
| |
| | |
| | |
Regulatory | |
| |
| | |
| | |
Minimum | |
Risk- Based Capital Ratios: | |
| 11.58 | % | |
| 11.16 | % | |
| 4.50 | % |
Common equity tier 1 capital ratio | |
| 11.58 | % | |
| NA | | |
| 6.00 | % |
Tier 1 capital ratio | |
| 12.84 | % | |
| 12.41 | % | |
| 8.00 | % |
Total capital ratio | |
| | | |
| | | |
| | |
Leverage Capital Ratios: | |
| | | |
| | | |
| | |
Tier 1 leverage ratio | |
| 9.60 | % | |
| 9.70 | % | |
| 4.00 | % |
RESULTS OF OPERATIONS
Summary
Net income for the first quarter of 2015 totaled $3.6 million
or $0.34 diluted earnings per share. This compares to $2.4 million or $0.23 for the same quarter in 2014. The increase was primarily
due to increases in pretax income for both the banking and mortgage segments from first quarter 2014 of $749 thousand and $1.0
million, respectively. The banking segment’s increase was due to an increase in net interest income over first quarter 2014
of $1.2 million and was partially offset by an increase in salaries and employee benefits of $427 thousand. The mortgage segment’s
increase over first quarter 2014 was due to an increase in mortgage loan originations of $44.0 million or 62.3%.
Net Interest Income
Net interest income, the principal source of earnings, is the
amount of income generated by earning assets (primarily loans and investment securities) less the interest expense incurred on
interest-bearing liabilities (primarily deposits) used to fund earning assets. Net interest income before the provision for loan
losses totaled $9.4 million for the three months ended March 31, 2015 and $8.1 million for the three months ended March 31, 2014.
The annualized yield on earning assets was 4.05% for the quarter ended March 31, 2015 when compared to 4.15% for the quarter ended
March 31, 2014. The cost of interest-bearing deposits and borrowings decreased from 0.55% for the quarter ended March 31, 2014
to 0.49% for the quarter ended March 31, 2015 due mainly to the decrease in interest rates for time deposits. Net interest margin
was 3.72% for the quarter ended March 31, 2015 compared to 3.78% for the same period in 2014.
Volume and Rate Analysis
The following tables present the dollar amount of changes in
interest income and interest expense for each category of interest earning assets and interest-bearing liabilities.
| |
Three Months Ended March 31, | |
| |
2015 compared to 2014 | |
| |
Change Due To: | |
| |
Increase / | | |
| | |
| |
| |
(Decrease) | | |
Volume | | |
Rate | |
| |
(In Thousands) | |
Interest Earning Assets: | |
| | | |
| | | |
| | |
Investments | |
$ | 347 | | |
$ | 220 | | |
$ | 127 | |
Loans held for sale | |
| 160 | | |
| 187 | | |
| (27 | ) |
Loans | |
| 815 | | |
| 973 | | |
| (158 | ) |
Interest-bearing deposits | |
| 9 | | |
| 4 | | |
| 5 | |
Total increase (decrease) in interest
income | |
| 1,331 | | |
| 1,384 | | |
| (53 | ) |
| |
| | | |
| | | |
| | |
Interest-Bearing Liabilities: | |
| | | |
| | | |
| | |
Interest-bearing demand deposits | |
| 7 | | |
| 8 | | |
| (1 | ) |
Money market deposit accounts | |
| (3 | ) | |
| (2 | ) | |
| (1 | ) |
Savings accounts | |
| 5 | | |
| 4 | | |
| 1 | |
Time deposits | |
| (4 | ) | |
| 107 | | |
| (111 | ) |
Total interest-bearing
deposits | |
| 5 | | |
| 117 | | |
| (112 | ) |
FHLB Advances | |
| 29 | | |
| 25 | | |
| 4 | |
Securities sold under agreements to repurchase | |
| (1 | ) | |
| - | | |
| (1 | ) |
Long-term borrowings | |
| 2 | | |
| 2 | | |
| - | |
Total increase (decrease) in interest
expense | |
| 35 | | |
| 144 | | |
| (109 | ) |
| |
| | | |
| | | |
| | |
Increase (decrease)
in net interest income | |
$ | 1,296 | | |
$ | 1,240 | | |
$ | 56 | |
Average Balances, Net Interest Income, Yields Earned
and Rates Paid
The following tables present for the periods indicated the
total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed in dollars and rates.
Yield on Average Earning Assets and
Rates on Average Interest-Bearing Liabilities
Three Months Ended
| |
March 31, 2015 | | |
March 31, 2014 | |
| |
Average | | |
Income / | | |
Yield / | | |
Average | | |
Income / | | |
Yield / | |
| |
Balance | | |
Expense | | |
Rate | | |
Balance | | |
Expense | | |
Rate | |
| |
(Dollars In Thousands) | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-earning assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Securities | |
$ | 147,468 | | |
$ | 815 | | |
| 2.21 | % | |
$ | 104,782 | | |
$ | 468 | | |
| 1.79 | % |
Loans held for sale | |
| 38,065 | | |
| 362 | | |
| 3.80 | % | |
| 18,708 | | |
| 202 | | |
| 4.32 | % |
Loans(1) | |
| 781,990 | | |
| 9,072 | | |
| 4.64 | % | |
| 698,429 | | |
| 8,257 | | |
| 4.73 | % |
Interest-bearing balances and federal funds sold | |
| 46,828 | | |
| 27 | | |
| 0.23 | % | |
| 39,251 | | |
| 18 | | |
| 0.18 | % |
Total interest-earning assets | |
| 1,014,351 | | |
| 10,276 | | |
| 4.05 | % | |
| 861,170 | | |
| 8,945 | | |
| 4.15 | % |
Noninterest-earning assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and due from banks | |
| 9,906 | | |
| | | |
| | | |
| 7,609 | | |
| | | |
| | |
Premises, land and equipment | |
| 6,898 | | |
| | | |
| | | |
| 8,379 | | |
| | | |
| | |
Other assets | |
| 32,478 | | |
| | | |
| | | |
| 16,007 | | |
| | | |
| | |
Less: allowance for loan losses | |
| (13,337 | ) | |
| | | |
| | | |
| (13,181 | ) | |
| | | |
| | |
Total
noninterest-earning assets | |
| 35,945 | | |
| | | |
| | | |
| 18,814 | | |
| | | |
| | |
Total
Assets | |
$ | 1,050,296 | | |
| | | |
| | | |
$ | 879,984 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities and Shareholders' Equity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing deposits: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing demand deposits | |
$ | 120,685 | | |
$ | 65 | | |
| 0.22 | % | |
$ | 105,816 | | |
$ | 58 | | |
| 0.22 | % |
Money market deposit accounts | |
| 110,503 | | |
| 54 | | |
| 0.20 | % | |
| 114,119 | | |
| 57 | | |
| 0.20 | % |
Savings accounts | |
| 7,848 | | |
| 7 | | |
| 0.36 | % | |
| 2,868 | | |
| 2 | | |
| 0.28 | % |
Time deposits | |
| 260,431 | | |
| 607 | | |
| 0.93 | % | |
| 218,954 | | |
| 611 | | |
| 1.12 | % |
Total
interest-bearing deposits | |
| 499,467 | | |
| 733 | | |
| 0.59 | % | |
| 441,757 | | |
| 728 | | |
| 0.66 | % |
Borrowings: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
FHLB short-term borrowings | |
| 157,555 | | |
| 94 | | |
| 0.24 | % | |
| 115,944 | | |
| 65 | | |
| 0.22 | % |
Securities sold under agreements to repurchase and federal funds purchased | |
| 22,695 | | |
| 5 | | |
| 0.09 | % | |
| 23,374 | | |
| 6 | | |
| 0.10 | % |
FHLB long-term borrowings | |
| 556 | | |
| 2 | | |
| 1.44 | % | |
| - | | |
| - | | |
| 0.00 | % |
Total
borrowings | |
| 180,806 | | |
| 101 | | |
| 0.22 | % | |
| 139,318 | | |
| 71 | | |
| 0.20 | % |
Total
interest-bearing deposits and borrowings | |
| 680,273 | | |
| 834 | | |
| 0.49 | % | |
| 581,075 | | |
| 799 | | |
| 0.55 | % |
Noninterest-bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Demand deposits | |
| 260,638 | | |
| | | |
| | | |
| 196,454 | | |
| | | |
| | |
Other liabilities | |
| 8,631 | | |
| | | |
| | | |
| 9,861 | | |
| | | |
| | |
Total liabilities | |
| 949,542 | | |
| | | |
| | | |
| 787,390 | | |
| | | |
| | |
Shareholders' Equity | |
| 100,754 | | |
| | | |
| | | |
| 92,594 | | |
| | | |
| | |
Total
Liabilities and Shareholders' Equity: | |
$ | 1,050,296 | | |
| | | |
| | | |
$ | 879,984 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest Spread(2) | |
| | | |
| | | |
| 3.56 | % | |
| | | |
| | | |
| 3.60 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Interest Margin(3) | |
| | | |
$ | 9,442 | | |
| 3.72 | % | |
| | | |
$ | 8,146 | | |
| 3.78 | % |
(1) Loans placed on nonaccrual status are included
in loan balances.
(2) Interest spread is the average yield earned
on earning assets, less the average rate incurred on interest-bearing liabilities.
(3) Net interest margin is net interest income,
expressed as a percentage of average earning assets.
Noninterest Income
Noninterest income consists of revenue generated from
financial services and activities other than lending and investing. The mortgage segment provides the most significant
contributions to noninterest income. Total noninterest income was $6.3 million for the first quarter of 2015 compared to $3.3
million for the same period in 2014. Gains on the sale of loans originated by the Banks’s mortgage segment are the
largest component of noninterest income. Gains on the sale of loans totaled $3.6 million for the three month period ended
March 31, 2015, compared to $1.7 million for the same period of 2014. Gains on the sale of loans fluctuate with the volume of
mortgage loans originated. During the three months ended March 31, 2015, the Bank’s mortgage segment originated $114.5
million in mortgage and brokered loans, up from $70.6 million for the same period in 2014. For the three months ended March
31, 2015, other income reflected an increase of $1.2 million over the three months ended March 31, 2014, due mainly to the
hedging activity for the period. Our hedging activities are designed to insulate the net gain on sale margins from movements of
interest rates during the mortgage loan origination and delivery process. When gains are recognized on instruments used to
hedge interest rate risk, the value of the loans being hedged decrease proportionately resulting in lower realized gains on
sale income.
Noninterest Expense
Noninterest expense totaled $10.2 million for the three
months ended March 31, 2015, compared to $7.6 million for the same period in 2014, an increase of $2.5 million. Salaries and
employee benefits totaled $6.7 million for the three months ended March 31, 2015, compared to $4.9 million for the same
period last year an increase of $1.8 million, due mainly to the increase in mortgage loan originations. Other operating expenses totaled
$2.8 million for the three months ended March 31, 2015, compared to $2.1 million for the same period in 2014, an increase of
$700 thousand.
The table below provides the composition of other operating
expenses.
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(In Thousands) | |
| |
| | |
| |
Advertising and promotional | |
| 226 | | |
| 177 | |
Business and franchise tax | |
| 213 | | |
| 210 | |
Management fees | |
| 198 | | |
| 47 | |
Data processing | |
| 171 | | |
| 168 | |
Legal fees | |
| 171 | | |
| 35 | |
FDIC insurance | |
| 162 | | |
| 101 | |
Accounting and auditing | |
| 153 | | |
| 153 | |
Investor fees | |
| 128 | | |
| 79 | |
Director fees | |
| 111 | | |
| 159 | |
Consulting fees | |
| 106 | | |
| 120 | |
Telephone | |
| 80 | | |
| 75 | |
Stock option | |
| 78 | | |
| 59 | |
Regulatory examinations | |
| 60 | | |
| 52 | |
Credit report | |
| 56 | | |
| 47 | |
Publication and subscription | |
| 53 | | |
| 60 | |
Education and training | |
| 52 | | |
| 6 | |
Disaster recovery | |
| 49 | | |
| 56 | |
SBA guarantee fee | |
| 47 | | |
| 47 | |
Office supplies-stationary print | |
| 45 | | |
| 81 | |
FRB and bank analysis charges | |
| 45 | | |
| 26 | |
Travel | |
| 30 | | |
| 34 | |
Dues and memberships | |
| 28 | | |
| 26 | |
D&O liability insurance | |
| 26 | | |
| 30 | |
Business development and meals | |
| 25 | | |
| 21 | |
Verification fees | |
| 23 | | |
| 14 | |
Postage | |
| 18 | | |
| 26 | |
Early payoff | |
| 16 | | |
| 13 | |
Common stock | |
| 15 | | |
| 14 | |
Courier | |
| 14 | | |
| 31 | |
Automotive | |
| 12 | | |
| 12 | |
Appraisal fee | |
| 12 | | |
| 5 | |
Conventions and meetings | |
| 11 | | |
| 10 | |
License and permit | |
| 9 | | |
| 5 | |
Bank paid closing costs | |
| 6 | | |
| 16 | |
Other | |
| 326 | | |
| 53 | |
| |
$ | 2,775 | | |
$ | 2,068 | |
Liquidity Management
Liquidity is the ability of the Corporation to meet current
and future cash flow requirements. The liquidity of a financial institution reflects its ability to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves
maintaining the Corporation’s ability to meet the daily cash flow requirements of both depositors and borrowers. Management
monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts.
Asset and liability management functions not only serve to
assure adequate liquidity in order to meet the needs of the Corporation’s 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 interest-bearing deposits with other banks provide an additional source of liquidity funding. At March 31, 2015, overnight
interest-bearing balances totaled $33.6 million and unpledged available-for-sale investment securities totaled approximately $29.1
million.
The Bank proactively manages a portfolio of short-term time
deposits issued to local municipalities and wholesale depositors in order to fund loans held for sale and short-term investments.
As of March 31, 2015, the portfolio of CDARS and wholesale time deposits totaled $156.5 million compared to $177.0 million at
December 31, 2014.
The liability portion of the balance sheet provides liquidity
through various interest-bearing and noninterest-bearing deposit accounts, federal funds purchased, securities sold under agreement
to repurchase and other short-term borrowings. At March 31, 2015, the Bank had a line of credit with the FHLB totaling $315.7
million and had outstanding $140 million in short term loans at fixed rates between 0.22% and 0.26% and $10 million in long term
loans at a fixed rate of 1.22% leaving $165.7 million available on the line. In addition to the line of credit at the FHLB, the
Bank issues repurchase agreements. As of March 31, 2015, outstanding repurchase agreements totaled $20.5 million. The interest
rates on these instruments are variable and subject to change daily. The Bank also maintains federal funds lines of credit with
its correspondent banks and, at March 31, 2015, these lines totaled $60.3 million and were available as an additional funding
source.
The following table presents the composition of borrowings
at March 31, 2015 and December 31, 2014 and for the periods indicated.
Borrowed Funds Distribution |
| |
| | |
| |
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
(Dollars In Thousands) | |
Borrowings: | |
| | | |
| | |
At Period End | |
| | | |
| | |
FHLB short-term borrowings | |
$ | 140,000 | | |
$ | 160,000 | |
Securities sold under agreements to repurchase | |
| 20,529 | | |
| 25,635 | |
FHLB long-term borrowings | |
| 10,000 | | |
| - | |
Total at period end | |
$ | 170,529 | | |
$ | 185,635 | |
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
(Dollars In Thousands) | |
Borrowings: | |
| | | |
| | |
Average Balances | |
| | | |
| | |
FHLB short-term borrowings | |
$ | 157,555 | | |
$ | 115,471 | |
Securities sold under agreements to repurchase | |
| 22,695 | | |
| 21,071 | |
FHLB long-term borrowings | |
| 556 | | |
| - | |
Federal funds purchased | |
| - | | |
| 58 | |
Total average balance | |
$ | 180,806 | | |
$ | 136,600 | |
| |
| | | |
| | |
Average rate paid on all borrowed funds | |
| 0.22 | % | |
| 0.21 | % |
Management believes the Corporation is well positioned with
liquid assets, the ability to generate liquidity through liability funding and the availability of borrowed funds, to meet the
liquidity needs of depositors and customers’ borrowing needs. The Corporation’s ability to maintain sufficient liquidity
may be affected by numerous factors, including economic conditions nationally and in our markets. Depending on the Corporation’s
liquidity levels, its capital position, conditions in the capital markets and other factors, the Corporation may from time to
time consider the issuance of debt, equity or other securities, or other possible capital markets transactions, the proceeds of
which could provide additional liquidity for its operations.
Contractual Obligations
There have been no material changes outside the ordinary course
of business to the contractual obligations disclosed in the
Corporation’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
The Corporation’s 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 Corporation’s 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. The table below reflects the outcome of these analyses at March 31, 2015 and December 31, 2014, assuming
budgeted growth in the balance sheet. According to the model run for the three month period ended March 31, 2015, and projecting
forward over a twelve month period, an immediate 100 basis point increase in interest rates would result in an increase in net
interest income of 2.9%. Modeling for an immediate 100 basis point decrease in interest rates has been suspended due to the current
rate environment. While management carefully monitors the exposure to changes in interest rates and takes actions as warranted
to mitigate any adverse impact, there can be no assurance about the actual effect of interest rate changes on net interest income.
The following table reflects the Corporation’s earnings
sensitivity profile.
Increase in Federal Funds Target Rate | | |
Hypothetical Percentage Change in Earnings March 31, 2015 | | |
Hypothetical Percentage
Change in Earnings
December 31, 2014 | |
| 3.00 | % | |
| 8.00 | % | |
| 11.50 | % |
| 2.00 | % | |
| 5.50 | % | |
| 7.80 | % |
| 1.00 | % | |
| 2.90 | % | |
| 3.80 | % |
The Corporation’s 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 Division is party to mortgage rate lock commitments
to fund mortgage loans at interest rates previously agreed
(locked) by both the Mortgage Division and the borrower for
specified periods of time. When the borrower locks his or her interest rate, the Mortgage Division effectively extends a put option
to the borrower, whereby the borrower is not obligated to enter into the loan agreement, but the Mortgage Division must honor
the interest rate for the specified time period. The Mortgage Division is exposed to interest rate risk during the accumulation
of interest rate lock commitments and loans prior to sale. The Mortgage Division utilizes either a best efforts sell forward or
a mandatory sell forward commitment to economically hedge the changes in fair value of the loan due to changes in market interest
rates. Failure to effectively monitor, manage, and hedge the interest rate risk associated with the mandatory commitments subjects
the Mortgage Division 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 consolidated statement of income under other noninterest income. The Mortgage Division utilizes a third
party and its proprietary simulation model to assist in identifying and managing the risk associated with this activity.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Corporation’s management evaluated, with the participation
of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Corporation’s disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Corporation’s disclosure controls and procedures are effective as of the end of the period covered
by this report to ensure that information required to be disclosed
in the reports that the Corporation files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to the Corporation’s management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that the Corporation’s disclosure
controls and procedures will detect or uncover every situation involving the failure of persons within the Corporation to disclose
material information required to be set forth in the Corporation’s periodic and current reports.
Changes in Internal Control over Financial Reporting
The Corporation’s management is also responsible for
establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act). No changes in the Corporation’s internal control over financial reporting occurred during the last fiscal quarter
that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation, and the Bank are from time to time parties
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 Corporation’s financial condition or results of operations. From time to time
the Bank and the Corporation may initiate legal actions against borrowers in connection with collecting defaulted loans. Such
actions are not considered material by management unless otherwise disclosed.
Item 1A. Risk Factors
There have been no material changes in the risk factors faced
by the Corporation from those disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31,
2014.
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds
The following table details the Corporation’s purchases
of its common stock during the first quarter of 2015 pursuant to a Share Repurchase Program announced on March 20, 2007.
On June 22, 2010 the number of shares authorized for repurchase under the share repurchase program was increased from 2,500,000
to 3,500,000. The Share Repurchase Program does not have an expiration date.
Issuer Purchases of Equity Securities |
| |
| | |
| | |
(c) Total Number of | | |
(d) Maximum Number | |
| |
| | |
| | |
Shares Purchased as | | |
of Shares that may | |
| |
(a) Total Number of | | |
(b) Average Price | | |
Part of Publicly | | |
yet be Purchased | |
Period | |
Shares Purchased | | |
Paid Per Share | | |
Announced Plan | | |
Under the Plan | |
| |
| | |
| | |
| | |
| |
January 1 - January 31, 2015 | |
| - | | |
$ | - | | |
| - | | |
| 768,781 | |
February 1 - February 28, 2015 | |
| - | | |
| - | | |
| - | | |
| 768,781 | |
March 1 - March 31, 2015 | |
| - | | |
| - | | |
| - | | |
| 768,781 | |
| |
| - | | |
$ | - | | |
| - | | |
| 768,781 | |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No. |
|
Description |
3.1 |
|
Amended and Restated Articles of Incorporation of Access National Corporation (incorporated
by reference to Exhibit 3.1 to Form 8-K filed July 18, 2006 (file number 000-49929)) |
3.1.1 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation of Access National
Corporation (incorporated by reference to Exhibit 3.1.1 to Form 10-Q filed August 15, 2011 (file number 000-49929)) |
3.2 |
|
Amended and Restated Bylaws of Access National Corporation (incorporated by reference to
Exhibit 3.2 to Form 8-K filed October 24, 2007 (file number 000-49929)) |
|
|
Certain instruments relating to long-term debt as to
which the total amount of securities authorized thereunder does not exceed 10% of Access National Corporation’s total assets
have been omitted in accordance with Item 601(b)(4)(iii) of Regulation S-K. The registrant will furnish a copy of any such instrument
to the Securities and Exchange Commission upon its request. |
10.5+ |
|
Annual Compensation
of Non-Employee Directors (incorporated by reference to Exhibit 10.5 to Form 10-K filed March 11, 2015 (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 11, 2015 (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) |
101* |
|
The following
materials from Access National Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 formatted
in XBRL (Extensible Business Reporting Language), filed herewith: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated
Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements
of Changes in Shareholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes
to Consolidated Financial Statements (unaudited). |
101.INS* |
|
XBRL Instance
Document |
101.SCH* |
|
XBRL Taxonomy
Extension Schema |
101.CAL* |
|
XBRL Taxonomy
Extension Calculation Linkbase |
101.DEF* |
|
XBRL Taxonomy
Extension Definition Linkbase |
101.LAB* |
|
XBRL Taxonomy
Extension Label Linkbase |
101.PRE* |
|
XBRL Taxonomy
Extension Presentation Linkbase |
* filed herewith
+ indicates a management contract or compensatory
plan or arrangement
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
11, 2015 |
By: |
/s/
Michael W. Clarke |
|
|
Michael W.
Clarke |
|
|
President
and Chief Executive Officer |
|
|
(Principal
Executive Officer) |
|
|
|
Date: May
11, 2015 |
By: |
/s/ Margaret
M. Taylor |
|
|
Margaret M.
Taylor |
|
|
Senior Vice
President and Chief Financial Officer |
|
|
(Principal
Financial & Accounting Officer) |
Exhibit 31.1
Certifications
I, Michael W. Clarke, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Access
National Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our supervision,
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; |
| (c) | evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control
over financial reporting. |
Date:
May 11, 2015 |
|
|
/s/
Michael W. Clarke |
|
Michael W.
Clarke |
|
President
and Chief Executive Officer |
|
(Principal
Executive Officer) |
Exhibit 31.2
Certifications
I, Margaret M. Taylor, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Access National Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: May 11, 2015
|
/s/ Margaret M. Taylor |
|
Margaret M. Taylor |
|
Senior Vice President and Chief |
|
Financial Officer |
|
(Principal Financial & Accounting Officer) |
Exhibit 32
Certification Pursuant to 18 U.S.C. Section
1350
as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Access National Corporation
(the "Corporation") on Form 10-Q for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), the undersigned, Michael W. Clarke, President and Chief Executive Officer of the Corporation,
and Margaret M. Taylor, Senior Vice President and Chief Financial Officer of the Corporation, do hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:
| 1. | The Report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Corporation. |
It is not intended that this statement be deemed to be filed
for purposes of the Securities Exchange Act of 1934, as amended.
/s/ Michael W. Clarke |
Michael W. Clarke |
President and Chief Executive Officer |
(Principal Executive Officer) |
May 11, 2015 |
|
|
/s/ Margaret M. Taylor |
Margaret M. Taylor |
Senior Vice President and Chief Financial Officer |
(Principal Financial & Accounting Officer) |
May 11, 2015 |
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