UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2006

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

For the transition period from                      to                     

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 Number)

1800 Robert Fulton Drive, Suite 310, Reston, Virginia 20191
(Address of principal executive office) (Zip Code)

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

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) o Yes þ No

The number of shares outstanding of Access National Corporation’s common stock, par value $.835, as of May 8, 2006 was 8,101,462 shares.

 

 

Table of Contents

ACCESS NATIONAL CORPORATION
FORM 10-Q

INDEX

PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets March 31, 2006 (Unaudited) and December 31, 2005		Page 2
		Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2006 and 2005		Page 3
		Consolidated Statements of Shareholders’ Equity (Unaudited) Three Months Ended March 31, 2006 and 2005		Page 4
		Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2006 and 2005		Page 5
		Notes to Consolidated Financial Statements (Unaudited)		Page 6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		Page 16
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		Page 29
Item 4.		Controls and Procedures		Page 30
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings		Page 31
Item 1A.		Risk Factors		Page 31
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		Page 31
Item 3.		Defaults Upon Senior Securities		Page 31
Item 4.		Submission of Matters to a Vote of Security Holders		Page 31
Item 5.		Other Information		Page 31
Item 6.		Exhibits		Page 32
		Signatures		Page 33

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements

ACCESS NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Data)

		March 31,				December 31,
		2006				2005
		(Unaudited)
ASSETS
Cash and due from banks		$	12,884			$	9,854
Interest bearing deposits in other banks			3,475				13,329
Securities available for sale, at fair value			110,243				87,771
Loans held for sale			70,635				45,019
Loans, net of allowance for loan losses of $5,339 and $5,215 respectively			378,268				364,518
Premises and equipment			9,656				9,650
Other assets			7,317				6,909
Total assets		$	592,478			$	537,050
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing deposits		$	86,037			$	81,034
Savings and interest-bearing deposits			138,651				149,094
Time deposits			198,424				189,501
Total deposits			423,112				419,629
Other liabilities
Short-term borrowings			101,767				48,196
Long-term borrowings			20,732				21,786
Subordinated debentures			10,311				10,311
Other liabilities			3,511				5,943
Total liabilities			559,433				505,865
SHAREHOLDERS’ EQUITY
Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and outstanding, 8,100,724 shares in 2006 and 7,956,556 shares in 2005			6,764				6,644
Surplus			9,427				9,099
Retained earnings			17,810				16,227
Accumulated other comprehensive income (loss), net			(956	)			(785	)
Total shareholders’ equity			33,045				31,185
Total liabilities and shareholders’ equity		$	592,478			$	537,050

See accompanying notes to consolidated financial statements (Unaudited).

ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except for Share Data)
(Unaudited)

		Three Months Ended March 31,
		2006				2005
Interest and Dividend Income
Interest and fees on loans		$	7,495			$	5,060
Interest on deposits in other banks			99				66
Interest and dividends on securities			1,051				493
Total interest and dividend income			8,645				5,619
Interest Expense
Interest on deposits			3,299				1,807
Interest on short-term borrowings			846				219
Interest on long-term borrowings			202				252
Interest on subordinated debentures			201				157
Total interest expense			4,548				2,435
Net interest income			4,097				3,184
Provision for loan losses			124				114
Net interest income after provision for loan losses			3,973				3,070
Noninterest Income
Service fees on deposit accounts			74				34
Gain on sale of loans			5,115				4,634
Mortgage broker fee income			866				931
Other income			48				554
Total noninterest income			6,103				6,153
Noninterest Expense
Salaries and employee benefits			4,706				4,563
Occupancy and equipment			526				536
Other operating expenses			2,384				2,556
Total noninterest expense			7,616				7,655
Income before income taxes			2,460				1,568
Income tax expense			837				533
NET INCOME		$	1,623			$	1,035
Earnings per common share:
Basic		$	0.20			$	0.13
Diluted		$	0.17			$	0.11
Average outstanding shares:
Basic			8,018,133				7,917,998
Diluted			9,658,239				9,345,524

See accompanying notes to consolidated financial statements (Unaudited).

ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Months Ended March 31, 2006 and 2005
(In Thousands)
(Unaudited)

														Accumulated
														Other
		Common								Retained				Comprehensive				Comprehensive
		Stock				Surplus				Earnings				Income (Loss)				Income				Total
Balance, December 31, 2005		$	6,644			$	9,099			$	16,227			$	(785	)		$	—			$	31,185
Comprehensive income:
Net income			—				—				1,623				—				1,623				1,623
Other comprehensive income (loss), unrealized holdings losses arising during the period, net of tax $88			—				—				—				(171	)			(171	)			(171	)
																		$	1,452
Cash Dividend											(40	)											(40	)
Common Stock issued for exercise of warrants, shares			120				328																448
Balance, March 31, 2006		$	6,764			$	9,427			$	17,810			$	(956	)						$	33,045
Balance, December 31, 2004		$	6,608			$	9,067			$	10,330			$	(7	)		$	—			$	25,998
Comprehensive income:
Net income			—				—				1,035				—				1,035				1,035
Other comprehensive income (loss), unrealized holdings losses arising during the period, net of tax $242			—				—				—				(471	)			(471	)			(471	)
																		$	564
Common Stock issued for exercise of warrants, shares			4				4																8
Balance, March 31, 2005		$	6,612			$	9,071			$	11,365			$	(478	)						$	26,570

See accompanying notes to consolidated financial statements (Unaudited).

ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Three Months Ended March 31,
		2006				2005
		(In Thousands)
Cash Flows from Operating Activities
Net income		$	1,623			$	1,035
Adjustments to reconcile net income to net cash (used in) operating activities:
Provision for loan losses			124				114
Deferred tax (benefit)			(77	)			—
Stock Based Compensation			18				—
Gain (loss) on derivatives			(28	)			26
Net amortization (accretion) on securities			(1	)			1
Depreciation and amortization			197				167
Changes in assets and liabilities:
(Increase) decrease in loans held for sale			(25,380	)			(12,572	)
(Increase) decrease in other assets			(232	)			(818	)
Increase (decrease) in other liabilities			(2,432	)			372
Net cash (used in) operating activities			(26,188	)			(11,675	)
Cash Flows from Investing Activities
Proceeds from maturities and calls of securities available for sale			1,657				4,127
Purchases of securities available for sale			(24,387	)			(10,169	)
Net (increase) in loans			(14,110	)			(5,861	)
Purchases of premises and equipment			(186	)			(44	)
Net cash (used in) investing activities			(37,026	)			(11,947	)
Cash Flows from Financing Activities
Net increase (decrease) in demand, interest-bearing demand and savings deposits			(5,439	)			46,877
Net increase (decrease) in time deposits			8,922				2,332
Net increase (decrease) in securities sold under agreement to repurchase			250				(2,364	)
Net increase (decrease) in short-term borrowings			54,321				(19,496	)
Net increase (decrease) in long term borrowings			(2,054	)			(1,054	)
Proceeds from issuance of common stock			430				7
Dividends Paid			(40	)			—
Net cash provided by financing activities			56,390				26,302
Increase (decrease) in cash and cash equivalents			(6,824	)			2,680
Cash and Cash Equivalents
Beginning			23,183				30,532
Ending		$	16,359			$	33,212
Supplemental Disclosures of Cash Flow Information
Cash payments for interest		$	4,530			$	2,430
Cash payments for income taxes		$	1,477			$	815
Supplemental Disclosures of Noncash Investing Activities
Unrealized gain (loss) on securities available for sale			(259	)			(713	)

See accompanying notes to consolidated financial statements (Unaudited).

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 – COMMENCEMENT OF OPERATIONS

Access National Corporation (the “Corporation”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia. The Corporation has three wholly owned subsidiaries, Access National Bank (the “Bank”), which is an independent commercial bank chartered under federal laws as a national banking association, Access Capital Trust I, and Access Capital Trust II. The Corporation does not have any significant operations and serves primarily as the parent company for the Bank. The Corporation’s income is primarily derived from dividends received from the Bank. The amount of these dividends is determined by the Bank’s earnings and capital position.

The Corporation acquired all of the outstanding stock of the Bank in a statutory exchange transaction on June 15, 2002, pursuant to an Agreement and Plan of Reorganization between the Corporation and the Bank.

Access National Bank opened for business on December 1, 1999 and has four wholly-owned subsidiaries: Access National Mortgage Corporation (the “Mortgage Corporation”) and United First Mortgage Corporation (“UFM”), both Virginia corporations engaged in mortgage banking activities, Access National Leasing Corporation, a Virginia corporation engaged in commercial and industrial leasing services, and Access Real Estate LLC. Access National Leasing was acquired in exchange for 7,500 shares of Access National Bank stock in the second quarter of 2002. The 7,500 shares were subsequently repurchased in 2003. The leasing subsidiary presently has no employees and its affairs are managed as a part of the Bank’s commercial lending department. Access Real Estate LLC is a limited liability corporation established in July, 2003 for the purpose of holding title to the Corporation’s headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia.

The Corporation formed Access Capital Trust I and Access Capital Trust II in 2002 and 2003 respectively for the purpose of issuing redeemable capital securities. On July 30, 2002 Access Capital Trust I, issued $4 million of trust preferred securities and on September 30, 2003, Access Capital Trust II issued $6 million of trust preferred securities. Trust preferred securities may be included in Tier 1 capital in an amount equal to 25% of Tier 1 capital and amounts in excess of 25% are includable as Tier 2 capital. As guarantor, the Corporation unconditionally guarantees payment of all distributions required to be paid on the Trust Preferred Securities.

In August 2004, Access National Bank acquired all of the common stock of UFM. The acquisition of UFM gave the company a new location in the Richmond, Virginia market plus entry into the Fredericksburg and Staunton markets. The new locations became branch offices of the Mortgage Corporation.

In July 2005 Access Real Estate LLC purchased an unimproved commercial building lot in Spotsylvania County, Virginia where the Corporation is contemplating the construction of a combined banking and mortgage center.

NOTE 2 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with rules and regulations of the Securities and Exchange Commission. The statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments have been made, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Such adjustments are all of a normal and recurring nature. All significant inter-company accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2006. These consolidated financial statements should be read in conjunction with the Corporation’s audited financial statements and the notes thereto as of December 31, 2005, included in the Corporation’s Annual Report for the fiscal year ended December 31, 2005.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 3 – STOCK BASED COMPENSATION PLANS

Stock-Based Compensation Plans - On January 1, 2006, the Corporation adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees based on estimated fair values. SFAS No. 123(R) supersedes previous accounting under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, providing supplemental implementation guidance for SFAS 123(R). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).

SFAS No. 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. The Company adopted SFAS No. 123(R) using the modified prospective application, which requires the application of the standard starting from January 1, 2006, the first day of the current fiscal year.

The Company’s condensed consolidated financial statements for the three months ended March 31, 2006 reflect the impact of SFAS No. 123(R). Stock-based compensation expense related to employee stock options recognized under SFAS No. 123(R) for the three months ended March 31, 2006 was $18 thousand and is included in other operating expenses. The total income tax benefit recognized for share-based compensation arrangements for the three months ended March 31, 2006 was $6 thousand. As of March 31, 2006, total unamortized stock-based compensation cost related to non-vested stock options was $99 thousand, net of expected forfeitures, which is expected to be recognized over a weighted-average period of 0.95 years.

Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the intrinsic value method, no stock-based compensation expense for employee stock options had been recognized in the Company’s consolidated statements of operations because the exercise price of the Company’s stock options granted to employees equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method the Company used in adopting SFAS No. 123(R), the Company’s results of operations prior to fiscal 2006 have not been restated to reflect, and do not include, the impact of SFAS No. 123(R).

Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the three months ended March 31, 2006 included compensation expense for stock-based awards granted prior to, but not yet vested as of December 31, 2005, based on the fair value on the grant date estimated in accordance with the pro forma provisions of SFAS No. 123. As stock-based compensation expense recognized for the first quarter of fiscal 2006 is based on awards ultimately expected to vest, it has been reduced for forfeitures.

The following table illustrates the pro forma net income and earnings per share for the three months ended March 31, 2005 as if compensation expense for stock options issued to employees had been determined consistent with SFAS No. 123:

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

STOCK BASED COMPENSATION PLANS

		Three Month Period
		Ended March 31,
		2005
		(In Thousands Except
		for Share Data)
Net Income, as reported		$	1,035
Total stock-based compensation determined under fair value based method for all awards, net of realized tax effects		$	(159	)
Pro-forma Net Income		$
			876
Earnings per Share:
Basic — as reported		$	0.13
Basic — pro forma		$	0.11
Diluted — as reported		$	0.11
Diluted — pro forma		$	0.10

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 4 — SECURITIES

Amortized costs and fair values of securities available for sale as of March 31, 2006 and December 31, 2005 are as follows:

		March 31, 2006
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In Thousands)
U.S. Treasury Securities		$	1,602			$	—			$	(2	)		$	1,600
U.S. Government Agencies			96,335				—				(1,292	)			95,043
Mortgage Backed Securities			1,309				1				(4	)			1,306
Tax Exempt Municipals			2,895				—				(45	)			2,850
Taxable Municipals			1,500				—				(55	)			1,445
Mutual Fund			1,500				—				(52	)			1,448
Restricted Securities -
Federal Reserve Bank Stock			720				—				—				720
FHLB Stock			5,831				—				—				5,831
Total Securities		$	111,692			$	1			$	(1,450	)		$	110,243

		December 31, 2005
						Gross				Gross
		Amortized				Unrealized				Unrealized
		Cost				Gains				(Losses)				Fair Value
		( In Thousands)
U.S. Treasury Notes		$	1,606			$	—			$	(4	)		$	1,602
U.S. Governmental Agencies			76,329				—				(1,069	)			75,260
Mortgage Backed Securities			1,392				3				(2	)			1,393
Tax Exempt Municipals			2,895				—				(55	)			2,840
Taxable Municipals			1,500				—				(34	)			1,466
Mutual Fund			1,500				—				(29	)			1,471
Restricted Stock -
Federal Reserve Bank Stock			300				—				—				300
FHLB Stock			3,439				—				—				3,439
Total Securities		$	88,961			$	3			$	(1,193	)		$	87,771

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

The amortized cost and fair value of securities available for sale as of March 31, 2006 and December 31, 2005 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid without any penalties.

		March 31, 2006								December 31, 2005
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
		(In Thousands)								(In Thousands)
US Treasury & Agencies
Due in one year or less		$	15,625			$	15,488			$	3,606			$	3,570
Due after one through five years			80,814				79,694				72,831				71,808
Due after five through ten years			1,498				1,461				1,498				1,484
Municipals
Due after five through ten years			3,880				3,783				3,880				3,796
Due after ten through fifteen years			515				512				515				510
Mortgage Backed Securities
Due after one through five years			1,309				1,306				1,392				1,393
Mutual Fund			1,500				1,448				1,500				1,471
Restricted Stock:
Federal Reserve Bank stock			720				720				300				300
FHLB stock			5,831				5,831				3,439				3,439
		$	111,692			$	110,243			$	88,961			$	87,771

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Investment securities available for sale that have an unrealized loss position at March 31, 2006 and December 31, 2006 are detailed below

										March 31, 2006
		Securities in a loss								Securities in a loss
		Position for less than								Position for 12 Months
		12 Months								or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In Thousands)
Investment securities available for sale:
U.S. Treasury Security		$	1,600			$	(2	)			—				—			$	1,600			$	(2	)
Mortgage Backed Security			1,016				(4	)			—				—				1,016				(4	)
U.S. Government Agencies			20,261				(223	)			69,781				(1,069	)			90,042				(1,292	)
Municipals-Taxable			1,446				(55	)			—				—				1,446				(55	)
Municipals-Tax Exempt			1,463				(14	)			1,386				(31	)			2,849				(45	)
CRA Mutual Fund			1,448				(52	)			—				—				1,448				(52	)
Total		$	27,234			$	(350	)		$	71,167			$	(1,100	)		$	98,401			$	(1,450	)

										December 31, 2005
		Securities in a loss								Securities in a loss
		Position for less than								Position for 12 Months
		12 Months								or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In Thousands)
Investment securities available for sale:
U.S. Treasury Security		$	1,602			$	(4	)			—				—			$	1,602			$	(4	)
Mortgage Backed Security			485				(2	)			—				—				485				(2	)
U.S. Government Agencies			28,950				(377	)			29,309				(691	)			58,259				(1,068	)
Municipals-Taxable			1,465				(35	)			—				—				1,465				(35	)
Municipals-Tax Exempt			2,840				(55	)			—				—				2,840				(55	)
CRA Mutual Fund			1,471				(29	)			—				—				1,471				(29	)
Total		$	36,813			$	(502	)		$	29,309			$	(691	)		$	66,122			$	(1,193	)

Management does not believe that any individual unrealized loss as of March 31, 2006 and December 31, 2005 represents other than temporary impairment. These unrealized losses are primarily attributable to changes in interest rates. The Corporation has the ability to hold these securities for a time necessary to recover the amortized cost or until maturity when full repayment would be received.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 5 – LOANS

The following table presents the composition of the loan portfolio at March 31, 2006 and December 31, 2005.

		March 31, 2006				December 31, 2005
		(In Thousands)
Commercial and Industrial loans		$	43,751			$	38,516
Real Estate Non-Residential			143,461				137,423
Real Estate Construction			37,463				37,054
Real Estate Residential			157,732				156,185
Consumer loans			1,200				555
Total loans			383,607				369,733
Less allowance for loan losses			5,339				5,215
Net loans		$	378,268			$	364,518

NOTE 6 – SEGMENT REPORTING

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

The commercial bank segment provides the mortgage segment with the short term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on a premium over their cost to borrow funds. These transactions are eliminated in the consolidation process.

Other includes the operations of Access National Corporation and Access Real Estate LLC. The primary source of income for the Corporation is derived from dividends from the Bank and its primary expense relates to interest on subordinated debentures. The primary source of income for Access Real Estate is derived from rents received from the Bank and Mortgage Corporation.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

The following table presents segment information for the three months ended March 31, 2006 and 2005:

2006		Commercial				Mortgage												Consolidated
(In Thousands)		Banking				Banking				Other				Eliminations				Totals
Revenues:
Interest income		$	8,682			$	634			$	13			$	(684	)		$	8,645
Gain on sale of loans			—				5,115				—				—				5,115
Other revenues			400				894				562				(868	)			988
Total revenues			9,082				6,643				575				(1,552	)			14,748
Expenses:
Interest expense			4,233				681				318				(684	)			4,548
Salaries and employee benefits			1,531				3,175				—				—				4,706
Other			983				2,251				417				(617	)			3,034
Total expenses			6,747				6,107				735				(1,301	)			12,288
Income before income taxes		$	2,335			$	536			$	(160	)		$	(251	)		$	2,460
Total assets		$	560,877			$	72,756			$	37,405			$	(78,560	)		$	592,478

2005		Commercial				Mortgage												Consolidated
(In Thousands)		Banking				Banking				Other				Elimination				Totals
Revenues:
Interest income		$	5,579			$	507			$	21			$	(488	)		$	5,619
Gain on sale of loans			—				4,666				—				(32	)			4,634
Other			458				1,137				459				(535	)			1,519
Total revenues			6,037				6,310				480				(1,055	)			11,772
Expenses:
Interest expense			2,238				408				277				(488	)			2,435
Salaries and employee benefits			1,394				3,169				—				—				4,563
Other			806				2,509				257				(366	)			3,206
Total expenses			4,438				6,086				534				(854	)			10,204
Income before income taxes		$	1,599			$	224			$	(54	)		$	(201	)		$	1,568
Total assets		$	419,963			$	78,897			$	35,388			$	(86,903	)		$	447,345

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 7 – EARNINGS PER SHARE (EPS):

The following tables show the calculation of both Basic and Diluted earnings per share for the three months ended March 31, 2006 and 2005 respectively. The numerator of both the Basic and Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used in the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect of potentially dilutive common stock options and warrants utilizing the treasury stock method.

		Three months				Three months
		Ended				Ended
		March 31, 2006				March 31, 2005
		(In thousands except for share data)
BASIC EARNINGS PER SHARE:
Net Income		$	1,623			$	1,035
Weighted average shares outstanding			8,018,133				7,917,998
Basic earnings per share		$	0.20			$	0.13
DILUTED EARNINGS PER SHARE:
Net Income		$	1,623			$	1,035
Weighted average shares outstanding			8,018,133				7,917,998
Dilutive stock options and warrants			1,640,106				1,427,526
Weighted average diluted shares outstanding			9,658,239				9,345,524
Diluted earnings per share		$	0.17			$	0.11

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 8 — DERIVATIVES

Access National Mortgage Corporation carries all derivative instruments at fair value as either assets or liabilities in the consolidated balance sheets. Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended (“SFAS 133”), provides specific accounting provisions for derivative instruments that qualify for hedge accounting. The Mortgage Corporation has not elected to apply hedge accounting to its derivative instruments as provided in SFAS 133.

The Mortgage Corporation enters into interest rate lock commitments, which are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Mortgage Corporation also has corresponding forward sales commitments related to these interest rate lock commitments, which are recorded at fair value with changes in fair value recorded in non-interest income. The market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Mortgage Corporation determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments will close.

For derivative instruments not designated as hedging instruments, the derivative is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.

At March 31, 2006 and December 31, 2005 the Mortgage Corporation had derivative financial instruments with a notional value of $113,839,000 and $96,809,000 respectively. The fair value of these derivative instruments at March 31, 2006 and December 31, 2005 was $113,741,000 and $96,731,000 respectively.

NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, a Replacement of APB Opinion 20 and FASB Statement No. 3. SFAS 154 amends the existing guidance and applies to accounting for and reporting of a change in accounting principle. SFAS 154 also applies to changes required by accounting pronouncements when the pronouncement does not include explicit transition provisions. SFAS 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 didn’t have a material impact on the financial condition or the results of operation of the Corporation.

In late 2005, the FASB’s staff issued Staff Position (FSP) FAS 115-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. This FSP provides additional guidance on when an investment in a debt or equity security should be considered impaired and when that impairment should be considered other-than-temporary and recognized as a loss. Additionally, the FSP requires certain disclosures about unrealized losses which have not been recognized as other-than-temporary. The effect of this guidance did not have a material effect on the Bank’s consolidated financial statements upon implementation on January 1, 2006.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to provide an overview of the significant factors affecting the financial condition and the results of operations of Access National Corporation and subsidiaries (the “Corporation”) for the three months ended March 31, 2006 and 2005. The consolidated financial statements and accompanying notes should be read in conjunction with this discussion and analysis.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q may contain forward-looking statements. For this purpose, any statements contained herein, including documents incorporated by reference, that are not statements of historical fact may be deemed to be forward-looking statements. Examples of forward-looking statements include discussions as to our expectations, beliefs, plans, goals, objectives and future financial or other performance or assumptions concerning matters discussed in this document. Forward-looking statements often use words such as “believes,” “expects,” “plans,” “may,” “will,” “should,” “projects,” “contemplates,” “ anticipates,” “forecasts,” “intends” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the Corporation include, but are not limited to, changes in: interest rates, general economic conditions, monetary and fiscal policies of the U.S. Government, including policies of the Office of the Comptroller of the Currency, U.S. Treasury and the FRB, the economy of Northern Virginia, including governmental spending and real estate markets, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made.

CRITICAL ACCOUNTING POLICIES

General

The Corporation’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. Actual losses could differ significantly from the historical factors that we monitor. Additionally, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principals of accounting: (i) SFAS 5 Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

An allowance for loan losses is established through a provision for loan losses based upon industry standards, known risk characteristics, 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 the subsection “Allowance for Loan Losses” below.

Derivative Financial Instruments – Access National Mortgage Corporation carries all derivative instruments at fair value as either assets or liabilities in the consolidated balance sheets. SFAS 133 provides specific accounting provisions for derivative instruments that qualify for hedge accounting. The Mortgage Corporation has not elected to apply hedge accounting to its derivative instruments as provided in SFAS 133.

Off-Balance Sheet Items

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

In the ordinary course of business, the Bank issues commitments to extend credit and, at March 31, 2006, these commitments amounted to $25.5 million. These commitments do not necessarily represent cash requirements, since many commitments are expected to expire without being drawn on.

At March 31 2006, the Bank had approximately $74.5 million in unfunded lines of credit and letters of credit. These lines of credit, if drawn upon, would be funded from routine cash flows and short term borrowings. As the Corporation continues the planned expansion of the loan portfolio held for investment, the volume of commitments and unfunded lines of credit are expected to increase accordingly.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

FINANCIAL CONDITION (March 31, 2006 compared to December 31, 2005)

The Corporation’s assets totaled $592.5 million at March 31, 2006, an increase of $55.4 million from year end 2005. The Corporation continues to experience strong growth in assets. Net loans held for investment, originated by the Bank, increased $13.8 million over year end. The growth in loans held for investment is due to continued strong loan demand in our area and increased market penetration. Loans held for sale totaled $70.6 million, up $25.6 million from December 31, 2005. The increase in loans held for sale is due to an increase in loan originations during the month of March 2006 and a build up of inventory to complete a bulk trade. Management continues to employ a strategy of attracting highly qualified professional lenders to support future growth in the loans held for investment. The future balances in the loans held for sale category will continue to experience volatility due to fluctuations of interest rates. The balances of this short term investment fluctuate daily as necessary to support loan origination and secondary market sales activities.

Asset growth during the period was supported by a combination of deposit growth and short term borrowings. Deposits totaled $423.1 million at March 31, 2006 up from $419.6 million at December 31, 2005. Short term borrowings increased by $53.6 million during the first quarter of 2006. The increase in short term borrowings is due in part to the increase in loans held for sale. In addition, short term borrowings are used to compensate for fluctuations in core deposits. The Bank concentrates on commercial accounts and due to the nature of these accounts, balances can be subject to wide fluctuations. Management has expanded the business development and marketing staff to support future deposit growth necessary to fund loan growth. Management expects continued utilization of wholesale Certificates of Deposits and other borrowings as necessary to fund the loans held for sale activity and growth in financial investments.

Securities

The Corporation’s securities portfolio is comprised of U.S. Treasury securities, U.S. Government Agency securities, obligations of States and Political subdivisions, mortgage backed securities, Federal Reserve and Federal Home Loan Bank stock. At March 31, 2006 the securities portfolio totaled $110.2 million, up from $87.8 million on December 31, 2005. All securities were classified as available for sale. Securities classified as available for sale are accounted for at fair market value with unrealized gains and losses recorded directly to a separate component of stockholders’ equity, net of associated tax effect. The Corporation’s securities classified as available for sale had an unrealized loss net of deferred taxes of $956 thousand on March 31, 2006.

Loans

The loans held for investment portfolio constitutes the largest component of earning assets and is comprised of commercial loans, real estate loans, construction loans, and consumer loans. These lending activities provide access to credit to small businesses, professionals and consumers in the greater Washington, D.C. metropolitan area. All lending activities of Access National Bank (the Bank), Access National Mortgage Corporation (the Mortgage Corporation) and Access National Leasing Corporation (the Leasing Corporation) are subject to the regulations and supervision of the Office of the Comptroller of Currency.

At March 31, 2006, loans held for investment increased by $13.9 million from December 31, 2005 and totaled $383.6 million. The increase is due to a combination of factors, including direct solicitation, referrals, community involvement, expansion of the Bank’s loan officer staffing, and increased name recognition and acceptance of the Bank’s products and services within the marketplace. Management intends to continue to increase loan officer staffing and support in order to facilitate continued growth in the portfolio. The following is a summary of the Loan Portfolio Held for Investment at March 31, 2006.

Commercial Loans: Commercial Loans represent 11.4% of our held for investment portfolio. These loans are to businesses or individuals within our target market for business purposes. Typically the loan proceeds are used to support working capital and the acquisition of fixed assets of an operating business. These loans are underwritten based upon our assessment of the obligor(s)’ ability to generate operating cash flow in the future necessary to repay the loan. To address the risks associated with the uncertainties of future cash flow, these loans are generally well secured by assets owned by the business or its principal shareholders and the principal shareholders are typically required to guarantee the loan.

Real Estate Construction Loans: Real Estate Construction Loans, also known as construction and land development loans, comprise 9.8% of our held for investment loan portfolio. These loans generally fall into one of three circumstances: first, loans to individuals that are ultimately used to acquire property and construct an owner occupied residence; second, loans to builders for the purpose of acquiring property and constructing homes for sale to consumers; and third, loans to developers for the purpose of acquiring land that is developed into finished lots for the ultimate construction of residential or commercial buildings. Loans of these types are generally secured by the subject property within limits established by the Board of Directors based upon an assessment of market conditions and up-dated from time to time. The loans typically carry recourse to principal owners. In addition to the repayment risk associated with loans to individuals and businesses, loans in this category carry construction completion risk. To address this additional risk, loans of this type are subject

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

to additional administration procedures designed to verify and ensure progress of the project in accordance with allocated funding, project specifications and time frames.

Real Estate Non-Residential Loans: Also known as “Commercial Mortgages”, loans in this category represent 37.4% of our loan portfolio held for investment. These loans generally fall into one of three situations in order of magnitude: first, loans supporting an owner occupied commercial property; second, properties used by non-profit organizations such as churches or schools where repayment is dependent upon the cash flow of the non-profit organizations; and third, loans supporting a commercial property leased to third parties for investment. Commercial Real Estate Loans are secured by the subject property and underwritten to policy standards. Policy standards approved by the Board of Directors from time to time set forth, among other considerations, loan to value limits, cash flow coverage ratios, and the general creditworthiness of the obligors.

Real Estate Residential Loans: This category includes loans secured by first or second mortgages on one to four family residential properties and represent 41.1% of the portfolio. Of this amount, the following sub-categories exist as a percentage of the whole Residential Real Estate Loan portfolio: Home Equity Lines of Credit 14.7%; First Trust Mortgage Loans 74.7%; Loans Secured by a Junior Trust 7.4%; Multi-family loans and loans secured by Farmland 3.2%.

Home Equity Loans are extended to borrowers in our target market. Real estate equity is the largest component of consumer wealth in our marketplace. Once approved, this consumer finance tool allows the borrower to access the equity in their home or investment property and use the proceeds for virtually any purpose. Home Equity Loans are most frequently secured by a second lien on residential property. 1-4 Family Residential First Trust Loan, or “First Mortgage Loan,” proceeds are used to acquire or refinance the primary financing on owner occupied and residential investment properties. Junior Trust Loans, or “Loans Secured by a Second Trust Loans,” are to consumers wherein the proceeds have been used for a stated consumer purpose. Examples of consumer purposes are education, refinancing debt, or purchasing consumer goods. The loans are generally extended in a single disbursement and repaid over a specified period of time.

Loans in the Residential Real Estate portfolio are underwritten to standards within a traditional consumer framework that is periodically reviewed and up-dated by our management and Board of Directors: repayment source and capacity, value of the underlying property, credit history, savings pattern and stability.

Consumer Loans: Consumer Loans make up less than 0.3% of our loan portfolio. Most loans are well secured with assets other than real estate, such as marketable securities or automobiles. Very few loans are unsecured. As a matter of operation, management discourages unsecured lending. Loans in this category are underwritten to standards within a traditional consumer framework that is periodically reviewed and updated by our management and the Board of Directors: repayment capacity, collateral value, savings pattern, credit history and stability.

Loans Held for Sale (LHFS)

Loans Held for Sale are originated by Access National Mortgage Corporation, a wholly owned subsidiary of Access National Bank. Loans of these types are residential mortgage loans extended to consumers underwritten in accordance with standards set forth by an institutional investor to whom we expect to sell the loan for a profit. Loan proceeds are used for the purchase or refinance of the property securing the loan. Loans are sold with the servicing released to the investor.

The LHFS loans are closed in our name and carried on our books until the loan is delivered to and purchased by an investor. In the three month period ending March 31, 2006 we originated $155.4 million of loans processed in this manner. Repayment risk of this activity is minimal since the loans are on the books for a short time period. Loans are sold without recourse and subject to industry standard representations and warranties. The risks associated with this activity center around borrower fraud and failure of our investors to purchase the loans. These risks are addressed by the on-going maintenance of an extensive quality control program, an internal audit and verification program, and a selective approval process for investors. To date we have been able to absorb the financial impact of these risks without material impact on our operating performance. At March 31, 2006 loans held for sale totaled $70.6 million compared to $45.0 million at year end 2005. The increase in loans held for sale at is primarily due to an increase in inventory pending a bulk loan sale, which closed subsequent to March 31, 2006.

Brokered Loans

Brokered loans are underwritten and closed by a third party lender. We are paid a fee for procuring and packaging brokered loans. For first quarter of 2006, we originated a total volume of $37.5 million in residential mortgage loans under this type of delivery method, as compared to $41.7 million in the first quarter of 2005. Brokered loans accounted for 19.4% of the total loan volume for the first quarter of 2006.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Allowance for Loan Losses

The allowance for loan losses increased by $124 thousand and totaled $5.3 million at March 31, 2006 compared to $5.2 million at year end 2005. The allowance for loan losses at March 31, 2006 was 1.39% of total loans held for investment compared to 1.41% at year end 2005. The allowance for Commercial loans as a percent of the total Commercial loans amounted to 3.6%, compared to 4.0% at year end 2005. The allowance for Construction Loans was 1.3% at March 31, 2006 and December 31, 2005. The allowance for Commercial Real Estate loans was 1.4% of total Commercial Real Estate loans as of March 31, 2006 and 1.4% at year end 2005. The allowance for Residential Real Estate loans remained unchanged and was 0.8% as a percent of total Residential Real Estate loans at March 31, 2006 and December 31, 2005. Although actual loan losses have been insignificant, our senior credit management, with over 60 years in collective experience in managing similar portfolios in our marketplace, concluded the amount of our reserve and the methodology applied to arrive at the amount of the reserve is justified and appropriate due to the lack of seasoning of the portfolio, the relatively large dollar amount of a relatively small number of loans, portfolio growth, staffing changes, volume, changes in individual risk ratings on new loans and trend analysis. Outside of our own analysis, our reserve adequacy and methodology are reviewed on a regular basis by, internal audit program, and bank regulators and such reviews have not resulted in any material adjustment to the reserve.

The Bank does not have a meaningful history of charge offs with which to establish trends in loan losses by loan classifications. As of March 31, 2006 the total net charge offs for the six years of operation was approximately $19 thousand. The overall allowance for loan losses is equivalent to approximately 1.39% of total loans held for investment. The methodology as to how the allowance was derived is a combination of specific allocations and percentages allocation of the unallocated portion of the allowance for loan losses, as discussed below. The Bank has developed a comprehensive risk weighting system based on individual loan characteristics that enables the Bank to allocate the composition of the allowance for loan losses by types of loans.

The loss risk of each loan within a particular classification, however, is not the same. The methodology for arriving at the allowance is not dictated by loan classification. The methodology as to how the allowance was derived is detailed below. Unallocated amounts included in the allowance for loan losses have been applied to the loan classifications on a percentage basis.

Adequacy of the reserve is assessed, and appropriate expense and charge offs are taken, no less frequently than at the close of each fiscal quarter end. The methodology by which we systematically determine the amount of our reserve is set forth by the Board of Directors in our Credit Policy. Under this Policy, our Chief Credit Officer is charged with ensuring that each loan is individually evaluated and the portfolio characteristics are evaluated to arrive at an appropriate aggregate reserve. The results of the analysis are documented, reviewed and approved by the Board of Directors no less than quarterly. The following elements are considered in this analysis: loss estimates on specific problem credits (the “Specific Reserve”) , individual loan risk ratings, lending staff changes, loan review and board oversight, loan policies and procedures, portfolio trends with respect to volume, delinquency, composition/concentrations of credit, risk rating migration, levels of classified credit, off-balance sheet credit exposure, any other factors considered relevant from time to time (the “General Reserve”) and, finally, an “Unallocated Reserve” to cover any unforeseen factors not considered above in the appropriate magnitude. Each of the reserve components, General, Specific and Unallocated are discussed in further detail below.

With respect to the General Reserve, all loans are graded or “Risk Rated” individually for loss potential at the time of origination and as warranted thereafter, but no less frequently than quarterly. Loss potential factors are applied based upon a blend of the following criteria: our own direct experience at this bank; our collective management experience in administering similar loan portfolios in the market for over 60 years; and peer data contained in statistical releases issued by both the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Although looking only at peer data and the bank’s historically low write-offs would suggest a lower loan loss allowance, our management’s experience with similar portfolios in the same market combined with the fact that our portfolio is relatively unseasoned, justify a conservative approach in contemplating external statistical resources. Accordingly, management’s collective experience at this bank and other banks is the most heavily weighted criterion, and the weighting is subjective and varies by loan type, amount, collateral, structure, and repayment terms. Prevailing economic condition generally and within each individual borrower’s business sector are considered, as well as any changes in the borrower’s own financial position and, in the case of commercial loans, management structure and business operations. As of March 31, 2006 our evaluation of these factors supported approximately 64.7% of the total loss reserve. As our portfolio ages and we gain more direct experience, the direct experience will weigh more heavily in our evaluation.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

When deterioration develops in an individual credit, the loan is placed on a “Watch List” and the loan is monitored more closely. All loans on the watch list are evaluated for specific loss potential based upon either an evaluation of the liquidated value of the collateral or cash flow deficiencies. If management believes that, with respect to a specific loan, an impaired source of repayment, collateral impairment or a change in a debtor’s financial condition presents a heightened risk of non-performance of a particular loan, a portion of the reserve may be specifically allocated to that individual loan. The aggregation of this loan by loan loss analysis comprises the “Specific Reserve” and accounted for approximately 16.0% of the total loss reserve. For the first quarter of 2006, this Specific Reserve relates to three loans totaling $2.1 million as of March 31, 2006 that were assigned additional reserves based on an evaluation of the established primary and secondary sources of repayment, which suggested a potential degradation in those sources of repayment.

The Unallocated Reserve is maintained to absorb risk factors outside of the General and Specific Allocations. Maximum and minimum target limits are established by us on a quarterly basis for the Unallocated Reserve. As of March 31, 2006 the threshold range for this component was 0.00% to 0.15% of the total loan portfolio and accounted for approximately 19.3% of the total loss reserve.

An analysis of the Corporation’s allowance for loan losses as of and for the period indicated is set forth in the following tables:

Allowance for Loan Losses
(In Thousands)

Balance as of December 31, 2005		$	5,215
Charge offs			—
Recoveries			—
Provision			124
Balance as of March 31, 2006		$	5,339

Allocation of the Allowance for Loan Losses

		March 31, 2006																December 31, 2005
										Allowance																Allowance
										for Loan																for Loan
		Amount				Percentage				Loss				Percentage				Amount				Percentage				Loss				Percentage
		(Dollars In Thousands)
Commercial		$	43,751				11.40	%		$	1,588				29.74	%		$	38,516				10.42	%		$	1,546				29.64	%
Commercial real estate			143,461				37.40	%			1,958				36.67				137,423				37.17	%			1,896				36.36
Real estate construction			37,463				9.77	%			504				9.45				37,054				10.02	%			499				9.58
Residential real estate			157,732				41.12	%			1,274				23.86				156,185				42.24	%			1,267				24.30
Consumer			1,200				0.31	%			15				0.28				555				15.00	%			6				0.12
		$	383,607				100.00	%		$	5,339				100.00	%		$	369,733				100.00	%		$	5,215				100.00	%

Nonperforming Loans And Past Due

At March 31, 2006 there were two loans in non accrual status totaling $1.2 million. Non accrual loans are carefully monitored and specific reserves established as necessary to ensure any estimated loss can be absorbed by the designated reserve. Approximately $811 thousand of the loss reserve was dedicated as specific reserve to these non-performing loans. In management’s estimate the specific reserve for these loans will be adequate to absorb reasonably foreseeable losses. Management actively works with the borrowers to maximize potential for repayment and reports on the status of the same to the Board of Directors, no less than on a monthly basis.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Deposits

Deposits are the primary source of funding loan growth. At March 31, 2006 deposits totaled $423.1 million compared to $419.6 million on December 31, 2005, an increase of $3.5 million. Non-Interest Bearing accounts increased $5.0 million, Savings and Money Market accounts declined $10.4 million and Time Deposits increased $8.9 million. The decline in Savings and Money Market accounts is partially due to transfers into Time Deposits for higher interest rates. The Bank’s core deposit base is comprised primarily of commercial accounts and due to the inherent nature of these accounts; balances can be subject to wide fluctuations. At March 31, select core commercial non interest bearing accounts were down approximately $8.7 million from December 2005 levels. These temporary fluctuations are typically offset by growth in deposits and short term borrowings.

We utilize our professional loan officers to market both loans and deposits. In addition, management has expanded the business development and marketing areas of the Bank to provide continued future growth.

Shareholders’ Equity

Shareholders’ equity was $33.0 million at March 31, 2006. A strong capital position is vital to the continued profitability of the Corporation. It also promotes depositor and investor confidence and provides a solid foundation for the future growth of the organization. Shareholder’s equity increased by $1.9 million during the three months ended March 31, 2006. The increase is due to the retention of $1.6 million in earnings following a $40 thousand dividend payment. Other comprehensive income (loss) representing unrealized losses on available for sale securities was $956 thousand net of taxes.

Banking regulators have defined minimum regulatory capital ratios that the Corporation and the Bank are required to maintain. These risk based capital guidelines take into consideration risk factors, as defined by the banking regulators, associated with various categories of assets, both on and off the balance sheet. Both the Corporation and Bank are classified as Well Capitalized, which is the highest rating. The following Risk Based Capital Analysis table outlines the regulatory components of capital and risk based capital ratios.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Risk Based Capital Analysis

		March 31,				December 31,
		2006				2005
		(In Thousands)
Tier 1 Capital:
Common stock		$	6,764			$	6,644
Capital surplus			9,427				9,099
Retained earnings			17,810				16,227
Less: Net Unrealized loss on equity Securities			(34	)			(19	)
Subordinated debentures			10,311				10,311
Total Tier 1 capital			44,278				42,262
Subordinated debentures not included in Tier I			—				—
Allowance for loan losses			5,272				4,874
Total Risk Based Capital		$	49,550			$	47,136
Risk weighted assets		$	421,491			$	389,381
Quarterly average assets		$	544,073			$	552,292

										Regulatory
										Minimum
Capital Ratios:
Tier 1 risk based capital ratio			10.51	%			10.85	%			4.00	%
Total risk based capital ratio			11.76	%			12.11	%			8.00	%
Leverage ratio			8.14	%			7.65	%			4.00	%

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

RESULTS OF OPERATIONS (MARCH 31, 2006)

Summary

Pretax income for the three months ended March 31, 2006 was $2.5 million compared to $1.6 million for the corresponding period of 2005. Net income after taxes for the three months ended March 31, 2006 totaled $1.6 million compared to $1.0 million for the same period in 2005.

First quarter income before taxes in 2006 from the Banking segment was $2.3 million versus $1.6 million for the same period in 2005. Income from the banking segment increased approximately $730 thousand over the same period last year and accounted for 70% of the increase in earnings. This increase in income is attributable to a focus on commercial lending, increased name recognition and the addition of experienced professional loan officers all of which expanded our base of business. Earnings were impacted by increased interest expense associated with an increase in short term borrowings and higher interest rates on deposits. Income from the Mortgage segment was $536 thousand for the three months ended March 31, 2006, compared to $224 thousand for the corresponding period in 2005. This increase was primarily due to the gain on sale of loans in the first quarter of 2006.

In the three months ended March 31, 2006 the banking segment accounted for 94.9% of the pretax consolidated earnings. The banking segment is the predominant contributor to growth and earnings. Revenue from the mortgage segment is subject to fluctuations as mortgage interest rates change.

Basic earnings per common share for the first quarter of 2006 amounted to $0.20 per share, up from $0.13 per share in 2005. Diluted earnings per share for the first quarter were $0.17 up from $0.11 per share in the first quarter of 2005.

Interest and fees on loans increased by $2.4 million in the three months ended March 31, 2006 over the same period of 2005 reflecting the $85.1 million increase in loans held for investment from the first quarter of 2005. Interest on investment securities increased $558 thousand due to a $53.5 million increase in investment securities over March 31, 2005. Non–interest income totaled $6.1 million for the three months ended March 31, 2006 compared to $6.2 million for the same period in 2005.

Net Interest Income

Net interest income, the principal source of bank earnings, is the amount of income generated by earning assets (primarily loans and investment securities) less the interest expense incurred on interest bearing liabilities (primarily deposits) used to fund earning assets. During the first quarter of 2006 our net interest margin decreased 6 basis points from 3.20% in 2005 to 3.14% in 2006. The decrease in net interest margin is due to the flat yield curve and increased rates on deposits.

Net interest income for three months ended March 31, 2006 increased to $4.1 million compared to $3.2 million for the same period in 2005. Net interest income depends upon the volume of earning assets and interest bearing liabilities and the associated rates. Average interest earning assets increased $125.4 million from $398.3 million at March 31, 2005 to $523.7 million in 2006. The increase is attributed to the growth in average loans which increased by $78.2 million and the growth in average investment securities which increased by $46.6 million. The yield on earning assets increased from 5.64% in 2005 to 6.61% in 2006 reflecting an increase in yield on all earning asset categories and reflects the current rate environment.

Total interest expense for the first quarter of 2006 increased $2.1 million over the total of $2.4 million for the same period in 2005 as a result of increases in interest bearing deposits and increased interest expense on borrowings. Total interest bearing deposits averaged $339.6 million at period ended March 31, 2006 compared to $241.6 million at March 31, 2005. Borrowed funds for three months ended March 31, 2006 averaged $107.3 million compared to $73.9 million for the corresponding period in 2005. The increase in deposits and borrowings funded the growth in earning assets. The average cost of interest bearing liabilities at March 31, 2006 was 4.07% up 98 basis points from March 31, 2005.

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Volume and Rate Analysis

		Three Months Ended March 31,
		2006 compared to 2005
		Change Due To:
		Increase /
		(Decrease)				Volume				Rate
		(In Thousands)
Interest Earning Assets:
Securities		$	570			$	488			$	82
Loans			2,435				1,308				1,127
Interest bearing deposits			33				4				29
Total Increase (Decrease) in Interest Income			3,038				1,800				1,238
Interest Bearing Liabilities:
Interest-bearing demand deposits			21				2				19
Money market deposit accounts			390				124				266
Savings accounts			—				—				—
Time deposits			1,081				772				309
Total interest-bearing deposits			1,492				898				594
FHLB Advances			549				370				179
Securities sold under agreements to repurchase			4				(3	)			7
Other short-term borrowings			74				10				64
Long-term borrowings			(50	)			(46	)			(4	)
Subordinated debentures			44				—				44
Total Increase (Decrease) in Interest Expense			2,113				1,229				884
Increase in Net Interest Income		$	925			$	571			$	354

ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities

		Three Month
		Period Ended March 31,
		2006												2005
		Average				Income /				Yield /				Average				Income /				Yield /
		Balance				Expense				Rate				Balance				Expense				Rate
		(Dollars In Thousands)
Assets:
Interest earning assets:
Securities*		$	99,572			$	1,063				4.27	%		$	52,947			$	493				3.72	%
Loans(3)			414,633				7,495				7.23	%			336,443				5,060				6.02	%
Interest bearing deposits			9,504				99				4.17	%			8,950				66				2.95	%
Total interest earning assets			523,709				8,657				6.61	%			398,340				5,619				5.64	%
Non-interest earning assets:
Cash and due from banks			10,284												11,202
Premises, land and equipment			9,683												8,750
Other assets			5,646												5,600
Less: allowance for loan losses			(5,250	)											(4,070	)
Total non-interest earning assets			20,363												21,482
Total Assets		$	544,072											$	419,822
Liabilities and Shareholders’ Equity:
Interest bearing liabilities:
Interest-bearing demand deposits		$	11,073			$	61				2.20	%		$	10,580			$	40				1.51	%
Money market deposit accounts			127,282				1,221				3.84	%			111,978				831				2.97	%
Savings accounts			494				1				0.81	%			389				1				1.03	%
Time deposits			200,727				2,016				4.02	%			118,619				935				3.15	%
Total interest-bearing deposits			339,576				3,299				3.89	%			241,566				1,807				2.99	%
FHLB Advances			61,933				719				4.64	%			25,056				170				2.71	%
Securities sold under agreements to repurchase			1,592				13				3.27	%			2,100				9				1.71	%
Other short-term borrowings			11,768				114				3.87	%			9,788				40				1.63	%
Long-term borrowings			21,668				202				3.73	%			26,618				252				3.79	%
Subordinated Debentures			10,311				201				7.80	%			10,311				157				6.09	%
Total interest-bearing liabilities			446,848				4,548				4.07	%			315,439				2,435				3.09	%
Non-interest bearing liabilities:
Demand deposits			60,302												74,335
Other liabilities			4,482												3,641
Total liabilities			511,632												393,415
Shareholders’ Equity			32,440												26,407
Total Liabilities and Shareholders’ Equity:		$	544,072											$	419,822
Interest Spread(1)											2.54	%											2.55	%
Net Interest Margin(2)*						$	4,109				3.14	%						$	3,184				3.20	%