FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2004 | Commission File Number 005-62335 |
HAMPTON ROADS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
| Virginia | 54-2053718 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
201 Volvo Parkway, Chesapeake, VA 23320
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (757) 436-1000
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 filing requirements for the past 90 days. Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of September 30, 2004.
| Common Stock, $.625 Par Value | 8,012,994 Shares |
HAMPTON ROADS BANKSHARES, INC.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION |
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| ITEM – 1 FINANCIAL STATEMENTS |
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| 3 | ||||||
| September 30, 2004 |
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| December 31, 2003 |
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| 4 | ||||||
| Three Months ended September 30, 2004 |
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| Three Months ended September 30, 2003 |
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| Nine Months ended September 30, 2004 |
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| Nine Months ended September 30, 2003 |
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| 5 | ||||||
| Nine months ended September 30, 2004 |
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| Year ended December 31, 2003 |
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| 6 | ||||||
| Nine Months ended September 30, 2004 |
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| Nine Months ended September 30, 2003 |
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| 7 | ||||||
| ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
9 | |||||
| ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
12 | |||||
| ITEM 4 – CONTROLS AND PROCEDURES |
16 | |||||
| PART II – OTHER INFORMATION |
||||||
| ITEM 1 – LEGAL PROCEEDINGS |
17 | |||||
| ITEM 2 – CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES |
17 | |||||
| ITEM 3 – DEFAULTS UPON SENIOR SECURITIES |
17 | |||||
| ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
17 | |||||
| ITEM 5 – OTHER INFORMATION |
17 | |||||
| ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K |
17 | |||||
| 18 | ||||||
2
HAMPTON ROADS BANKSHARES, INC.
Consolidated Balance Sheets
| September 30, 2004 |
December 31, (Audited) |
|||||||
| Assets: |
||||||||
| Cash and due from banks |
$ | 14,398,532 | $ | 13,496,241 | ||||
| Overnight funds sold |
1,134,084 | 10,038,442 | ||||||
| 15,532,616 | 23,534,683 | |||||||
| Securities available-for-sale, at fair market value |
41,024,903 | 70,526,784 | ||||||
| Federal Home Loan Bank stock |
1,150,000 | 875,000 | ||||||
| Federal Reserve Bank stock |
647,400 | 644,400 | ||||||
| 42,822,303 | 72,046,184 | |||||||
| Loans |
256,498,787 | 210,774,864 | ||||||
| Allowance for loan losses |
(3,651,503 | ) | (2,948,011 | ) | ||||
| Net loans |
252,847,284 | 207,826,853 | ||||||
| Premises and equipment |
8,908,930 | 9,056,734 | ||||||
| Interest receivable |
1,145,924 | 1,387,819 | ||||||
| Real estate acquired in settlement of loans |
— | 103,814 | ||||||
| Deferred tax assets |
1,543,504 | 950,614 | ||||||
| Other assets |
1,720,314 | 1,566,527 | ||||||
| Total assets |
$ | 324,520,875 | $ | 316,473,228 | ||||
| Liabilities and shareholders’ equity: |
||||||||
| Deposits: |
||||||||
| Noninterest bearing demand |
$ | 85,687,009 | $ | 78,096,345 | ||||
| Interest bearing: |
||||||||
| Demand |
64,785,557 | 70,034,377 | ||||||
| Savings |
16,967,157 | 13,018,124 | ||||||
| Time deposits: |
||||||||
| Less than $100,000 |
60,481,794 | 64,803,856 | ||||||
| $100,000 or more |
27,752,617 | 31,480,629 | ||||||
| Total deposits |
255,674,134 | 257,433,331 | ||||||
| Interest payable |
380,346 | 413,846 | ||||||
| Other liabilities |
3,152,495 | 2,311,578 | ||||||
| Other borrowings |
23,000,000 | 15,000,000 | ||||||
| Total liabilities |
282,206,975 | 275,158,755 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock, $.625 par value. Authorized 40,000,000 shares; issued and outstanding 8,012,994 shares in 2004 and 7,908,708 shares in 2003 |
5,008,122 | 4,942,943 | ||||||
| Capital surplus |
20,290,670 | 19,200,754 | ||||||
| Accumulated other comprehensive income(loss), net of tax |
(39,501 | ) | 510,061 | |||||
| Retained earnings |
17,054,609 | 16,660,715 | ||||||
| Total shareholders’ equity |
42,313,900 | 41,314,473 | ||||||
| Total liabilities and shareholders’ equity |
$ | 324,520,875 | $ | 316,473,228 | ||||
See accompanying notes to the consolidated financial statements (unaudited).
3
HAMPTON ROADS BANKSHARES, INC.
Consolidated Statements of Income (Unaudited)
| Three Months Ended |
Nine Months Ended | |||||||||||
| September 30, 2004 |
September 30, 2003 |
September 30, 2004 |
September 30, 2003 | |||||||||
| Interest income: |
||||||||||||
| Loans, including fees |
$ | 4,211,864 | $ | 3,841,843 | $ | 11,746,125 | $ | 11,670,181 | ||||
| Investment securities |
408,557 | 489,204 | 1,359,345 | 1,401,830 | ||||||||
| Overnight funds sold |
8,791 | 34,630 | 56,130 | 77,425 | ||||||||
| Total interest income |
4,629,212 | 4,365,677 | 13,161,600 | 13,149,436 | ||||||||
| Interest expense: |
||||||||||||
| Deposits: |
||||||||||||
| Demand |
85,163 | 95,237 | 318,874 | 319,957 | ||||||||
| Savings |
25,499 | 20,129 | 73,105 | 63,716 | ||||||||
| Time deposits: |
||||||||||||
| Less than $100,000 |
502,819 | 603,544 | 1,539,784 | 1,944,147 | ||||||||
| $100,000 or more |
185,409 | 214,141 | 559,219 | 688,030 | ||||||||
| Interest on deposits |
798,890 | 933,051 | 2,490,982 | 3,015,850 | ||||||||
| Other borrowings |
140,361 | 156,739 | 386,696 | 378,438 | ||||||||
| Total interest expense |
939,251 | 1,089,790 | 2,877,678 | 3,394,288 | ||||||||
| Net interest income |
3,689,961 | 3,275,887 | 10,283,922 | 9,755,148 | ||||||||
| Provision for loan losses |
114,000 | 96,000 | 797,000 | 265,000 | ||||||||
| Net interest income after provision for loan losses |
3,575,961 | 3,179,887 | 9,486,922 | 9,490,148 | ||||||||
| Noninterest income: |
||||||||||||
| Service charges on deposit accounts |
491,719 | 496,835 | 1,519,043 | 1,544,206 | ||||||||
| ATM surcharge fees |
61,133 | 52,986 | 165,262 | 154,931 | ||||||||
| Gain on sale of investment securities |
12,507 | — | 507,500 | — | ||||||||
| Other service charges and fees |
239,677 | 321,327 | 776,566 | 827,298 | ||||||||
| Total noninterest income |
805,036 | 871,148 | 2,968,371 | 2,526,435 | ||||||||
| Noninterest expense: |
||||||||||||
| Salaries and employee benefits |
1,675,979 | 1,574,167 | 4,918,414 | 4,499,939 | ||||||||
| Occupancy |
229,240 | 218,775 | 669,161 | 658,381 | ||||||||
| Data processing |
117,176 | 110,446 | 344,261 | 322,621 | ||||||||
| Other |
647,505 | 647,642 | 1,996,383 | 1,990,305 | ||||||||
| Total noninterest expense |
2,669,900 | 2,551,030 | 7,928,219 | 7,471,246 | ||||||||
| Income before provision for income taxes |
1,711,097 | 1,500,005 | 4,527,074 | 4,545,337 | ||||||||
| Provision for income taxes |
582,700 | 510,742 | 1,553,267 | 1,545,638 | ||||||||
| Net income before cumulative effect of change in accounting principle |
1,128,397 | 989,263 | 2,973,807 | 2,999,699 | ||||||||
| Cumulative effect of change in accounting principle |
45,825 | — | 45,825 | — | ||||||||
| Net income |
$ | 1,174,222 | $ | 989,263 | $ | 3,019,632 | $ | 2,999,699 | ||||
| Basic earnings per share before cumulative effect of change in accounting principle |
$ | 0.14 | $ | 0.13 | $ | 0.37 | $ | 0.39 | ||||
| Cumulative effect of change in accounting principle |
0.01 | — | 0.01 | — | ||||||||
| Basic earnings per share |
$ | 0.15 | $ | 0.13 | $ | 0.38 | $ | 0.39 | ||||
| Diluted earnings per share before cumulative effect of change in accounting principle |
$ | 0.13 | $ | 0.12 | $ | 0.36 | $ | 0.38 | ||||
| Cumulative effect of change in accounting principle |
0.01 | — | 0.01 | — | ||||||||
| Diluted earnings per share |
$ | 0.14 | $ | 0.12 | $ | 0.37 | $ | 0.38 | ||||
| Basic weighted average shares outstanding |
7,981,784 | 7,816,085 | 7,959,891 | 7,779,317 | ||||||||
| Effect of dilutive stock options |
256,436 | 186,338 | 278,300 | 203,559 | ||||||||
| Diluted weighted average shares outstanding |
8,238,220 | 8,002,423 | 8,238,191 | 7,982,876 | ||||||||
See accompanying notes to the consolidated financial statements (unaudited).
4
HAMPTON ROADS BANKSHARES, INC.
Consolidated Statements of Shareholders’ Equity
Nine Months ended September 30, 2004 and the Year ended December 31, 2003
| Common Stock |
Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total |
|||||||||||||||||||
| (Audited)
|
Shares |
Amount |
|||||||||||||||||||||
| Balance at December 31, 2002 |
7,707,744 | $ | 4,817,340 | $ | 17,788,739 | $ | 15,906,066 | $ | 598,774 | $ | 39,110,919 | ||||||||||||
| Comprehensive income: |
|||||||||||||||||||||||
| Net income |
— | — | — | 4,023,015 | — | 4,023,015 | |||||||||||||||||
| Change in unrealized loss on securities available-for-sale, net of taxes of $45,701 |
— | — | — | — | (88,713 | ) | (88,713 | ) | |||||||||||||||
| Total comprehensive income |
3,934,302 | ||||||||||||||||||||||
| Shares issued related to: |
|||||||||||||||||||||||
| 401(k) plan |
9,192 | 5,745 | 67,791 | — | — | 73,536 | |||||||||||||||||
| Exercise of stock options |
168,000 | 105,000 | 746,363 | — | — | 851,363 | |||||||||||||||||
| Dividend reinvestment |
95,422 | 59,639 | 860,002 | — | — | 919,641 | |||||||||||||||||
| Payout of fractional shares |
(101 | ) | (63 | ) | (966 | ) | — | — | (1,029 | ) | |||||||||||||
| Common stock repurchased and surrendered |
(71,549 | ) | (44,718 | ) | (642,517 | ) | — | — | (687,235 | ) | |||||||||||||
| Tax benefit of stock option exercises |
— | — | 381,342 | — | — | 381,342 | |||||||||||||||||
| Cash dividends ($0.27 per share) |
— | — | — | (2,096,476 | ) | — | (2,096,476 | ) | |||||||||||||||
| Cash dividends ($0.15 per share) |
— | — | — | (1,171,890 | ) | — | (1,171,890 | ) | |||||||||||||||
| Balance at December 31, 2003 |
7,908,708 | 4,942,943 | 19,200,754 | 16,660,715 | 510,061 | 41,314,473 | |||||||||||||||||
| (Unaudited)
|
|||||||||||||||||||||||
| Comprehensive income: |
|||||||||||||||||||||||
| Net income |
— | — | — | 3,019,632 | — | 3,019,632 | |||||||||||||||||
| Change in unrealized loss on securities available-for-sale, net of taxes of $283,108 |
— | — | — | — | (549,562 | ) | (549,562 | ) | |||||||||||||||
| Total comprehensive income |
2,470,070 | ||||||||||||||||||||||
| Shares issued related to: |
|||||||||||||||||||||||
| 401(k) plan |
9,365 | 5,853 | 88,733 | — | — | 94,586 | |||||||||||||||||
| Exercise of stock options |
16,271 | 10,170 | 95,251 | — | — | 105,421 | |||||||||||||||||
| Dividend reinvestment |
108,887 | 68,054 | 1,197,393 | — | — | 1,265,447 | |||||||||||||||||
| Payout of fractional shares |
(92 | ) | (57 | ) | (1,036 | ) | — | — | (1,093 | ) | |||||||||||||
| Common stock repurchased and surrendered |
(30,145 | ) | (18,841 | ) | (322,187 | ) | (3,090 | ) | — | (344,118 | ) | ||||||||||||
| Tax benefit of stock option exercises |
— | — | 31,762 | — | — | 31,762 | |||||||||||||||||
| Cash dividends ($0.18 per share) |
— | — | — | (1,435,583 | ) | — | (1,435,583 | ) | |||||||||||||||
| Cash dividends ($0.15 per share) |
— | — | — | (1,187,065 | ) | — | (1,187,065 | ) | |||||||||||||||
| Balance at September 30, 2004 |
8,012,994 | $ | 5,008,122 | $ | 20,290,670 | $ | 17,054,609 | $ | (39,501 | ) | $ | 42,313,900 | |||||||||||
See accompanying notes to the consolidated financial statements (unaudited).
5
HAMPTON ROADS BANKSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
| Nine Months Ended |
||||||||
| September 30, 2004 |
September 30, 2003 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 3,019,632 | $ | 2,999,699 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
427,133 | 404,234 | ||||||
| Provision for loan losses |
797,000 | 265,000 | ||||||
| Change in stock options payable |
108,022 | (201,383 | ) | |||||
| Net amortization of premiums and accretion of discounts on investment securities |
167,627 | (299,807 | ) | |||||
| Gain on sale of premises and equipment |
(6,610 | ) | — | |||||
| Gain on sale of investment securities |
(507,500 | ) | — | |||||
| (Gain) loss on sale of real estate acquired in settlement of loans |
3,575 | (43,013 | ) | |||||
| Deferred taxes |
(309,782 | ) | 33,521 | |||||
| Changes in: |
||||||||
| Interest receivable |
241,895 | (202,094 | ) | |||||
| Other assets |
(175,925 | ) | (135,404 | ) | ||||
| Interest payable |
(33,500 | ) | (97,574 | ) | ||||
| Other liabilities |
775,913 | 1,519,560 | ||||||
| Net cash provided by operating activities |
4,507,480 | 4,242,739 | ||||||
| Investing activities: |
||||||||
| Proceeds from sale of investment securities |
44,667,500 | — | ||||||
| Proceeds from maturities and calls of investment securities |
2,001,584 | 22,673,044 | ||||||
| Purchase of investment securities |
(17,660,000 | ) | (46,800,000 | ) | ||||
| Purchase of Federal Home Loan Bank stock |
(275,000 | ) | (190,000 | ) | ||||
| Purchase of Federal Reserve Bank stock |
(3,000 | ) | (13,300 | ) | ||||
| Net (increase) decrease in total loans |
(45,817,431 | ) | 599,398 | |||||
| Purchase of premises and equipment |
(258,056 | ) | (1,138,001 | ) | ||||
| Proceeds from sale of premises and equipment |
7,475 | — | ||||||
| Cash paid for development and improvement of real estate acquired in the settlement of loans |
— | (705 | ) | |||||
| Proceeds from sale of real estate acquired in settlement of loans |
100,239 | — | ||||||
| Net cash used in investing activities |
(17,236,689 | ) | (24,869,564 | ) | ||||
| Financing activities: |
||||||||
| Net increase (decrease) in deposits |
(1,759,197 | ) | 4,207,467 | |||||
| Net increase in other borrowings |
8,000,000 | 4,530,235 | ||||||
| Common stock repurchased and surrendered |
(344,118 | ) | (657,489 | ) | ||||
| Dividends reinvested |
1,265,447 | 919,642 | ||||||
| Proceeds from shares issued related to 401(k) plan |
94,586 | 73,536 | ||||||
| Proceeds from exercise of stock options |
93,072 | 270,786 | ||||||
| Dividends paid |
(2,622,648 | ) | (3,268,366 | ) | ||||
| Net cash provided by financing activities |
4,727,142 | 6,075,811 | ||||||
| Decrease in cash and cash equivalents |
(8,002,067 | ) | (14,551,014 | ) | ||||
| Cash and cash equivalents at beginning of period |
23,534,683 | 41,044,580 | ||||||
| Cash and cash equivalents at end of period |
$ | 15,532,616 | $ | 26,493,566 | ||||
| Supplemental cash flow information: |
||||||||
| Cash paid during the period for interest |
$ | 2,911,178 | $ | 3,491,862 | ||||
| Cash paid during the period for income taxes |
1,792,876 | 1,375,000 | ||||||
| Supplemental noncash information: |
||||||||
| Value of shares exchanged in exercise of stock options |
$ | — | $ | 356,493 | ||||
| Stock options exercised through reduction in stock options payable |
12,348 | 334,967 | ||||||
| Tax benefit of stock option exercises |
31,762 | 320,403 | ||||||
See accompanying notes to the consolidated financial statements (unaudited).
6
HAMPTON ROADS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2004
NOTE A – BASIS OF PRESENTATION
Hampton Roads Bankshares, Inc., a Virginia corporation (the Company), was incorporated under the laws of the Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for Bank of Hampton Roads (the Bank). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.
Bank of Hampton Roads was organized in March of 1987 and commenced banking operation in December of 1987. The Bank engages in a general community and commercial banking business, emphasizing the needs of individuals as well as small and medium sized business in its primary service area.
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.
The Company adopted the disclosure only provision of SFAS No. 123, Accounting for Stock-Based Compensation and SFAS no. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. These statements allow an entity to continue to measure compensation cost for these plans using the intrinsic value-based method of accounting prescribed by the Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The Company elected to follow APB No. 25 and related interpretations in accounting for its employee stock options.
Pro forma information regarding net income and earnings per share as required by SFAS No. 123 and SFAS No. 148 has been determined as if the Company had been accounting for its employee stock options under the fair-value method. The fair value of all currently outstanding options was estimated at the date of the grant using a minimum value option-pricing model. Pro forma results and a summary of the assumptions used for the three and nine months ended September 30, 2004 and the same time periods in 2003 are as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| Reported net income |
$ | 1,174,222 | $ | 989,263 | $ | 3,019,632 | $ | 2,999,699 | ||||||
| Stock based compensation expense (net of tax) |
||||||||||||||
| Actual expense based on APB No. 25 |
— | — | 97,550 | 109,500 | ||||||||||
| Pro forma expense based on SFAS No.123 |
— | — | (83,756 | ) | (78,754 | ) | ||||||||
| Pro forma net income |
$ | 1,174,222 | $ | 989,263 | $ | 3,033,426 | $ | 3,030,445 | ||||||
| Net income per share: |
||||||||||||||
| Basic - as reported |
$ | 0.15 | $ | 0.13 | $ | 0.38 | $ | 0.39 | ||||||
| Basic - pro forma |
0.15 | 0.13 | 0.38 | 0.39 | ||||||||||
| Diluted - as reported |
0.14 | 0.12 | 0.37 | 0.38 | ||||||||||
| Diluted - pro forma |
0.14 | 0.12 | 0.37 | 0.38 | ||||||||||
| Assumptions: |
||||||||||||||
| Risk - free interest rate |
— | — | 4.00 | % | 3.25 | % | ||||||||
| Dividend paid |
— | — | $ | 0.30 | $ | 0.30 | ||||||||
| Weighted average expected life (years) |
— | — | 7.00 | 7.00 | ||||||||||
7
Option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a representative single measure of the fair value at which transactions may occur.
NOTE B – SECURITIES
The amortized cost and estimated fair market values of securities available-for-sale were:
| September 30, 2004 |
December 31, 2003 | |||||||||||
| Amortized Cost |
Estimated Market Value |
Amortized Cost |
Estimated Market Value | |||||||||
| U.S. Agency securities |
$ | 40,970,999 | $ | 40,911,263 | $ | 69,738,605 | $ | 70,511,381 | ||||
| U.S. Treasury securities |
100,000 | 99,992 | — | — | ||||||||
| Mortgage-backed securities |
13,754 | 13,648 | 15,359 | 15,403 | ||||||||
| Total securities available-for-sale |
$ | 41,084,753 | $ | 41,024,903 | $ | 69,753,964 | $ | 70,526,784 | ||||
NOTE C – LOANS
Major classifications of loans are summarized as follows:
| September 30, 2004 |
December 31, 2003 | ||||||
| Commercial |
$ | 58,359,731 | $ | 59,334,061 | |||
| Construction |
63,177,113 | 44,464,644 | |||||
| Real estate-commercial mortgage |
101,370,072 | 74,864,664 | |||||
| Real estate-residential mortgage |
16,162,331 | 15,595,314 | |||||
| Installment loans to individuals |
17,641,264 | 16,493,034 | |||||
| Deferred loan fees and related costs |
(211,724 | ) | 23,147 | ||||
| Total Loans |
$ | 256,498,787 | $ | 210,774,864 | |||
Non-performing assets are as follows:
| September 30, 2004 |
December 31, 2003 | |||||
| Loans 90 days past due and still accruing interest |
$ | 427,313 | $ | 112,126 | ||
| Nonaccrual loans |
2,662,093 | 107,601 | ||||
| Real estate acquired in settlement of loans |
— | 103,814 | ||||
| Total non-performing assets |
$ | 3,089,406 | $ | 323,541 | ||
8
NOTE D – ALLOWANCE FOR LOAN LOSSES
Transactions affecting the allowance for loan losses during the nine months ended September 30, 2004 and 2003 were as follows:
| 2004 |
2003 |
|||||||
| Balance at beginning of year |
$ | 2,948,011 | $ | 2,842,855 | ||||
| Provision for loan losses |
797,000 | 265,000 | ||||||
| Loans charged off |
(196,168 | ) | (245,704 | ) | ||||
| Recoveries |
102,660 | 24,971 | ||||||
| Balance at end of period |
$ | 3,651,503 | $ | 2,887,122 | ||||
NOTE E – PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
| September 30, 2004 |
December 31, 2003 |
|||||||
| Land |
$ | 3,253,052 | $ | 3,213,052 | ||||
| Buildings and improvements |
5,536,564 | 5,712,314 | ||||||
| Equipment, furniture and fixtures |
3,716,512 | 3,825,578 | ||||||
| 12,506,128 | 12,750,944 | |||||||
| Less accumulated depreciation |
(3,597,198 | ) | (3,694,210 | ) | ||||
| Net premises and equipment |
$ | 8,908,930 | $ | 9,056,734 | ||||
NOTE F – ACCOUNTING FOR INVESTMENTS IN LIMITED LIABILITY COMPANIES
In accordance with Emerging Task Force Issue 03-16, “Accounting for Investments in Limited Liability Companies”, which was effective for reporting periods beginning after June 15, 2004, the Company accounts for certain investments in limited liability companies using the equity method. The adoption of this Issue was treated as a change of accounting principle in the financial statements for the period ended September 30, 2004. The cumulative effect of this change was an increase in net income of approximately $46,000 net of income taxes.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the important factors affecting the consolidated results of operations, financial condition, capital resources and liquidity of the Company. This report identifies trends and material changes that occurred during the reporting periods and should be read in conjunction with the Company’s 2003 Annual Report.
Financial Condition
Total average assets, a benchmark used by banks when comparing size, is the strongest indicator of our continuous growth. Average assets increased by $24.2 million, or 8.1%, to a new high of $321.4 million for the nine months ended September 30, 2004 compared to nine months ended September 30, 2003. Total assets at September 30, 2004 were $324.5 million, an increase of $8.0 million, or 2.5%, over December 31, 2003 total assets of $316.5 million.
As a community bank, the Company has a primary objective of meeting the business and consumer credit needs within its market where standards of profitability, client relationships and credit quality can be met. The loan portfolio grew $45.7 million, or 21.7%, to $256.5 million as of September 30, 2004 compared to December 31,2003. This growth can be attributed to the strong loan demand experienced in the construction and commercial real estate categories of the loan portfolio. The Company continuously reviews its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the portfolio. In addition to the review of credit quality through
9
ongoing credit review processes, the Company conducts an independent and comprehensive allowance analysis for its loan portfolio at least quarterly. The allowance for loan losses was $3.7 million, or 1.4% of outstanding loans, as of September 30, 2004 compared with $2.9 million, or 1.4% of outstanding loans, as of December 31, 2003. Management increased the allowance for loan losses during the second quarter of 2004 by setting up a specific reserve to ensure adequate coverage of certain nonaccural loans. The amount of nonaccrual loans increased from December 31, 2003 balance of $107,601 to the September 30, 2004 balance of $2,662,093.
Deposits are the most significant source of the Company’s funds for use in lending and general business purposes. The Company’s balance sheet growth is largely determined by the availability of deposits in its market, the cost of attracting the deposits, and the prospects of profitability utilizing the available deposits by increasing the loan or investment portfolios. Total deposits at September 30, 2004 decreased $1.8 million, or 0.7%, to $255.7 million compared to December 31, 2003. Significant changes in the deposit categories include a $7.6 million, or 9.7% increase in noninterest bearing demand accounts, a $4.3 million or 6.7% decrease in time deposits less than $100,000 and a $3.7 million, or 11.8%, decrease in time deposits $100,000 or more from December 31, 2003 to September 30, 2004. These trends in deposits can be attributed to the commercial accounts which are generating larger balances in the demand deposit accounts and the lower interest rates being paid on time deposits, which has caused a run off in the time deposit accounts. The Company is currently promoting deposit products through increased rates in order to reverse this trend.
The Company’s investment portfolio consists of available-for-sale U.S. Agency, U.S. Treasury and mortgage-backed securities. At September 30, 2004, the market value of investment securities held by the Company was $41.0 million, down $29.5 million or 41.8%, from $70.5 million at December 31, 2003. The decline was the result of the sale of investment securities with a par value of $44.7 million netted against the purchases of investment securities with a par value of $17.7 million and the change in unrealized gains and unamortized premiums on the remaining investment securities. A gain of $507,500 was recognized in the first nine months of 2004 on the sale of investment securities, of which $12,507 was recorded in the third quarter of 2004. The decision to sell investment securities was made to provide liquidity to fund above normal loan growth. The Company experienced large fluctuations in both its loan and deposit portfolios during the first nine months of 2004, which precipitated the sales and purchases of investment securities. At September 30, 2004, the Company held unpledged investment securities with an estimated market value of $16.6 million.
Results of Operations
During the first nine months of 2004, the Company had net income of $3.0 million, resulting in a return of 1.26% on average total assets and 9.69% on average shareholders’ equity. During the comparable period in 2003, the Company earned $3.0 million resulting in a return of 1.35% on average total assets and 10.32% on average equity. Net income for the three months ended September 30, 2004 was a record $1.2 million compared to $989 thousand for the three months ended September 30, 2003. In the third quarter of 2004, the return on average assets was 1.44% and the return on average shareholders’ equity was 11.23%. Diluted earnings per share decreased 2.6% to $0.37 per share for the first nine months of 2004 compared to $0.38 per share for the first nine months of 2003. For the three months ended September 30, 2004, diluted earnings per share increased 16.7% to $0.14 per share compared to $0.12 per share for the three months ended September 30, 2003. This increase resulted primarily from an increase in net interest income.
Net interest income, the principal source of the Company’s earnings, represents the difference between interest and fees earned from lending and investment activities and the interest paid to fund these activities. Variations in the volume and mix of assets and liabilities and their relative sensitivity to interest rate movements impact net interest income. Net interest income for the first nine months of 2004 was $10.3 million, a $529 thousand increase over the first nine months of 2003. Net interest income for the three months ended September 30, 2004 was $3.7 million, a $414 thousand increase over the same time period in 2003.
The Company’s interest earning assets consist of loans, investment securities, and overnight funds sold. Interest income on loans, including fees, increased $76 thousand to $11.7 million for the nine months ended September 30, 2004 compared to the same time period during 2003. Interest income on loans, including loan fees, increased $370 thousand, or 9.6%, to $4.2 million for the three months ended September 30, 2004 compared to the same time period during 2003. Interest income on investment securities decreased $42 thousand, or 3.0%, to $1.4 million for the nine months ended September 30, 2004 compared to the same time period during 2003. The $5.1 million increase in the average investment securities balance for the nine months ended September 30, 2004 and a 35 basis point decrease for the same period in the average interest yield produced this slight decrease. Interest income on investment securities decreased $81 thousand, or 16.5%, to $409 thousand for the three months ended September 30, 2004 compared to the same time period during 2003. Interest income on overnight funds sold decreased $21 thousand, or 27.5%, to $56
10
thousand for the nine months ended September 30, 2004 compared to the same time period during 2003. This decrease was due primarily to the $2.5 million decrease for the nine months ended September 30, 2004 in the average overnight funds sold balance. Interest income on overnight funds sold decreased $26 thousand, or 74.6% to $9 thousand for the three months ended September 30, 2004 compared to the same time period during 2003.
The Company’s interest bearing liabilities consist of deposit accounts and other borrowings. Interest expense from deposits decreased $475 thousand, or 15.8%, to $2.5 million for the nine months ended September 30, 2004 compared to the same time period during 2003. This decline resulted from the 42 basis point decrease experienced in the average interest rate, paritally offset by the $1.6 million increase in the average interest bearing deposit balance. Interest expense from deposits decreased $134 thousand, or 14.4%, to $799 thousand for the three months ended September 30, 2004 compared to the same time period during 2003. Interest expense from other borrowings increased $8 thousand, or 2.2%, to $387 thousand for the nine months ended September 30, 2004 compared to the same time period during 2003. The $2.0 million increase in the average other borrowings balance, partially offset by the 33 basis point decrease in the average interest rate, produced this result. Interest expense from other borrowings decreased $16 thousand, or 10.4%, to $140 thousand for the three months ended September 30, 2004 compared to the same time period during 2003.
The net interest margin, which is calculated by expressing net interest income as a percentage of average interest earning assets, is an indicator of the Company’s efficiency in generating income from earning assets. The net interest margin is affected by the structure of the balance sheet as well as by competition and the economy. The Company’s net interest margin decreased from 4.71% during the first nine months of 2003 to 4.62% for the same period in 2004. This decrease can be attributed to changes in the balance sheet mix, changes in the yields obtained from interest earning assets and paid on interest bearing liabilities, the falling interest rate environment until the upturn during the third quarter of 2004 and changes in volume. In addition, competition for deposits and loans had an impact on the Company’s net interest margin. In the third quarter, the net interest margin improved to 4.87% in 2004 from 4.54% in the third quarter of 2003. This increase was attributed primarily to the significant increase in loans and to a lesser extent, to increases in interest rate.
The Company’s provision for loan losses for the first nine months of 2004 was $797 thousand compared to $265 thousand for the same period in 2003. This increase was due to an additional $500 thousand provision recorded in the second quarter of 2004 related to a specific credit. The provision for loan losses for the three months ended September 30, 2004 of $114 thousand compared to $96 thousand in the same time period during 2003.
The Company reported an increase in total noninterest income of $442 thousand, or 17.5%, for the first nine months of 2004 compared to the same period in 2003. Total noninterest income decreased $66 thousand, or 7.6%, for the three months ended September 30, 2004 compared to the same period in 2003. Service charges on deposit accounts, the Company’s primary source of noninterest income, decreased $25 thousand, or 1.6%, for the first nine months of 2004 compared to the same period in 2003. Service charges on deposit accounts decreased $5 thousand, or 1.0%, for the three month period ended September 30, 2004 compared to the same period in 2003. Another significant component of noninterest income is ATM surcharge fees, which increased slightly to $165 thousand for the first nine months of 2004 compared to $155 thousand for the first nine months of 2003. In order to improve liquidity and allow for the growth in the loan portfolio, the Company sold investment securities and recognized a gain of $508 thousand during the first nine months of 2004. There were no sales of investment securities during the first nine months of 2003. Other service charges and fees decreased $51 thousand, or 6.1%, for the first nine months of 2004 compared to the first nine months of 2003. Other service charges and fees decreased $82 thousand, 25.4%, for the three month period ended September 30, 2004 compared to the same period in 2003. The decreases in other service charges and fees were due in part to the change in accounting principle related to limited liability companies.
Noninterest expense represents the overhead expenses of the Company. One of the core operating principles of management continues to be the careful monitoring and control of these expenses. Total noninterest expense increased $457 thousand, or 6.1%, for the first nine months of 2004 compared to the first nine months of 2003. This increase was primarily attributable to a 9.3% increase in salaries and employee benefits resulting from the addition of several new positions late in 2003 and during the first quarter of 2004, normal annual salary adjustments, and higher costs of benefits. Data processing expense, another category of noninterest expense, posted an increase of 6.7% during this time frame. Occupancy expense increased slightly to $699 thousand at September 30, 2004 compared to $658 thousand at September 30, 2003. Other noninterest expenses posted a slight increase of 0.3% for the first nine months of 2004 compared to the same time period during 2003. Total noninterest expense increased $119 thousand, or 4.7%, for the three month period ended September 30, 2004 compared to the same period in 2003.
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Capital Resources and Liquidity
Total shareholder’s equity increased approximately $1 million, or 2.4%, to $42.3 million at September 30, 2004 compared to $41.3 million at December 31, 2003. As of September 30, 2004, the Company and the Bank were considered ‘well-capitalized”, the highest category of capitalization defined by the Federal Reserve Bank (FRB). The Company continually monitors current and projected capital adequacy positions of both the Company and the Bank. Maintaining adequate capital levels is integral to providing stability to the Company, resources to achieve the Company’s growth objectives, and returns to the stockholders in the form of dividends. On September 15, 2004, the Company paid a $0.18 per share dividend, totaling $1,435,583. On March 15, 2004, the Company paid a $0.15 per share dividend, totaling $1,187,065. On September 15, 2003, the Company paid a $0.15 per share dividend, totaling $1,171,890. On March 15, 2003, the Company paid a $0.27 per share dividend, totaling $2,096,476.
A key goal of asset/liability management is to maintain an adequate degree of liquidity without impairing long-term earnings. Liquidity represents the Company’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Short-term liquidity is provided primarily by access to the federal funds market through established correspondent banking relationships. Funds also can be obtained through the Company’s borrowing privileges at the Federal Reserve Bank and Federal Home Loan Bank of Atlanta. Additional liquidity is available through loan repayments and maturities of the Company’s investment portfolio. The Company maintains a liquid portfolio of both assets and liabilites and attempts to mitigate the risk inherent in changing rates in this manner. Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and to meet is customers’ credit needs.
Critical Accounting Policies
Certain critical accounting policies affect the more significant judgements and estimates used in the preparation of the consolidated financial statements. The Company’s most critical accounting policy relates to the Company’s allowance for loan losses, which reflects the estimated losses resulting from the inability of the Company’s borrowers to make required loan payments. If the financial condition of the Company’s borrowers were to deteriorate, resulting in an impairment of their ability to make payments, the Company’s estimates would be updated, and additional provisions for loan losses may be required.
Forward Looking Statements
Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements that include projections, predictions, expectations, or beliefs about events or results or otherwise are not statements of historical facts. Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, and inflation.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISK
The Company’s primary market risk is exposure to interest rate volatility. Fluctuations in interest rates will impact both the level of interest income and interest expense and the market value of the Company’s interest earning assets and interest bearing liabilities.
The primary goal of the Company’s asset/liability management strategy is to maximize net interest income while minimizing fluctuations caused by changes in the interest rate environment. The Company’s ability to manage its interest rate risk depends generally on the Company’s ability to match the maturities and re-pricing characteristics of its assets and liabilities while taking into account the separate goals of maintaining asset quality and liquidity and achieving the desired level of net interest income.
The Company’s management, guided by the Asset/Liability Committee (ALCO), determines the overall magnitude of interest sensitivity risk and then formulates policies and governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the state of the national and regional economy, and other financial and business risk factors.
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The primary method that the Company uses to quantify and manage interest rate risk is simulation analysis, which is used to model net interest income from assets and liabilities over a specified time period under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a relatively short time horizon. Key assumptions in the simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances and the behavior of loan and deposit customers in different rate environments.
The interest sensitivity gap is defined as the difference between the amount of interest earning assets anticipated, based upon certain assumptions, to mature or re-price within a specific time period and the amount of interest bearing liabilities anticipated, based upon certain assumptions, to mature or re-price within that time period. At September 30, 2004, the Company’s one year ‘positive gap” (interest earning assets maturing or re-pricing within a defined period exceed interest bearing liabilities maturing or re-pricing with the same period) was approximately $24.3 million, or 7.5% of total assets. Thus, during periods of rising interest rates, this implies that the Company’s net interest income would be positively affected because the yield of the Company’s interest earning assets is likely to rise more quickly than the cost of its interest bearing liabilities. At December 31, 2003, the Company’s one year “positive gap” was approximately $1.1 million, or 0.3% of total assets.
The following tables set forth the amounts of interest earning assets and interest bearing liabilities outstanding at September 30, 2004 and December 31, 2003 that are subject to re-pricing or that mature in each of the future time periods shown. Loans and securities with call or balloon provisions are included in the period in which they balloon or may first be called. Except as stated above, the amount of assets and liabilities shown that re-price or mature during a particular period were determined in accordance with the contractual terms of the asset or liability.
Interest Sensitivity Analysis
September 30, 2004
| (in thousands) |
1-90 Days |
91 Days -1Year |
1-3 Years |
3-5 Years |
Over 5 Years |
Total | |||||||||||||||||
| Interest earning assets: |
|||||||||||||||||||||||
| Loans |
$ | 129,562 | $ | 12,053 | $ | 46,261 | $ | 68,466 | $ | 157 | $ | 256,499 | |||||||||||
| Securities and stock |
4,004 | 8,002 | 20,818 | 8,187 | 1,811 | 42,822 | |||||||||||||||||
| Overnight funds sold |
1,134 | — | — | — | — | 1,134 | |||||||||||||||||
| Total interest earning assets |
$ | 134,700 | $ | 20,055 | $ | 67,079 | $ | 76,653 | $ | 1,968 | $ | 300,455 | |||||||||||
| Cumulative totals |
$ | 134,700 | $ | 154,755 | $ | 221,834 | $ | 298,487 | $ | 300,455 | |||||||||||||
| Interest bearing liabilities: |
|||||||||||||||||||||||
| Interest checking |
$ | 17,622 | $ | — | $ | — | $ | — | $ | — | $ | 17,622 | |||||||||||
| Money market |
47,163 | — | — | — | — | 47,163 | |||||||||||||||||
| Savings |
16,967 | — | — | — | — | 16,967 | |||||||||||||||||
| Time deposits |
20,996 | 25,160 | 28,365 | 13,706 | 7 | 88,234 | |||||||||||||||||
| FHLB borrowings |
— | 2,500 | 15,500 | 5,000 | — | 23,000 | |||||||||||||||||
| Other borrowings |
— | — | — | — | — | — | |||||||||||||||||
| Total interest bearing liabilities |
$ | 102,748 | $ | 27,660 | $ | 43,865 | $ | 18,706 | $ | 7 | $ | 192,986 | |||||||||||
| Cumulative totals |
$ | 102,748 | $ | 130,408 | $ | 174,273 | $ | 192,979 | $ | 192,986 | |||||||||||||
| Interest sensitivity gap |
$ | 31,952 | $ | (7,605 | ) | $ | 23,214 | $ | 57,947 | $ | 1,961 | $ | 107,469 | ||||||||||
| Cumulative interest sensitivity gap |
$ | 31,952 | $ | 24,347 | $ | 47,561 | $ | 105,508 | $ | 107,469 | |||||||||||||
| Cumulative interest sensitivity gap as a percentage of total assets |
9.85 | % | 7.50 | % | 14.66 | % | 32.51 | % | 33.12 | % | |||||||||||||
13
Interest Sensitivity Analysis
December 31, 2003
| (in thousands) |
1-90 Days |
91Days -1 Year |
1-3 Years |
3-5 Years |
Over 5 Years |
Total | |||||||||||||||||
| Interest earning assets: |
|||||||||||||||||||||||
| Loans |
$ | 99,536 | $ | 20,138 | $ | 34,736 | $ | 53,842 | $ | 2,523 | $ | 210,775 | |||||||||||
| Securities and stock |
— | 13,209 | 26,772 | 26,486 | 5,579 | 72,046 | |||||||||||||||||
| Overnight funds sold |
10,038 | — | — | — | — | 10,038 | |||||||||||||||||
| Total |
$ | 109,574 | $ | 33,347 | $ | 61,508 | $ | 80,328 | $ | 8,102 | $ | 292,859 | |||||||||||
| Cumulative totals |
$ | 109,574 | $ | 142,921 | $ | 204,429 | $ | 284,757 | $ | 292,859 | |||||||||||||
| Interest bearing liabilities: |
|||||||||||||||||||||||
| Interest checking |
$ | 22,184 | $ | — | $ | — | $ | — | $ | — | $ | 22,184 | |||||||||||
| Money market |
47,851 | — | — | — | — | 47,851 | |||||||||||||||||
| Savings |
13,018 | — | — | — | — | 13,018 | |||||||||||||||||
| Time deposits |
23,348 | 32,952 | 20,106 | 19,873 | 5 | 96,284 | |||||||||||||||||
| FHLB borrowings |
— | 2,500 | 5,000 | 7,500 | — | 15,000 | |||||||||||||||||
| Other borrowings |
— | — | — | — | — | — | |||||||||||||||||
| Total |
$ | 106,401 | $ | 35,452 | $ | 25,106 | $ | 27,373 | $ | 5 | $ | 194,337 | |||||||||||
| Cumulative Totals |
$ | 106,401 | $ | 141,853 | $ | 166,959 | $ | 194,332 | $ | 194,337 | |||||||||||||
| Interest sensitivity gap |
$ | 3,173 | $ | (2,105 | ) | $ | 36,402 | $ | 52,955 | $ | 8,097 | $ | 98,522 | ||||||||||
| Cumulative interest sensitivity gap |
$ | 3,173 | $ | 1,068 | $ | 37,470 | $ | 90,425 | $ | 98,522 | |||||||||||||
| Cumulative interest sensitivity gap as a percentage of total assets |
1.00 | % | 0.34 | % | 11.84 | % | 28.57 | % | 31.13 | % | |||||||||||||
The following tables provide information about the Company’s financial instruments that are sensitive to changes in interest rates as of September 30, 2004, and December 31, 2003, based on maturity or repricing dates. The Company had no derivative financial instruments, foreign currency exposure, or trading portfolio as of September 30, 2004 or December 31, 2003.
14
On-Balance Sheet Financial Instruments
September 30, 2004
| Principal Amount Maturing or Repricing in: |
||||||||||||||||||||||||||||
| (in thousands) |
1 Year |
2 Years |
3 Years |
4 Years |
5 Years |
Over 5 Years |
Total |
|||||||||||||||||||||
| Interest earning assets: |
||||||||||||||||||||||||||||
| Fixed rate loans |
$ | 18,789 | $ | 9,381 | $ | 36,880 | $ | 24,079 | $ | 44,387 | $ | 157 | $ | 133,673 | * | |||||||||||||
| Average interest rate |
7.41 | % | 8.27 | % | 7.00 | % | 7.30 | % | 6.48 | % | 7.22 | % | ||||||||||||||||
| Variable rate loans |
$ | 123,038 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 123,038 | ||||||||||||||
| Average interest rate |
5.85 | % | ||||||||||||||||||||||||||
| Securities and stock |
$ | 12,006 | $ | 11,704 | $ | 9,113 | $ | 8,188 | $ | — | $ | 1,811 | $ | 42,822 | ** | |||||||||||||
| Average interest rate |
1.90 | % | 2.31 | % | 2.81 | % | 3.22 | % | 4.39 | % | ||||||||||||||||||
| Interest bearing liabilities: |
||||||||||||||||||||||||||||
| Interest checking |
$ | 17,622 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 17,622 | ||||||||||||||
| Average interest rate |
0.20 | % | ||||||||||||||||||||||||||
| Money market |
$ | 47,162 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 47,162 | ||||||||||||||
| Average interest rate |
0.61 | % | ||||||||||||||||||||||||||
| Savings |
$ | 16,967 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 16,967 | ||||||||||||||
| Average interest rate |
0.40 | % | ||||||||||||||||||||||||||
| Time deposits |
$ | 46,156 | $ | 12,345 | $ | 16,020 | $ | 9,865 | $ | 3,841 | $ | 7 | $ | 88,234 | ||||||||||||||
| Average interest rate |
2.53 | % | 3.72 | % | 4.18 | % | 3.54 | % | 3.28 | % | 4.81 | % | ||||||||||||||||
| FHLB borrowings |
$ | 2,500 | $ | 7,500 | $ | 8,000 | $ | 5,000 | $ | — | $ | — | $ | 23,000 | ||||||||||||||
| Average interest rate |
4.56 | % | 2.46 | % | 3.24 | % | 2.83 | % | ||||||||||||||||||||
| * | Excluding net deferred loan fees of $212 thousand. |
| ** | Includes Federal Home Loan Bank and Federal Reserve Bank stock. |
15
On-Balance Sheet Financial Instruments
December 31, 2003
| Principal Amount Maturing or Repricing in: |
||||||||||||||||||||||||||||
| (in thousands) |
1 Year |
2 Years |
3 Years |
4 Years |
5 Years |
Over 5 Years |
Total |
|||||||||||||||||||||
| Interest earning assets: |
||||||||||||||||||||||||||||
| Fixed rate loans |
$ | 23,592 | $ | 11,559 | $ | 23,177 | $ | 23,987 | $ | 29,855 | $ | 2,523 | $ | 114,693 | * | |||||||||||||
| Average interest rate |
7.43 | % | 8.76 | % | 8.19 | % | 7.49 | % | 6.89 | % | 8.06 | % | ||||||||||||||||
| Variable rate loans |
$ | 96,059 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 96,059 | ||||||||||||||
| Average interest rate |
5.67 | % | ||||||||||||||||||||||||||
| Securities and stock |
$ | 13,209 | $ | 13,404 | $ | 13,368 | $ | 13,244 | $ | 13,242 | $ | 5,579 | $ | 72,046 | ** | |||||||||||||
| Average interest rate |
2.49 | % | 2.83 | % | 3.10 | % | 3.55 | % | 3.45 | % | 3.84 | % | ||||||||||||||||
| Interest bearing liabilities: |
||||||||||||||||||||||||||||
| Interest checking |
$ | 22,183 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 22,183 | ||||||||||||||
| Average interest rate |
0.20 | % | ||||||||||||||||||||||||||
| Money market |
$ | 47,851 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 47,851 | ||||||||||||||
| Average interest rate |
0.81 | % | ||||||||||||||||||||||||||
| Savings |
$ | 13,018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 13,018 | ||||||||||||||
| Average interest rate |
0.40 | % | ||||||||||||||||||||||||||
| Time deposits |
$ | 56,300 | $ | 13,935 | $ | 6,171 | $ | 12,441 | $ | 7,432 | $ | 5 | $ | 96,284 | ||||||||||||||
| Average interest rate |
1.98 | % | 5.17 | % | 4.49 | % | 4.62 | % | 3.34 | % | 5.20 | % | ||||||||||||||||
| FHLB borrowings |
$ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 5,000 | $ | — | $ | 15,000 | ||||||||||||||
| Average interest rate |
3.81 | % | 4.56 | % | 2.25 | % | 2.74 | % | 2.83 | % | ||||||||||||||||||
| * | Excluding deferred loan costs of $23 thousand. |
| ** | Includes Federal Home Loan Bank and Federal Reserve Bank Stock. |
ITEM 4 – CONTROLS AND PROCEDURES
| a) | As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act filings. |
| (b) | There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect its internal controls subsequent to the date the Company carried out its evaluation. |
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As of September 30, 2004, there were no significant legal proceedings against the Company.
ITEM 2 – CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
During 2003, the Company repurchased 71,549 shares of its common stock in open market and privately negotiated transactions at prices ranging from $9.35 to $10.50, in accordance with the Board of Director approved open ended stock repurchase program. During the first nine months of 2004, the Company repurchased 30,145 shares of its common stock in open market and privately negotiated transactions. Detail for the transactions conducted during the third quarter of 2004 appear below.
| Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number Of Shares that May yet be Purchased Under the Plans or Programs | |||||
| Month #1 July 1, 2004 - July 31, 2004 |
— | — | — | — | |||||
| Month #2 August 1, 2004 – August 31, 2004 |
627 | 11.00 | 627 | — | |||||
| Month #3 September 1, 2004 – September 30, 2004 |
13,302 | 11.00 | 13,302 | — | |||||
| Total |
13,939 | $ | 11.00 | 13,939 | — | ||||
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter.
ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters to a vote of security holders during the quarter.
None.
ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K
Form 8K – filed July 30, 2004, related to the earnings release for the quarter ended June 30, 2004, is incorporated herein by reference.
Form 8K – filed August 2, 2004, related to a declaration of dividend for the quarter ended June 30, 2004 is incorporated herein by reference.
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HAMPTON ROADS BANKSHARES, INC. | ||
| (Registrant) | ||
| DATE: November 10, 2004 |
/s/ Donald W. Fulton, Jr. | |
| Donald W. Fulton, Jr. | ||
| Senior Vice President and | ||
| Chief Financial Officer | ||
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