Edgar Filing: ACCESS NATIONAL CORP

e10vq

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 September 30, 2006


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

For the transition period from to

Commission File Number: 000-49929

ACCESS NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


Virginia		82-0545425

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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 check mark 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 November 2, 2006, was 11,102,225 shares.

Table of Contents

ACCESS NATIONAL CORPORATION
FORM 10-Q

INDEX


PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets September 30, 2006 (Unaudited) and December 31, 2005	Page 2
	Consolidated Statements of Income (Unaudited) Three Months Ended September 30, 2006 and 2005	Page 3
	Consolidated Statements of Income (Unaudited) Nine Months Ended September 30, 2006 and 2005	Page 4
	Consolidated Statements of Changes in Shareholders' Equity (Unaudited) Nine Months Ended
	September 30, 2006 and 2005	Page 5
	Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2006 and 2005	Page 6
	Notes to Consolidated Financial Statements (Unaudited)	Page 7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	Page 18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 30
Item 4.	Controls and Procedures	Page 31

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

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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements

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


	Sept 30			December 31,
	2006			2005
	(Unaudited)
ASSETS

Cash and due from banks	$	13,457		$	9,854
Interest bearing deposits in other banks and Federal Funds Sold		11,154			13,329
Securities available for sale, at fair value		106,418			87,771
Loans held for sale		55,713			45,019
Loans, net of allowance for loan losses of $5,393 and $5,215 respectively		411,875			364,518
Premises and equipment		9,551			9,650
Other assets		9,198			6,909

Total assets	$	617,366		$	537,050


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing deposits	$	90,346		$	81,034
Savings and interest-bearing deposits		125,186			149,094
Time deposits		257,929			189,501

Total deposits		473,461			419,629
Other liabilities
Short-term borrowings		52,042			48,196
Long-term borrowings		18,625			21,786
Subordinated debentures		10,311			10,311
Other liabilities		4,651			5,943

Total liabilities		559,090			505,865

SHAREHOLDERS’ EQUITY
Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and outstanding, 11,004,785 shares in 2006 and 7,956,556 shares in 2005		9,189			6,644
Surplus		28,338			9,099
Retained earnings		21,433			16,227
Accumulated other comprehensive income (loss), net		(684	)		(785	)

Total shareholders’ equity		58,276			31,185

Total liabilities and shareholders’ equity	$	617,366		$	537,050

See accompanying notes to consolidated financial statements (unaudited).

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ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)


	Three Months Ended September 30,
	2006		2005
Interest and Dividend Income
Interest and fees on loans	$	9,285	$	6,847
Interest on deposits in other banks		94		56
Interest and dividends on securities		1,191		658

Total interest and dividend income		10,570		7,561


Interest Expense
Interest on deposits		4,398		2,276
Interest on short-term borrowings		917		691
Interest on long-term borrowings		188		197
Interest on subordinated debentures		237		186

Total interest expense		5,740		3,350


Net interest income		4,830		4,211
Provision for loan losses		—		325

Net interest income after provision for loan losses		4,830		3,886


Noninterest Income
Service fees on deposit accounts		91		86
Gain on sale of loans		4,832		6,889
Mortgage broker fee income		1,572		1,516
Other income		757		884

Total noninterest income		7,252		9,375


Noninterest Expense
Salaries and employee benefits		4,940		5,994
Occupancy and equipment		507		603
Other operating expenses		3,839		4,044

Total noninterest expense		9,286		10,641


Income before income taxes		2,796		2,620

Income tax expense		895		911

NET INCOME	$	1,901	$	1,709


Earnings per common share:
Basic	$	0.19	$	0.22

Diluted	$	0.17	$	0.18


Average outstanding shares:
Basic		10,080,708		7,933,850
Diluted		11,141,358		9,530,014

See accompanying notes to consolidated financial statements (Unaudited).

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ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except for Share Data)
(Unaudited)


	Nine Months Ended September 30,
	2006		2005
Interest and Dividend Income
Interest and fees on loans	$	25,259	$	17,612
Interest on deposits in other banks		282		175
Interest and dividends on securities		3,450		1,761

Total interest and dividend income		28,991		19,548


Interest Expense
Interest on deposits		11,423		6,186
Interest on short-term borrowings		2,997		1,199
Interest on long-term borrowings		585		694
Interest on subordinated debentures		654		507

Total interest expense		15,659		8,586


Net interest income		13,332		10,962
Provision for loan losses		173		822

Net interest income after provision for loan losses		13,159		10,140


Noninterest Income
Service fees on deposit accounts		247		183
Gain on sale of loans		13,264		18,283
Mortgage broker fee income		3,785		4,122
Other income		2,673		2,087

Total noninterest income		19,969		24,675


Noninterest Expense
Salaries and employee benefits		14,489		15,770
Occupancy and equipment		1,496		1,697
Other operating expenses		9,110		10,829

Total noninterest expense		25,095		28,296


Income before income taxes		8,033		6,519

Income tax expense		2,703		2,271

NET INCOME	$	5,330	$	4,248


Earnings per common share:
Basic	$	0.61	$	0.54

Diluted	$	0.53	$	0.45


Average outstanding shares:
Basic		8,773,268		7,924,172
Diluted		10,112,357		9,421,536

See accompanying notes to consolidated financial statements (unaudited).

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ACCESS NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 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						5,330						5,330			5,330

Other comprehensive income (loss), unrealized holdings gains arising during the period, net of tax ($52)									101			101			101

Cash dividend from DRSPP						(124	)								(124	)


											$	5,431


Common stock issued		2,545		19,239											21,784

Balance, September 30, 2006	$	9,189	$	28,338	$	21,433		$	(684	)				$	58,276


Balance, December 31, 2004	$	6,608	$	9,067	$	10,330		$	(7	)	$	—		$	25,998

Comprehensive income:

Net income		—		—		4,248			—			4,248			4,248

Other comprehensive income (loss), unrealized holdings losses arising during the period, net of tax $255		—		—		—			(495	)		(495	)		(495	)

											$	3,753


Common stock issued for exercise of warrants, shares		32		48											80

Balance, September 30, 2005	$	6,640	$	9,115	$	14,578		$	(502	)				$	29,831

See accompanying notes to consolidated financial statements (unaudited)

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ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)


	Nine Months Ended September 30,
	2006			2005
Cash Flows from Operating Activities
Net income	$	5,330		$	4,248
Adjustments to reconcile net income to net cash (used in)
operating activities:
Provision for loan losses		178			822
Deferred tax (benefit)		(86	)		(10	)
Stock Based Compensation		46			—
Provision for hedging		(51	)		(107	)
Net amortization (accretion) on securities		2			—
Depreciation and amortization		637			419
Loss on Disposal of assets		1			75
Changes in assets and liabilities:
(Increase) decrease in loans held for sale		(10,458	)		(19,326	)
(Increase) decrease in other assets		(2,288	)		(3,087	)
Increase (decrease) in other liabilities		(1,291	)		3,063

Net cash (used in) operating activities	$	(7,980	)	$	(13,903	)

Cash Flows from Investing Activities
Proceeds from maturities and calls of securities available for sale		12,584			19,931
Purchases of securities available for sale		(31,080	)		(41,043	)
Net (increase) in loans		(47,771	)		(60,380	)
Purchases of premises and equipment		(455	)		(1,552	)

Net cash (used in) investing activities	$	(66,722	)	$	(83,044	)

Cash Flows from Financing Activities
Net increase (decrease) in demand, interest-bearing demand and savings		(14,596	)		32,310
Net increase in time deposits		68,427			16,999
Net increase (decrease) in securities sold under agreement to repurchase		5,642			(2,862	)
Net increase (decrease) in short-term borrowings		(796	)		57,303
Net (decrease) in long term borrowings		(4,161	)		(4,161	)
Proceeds from issuance of common stock		21,779			80
Purchase of common stocks		(41	)		—
Dividends paid		(124	)		—

Net cash provided by financing activities	$	76,130		$	99,669


Increase in cash and cash equivalents		1,428			2,722
Cash and Cash Equivalents
Beginning		23,183			30,532

Ending	$	24,611			33,254

Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$	15,548		$	8,547

Cash payments for income taxes	$	3,281		$	2,987

Supplemental Disclosures of Noncash Investing Activities
Unrealized gain (loss) on securities available for sale	$	153		$	(749	)

See accompanying notes to consolidated financial statements (unaudited)

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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. 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 $4.1 million of trust preferred securities and on September 30, 2003, Access Capital Trust II issued $6.2 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, The Bank acquired all of the common stock of UFM. The acquisition of UFM provided 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.

In August 2006, the corporation concluded a public stock offering of 2.3 million shares of common stock that provided approximately $20 million in new capital.

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 and nine months ended September 30, 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.

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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 Corporation 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 Corporation 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 Corporation’s condensed consolidated financial statements for the three and nine months ended September 30, 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 and nine months ended September 30, 2006 was $9 thousand and $46 thousand respectively and is included in other operating expenses. The total income tax benefit recognized for share-based compensation arrangements for the three and nine months ended September 30, 2006 was $3 thousand and $16 thousand respectively. As of September 30, 2006, total unamortized stock-based compensation cost related to non-vested stock options was $57 thousand, net of expected forfeitures, which is expected to be recognized over a weighted-average period of 0.81 years.

Prior to the adoption of SFAS No. 123(R), the Corporation 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 Corporation’s consolidated statements of operations because the exercise price of the Corporation’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 Corporation used in adopting SFAS No. 123(R), the Corporation’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 and nine months ended September 30, 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 second 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 and nine months ended September 30, 2005 as if compensation expense for stock options issued to employees had been determined consistent with SFAS No. 123:

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	Three Month Ended			Nine Month Ended
	September 30,			September 30,
	2005			2005
	(In Thousands, Except Per Share Data)
Net Income, as reported	$	1,709		$	4,248

Total stock-based compensation determined under fair value based method for all awards, net of realized tax effects		(42	)		(125	)


Proforma net income	$	1,667		$	4,123


Earnings per Share:
Basic — as reported	$	0.22		$	0.54

Basic — pro forma	$	0.21		$	0.52

Diluted — as reported	$	0.18		$	0.45

Diluted — pro forma	$	0.17		$	0.44

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NOTE 4 — SECURITIES

Amortized costs and fair values of securities available for sale as of September 30, 2006 and December 31, 2005 are as follows:


	September 30, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(In Thousands)
U.S. Treasury Securities	$	989	$	8	$	—		$	997
U.S. Government Agencies		96,346		—		(964	)		95,382
Mortgage Backed Securities		1,114		—		(5	)		1,109
Tax Exempt Municipals		2,893		8		(9	)		2,892
Taxable Municipals		1,305		—		(37	)		1,268
Mutual Fund		1,500		—		(37	)		1,463
Restricted Securities -
Federal Reserve Bank Stock		720		—		—			720
FHLB Stock		2,587		—		—			2,587

Total Securities	$	107,454	$	16	$	(1,052	)	$	106,418


	December 31, 2005
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			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

	$	88,961	$	3	$	(1,193	)	$	87,771

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The amortized cost and fair value of securities available for sale as of September 30, 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.


	September 30, 2006				December 31, 2005
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)				(In Thousands)
US Treasury & Govt. Agencies
Due in one year or less	$	23,015	$	22,841	$	3,606	$	3,570
Due after one through five years		72,822		72,063		72,831		71,808
Due after five through ten years		1,498		1,473		1,498		1,484
Municipals
Due after five through ten years		4,198		4,162		3,880		3,796
Due after ten through fifteen years		—		—		515		510
Mortgage Backed Securities
Due in one year or less		56		56		—		—
Due after one through five years		1,058		1,053		1,392		1,393
Mutual Fund		1,500		1,463		1,500		1,471
Restricted Stock:
Federal Reserve Bank stock		720		720		300		300
FHLB stock		2,587		2,587		3,439		3,439

	$	107,454	$	106,418	$	88,961	$	87,771

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Investment securities available for sale that have an unrealized loss position at September 30, 2006 and December 31, 2005 are detailed below


	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: 9/30/06

U.S. Treasury Securities	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage Backed Securities		757		(3	)		211		(2	)		967		(5	)
U.S. Government Agencies		25,950		(49	)		69,430		(915	)		95,380		(964	)
Municipals-Taxable		—		—			1,268		(37	)		1,268		(37	)
Municipals-Tax Exempt		—		—			1,408		(9	)		1,870		(9	)
CRA Mutual Fund		—		—			1,463		(37	)		1,463		(37	)

Total	$	27,169	$	(52	)	$	73,780	$	(1,000	)	$	100,948	$	(1,052	)


	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: 12/31/05

U.S. Treasury Securities	$	1,602	$	(4	)		—		—		$	1,602	$	(4	)
Mortgage Backed Securities		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 September 30, 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.

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NOTE 5 – LOANS

The following table presents the composition of the loan portfolio at September 30, 2006 and December 31, 2005.


	September 30,		Percent of			December 31,		Percent of
	2006		Total			2005		Total
			(Dollars in thousands)
Commercial	$	47,083		11.28	%	$	38,516		10.42	%
Real estate non-residential		149,335		35.79			137,423		37.17
Real estate construction		64,392		15.43			37,054		10.02
Residential real estate		154,935		37.13			156,185		42.24
Consumer		1,523		0.37			555		0.15

	$	417,268		100.00	%	$	369,733		100.00	%

Less allowance for loan losses		5,393					5,215

	$	411,875				$	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 the prime rate. 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.

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The following table presents segment information for the three months ended September 30, 2006 and 2005:


2006	Commercial		Mortgage								Consolidated
(In Thousands)	Banking		Banking		Other			Eliminations			Totals
Revenues:
Interest income	$	10,468	$	1,019	$	31		$	(948	)	$	10,570
Gain on sale of loans		—		4,835		—			(3	)		4,832
Other		415		1,723		264			18			2,420

Total revenues		10,883		7,577		295			(933	)		17,822


Expenses:
Interest expense		5,307		1,029		353			(949	)		5,740
Salaries and employee benefits		1,670		3,270		—			—			4,940
Other		870		3,044		416			16			4,346

Total operating expenses		7,847		7,343		769			(933	)		15,026


Income before income taxes	$	3,036	$	234	$	(474	)	$	—		$	2,796


Total assets	$	551,178	$	59,918	$	58,561		$	(52,291	)	$	617,366


2005	Commercial		Mortgage								Consolidated
(In Thousands)	Banking		Banking		Other			Elimination			Totals
Revenues:
Interest income	$	7,575	$	977	$	22		$	(1,013	)	$	7,561
Gain on sale of loans		—		6,930		—			(41	)		6,889
Other		393		2,161		262			(701	)		2,115

Total revenues		7,968		10,068		284			(1,755	)		16,565


Expenses:
Interest expense		3,096		961		307			(1,014	)		3,350
Salaries and employee benefits		1,608		4,386		—			—			5,994
Other		1,243		3,692		407			(741	)		4,601

Total operating expenses		5,947		9,039		714			(1,755	)		13,945


Income before income taxes	$	2,021	$	1,029	$	(430	)	$	—		$	2,620


Total assets	$	497,301	$	101,599	$	36,995		$	(109,322	)	$	526,573

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The following table presents segment information for the nine months ended September 30, 2006 and 2005:


2006	Commercial		Mortgage								Consolidated
(In Thousands)	Banking		Banking		Other			Eliminations			Totals
Revenues:
Interest income	$	28,788	$	2,733	$	61		$	(2,591	)	$	28,991
Gain on sale of loans		—		13,280		—			(16	)		13,264
Other revenues		1,211		5,933		851			(1,290	)		6,705

Total revenues		29,999		21,946		912			(3,897	)		48,960


Expenses:
Interest expense		14,538		2,709		1,006			(2,594	)		15,659
Salaries and employee benefits		4,785		9,704		—			—			14,489
Other		2,991		7,869		1,222			(1,303	)		10,779

Total operating expenses		22,314		20,282		2,228			(3,897	)		40,927


Income before income taxes	$	7,685	$	1,664	$	(1,316	)	$	—		$	8,033


Total assets	$	551,178	$	59,918	$	58,561		$	(52,291	)	$	617,366


2005	Commercial		Mortgage								Consolidated
(In Thousands)	Banking		Banking		Other			Elimination			Totals
Revenues:
Interest income	$	19,512	$	2,190	$	71		$	(2,225	)	$	19,548
Gain on sale of loans				18,386					(103	)		18,283
Other		1,205		5,302		858			(1,344	)		6,021

Total revenue		20,717		25,878		929			(3,672	)		43,852


Expenses:
Interest expense		7,922		2,022		868			(2,226	)		8,586
Salaries and employee benefits		4,320		11,450		—			—			15,770
Other		3,199		10,117		1,107			(1,446	)		12,977

Total operating expenses		15,441		23,589		1,975			(3,672	)		37,333


Income before income taxes	$	5,276	$	2,289	$	(1,046	)	$	—		$	6,519


Total assets	$	497,301	$	101,599	$	36,995		$	(109,322	)	$	526,573

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NOTE 7 – EARNINGS PER SHARE (EPS)

The following tables show the calculation of both Basic and Diluted earnings per share (“EPS”) for the three and nine months ended September 30, 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
	September 30, 2006		September 30, 2005
	(In thousands, except per share data)
BASIC EARNINGS PER SHARE:
Net income	$	1,901	$	1,709
Weighted average shares outstanding		10,080,708		7,933,850


Basic earnings per share	$	0.19	$	0.22

DILUTED EARNINGS PER SHARE:
Net income	$	1,901	$	1,709
Weighted average shares outstanding		10,080,708		7,933,850
Stock options and warrants		1,060,650		1,596,164

Weighted average diluted shares outstanding		11,141,358		9,530,014

Diluted earnings per share	$	0.17	$	0.18


	Nine Months		Nine Months
	Ended		Ended
	September 30, 2006		September 30, 2005
	(In thousands, except per share data)
BASIC EARNINGS PER SHARE:
Net income	$	5,330	$	4,248
Weighted average shares outstanding		8,773,268		7,924,172


Basic earnings per share	$	0.61	$	0.54

DILUTED EARNINGS PER SHARE:
Net Income	$	5,330	$	4,248
Weighted average shares outstanding		8,773,268		7,924,172
Stock options and warrants		1,339,089		1,497,364

Weighted average diluted shares outstanding		10,112,357		9,421,536

Diluted earnings per share	$	0.53	$	0.45

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.

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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 September 30, 2006 and December 31, 2005 the Mortgage Corporation had derivative financial instruments with a notional value of $121,636,000 and $96,809,000 respectively. The fair value of these derivative instruments at September 30, 2006 and December 31, 2005 was $121,595,000 and $96,731,000 respectively.

NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized under SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. The evaluation of an uncertain tax position in accordance with FIN 48 is a two-step process. The first step is recognition, which requires a determination whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect of applying the provisions of FIN 48 shall be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) for that fiscal year. The Corporation is still evaluating the applicability of FIN 48. Although that evaluation is not complete, the Corporation anticipates that the adoption of FIN 48 on January 1, 2007 will not have a material impact on its financial position.

On September 13, 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, Companies might evaluate the materiality of financial-statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a company’s balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material according to either the income statement or balance sheet approach. The Corporation has analyzed SAB 108 and determined that upon adoption it will have no impact on its reported results of operations or financial conditions.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The Corporation is currently evaluating the potential impact, if any, of the adoption of FASB Statement No. 157 on its consolidated financial position, results of operations and cash flows.

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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 and nine months ended September 30, 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 the Corporation’s competitive position, competitive actions by other financial institutions and the competitive nature of the financial services industry and the Corporation’s ability to compete effectively against other financial institutions in its banking markets; the Corporation’s potential growth, including its entrance or expansion into new markets, the opportunities that may be presented to and pursued by it and the need for sufficient capital to support that growth; the Corporation’s ability to manage growth; changes in government monetary policy, interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; the strength of the economy in the Corporation’s target market area, as well as general economic, market, or business conditions; changes in the quality or composition of the Corporation’s loan or investment portfolios, including adverse developments in borrower industries, decline in real estate values in the Corporation’s markets, or in the repayment ability of individual borrowers or issuers; an insufficient allowance for loan losses as a result of inaccurate assumptions; the Corporation’s reliance on dividends from the Bank as a primary source of funds; the Corporation’s reliance on secondary sources, such as Federal Home Loan Bank advances, sales of securities and loans, federal funds lines of credit from correspondent banks and out-of-market time deposits, to meet the Bank’s liquidity needs; changes in laws, regulations and the policies of federal or state regulators and agencies; the Corporation’s mortgage loan business and the offering of non-conforming mortgage loans; and other circumstances, many of which are beyond the Corporation’s control. 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

In the ordinary course of business, the Bank issues commitments to extend credit and, at September 30, 2006, these commitments amounted to $21.5 million. These commitments do not necessarily represent cash requirements, since many commitments are expected to expire without being drawn on.

At September 30 2006, the Bank had approximately $119.9 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.

FINANCIAL CONDITION (September 30, 2006 compared to December 31, 2005)

The Corporation’s assets increased $80.3 million from $537.1 million at December 31, 2005 to $617.4 million at September 30, 2006. The growth in assets occurred in loans and investments. Loans held for investment increased $47.4 million over year end and investment securities grew by $18.6 million. Loans held for sale increased by $10.7 million. The growth in loans held for investment is due to strong loan demand and our commitment to meeting the credit needs of our existing and new clients. The volume of loans held for sale fluctuates as loans are being warehoused until they are traded in the secondary market. This category of loans is also subject to volatility due to changes in interest rates and the general economic outlook for the housing market. Management continues to employ a strategy of attracting highly qualified professional lenders to support future growth in the loans held for investment.

Asset growth during the period was funded by a combination of deposit growth, short term borrowings and an increase in capital. Deposits increased $53.9 million and totaled $473.5 million at September 30, 2006 up from $419.6 million at December 31, 2005. Shareholders equity increased $27.1 million as a result of retained earnings and approximately $21.8 million from a public stock offering of 2.3 million shares of common stock and the exercise of stock options and warrants. Short term borrowings at September 30, 2006 totaled $52.0, an increase of $3.8 million from December 31, 2005. Short term borrowings are used to fund the loans held for sale activities and to compensate for fluctuations in core deposits. In addition to short term borrowings, management utilizes wholesale certificates of deposits as an additional funding source. The Bank concentrates on commercial accounts and due to the nature of these accounts, balances can be subject to wide fluctuations. In October the Bank filed applications with the regulators to open a new banking office in Loudoun County and one in Prince William County. Both areas are experiencing exceptional growth and the new locations will provide convenience to our existing customers as well as providing an opportunity for expanding our deposit base. The new branches are expected to open early in 2007.

Securities

The Corporation’s securities portfolio is comprised of U.S. Treasury securities, U.S. Government Agency securities, mortgage backed securities, obligations of states and political subdivisions, Federal Reserve and Federal Home Loan Bank stock. At September 30, 2006 the securities portfolio totaled $106.4 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 shareholders’ equity, net of associated tax effect. The Corporation’s securities classified as available for sale had an unrealized loss net of deferred taxes of $0.7 million on September 30, 2006. Investment securities are used to provide liquidity, generate income, and to temporarily supplement loan growth as needed.

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 the Bank and its subsidiaries are subject to the regulations and supervision of the Office of the Comptroller of Currency.

At September 30, 2006, net loans held for investment increased by $47.4 million from December 31, 2005 and totaled $411.9 million.

Commercial loans increased $8.6 million, real estate non-residential loan increased $11.9 million and construction loans increased $27.3 million. See note 5 for a table that summarizes the composition of the Corporation’s loan portfolio. The increase in loans is attributable to servicing the needs of existing clients and new business originating from, referrals, community involvement, and increased name recognition and acceptance of the Bank’s products and services within the marketplace. Management intends to increase loan officer staffing and support to facilitate continued growth in the portfolio. The following is a summary of the Loan Portfolio Held for Investment at September 30, 2006.

Commercial Loans: Commercial Loans represent 11.3% 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. We underwrite these loans based upon our assessment of the obligor(s)’ ability to generate operating cash flows in the future necessary to repay the loan. To address the risks associated with the uncertainties of future cash flows, these loans are generally well secured by assets owned by the business or its principal shareholders 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 15.4% 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 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 35.8% 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 37.1% 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 17.5%; First Trust Mortgage Loans 74.0%; Loans Secured by a Junior Trust 5.2%; Multi-family loans and loans secured by Farmland 3.3%.

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 0.4% of our loan portfolio. Most loans are well secured with assets other than real estate, such as marketable securities or automobiles. Very few consumer loans are unsecured. As a matter of operation, management discourages unsecured lending. Loans in this category are underwritten to standards within a traditional consumer framework that is periodically reviewed and updated by 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 the Mortgage Corporation and carried on our books at the lower of cost or market value. These loans are residential mortgage loans extended to consumers and underwritten in accordance with standards set forth by an institutional investor to whom we expect to sell the loans for a profit. Loan proceeds are used for the purchase or refinance of the property securing the loan. Loans are sold with the servicing released to the investor. 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 nine month period ending September 30, 2006 we originated $552.1 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 September 30, 2006 loans held for sale totaled $55.7 million compared to $45.0 million at year end 2005. The increase in loans held for sale that is primarily due to increase in loan originations during the month of September.

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 the first nine months of 2006, we originated a total volume of $153.7 million in residential mortgage loans under this type of delivery method, as compared to $173.6 million for the same period of 2005. Brokered loans accounted for 21.8% of the total loan volume for the first nine months of 2006.

Allowance for Loan Losses

The allowance for loan losses increased by $178 thousand which includes a $5 thousand recovery on a previously charged off loan and totaled $5.4 million at September 30, 2006 compared to $5.2 million at year end 2005. The allowance for loan losses at September 30, 2006 was 1.29% 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 1.5%, compared to 4.0% at year end 2005. The allowance for Construction Loans was 1.5% at September 30, 2006 and 1.3% at December 31, 2005. The allowance for Commercial Real Estate loans was 1.6% of total Commercial Real Estate loans as of September 30, 2006 and 1.4% at year end 2005. The allowance for Residential Real Estate loans was 0.8% as a percent of total Residential Real Estate loans at September 30, 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 September 30, 2006 the total net charge offs for the six years of operation was approximately $14 thousand. The overall allowance for loan losses is equivalent to approximately 1.29% 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 September 30, 2006 our evaluation of these factors supported approximately 89.1% 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.

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 analysis comprises the “Specific Reserve” and accounted for 0% of the total loss reserve at September 30, 2006.

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 September 30, 2006 the threshold range for this component was 0.00% to 0.15% of the total loan portfolio and accounted for approximately 10.9% of the total loss reserve. At September 30, 2006 the unallocated reserve amounted to $.6 million and equaled .14% of total loans.

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		5
Provision		173


Balance as of September 30, 2006	$	5,393

Allocation of the Allowance for Loan Losses


	September 30, 2006										December 31, 2005
						Allowance										Allowance
						for Loan										for Loan
	Amount		Percentage			Loss		Percentage			Amount		Percentage			Loss		Percentage
	(Dollars In Thousands)
Commercial	$	47,083		11.28	%	$	697		12.92	%		38,516		10.42	%	$	1,546		29.65	%
Commercial real estate		149,335		35.79			2,447		45.37			137,423		37.17	%		1,896		36.36
Real estate construction		64,392		15.43			958		17.76			37,054		10.02	%		500		9.58
Residential real estate		154,935		37.13			1,277		23.68			156,185		42.24	%		1,267		24.30
Consumer		1,523		0.37			14		0.27			555		15.00	%		6		0.12

	$	417,268		100.00	%	$	5,393		100.00	%		369,733		100.00	%	$	5,215		100.00	%

Nonperforming Loans And Past Due

At September 30, 2006 there were no loans in non accrual status. There was one loan past due more than 30 days amounting to $914 thousand.

Deposits

Deposits are the primary source of funding loan growth. At September 30, 2006 deposits totaled $473.5 million compared to $419.6 million on December 31, 2005, an increase of $53.9 million. Non-Interest Bearing accounts increased $9.3 million, Savings and interest bearing accounts declined $23.9 million and Time Deposits increased $68.4 million. The decline in Savings and interest bearing accounts was offset by the increase in higher yielding Time Deposits. 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.

In October the Bank applied to regulators for approval to open two new banking branches, one in Loudoun County and one in Prince William County. The opening of these branches is scheduled for early first quarter 2007. The new branches are expected to provide an opportunity to expand our deposit base.

Shareholders’ Equity

Shareholders’ equity was $58.3 million at September 30, 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 $27.1 million during the nine months ended September 30, 2006. The increase is due to the retention of $5.3 million in earnings and $21.8 million from the proceeds from the sale of 2.3 million shares of common stock in a public offering and the exercise of stock options and warrants, less a $124 thousand dividend payment. Other comprehensive (loss), representing unrealized gains and losses on available for sale securities, decreased $101 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.

Risk Based Capital Analysis


	September 30,			December 31,
	2006			2005
	(In Thousands)
Tier 1 Capital:
Common stock	$	9,189		$	6,644
Capital surplus		28,338			9,099
Retained earnings		21,433			16,227
Less: Net Unrealized loss on equity Securities		(24	)		(19	)
Subordinated debentures		10,000			10,000

Total tier 1 capital		68,936			41,951

Allowance for loan losses		5,615			4,874


Total Risk Based Capital	$	74,551		$	46,825


Risk weighted assets	$	479,386		$	388,378


Quarterly average assets	$	604,913		$	552,292


					Regulatory
					Minimum
Capital Ratios:
Tier 1 risk based capital ratio	14.38	%	10.80	%		4.00	%
Total risk based capital ratio	15.55	%	12.06	%		8.00	%
Leverage ratio	11.40	%	7.60	%		4.00	%

RESULTS OF OPERATIONS (September 30, 2006)

Summary

Net income for the three months and nine months ended September 30, 2006 totaled $1.9 million and $5.3 million respectively compared to $1.7 million and $4.2 million respectively for the same periods in 2005. Basic earnings per common share amounted to $0.19 and $0.61 per share for the three and nine months ended September 30, 2006, compared to $0.22 and $0.54 per share for the same periods in 2005. Diluted earnings per share were $0.17 and $0.53 for the three and nine month period in 2006 compared to $0.18 and $0.45 per share for the same periods of 2005. Earnings per share were impacted by a 38% increase in common shares outstanding from a public offering of 2.3 million shares and the exercise of stock options and warrants of approximately .8 million shares which resulted in approximately $21.8 million in new capital for the Corporation.

Income before taxes for the three and nine months ended September 30, 2006 for the banking segment was $3.0 million and $7.7 million respectively versus $2.0 million and $5.3 million respectively for the same period in 2005. Income from the banking segment increased approximately $2.4 million during the first nine months of 2006 compared to the same period last year. This increase in income is attributable to the growth in earning assets. Earnings in 2006 were impacted by increased interest expense associated with an increase in short term borrowings and higher interest rates on deposits. Income before taxes from the mortgage segment was $234 thousand and $1.7 million for the three months and nine months ended September 30, 2006 respectively, compared to $1.0 million and $2.3 million for the corresponding period in 2005 respectively. The increase in income in 2006 is due in part to a reduction in operating expenses associated with a decrease in loan originations. The banking segment is the predominant contributor to growth and earnings. Revenue from the mortgage segment is subject to fluctuations do to mortgage interest rates change and to the real estate market cycle.

Interest and fees on loans increased by $7.6 million in the nine months ended September 30, 2006 over the same period of 2005 reflecting the $47.4 million increase in loans held for investment over year end. Interest on investment securities increased $1.7 million due to $18.6 million increase in investment securities over December 31, 2005. Non–interest income totaled $20.0 million for the nine months ended September 30, 2006 compared to $24.7 million for the same period in 2005. This decrease is primarily due to the decline in gains on mortgage loans held for sale. Interest and fees on loans totaled approximately $9 million for the three months ended September 30, 2006 compared to $6.8 million for the same period in 2005, an increase $2.4 million. Income from investment securities was up $533 thousand for the third quarter compared to 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. Our net interest margin decreased 18 basis points during the first nine months from 3.39% in 2005 to 3.21% in 2006. The decrease in net interest margin is due to higher interest rates on deposits and short term borrowing rates. The decrease in net interest margin was offset by an increase in average earning assets.

Net interest income for the nine months ended September 30, 2006 increased to $13.3 million compared to $11.0 million for the same period in 2005. Net interest income for the third quarter totaled $4.8 million compared to $4.2 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 $124.5 million from $431.5 million at September 30, 2005 to $556.0 million in 2006. The increase is attributed to the growth in average loans which increased by approximately $80.1 million and the growth in average investment securities which increased by $44.6 million. The yield on earning assets increased from 6.04% in 2005 to 6.96% in 2006 reflecting an increase in yield on all earning asset categories and reflects the rising rate environment.

Total interest expense for the first nine months of 2006 increased $7.1 million over the total of $8.6 million for the same period in 2005 as a result of increases in interest bearing deposits and higher interest rates. Interest expense for the third quarter of 2006 was up $ 2.4 million over the second quarter of 2005. Total interest bearing deposits averaged $358.5 million at period ended September 30, 2006 compared to $258.4 million at September 30, 2005. Borrowed funds for nine months ended September 30, 2006 averaged $113.7 million compared to $86.4 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 September 30, 2006 was 4.42%, up 110 basis points from September 30, 2005.

Volume and Rate Analysis


	Nine Months Ended September 30,
	2006 compared to 2005
	Change Due To:
	Increase /
	(Decrease)			Volume			Rate
				(In Thousands)
Interest Earning Assets:
Securities	$	1,716		$	1,430		$	286
Loans		7,647			4,285			3,362
Interest bearing deposits		107			(5	)		112

Total Increase (Decrease) in Interest Income		9,470			5,710			3,760

Interest Bearing Liabilities:
Interest-bearing demand deposits		30			4			26
Money market deposit accounts		659			(195	)		854
Savings accounts		24			9			15
Time deposits		4,524			3,351			1,173

Total interest-bearing deposits		5,237			3,169			2,068
FHLB Advances		1,411			800			611
Securities sold under agreements to repurchase		62			43			19
Other short-term borrowings		325			97			228
Long-term borrowings		(109	)		(118	)		9
Subordinated debentures		147			—			147

Total Increase (Decrease) in Interest Expense		7,073			3,991			3,082


Increase (Decrease) in Net Interest Income	$	2,397		$	1,719		$	678

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


	Nine Month
	Period Ended September 30,
	2006								2005
	Average			Income /		Yield /			Average			Income /		Yield /
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollars In Thousands)
Assets:
Interest earning assets:
Securities⁽¹⁾	$	106,588		$	3,485		4.36	%	$	61,960		$	1,769		3.81	%
Loans⁽²⁾		441,509			25,259		7.63	%		361,390			17,612		6.50	%
Interest bearing balances		7,936			282		4.74	%		8,175			175		2.85	%

Total interest earning assets		556,033			29,026		6.96	%		431,525			19,556		6.04	%
Non-interest earning assets:
Cash and due from banks		10,620								10,261
Premises, land and equipment		9,626								9,068
Other assets		5,282								5,826
Less: allowance for loan losses		(5,340	)							(4,266	)

Total non-interest earning assets		20,188								20,889

Total Assets	$	576,221							$	452,414


Liabilities and Shareholders’ Equity:
Interest bearing liabilities:
Interest-bearing demand deposits	$	10,966			175		2.13	%	$	10,656			145		1.81	%
Money market deposit accounts		122,301			3,727		4.06	%		130,199			3,068		3.14	%
Savings accounts		1,147			27		3.14	%		445			3		0.90	%
Time deposits		224,073			7,494		4.46	%		117,079			2,970		3.38	%

Total interest-bearing deposits		358,487			11,423		4.25	%		258,379			6,186		3.19	%
FHLB Advances		64,132			2,437		5.07	%		39,707			1,026		3.45	%
Securities sold under agreements to repurchase		2,955			78		3.52	%		1,020			15		1.96	%
Other short-term borrowings		15,818			483		4.07	%		10,802			158		1.95	%
Long-term borrowings		20,435			585		3.82	%		24,559			694		3.77	%
Subordinated Debentures		10,311			654		8.46	%		10,311			507		6.56	%

Total interest-bearing liabilities		472,138			15,660		4.42	%		344,778			8,586		3.32	%

Non-interest bearing liabilities:
Demand deposits		61,278								76,028
Other liabilities		3,913								4,208

Total liabilities		537,329								425,014
Shareholders’ Equity		38,892								27,400

Total Liabilities and Shareholders’ Equity:	$	576,221							$	452,414


Interest Spread⁽³⁾							2.54	%							2.72	%


Net Interest Margin⁽⁴⁾				$	13,366		3.21	%				$	10,970		3.39	%


⁽¹⁾		Interest income and yields are presented on a fully taxable equivalent basis using 34% tax rate.

⁽²⁾		Loans placed on nonaccrual status are included in loan balances

⁽³⁾		Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.

⁽⁴⁾		Net interest margin is net interest income, expressed as a percentage of average earning assets.

Non-Interest Income

Non-interest income consists of revenue generated from other financial services and activities. The Mortgage Corporation provides the most significant contributions towards non-interest income. Total non-interest income was $20.0 million for the nine month period ending September 30, 2006 compared to $24.7 million for the same period in 2005, a decrease of $4.7 million. Non–interest income for the three month period ending September 30, 2006 totaled approximately $7.3 million down from $9.4 million for the same period of 2005. Gains on the sale of loans originated by the Mortgage Corporation totaled $4.8 million and $13.3 million for the three and nine month periods ending September 30, 2006, compared to $6.9 million and $18.3 million for the same periods of 2005. Mortgage broker fees amounted to $1.6 million and $3.8 million for the three and nine month periods ended September 30, 2006, respectively, down from $1.6 million and $4.1 million for the same periods in 2005. Other income totaled $2.7 million, for the first nine months of 2006 up from $2.1 million for the same period in 2005. Other income totaled $757 thousand for the third quarter of 2006 down from $884 thousand for the third quarter of 2005.

Non-Interest Expense

Non-interest expense totaled $9.3 million and $25.1 million for the three and nine months ended September 30, 2006 compared to $10.6 million and $28.3 million for the same periods in 2005. Salaries and benefits totaled $14.5 million for the first nine months of 2006, compared to $15.8 million for the same period last year. Salaries and benefits totaled $4.9 million and $6.0 million for the third quarter of 2006 and 2005, respectively. Other operating expenses totaled $9.1 million at September 30, 2006, down from $10.8 million at September 30, 2005. Other operating expenses totaled $3.8 million and $4.0 million for the third quarter of 2006 and 2005, respectively. As with other non interest income associated with the Mortgage Corporation non interest expense also fluctuates with loan origination volumes.

Liquidity Management

Liquidity is the ability of the Corporation to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Corporation’s ability to meet the daily cash flow requirements of both depositors and borrowers.

Asset and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Corporation’s customers, but also to maintain an appropriate balance between interest sensitive assets and interest sensitive liabilities so that the Corporation can earn an appropriate return for its shareholders.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments and maturities of investment securities. Other short-term investments such as Federal Funds sold and maturing interest bearing deposits with other banks are additional sources of liquidity funding. At September 30, 2006, overnight interest bearing balances totaled $11.0 million and securities available for sale totaled $106.4 million.

The liability portion of the balance sheet provides liquidity through various interest bearing and non interest bearing deposit accounts, Federal Funds purchased, securities sold under agreement to repurchase and other short-term borrowings. At September 30, 2006, the Corporation had a line of credit with the Federal Home Loan Bank of Atlanta totaling $177.6 million and outstanding variable rate loans of $15.0 million, and an additional $18.6 million in term loans at fixed rates ranging from 2.70% to 4.97% leaving $129.3 million available on the line. In addition to the line of credit at the Federal Home Loan Bank, the Bank and its mortgage bank subsidiary also issue repurchase agreements and commercial paper. As of September 30, 2006, outstanding repurchase agreements totaled $6.6 million and commercial paper issued amounted to $48.1 million. The interest rate on these instruments is variable and subject to change daily. The Bank also maintains Federal Funds lines of credit with its correspondent banks and, at September 30, 2006, these lines amounted to $22.6 million. The Corporation also has $10.3 million in subordinated debentures to support the growth of the organization.

Borrowed Funds Distribution


	September 30,			December 31,
	2006			2005
	(Dollars In Thousands)
At Period End
FHLB Advances	$	15,000		$	36,000
FHLB long term borrowings		18,625			21,786
Securities sold under agreements to repurchase		6,620			977
Other short term borrowings		30,423			11,219
Subordinated debentures		10,311			10,311

Total at period end	$	80,979		$	80,293


Average Balances
FHLB Advances	$	64,132		$	43,375
FHLB long term borrowings		20,435			24,028
Securities sold under agreements to repurchase		2,955			925
Other short term borrowings		15,819			8,520
Subordinated debentures		10,311			10,311

Total average balance	$	113,652		$	87,159


Average rate paid on all borrowed funds		4.97	%		4.02	%

Contractual Obligations

There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Corporation’s annual report on Form 10-K for the fiscal year ended December 31, 2005.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Corporation’s market risk is composed primarily of interest rate risk. The Funds Management Committee is responsible for reviewing the interest rate sensitivity position and establishes policies to monitor and coordinate the Corporation’s sources, uses and pricing of funds.

Interest Rate Sensitivity Management
The Corporation uses a simulation model to analyze, manage and formulate operating strategies that address net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios over a twelve month period. The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets and liabilities. The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumption of certain assets and liabilities as of September 30, 2006. The table below reflects the outcome of these analyses at September 30, 2006, assuming a flat balance sheet. According to the model run for the period ended September 30, 2006 projecting forward over a twelve month period, an immediate 100 basis points increase in interest rates would result in a decline in net interest income by 0.10%. An immediate 100 basis points decline in interest rates would result in a decline in net interest income by .21%. While management carefully monitors the exposure to changes in interest rates and takes actions as warranted to decrease any adverse impact, there can be no assurance about the actual effect of interest rate changes on net interest income. The following table reflects the Corporation’s earnings sensitivity profile as of September 30, 2006.


Rate Shock Analysis
September 30, 2006
			Hypothetical			Hypothetical Percentage
Change in Federal			Percentage Change In			Change In Economic
Funds Target Rate			Earnings			Value of Equity
	3.00	%		-0.42	%		-16.94	%
	2.00	%		-0.25	%		-10.85	%
	1.00	%		-0.10	%		-5.46	%
	-1.00	%		-0.21	%		4.68	%
	-2.00	%		-1.25	%		9.10	%
	-3.00	%		-2.49	%		15.36	%

The Corporation’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. The Corporation manages its exposure to fluctuations in interest rates through policies established by its Funds Management Committee. The Funds Management Committee meets periodically and has responsibility for formulating and implementing strategies to improve balance sheet positioning and earnings and reviewing interest rate sensitivity.

The Mortgage Corporation is party to mortgage rate lock commitments to fund mortgage loans at interest rates previously agreed to, as locked by both the Corporation and the borrower for specified periods of time. When the borrower locks their interest rate, the Corporation effectively extends a put option to the borrower, whereby the borrower is not obligated to enter into the loan agreement, but the Corporation must honor the interest rate for the specified time period. The Corporation is exposed to interest rate risk during the accumulation of interest rate lock commitments and loans prior to sale. The Corporation utilizes either a best efforts sell forward commitment or a mandatory sell forward commitments to economically hedge the changes in fair value of the loan due to changes in market interest rates. Failure to effectively monitor, manage and hedge the interest rate risk associated with the mandatory commitments subjects the Corporation to potentially significant market risk.

Throughout the lock period the changes in the market value of interest rate lock commitments, best efforts and mandatory sell forward commitments are recorded as unrealized gains and losses and are included in the statement of operations in mortgage revenue. The Corporation’s management has made complex judgments in the recognition of gains and losses in connection with this activity. The Corporation utilizes a third party and its proprietary simulation model to assist in identifying and managing the risk associated with this activity. The Corporation did not have a material gain or loss representing the amount of hedge ineffectiveness during the reporting periods contained in this report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Corporation maintains a system of disclosure controls and procedures that is designed to ensure that material information relating to the Corporation and its consolidated subsidiaries is accumulated and communicated to management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As required, management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were operating effectively to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Corporation’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Corporation to disclose material information otherwise required to be set forth in the Corporation’s periodic and current reports.

Changes in Internal Controls

The Corporation’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. No changes in our internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Bank is a party to legal proceedings arising in the ordinary course of business. Management is of the opinion that these legal proceedings will not have a material adverse effect on the Corporations’ financial condition or results of operations. From time to time the Bank may initiate legal actions against borrowers in connection with collecting defaulted loans. Such actions are not considered material by management unless otherwise disclosed.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed in Part 11 Item 1A. of Access National Corporation’s 10Q for the period ended June 30, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other information

None

Item 6. Exhibits


Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of Access National Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed July 18, 2006 (file number 000-49929))

3.2		Bylaws of Access National Corporation (incorporated by reference to Exhibit 3.2 to Form 8-K dated August 1, 2005 (file number 000-49929))

10.12		Underwriting Agreement, dated July 27, 2006, between the Company and Keefe, Bruyette&Woods, Inc. and Scott & Stringfellow, Inc. (incorporated by reference to Exhibit 10.12 to Form 8-K filed August 2, 2006 (file number 000-49929)).

31.1*		CEO Certification Pursuant to Rule 13a-14(a)

31.2*		CFO Certification Pursuant to Rule 13a-14(a)

32*		CEO/CFO Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)


*		filed herewith

+		indicates a management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Access National Corporation (Registrant)

Date: November 10, 2006	By: /s/	Michael W. Clarke

		Michael W. Clarke
		President & Chief Executive Officer
		(Principal Executive Officer)

Date: November 10, 2006	By: /s/	Charles Wimer

		Charles Wimer
		Executive Vice President & Chief Financial Officer
		(Principal Financial & Accounting Officer)