UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Table of Contents

ACCESS NATIONAL CORPORATION
FORM 10-Q

INDEX

PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets March 31, 2007 and December 31, 2006		Page 2
Consolidated Statements of Income, Three months ended March 31, 2007 and 2006		Page 3
Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2007 and 2006		Page 4
Consolidated Statements of Cash Flows –Three Months Ended March 31, 2007 and 2006		Page 5
Notes to Consolidated Financial Statements		Page 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		Page 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		Page 27
Item 4. Controls and Procedures		Page 28
PART II OTHER INFORMATION
Item 1. Legal Proceedings		Page 28
Item 1A. Risk Factors		Page 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		Page 28
Item 3. Defaults Upon Senior Securities		Page 28
Item 4. Submission of Matters to a Vote of Security Holders		Page 28
Item 5. Other Information		Page 28
Item 6. Exhibits		Page 29
Signatures		Page 30

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements

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

		March 31				December 31,
		2007				2006 (a)
		(Unaudited)
ASSETS
Cash and due from banks		$	9,511			$	11,974
Interest bearing deposits in other banks			24,670				15,391
Securities available for sale, at fair value			93,593				105,163
Loans held for sale			67,429				65,320
Loans, net of allowance for loan losses of $5,746 and $5,452 respectively			451,919				428,142
Premises and equipment			9,842				9,598
Other assets			10,240				9,194
Total assets		$	667,204			$	644,782
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing deposits		$	91,537			$	79,223
Savings and interest-bearing deposits			114,282				120,309
Time deposits			254,868				239,400
Total deposits			460,687				438,932
Other liabilities
Short-term borrowings			82,909				84,951
Long-term borrowings			44,435				42,572
Subordinated debentures			10,311				10,311
Other liabilities			4,554				5,721
Total liabilities			602,896				582,487
SHAREHOLDERS’ EQUITY
Common stock, par value, $0.835; authorized, 60,000,000 shares; issued and outstanding,12,020,587 shares at March 31, 2007 and 11,816,929 shares at December 31, 2006			10,037				9,867
Surplus			29,796				29,316
Retained earnings			24,847				23,641
Accumulated other comprehensive income (loss), net			(372	)			(529	)
Total shareholders’ equity			64,308				62,295
Total liabilities and shareholders’ equity		$	667,204			$	644,782

See accompanying notes to consolidated financial statements (unaudited).

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

		Three Months Ended March 31
		2007				2006
Interest and Dividend Income
Interest and fees on loans		$	9,822			$	7,495
Interest on deposits in other banks			188				99
Interest and dividends on securities			1,163				1,051
Total interest and dividend income			11,173				8,645
Interest Expense
Interest on deposits			4,008				3,299
Interest on short-term borrowings			1,399				846
Interest on long-term borrowings			481				202
Interest on subordinated debentures			229				201
Total interest expense			6,117				4,548
Net interest income			5,056				4,097
Provision for loan losses			291				124
Net interest income after provision for loan losses			4,765				3,973
Noninterest Income
Service fees on deposit accounts			102				74
Gain on sale of loans			5,393				4,678
Mortgage broker fee income			1,279				866
Other income			1,205				476
Total noninterest income			7,979				6,094
Noninterest Expense
Salaries and employee benefits			5,219				4,706
Occupancy and equipment			613				518
Other operating expenses			4,953				2,383
Total noninterest expense			10,785				7,607
Income before income taxes			1,959				2,460
Income tax expense			633				837
NET INCOME		$	1,326			$	1,623
Earnings per common share:
Basic		$	0.11			$	0.20
Diluted		$	0.11			$	0.17
Average outstanding shares:
Basic			11,954,863				8,018,133
Diluted			12,255,330				9,658,239

See accompanying notes to consolidated financial statements (unaudited).

ACCESS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Months Ended March 31, 2007 and 2006
(In Thousands)
(unaudited)

														Accumulated
														Other
		Common								Retained				Comprehensive				Comprehensive
		Stock				Surplus				Earnings				Income (Loss)				Income				Total
Balance, December 31, 2006		$	9,867			$	29,316			$	23,641			$	(529	)		$	—			$	62,295
Comprehensive income:
Net income											1,326								1,326				1,326
Other comprehensive income (loss), unrealized holdings gains arising during the period, net of tax $81															157				157				157
Cash Dividend from DRSPP											(121	)											(121	)
																		$	1,483
Common Stock issued for exercise of options and dividend reinvest			170				481																651
Balance, March 31, 2007		$	10,037			$	29,797			$	24,846			$	(372	)						$	64,308
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	)
Cash Dividends											(40	)											(40	)
																		$	1,452
Common Stock issued for exercise of options and dividend reinvest			120				328																448
Balance, March 31, 2006		$	6,764			$	9,427			$	17,810			$	(956	)						$	33,045

See accompanying notes to consolidated financial statements (unaudited).

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

		Three Months Ended March 31,
		2007				2006
Cash Flows from Operating Activities
Net income		$	1,326			$	1,623
Adjustments to reconcile net income to net cash (used in) operating activities:
Provision for loan losses			291				124
Deferred tax (benefit)			(7	)			(77	)
Stock based compensation			21				18
Provision (benefit) from hedging			(1	)			(28	)
Net amortization (accretion) on securities			(6	)			(1	)
Depreciation and amortization			212				197
Changes in assets and liabilities:
(Increase) decrease in loans held for sale			(1,579	)			(25,380	)
(Increase) decrease in other assets			(1,638	)			(232	)
Increase (decrease) in other liabilities			(1,167	)			(2,432	)
Net cash (used in) operating activities			(2,548	)			(26,188	)
Cash Flows from Investing Activities
Proceeds from maturities and calls of securities available for sale			15,705				1,657
Purchases of securities available for sale			(3,891	)			(24,387	)
Net (increase) in loans			(24,068	)			(14,110	)
Purchases of premises and equipment			(467	)			(186	)
Net cash (used in) investing activities			(12,721	)			(37,026	)
Cash Flows from Financing Activities
Net increase (decrease) in demand, interest-bearing demand and savings			6,187				(5,439	)
Net increase in time deposits			15,568				8,922
Net increase in securities sold under agreement to repurchase			62				250
Net increase (decrease) in short-term borrowings			(2,104	)			54,321
Net increase (decrease) in long term borrowings			1,863				(2,054	)
Proceeds from issuance of common stock			630				430
Dividends paid			(121	)			(40	)
Net cash provided by financing activities			22,085				56,390
Increase (decrease) in cash and cash equivalents			6,816				(6,824	)
Cash and Cash Equivalents
Beginning			27,365				23,183
Ending		$	34,181			$	16,359
Supplemental Disclosures of Cash Flow Information
Cash payments for interest		$	6,116			$	4,530
Cash payments for income taxes		$	2,115			$	1,477
Supplemental Disclosures of Noncash Investing Activities
Unrealized gain (loss) on securities available for sale		$	238			$	(259	)

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 two active wholly-owned subsidiaries: Access National Mortgage Corporation (the “Mortgage Corporation”) a Virginia corporation engaged in mortgage banking activities, and Access Real Estate LLC. Access Real Estate LLC is a limited liability company established in July, 2003 for the purpose of holding title to the Corporation’s headquarters building, located at 1800 Robert Fulton Drive, Reston, Virginia.

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 months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2007. These consolidated financial statements should be read in conjunction with the Corporation’s audited financial statements and the notes thereto as of December 31, 2006, included in the Corporation’s Annual Report on Form 10 K for the fiscal year ended December 31, 2006.

NOTE 3 – STOCK BASED COMPENSATION PLANS

During the first quarter of 2007 the Corporation granted 78,100 stock options to officers, directors, and employees under the 1999 Stock Option Plan (“the Plan”). Options granted under the Plan have an exercise price equal to the fair market value as of the grant date. Options granted during the first quarter have a vesting period of two and one half years and expire in three and one half years after the issue date. There were no options granted during the first quarter of 2006.

Stock–based compensation expense recognized in other operating expense during the first quarter of 2007 was approximately $21 thousand and $18 thousand for the same period in 2006. The fair value of options is estimated on the date of grant using a Black-Scholes option-pricing model with the assumptions noted below.

A summary of stock option activity under the Plan for the three months ended March 31, 2007 is presented as follows:

		3 Months ended
		March 31, 2007
Assumptions
Expected life of option			3.33
Risk-free interest rate			4.72	%
Expected volatility of stock			23	%
Expected dividend yield			1	%

										Weighted Avg.
		Number of				Weighted Avg.				Remaining				Aggregate Intrinsic
		Options				Exercise Price				Contractual Term				Value
Outstanding at December 31, 2006			815,244			$	4.80				2.296			$	3,885,204
Granted			78,100			$	9.58
Exercised			(164,820	)		$	1.67							$	1,297,787
Lapsed or Canceled			(200	)		$	14.05
Outstanding at March 31, 2007			728,324			$	6.03				2.693
Exercisable at March 31, 2007			590,304								2.607
Fair Value per share of Granted Options in 2007		$	2.34
Non-Vested Options as of March 31, 2007			138,020
Non-Vested Options as of December 31, 2006			88,224

NOTE 4 — SECURITIES

Amortized costs and fair values of securities available for sale as of March 31, 2007 and December 31, 2006 are as follows:

		March 31, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In Thousands)
U.S. Treasury Securities		$	991			$	6							$	997
U.S. Government Agencies			80,333				21				(537	)			79,817
Mortgage Backed Securities			990				3				(1	)			992
Tax Exempt Municipals			2,892				6				(9	)			2,889
Taxable Municipals			1,305				—				(25	)			1,280
Mutual Fund			1,500				—				(29	)			1,471
Restricted Securities -
Federal Reserve Bank Stock			873				—				—				873
FHLB Stock			5,274				—				—				5,274
Total Securities		$	94,158			$	36			$	(601	)		$	93,593

		December 31, 2006
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In Thousands)
U.S. Treasury Notes		$	990			$	6			$	—			$	996
U.S. Governmental Agencies			92,352				5				(748	)			91,609
Mortgage Backed Securities			1,037				4				(1	)			1,040
Tax Exempt Municipals			2,893				5				(10	)			2,888
Taxable Municipals			1,305				—				(30	)			1,275
Mutual Fund			1,500				—				(32	)			1,468
Restricted Stock -
Federal Reserve Bank Stock			873				—				—				873
FHLB Stock			5,014				—				—				5,014
Total Securities		$	105,964			$	20			$	(821	)		$	105,163

The amortized cost and fair value of securities available for sale as of March 31, 2007 and December 31, 2006 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, 2007								December 31, 2006
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
		(In Thousands)								(In Thousands)
US Treasury & Agencies
Due in one year or less		$	33,973			$	33,748			$	34,994			$	34,690
Due after one through five years			45,853				45,585				56,850				56,442
Due after five through ten years			1,498				1,481				1,498				1,473
Municipals
Due after five through ten years			4,197				4,169				4,198				4,163
Mortgage Backed Securities Due in one year or less			45				45				48				49
Due after one through five years			945				947				989				991
Mutual Fund			1,500				1,471				1,500				1,468
Restricted Stock:
Federal Reserve Bank stock			873				873				873				873
FHLB stock			5,274				5,274				5,014				5,014
Total		$	94,158			$	93,593			$	105,964			$	105,163

Investment securities available for sale that have an unrealized loss position at March 31, 2007 and December 31, 2006 are detailed below

March 31, 2007

		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:
Mortgage Backed Security		$	—			$	—			$	362			$	(1	)		$	362			$	(1	)
U.S. Government Agencies			—				—				64,795				(537	)			64,795				(537	)
Municipals-Taxable			—				—				1,280				(25	)			1,280				(25	)
Municipals-Tax Exempt			—				—				1,408				(9	)			1,408				(9	)
CRA Mutual Fund			—				—				1,471				(29	)			1,471				(29	)
Total		$	—			$	—			$	69,316			$	(601	)		$	69,316			$	(601	)

December 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:
Mortgage Backed Security		$	—			$	—			$	378			$	(1	)		$	378			$	(1	)
U.S. Government Agencies			24,936				(64	)			56,668				(684	)			81,604				(748	)
Municipals-Taxable			—				—				1,275				(30	)			1,275				(30	)
Municipals-Tax Exempt			458				(2	)			1,408				(9	)			1,866				(11	)
CRA Mutual Fund			—				—				1,468				(31	)			1,468				(31	)
Total		$	25,394			$	(66	)		$	61,197			$	(755	)		$	86,591			$	(821	)

Management does not believe that any individual unrealized loss as of March 31, 2007 and December 31, 2006 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.

NOTE 5 – LOANS

The following table presents the composition of the loan portfolio at March 31, 2007 and December 31, 2006.

		March 31				Percent of				Dec 31				Percent of
		2007				Total				2006				Total
		(Dollars in thousands)
Commercial		$	59,101				12.91	%		$	51,825				11.95	%
Real estate non-residential			178,910				39.09				159,996				36.90
Real estate construction			61,089				13.35				68,570				15.81
Residential real estate			157,815				34.48				152,648				35.21
Consumer			750				0.17				555				0.13
		$	457,665				100.00	%		$	433,594				100.00	%
Less allowance for loan losses			5,746								5,452
		$	451,919							$	428,142

NOTE 6 – SEGMENT REPORTING

The 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 LLC is derived from rents received from the Bank and Mortgage Corporation.

The following table presents segment information for the three months ended March 31, 2007 and 2006:

2007		Commercial																Consolidated
(In Thousands)		Banking				Mortgage				Other				Elimination				Totals
Revenues:
Interest income		$	11,033			$	1,136			$	199			$	(1,195	)		$	11,173
Gain on sale of loans			—				5,393				—				—				5,393
Other revenues			426				2,465				263				(568	)			2,586
Total revenues			11,459				8,994				462				(1,763	)			19,152
Expenses:
Interest expense			5,696				1,273				344				(1,196	)			6,117
Salaries and employee benefits			1,668				3,551				—				—				5,219
Other			1,347				4,708				369				(567	)			5,857
Total operating expenses			8,711				9,532				713				(1,763	)			17,193
Income (loss) before income taxes		$	2,748			$	(538	)		$	(251	)		$	—			$	1,959
Total assets		$	609,145			$	71,675			$	9,891			$	(23,507	)		$	667,204

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			—				4,678				—				—				4,678
Other revenues			400				1,330				311				(625	)			1,416
Total revenues			9,082				6,643				575				(1,309	)			14,739
Expenses:
Interest expense			4,233				681				318				(684	)			4,548
Salaries and employee benefits			1,531				3,175				—				—				4,706
Other			982				2,251				417				(625	)			3,025
Total operating expenses			6,746				6,107				735				(1,309	)			12,279
Income (loss) before income taxes		$	2,336			$	536			$	(160	)		$	—			$	2,460
Total assets		$	560,877			$	72,756			$	37,405			$	(78,560	)		$	592,478

NOTE 7 – EARNINGS PER SHARE (EPS)

The following tables show the calculation of both Basic and Diluted earnings per share (“EPS”) for the three months ended March 31, 2007 and 2006 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, 2007				March 31, 2006
		(In thousands, except per share data)
BASIC EARNINGS PER SHARE:
Net income		$	1,326			$	1,623
Weighted average shares outstanding			11,954,863				8,018,133
Basic earnings per share		$	0.11			$	0.20
DILUTED EARNINGS PER SHARE:
Net income		$	1,326			$	1,623
Weighted average shares outstanding			11,954,863				8,018,133
Stock options and warrants			300,467				1,640,106
Weighted average diluted shares outstanding			12,255,330				9,658,239
Diluted earnings per share		$	0.11			$	0.17

NOTE 8 — DERIVATIVES

The 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, 2007 and December 31, 2006 the Mortgage Corporation had derivative financial instruments with a notional value of $179.8 million and $195.8 million respectively. The fair value of these derivative instruments at March 31, 2007 and December 31, 2006 was $179.8 million and $195.7 million respectively.

NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” This statement amends SFAS No. 133 and 140 by: permitting fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation; clarifying which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; establishing a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifying that concentrations of credit risk in the form of subordination are not embedded derivatives; and amending SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The statement is effective for fiscal years beginning after September 15, 2006. The adoption of this standard is not anticipated to have a material impact on financial condition, results of operations or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109,” which provides guidance on the measurement, recognition, and disclosure of tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, and disclosure. FIN 48 prescribes that a tax position should only be recognized if it is more-likely-than-not that the position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this threshold is measured as the largest amount of benefit that is more likely than not (greater than 50 percent) realized upon ultimate settlement. The cumulative effect of applying FIN 48 is to be reported as an adjustment to the beginning balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this standard is not anticipated to have a material impact on financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements (“SFAS 157”) establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. While SFAS applies under other accounting pronouncements that require or permit fair value measurements, it does not require any new fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In addition, the Statement establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Lastly, SFAS 157 requires additional disclosures for each interim and annual period separately for each major category of assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management does not expect the adoption of this statement to have a material impact on the Corporation’s financial statements.

In February 2007, the FASB issued SFAS 159 “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Corporation is evaluating the impact of this new standard but currently does not believe the adoption of this statement will have a material effect on the Corporation’s consolidated financial statements.

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, 2007 and 2006. 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. Standard representations and warranties issued in connection with Loans Held for Sale may impact earnings due to the potential need to repurchase loans due to early payment defaults and other reasons. The subsequent cost of liquidating these loans may adversely impact earnings. 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 principles 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 – The 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 March 31, 2007, these commitments amounted to $25.3 million. These commitments do not necessarily represent cash requirements, since many commitments are expected to expire without being drawn on.

At March 31, 2007, the Bank had approximately $108.0 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 (March 31, 2007 compared to December 31, 2006)

The Corporation’s assets increased $22.4 million from $644.8 million at December 31, 2006 to $667.2 million at March 31, 2007. The growth in assets occurred in loans held for investment, interest bearing balances and loans held for sale. Loans held for investment increased $24.1 million over year end. Investment securities decreased approximately $11.6 million due to maturities that were not reinvested. Interest bearing deposits increased $9.3 million and loans held for sale increased by $2.1 million. The growth in loans held for investment is due to our commitment to meeting the credit needs of our existing clients, and new clients. The volume of loans held for sale is primarily due to the expansion of the wholesale division. This category of loans is 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, and an increase in long-term borrowings. Deposits increased $21.8 million and totaled $460.7 million at March 31, 2007 up from $438.9 million at December 31, 2006. Long term borrowings at March 31, 2007 totaled $44.4 million, an increase of $1.9 million from December 31, 2006, and investment securities decreased $11.6 million.

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, and Federal Reserve and Federal Home Loan Bank stock. At March 31, 2007 the securities portfolio totaled $93.6 million, down from $105.2 million on December 31, 2006. 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 $0.4 million on March 31, 2007. 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 March 31, 2007, loans held for investment increased by $24.1 million from December 31, 2006 and totaled $457.7 million.

Commercial loans increased $7.3 million, commercial real estate loans increased $18.9 million, construction loans decreased $7.5 million, and residential real estate loans increased $5.2 million compared to December 31, 2006. 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 March 31, 2007.

Commercial Loans: Commercial Loans represent 12.9% 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 13.4% 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.

Commercial Real Estate Loans: Also known as “Commercial Mortgages”, loans in this category represent 39.1% 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 34.5% 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 15.7%; First Trust Mortgage Loans 78.0%; Loans Secured by a Junior Trust 3.8%; Multi-family loans and loans secured by Farmland 2.5%.

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 loans to consumers wherein the proceeds have been used for a stated consumer purpose. Examples of consumer purposes are education, refinancing debt, or purchasing consumer goods. The loans are generally extended in a single disbursement and repaid over a specified period of time.

Loans in the Residential Real Estate portfolio are underwritten to standards within a traditional consumer framework that is periodically reviewed and 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 approximately 0.2% 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 first quarter of 2007 we originated $309.8 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. At March 31, 2007 loans held for sale totaled $67.4 million compared to $65.3 million at year end 2006. The increase in loans held for sale that is primarily due to increase in loan originations during the month of March.

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 three months of 2007, we originated a total volume of $59.7 million in residential mortgage loans under this type of delivery method, as compared to $33.7 million for the same period of 2006. Brokered loans accounted for 19.3% of the total loan volume for the first three months of 2007.

Allowance for Loan Losses

The Bank’s allowance for loan losses increased by $294 thousand which includes a $3 thousand recovery on a previously charged off loan and totaled $5.7 million at March 31, 2007 compared to $5.5 million at year end 2006. The allowance for loan losses at March 31, 2007 and December 31, 2006 was 1.26% of total loans held for investment. The allowance for Commercial loans as a percent of the total Commercial loans amounted to 1.7%, compared to 1.5% at year end 2006. The allowance for Construction Loans was 1.5% of total Construction loans at March 31, 2007 and 1.5% at December 31, 2006. The allowance for Commercial Real Estate loans was 1.4% of total Commercial Real Estate loans as of March 31, 2007 and 1.4% at year end 2006. The allowance for Residential Real Estate loans was 0.8% of total Residential Real Estate loans at March 31, 2007 and December 31, 2006. 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, our 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 31,2007 the total net charge offs for the seven years of operation was approximately $11 thousand. The overall allowance for loan losses is equivalent to approximately 1.26% 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, 2007 our evaluation of these factors supported approximately 90.7% 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.

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 March 31, 2007.

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, 2007 the threshold range for this component was 0.00% to 0.15% of the total loan portfolio and accounted for approximately 9.3% of the total loss reserve. At March 31, 2007 the unallocated reserve amounted to $0.5 million and equaled 0.12% 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)

		2006				2005
Balance as of December 31		$	5,452			$	5,215
Charge offs			—				—
Recoveries			3				—
Provision			291				124
Balance as of March 31		$	5,746			$	5,339

Allocation of the Allowance for Loan Losses

		March 31, 2007																December 31, 2006
										Allowance																Allowance
										for Loan																for Loan
		Amount				Percentage				Loss				Percentage				Amount				Percentage				Loss				Percentage
		(Dollars In Thousands)
Commercial		$	59,101				12.91	%		$	997				17.35	%		$	51,825				11.95	%		$	802				14.71	%
Commercial real estate			178,910				39.09				2,541				45.37				159,996				36.90				2,296				42.11
Real estate construction			61,089				13.35				889				17.76				68,570				15.81				1,055				19.35
Residential real estate			157,815				34.48				1,313				23.68				152,648				35.21				1,293				23.72
Consumer			750				0.17				6				0.27				555				0.13				6				0.11
		$	457,665				100.00	%		$	5,746				100.00	%		$	433,594				100.00	%		$	5,452				100.00	%

Reserve for Potential Loan Losses – Loans Held for Sale (LHFS)

The Mortgage Corporation maintains a reserve separately from the Bank specifically for LHFS and is not included in the Bank’s Allowance for Loan Losses.

The risks associated with the LHFS activity of the Mortgage Corporation differs from the risks associated with Loans Held for Investment and is therefore accounted for separately by the Mortgage Corporation. The risks associated with LHFS center around early payment defaults, borrower fraud and failure of our investors to purchase loans. Prior to the period ended March 31, 2007 the reserve for this activity was not material.

LHFS are added to a “Reserve Schedule” as soon as management is able to ascertain or substantiate a claim or loss potential

related to a sold loan. In March, the Mortgage corporation expensed $913 thousand to other operating expense in response to an evaluation of approximately $6 million in loans previously sold. The balance in the Reserve for Potential Loan Losses was increased to approximately $1.2 million at March 31, 2007, up from $233 thousand at December 31, 2006. The amount of the Reserve for Potential Loan Losses is based on Management’s estimate of the financial risks associated with each loan and the likely disposition action. Disposition may be in the form of collateral liquidation or resale to a third party at a discount.

Nonperforming Loans And Past Due

At March 31, 2007 the Bank had no loans in non-accrual status. There were three loans totaling $530 thousand in non-accrual status at the Mortgage Corporation There was one Bank loan past due more than 30 days amounting to $1.2 million.

Deposits

Deposits are the primary source of funding loan growth. At March 31, 2007 deposits totaled $460.7 million compared to $438.9 million on December 31, 2006, an increase of $21.8 million. Non-Interest Bearing accounts increased $12.3 million, savings and interest-bearing accounts declined $6.0 million and time deposits increased $15.5 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 March 2007 the Bank opened a new banking office in Loudoun County and plans to open one in Prince William County during the third quarter. The new branches are expected to provide an opportunity to expand our deposit base.

Shareholders’ Equity

Shareholders’ equity was $64.3 million at March 31, 2007. 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 $2.0 million during the three months ended March 31, 2007. The increase is due to the retention of earnings and the exercise of stock options and dividends reinvested. Other comprehensive (loss), representing unrealized gains and losses on available for sale securities, decreased $157 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

		March 31,				December 31,
		2007				2006
		(In Thousands)
Tier 1 Capital:
Common stock		$	10,037			$	9,867
Capital surplus			29,796				29,317
Retained earnings			24,847				23,640
Less: Net unrealized loss on equity securities			(19	)			(21	)
Subordinated debentures			10,000				10,000
Total Tier 1 capital			74,661				72,803
Subordinated debentures not included in Tier 1			—				—
Allowance for loan losses			5,990				5,688
Total risk based capital		$	80,651			$	78,491
Risk weighted assets		$	509,158			$	484,987
Quarterly average assets		$	647,080			$	631,378

										Regulatory
Capital Ratios:										Minimum
Tier 1 risk based capital ratio			14.66	%			15.01	%			4.00	%
Total risk based capital ratio			15.84	%			16.18	%			8.00	%
Leverage ratio			11.54	%			11.53	%			4.00	%

RESULTS OF OPERATIONS (March 31, 2007)

Summary

Net income for the three months ended March 31, 2007 totaled $1.3 million compared to $1.6 million for the same period in 2006. Basic earnings per common share amounted to $0.11 per share for the three months ended March 31, 2007, compared to $0.20 per share for the same period in 2006. Diluted earnings per share were $0.11 and $0.17 for the three month period ended March 31 in 2007 and 2006 respectively. Earnings were impacted by a $913 thousand charge to other operating expense to increase the reserve for potential loan losses at the Mortgage Corporation. The increase in the Mortgage Corporation’s reserve for potential loan losses was deemed prudent after analyzing the potential need to repurchase approximately $6.0 million in loans previously sold. The management of the Mortgage Corporation believes this repurchase activity is an isolated event based on current market conditions. Previous repurchase activity has not been material. Although there can be no assurance, future repurchase activity is not expected to be material.

Interest and fees on loans increased by $2.3 million in the first quarter ended March 31, 2007 over the same period of 2006 reflecting the $24.1 million increase in loans held for investment over year end. Non–interest income totaled $8.0 million for the three months ended March 31, 2007 compared to $6.1 million for the same period in 2006. This increase is primarily due to the gains on mortgage loans held for sale.

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 increased 9 basis points during the first three months from 3.14% in 2006 to 3.23% in 2007. The increase in net interest margin is due to a $104.5 million increase in earning assets over the first quarter of 2006.

Net interest income for the three months ended March 31, 2007 increased to $5.1 million compared to $4.1 million for the same period in 2006. Net interest income depends upon the volume of earning assets and interest bearing liabilities and the associated rates. The yield on earning assets increased from 6.61% in 2006 to 7.12% in 2007.

Total interest expense for the first three months of 2007 increased $1.6 million from $4.5 million in 2006 to $6.1 million. Total interest bearing deposits averaged approximately $353.0 million at period ended March 31, 2007 compared to $339.6 million at March 31, 2006. Borrowed funds for three months ended March 31, 2007 averaged $161.3 million compared to $107.2 million for the corresponding period in 2006. The increase in deposits and borrowings funded the growth in earning assets. The average cost of interest bearing liabilities at March 31, 2007 was 4.76%, up from 4.07% at March 31, 2006.

Volume and Rate Analysis

		Three Months Ended March 31,
		2007 compared to 2006
						Change Due To:
		Increase /
		(Decrease)				Volume				Rate
		(In Thousands)
Interest Earning Assets:
Securities		$	105			$	59			$	46
Loans			2,328				1,782				546
Interest-bearing deposits			96				66				30
Total Increase (Decrease) in Interest Income			2,529				1,907				622
Interest Bearing Liabilities:
Interest-bearing demand deposits			(9	)			(7	)			(2	)
Money market deposit accounts			(140	)			(213	)			73
Savings accounts			61				40				21
Time deposits			797				343				454
Total interest-bearing deposits			709				163				546
FHLB Advances			413				280				133
Securities sold under agreements to repurchase			48				45				3
Other short-term borrowings			92				82				10
Long-term borrowings			280				220				60
Subordinated debentures			28				—				28
Total Increase (Decrease) in Interest Expense			1,570				790				780
Increase (Decrease) in Net Interest Income		$	959			$	1,117			$	(158	)