UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-49929

Access National Corporation

Organized under the laws of Virginia		82-0545425
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

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

(703) 871-2100

Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
Common Stock $.835 par value		The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12 (g) of the Act:
(Title of class) None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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

Indicate by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þ

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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 aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the stock was last sold on the NASDAQ Global Market as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $78,908,662.

As of March 10, 2008, there were 10,294,643 shares of Common Stock, par value $.835 per share, of Access National Corporation issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Corporation’s Annual Meeting of Shareholders to be held on May 20, 2008, are incorporated by reference in Part III of this Form 10-K.

 

 

Access National Corporation
FORM 10-K
INDEX

		Page
PART I
Item 1 Business			2
Item 1A Risk Factors			10
Item 1B Unresolved Staff Comments			15
Item 2 Properties			15
Item 3 Legal Proceedings			15
Item 4 Submission of Matters to a Vote of Security Holders			16
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			16
Item 6 Selected Financial Data			19
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation			20
Item 7A Quantitative and Qualitative Disclosures About Market Risk			36
Item 8 Financial Statements and Supplementary Data			37
Item 9 Changes in and Disagreements with Accountants On Accounting and Financial Disclosure			73
Item 9A Controls and Procedures			73
Item 9B Other Information			73
PART III
Item 10 Directors, Executive Officers and Corporate Governance			74
Item 11 Executive Compensation			74
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			74
Item 13 Certain Relationships and Related Transactions, and Director Independence			74
Item 14 Principal Accountant Fees and Services			74
PART IV
Item 15 Exhibits, Financial Statement Schedules			76
Signatures			77

PART I

In addition to historical information, the following report contains forward looking statements that are subject to risks and uncertainties that could cause the Corporation’s actual results to differ materially from those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of the Report. For discussion of factors that may cause our actual future results to differ materially from those anticipated, please see “Item 1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation — Forward-Looking Statements” herein.

ITEM 1 — BUSINESS

Access National Corporation, (the “Corporation”) was organized June 15, 2002 under the laws of Virginia to operate as a bank holding company. The Corporation has three wholly owned subsidiaries: Access National Bank, Access National Capital Trust I and Access National Capital Trust II. Effective June 15, 2002, pursuant to an Agreement and Plan of Reorganization dated April 18, 2002 between the Corporation and Access National Bank (the “Bank”), the Corporation acquired all of the outstanding stock of the Bank in a statutory share exchange transaction. The Corporation does not have any significant operations and serves primarily as the parent company for the Bank. Access National Capital Trust I and Access National Capital Trust II were formed for the purpose of issuing redeemable capital securities. The Corporation’s income is primarily derived from dividends received from the Bank. These dividends are determined by the Bank’s earnings and capital position.

The Bank is the primary operating business of the Corporation. The Bank provides commercial credit, deposit and mortgage services to middle market businesses and associated professionals, primarily in the greater Washington, D.C. Metropolitan Area. The Bank was organized under federal law as a national banking association to engage in a general banking business to serve the communities in and around Northern Virginia. The Bank opened for business on December 1, 1999 at 14006 Lee-Jackson Memorial Highway in Chantilly, Virginia Deposits with the Bank are insured to the maximum amount provided by the Federal Deposit Insurance Corporation. The Bank offers a comprehensive range of financial services and products and specializes in providing customized financial services to small and medium sized businesses, professionals, and associated individuals. The Bank provides its customers with personal customized service utilizing the latest technology and delivery channels. The Bank has four wholly owned subsidiaries: Access National Mortgage Corporation (the “Mortgage Corporation”), Access National Leasing Corporation (“the Leasing Corporation”), Access National Real Estate LLC (“Access Real Estate”) and United First Mortgage Corporation (“UFM”). The Leasing Corporation and UFM are both presently inactive.

The headquarters for the Corporation, the Bank, Access Real Estate and the Mortgage Corporation is located at 1800 Robert Fulton Drive, Reston, Virginia.

Bank revenues are derived from interest and fees received in connection with loans, deposits and investments. Interest paid on deposits and borrowings are the major expenses followed by administrative and operating expenses. Revenues from the Mortgage Corporation consist primarily of gains from the sale of loans and loan origination fees. Major expenses of the Mortgage Corporation consist of personnel, interest, advertising and other operating expenses.

The economy, interest rates, monetary and fiscal policies of the federal government and regulatory policies have a significant influence on the Corporation, the Bank, and the Mortgage Corporation, and the banking industry as a whole.

The Bank has experienced consistent growth and profitability since inception. Our goal is to become a leading provider of financial services to small to medium sized businesses, and professionals in Northern Virginia. Our strategy is to know the needs of our clients and to deliver the corresponding financial services. We employ highly qualified personnel and emphasize the use of the latest technology in operations and the services we provide. Our marketing efforts are directed to prospective clients that value high quality service and that are, or have the potential to become, highly profitable.

Assets at year end totaled over $622.4 million and net income amounted to $3.7 million. The Bank operates from five banking centers located in Chantilly, Tysons Corner, Reston, Leesburg and Manassas, Virginia and online at www.accessnationalbank.com. Additional offices may be added from time to time based upon management’s constant analysis of the market and opportunities.

On December 1, 1999, the Bank acquired Access National Mortgage Corporation, formerly known as Mortgage Investment Corporation. The Mortgage Corporation is headquartered in Reston, Virginia. The Mortgage Corporation specializes in the origination of conforming and non-conforming residential mortgages primarily in the greater Washington, D.C. Metropolitan Area and the surrounding areas of its branch locations. The Mortgage Corporation has established offices throughout Virginia, in Annandale, Fredericksburg, Reston, Roanoke, Richmond, and Vienna. Offices outside the state of Virginia include Westminster, Bowie, and Crofton in Maryland, Nashville in Tennessee, Denver and Windsor in Colorado, and San Antonio, Texas.

On April 10, 2002 the Bank acquired the Leasing Corporation, formerly known as Commercial Finance Corporation. The Leasing Corporation is presently inactive. However commercial and industrial lease financing is offered through and managed by the Bank.

On May 19, 2003 the Bank formed Access Real Estate. The sole purpose of forming Access Real Estate was to acquire and hold title to real estate for the Corporation. On July 10, 2003, Access Real Estate acquired a 45,000 square foot, three story office building located at 1800 Robert Fulton Drive in Reston, Virginia at a cost of approximately $7.1 million that serves as the corporate headquarters for the Corporation, Bank, Mortgage Corporation, and Access Real Estate.

On July 19, 2004, the Corporation’s common stock commenced trading on the NASDAQ Global Market under the ticker symbol “ANCX”.

On August 17, 2004, the Bank acquired 100% of the common stock in UFM from Community First Bank N.A of Bluefield, Virginia in a stock purchase transaction. The operations of UFM have been merged into that of the Mortgage Corporation and the corporate entity acquired is now inactive.

On July 25, 2005 Access Real Estate purchased Lot # 1 in the Fredericksburg Business Park at a cost of $1.2 million. This property was purchased for future expansion of the Bank and Mortgage Corporation. The property is presently undeveloped.

On December 23, 2005, the Corporation issued a 2 for 1 stock split. The authorized shares of common stock increased from 30,000,000 to 60,000,000 and par value decreased from $1.67 to $.835. Prior periods have been restated to reflect the stock split.

In August 2006, the Corporation sold 2,300,000 shares of common stock at $9.38 per share in a public offering and netted
approximately $20.0 million in new capital.

Our Strategy — historical and prospective

We consider our business to be a young and emerging enterprise that is well positioned to be an effective competitor in the financial services industry over the long term. Our view of the financial services market place is that community banks must be effective in select market niches that are under-served and stay clear of competing with large national competitors on a head-to-head basis for broad based consumer business. We started by organizing a de novo national bank in 1999. The focus of the bank was and is serving the small to middle market businesses and their associated professionals in the greater Washington, D.C. Metropolitan Area. We find that large national competitors are ineffective at addressing this market as it is difficult to distinguish where a business’s financial needs stop and the personal financial needs of that business’s professionals start. Emerging businesses and the finances of their owners are best served hand-in-hand.

Our core competency is judgmental discipline of commercial lending based upon personnel and practices that help our clients strategize and grow their businesses from a financial perspective. As financial success takes hold in the business, personal goals and wealth objectives of the business owners become increasingly important. Our second competency is a derivative of the first. We have the personnel and know how to provide private banking services, the skills and strategy that assist our individual clients to acquire assets, build wealth and manage their resources. Mortgage banking and the related activities in our model goes hand-in-hand with supplying effective private banking services. Unlike most banking companies, the heart of our Mortgage Corporation is ingrained into our commercial bank, serving the same clients side-by-side in a coordinated and seamless fashion. Lending is not enough in today’s environment. The credit services must be backed up by competitive deposit and cash management products and operational excellence. We have made significant investments in skilled personnel and the latest technology to ensure we can deliver on these promises.

We generally expect to have fewer branch locations compared to similar size banking companies. We do not view our branch network as a significant determinant of our growth. Our marketing strategies focus on benefits other than branch location convenience.

The acquisition of the Mortgage Corporation in 1999 provided two key benefits to our strategy: 1) it solidified our second competency from a personnel and operational perspective that would have taken years to replicate with organic growth alone; and 2) it provided a fee income and overhead base from which to launch a new banking business. Strong profits and cash flow from the Mortgage Corporation in the early years subsidized the growth and development of the Bank and allowed for the acceleration of its growth plans and, in time, its profitability.

The long term goal was and is to generate 70-80% of the Corporation’s earnings from the core business bank, with the rest of our consolidated earnings to be generated from related fee income activities. At the present time, the sole related fee income activity remains our Mortgage Corporation. We will consider entering other related fee income businesses that serve our target market as opportunities, market conditions and our capacity dictate. The percentage contribution from our Banking Segment has grown steadily.

See Note 20 to the consolidated financial statements for additional information on segment performance.

We expect to grow our commercial bank by continuing to hire skilled personnel, train our own and provide a sound infrastructure that facilitates the success of businesses, their owners and key personnel, not only today but tomorrow and on into the ensuing decades.

Lending Activities

The Bank’s lending activities involve commercial loans, commercial real estate loans, commercial and residential real estate construction loans, residential mortgage loans, home equity 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. Loans originated by the Bank are classified as loans held for investment. The Mortgage Corporation originates residential mortgages and home equity loans that are only held temporarily pending their sale to third parties and in some cases the Bank. The Mortgage Corporation also brokers loans that do not conform to existing products offered. Each of our principal loan types are described below.

At December 31, 2007 loans held for investment totaled $477.6 million compared to $433.6 million at year end 2006. The increase in loans is attributable to our customer base, referrals and new business. The Bank is predominantly a secured lender. Secured loans comprise over 99% of the total loan portfolio.

The Bank’s lending activities are subject to a variety of lending limits imposed by federal law. While differing limits apply in certain circumstances based on the type of loan, in general, the Bank’s lending limit to any one borrower on loans that are not fully secured by readily marketable or other permissible collateral is equal to 15% of the Bank’s capital and surplus. The Bank has established relationships with correspondent banks to participate in loans when loan amounts exceed the Bank’s legal lending limits or internal lending policies.

We have an established credit policy that includes procedures for underwriting each type of loan and lending personnel have been assigned specific authorities based upon their experience. Loans in excess of an individual loan officer’s authority are presented to our Loan Committee for approval. The Loan Committee meets weekly to facilitate a timely approval process for our clients. Loans are approved based on the borrower’s capacity for credit, collateral and sources of repayment. Loans are actively monitored to detect any potential performance issues. We manage our loans within the context of a risk grading system developed by management based upon extensive experience in administering loan portfolios in our market. Payment performance is carefully monitored for all loans. When loan repayment is dependent upon an operating business or investment real estate, periodic financial reports, site visits and select asset verification procedures are used to ensure that we accurately rate the relative risk of our assets. Based upon criteria that are established by management and the Board of Directors, the degree of monitoring is escalated or relaxed for any given borrower based upon our assessment of the future repayment risk.

Loan Portfolio — Loans Held for Investment. The following outlines the composition of loans held for investment.

Commercial Loans: Commercial Loans represent 13.6% of our held for investment portfolio as of December 31, 2007. These loans are to businesses or individuals within our target market for business purposes. Typically the loan proceeds are used to support working capital and the acquisition of fixed assets of an operating business. These loans are underwritten based upon our assessment of the obligor(s)’ ability to generate operating cash flow in the future necessary to repay the loan. To address the risks associated with the uncertainties of future cash flow, these loans are generally well secured by assets owned by the business or its principal shareholders and the principal shareholders are typically required to guarantee the loan.

Real Estate Construction Loans: Real Estate Construction Loans, also known as construction and land development loans, comprise 11.5% of our held for investment loan portfolio, as of December 31, 2007. These loans generally fall into one of four circumstances: first, loans to construct owner occupied commercial buildings; second, loans to individuals that are ultimately used to acquire property and construct an owner occupied residence; third, loans to builders for the purpose of acquiring property and constructing homes for sale to consumers; and fourth, 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 borrowers. 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 administrative 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 41.9% of our loan portfolio held for investment, as of December 31, 2007. 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.

Residential Real Estate Loans: This category includes loans secured by first or second mortgages on one to four family residential properties, generally extended to bank clients, and represents 32.8% of the portfolio, as of December 31, 2007. Of this amount, the following sub-categories exist as a percentage of the whole Residential Real Estate Loan portfolio: Home Equity Lines of Credit 16.5%; First Trust Mortgage Loans 73.9%; Loans Secured by a Junior Trust 6.0%; Multi-Family Loans and Loans Secured by Farmland 3.6%.

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. One to Four 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 .2% of our loan portfolio. Most loans are well secured with assets other than real estate, such as marketable securities or automobiles. Very few loans are unsecured. As a matter of operation, management discourages unsecured lending. Loans in this category are underwritten to standards within a traditional consumer framework that is periodically reviewed and up-dated by our management and Board of Directors: repayment source and capacity, collateral value, credit history, savings pattern, and stability.

Loans Held for Sale (LHFS). Loans in this category are originated by the Mortgage Corporation and comprised of 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 loan. 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 2007, we originated $881.9 million of loans processed in this manner. At December 31, 2007 loans held for sale totaled $39.1 million compared to $65.3 million at year end 2006. The decrease in loans held for sale at year end 2007 is due to the reduced volume of loans closed during the month reflecting the decline in mortgage industry volumes. During 2007, a combination of rising interest rates and a decline in real estate values resulted in an increase in early payment defaults during the customary warranty period. As a result, the Mortgage Corporation incurred approximately $2.9 million in expenses related to loans repurchased and subsequent liquidation of the properties. In order to mitigate the loss exposure due to early payment defaults, contracts with our two largest correspondent lenders, representing 76% of 2007 volume, were modified in November 2007 to eliminate early payment default warranties on future production.

Brokered Loans

Brokered loans are underwritten and closed by a third party lender. We are paid a fee for procuring and packaging brokered loans. In 2007, we originated a total volume of $187.8 million in residential mortgage loans under these types of delivery methods. Brokered loans accounted for 17.6% of the total loan volume of the Corporation. The risks associated with this activity are limited to losses or claims arising from fraud.

Deposits

Deposits are the primary source of funding loan growth. Average deposits totaled $445.0 million up from $423.8 million, a $21.2 million increase over 2006. At December 31, 2007 deposits totaled $473.4 million compared to $438.9 million on December 31, 2006, an increase of $34.5 million.

Market Area

The Corporation, the Bank, and the Mortgage Corporation are headquartered in Fairfax County and serve the Northern Virginia region. Fairfax County is a diverse and thriving urban county. As the most populous jurisdiction in both Virginia and the greater

Washington D.C. Metropolitan Area, the County’s population exceeds that of seven states. The median household income of Fairfax County is one of the highest in the nation. Northern Virginia had a population of 2.16 million according to the 2000 Census. The proximity to Washington, D.C. and the influence of the federal government and its spending provides somewhat of a recession shelter.

Competition

The Bank competes with virtually all banks and financial institutions which offer services in its market area. Much of this competition comes from large financial institutions headquartered outside the state of Virginia, each of which has greater financial and other resources to conduct large advertising campaigns and offer incentives. To attract business in this competitive environment, the Bank relies on personal contact by its officers and directors, local promotional activities, and the ability to provide personalized custom services to small businesses and professionals. In addition to providing full service banking, the Bank offers and promotes alternative and modern conveniences such as internet banking, automated clearinghouse transactions, remote deposit capture, and offers courier services for commercial clients.

Employees

At December 31, 2007 the Corporation had 203 employees, 86 of whom were employed by the Bank and 117 of whom were employed by the Mortgage Corporation. None of the employees within the Corporation is subject to a collective bargaining agreement. Management considers employee relations to be good.

Supervision and Regulation

Set forth below is a brief description of the material laws and regulations that affect the Corporation. The description of these statutes and regulations is only a summary and does not purport to be complete. This discussion is qualified in its entirety by reference to the statutes and regulations summarized below. No assurance can be given that these statutes or regulations will not change in the future.

General. The Corporation is subject to the periodic reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), which include, but are not limited to, the filing of annual, quarterly and other reports with the Securities and Exchange Commission (the “SEC”). As an Exchange Act reporting company, the Corporation is directly affected by the Sarbanes-Oxley Act of 2002 (the “SOX”), which aimed at improving corporate governance and reporting procedures and requires expanded disclosure of the Corporation’s corporate operations and internal controls. The Corporation is already complying with new SEC and other rules and regulations implemented pursuant to the SOX and intends to comply with any applicable rules and regulations implemented in the future. Although the Corporation has incurred, and expects to continue to incur, additional expense in complying with the provisions of the SOX and the resulting regulations, such compliance has not had a material impact on the Corporation’s financial condition or results of operations and the management does not expect it to in the future.

The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956, and is registered as such with, and subject to the supervision of, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of Richmond (the “FRB”). Generally, a bank holding company is required to obtain the approval of the FRB before it may acquire all or substantially all of the assets of any bank, and before it may acquire ownership or control of the voting shares of any bank if, after giving effect to the acquisition, the bank holding company would own or control more than 5% of the voting shares of such bank. The FRB’s approval is also required for the merger or consolidation of bank holding companies.

The Corporation is required to file periodic reports with the FRB and provide any additional information as the FRB may require. The FRB also has the authority to examine the Corporation and the Bank, as well as any arrangements between the Corporation and the Bank, with the cost of any such examinations to be borne by the Corporation.

Banking subsidiaries of bank holding companies are also subject to certain restrictions imposed by Federal law in dealings with their holding companies and other affiliates. Subject to certain restrictions set forth in the Federal Reserve Act, a bank can loan or extend credit to an affiliate, purchase or invest in the securities of an affiliate, purchase assets from an affiliate or issue a guarantee, acceptance or letter of credit on behalf of an affiliate, as long as the aggregate amount of such transactions of a bank and its subsidiaries with its affiliates does not exceed 10% of the capital stock and surplus of the bank on a per affiliate basis or 20% of the capital stock and surplus of the bank on an aggregate affiliate basis. In addition, such transactions must be on terms and conditions that are consistent with safe and sound banking practices. In particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as defined in the Federal Reserve Act. These restrictions also prevent a bank holding company and its other affiliates from borrowing from a banking subsidiary of the bank holding company unless the loans are secured by marketable collateral of designated amounts. Additionally, the Corporation and its subsidiary are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services.

A bank holding company is prohibited from engaging in or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in non-banking activities. A bank holding company may, however, engage in or acquire an interest in a company that engages in activities which the FRB has determined by regulation or order are so closely related to banking as to be a proper incident to banking. In making these determinations, the FRB considers whether the performance of such activities by a bank holding company would offer advantages to the public that outweigh possible adverse effects.

As a national bank, the Bank is subject to regulation, supervision and regular examination by the Office of the Comptroller of the Currency (the “Comptroller”). Each depositor’s account with the Bank is insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the maximum amount permitted by law. The Bank is also subject to certain regulations promulgated by the FRB and applicable provisions of Virginia law, insofar as they do not conflict with or are not preempted by Federal banking law.

The regulations of the FDIC, the Comptroller and FRB govern most aspects of the Corporation’s business, including deposit reserve requirements, investments, loans, certain check clearing activities, issuance of securities, payment of dividends, branching, deposit interest rate ceilings and numerous other matters. As a consequence of the extensive regulation of commercial banking activities in the United States, the Corporation’s business is particularly susceptible to changes in state and Federal legislation and regulations, which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition.

Governmental Policies and Legislation. Banking is a business that depends primarily on interest rate differentials. In general, the difference between the interest rates paid by the Bank on its deposits and its other borrowings and the interest rates received by the Bank on loans extended to its customers and securities held in its portfolio comprise the major portion of the Corporation’s earnings. These rates are highly sensitive to many factors that are beyond the Corporation’s control. Accordingly, the Corporation’s growth and earnings are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.

The commercial banking business is affected not only by general economic conditions, but is also influenced by the monetary and fiscal policies of the federal government and the policies of its regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in U.S. Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments and deposits, and also affect interest rates charged on loans and paid on deposits. The nature and impact of any future changes in monetary policies cannot be predicted.

From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of bank holding companies, banks and other financial institutions are frequently made in Congress, in the Virginia Legislature and brought before various bank holding company and bank regulatory agencies. The likelihood of any major changes and the impact such changes might have are impossible to predict.

Dividends. There are both federal and state regulatory restrictions on dividend payments by both the Bank and the Corporation that may affect the Corporation’s ability to pay dividends on its common stock. As a bank holding company, the Corporation is a separate legal entity from the Bank. Virtually all of the Corporation’s income results from dividends paid to the Corporation by the Bank. The amount of dividends that may be paid by the Bank depends upon the Bank’s earnings and capital position and is limited by federal and state law, regulations and policies. In addition to specific regulations governing the permissibility of dividends, both the FRB and the Virginia Bureau of Financial Institutions are generally authorized to prohibit payment of dividends if they determine that the payment of dividends by the Bank would be an unsafe and unsound banking practice. The Corporation meets all regulatory requirements and began paying dividends in February 2006. The Corporation paid dividends totaling $497 thousand in 2007. See “Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Capital Requirements. The FRB, the Comptroller and the FDIC have adopted risk-based capital adequacy guidelines for bank holding companies and banks. These capital adequacy regulations are based upon a risk-based capital determination, whereby a bank holding company’s capital adequacy is determined in light of the risk, both on- and off-balance sheet, contained in the company’s assets. Different categories of assets are assigned risk weightings and are counted at a percentage of their book value.

The regulations divide capital between Tier 1 capital (core capital) and Tier 2 capital. For a bank holding company, Tier 1 capital consists primarily of common stock, related surplus, non-cumulative perpetual preferred stock, minority interests in consolidated subsidiaries and a limited amount of qualifying cumulative preferred securities. Goodwill and certain other intangibles are excluded from Tier 1 capital. Tier 2 capital consists of an amount equal to the allowance for loan and lease losses up to a maximum of 1.25% of risk weighted assets, limited other types of preferred stock not included in Tier 1 capital, hybrid capital instruments and term subordinated debt. Investments in and loans to unconsolidated banking and finance subsidiaries that constitute capital of those subsidiaries are excluded from capital. The sum of Tier 1 and Tier 2 capital constitutes qualifying total capital. The guidelines

generally require banks to maintain a total qualifying capital to weighted risk assets level of 8% (the “Risk-based Capital Ratio”). Of the total 8%, at least 4% of the total qualifying capital to weighted risk assets (the “Tier 1 Risk-based Capital Ratio”) must be Tier 1 capital.

The FRB, the Comptroller and the FDIC have adopted leverage requirements that apply in addition to the risk-based capital requirements. Banks and bank holding companies are required to maintain a minimum leverage ratio of Tier 1 capital to average total consolidated assets (the “Leverage Ratio”) of at least 3.0% for the most highly-rated, financially sound banks and bank holding companies and a minimum Leverage Ratio of at least 4.0% for all other banks. The FDIC and the FRB define Tier 1 capital for banks in the same manner for both the Leverage Ratio and the Risk-based Capital Ratio. However, the FRB defines Tier 1 capital for bank holding companies in a slightly different manner. An institution may be required to maintain Tier 1 capital of at least 4% or 5%, or possibly higher, depending upon the activities, risks, rate of growth, and other factors deemed material by regulatory authorities. As of December 31, 2007, the Corporation and Bank both met all applicable capital requirements imposed by regulation.

Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). There are five capital categories applicable to insured institutions, each with specific regulatory consequences. If the appropriate federal banking agency determines, after notice and an opportunity for hearing, that an insured institution is in an unsafe or unsound condition, it may reclassify the institution to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition. The Comptroller has issued regulations to implement these provisions. Under these regulations, the categories are:

      a. Well Capitalized — The institution exceeds the required minimum level for each relevant capital measure. A well capitalized institution is one (i) having a Risk-based Capital Ratio of 10% or greater, (ii) having a Tier 1 Risk-based Capital Ratio of 6% or greater, (iii) having a Leverage Ratio of 5% or greater and (iv) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

      b. Adequately Capitalized — The institution meets the required minimum level for each relevant capital measure. No capital distribution may be made that would result in the institution becoming undercapitalized. An adequately capitalized institution is one (i) having a Risk-based Capital Ratio of 8% or greater, (ii) having a Tier 1 Risk-based Capital Ratio of 4% or greater and (iii) having a Leverage Ratio of 4% or greater or a Leverage Ratio of 3% or greater if the institution is rated composite 1 under the CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) rating system.

      c. Undercapitalized — The institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized institution is one (i) having a Risk-based Capital Ratio of less than 8% or (ii) having a Tier 1 Risk-based Capital Ratio of less than 4% or (iii) having a Leverage Ratio of less than 4%, or if the institution is rated a composite 1 under the CAMEL rating system, a Leverage Ratio of less than 3%.

      d. Significantly Undercapitalized — The institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution is one (i) having a Risk-based Capital Ratio of less than 6% or (ii) having a Tier 1 Risk-based Capital Ratio of less than 3% or (iii) having a Leverage Ratio of less than 3%.

      e. Critically Undercapitalized — The institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2%.

An institution which is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight, and is increasingly restricted in the scope of its permissible activities. Each company having control over an undercapitalized institution must provide a limited guarantee that the institution will comply with its capital restoration plan. Except under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless determined by the appropriate federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The appropriate Federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or fails in any material respect to implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the owners of the institution if following such a distribution the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause the Bank to become undercapitalized, it could not pay a management fee or dividend to the Corporation.

As of December 31, 2007, both the Corporation and the Bank were considered “well capitalized.”

Deposit Insurance Assessments. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund (the “DIF”) of the FDIC. The DIF is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006. The FDIC recently amended its risk-based assessment system for 2007 to implement authority granted by the Federal Deposit Insurance Reform Act of 2005 (“FDIRA”). Under the revised system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned. Unlike the other categories, Risk Category I, which contains the least risky depository institutions, contains further risk differentiation based on the FDIC’s analysis of financial ratios, examination component ratings and other information. Assessment rates are determined by the FDIC and currently range from five to seven basis points for the healthiest institutions (Risk Category I) to 43 basis points of assessable deposits for the riskiest (Risk Category IV). The FDIC may adjust rates uniformly from one quarter to the next, except that no single adjustment can exceed three basis points. FDIRA also provided for the possibility that the FDIC may pay dividends to insured institutions if the DIF reserve ratio equals or exceeds 1.35% of estimated insured deposits.

Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act of 1999 (the “GLBA”) implemented major changes to the statutory framework for providing banking and other financial services in the United States. The GLBA, among other things, eliminated many of the restrictions on affiliations among banks and securities firms, insurance firms and other financial service providers. A bank holding company that qualifies as a financial holding company will be permitted to engage in activities that are financial in nature or incidental or complimentary to financial activities. The activities that the GLBA expressly lists as financial in nature include insurance underwriting, sales and brokerage activities, providing financial and investment advisory services, underwriting services and limited merchant banking activities.

To become eligible for these expanded activities, a bank holding company must qualify as a financial holding company. To qualify as a financial holding company, each insured depository institution controlled by the bank holding company must be well-capitalized, well-managed and have at least a satisfactory rating under the CRA (discussed below). In addition, the bank holding company must file with the Federal Reserve a declaration of its intention to become a financial holding company. While the Corporation satisfies these requirements, the Corporation has not elected for various reasons to be treated as a financial holding company under the GLBA.

We do not believe that the GLBA has had a material adverse impact on the Corporation’s or the Bank’s operations. To the extent that it allows banks, securities firms and insurance firms to affiliate, the financial services industry may experience further consolidation. The GLBA may have the result of increasing competition that we face from larger institutions and other companies offering financial products and services, many of which may have substantially greater financial resources.

The GLBA and certain other regulations issued by federal banking agencies also provide new protections against the transfer and use by financial institutions of consumer nonpublic personal information. A financial institution must provide to its customers, at the beginning of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated third parties unless the institution discloses to the customer that the information may be so provided and the customer is given the opportunity to opt out of such disclosure.

Community Reinvestment Act. The Bank is subject to the requirements of the Community Reinvestment Act (the “CRA”). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. A financial institution’s efforts in meeting community credit needs currently are evaluated as part of the examination process pursuant to three performance tests. These factors also are considered in evaluating mergers, acquisitions and applications to open a branch or facility.

Federal Home Loan Bank (FHLB) of Atlanta. The Bank is a member of the FHLB of Atlanta, which is one of twelve regional FHLBS that provide funding to their members for making housing loans as well as for affordable housing and community development lending. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. As a member the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 4.5% of aggregate outstanding advances in addition to the membership stock requirement of 0.2% of the Bank’s total assets.

Mortgage Banking Regulation. The Bank’s mortgage banking subsidiary is subject to the rules and regulations of, and examination by, the Department of Housing and Urban Development (“HUD”), the Federal Housing Administration, the Department of Veterans

Affairs and state regulatory authorities with respect to originating, processing and selling mortgage loans. Those rules and regulations, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers and, in some cases, restrict certain loan features and fix maximum interest rates and fees. In addition to other federal laws, mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, and Home Ownership Equity Protection Act, and the regulations promulgated there under. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.

USA PATRIOT Act. The USA PATRIOT Act became effective on October 26, 2001 and provides for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering. Among other provisions, the USA PATRIOT Act permits financial institutions, upon providing notice to the United States Treasury, to share information with one another in order to better identify and report to the federal government concerning activities that may involve money laundering or terrorists’ activities. The USA PATRIOT Act is considered a significant banking law in terms of information disclosure regarding certain customer transactions. Certain provisions of the USA PATRIOT Act impose the obligation to establish anti-money laundering programs, including the development of a customer identification program, and the screening of all customers against any government lists of known or suspected terrorists. Although it does create a reporting obligation and a cost of compliance, the Bank does not expect the USA PATRIOT Act to materially affect its products, services or other business activities.

Reporting Terrorist Activities. The Federal Bureau of Investigation (“FBI”) has sent, and will send, our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The Bank has been requested, and will be requested, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report and contact the FBI.

The Office of Foreign Assets Control (“OFAC”), which is a division of the Department of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.

Consumer Laws and Regulations. The Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Fair Housing Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions transact business with customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.

ITEM 1A — RISK FACTORS

Our future success will depend on our ability to compete effectively in the highly competitive financial services industry.

We face substantial competition in all phases of our operations from a variety of different competitors. In particular, there is very strong competition for financial services in Northern Virginia and the greater Washington, D.C. Metropolitan area in which we conduct a substantial portion of our business. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as other local and community, super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere. Our future growth and success will depend on our ability to compete effectively in this highly competitive financial services environment.

Many of our competitors are well-established, larger financial institutions and many offer products and services that we do not. Many have substantially greater resources, name recognition and market presence that benefit them in attracting business. Some of our competitors are not subject to the same regulation as is imposed on bank holding companies and federally-insured national banks, including credit unions which do not pay federal income tax, and, therefore, have regulatory advantages over us in accessing funding and in providing various services. While we believe we compete effectively with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, smaller asset base, lack of geographic diversification and inability to spread our marketing costs across a broader market. If we have to raise interest rates paid on deposits or lower interest

rates charged on loans to compete effectively, our net interest margin and income could be negatively affected. Failure to compete effectively to attract new or to retain existing, clients may reduce or limit our net income and our market share and may adversely affect our results of operations, financial condition and growth.

Our profitability depends on interest rates generally, and we may be adversely affected by changes in government monetary policy.

Our profitability depends in substantial part on our net interest margin, which is the difference between the rates we receive on loans and investments and the rates we pay for deposits and other sources of funds. Our net interest margin depends on many factors that are partly or completely outside of our control, including competition, federal economic, monetary and fiscal policies, and economic conditions generally. Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments.

Changes in interest rates, particularly by the Board of Governors of the Federal Reserve System, which implements national monetary policy in order to mitigate recessionary and inflationary pressures, also affect the value of our loans. In setting its policy, the Federal Reserve may utilize techniques such as: (i) engaging in open market transactions in United States government securities; (ii) setting the discount rate on member bank borrowings; and (iii) determining reserve requirements. These techniques may have an adverse effect on our deposit levels, net interest margin, loan demand or our business and operations. In addition, an increase in interest rates could adversely affect borrowers’ ability to pay the principal or interest on existing loans or reduce their desire to borrow more money. This may lead to an increase in our nonperforming assets, a decrease in loan originations, or a reduction in the value of and income from our loans, any of which could have a material and negative effect on our results of operations. We try to minimize our exposure to interest rate risk, but we are unable to completely eliminate this risk. Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may have a material and negative effect on our business, financial condition and results of operations.

Our profitability depends significantly on local economic conditions.

As a lender, we are exposed to the risk that our loan clients may not repay their loans according to their terms and any collateral securing payment may be insufficient to fully compensate us for the outstanding balance of the loan plus the costs we incur disposing of the collateral. Although we have collateral for most of our loans, that collateral can fluctuate in value and may not always cover the outstanding balance on the loan. With most of our loans concentrated in Northern Virginia, a decline in local economic conditions could adversely affect the values of our real estate collateral. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.

In addition to assessing the financial strength and cash flow characteristics of each of our borrowers, the bank often secures loans with real estate collateral. At December 31, 2007, approximately 86.2% of our bank’s loans held for investment have real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected.

Our business strategy includes the continuation of our growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue to grow in our existing banking markets (internally and through additional offices) and to expand into new markets as appropriate opportunities arise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies that are experiencing growth. We cannot assure you we will be able to expand our market presence in our existing markets or successfully enter new markets, or that any expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to successfully implement our business strategy. Also, if our growth occurs more slowly than anticipated or declines, our operating results could be materially affected in an adverse way.

Our ability to successfully grow will depend on a variety of factors, including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth. While we believe we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance growth opportunities will be available or growth will be successfully managed.

We may face risks with respect to future acquisitions.

As a strategy, we have sought to increase the size of our business by pursuing business development opportunities, and we have grown

rapidly since our incorporation. As part of that strategy, we have acquired three mortgage companies and a small equipment leasing company. We may acquire other financial institutions and mortgage companies, or parts of those entities, in the future. Acquisitions and mergers involve a number of risks, including:

	•		the time and costs associated with identifying and evaluating potential acquisitions and merger partners;
	•		the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target entity may not be accurate;
	•		the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;
	•		our ability to finance an acquisition and possible ownership or economic dilution to our current shareholders;
	•		the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;
	•		entry into new markets where we lack experience;
	•		the introduction of new products and services into our business;
	•		the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
	•		the potential loss of key employees and clients.

We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance that integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities, including common stock and securities convertible into shares of our common stock, in connection with future acquisitions, which could cause ownership and economic dilution to our current shareholders. There is no assurance that, following any future merger or acquisition, our integration efforts will be successful or our company, after giving effect to the acquisition, will achieve profits comparable to or better than our historical experience.

Our allowance for loan losses could become inadequate and reduce our earnings and capital.

We maintain an allowance for loan losses that we believe is adequate for absorbing any potential losses in our loan portfolio. Management conducts a periodic review and consideration of the loan portfolio to determine the amount of the allowance for loan losses based upon general market conditions, credit quality of the loan portfolio and performance of our clients relative to their financial obligations with us. The amount of future losses, however, is susceptible to changes in economic and other market conditions, including changes in interest rates and collateral values, that are beyond our control, and these future losses may exceed our current estimates. Our allowance for loan losses at December 31, 2007 was $7.5 million. Although we believe the allowance for loan losses is adequate to absorb probable losses in our loan portfolio, we cannot predict such losses or guarantee that our allowance will be adequate in the future. Excessive loan losses could have a material impact on our financial performance and reduce our earnings and capital.

Liquidity needs could adversely affect our results of operations and financial condition.

We rely on dividends from the bank as our primary source of funds. The primary source of funds of the bank are client deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic conditions. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include FHLB advances, sales of securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits. While we believe that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if we continue to grow and experience increasing loan demand. We may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.

We are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings.

We operate in a highly regulated industry, and both we and the Bank are subject to extensive regulation and supervision by the FRB, the Comptroller, and the FDIC. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth. Many of these regulations are intended to protect depositors and the FDIC’s Deposit Insurance Fund rather than our shareholders.

SOX, and the related rules and regulations promulgated by the SEC and NASDAQ that are applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices, including the cost of completing our audit and maintaining our internal controls. As a result, we may experience greater compliance costs.

The laws and regulations that apply to us could change at any time. We cannot predict whether or what form of proposed statute or regulation will be adopted or the extent to which such adoption may affect our business. Regulatory changes may increase our costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products and thus place other entities that are not subject to similar regulation in stronger, more favorable competitive positions, which could adversely affect our growth and our ability to operate profitably. Failure to comply with existing or new laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have an adverse effect on our business, financial condition and results of operations.

Our recent results may not be indicative of our future results.

We may not be able to sustain our historical rate of growth or may not even be able to grow our business at all. In addition, our recent and rapid growth may distort some of our historical financial ratios and statistics. In the future, we may not have the benefit of several recently favorable factors, such as a generally stable interest rate environment, a strong real estate market, or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.

Our hedging strategies may not be successful in managing our risks associated with interest rates.

We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. When rates change, we expect to record a gain or loss on derivatives that would be offset by an inverse change in the value of loans held for sale and mortgage-related securities. We cannot assure you, however, that our hedging strategy and use of derivatives will offset the risks related to changes in interest rates. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and “Item 7A — Quantitative and Qualitative Market Risk Disclosure.”

The profitability of the Mortgage Corporation will be significantly reduced if we are not able to sell mortgages.

Currently, we sell all of the mortgage loans originated by the Mortgage Corporation. We only underwrite mortgages that we reasonably expect will have more than one potential purchaser. The profitability of our mortgage company depends in large part upon our ability to originate or purchase a high volume of loans and to quickly sell them in the secondary market. Thus, we are dependent upon (i) the existence of an active secondary market and (ii) our ability to sell loans into that market.

The Mortgage Corporation’s ability to sell mortgage loans readily is dependent upon the availability of an active secondary market for single-family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by Fannie Mae and Freddie Mac and other institutional and non-institutional investors. These entities account for a substantial portion of the secondary market in residential mortgage loans. Some of the largest participants in the secondary market, including Fannie Mae and Freddie Mac, are government-sponsored enterprises whose activities are governed by federal law, and while we do not actively participate in their programs, they do have substantial market influence. Any future changes in laws that significantly affect the activity of these government-sponsored enterprises and other institutional and non-institutional investors or any impairment of our ability to participate in such programs could, in turn, adversely affect our operations.

We may be exposed to greater risks from offering non-conforming mortgage loans.

We are an originator of non-conforming residential mortgage loans for sale into the secondary market. These are residential mortgages that do not qualify for purchase by government sponsored agencies such as Fannie Mae and Freddie Mac. Our operations

may be negatively affected due to our investments in non-conforming mortgage loans. Credit, liquidity and repurchase risks associated with non-conforming mortgage loans may be greater than those for conforming mortgage loans. We, therefore, may assume a greater risk of increased delinquency rates and/or credit losses, as well as interest rate risk, by offering non-conforming products.

Our small- to medium-sized business target market may have fewer financial resources to weather a downturn in the economy.

We target our commercial development and marketing strategy primarily to serve the banking and financial services needs of small- and medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. If general economic conditions negatively impact this economic sector in the markets in which we operate, our results of operations and financial condition may be adversely affected.

We depend on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements or other information that does not comply with GAAP or is materially misleading.

Negative public opinion could damage our reputation and adversely impact our earnings.

Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract clients and employees and can expose us to litigation and regulatory action. Because virtually all of our businesses operate under the “Access National” brand, actual or alleged conduct by one business can result in negative public opinion about our other businesses. Although we take steps to minimize reputation risk in dealing with our clients and communities, this risk will always be present given the nature of our business.

We depend on the services of key personnel, and a loss of any of those personnel could disrupt our operations and result in reduced revenues.

Our success depends upon the continued service of our senior management team and upon our ability to attract and retain qualified financial services personnel. Competition for qualified employees is intense. In our experience, it can take a significant period of time to identify and hire personnel with the combination of skills and attributes required in carrying out our strategy. If we lose the services of our key personnel, or are unable to attract additional qualified personnel, our business, financial condition, results of operations and cash flows could be materially adversely affected.

We may need to invest in new technology to compete effectively, and that could have a negative effect on our operating results and the value of our common stock.

The market for financial services, including banking services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation and Internet-based banking. We depend on third-party vendors for portions of our data processing services. In addition to our ability to finance the purchase of those services and integrate them into our operations, our ability to offer new technology-based services depends on our vendors’ abilities to provide and support those services. Future advances in technology may require us to incur substantial expenses that adversely affect our operating results, and our limited capital resources may make it impractical or impossible for us to keep pace with competitors possessing greater capital resources. Our ability to compete successfully in our banking markets may depend on the extent to which we and our vendors are able to offer new technology-based services and on our ability to integrate technological advances into our operations.

Our ability to pay dividends is subject to regulatory restrictions, and we may be unable to pay future dividends.

Our ability to pay dividends is subject to regulatory restrictions and the need to maintain sufficient consolidated capital. Also, our only source of funds with which to pay dividends to our shareholders is dividends we receive from our bank, and the bank’s ability to pay dividends to us is limited by its own obligations to maintain sufficient capital and regulatory restrictions. If these regulatory requirements are not satisfied, we will be unable to pay dividends on our common stock. We paid our first cash dividends on February 24, 2006. We cannot guarantee that dividends will not be reduced or eliminated in future periods.

Certain provisions under our articles of incorporation and applicable law may make it difficult for others to obtain control of our corporation even if such a change in control may be favored by some shareholders.

In addition to the amount of common stock controlled by our chairman of the board and other principal shareholders, certain provisions in our articles of incorporation and applicable Virginia corporate and banking law may have the effect of discouraging a change of control of our company even if such a transaction is favored by some of our shareholders and could result in shareholders receiving a substantial premium over the current market price of our shares. The primary purpose of these provisions is to encourage negotiations with our management by persons interested in acquiring control of our corporation. These provisions may also tend to perpetuate present management and make it difficult for shareholders owning less than a majority of the shares to be able to elect even a single director.  

ITEM 1B — UNRESOLVED STAFF COMMENTS

None.

ITEM 2 — PROPERTIES

The Bank and the Mortgage Corporation leases offices that are used in the normal course of business. The principal executive office of the Corporation, Bank, Access Real Estate and Mortgage Corporation is owned by Access Real Estate, a subsidiary of the Bank, and is located at 1800 Robert Fulton Drive, Reston, Virginia. The Bank leases offices in Chantilly, Tysons Corner, Leesburg, and Manassas, Virginia. The Mortgage Corporation leases offices in Fredericksburg, Vienna, Richmond, Annandale, and Roanoke in Virginia. The Mortgage Corporation leases three offices in Maryland located in Bowie, Crofton and Westminster in addition to the offices in, Tennessee, Texas and Colorado. Access Real Estate owns an undeveloped commercial lot in Fredericksburg that is being held for future expansion of the Bank and Mortgage Corporation.

All of the owned and leased properties are in good operating condition and are adequate for the Corporation’s present and anticipated future needs.

ITEM 3 — 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 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the quarter ended December 31, 2007.

PART II

ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

In July 2004, The Corporation’s common stock became listed on the NASDAQ Global Market of the NASDAQ Stock Market LLC and is quoted under the symbol of “ANCX”.

Set forth below is certain financial information relating to the Corporation’s common stock price history. Prices reflect transactions executed on NASDAQ.

		2007												2006
		High				Low				Dividends				High				Low				Dividends
First Quarter		$	9.82			$	9.10			$	0.01			$	15.10			$	9.84			$	0.005
Second Quarter			9.59				8.60				0.01				11.30				8.40				0.005
Third Quarter			8.91				6.89				0.01				10.39				8.75				0.005
Fourth Quarter			8.14				5.60				0.01				10.05				9.10				0.005

As of March 10, 2008, the Corporation had 10,294,643 outstanding shares of Common Stock, par value $.835 per share, held by approximately 384 shareholders of record and the closing price for the Corporation’s common stock on the NASDAQ Global Market was $7.52.

The Corporation paid its ninth consecutive quarterly cash dividend on February 25, 2008 to shareholders of record as of February 13, 2008. Payment of dividends is at the discretion of the Corporation’s Board of Directors, is subject to various federal and state, regulatory limitations. Future dividends are dependent upon the overall performance and capital requirements of the Corporation. See “Item 1 — Business — Supervision and Regulation — Dividends” for a discussion of regulatory requirements related to dividends.

Issuer Purchases of Equity Securities for the Quarter Ended December 31, 2007

The following table details the Corporation’s purchases of its common stock during the fourth quarter pursuant to a Share Repurchase Program announced on March 20, 2007. At December 31, 2007 the Share Repurchase Program authorized the repurchase of 1,500,000 shares. The Share Repurchase Program does not have an expiration date.

		Issuer Purchases of Equity Securities
										(c) Total Number of				(d) Maximum Number
										Shares Purchased as				of Shares that may
		(a) Total Number of				(b) Average Price				Part of Publicly				yet be Purchased
Period		Shares Purchased				Paid Per Share				Announced Plan				Under the Plan
October 1 - October 31, 2007			—			$	—				—				—
November 1 - November 30, 2007			149,083				5.84				149,083				350,917
December 1 - December 31, 2007			96,541				5.93				96,541				254,376
Total			245,624			$	5.88				245,624				254,376

Stock Performance

The following graph compares the Corporation’s cumulative total shareholder return on its common stock for the five year period ended December 31, 2007 with the cumulative return of a broad equity market index, the Standard & Poor’s 500 Index (“SAP 500 Index”) and a peer group constructed by the Corporation (the “Peer Group”). This presentation assumes $100 was invested the in shares of the Corporation and each of the indices on December 31, 2002, and that dividends, if any, were immediately reinvested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals from December 31, 2002 through December 31, 2007.

The Peer Group consists of five companies that, in the opinion of management, are similar to the Corporation in ways relevant to a comparison of stock performance. Specifically, each company in the Peer Group provides commercial banking services in the Mid-Atlantic Region, has existed for a reasonably similar time period as has the Corporation, and is considered by our management to be in an expansion mode. In calculating the relative index, the stock values of the Peer Group are re-balanced at the beginning of each year by the weighted market capitalization.

The Peer Group consists of:

Company, Headquarters		Exchange		Trading Symbol		Established
Cardinal Financial Corporation		NASDAQ-GS		CFNL		1998
Fairfax, Virginia
Eagle Bancorp, Inc.		NASDAQ-CM		EGBN		1998
Bethesda, Maryland
Towne Bank		NASDAQ-GS		TOWN		1999
Portsmouth, Virginia
Valley Financial Corporation		NASDAQ-CM		VYFC		1995
Roanoke, Virginia
Virginia National Bank		OTC-BB		VABK		1998
Charlottesville, Virginia

There can be no assurance the Corporation’s future stock performance will continue with the same or similar trend as illustrated in the graph below.

Access National Corporation

		Period Ending
Index		12/31/02				12/31/03				12/31/04				12/31/05				12/31/06				12/31/07
Access National Corporation			100.00				218.72				205.22				413.64				278.05				176.59
S&P500			100.00				128.68				142.69				149.70				173.34				182.86
Peer Group Index*			100.00				153.99				197.93				203.03				204.57				169.20

ITEM 6 – SELECTED FINANCIAL DATA

Selected Financial Data

		Year Ended December 31
		2007				2006				2005				2004				2003
		(In Thousands, Except Per Share Data)
Income Statement Data:
Net interest income		$	20,122			$	18,256			$	15,273			$	11,694			$	9,138
Provision for loan losses			2,588				232				1,196				1,462				526
Non-interest income			27,707				27,633				30,956				25,952				33,765
Non-interest expense			39,949				34,212				35,830				31,580				36,432
Income taxes			1,590				3,853				3,305				1,619				2,129
Net income before extra ordinary items			3,702				7,592				5,898				2,985				3,816
Extra ordinary income, net of income tax			—				—				—				330				—
Net Income		$	3,702			$	7,592			$	5,898			$	3,315			$	3,816
Per Share Data:
Earnings per share
Basic, before extra ordinary income		$	0.32			$	0.81			$	0.75			$	0.40			$	0.55
Basic			0.32				0.81				0.75				0.44				0.55
Diluted, before extra ordinary income			0.31				0.72				0.63				0.33				0.44
Diluted			0.31				0.72				0.63				0.36				0.44
Cash dividends paid			0.04				0.02				—				—				—
Book value at period end			5.35				5.27				3.92				3.29				2.84
Balance Sheet Data:
Total assets		$	622,376			$	644,782			$	537,050			$	420,098			$	257,390
Loans held for sale			39,144				65,320				45,019				36,245				29,756
Total loans			477,598				433,594				369,733				292,594				189,320
Total securities			73,558				105,163				87,771				51,378				23,178
Total deposits			473,418				438,932				419,629				317,393				198,183
Shareholders’ equity			57,961				62,295				31,185				25,998				19,755
Average shares outstanding, basic			11,620,130				9,429,074				7,867,135				7,509,536				6,986,680
Average shares outstanding, diluted			11,866,468				10,541,873				9,423,087				9,155,778				8,822,372
Performance Ratios:
Return on average assets			0.57	%			1.29	%			1.29	%			0.97	%			1.45	%
Return on average equity			5.84	%			17.15	%			20.63	%			14.48	%			20.48	%
Net interest margin (1)			3.18	%			3.21	%			3.49	%			3.64	%			3.58	%
Efficiency Ratios:
Access National Bank			50.87	%			48.67	%			52.21	%			56.40	%			50.71	%
Access National Mortgage Corp.			107.52	%			92.42	%			89.13	%			94.18	%			89.66	%
Access National Corporation			83.52	%			75.06	%			80.09	%			87.61	%			84.26	%
Asset Quality Ratios:
Allowance to period end loans			1.56	%			1.26	%			1.41	%			1.37	%			1.35	%
Allowance to nonperforming loans			449.25	%			1514.60	%			397.78	%			185.07	%			310.93	%
Net charge-offs to average loans			0.12	%			—				—				—				—

Net interest income divided by total average earning assets.(1)

Table continued on next page

ITEM 6 – SELECTED FINANCIAL DATA continued

		December 31
		2007				2006				2005				2004				2003
		(In Thousands, Except Per Share Data)
Average Balance Sheet Data:
Total assets		$	649,584			$	589,834			$	457,251			$	341,153			$	263,415
Securities			94,331				107,165				64,862				25,340				14,036
Loans held for sale			49,750				53,935				45,688				42,416				80,649
Loans			472,372				400,211				318,438				246,809				146,366
Allowance for loan losses			6,170				5,363				4,433				2,945				2,363
Total deposits			444,999				423,788				337,403				235,387				203,840
Junior subordinated debentures			9,237				10,311				10,311				10,311				5,593
Total shareholders’ equity			63,343				44,270				28,586				22,901				18,637
Capital Ratios:
Tier 1 risk-based capital			12.41	%			15.01	%			10.78	%			10.97	%			12.54	%
Total risk-based capital			13.66	%			16.18	%			12.11	%			12.80	%			15.47	%
Leverage capital ratio			10.07	%			11.53	%			7.60	%			8.83	%			10.28	%

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATION

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 the Corporation and its subsidiaries for the year ended December 31, 2007 and 2006. The consolidated financial statements and accompanying notes should be read in conjunction with this discussion and analysis.

Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K 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: branch expansion plans, interest rates, general economic conditions, monetary and fiscal policies of the U.S. Government, including policies of the Comptroller, U.S. Treasury and the FRB, the economy of Northern Virginia, including governmental spending and real estate markets, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made. For additional discussion of risk factors that may cause our actual future results to differ materially from the results indicated within forward looking statements, please see “Item 1A – Risk Factors” herein.

CRITICAL ACCOUNTING POLICIES

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)Statement of Financial Accounting Standards (“SFAS”) No. 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 “Loans” below.

Other Than Temporary Impairment of Investment Securities

The Bank’s investment portfolio is classified as available-for-sale. The estimated fair value of the portfolio fluctuates due to changes in market interest rates and other factors. Changes in estimated fair value are recorded in stockholders equity as a component of comprehensive income. Securities are monitored to determine whether a decline in their value is other-than-temporary. Management evaluates the investment portfolio on a quarterly basis to determine the collectability of amounts due per the contractual terms of the investment security. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. At December 31, 2007 there were no securities with other than temporary impairment.

Derivative Financial Instruments

The Mortgage Corporation carries all derivative instruments at fair value as either assets or liabilities in the consolidated balance sheets. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended (“Statement 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 Statement 133.

See Notes 1, 10 and 11 to the consolidated financial statements for additional information on derivatives.

FINANCIAL CONDITION

Summary

The Corporation completed its eighth year of operation and recorded net income of $3.7 million. Earnings in 2007 were impacted by an increase in expenses of $2.9 million associated with loans repurchased by our Mortgage Corporation and a $1.8 million increase in the Bank’s allowance for loan losses as a result of growth in loans held for investment. As a result of the volatility in the mortgage industry, we have eliminated the wholesale mortgage operations, revised our product offerings and strengthened our underwriting guidelines. These actions are expected to cause a reduction in mortgage origination volume and improve the future prospects for a profitable mortgage operation.

During 2007, we opened two new banking offices, one in Leesburg, Virginia and the other in Manassas, Virginia. Both of these offices are in two of the fastest growing areas of Northern Virginia. Total assets at December 31, 2007 were $622.4 million compared to $644.8 million in 2006. The decrease in total assets is primarily due to a $31.6 million decrease in investment securities and a $26.2 million decrease in loans held for sale, partially offset by an increase in loans held for investment of approximately $44.0 million.

The following discussions by major categories explain the changes in financial condition.

Investment Securities

The Corporation’s securities portfolio is comprised of U.S. Treasury securities, U.S. Government Agency securities, municipal securities, CRA mutual fund, mortgage backed securities, FRB and FHLB stock. The investment portfolio is used to provide liquidity and as a tool for managing interest sensitivity in the balance sheet, while generating a reasonable return. At December 31, 2007 the estimated fair value of the securities portfolio totaled $73.6 million, down from $105.2 million, in 2006. The decrease is due to maturities in the investment portfolio that were not reinvested. All securities were classified as available for sale. The Financial Accounting Standards Board(“FASB”) requires that securities classified as available for sale be accounted for at fair market value. Unrealized gains and losses are recorded directly to a separate component of stockholders’ equity. The Corporation’s securities classified as available for sale had an unrealized gain net of deferred taxes of $230.0 thousand on December 31, 2007. The following tables presents the types, amounts and maturity distribution of the securities portfolio.

Investment Securities Available for Sale

(In Thousands)

		December 31
		2007				2006				2005
Investment Securities Available for Sale:
US Treasury		$	1,013			$	996			$	1,602
US Government agency			61,720				91,609				75,260
Mortgage backed			799				1,040				1,393
Tax exempt municipals			2,891				2,888				2,840
Taxable municipals			1,099				1,275				1,466
Mutual fund			1,479				1,468				1,471
Restricted stock			4,557				5,887				3,739
Total Securities		$	73,558			$	105,163			$	87,771

Maturity Schedule of Investment Securities Available for Sale 2007
(In Thousands)

										After One Year								After Five Years
		Within								But Within								But Within
		One Year								Five Years								Ten Years								Total
		Amount				Yield				Amount				Yield				Amount				Yield				Amount
Investment Securities Available for Sale (1)
US Treasury		$	—				—			$	1,013				4.50	%		$	—				—			$	1,013
US Government agency			38,879				4.42	%			997				4.05	%			21,844				5.78	%			61,720
Mortgage backed			—				—				799				5.34	%			—				—				799
Tax exempt municipals			—				—				—				—				2,891				5.50	%			2,891
Taxable municipals			—				—				1,099				4.30	%			—				—				1,099
Total		$	38,879				4.42	%		$	3,908				3.29	%		$	24,735				5.75	%		$	67,522

Loans

Loans held for investment totaled $477.6 at December 31, 2007 up from $433.6 million at December 31, 2006, an increase of $44.0 million. The Bank concentrates on providing banking services to small to medium sized businesses and professionals in our market area. Our loan officers maintain a professional relationship with our clients and are responsive to their financial needs. They are directly involved in the community and it is this involvement and commitment that leads to referrals and continued growth.

Commercial loans increased by approximately $13.0 million from last year. Loans secured by commercial real estate increased $39.9 million, a 24.9% increase over 2006. The growth in commercial real estate loans reflects our commitment to local owner occupied commercial financing. Real estate construction loans decreased $13.5 million, a 19.7% decrease over last year. This loan category is comprised of construction and land development loans. Competition for loans in this somewhat cyclical category is very high. Residential real estate loans increased $4.1 million in 2007. Consumer loans totaled $1.0 million in 2007 and $555 thousand in 2006. The Bank offers a complete line of consumer lending products, primarily as a service to the affiliates of our commercial and professional clients. The Bank does not actively market its consumer products at this time, which accounts for the nominal amount of consumer loans.

Loans held for sale totaled $39.1 million at December 31, 2007 compared to $65.3 million at December 31, 2006, a decrease of $26.2 million. The decrease in loans held for sale is due to a decrease in loans originated during the month of December, 2007. Loan origination volume increased $21.0 million from 2006 to $1.070 billion in 2007. The increase in loan originations occurred during the first half of 2007 prior to the downturn in the housing industry. The following tables present the major classifications and maturity distribution of loans held for investment at December 31:

Composition of Loan Portfolio

		Year Ended December 31
		2007								2006								2005								2004								2003
						Percentage								Percentage								Percentage								Percentage								Percentage
		Amount				of Total				Amount				of Total				Amount				of Total				Amount				of Total				Amount				of Total
																		(In Thousands)
Commercial		$	64,860				13.58	%		$	51,825				11.95	%		$	38,516				10.42	%		$	48,427				16.55	%		$	31,759				16.78	%
Commercial real estate			199,894				41.85				159,996				36.90				137,423				37.17				96,939				33.13				69,128				36.51
Real estate construction			55,074				11.53				68,570				15.81				37,054				10.02				33,073				11.30				13,766				7.27
Residential real estate			156,731				32.82				152,648				35.21				156,185				42.24				113,432				38.77				73,846				39.01
Consumer			1,039				0.22				555				0.13				555				0.15				723				0.25				821				0.43
Total loans		$	477,598				100.00	%		$	433,594				100.00	%		$	369,733				100.00	%		$	292,594				100.00	%		$	189,320				100.00	%

Loan Maturity Distribution at December 31, 2007
		Three Months or				Over Three Months				Over One Year				Over
		Less				Through One Year				Through Five Years				Five Years				Total
		(In Thousands)
Commercial		$	9,357			$	18,383			$	32,413			$	4,707			$	64,860
Commercial real estate			20,229				43,095				126,818				9,752				199,894
Real estate construction			3,022				9,426				42,626				—				55,074
Residential real estate			31,489				33,175				76,649				15,418				156,731
Consumer			89				30				920				—				1,039
Total		$	64,186			$	104,109			$	279,426			$	29,877			$	477,598

Allowance for Loan Losses

The allowance for loan loss totaled approximately $7.5 million at December 31, 2007, up from $5.5 million in 2006. The level of the allowance for loan losses is determined by an ongoing detailed analysis of risk and loss potential within the portfolio as a whole. Although actual loan losses have been insignificant, our senior credit management, with nearly 150 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. Outside of our own analysis, our reserve adequacy and methodology are reviewed

on a regular basis by an internal audit program, and bank regulators and such reviews have not resulted in any material adjustment to the reserve.

The overall allowance for loan losses is equivalent to approximately 1.56% of total loans held for investment. The schedule below, Allocation of the Allowance for Loan Losses, reflects the pro rata allocation by the different loan types. The methodology as to how the allowance was derived is a combination of specific allocations and percentage allocations 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 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 nearly 150 years; and peer data contained in statistical releases issued by both the Comptroller and the FDIC. 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 conditions 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.

When deterioration develops in an individual credit, the loan is placed on a “Watch List” and the loan is monitored more closely. All loans on the watch list are evaluated for specific loss potential based upon either an evaluation of the liquidated value of the collateral or cash flow deficiencies. If management believes that, with respect to a specific loan, an impaired source of repayment, collateral impairment or a change in a debtor’s financial condition presents a heightened risk of non-performance of a particular loan, a portion of the reserve may be specifically allocated to that individual loan. The aggregation of this loan by loan loss analysis comprises the “Specific Reserve”.

The Unallocated Reserve is maintained to absorb risk factors outside of the General and Specific Allocations. Maximum and minimum target limits, currently 0.00%-0.15% of total loans, are established by us on a quarterly basis for the Unallocated Reserve.

In addition to the reserves discussed above, the Mortgage Corporation maintains a separate reserve in other liabilities for LHFS and potential early default penalties. At December 31, 2007 the balance in this reserve totaled approximately $119 thousand.

The following tables present an analysis of the allowance for loan losses, for the periods indicated.

Allowance for Loan Losses

		Year Ended December 31
		2007				2006				2005				2004				2003
		(In Thousands)
Balance, beginning of period		$	5,452			$	5,215			$	4,019			$	2,565			$	2,048
Provision for loan losses			2,588				232				1,196				1,462				526
Charge-offs:
Commerical			—				—				—				8				11
Real estate			580				—				—				—				—
Consumer			—				—				—				—				—
Total charge-offs			580				—				—				8				11
Recoveries:
Commerical			—				—				—				—				2
Real estate			—				—				—				—				—
Consumer			2				5				—				—				—
Total recoveries			2				5				—				—				2
Net charge-offs			(578	)			5				—				(8	)			(9	)
Balance, end of period		$	7,462			$	5,452			$	5,215			$	4,019			$	2,565

Allocation of the Allowance for Loan Losses

		Year Ended December 31
						Percentage								Percentage								Percentage								Percentage								Percentage
		2007				of total				2006				of total				2005				of total				2004				of total				2003				of total
		( In Thousands)
Commercial		$	1,341				17.97	%		$	802				14.71	%		$	1,546				29.64	%		$	1,475				36.70	%		$	508				19.81	%
Commercial real estate			3,487				46.73				2,296				42.11				1,896				36.36				1,235				30.73				1,054				41.09
Real estate construction			929				12.45				1,055				19.35				499				9.58				438				10.90				220				8.58
Residential real estate			1,695				22.72				1,293				23.72				1,267				24.30				862				21.45				772				30.10
Consumer			10				0.13				6				0.11				6				0.12				9				0.22				11				0.42
Total		$	7,462				100.00	%		$	5,452				100.00	%		$	5,215				100.00	%		$	4,019				100.00	%		$	2,565				100.00	%

Non-performing Assets And Past Due

The following table presents information with respect to non-performing assets and 90 day delinquencies for the years indicated.

Nonperforming Assets and Accruing Loans Past Due 90 Days or More

		December 31,
(In Thousands)		2007				2006				2005				2004				2003
Non-accrual loans:
Commercial		$	187			$	—			$	1,311			$	1,615			$	228
Residential real estate			1,474				360				—				543				598
Total non-accrual loans			1,661				360				1,311				2,158				826
Restructured loans			—				—				—				—				—
Other real estate owned (“OREO”)			1,041				—				—				—				—
Total non-performing assets		$	2,702			$	360			$	1,311			$	2,158			$	826
Ratio of non-performing assets to:
Total loans plus OREO			0.56	%			0.08	%			0.35	%			0.74	%			0.44	%
Total assets			0.43	%			0.06	%			0.24	%			0.51	%			0.32	%
Accruing past due loans:
90 or more days past due		$	—			$	914			$	—			$	—			$	—

Non-performing assets, which consist of non-accrual loans and other real estate owned (“OREO”) totaled $2.7 million as of December 31, 2007, an increase of $2.3 million compared to December 31, 2006.

Non-accrual loans totaled $1.7 million as of December 31, 2007 and consisted of four residential mortgage loans and one commercial loan.

When a loan is placed on non-accrual, unpaid interest is reversed against interest income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal and interest income is recorded only after principal recovery is reasonably assured.

The loss potential for each loan has been evaluated and in management’s opinion the risk of loss is adequately reserved against. Management actively works with the borrowers to maximize the potential for repayment and reports on the status to the Board of Directors, no less than on a monthly basis.

Deposits

Deposits totaled $473.4 million at December 31, 2007 and were comprised of non-interest bearing demand deposits in the amount of $59.4 million, savings and interest bearing deposits in the amount of $142.8 million and time deposits in the amount of $271.2 million. Total deposits increased $34.5 million over December 31, 2006, an increase of 7.9%. Non-interest bearing demand deposits totaled $79.2 million at year end 2006. Our non-interest bearing demand deposits are predominately commercial and subject to wide fluctuations which accounts for the decline in this category at year end. Average deposits for 2007 totaled $445.0 million compared to $423.8 in 2006, an increase of $21.2 million. The increase in average deposits is primarily due to the expansion of our customer base. We offer a full line of competitive deposit products that have varying rates and terms. Our deposits are primarily from our local market. Professional loan officers are responsible for marketing both loans and deposits. Our primary focus with respect to core deposit growth is upon the business deposits in our market. We plan to strengthen our sales staff by adding personnel, and we continue to use direct marketing and traditional media advertising. The opening of our new offices in Leesburg and Manassas are

expected to contribute to the growth in deposits in 2008. Our customer service focus is mainly on our business and professional customers, which usually generate more referrals for additional new business than do retail account holders.

Time deposits represent 57.3% of total deposits, up from 54.5% of total deposits on December 31, 2006. Time deposits increased by 13.3% over December 31, 2006 due to higher, more competitive interest rates. Savings and interest bearing deposits represent 30.2% of total deposits as compared to 27.4% on December 31, 2006. Non-interest bearing demand deposits represent 12.6% of total deposits, down from 18.0% in 2006. This decrease is largely due to temporary balance fluctuations in commercial accounts.

Brokered or “wholesale” deposits included in time deposits totaled $92.6 million at December 31, 2007 and represented 19.6% of total deposits compared to $64.6 million and 14.7% of total deposits at December 31, 2006. Wholesale depositors are outside of the target market and place their deposit with us solely due to the interest rate paid. Together with other funding sources, we use these types of deposits for specific funding requirements and to fund the short term cash needs associated with the LHFS program discussed under “Loans” as well as to carry long term investments such as “Mortgage Loans Held for Investment” and our real estate.

The daily average balances and weighted average rates paid on deposits for each of the years ended December 31, 2007, 2006 and 2005 are presented below.

Average Deposits and Average Rates Paid
(In Thousands)

		Year Ended December 31
		2007												2006												2005
		Average				Income /				Yield /				Average				Income /				Yield /				Average				Income /				Yield /
		Balance				Expense				Rate				Balance				Expense				Rate				Balance				Expense				Rate
Interest-bearing demand deposits		$	9,507			$	199				2.09	%		$	10,691			$	224				2.10	%		$	10,630			$	200				1.88	%
Money market deposit accounts			111,344				4,888				4.39	%			118,548				4,859				4.10	%			130,147				4,255				3.27	%
Savings accounts			4,989				231				4.63	%			2,147				88				4.10	%			450				4				0.89	%
Time deposits			256,805				12,808				4.99	%			230,896				10,605				4.59	%			129,314				4,559				3.53	%
Total interest-bearing deposits			382,645				18,126				4.74	%			362,282				15,776				4.35	%			270,541				9,018				3.33	%
Non-interest bearing demand deposits			62,354												61,506												66,862
Total deposits		$	444,999											$	423,788											$	337,403

The table below presents the maturity distribution of time deposits at December 31, 2007.

Certificate of Deposit Maturity Distribution

		December 31, 2007
		Three months				Over three				Over
		or less				through twelve months				twelve months				Total
		(In Thousands)
Less than $100,000		$	43,127			$	65,578			$	60,253			$	168,958
Greater than or equal to $100,000			36,576				50,059				15,590				102,225
		$	79,703			$	115,637			$	75,843			$	271,183

Borrowings

Borrowed funds consist of advances from the FHLB, subordinated debentures (trust preferred), securities sold under agreement to repurchase, U.S. Treasury demand notes, federal funds purchased and commercial paper. At December 31, 2007 borrowed funds totaled $87.4 million, compared to $137.8 million at December 31, 2006. Short term borrowingsat December 31, 2007 decreased $43.3 million from December 31, 2006. This decrease is due in part to the $26.2 million decrease in loans held for sale and the $31.6

million decrease in securities available for sale. The Corporation redeemed $4.1 million in subordinated debentures on September 30, 2007. The following table provides a break down of all borrowed funds.

Borrowed Funds Distribution

		Year Ended December 31
		2007				2006				2005
		(In Thousands)
At Period End
FHLB advances		$	15,500			$	45,000			$	36,000
Securities sold under agreements to repurchase			14,814				14,541				977
Commercial paper			9,454				20,599				11,219
US Treasury demand note			1,907				—				—
FHLB long term borrowings			39,524				42,572				21,786
Subordinated debentures			6,186				10,311				10,311
Fed funds purchased			—				4,811				—
Total at period end		$	87,385				137,834			$	80,293
Average Balances
FHLB advances		$	60,224			$	61,066			$	43,375
Securities sold under agreements to repurchase			11,695				4,644				925
Commercial paper			15,679				17,586				8,520
US Treasury demand note			234				—				—
FHLB long term borrowings			41,932				23,722				24,028
Subordinated debentures			9,237				10,311				10,311
Fed funds purchased			716				419				—
Total average balance		$	139,717			$	117,748			$	87,159
Average rate paid on all borrowed funds			5.14	%			5.02	%			4.02	%

Shareholders’ Equity

Shareholders’ equity decreased $4.3 million during 2007, due in part, to the repurchase of 1,245,624 shares at a weighted average price of $7.62. 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 table below presents an analysis of risk based capital, and outlines the regulatory components of capital and risk based capital ratios.

Risk Based Capital Analysis

		Year Ended December 31
		2007				2006				2005
		(In Thousands)
Tier 1 Capital:
Common stock		$	9,052			$	9,867			$	6,644
Capital surplus			21,833				29,316				9,099
Retained earnings			26,832				23,620				16,227
Subordinated debt (trust preferred debenture)			6,000				10,000				10,000
Total Tier 1 capital			63,717				72,803				41,970
Subordinated debt not included in Tier I			—				—				311
Allowance for loan losses			6,436				5,688				4,874
Total Risk Based Capital		$	70,153			$	78,491			$	47,155
Risk weighted assets		$	513,598			$	484,987			$	389,381
Quarterly average assets		$	632,752			$	631,378			$	552,292
Capital Ratios:
Tier 1 risk based capital ratio			12.41	%			15.01	%			10.78	%
Total risk based capital ratio			13.66	%			16.18	%			12.11	%
Leverage ratio			10.07	%			11.53	%			7.60	%

RESULTS OF OPERATIONS

Financial results for 2007 were directly impacted by the downturn in the residential housing market. As property values declined and interest rates increased, defaults on residential mortgages rose to record numbers. While we have never been a sub-prime lender our mortgage subsidiary repurchased approximately $6 million in mortgage loans as a result of early payment defaults. The expenses associated with the repurchase of these loans and the subsequent liquidation of the properties impacted earnings by approximately $2.9 million. The other significant factor impacting income was an increase in the Bank’s allowance for loan losses of $1.8 million due to the $44.0 million growth in loans held for investment. Net income totaled $3.7 million for the year ended December 31, 2007, a decrease of $3.9 million from $7.6 million in 2006. Return on average assets was .57%, a decrease from 1.29% for the year ended December 31, 2006. Return on average equity decreased to 5.84% from 17.15% in 2006. Diluted earnings per share for 2007 was $.31 compared to $.72 in 2006.

Net income totaled $7.6 million for the year ended December 31, 2006, an increase of $1.7 million over $5.9 million in 2005. Return on average assets remained unchanged from 2005 at 1.29%. Return on average equity decreased to 17.15% in 2006, from 20.63% in 2005 as a result of the increase in capital. Diluted earnings per share for 2006 were $.72 compared to $.63 in 2005. The increase in net income was due to a 30.1% increase in average earning assets.

Net Interest Income

Net interest income, the principal source of Bank earnings, is the amount of income generated by earning assets (primarily loans and investment securities) less the interest expense incurred on interest bearing liabilities (primarily deposits) used to fund earning assets. During 2007 our net interest margin decreased 3 basis points from 3.21% in 2006 to 3.18%. The weighted average yield on earning assets increased .15%, while the weighted average rate paid on interest bearing liabilities increased .32% contributing to the decrease in net interest margin and reflecting the competition for deposits. The table below, Yield on Average Earning Assets and Rates on Average Interest Bearing Liabilities summarizes the major components of net interest income for the past three years and also provides yields, rates and average balances.

Net interest income on a fully taxable equivalent basis increased from $18.3 million in 2006 to $20.2 million in 2007. Net interest income depends upon the volume of earning assets and interest bearing liabilities and the associated rates. Average interest earning assets increased $64.4 million to $633.9 million, up from $569.5 million in 2006. See Volume and Rate analysis for changes in earning assets and interest bearing liabilities.

Interest expense totaled $25.3 million in 2007, an increase of $3.6 million over 2006. Interest bearing deposits averaged $382.6 million in 2007 compared to $362.3 million in 2006. Borrowed funds averaged $139.7 million, up from $117.7 million in 2006. The increase in deposits and borrowings funded the growth in earning assets. The average cost of interest bearing liabilities was 4.8% in 2007 compared to 4.5% in 2006.

Net interest income increased in 2006 to $18.3 million compared to $15.3 million in 2005. Average interest earning assets increased $131.8 million to $569.5 million in 2006, up from $437.7 million in 2005.

During 2006 net interest margin decreased 28 basis points from 3.49% in 2005 to 3.21%. The weighted average yield on earning assets increased .67%, and the weighted average rate paid on interest bearing liabilities increased 1.02%. Net interest income increased 19.5% in 2006 up from $15.3 million in 2005 to $18.3 million.

Interest expense totaled $21.7 million for the year ended December 31, 2006, an increase of approximately $9.2 million over 2005. Total interest bearing deposits averaged $362.3 million in 2006 compared to $270.5 million in 2005. Borrowed funds averaged $117.7 million, up from $87.2 million in 2005. The increase in deposits and borrowings funded the growth in earning assets. The average cost of interest bearing liabilities was 4.5% in 2006 compared to 3.5% in 2005.

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

		Year Ended December 31,
		2007												2006												2005
		Average				Income /				Yield /				Average				Income /				Yield /				Average				Income /				Yield /
		Balance				Expense				Rate				Balance				Expense				Rate				Balance				Expense				Rate
														(In Thousands)
Assets:
Interest earning assets:
Securities		$	94,331			$	4,324				4.58	%		$	107,165			$	4,687				4.37	%		$	64,862			$	2,489				3.84	%
Loans(3)			522,122				40,303				7.72	%			454,146				34,899				7.68	%			364,126				25,043				6.88	%
Interest bearing deposits & federal funds sold			17,474				846				4.84	%			8,193				400				4.88	%			8,739				279				3.19	%
Total interest earning assets			633,927				45,473				7.17	%			569,504				39,986				7.02	%			437,727				27,811				6.35	%
Non-interest earning assets:
Cash and due from banks			6,784												10,546												10,579
Premises, land and equipment			9,710												9,616												9,260
Other assets			5,333												5,531												4,118
Less: allowance for loan losses			(6,170	)											(5,363	)											(4,433	)
Total non-interest earning assets			15,657												20,330												19,524
Total Assets		$	649,584											$	589,834											$	457,251
Liabilities and Shareholders’ Equity:
Interest bearing liabilities:
Interest bearing demand deposits		$	9,507			$	199				2.09	%		$	10,691			$	224				2.10	%		$	10,630			$	200				1.88	%
Money market deposit accounts			111,344				4,888				4.39	%			118,548				4,859				4.10	%			130,147				4,255				3.27	%
Savings accounts			4,989				231				4.63	%			2,147				88				4.10	%			450				4				0.89	%
Time deposits			256,805				12,808				4.99	%			230,896				10,605				4.59	%			129,314				4,559				3.53	%
Total interest-bearing deposits			382,645				18,126				4.74	%			362,282				15,776				4.35	%			270,541				9,018				3.33	%
FHLB Advances			60,224				3,197				5.31	%			61,066				3,161				5.18	%			43,375				1,610				3.71	%
Securities sold under agreements to repurchase			11,695				516				4.41	%			4,643				166				3.58	%			925				19				2.05	%
Other short-term borrowings			16,628				641				3.85	%			18,005				738				4.10	%			8,520				250				2.93	%
Long-term borrowings			41,932				2,018				4.81	%			23,722				962				4.06	%			24,028				917				3.82	%
Subordinated Debentures			9,237				806				8.73	%			10,311				880				8.53	%			10,311				706				6.85	%
Total interest-bearing liabilities			522,361				25,304				4.84	%			480,029				21,683				4.52	%			357,700				12,520				3.50	%
Non-interest bearing liabilities:
Demand deposits			62,354												61,506												66,862
Other liabilities			1,526												4,029												4,103
Total liabilities			586,241												545,564												428,665
Shareholders’ Equity			63,343												44,270												28,586
Total Liabilities and Shareholders’ Equity:		$	649,584											$	589,834											$	457,251
Interest Spread(1)											2.33	%											2.50	%											2.85	%
Net Interest Margin(2)*						$	20,169				3.18	%						$	18,303				3.21	%						$	15,291				3.49	%