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 endedDecember 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
 1934 For the transition period from to
 Commission File Number 000-49929
 Access National Corporation
  Virginia
    
    82-0545425(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 1800 Robert Fulton Drive, Suite 300, Reston, Virginia 20191
 (703) 871-2100
  Title of each class 
Common Stock $.835 par value
    
    Name of each exchange on which registered
The NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:(Title of class) None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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Access
National Corporation

FORM 10-K
INDEX
 PagePART IItem 1 Business
    
    
    2Item 1A Risk Factors
    
    
    11Item 1B Unresolved Staff Comments
    
    
    16Item 2 Properties
    
    
    16Item 3 Legal Proceedings
    
    
    16Item 4 Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5 Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    17Item 6 Selected Financial Data
    
    
    20Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8 Financial Statements and Supplementary Data
    
    
    38Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    75Item 9A Controls and Procedures
    
    
    75Item 9B Other Information
    
    
    75PART IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    76Item 11 Executive Compensation
    
    
    76Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    76Item 13 Certain Relationships and Related Transactions, and Director Independence
    
    
    76Item 14 Principal Accountant Fees and Services
    
    
    76PART IVItem 15 Exhibits, Financial Statement Schedules
    
    
    77Signatures
    
    
    79
 1




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PART I
  
 ITEM 1  BUSINESS
          2




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Our Strategy  historical and prospective
       3




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Lending Activities
     Loan Portfolio  Loans Held for Investment.
 Commercial Loans:
 Real Estate Construction Loans:
 Commercial Real Estate Loans:
 Residential Real Estate Loans:
 4




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Consumer Loans:
 Loans Held for Sale (LHFS).
  Brokered Loans
  Deposits
  Market Area
  Competition
  5




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Employees
  Supervision and Regulation
  General.
       6




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Governmental Policies and Legislation.
  Dividends.
 Capital Requirements.
   7




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Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).
         Deposit Insurance Assessments.
 8




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Gramm-Leach-Bliley Act of 1999.
    Community Reinvestment Act.
 Federal Home Loan Bank (FHLB) of Atlanta .
  9




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Mortgage Banking Regulation .
 USA PATRIOT Act .
 Reporting Terrorist Activities.
  Consumer Laws and Regulations.
 Emergency Economic Stabilization Act of 2008 (EESA).
  10




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Temporary Liquidity Guarantee Program.
  
 ITEM 1A  RISK FACTORS
 Our future success will depend on our ability to compete effectively in the highly competitive
financial services industry.
   Our profitability depends on interest rates generally, and we may be adversely affected by changes
in government monetary policy.
   11




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Our profitability depends significantly on local economic conditions.
   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 may face risks with respect to future acquisitions.
  
    
    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.
 12




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Our allowance for loan losses could become inadequate and reduce our earnings and capital.
  Liquidity needs could adversely affect our results of operations and financial condition.
  We are subject to extensive regulation that could limit or restrict our activities and adversely
affect our earnings.
    Our recent results may not be indicative of our future results.
  13




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Our hedging strategies may not be successful in managing our risks associated with interest rates.
  The profitability of the Mortgage Corporation will be significantly reduced if we are not able to
sell mortgages.
     We may be exposed to greater risks from offering non-conforming mortgage loans.
  Our small-to medium-sized business target market may have fewer financial resources to weather a
downturn in the economy.
  14




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We depend on the accuracy and completeness of information about clients and counterparties.
  Negative public opinion could damage our reputation and adversely impact our earnings.
   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.
  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.
  Our ability to pay dividends is subject to regulatory restrictions, and we may be unable to pay
future dividends.
  Certain provisions under our articles of incorporation and applicable law, in addition to the
ownership position of certain shareholders, 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.
  15




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There can be no assurance that recent government actions will help stabilize the U.S. financial
system.
  Current levels of market volatility are unprecedented.
  The soundness of other financial institutions could adversely affect us.
  Current market developments may adversely affect our industry, business, and results of operations.
  
 ITEM 1B  UNRESOLVED STAFF COMMENTS
  
 ITEM 2  PROPERTIES
   
 ITEM 3  LEGAL PROCEEDINGS
  16




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ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  2008
    
    
    
    

    2007High
    
    Low
    
    Dividends
    
    High
    
    Low
    
    DividendsFirst Quarter
    
    $
    8.10
    
    
    $
    5.11
    
    
    $
    0.01
    
    
    $
    9.82
    
    
    $
    9.10
    
    
    $
    0.01Second Quarter
    
    
    8.35
    
    
    
    6.25
    
    
    
    0.01
    
    
    
    9.59
    
    
    
    8.60
    
    
    
    0.01Third Quarter
    
    
    6.85
    
    
    
    4.99
    
    
    
    0.01
    
    
    
    8.91
    
    
    
    6.89
    
    
    
    0.01Fourth Quarter
    
    
    6.13
    
    
    
    4.42
    
    
    
    0.01
    
    
    
    8.14
    
    
    
    5.60
    
    
    
    0.01
  Issuer
 Purchases of Equity Securities for the Quarter Ended December 31, 2008
  Issuer Purchases of Equity Securities(c) Total Number of
    
    
    (d) Maximum NumberShares Purchased as
    
    
    of Shares that may(a) Total Number of
    
    
    (b) Average Price
    
    
    Part of Publicly
    
    
    yet be PurchasedPeriod
    
    Shares Purchased
    
    
    Paid Per Share
    
    
    Announced Plan
    
    
    Under the PlanOctober 1 - October 31, 2008
    
    
    2,996
    
    
    $
    5.16
    
    
    
    2,996
    
    
    
    442,969November 1 - November 30, 2008
    
    
    3,682
    
    
    
    5.49
    
    
    
    3,682
    
    
    
    439,287December 1 - December 31, 2008
    
    
    9,747
    
    
    
    5.05
    
    
    
    9,747
    
    
    
    429,54016,425
    
    
    $
    5.17
    
    
    
    16,425
    
    
    
    429,540
 17




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Stock Performance
    Company, Headquarters
    
    Exchange
    
    Trading Symbol
    
    EstablishedCardinal Financial Corporation

Fairfax, Virginia
    
    NASDAQ-GS
    
    CFNL
    
    1998Eagle Bancorp, Inc.

Bethesda, Maryland
    
    NASDAQ-CM
    
    EGBN
    
    1998Towne Bank

Portsmouth, Virginia
    
    NASDAQ-GS
    
    TOWN
    
    1999Valley Financial Corporation

Roanoke, Virginia
    
    NASDAQ-CM
    
    VYFC
    
    1995Virginia National Bank

Charlottesville, Virginia
    
    OTC-BB
    
    VABK
    
    1998
 18




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Access
National Corporation
 
 Period EndingIndex
    
    
    12/31/03
    
    
    
    12/31/04
    
    
    
    12/31/05
    
    
    
    12/31/06
    
    
    
    12/31/07
    
    
    
    12/31/08Access National Corporation
    
    
    
    100.00
    
    
    
    
    93.83
    
    
    
    
    189.12
    
    
    
    
    127.13
    
    
    
    
    80.74
    
    
    
    
    69.35S&P 500
    
    
    
    100.00
    
    
    
    
    110.88
    
    
    
    
    116.33
    
    
    
    
    134.70
    
    
    
    
    142.10
    
    
    
    
    89.53Peer Group Index*
    
    
    
    100.00
    
    
    
    
    128.53
    
    
    
    
    131.84
    
    
    
    
    132.84
    
    
    
    
    109.88
    
    
    
    
    114.36
 
 *
    
    Access National Corporations peer group consists of the following: Cardinal Financial Corporation (CFNL),
Eagle Bancorp, Inc. (EGBN), Towne Bank (TOWN), Valley Financial Corporation (VYFC), and Virginia National
Bank (VABK). 19




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ITEM 6  SELECTED FINANCIAL DATA
  Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In Thousands, Except Per Share Data)Income Statement Data:Net interest income
    
    $
    21,052
    
    
    $
    20,122
    
    
    $
    18,256
    
    
    $
    15,273
    
    
    $
    11,694Provision for loan losses
    
    
    5,423
    
    
    
    2,588
    
    
    
    232
    
    
    
    1,196
    
    
    
    1,462Non-interest income
    
    
    30,813
    
    
    
    27,707
    
    
    
    27,633
    
    
    
    30,956
    
    
    
    25,952Non-interest expense
    
    
    38,998
    
    
    
    39,949
    
    
    
    34,212
    
    
    
    35,830
    
    
    
    31,580Income taxes
    
    
    2,700
    
    
    
    1,590
    
    
    
    3,853
    
    
    
    3,305
    
    
    
    1,619Net income before extraordinary items
    
    
    4,744
    
    
    
    3,702
    
    
    
    7,592
    
    
    
    5,898
    
    
    
    2,985Extra ordinary income, net of income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330Net Income
    
    $
    4,744
    
    
    $
    3,702
    
    
    $
    7,592
    
    
    $
    5,898
    
    
    $
    3,315Per Share Data:Earnings per shareBasic, before extraordinary income
    
    $
    0.46
    
    
    $
    0.32
    
    
    $
    0.81
    
    
    $
    0.75
    
    
    $
    0.40Basic
    
    
    0.46
    
    
    
    0.32
    
    
    
    0.81
    
    
    
    0.75
    
    
    
    0.44Diluted, before extraordinary income
    
    
    0.46
    
    
    
    0.31
    
    
    
    0.72
    
    
    
    0.63
    
    
    
    0.33Diluted
    
    
    0.46
    
    
    
    0.31
    
    
    
    0.72
    
    
    
    0.63
    
    
    
    0.36Cash dividends paid
    
    
    0.04
    
    
    
    0.04
    
    
    
    0.02
    
    
    
    
    
    
    
    Book value at period end
    
    
    5.66
    
    
    
    5.35
    
    
    
    5.27
    
    
    
    3.92
    
    
    
    3.29Balance Sheet Data:Total assets
    
    $
    702,324
    
    
    $
    622,376
    
    
    $
    644,782
    
    
    $
    537,050
    
    
    $
    420,098Loans held for sale
    
    
    84,312
    
    
    
    39,144
    
    
    
    65,320
    
    
    
    45,019
    
    
    
    36,245Total loans
    
    
    485,929
    
    
    
    477,598
    
    
    
    433,594
    
    
    
    369,733
    
    
    
    292,594Total securities
    
    
    91,015
    
    
    
    73,558
    
    
    
    105,163
    
    
    
    87,771
    
    
    
    51,378Total deposits
    
    
    485,401
    
    
    
    473,418
    
    
    
    438,932
    
    
    
    419,629
    
    
    
    317,393Shareholders equity
    
    
    57,945
    
    
    
    57,961
    
    
    
    62,295
    
    
    
    31,185
    
    
    
    25,998Average shares outstanding, basic
    
    
    10,298,631
    
    
    
    11,620,130
    
    
    
    9,429,074
    
    
    
    7,867,135
    
    
    
    7,509,536Average shares outstanding, diluted
    
    
    10,423,555
    
    
    
    11,866,468
    
    
    
    10,541,873
    
    
    
    9,423,087
    
    
    
    9,155,778Performance Ratios:Return on average assets
    
    
    0.76
    %
    
    
    0.57
    %
    
    
    1.29
    %
    
    
    1.29
    %
    
    
    0.97
    %Return on average equity
    
    
    8.34
    %
    
    
    5.84
    %
    
    
    17.15
    %
    
    
    20.63
    %
    
    
    14.48
    %Net interest margin (1)
    
    
    3.47
    %
    
    
    3.18
    %
    
    
    3.21
    %
    
    
    3.49
    %
    
    
    3.64
    %Efficiency Ratios:Access National Bank
    
    
    55.36
    %
    
    
    50.87
    %
    
    
    48.67
    %
    
    
    52.21
    %
    
    
    56.40
    %Access National Mortgage Corp.
    
    
    86.65
    %
    
    
    107.52
    %
    
    
    92.42
    %
    
    
    89.13
    %
    
    
    94.18
    %Access National Corporation
    
    
    75.19
    %
    
    
    83.52
    %
    
    
    75.06
    %
    
    
    80.09
    %
    
    
    87.61
    %Asset Quality Ratios:Allowance to period end loans
    
    
    1.54
    %
    
    
    1.56
    %
    
    
    1.26
    %
    
    
    1.41
    %
    
    
    1.37
    %Allowance to nonperforming loans
    
    
    259.55
    %
    
    
    449.25
    %
    
    
    1514.60
    %
    
    
    397.78
    %
    
    
    185.07
    %Net charge-offs to average loans
    
    
    1.06
    %
    
    
    0.12
    %
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Net interest income divided by total average earning assets.  20




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ITEM 6  SELECTED FINANCIAL DATA continued
 Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In Thousands, Except Per Share Data)Average Balance Sheet Data:Total assets
    
    $
    624,450
    
    
    $
    649,584
    
    
    $
    589,834
    
    
    $
    457,251
    
    
    $
    341,153Securities
    
    
    68,861
    
    
    
    94,331
    
    
    
    107,165
    
    
    
    64,862
    
    
    
    25,340Loans held for sale
    
    
    25,757
    
    
    
    49,750
    
    
    
    53,935
    
    
    
    45,688
    
    
    
    42,416Loans
    
    
    484,764
    
    
    
    472,372
    
    
    
    400,211
    
    
    
    318,438
    
    
    
    246,809Allowance for loan losses
    
    
    8,248
    
    
    
    6,170
    
    
    
    5,363
    
    
    
    4,433
    
    
    
    2,945Total deposits
    
    
    450,873
    
    
    
    444,999
    
    
    
    423,788
    
    
    
    337,403
    
    
    
    235,387Junior subordinated debentures
    
    
    6,186
    
    
    
    9,237
    
    
    
    10,311
    
    
    
    10,311
    
    
    
    10,311Total shareholders equity
    
    
    56,882
    
    
    
    63,343
    
    
    
    44,270
    
    
    
    28,586
    
    
    
    22,901Capital Ratios:Tier 1 risk-based capital
    
    
    11.85
    %
    
    
    12.41
    %
    
    
    15.01
    %
    
    
    10.78
    %
    
    
    10.97
    %Total risk-based capital
    
    
    13.11
    %
    
    
    13.66
    %
    
    
    16.18
    %
    
    
    12.11
    %
    
    
    12.80
    %Leverage capital ratio
    
    
    9.71
    %
    
    
    10.07
    %
    
    
    11.53
    %
    
    
    7.60
    %
    
    
    8.83
    %
 
 ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
   21




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CRITICAL ACCOUNTING POLICIES
  Allowance for Loan Losses
   Other Than Temporary Impairment of Investment Securities
  Income Taxes
  Fair Value
  FINANCIAL CONDITION
 Summary
   22




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Investment Securities
   Investment Securities Available for Sale(In Thousands)December 312008
    
    
    2007
    
    
    2006Investment Securities Available for Sale:U.S. Treasury Notes
    
    $
    1,006
    
    
    $
    1,013
    
    
    $
    996U.S. Government agency
    
    
    76,354
    
    
    
    61,720
    
    
    
    91,609Mortgage backed
    
    
    1,391
    
    
    
    799
    
    
    
    1,040Tax exempt municipals
    
    
    
    
    
    
    2,891
    
    
    
    2,888Taxable municipals
    
    
    4,920
    
    
    
    1,099
    
    
    
    1,275CRA Mutual fund
    
    
    1,448
    
    
    
    1,479
    
    
    
    1,468Restricted stock (1)
    
    
    5,896
    
    
    
    4,557
    
    
    
    5,887Total Securities
    
    $
    91,015
    
    
    $
    73,558
    
    
    $
    105,163
 
 (1)
    
    Carried at cost Maturity Schedule of Investment Securities Available for Sale 2008
 (Dollars In Thousands)After One Year
    
    After Five Years
    
    After Ten YearsWithin
    
    But Within
    
    But Within
    
    andOne Year
    
    Five Years
    
    Ten Years
    
    Over
    
    TotalAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldInvestment Securities Available for Sale (1)U.S. Treasury Notes
    
    $
    1,006
    
    
    
    4.97
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,006
    
    
    
    4.97
    %U.S. Government agency
    
    
    
    
    
    
    
    
    
    
    25,121
    
    
    
    4.95
    %
    
    
    51,233
    
    
    
    5.38
    %
    
    
    
    
    
    
    
    
    
    
    76,354
    
    
    
    5.24
    %Mortgage backed
    
    
    382
    
    
    
    4.92
    %
    
    
    127
    
    
    
    4.66
    %
    
    
    
    
    
    
    
    
    
    
    881
    
    
    
    6.02
    %
    
    
    1,390
    
    
    
    5.59
    %Tax exempt municipals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Taxable municipals
    
    
    
    
    
    
    
    
    
    
    907
    
    
    
    4.30
    %
    
    
    
    
    
    
    
    
    
    
    4,012
    
    
    
    6.65
    %
    
    
    4,919
    
    
    
    6.22
    %Total
    
    $
    1,388
    
    
    
    4.96
    %
    
    $
    26,155
    
    
    
    4.93
    %
    
    $
    51,233
    
    
    
    5.38
    %
    
    $
    4,893
    
    
    
    6.54
    %
    
    $
    83,669
    
    
    
    5.30
    %
 
 (1)
    
    Excludes CRA Mutual Fund, FRB Stock and FHLB Stock 23




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Loans
   Composition of Loan PortfolioYear Ended December 31(Dollars in Thousands)2008
    
    2007
    
    2006
    
    2005
    
    2004Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    PercentageAmount
    
    of Total
    
    Amount
    
    of Total
    
    Amount
    
    of Total
    
    Amount
    
    of Total
    
    Amount
    
    of TotalCommercial
    
    $
    69,537
    
    
    
    14.31
    %
    
    $
    64,860
    
    
    
    13.58
    %
    
    $
    51,825
    
    
    
    11.95
    %
    
    $
    38,516
    
    
    
    10.42
    %
    
    $
    48,427
    
    
    
    16.55
    %Commercial real estate
    
    
    218,539
    
    
    
    44.97
    
    
    
    199,894
    
    
    
    41.85
    
    
    
    159,996
    
    
    
    36.90
    
    
    
    137,423
    
    
    
    37.17
    
    
    
    96,939
    
    
    
    33.13Real estate construction
    
    
    42,600
    
    
    
    8.77
    
    
    
    55,074
    
    
    
    11.53
    
    
    
    68,570
    
    
    
    15.81
    
    
    
    37,054
    
    
    
    10.02
    
    
    
    33,073
    
    
    
    11.30Residential real estate
    
    
    153,740
    
    
    
    31.64
    
    
    
    156,731
    
    
    
    32.82
    
    
    
    152,648
    
    
    
    35.21
    
    
    
    156,185
    
    
    
    42.24
    
    
    
    113,432
    
    
    
    38.77Consumer
    
    
    1,513
    
    
    
    0.31
    
    
    
    1,039
    
    
    
    0.22
    
    
    
    555
    
    
    
    0.13
    
    
    
    555
    
    
    
    0.15
    
    
    
    723
    
    
    
    0.25Total loans
    
    $
    485,929
    
    
    
    100.00
    %
    
    $
    477,598
    
    
    
    100.00
    %
    
    $
    433,594
    
    
    
    100.00
    %
    
    $
    369,733
    
    
    
    100.00
    %
    
    $
    292,594
    
    
    
    100.00
    %
 Loan Maturity DistributionDecember 31, 2008Three Months or
    
    
    Over Three Months
    
    
    Over One Year
    
    
    OverLess
    
    
    Through One Year
    
    
    Through Five Years
    
    
    Five Years
    
    
    Total(In Thousands)Commercial
    
    $
    17,812
    
    
    $
    19,142
    
    
    $
    21,392
    
    
    $
    11,191
    
    
    $
    69,537Commercial real estate
    
    
    28,018
    
    
    
    21,224
    
    
    
    152,052
    
    
    
    17,245
    
    
    
    218,539Real estate construction
    
    
    18,623
    
    
    
    11,973
    
    
    
    11,965
    
    
    
    39
    
    
    
    42,600Residential real estate
    
    
    39,040
    
    
    
    32,931
    
    
    
    64,475
    
    
    
    17,294
    
    
    
    153,740Consumer
    
    
    116
    
    
    
    956
    
    
    
    441
    
    
    
    
    
    
    
    1,513Total
    
    $
    103,609
    
    
    $
    86,226
    
    
    $
    250,325
    
    
    $
    45,769
    
    
    $
    485,929
 24




---



##### 



Allowance for Loan Losses
   .
  25




---



##### 



.
 Allowance for Loan LossesYear Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In Thousands)Balance, beginning of period
    
    $
    7,462
    
    
    $
    5,452
    
    
    $
    5,215
    
    
    $
    4,019
    
    
    $
    2,565Provision for loan losses
    
    
    5,423
    
    
    
    2,588
    
    
    
    232
    
    
    
    1,196
    
    
    
    1,462Charge-offs:Commerical
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Commercial real estate
    
    
    4,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate
    
    
    1,055
    
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total charge-offs
    
    
    5,560
    
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    8Recoveries:Residential real estate
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    
    
    
    
    Total recoveries
    
    
    137
    
    
    
    2
    
    
    
    5
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (5,423
    )
    
    
    (578
    )
    
    
    5
    
    
    
    
    
    
    
    (8
    )Balance, end of period
    
    $
    7,462
    
    
    $
    7,462
    
    
    $
    5,452
    
    
    $
    5,215
    
    
    $
    4,019
 Allocation of the Allowance for Loan LossesYear Ended December 31,Percentage of
    
    
    
    
    
    Percentage of
    
    
    
    
    
    Percentage of
    
    
    
    
    
    Percentage of
    
    
    
    
    
    Percentage2008
    
    total
    
    2007
    
    total
    
    2006
    
    total
    
    2005
    
    total
    
    2004
    
    of total( Dollars In Thousands)Commercial
    
    $
    1,816
    
    
    
    24.34
    %
    
    $
    1,341
    
    
    
    17.97
    %
    
    $
    802
    
    
    
    14.71
    %
    
    $
    1,546
    
    
    
    29.64
    %
    
    $
    1,475
    
    
    
    36.70
    %Commercial real estate
    
    
    2,948
    
    
    
    39.51
    
    
    
    3,487
    
    
    
    46.73
    
    
    
    2,296
    
    
    
    42.11
    
    
    
    1,896
    
    
    
    36.36
    
    
    
    1,235
    
    
    
    30.73Real estate construction
    
    
    805
    
    
    
    10.79
    
    
    
    929
    
    
    
    12.45
    
    
    
    1,055
    
    
    
    19.35
    
    
    
    499
    
    
    
    9.58
    
    
    
    438
    
    
    
    10.90Residential real estate
    
    
    1,880
    
    
    
    25.19
    
    
    
    1,695
    
    
    
    22.72
    
    
    
    1,293
    
    
    
    23.72
    
    
    
    1,267
    
    
    
    24.30
    
    
    
    862
    
    
    
    21.45Consumer
    
    
    13
    
    
    
    0.17
    
    
    
    10
    
    
    
    0.13
    
    
    
    6
    
    
    
    0.11
    
    
    
    6
    
    
    
    0.12
    
    
    
    9
    
    
    
    0.22Total
    
    $
    7,462
    
    
    
    100.00
    %
    
    $
    7,462
    
    
    
    100.00
    %
    
    $
    5,452
    
    
    
    100.00
    %
    
    $
    5,215
    
    
    
    100.00
    %
    
    $
    4,019
    
    
    
    100.00
    %
 26




---



##### 



Non-performing Assets And Loans Past Due
 
 Non-performing Assets and Accruing Loans Past Due 90 Days or More
 December 31,(Dollars In thousands)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Non-accrual loans:Commercial
    
    $
    74
    
    
    $
    187
    
    
    $
    
    
    
    $
    1,311
    
    
    $
    1,615Commercial real estate
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate construction
    
    
    2,678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate
    
    
    
    
    
    
    1,474
    
    
    
    360
    
    
    
    
    
    
    
    543Consumer and other
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-accrual loans
    
    
    2,875
    
    
    
    1,661
    
    
    
    360
    
    
    
    1,311
    
    
    
    2,158Restructured loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other real estate owned
(OREO)
    
    
    4,455
    
    
    
    1,041
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    7,330
    
    
    $
    2,702
    
    
    $
    360
    
    
    $
    1,311
    
    
    $
    2,158Ratio of non-performing assets to:Total loans plus OREO
    
    
    1.49
    %
    
    
    0.56
    %
    
    
    0.08
    %
    
    
    0.35
    %
    
    
    0.74
    %Total assets
    
    
    1.04
    
    
    
    0.43
    
    
    
    0.06
    
    
    
    0.24
    
    
    
    0.51Accruing past due loans:90 or more days past due
    
    $
    
    
    
    $
    
    
    
    $
    914
    
    
    $
    
    
    
    $
    
     27




---



##### 



Deposits
    Average Deposits and Average Rates Paid(Dollars In Thousands)Year Ended December 312008
    
    
    2007
    
    
    2006Average
    
    
    Income /
    
    
    Yield /
    
    
    Average
    
    
    Income /
    
    
    Yield /
    
    
    Average
    
    
    Income /
    
    
    Yield /Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInterest-bearing demand deposits
    
    $
    8,956
    
    
    $
    100
    
    
    
    1.12
    %
    
    $
    9,507
    
    
    $
    199
    
    
    
    2.09
    %
    
    $
    10,691
    
    
    $
    224
    
    
    
    2.10
    %Money market deposit accounts
    
    
    112,391
    
    
    
    2,653
    
    
    
    2.36
    %
    
    
    111,344
    
    
    
    4,888
    
    
    
    4.39
    %
    
    
    118,548
    
    
    
    4,859
    
    
    
    4.10
    %Savings accounts
    
    
    3,137
    
    
    
    101
    
    
    
    3.22
    %
    
    
    4,989
    
    
    
    231
    
    
    
    4.63
    %
    
    
    2,147
    
    
    
    88
    
    
    
    4.10
    %Time deposits
    
    
    263,175
    
    
    
    11,197
    
    
    
    4.25
    %
    
    
    256,805
    
    
    
    12,808
    
    
    
    4.99
    %
    
    
    230,896
    
    
    
    10,605
    
    
    
    4.59
    %Total interest-bearing deposits
    
    
    387,659
    
    
    
    14,051
    
    
    
    3.62
    %
    
    
    382,645
    
    
    
    18,126
    
    
    
    4.74
    %
    
    
    362,282
    
    
    
    15,776
    
    
    
    4.35
    %Non-interest bearing demand deposits
    
    
    63,214
    
    
    
    
    
    
    
    
    
    
    
    62,354
    
    
    
    
    
    
    
    
    
    
    
    61,506Total deposits
    
    $
    450,873
    
    
    
    
    
    
    
    
    
    
    $
    444,999
    
    
    
    
    
    
    
    
    
    
    $
    423,788
  Certificate of Deposit Maturity Distribution
 December 31, 2008Three months
    
    
    Over three
    
    
    Overor less
    
    
    through twelve months
    
    
    twelve months
    
    
    Total(In Thousands)Less than $100,000
    
    $
    102,957
    
    
    $
    88,944
    
    
    $
    44,877
    
    
    $
    236,778Greater than or equal to $100,000
    
    
    18,197
    
    
    
    43,627
    
    
    
    16,069
    
    
    
    77,893$
    121,154
    
    
    $
    132,571
    
    
    $
    60,946
    
    
    $
    314,671
 28




---



##### 



Borrowings
   Borrowed Funds DistributionYear Ended December 312008
    
    
    2007
    
    
    2006(In Thousands)At Period EndFHLB advances
    
    $
    44,333
    
    
    $
    15,500
    
    
    $
    45,000Securities sold under agreements to repurchase
    
    
    21,395
    
    
    
    14,814
    
    
    
    14,541Commercial paper
    
    
    26,136
    
    
    
    9,454
    
    
    
    20,599U.S. Treasury demand notes
    
    
    1,718
    
    
    
    1,907
    
    
    
    FHLB long term borrowings
    
    
    41,107
    
    
    
    39,524
    
    
    
    42,572Subordinated debentures
    
    
    6,186
    
    
    
    6,186
    
    
    
    10,311Federal funds purchased
    
    
    9,993
    
    
    
    
    
    
    
    4,811Total at period end
    
    $
    150,868
    
    
    $
    87,385
    
    
    $
    137,834Average BalancesFHLB advances
    
    $
    13,524
    
    
    $
    60,224
    
    
    $
    61,066Securities sold under agreements to repurchase
    
    
    16,269
    
    
    
    11,695
    
    
    
    4,644Commercial paper
    
    
    19,836
    
    
    
    15,679
    
    
    
    17,586U.S. Treasury demand notes
    
    
    861
    
    
    
    234
    
    
    
    FHLB long term borrowings
    
    
    54,173
    
    
    
    41,932
    
    
    
    23,722Subordinated debentures
    
    
    6,186
    
    
    
    9,237
    
    
    
    10,311Federal funds purchased
    
    
    164
    
    
    
    716
    
    
    
    419Total average balance
    
    $
    111,013
    
    
    $
    139,717
    
    
    $
    117,748Average rate paid on all borrowed funds
    
    
    3.32
    %
    
    
    5.14
    %
    
    
    5.02
    %
 Shareholders Equity
   29




---



##### 



Risk Based Capital AnalysisYear Ended December 312008
    
    
    2007
    
    
    2006(Dollars In Thousands)Tier 1 Capital:Common stock
    
    $
    8,551
    
    
    $
    9,052
    
    
    $
    9,867Capital surplus
    
    
    17,411
    
    
    
    21,833
    
    
    
    29,316Retained earnings
    
    
    31,123
    
    
    
    26,832
    
    
    
    23,620Subordinated debt (trust preferred debenture)
    
    
    6,000
    
    
    
    6,000
    
    
    
    10,000Total Tier 1 capital
    
    
    63,085
    
    
    
    63,717
    
    
    
    72,803Subordinated debt not included in Tier 1
    
    
    
    
    
    
    
    
    
    
    Allowance for loan losses
    
    
    6,662
    
    
    
    6,585
    
    
    
    5,688Total Risk Based Capital
    
    $
    69,747
    
    
    $
    70,302
    
    
    $
    78,491Risk weighted assets
    
    $
    532,195
    
    
    $
    525,676
    
    
    $
    484,987Quarterly average assets
    
    $
    649,817
    
    
    $
    632,752
    
    
    $
    631,378Capital Ratios:Tier 1 risk based capital ratio
    
    
    11.85
    %
    
    
    12.12
    %
    
    
    15.01
    %Total risk based capital ratio
    
    
    13.11
    %
    
    
    13.37
    %
    
    
    16.18
    %Leverage ratio
    
    
    9.71
    %
    
    
    10.07
    %
    
    
    11.53
    %
 RESULTS OF OPERATIONS
   30




---



##### 



Net Interest Income
        31




---



##### 



Yield on Average Earning Assets and Rates on Average Interest-Bearing Liabilities*Year Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    Income /
    
    
    Yield /
    
    
    Average
    
    
    Income /
    
    
    Yield /
    
    
    Average
    
    
    Income /
    
    
    Yield /Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(In Thousands)Assets:Interest earning assets:Securities
    
    $
    68,522
    
    
    $
    3,440
    
    
    
    5.02
    %
    
    $
    94,331
    
    
    $
    4,324
    
    
    
    4.58
    %
    
    $
    107,165
    
    
    $
    4,687
    
    
    
    4.37
    %Loans(3)
    
    
    510,521
    
    
    
    34,875
    
    
    
    6.83
    %
    
    
    522,122
    
    
    
    40,303
    
    
    
    7.72
    %
    
    
    454,146
    
    
    
    34,899
    
    
    
    7.68
    %Interest bearing deposits and federal funds sold
    
    
    26,911
    
    
    
    487
    
    
    
    1.81
    %
    
    
    17,474
    
    
    
    846
    
    
    
    4.84
    %
    
    
    8,193
    
    
    
    400
    
    
    
    4.88
    %Total interest earning assets
    
    
    605,954
    
    
    
    38,802
    
    
    
    6.40
    %
    
    
    633,927
    
    
    
    45,473
    
    
    
    7.17
    %
    
    
    569,504
    
    
    
    39,986
    
    
    
    7.02
    %Non-interest earning assets:Cash and due from banks
    
    
    5,257
    
    
    
    
    
    
    
    
    
    
    
    6,784
    
    
    
    
    
    
    
    
    
    
    
    10,546Premises, land and equipment
    
    
    9,475
    
    
    
    
    
    
    
    
    
    
    
    9,710
    
    
    
    
    
    
    
    
    
    
    
    9,616Other assets
    
    
    12,012
    
    
    
    
    
    
    
    
    
    
    
    5,333
    
    
    
    
    
    
    
    
    
    
    
    5,531Less: allowance for loan losses
    
    
    (8,248
    )
    
    
    
    
    
    
    
    
    
    
    (6,170
    )
    
    
    
    
    
    
    
    
    
    
    (5,363
    )Total non-interest earning assets
    
    
    18,496
    
    
    
    
    
    
    
    
    
    
    
    15,657
    
    
    
    
    
    
    
    
    
    
    
    20,330Total Assets
    
    $
    624,450
    
    
    
    
    
    
    
    
    
    
    $
    649,584
    
    
    
    
    
    
    
    
    
    
    $
    589,834Liabilities and Shareholders Equity:Interest bearing liabilities:Interest bearing demand deposits
    
    $
    8,956
    
    
    $
    100
    
    
    
    1.12
    %
    
    $
    9,507
    
    
    $
    199
    
    
    
    2.09
    %
    
    $
    10,691
    
    
    $
    224
    
    
    
    2.10
    %Money market deposit accounts
    
    
    112,391
    
    
    
    2,653
    
    
    
    2.36
    %
    
    
    111,344
    
    
    
    4,888
    
    
    
    4.39
    %
    
    
    118,548
    
    
    
    4,859
    
    
    
    4.10
    %Savings accounts
    
    
    3,137
    
    
    
    101
    
    
    
    3.22
    %
    
    
    4,989
    
    
    
    231
    
    
    
    4.63
    %
    
    
    2,147
    
    
    
    88
    
    
    
    4.10
    %Time deposits
    
    
    263,175
    
    
    
    11,197
    
    
    
    4.25
    %
    
    
    256,805
    
    
    
    12,808
    
    
    
    4.99
    %
    
    
    230,896
    
    
    
    10,605
    
    
    
    4.59
    %Total interest-bearing deposits
    
    
    387,659
    
    
    
    14,051
    
    
    
    3.62
    %
    
    
    382,645
    
    
    
    18,126
    
    
    
    4.74
    %
    
    
    362,282
    
    
    
    15,776
    
    
    
    4.35
    %FHLB Advances
    
    
    13,524
    
    
    
    454
    
    
    
    3.36
    %
    
    
    60,224
    
    
    
    3,197
    
    
    
    5.31
    %
    
    
    61,066
    
    
    
    3,161
    
    
    
    5.18
    %Securities sold under agreements to repurchase and
federal funds purchased
    
    
    16,433
    
    
    
    260
    
    
    
    1.58
    %
    
    
    12,410
    
    
    
    516
    
    
    
    4.16
    %
    
    
    5,062
    
    
    
    166
    
    
    
    3.28
    %Other short-term borrowings
    
    
    20,697
    
    
    
    363
    
    
    
    1.75
    %
    
    
    15,913
    
    
    
    641
    
    
    
    4.03
    %
    
    
    17,586
    
    
    
    738
    
    
    
    4.20
    %Long-term borrowings
    
    
    54,173
    
    
    
    2,195
    
    
    
    4.05
    %
    
    
    41,932
    
    
    
    2,018
    
    
    
    4.81
    %
    
    
    23,722
    
    
    
    962
    
    
    
    4.06
    %Subordinated debentures
    
    
    6,186
    
    
    
    417
    
    
    
    6.74
    %
    
    
    9,237
    
    
    
    806
    
    
    
    8.73
    %
    
    
    10,311
    
    
    
    880
    
    
    
    8.53
    %Total interest-bearing liabilities
    
    
    498,672
    
    
    
    17,740
    
    
    
    3.56
    %
    
    
    522,361
    
    
    
    25,304
    
    
    
    4.84
    %
    
    
    480,029
    
    
    
    21,683
    
    
    
    4.52
    %Non-interest bearing liabilities:Demand deposits
    
    
    63,214
    
    
    
    
    
    
    
    
    
    
    
    62,354
    
    
    
    
    
    
    
    
    
    
    
    61,506Other liabilities
    
    
    5,682
    
    
    
    
    
    
    
    
    
    
    
    1,526
    
    
    
    
    
    
    
    
    
    
    
    4,029Total liabilities
    
    
    567,568
    
    
    
    
    
    
    
    
    
    
    
    586,241
    
    
    
    
    
    
    
    
    
    
    
    545,564Shareholders Equity
    
    
    56,882
    
    
    
    
    
    
    
    
    
    
    
    63,343
    
    
    
    
    
    
    
    
    
    
    
    44,270Total Liabilities and Shareholders Equity:
    
    $
    624,450
    
    
    
    
    
    
    
    
    
    
    $
    649,584
    
    
    
    
    
    
    
    
    
    
    $
    589,834Interest Spread(1)
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    2.33
    %
    
    
    
    
    
    
    
    
    
    
    2.50
    %Net Interest Margin(2)*
    
    
    
    
    
    $
    21,062
    
    
    
    3.48
    %
    
    
    
    
    
    $
    20,169
    
    
    
    3.18
    %
    
    
    
    
    
    $
    18,303
    
    
    
    3.21
    %
 
 (1)
    
    Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.(2)
    
    Net interest margin is net interest income, expressed as a percentage of average earning assets.(3)
    
    Loans placed on non-accrual status are included in loan balances*
    
    Note: Interest income and yields are presented on a fully taxable equivalent basis using 34% tax rate. 32




---



##### 



Volume and Rate AnalysisYears Ended December 312008 compared to 2007
    
    2007 compared to 2006
    
    2006 compared to 2005Change Due To:
    
    Change Due To:
    
    Change Due To:Increase /
    
    
    
    
    
    
    
    
    
    Increase /
    
    
    
    
    
    
    
    
    
    Increase /(Decrease)
    
    Volume
    
    Rate
    
    (Decrease)
    
    Volume
    
    Rate
    
    (Decrease)
    
    Volume
    
    Rate(In Thousands)Interest Earning Assets:Investments
    
    $
    (884
    )
    
    $
    (1,267
    )
    
    $
    383
    
    
    $
    (363
    )
    
    $
    (584
    )
    
    $
    221
    
    
    $
    2,197
    
    
    $
    1,814
    
    
    $
    383Loans
    
    
    (5,428
    )
    
    
    (879
    )
    
    
    (4,549
    )
    
    
    5,404
    
    
    
    5,226
    
    
    
    178
    
    
    
    9,856
    
    
    
    6,713
    
    
    
    3,143Interest bearing deposits
    
    
    (356
    )
    
    
    299
    
    
    
    (655
    )
    
    
    431
    
    
    
    434
    
    
    
    (3
    )
    
    
    121
    
    
    
    (18
    )
    
    
    139Federal funds sold
    
    
    (2
    )
    
    
    18
    
    
    
    (20
    )
    
    
    15
    
    
    
    16
    
    
    
    (1
    )
    
    
    1
    
    
    
    1
    
    
    
    Total Increase (Decrease) in
Interest Income
    
    
    (6,670
    )
    
    
    (1,829
    )
    
    
    (4,841
    )
    
    
    5,487
    
    
    
    5,092
    
    
    
    395
    
    
    
    12,175
    
    
    
    8,510
    
    
    
    3,665Interest Bearing Liabilities:Interest-bearing demand deposits
    
    
    (99
    )
    
    
    (11
    )
    
    
    (88
    )
    
    
    (25
    )
    
    
    (24
    )
    
    
    (1
    )
    
    
    24
    
    
    
    
    
    
    
    24Money market deposit accounts
    
    
    (2,235
    )
    
    
    46
    
    
    
    (2,281
    )
    
    
    29
    
    
    
    (304
    )
    
    
    333
    
    
    
    604
    
    
    
    (406
    )
    
    
    1,009Savings accounts
    
    
    (130
    )
    
    
    (71
    )
    
    
    (59
    )
    
    
    143
    
    
    
    130
    
    
    
    13
    
    
    
    84
    
    
    
    43
    
    
    
    41Time deposits
    
    
    (1,611
    )
    
    
    311
    
    
    
    (1,922
    )
    
    
    2,203
    
    
    
    1,240
    
    
    
    963
    
    
    
    6,046
    
    
    
    4,376
    
    
    
    1,669Total interest-bearing
deposits
    
    
    (4,075
    )
    
    
    275
    
    
    
    (4,350
    )
    
    
    2,350
    
    
    
    1,042
    
    
    
    1,308
    
    
    
    6,758
    
    
    
    4,013
    
    
    
    2,743FHLB Advances
    
    
    (2,743
    )
    
    
    (1,861
    )
    
    
    (882
    )
    
    
    36
    
    
    
    (42
    )
    
    
    78
    
    
    
    1,551
    
    
    
    785
    
    
    
    766Securities sold under
agreements to repurchase
    
    
    (256
    )
    
    
    132
    
    
    
    (388
    )
    
    
    350
    
    
    
    304
    
    
    
    46
    
    
    
    147
    
    
    
    124
    
    
    
    23Other short-term borrowings
    
    
    (278
    )
    
    
    155
    
    
    
    (433
    )
    
    
    (97
    )
    
    
    (54
    )
    
    
    (43
    )
    
    
    488
    
    
    
    359
    
    
    
    129Long-term borrowings
    
    
    177
    
    
    
    529
    
    
    
    (352
    )
    
    
    1,056
    
    
    
    851
    
    
    
    205
    
    
    
    45
    
    
    
    (12
    )
    
    
    57Trust Preferred
    
    
    (389
    )
    
    
    (230
    )
    
    
    (159
    )
    
    
    (74
    )
    
    
    (95
    )
    
    
    21
    
    
    
    173
    
    
    
    1
    
    
    
    172Total Increase (Decrease) in
Interest Expense
    
    
    (7,564
    )
    
    
    (1,000
    )
    
    
    (6,564
    )
    
    
    3,621
    
    
    
    2,006
    
    
    
    1,615
    
    
    
    9,162
    
    
    
    5,270
    
    
    
    3,890Increase (Decrease) in Net
Interest Income
    
    $
    894
    
    
    
    (829
    )
    
    $
    1,723
    
    
    $
    1,866
    
    
    
    3,086
    
    
    $
    (1,220
    )
    
    $
    3,013
    
    
    
    3,240
    
    
    $
    (225
    )
  Provision for Loan Losses
   Non-Interest Income
   Non-Interest Expense
  33




---



##### 



Income Taxes
  34




---



##### 



Quarterly Results(unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    TotalQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YTD(In Thousands, Except Per Share Data)2008Total interest income
    
    $
    10,019
    
    
    $
    9,511
    
    
    $
    9,727
    
    
    $
    9,535
    
    
    $
    38,792Total interest expense
    
    
    5,237
    
    
    
    4,262
    
    
    
    4,172
    
    
    
    4,069
    
    
    
    17,740Net interest income
    
    
    4,782
    
    
    
    5,249
    
    
    
    5,555
    
    
    
    5,466
    
    
    
    21,052Provision for loan losses
    
    
    408
    
    
    
    1,399
    
    
    
    1,855
    
    
    
    1,761
    
    
    
    5,423Net interest income after provision for loan losses
    
    
    4,374
    
    
    
    3,850
    
    
    
    3,700
    
    
    
    3,705
    
    
    
    15,629Total noninterest income
    
    
    8,442
    
    
    
    8,022
    
    
    
    5,640
    
    
    
    8,709
    
    
    
    30,813Total noninterest expense
    
    
    10,181
    
    
    
    10,215
    
    
    
    8,147
    
    
    
    10,455
    
    
    
    38,998Income tax expense
    
    
    944
    
    
    
    595
    
    
    
    424
    
    
    
    737
    
    
    
    2,700Net income
    
    $
    1,691
    
    
    $
    1,062
    
    
    $
    769
    
    
    $
    1,222
    
    
    $
    4,744Earnings Per Share:Basic
    
    $
    0.16
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.12
    
    
    $
    0.46Diluted
    
    
    0.16
    
    
    
    0.10
    
    
    
    0.08
    
    
    
    0.12
    
    
    
    0.46
 First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    TotalQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YTD(In Thousands, Except Per Share Data)2007Total interest income
    
    $
    11,173
    
    
    $
    11,517
    
    
    $
    11,699
    
    
    $
    11,037
    
    
    $
    45,426Total interest expense
    
    
    6,117
    
    
    
    6,587
    
    
    
    6,633
    
    
    
    5,967
    
    
    
    25,304Net interest income
    
    
    5,056
    
    
    
    4,930
    
    
    
    5,066
    
    
    
    5,070
    
    
    
    20,122Provision for loan losses
    
    
    291
    
    
    
    465
    
    
    
    942
    
    
    
    890
    
    
    
    2,588Net interest income after provision for loan losses
    
    
    4,765
    
    
    
    4,465
    
    
    
    4,124
    
    
    
    4,180
    
    
    
    17,534Total noninterest income
    
    
    8,161
    
    
    
    7,920
    
    
    
    6,117
    
    
    
    5,509
    
    
    
    27,707Total noninterest expense
    
    
    10,967
    
    
    
    10,096
    
    
    
    10,020
    
    
    
    8,866
    
    
    
    39,949Income tax expense
    
    
    633
    
    
    
    782
    
    
    
    (23
    )
    
    
    198
    
    
    
    1,590Net income
    
    $
    1,326
    
    
    $
    1,507
    
    
    $
    244
    
    
    $
    625
    
    
    $
    3,702Earnings Per Share:Basic
    
    $
    0.11
    
    
    $
    0.13
    
    
    $
    0.02
    
    
    $
    0.06
    
    
    $
    0.32Diluted
    
    
    0.11
    
    
    
    0.12
    
    
    
    0.02
    
    
    
    0.06
    
    
    
    0.31
 Liquidity Management
   35




---



##### 



Contractual Obligations
  Payments Due By PeriodDecember 31, 2008Less Than
    
    
    1 - 3
    
    
    More Than1 Year
    
    
    Years
    
    
    3 Years
    
    
    Total(In Thousands)Certificates of deposit
    
    $
    253,726
    
    
    $
    51,934
    
    
    $
    9,011
    
    
    $
    314,671FHLB advances
    
    
    44,333
    
    
    
    
    
    
    
    
    
    
    
    44,333Securities sold under agreements to repurchase
    
    
    21,395
    
    
    
    
    
    
    
    
    
    
    
    21,395Fed funds purchased
    
    
    9,993
    
    
    
    
    
    
    
    
    
    
    
    9,993FHLB long-term borrowings
    
    
    
    
    
    
    29,643
    
    
    
    11,464
    
    
    
    41,107Commercial paper
    
    
    26,136
    
    
    
    
    
    
    
    
    
    
    
    26,136U.S. Treasury demand notes
    
    
    1,717
    
    
    
    
    
    
    
    
    
    
    
    1,717Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    6,186
    
    
    
    6,186Leases
    
    
    365
    
    
    
    594
    
    
    
    617
    
    
    
    1,576Other contractual commitments
    
    
    2,800
    
    
    
    
    
    
    
    
    
    
    
    2,800Total
    
    $
    360,465
    
    
    $
    82,171
    
    
    $
    27,278
    
    
    $
    469,914
 Off Balance Sheet Items
   Recent Accounting Pronouncements
  36




---



##### 



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity Management
     Impact of Inflation and Changing Prices
  37




---



##### 



ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm
 
 Internal Control-Integrated
Framework
       
 38




---



##### 



Report of Independent Registered Public Accounting Firm
    ,
 Internal Control -
Integrated Framework
 
 39




---



##### 



ACCESS NATIONAL CORPORATION
Consolidated Balance Sheets
 2008
    
    
    2007AssetsCash and due from banks
    
    $
    8,785
    
    
    $
    6,238Interest bearing deposits in other banks and federal funds sold
    
    
    13,697
    
    
    
    13,266Securities available for sale, at fair value
    
    
    91,015
    
    
    
    73,558Loans held for sale, carried at fair value in 2008
    
    
    84,312
    
    
    
    39,144Loans, net of allowance for loan losses 2008, $7,462; 2007, $7,462
    
    
    478,467
    
    
    
    470,136Premises and equipment, net
    
    
    9,211
    
    
    
    9,712Other assets
    
    
    16,837
    
    
    
    10,322Total assets
    
    $
    702,324
    
    
    $
    622,376Liabilities and Shareholders EquityLiabilitiesDepositsNon-interest bearing demand deposits
    
    $
    75,000
    
    
    $
    59,415Savings and interest bearing deposits
    
    
    95,730
    
    
    
    142,820Time deposits
    
    
    314,671
    
    
    
    271,183Total deposits
    
    
    485,401
    
    
    
    473,418Short-term borrowings
    
    
    103,575
    
    
    
    41,676Long-term borrowings
    
    
    41,107
    
    
    
    39,524Subordinated debentures
    
    
    6,186
    
    
    
    6,186Other liabilities and accrued expenses
    
    
    8,110
    
    
    
    3,611Total liabilities
    
    
    644,379
    
    
    
    564,415Shareholders EquityCommon stock, par value, $.835, authorized 60,000,000 shares,
issued and outstanding, 10,240,747 in 2008 and 10,840,730 in 2007
    
    
    8,551
    
    
    
    9,052Additional paid in capital
    
    
    17,410
    
    
    
    21,833Retained earnings
    
    
    31,157
    
    
    
    26,846Accumulated other comprehensive income, net
    
    
    827
    
    
    
    230Total shareholders equity
    
    
    57,945
    
    
    
    57,961Total liabilities and shareholders equity
    
    $
    702,324
    
    
    $
    622,376
  40




---



##### 



ACCESS NATIONAL CORPORATION
Consolidated Statements of Income
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Interest and Dividend IncomeLoans
    
    $
    34,875
    
    
    $
    40,303
    
    
    $
    34,898Interest-bearing deposits and federal funds sold
    
    
    486
    
    
    
    846
    
    
    
    399Securities
    
    
    3,431
    
    
    
    4,277
    
    
    
    4,641Total interest and dividend income
    
    
    38,792
    
    
    
    45,426
    
    
    
    39,938Interest ExpenseDeposits
    
    
    14,051
    
    
    
    18,125
    
    
    
    15,776Short-term borrowings
    
    
    1,077
    
    
    
    4,354
    
    
    
    4,065Long-term borrowings
    
    
    2,195
    
    
    
    2,018
    
    
    
    962Trust preferred capital notes
    
    
    417
    
    
    
    807
    
    
    
    879Total interest expense
    
    
    17,740
    
    
    
    25,304
    
    
    
    21,682Net interest income
    
    
    21,052
    
    
    
    20,122
    
    
    
    18,256Provision for loan losses
    
    
    5,423
    
    
    
    2,588
    
    
    
    232Net interest income after provision for
loan losses
    
    
    15,629
    
    
    
    17,534
    
    
    
    18,024Non-interest IncomeService fees on deposit accounts
    
    
    438
    
    
    
    365
    
    
    
    359Gain on sale of loans
    
    
    24,859
    
    
    
    20,241
    
    
    
    19,813Mortgage broker fee income
    
    
    1,672
    
    
    
    3,890
    
    
    
    5,280Other income
    
    
    3,844
    
    
    
    3,211
    
    
    
    2,181Total non-interest income
    
    
    30,813
    
    
    
    27,707
    
    
    
    27,633Non-interest ExpenseCompensation and employee benefits
    
    
    20,781
    
    
    
    19,578
    
    
    
    19,404Occupancy
    
    
    1,546
    
    
    
    1,419
    
    
    
    751Furniture and equipment
    
    
    933
    
    
    
    1,111
    
    
    
    1,108Other
    
    
    15,738
    
    
    
    17,841
    
    
    
    12,949Total non-interest expense
    
    
    38,998
    
    
    
    39,949
    
    
    
    34,212Income before income taxes
    
    
    7,444
    
    
    
    5,292
    
    
    
    11,445Income taxes
    
    
    2,700
    
    
    
    1,590
    
    
    
    3,853Net Income
    
    $
    4,744
    
    
    $
    3,702
    
    
    $
    7,592Earnings per common share:Basic
    
    $
    0.46
    
    
    $
    0.32
    
    
    $
    0.81Diluted
    
    $
    0.46
    
    
    $
    0.31
    
    
    $
    0.72Average outstanding shares:Basic
    
    
    10,298,631
    
    
    
    11,620,130
    
    
    
    9,429,074Diluted
    
    
    10,423,555
    
    
    
    11,866,468
    
    
    
    10,541,873
  41




---



##### 



ACCESS NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders Equity
 AccumulatedOtherAdditional
    
    
    
    
    
    
    Compre-Common
    
    
    Paid in
    
    
    Retained
    
    
    hensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2005
    
    $
    6,644
    
    
    $
    9,099
    
    
    $
    16,228
    
    
    $
    (785
    )
    
    $
    31,186Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    7,592
    
    
    
    
    
    
    
    7,592Other comprehensive income,
unrealized holdings gains
arising during the period
(net of tax, $132)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    256Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,848Stock offering (2,300,000 Shares)
    
    
    1,920
    
    
    
    18,063
    
    
    
    
    
    
    
    
    
    
    
    19,983Stock options & warrants exercised (1,462,286 shs)
    
    
    1,232
    
    
    
    1,348
    
    
    
    
    
    
    
    
    
    
    
    2,580Dividend Reinvestment plan (103,449 Shares)
    
    
    77
    
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    882Repurchase of common stock (7,362 Shares)
    
    
    (6
    )
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Cash dividend
    
    
    
    
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    (179
    )Stock-based compensation
expense recognized in earnings
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Balance, December 31, 2006
    
    
    9,867
    
    
    
    29,316
    
    
    
    23,641
    
    
    
    (529
    )
    
    
    62,295Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    3,702
    
    
    
    
    
    
    
    3,702Other comprehensive income,
unrealized holdings gains
arising during the period
(net of tax, $391)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759
    
    
    
    759Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,461Stock options exercised (178,320 Shares)
    
    
    149
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    300Dividend Reinvestment plan
(91,105 Shares)
    
    
    76
    
    
    
    729
    
    
    
    
    
    
    
    
    
    
    
    805Repurchase of common stock under share
repurchase program (1,245,624 Shares)
    
    
    (1,040
    )
    
    
    (8,462
    )
    
    
    
    
    
    
    
    
    
    
    (9,502
    )Cash dividend
    
    
    
    
    
    
    
    
    
    
    (497
    )
    
    
    
    
    
    
    (497
    )Stock-based Compensation
expense recognized in earnings
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    99Balance, December 31, 2007
    
    
    9,052
    
    
    
    21,833
    
    
    
    26,846
    
    
    
    230
    
    
    
    57,961Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    4,744
    
    
    
    
    
    
    
    4,744Other comprehensive income,
unrealized holdings gains
arising during the period
(net of tax, $307)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597
    
    
    
    597Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,341Stock options exercised (137,682 Shares)
    
    
    115
    
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    399Dividend Reinvestment plan
(87,171 Shares)
    
    
    73
    
    
    
    398
    
    
    
    
    
    
    
    
    
    
    
    471Repurchase of common stock under share
repurchase program (824,836 Shares)
    
    
    (689
    )
    
    
    (5,241
    )
    
    
    
    
    
    
    
    
    
    
    (5,930
    )Cash dividend
    
    
    
    
    
    
    
    
    
    
    (433
    )
    
    
    
    
    
    
    (433
    )Stock-based Compensation
expense recognized in earnings
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    136Balance, December 31, 2008
    
    $
    8,551
    
    
    $
    17,410
    
    
    $
    31,157
    
    
    $
    827
    
    
    $
    57,945
  42




---



##### 



ACCESS NATIONAL CORPORATION
Consolidated Statements of Cash Flows
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    4,744
    
    
    $
    3,702
    
    
    $
    7,592Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    5,423
    
    
    
    2,588
    
    
    
    237Deferred tax benefit
    
    
    (906
    )
    
    
    (1,106
    )
    
    
    (576
    )Stock based compensation
    
    
    136
    
    
    
    99
    
    
    
    46Valuation allowance on derivatives
    
    
    (231
    )
    
    
    68
    
    
    
    (24
    )Net amortization on securities
    
    
    2
    
    
    
    (20
    )
    
    
    (5
    )Depreciation and amortization
    
    
    747
    
    
    
    839
    
    
    
    846Loss on disposal of assets
    
    
    5
    
    
    
    1
    
    
    
    2Changes in assets and liabilities:Originations of loans held for sale
    
    
    (777,966
    )
    
    
    (886,433
    )
    
    
    (807,549
    )Proceed from sale of loans held for sale
    
    
    732,798
    
    
    
    912,609
    
    
    
    787,248Increase in other assets
    
    
    (8,221
    )
    
    
    (1,851
    )
    
    
    (1,921
    )Increase (decrease) in other liabilities
    
    
    4,499
    
    
    
    (2,110
    )
    
    
    (221
    )Net cash (used in) provided by operating activities
    
    
    (38,970
    )
    
    
    28,386
    
    
    
    (14,325
    )Cash Flows from Investing ActivitiesProceeds from maturities and calls of securities available for sale
    
    
    61,357
    
    
    
    66,612
    
    
    
    21,591Proceeds from sale of securities
    
    
    2,927
    
    
    
    
    
    
    
    Purchases of securities available for sale
    
    
    (80,840
    )
    
    
    (33,838
    )
    
    
    (38,590
    )Net increase in loans
    
    
    (13,754
    )
    
    
    (44,581
    )
    
    
    (63,862
    )Proceeds from sale of assets
    
    
    35
    
    
    
    23
    
    
    
    Proceeds from sales of other real estate owned
    
    
    2,449
    
    
    
    1,363
    
    
    
    Purchases of premises and equipment
    
    
    (199
    )
    
    
    (970
    )
    
    
    (692
    )Net cash used in investing activities
    
    
    (28,025
    )
    
    
    (11,391
    )
    
    
    (81,553
    )Cash Flows from Financing ActivitiesNet increase
(decrease) in demand, interest-bearing demand and savings deposits
    
    
    (31,505
    )
    
    
    2,704
    
    
    
    (30,596
    )Net increase in time deposits
    
    
    43,488
    
    
    
    31,782
    
    
    
    49,899Increase in securities sold under agreement to repurchase
    
    
    16,574
    
    
    
    273
    
    
    
    13,564Net increase (decrease) in other short-term borrowings
    
    
    45,326
    
    
    
    (43,548
    )
    
    
    24,191Net increase (decrease) in long-term borrowings
    
    
    1,583
    
    
    
    (7,173
    )
    
    
    19,786Proceeds from issuance of common stock
    
    
    870
    
    
    
    1,105
    
    
    
    23,446Repurchase of common stock
    
    
    (5,930
    )
    
    
    (9,502
    )
    
    
    (51
    )Dividends paid
    
    
    (433
    )
    
    
    (497
    )
    
    
    (179
    )Net cash provided by (used in) financing activities
    
    
    69,973
    
    
    
    (24,856
    )
    
    
    100,060Increase (decrease) in cash and cash equivalents
    
    
    2,978
    
    
    
    (7,861
    )
    
    
    4,182Cash and Cash EquivalentsBeginning
    
    
    19,504
    
    
    
    27,365
    
    
    
    23,183Ending
    
    $
    22,482
    
    
    $
    19,504
    
    
    $
    27,365Supplemental Disclosures of Cash Flow InformationCash payments for interest
    
    $
    17,360
    
    
    $
    25,285
    
    
    $
    21,660Cash payments for income taxes
    
    $
    3,480
    
    
    $
    4,815
    
    
    $
    3,532Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain on securities available for sale
    
    $
    904
    
    
    $
    1,150
    
    
    $
    388
  43




---



##### 



ACCESS NATIONAL CORPORATION
Notes to Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies
 Nature of Operations
  Basis of Presentation
 Use of Estimates
 Cash Flow Reporting
 Restrictions on Cash and Cash Equivalents
 Securities
  Loans
   44




---



##### 



Notes to Consolidated Financial Statements
  Loans Held for Sale
 Allowance for Loan Losses
    Derivative Financial Instruments
   Premises and Equipment
 45




---



##### 



Notes to Consolidated Financial Statements
 Real
Estate Owned -
 Income Taxes
 Stock-Based Compensation Plans
 Earnings Per Share
 Fair Value Measurements
   Advertising Costs
 Recent Accounting Pronouncements
   46




---



##### 



Notes to Consolidated Financial Statements
     47




---



##### 



Notes to Consolidated Financial Statements
 Note 2. Securities
  December 31, 2008Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedAmortized Cost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair Value(In Thousands)U.S. Treasury Notes
    
    $
    999
    
    
    $
    7
    
    
    $
    
    
    
    $
    1,006U.S. Governmental Agencies
    
    
    74,934
    
    
    
    1,420
    
    
    
    
    
    
    
    76,354Mortgage Backed Securities
    
    
    1,428
    
    
    
    2
    
    
    
    (39
    )
    
    
    1,391Taxable Municipals
    
    
    5,006
    
    
    
    3
    
    
    
    (89
    )
    
    
    4,920Mutual Fund
    
    
    1,500
    
    
    
    
    
    
    
    (52
    )
    
    
    1,448Restricted Stock -Federal Reserve Bank Stock
    
    
    894
    
    
    
    
    
    
    
    
    
    
    
    894FHLB Stock
    
    
    5,002
    
    
    
    
    
    
    
    
    
    
    
    5,002$
    89,763
    
    
    $
    1,432
    
    
    $
    (180
    )
    
    $
    91,015
 December 31, 2007Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedAmortized Cost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair Value(In Thousands)U.S. Treasury Notes
    
    $
    995
    
    
    $
    18
    
    
    $
    
    
    
    $
    1,013U.S. Governmental Agencies
    
    
    61,365
    
    
    
    417
    
    
    
    (62
    )
    
    
    61,720Mortgage Backed Securities
    
    
    793
    
    
    
    6
    
    
    
    
    
    
    
    799Tax Exempt Municipals
    
    
    2,890
    
    
    
    6
    
    
    
    (5
    )
    
    
    2,891Taxable Municipals
    
    
    1,110
    
    
    
    
    
    
    
    (11
    )
    
    
    1,099Mutual Fund
    
    
    1,500
    
    
    
    
    
    
    
    (21
    )
    
    
    1,479Restricted Stock -Federal Reserve Bank Stock
    
    
    894
    
    
    
    
    
    
    
    
    
    
    
    894FHLB Stock
    
    
    3,663
    
    
    
    
    
    
    
    
    
    
    
    3,663$
    73,210
    
    
    $
    447
    
    
    $
    (99
    )
    
    $
    73,558
 48




---



##### 



Notes to Consolidated Financial Statements
 Note 2. Securities (continued)
  December 31, 2008EstimatedAmortized
    
    
    FairCost
    
    
    Value(In Thousands)US Treasury and agenciesDue in one year or less
    
    $
    999
    
    
    $
    1,006Due after one through five years
    
    
    25,000
    
    
    
    25,121Due after five through ten years
    
    
    49,934
    
    
    
    51,233MunicipalsDue after one through five years
    
    
    905
    
    
    
    907Due after five through ten years
    
    
    4,101
    
    
    
    4,013Mortgage backed securities:Due in one year or less
    
    
    381
    
    
    
    382Due after one through five years
    
    
    127
    
    
    
    128Due after fifteen years
    
    
    920
    
    
    
    881Mutual fund
    
    
    1,500
    
    
    
    1,448Restricted stock:FRB stock
    
    
    894
    
    
    
    894FHLB stock
    
    
    5,002
    
    
    
    5,002$
    89,763
    
    
    $
    91,015
  49




---



##### 



Notes to Consolidated Financial Statements
 Note 2. Securities (continued)
  Securities in a loss
    
    
    Securities in a lossPosition for less than
    
    
    Position for 12 Months12 Months
    
    
    or Longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2008
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In Thousands)Investment securities available
for sale:Mortgage backed securities
    
    $
    881
    
    
    $
    (39
    )
    
    $
    
    
    
    $
    
    
    
    $
    881
    
    
    $
    (39
    )Municipals-taxable
    
    
    4,012
    
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    4,012
    
    
    
    (89
    )CRA mutual fund
    
    
    
    
    
    
    
    
    
    
    1,448
    
    
    
    (52
    )
    
    
    1,448
    
    
    
    (52
    )Total
    
    $
    4,893
    
    
    $
    (128
    )
    
    $
    1,448
    
    
    $
    (52
    )
    
    $
    6,341
    
    
    $
    (180
    )
 Securities in a loss
    
    
    Securities in a lossPosition for less than
    
    
    Position for 12 Months12 Months
    
    
    or Longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2007
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In Thousands)Investment securities available
for sale:U.S. Government Agencies
    
    $
    
    
    
    $
    
    
    
    $
    19,812
    
    
    $
    (62
    )
    
    $
    19,812
    
    
    $
    (62
    )Municipals-taxable
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    (11
    )
    
    
    1,100
    
    
    
    (11
    )Municipals-tax exempt
    
    
    457
    
    
    
    (2
    )
    
    
    915
    
    
    
    (3
    )
    
    
    1,372
    
    
    
    (5
    )CRA mutual fund
    
    
    
    
    
    
    
    
    
    
    1,479
    
    
    
    (21
    )
    
    
    1,479
    
    
    
    (21
    )Total
    
    $
    457
    
    
    $
    (2
    )
    
    $
    23,306
    
    
    $
    (97
    )
    
    $
    23,763
    
    
    $
    (99
    )
  50




---



##### 



Notes to Consolidated Financial Statements
 Note 3. Loans
  December 31,2008
    
    
    2007(In Thousands)Loans secured by real estate:Real estate construction
    
    $
    42,600
    
    
    $
    55,074Residential
    
    
    153,740
    
    
    
    156,731Commercial real estate
    
    
    218,539
    
    
    
    199,894Commercial
    
    
    69,537
    
    
    
    64,860Consumer loans
    
    
    1,513
    
    
    
    1,039Total loans
    
    
    485,929
    
    
    
    477,598Less allowance for loan losses
    
    
    7,462
    
    
    
    7,462Net loans
    
    $
    478,467
    
    
    $
    470,136
 Note 4. Allowance for Loan Losses
  December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Balance at beginning of year
    
    $
    7,462
    
    
    $
    5,452
    
    
    $
    5,215Provision charged to operating expense
    
    
    5,423
    
    
    
    2,588
    
    
    
    232Loan recoveries
    
    
    137
    
    
    
    2
    
    
    
    5Loan charge-offs
    
    
    (5,560
    )
    
    
    (580
    )
    
    
    Balance at end of year
    
    $
    7,462
    
    
    $
    7,462
    
    
    $
    5,452
  51




---



##### 



Notes to Consolidated Financial Statements
 Note 5. Non-performing Assets and Accruing Loans Past Due 90 Days or More
  December 31,2008
    
    
    2007(Dollars in thousands)Non-accrual loans:Commercial & Industrial
    
    $
    74
    
    
    $
    187Commercial real estate
    
    
    22Real estate construction
    
    
    2,678Residential real estate
    
    
    
    
    
    
    1,474Consumer and other
    
    
    101
    
    
    
    Total non-accrual loans
    
    
    2,875
    
    
    
    1,661Other real estate owned (OREO)
    
    
    4,455
    
    
    
    1,041Total non-performing assets
    
    $
    7,330
    
    
    $
    2,702Ratio of non-performing assets to:Loans held for investment plus OREO
    
    
    1.49
    %
    
    
    0.56
    %Total assets
    
    
    1.04
    
    
    
    0.43Accruing past due loans:90 or more days past due
    
    $
    
    
    
    $
    
 Note 6. Premises and Equipment, Net
  December 31,2008
    
    
    2007(In Thousands)Land
    
    $
    2,549
    
    
    $
    2,549Premises
    
    
    5,749
    
    
    
    6,460Leasehold improvements
    
    
    1,182
    
    
    
    711Furniture & equipment
    
    
    3,132
    
    
    
    2,97512,612
    
    
    
    12,695Less accumulated depreciation
    
    
    (3,401
    )
    
    
    (2,983
    )$
    9,211
    
    
    $
    9,712
  52




---



##### 



Notes to Consolidated Financial Statements
 Note 7. Deposits
  2008
    
    
    2007Type of Account
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %(In Thousands)Interest-bearing demand deposits
    
    $
    9,854
    
    
    
    2.03
    %
    
    $
    9,865
    
    
    
    2.08
    %Money market deposit accounts
    
    
    81,260
    
    
    
    16.74
    
    
    
    129,904
    
    
    
    27.44Savings accounts
    
    
    4,616
    
    
    
    0.95
    
    
    
    3,051
    
    
    
    0.64Time deposits
    
    
    314,671
    
    
    
    64.83
    
    
    
    271,183
    
    
    
    57.28Total interest-bearing deposits
    
    
    410,401
    
    
    
    84.55
    
    
    
    414,003
    
    
    
    87.45Non-interest bearing demand deposits
    
    
    75,000
    
    
    
    15.45
    
    
    
    59,415
    
    
    
    12.55Total deposits
    
    $
    485,401
    
    
    
    100.00
    %
    
    $
    473,418
    
    
    
    100.00
    %
   Year
    
    Amount(In Thousands)2009
    
    $
    253,7252010
    
    
    47,1572011
    
    
    4,7762012
    
    
    5,1232013
    
    
    2,644Later years
    
    
    1,246$
    314,671
  53




---



##### 



Notes to Consolidated Financial Statements
 Note 8. Borrowings
  December 31,2008
    
    2007(In Thousands)Securities sold under agreements to repurchase
    
    $
    21,395
    
    
    $
    14,814Commercial paper arrangements
    
    
    26,136
    
    
    
    9,455FHLB borrowings
    
    
    44,333
    
    
    
    15,500Federal funds purchased
    
    
    9,993
    
    
    
    U.S. Treasury demand notes
    
    
    1,718
    
    
    
    1,907Total
    
    $
    103,575
    
    
    $
    41,676Weighted interest rate
    
    
    1.10
    %
    
    
    3.66
    %Average for the year ended December 31:Outstanding
    
    $
    50,749
    
    
    $
    72,869Interest rate
    
    
    2.26
    %
    
    
    5.91
    %Maximum month-end outstanding
    
    $
    103,575
    
    
    $
    139,991
 54




---



##### 



Notes to Consolidated Financial Statements
 Note 8. Borrowings (continued)
    Due in 2010
    
    $
    20,893Due in 2011
    
    
    8,750Due in 2013
    
    
    4,250Due in 2014
    
    
    2,750Due in 2015
    
    
    4,464Total Due
    
    $
    41,107
       55




---



##### 



Notes to Consolidated Financial Statements
 Note 9. Income Taxes
  2008
    
    
    2007(In Thousands)Deferred tax assets:Allowance for loan losses
    
    $
    2,537
    
    
    $
    2,036Deferred fees
    
    
    415
    
    
    
    574Other
    
    
    1,037
    
    
    
    4823,989
    
    
    
    3,092Deferred tax liability:Depreciation
    
    
    84
    
    
    
    93Securities available for sale
    
    
    426
    
    
    
    118510
    
    
    
    211Net deferred tax assets included in other assets
    
    $
    3,479
    
    
    $
    2,881
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Current tax expense
    
    $
    3,606
    
    
    $
    2,696
    
    
    $
    4,429Deferred tax (benefit)
    
    
    (906
    )
    
    
    (1,106
    )
    
    
    (576
    )$
    2,700
    
    
    $
    1,590
    
    
    $
    3,853
 56




---



##### 



Notes to Consolidated Financial Statements
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Computed expected tax expense
    
    $
    2,531
    
    
    $
    1,799
    
    
    $
    3,888Increase (decrease) in income
taxes resulting from:State income taxes
    
    
    144
    
    
    
    (180
    )
    
    
    12Other
    
    
    25
    
    
    
    (29
    )
    
    
    (47
    )$
    2,700
    
    
    $
    1,590
    
    
    $
    3,853
 Note 10. Commitments and Contingent Liabilities
   Year
    
    Amount(In Thousands)2009
    
    $
    3652010
    
    
    2982011
    
    
    2972012
    
    
    3042013
    
    
    313$
    1,577
  57




---



##### 



Notes to Consolidated Financial Statements
 Note 10. Commitments and Contingent Liabilities (continued)
     58




---



##### 



Notes to Consolidated Financial Statements
 Note 11. Financial Instruments with Off-Balance-Sheet Risk
      59




---



##### 



Notes to Consolidated Financial Statements
 Note 12. Related Party Transactions
  Note 13. Stock Option Plan
    60




---



##### 



Notes to Consolidated Financial Statements
 Note 13. Stock Option Plan (continued)
  2008
    
    
    2007
    
    
    2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise PriceOutstanding at beginning of year
    
    
    713,624
    
    
    $
    6.07
    
    
    
    815,244
    
    
    $
    4.80
    
    
    
    1,277,408
    
    
    $
    3.76Granted
    
    
    97,375
    
    
    
    6.29
    
    
    
    80,900
    
    
    
    9.47
    
    
    
    250
    
    
    
    8.95Exercised
    
    
    137,682
    
    
    
    2.89
    
    
    
    178,320
    
    
    
    1.68
    
    
    
    446,286
    
    
    
    1.70Lapsed or Canceled
    
    
    83,700
    
    
    
    12.35
    
    
    
    4,200
    
    
    
    11.23
    
    
    
    16,128
    
    
    
    8.40Outstanding at end of year
    
    
    589,617
    
    
    $
    5.96
    
    
    
    713,624
    
    
    $
    6.07
    
    
    
    815,244
    
    
    $
    4.80Options exercisable at end of year
    
    
    426,892
    
    
    $
    5.28
    
    
    
    605,454
    
    
    $
    5.61
    
    
    
    727,020
    
    
    $
    4.63
  Options Outstanding
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Weighted
    
    
    
    
    
    Average
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    Remaining
    
    AverageExercise
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    Contractual
    
    ExercisePrice
    
    Outstanding
    
    Life (in yrs)
    
    Price
    
    Exercisable
    
    Life (in yrs)
    
    Price$1.00-3.45
    
    
    202,938
    
    
    
    0.60
    
    
    $
    3.39
    
    
    
    202,938
    
    
    
    0.60
    
    
    $
    3.39$3.46-6.94
    
    
    213,345
    
    
    
    2.44
    
    
    
    6.44
    
    
    
    125,270
    
    
    
    2.33
    
    
    
    6.58$6.95-7.54
    
    
    100,934
    
    
    
    1.67
    
    
    
    7.52
    
    
    
    98,434
    
    
    
    1.64
    
    
    
    7.52$7.55-9.58
    
    
    72,400
    
    
    
    1.58
    
    
    
    9.58
    
    
    
    250
    
    
    
    0.71
    
    
    
    8.95589,617
    
    
    
    1.57
    
    
    $
    5.96
    
    
    
    426,892
    
    
    
    1.35
    
    
    $
    5.28


2008
    
    2007
    
    2006Expected life of options granted
    
    2.62 Years
    
    2.6 Years
    
    3 YearsRisk-free interest rate
    
    
    3.04
    %
    
    
    4.56
    %
    
    
    4.76
    %Expected volatility of stock
    
    
    35
    %
    
    
    33
    %
    
    
    18.70
    %Annual expected dividend yield
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %Fair Value of Granted Options
    
    $
    174,028
    
    
    $
    188,073
    
    
    $
    14,514Nonvested Options
    
    
    162,725
    
    
    
    108,170
    
    
    
    88,224
   61




---



##### 



Notes to Consolidated Financial Statements
 Note 14. Capital Requirements
    62




---



##### 



Notes to Consolidated Financial Statements
 Note 14. Capital Requirements (continued)
  MinimumTo Be WellCapitalized UnderMinimum Capital
    
    Prompt CorrectiveActual
    
    Requirement
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)December 31, 2008Total Capital(to Risk Weighted Assets)Corporation
    
    $
    69,747
    
    
    
    13.11
    %
    
    $
    42,576
    
    
    
    8.00
    %
    
    $
    53,220
    
    
    
    10.00
    %Bank
    
    $
    65,095
    
    
    
    12.26
    %
    
    $
    42,489
    
    
    
    8.00
    %
    
    $
    53,111
    
    
    
    10.00
    %Tier 1 Capital(to Risk-Weighted Assets)Corporation
    
    $
    63,085
    
    
    
    11.86
    %
    
    $
    21,277
    
    
    
    4.00
    %
    
    $
    31,915
    
    
    
    6.00
    %Bank
    
    $
    58,433
    
    
    
    11.00
    %
    
    $
    21,245
    
    
    
    4.00
    %
    
    $
    31,867
    
    
    
    6.00
    %Tier 1 Capital(to Average Assets)Corporation
    
    $
    63,085
    
    
    
    9.71
    %
    
    $
    25,993
    
    
    
    4.00
    %
    
    $
    32,491
    
    
    
    5.00
    %Bank
    
    $
    58,433
    
    
    
    9.00
    %
    
    $
    25,961
    
    
    
    4.00
    %
    
    $
    32,452
    
    
    
    5.00
    %December 31, 2007:Total Capital(to Risk Weighted Assets)Corporation
    
    $
    70,153
    
    
    
    13.66
    %
    
    $
    41,088
    
    
    
    8.00
    %
    
    $
    51,360
    
    
    
    10.00
    %Bank
    
    $
    62,494
    
    
    
    12.17
    %
    
    $
    41,068
    
    
    
    8.00
    %
    
    $
    51,336
    
    
    
    10.00
    %Tier 1 Capital(to Risk-Weighted Assets)Corporation
    
    $
    63,717
    
    
    
    12.41
    %
    
    $
    20,544
    
    
    
    4.00
    %
    
    $
    30,816
    
    
    
    6.00
    %Bank
    
    $
    56,051
    
    
    
    10.92
    %
    
    $
    20,534
    
    
    
    4.00
    %
    
    $
    30,801
    
    
    
    6.00
    %Tier 1 Capital(to Average Assets)Corporation
    
    $
    63,717
    
    
    
    10.07
    %
    
    $
    25,310
    
    
    
    4.00
    %
    
    $
    31,638
    
    
    
    5.00
    %Bank
    
    $
    56,051
    
    
    
    8.87
    %
    
    $
    25,266
    
    
    
    4.00
    %
    
    $
    31,583
    
    
    
    5.00
    %
 63




---



##### 



Note 15. Earnings Per Share
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    Amount(In Thousands, Except Per Share Data)Earnings per shareBasic
    
    $
    4,744
    
    
    
    10,299
    
    
    $
    0.46
    
    
    $
    3,702
    
    
    
    11,620
    
    
    $
    0.32
    
    
    $
    7,592
    
    
    
    9,429
    
    
    $
    0.81Effect of dilutive
securities:Stock options
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    1,113
    
    
    
    Diluted
    
    
    
    
    
    
    
    
    
    $
    0.46
    
    
    
    
    
    
    
    
    
    
    $
    0.31
    
    
    
    
    
    
    
    
    
    
    $
    0.72Diluted earnings
per share
    
    $
    4,744
    
    
    
    10,424
    
    
    $
    0.46
    
    
    $
    3,702
    
    
    
    11,866
    
    
    $
    0.31
    
    
    $
    7,592
    
    
    
    10,542
    
    
    $
    0.72
 Note 16. Employee Benefits
  64




---



##### 



Notes to Consolidated Financial Statements
 Note 17. Other Expenses
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Advertising and promotional expense
    
    $
    3,760
    
    
    $
    3,921
    
    
    $
    4,190Investor fees
    
    
    889
    
    
    
    891
    
    
    
    663Broker premium
    
    
    3
    
    
    
    3,443
    
    
    
    2,688Legal fees
    
    
    403
    
    
    
    99
    
    
    
    143Other settlement fees
    
    
    146
    
    
    
    251
    
    
    
    164Management fees
    
    
    2,380
    
    
    
    1,560
    
    
    
    1,227Provision
for losses on loans sold
    
    
    2,095
    
    
    
    1,750
    
    
    
    (266
    )Buy down expense
    
    
    332
    
    
    
    (119
    )
    
    
    (119
    )Buy Back Expense
    
    
    142
    
    
    
    409
    
    
    
    Business and franchise tax
    
    
    406
    
    
    
    458
    
    
    
    251Accounting and auditing service
    
    
    623
    
    
    
    570
    
    
    
    402Consulting fees
    
    
    334
    
    
    
    405
    
    
    
    416Early payoff and default penalties
    
    
    119
    
    
    
    331
    
    
    
    320Office supplies-stationery print
    
    
    175
    
    
    
    150
    
    
    
    162Telephone
    
    
    282
    
    
    
    331
    
    
    
    353Postage
    
    
    157
    
    
    
    223
    
    
    
    250Credit reports
    
    
    238
    
    
    
    299
    
    
    
    146Other office expenses
    
    
    95
    
    
    
    152
    
    
    
    178Other operating expenses
    
    
    139
    
    
    
    179
    
    
    
    169Data processing
    
    
    472
    
    
    
    374
    
    
    
    355Regulatory examinations
    
    
    155
    
    
    
    159
    
    
    
    112FDIC insurance
    
    
    350
    
    
    
    51
    
    
    
    51Other
    
    
    2,043
    
    
    
    1,954
    
    
    
    1,094$
    15,738
    
    
    $
    17,841
    
    
    $
    12,949
 Note 18. Fair Value Measurements
      Investment securities
 65




---



##### 



Residential loans held for sale
 Derivative financial instruments
 Impaired loans
 Other real estate owned
  Fair Value Measurementat December 31, 2008 Using(In Thousands)Quoted Pricesin ActiveMarkets forIdentical
    
    
    Other
    
    
    SignificantAssets (Leve l
    
    
    Observable
    
    
    UnobservableDescription
    
    Carrying Value
    
    
    1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)Financial Assets-RecurringAvailable for sale investment securities (1)
    
    $
    85,119
    
    
    $
    85,119
    
    
    $
    
    
    
    $
    Residential loans held for sale
    
    
    84,312
    
    
    
    
    
    
    
    84,312
    
    
    
    Derivative assets
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    363Financial Liabilities-RecurringDerivative liabilities
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    272Financial Assets-Non-RecurringImpaired loans (2)
    
    
    2,875
    
    
    
    
    
    
    
    
    
    
    
    2,875Other real estate owned (3)
    
    
    4,455
    
    
    
    
    
    
    
    4,455
 
 (1)
    
    Excludes restricted stock.(2)
    
    Represents the carrying value of loans for which adjustments are based on the appraised value
of the collateral.(3)
    
    Represents appraised value and realtor comparables less estimated selling expenses. 66




---



##### 



Net Derivatives(In Thousands)Balance September 30, 2008
    
    $
    200Realized and unrealized gains (losses) included in earnings
    
    
    (109
    )Unrealized gains (losses) included in other comprehensive income
    
    
    Purchases, Settlements, paydowns, and maturities
    
    
    Transfer into Level 3
    
    
    Balance December 31, 2008
    
    $
    91
  Net Derivatives(In Thousands)Balance January 1, 2008
    
    $
    (140
    )Realized and unrealized gains included in earnings
    
    
    231Unrealized gains (losses) included in other comprehensive income
    
    
    Purchases, settlements, paydowns, and maturities
    
    
    Transfer into Level 3
    
    
    Balance December 31, 2008
    
    $
    91
 Financial instruments recorded using SFAS 159
   Aggregate
    
    
    
    
    
    
    Contractual(In Thousands)
    

Fair
Value
    
    

Difference
    
    

PrincipalResidential mortgage loans held for sale
    
    $
    84,312
    
    
    $
    2,109
    
    
    $
    82,203
  67




---



##### 



Cash and Short-Term Investments
  Securities
  Loans Held for Sale
  Loan Receivables
  Deposits and Borrowings
  Accrued Interest
  Off-Balance-Sheet Financial Instruments
   68




---



##### 



December 31,2008
    
    
    2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In Thousands)Financial assets:Cash and short-term
investments
    
    $
    22,482
    
    
    $
    22,482
    
    
    $
    19,504
    
    
    $
    19,504Securities available for sale
    
    
    85,119
    
    
    
    85,119
    
    
    
    69,001
    
    
    
    69,001Restricted stock
    
    
    5,896
    
    
    
    5,896
    
    
    
    4,557
    
    
    
    4,577Loans, net of allowance
    
    
    562,779
    
    
    
    562,430
    
    
    
    509,280
    
    
    
    506,056Derivatives
    
    
    273
    
    
    
    273
    
    
    
    
    
    
    
    Total Financial Assets
    
    $
    676,549
    
    
    $
    676,200
    
    
    $
    602,342
    
    
    $
    599,138Financial liabilities:Deposits
    
    $
    485,401
    
    
    $
    486,989
    
    
    $
    473,418
    
    
    $
    475,674Short-term borrowings
    
    
    103,575
    
    
    
    104,083
    
    
    
    41,676
    
    
    
    41,676Long-term borrowings
    
    
    41,107
    
    
    
    42,458
    
    
    
    39,524
    
    
    
    42,777Subordinated debentures
    
    
    6,186
    
    
    
    6,321
    
    
    
    6,186
    
    
    
    6,192Derivatives
    
    
    182
    
    
    
    182
    
    
    
    140
    
    
    
    140Total Financial Liabilities
    
    $
    636,451
    
    
    $
    640,033
    
    
    $
    560,944
    
    
    $
    566,459
  Note 19. Subsequent Event
  69




---



##### 



Notes to Consolidated Financial Statements
 Note 20. Segment Reporting
   70




---



##### 



Notes to Consolidated Financial Statements
  Commercial
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Consolidated2008
    
    Banking
    
    
    Banking
    
    
    Other
    
    
    Eliminations
    
    
    Totals(In Thousands)Revenues:Interest income
    
    $
    37,910
    
    
    $
    1,778
    
    
    $
    71
    
    
    $
    (967
    )
    
    $
    38,792Gain on sale of loans
    
    
    
    
    
    
    24,863
    
    
    
    
    
    
    
    (4
    )
    
    
    24,859Other
    
    
    1,961
    
    
    
    4,472
    
    
    
    1,148
    
    
    
    (1,627
    )
    
    
    5,954Total operating income
    
    
    39,871
    
    
    
    31,113
    
    
    
    1,219
    
    
    
    (2,598
    )
    
    
    69,605Expenses:Interest expense
    
    
    16,972
    
    
    
    865
    
    
    
    873
    
    
    
    (970
    )
    
    
    17,740Salaries and employee benefits
    
    
    7,520
    
    
    
    13,261
    
    
    
    
    
    
    
    
    
    
    
    20,781Other
    
    
    10,836
    
    
    
    12,692
    
    
    
    1,740
    
    
    
    (1,628
    )
    
    
    23,640Total operating expenses
    
    
    35,328
    
    
    
    26,818
    
    
    
    2,613
    
    
    
    (2,598
    )
    
    
    62,161Income before income taxes
    
    $
    4,543
    
    
    $
    4,295
    
    
    $
    (1,394
    )
    
    $
    
    
    
    $
    7,444Total assets
    
    $
    662,885
    
    
    $
    85,909
    
    
    $
    9,476
    
    
    $
    (55,946
    )
    
    $
    702,324Capital expenditures
    
    
    98
    
    
    
    72
    
    
    
    29
    
    
    
    
    
    
    
    199
 Commercial
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Consolidated2007
    
    Banking
    
    
    Banking
    
    
    Other
    
    
    Eliminations
    
    
    Totals(In Thousands)Revenues:Interest income
    
    $
    45,176
    
    
    $
    3,594
    
    
    $
    665
    
    
    $
    (4,009
    )
    
    $
    45,426Gain on sale of loans
    
    
    
    
    
    
    20,244
    
    
    
    
    
    
    
    (3
    )
    
    
    20,241Other
    
    
    1,452
    
    
    
    7,256
    
    
    
    1,081
    
    
    
    (2,323
    )
    
    
    7,466Total operating income
    
    
    46,628
    
    
    
    31,094
    
    
    
    1,746
    
    
    
    (6,335
    )
    
    
    73,133Expenses:Interest expense
    
    
    23,881
    
    
    
    4,166
    
    
    
    1,270
    
    
    
    (4,013
    )
    
    
    25,304Salaries and employee benefits
    
    
    6,822
    
    
    
    12,756
    
    
    
    
    
    
    
    
    
    
    
    19,578Other
    
    
    6,546
    
    
    
    16,989
    
    
    
    1,746
    
    
    
    (2,322
    )
    
    
    22,959Total operating expenses
    
    
    37,249
    
    
    
    33,911
    
    
    
    3,016
    
    
    
    (6,335
    )
    
    
    67,841Income before income taxes
    
    $
    9,379
    
    
    $
    (2,817
    )
    
    $
    (1,270
    )
    
    $
    
    
    
    $
    5,292Total assets
    
    $
    599,835
    
    
    $
    46,184
    
    
    $
    9,115
    
    
    $
    (32,758
    )
    
    $
    622,376Capital expenditures
    
    
    554
    
    
    
    111
    
    
    
    305
    
    
    
    
    
    
    
    970
 Commercial
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Consolidated2006
    
    Banking
    
    
    Banking
    
    
    Other
    
    
    Eliminations
    
    
    Totals(In Thousands)Revenues:Interest income
    
    $
    39,526
    
    
    $
    3,972
    
    
    $
    250
    
    
    $
    (3,810
    )
    
    $
    39,938Gain on sale of loans
    
    
    
    
    
    
    19,865
    
    
    
    
    
    
    
    (52
    )
    
    
    19,813Other
    
    
    1,644
    
    
    
    7,435
    
    
    
    1,331
    
    
    
    (2,590
    )
    
    
    7,820Total operating income
    
    
    41,170
    
    
    
    31,272
    
    
    
    1,581
    
    
    
    (6,452
    )
    
    
    67,571Expenses:Interest expense
    
    
    20,092
    
    
    
    4,053
    
    
    
    1,352
    
    
    
    (3,815
    )
    
    
    21,682Salaries and employee benefits
    
    
    6,371
    
    
    
    13,033
    
    
    
    
    
    
    
    
    
    
    
    19,404Other
    
    
    4,120
    
    
    
    12,123
    
    
    
    1,434
    
    
    
    (2,637
    )
    
    
    15,040Total operating expenses
    
    
    30,583
    
    
    
    29,209
    
    
    
    2,786
    
    
    
    (6,452
    )
    
    
    56,126Income before income taxes
    
    $
    10,587
    
    
    $
    2,063
    
    
    $
    (1,205
    )
    
    $
    
    
    
    $
    11,445Total assets
    
    $
    591,973
    
    
    $
    69,749
    
    
    $
    9,876
    
    
    $
    (26,816
    )
    
    $
    644,782Capital expenditures
    
    $
    248
    
    
    $
    444
    
    
    $
    
    
    
    $
    
    
    
    $
    692
 71




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##### 



Notes to Consolidated Financial Statements
 Note 21. Parent Corporation Only Statements
 ACCESS NATIONAL CORPORATION
 (Parent Corporation Only)
 Balance Sheets
 December 31,2008
    
    
    2007(In Thousands)AssetsCash
    
    $
    10
    
    
    $
    2Other investments
    
    
    4,028
    
    
    
    7,280Investment in subsidiaries
    
    
    59,604
    
    
    
    56,606Other assets
    
    
    804
    
    
    
    725Total assets
    
    $
    64,446
    
    
    $
    64,613LiabilitiesSubordinated debentures
    
    $
    6,186
    
    
    $
    6,186Other liabilities
    
    
    315
    
    
    
    466Total liabilities
    
    
    6,501
    
    
    
    6,652Shareholders EquityCommon stock
    
    
    8,551
    
    
    
    9,052Capital surplus
    
    
    17,410
    
    
    
    21,833Retained earnings
    
    
    31,157
    
    
    
    26,846Accumulated other comprehensive income
    
    
    827
    
    
    
    230Total shareholders equity
    
    
    57,945
    
    
    
    57,961Total liabilities and shareholders equity
    
    $
    64,446
    
    
    $
    64,613
 72




---



##### 



Notes to Consolidated Financial Statements
 ACCESS NATIONAL CORPORATION
(Parent Corporation Only)
Statements of Income
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)IncomeDividends from subsidiaries
    
    $
    3,203
    
    
    $
    1,260
    
    
    $
    1,005Interest
    
    
    72
    
    
    
    665
    
    
    
    250Other
    
    
    81
    
    
    
    46
    
    
    
    943,356
    
    
    
    1,971
    
    
    
    1,349ExpensesInterest expense on subordinated debentures
    
    
    418
    
    
    
    807
    
    
    
    879Other expenses
    
    
    1,122
    
    
    
    1,188
    
    
    
    832Total expenses
    
    
    1,540
    
    
    
    1,995
    
    
    
    1,711Income before income taxes and undistributed income of subsidiaries
    
    
    1,816
    
    
    
    (24
    )
    
    
    (362
    )Income tax (benefit)
    
    
    (526
    )
    
    
    (487
    )
    
    
    (518
    )Income before undistributed income of subsidiaries
    
    
    2,342
    
    
    
    463
    
    
    
    156Undistributed income of subsidiaries
    
    
    2,402
    
    
    
    3,239
    
    
    
    7,436Net income
    
    $
    4,744
    
    
    $
    3,702
    
    
    $
    7,592
 73




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##### 



Notes to Consolidated Financial Statements
 ACCESS NATIONAL CORPORATION
(Parent Corporation Only)
Statements of Cash Flows
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    4,744
    
    
    $
    3,702
    
    
    $
    7,592Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Undistributed income of subsidiaries
    
    
    (2,402
    )
    
    
    (3,239
    )
    
    
    (7,436
    )(Increase) decrease in other assets
    
    
    (79
    )
    
    
    147
    
    
    
    (592
    )Increase (decrease) in other liabilities
    
    
    (150
    )
    
    
    205
    
    
    
    (273
    )Stock Based Compensation
    
    
    136
    
    
    
    99
    
    
    
    46Net cash provided by (used in) operating activities
    
    
    2,249
    
    
    
    914
    
    
    
    (663
    )Cash Flows from Investing ActivitiesIncrease in investment in subsidiaries
    
    
    
    
    
    
    
    
    
    
    (5,000
    )(Increase) decrease in other investments
    
    
    3,252
    
    
    
    12,059
    
    
    
    (17,514
    )Net cash provided by (used in) investing activities
    
    
    3,252
    
    
    
    12,059
    
    
    
    (22,514
    )Cash Flows from Financing ActivitiesRepurchase of common stock
    
    
    (5,930
    )
    
    
    (9,502
    )
    
    
    (51
    )Net proceeds from issuance of common stock
    
    
    870
    
    
    
    1,105
    
    
    
    23,446Redemption of subordinated debentures
    
    
    
    
    
    
    (4,125
    )
    
    
    Dividends paid
    
    
    (433
    )
    
    
    (497
    )
    
    
    (180
    )Net cash provided by (used in) financing activities
    
    
    (5,493
    )
    
    
    (13,019
    )
    
    
    23,215Increase (decrease) in cash and cash equivalents
    
    
    8
    
    
    
    (46
    )
    
    
    38Cash and Cash EquivalentsBeginning
    
    
    2
    
    
    
    48
    
    
    
    10Ending
    
    $
    10
    
    
    $
    2
    
    
    $
    48
 74




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##### 



ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A  CONTROLS AND PROCEDURES
    Report of Managements Assessment of Internal Control over Financial Reporting
     
 ITEM 9B  OTHER INFORMATION
  75




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##### 



PART III
 
 ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11  EXECUTIVE COMPENSATION
  
 ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES
  76




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##### 



PART IV
 
 ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a) Exhibit Index
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of Access
National Corporation (incorporated by reference to Exhibit 3.1
to Form 8-K filed July 18, 2006)3.2
    
    Amended and Restated Bylaws of Access National Corporation
(incorporated by reference to Exhibit 3.2 to Form 8-K Filed
October 24, 2007)4
    
    Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.0 to Form 10-KSB filed March 31, 2003)Certain instruments relating to long-term debt as to which the
total amount of securities authorized thereunder does not exceed
10% of Access National Corporations total assets have been
omitted in accordance with Item 601(b)(4)(iii) of Regulation
S-K. The registrant will furnish a copy of any such instrument
to the Securities and Exchange Commission upon its request.10.1+
    
    Employment Letter Agreement between Access National Bank and
Michael W. Clarke (incorporated by reference to Exhibit 10.1 to
Form 10-K filed March 31, 2005)10.2+
    
    Employment Letter Agreement between Access National Bank and
Robert C. Shoemaker (incorporated by reference to Exhibit 10.2
to Form 10-K filed March 31, 2005)10.3+
    
    Employment Agreement between Access National Bank and Charles
Wimer (incorporated by reference to Exhibit 10.3 to Form 10-KSB
filed March 31, 2003)10.4+
    
    Employment Agreement between Access National Mortgage
Corporation and Dean Hackemer (incorporated by reference to
Exhibit 10.4 to Form 10-K filed March 31, 2005)10.4.1+
    
    Amendment #1 to Employment Agreement between Access National
Mortgage Corporation and Dean Hackemer (incorporated by
reference to Exhibit 10.2 to Form 10-Q filed May 15, 2007)10.5*+
    
    Annual Compensation of Non-Employee Directors10.6*+
    
    Base Salaries for Named Executive Officers10.7+
    
    Access National Bank 1999 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Form 10-KSB filed March 31, 2003)10.7.1+
    
    Form of Incentive Stock Option Agreement for Employee under 1999
Stock Option Plan (incorporated by reference to Exhibit 10.5.1
to Form 8-K filed January 31, 2007)10.7.2+
    
    Form of Incentive Stock Option for Employee-Director under 1999
Stock Option Plan (incorporated by reference to Exhibit 10.5.2
to Form 8-K filed January 31, 2007)10.7.3+
    
    Form of Non-Qualified Stock Option Agreement for Director under
1999 Stock Option Plan (incorporated by reference to Exhibit
10.5.3 to Form 8-K filed January 31, 2007)10.8
    
    Lease agreement between Access National Bank and William and
Blanca Spencer (incorporated by reference to Exhibit 10.6 to
Form 10-KSB filed March 31, 2003)10.9
    
    Lease agreement between Access National Mortgage Corporation and
WJG, LLC (incorporated by reference to Exhibit 10.7 to Form
10-KSB filed March 31, 2003)
 77




---



##### 



Exhibit No.
    
    Description14
    
    Code of Ethics (incorporated by reference to Exhibit 14 to Form
10-KSB filed March 30, 2004)21*
    
    Subsidiaries of Access National Corporation23*
    
    Consent of BDO Seidman, LLP24*
    
    Power of Attorney (included on the signature page of this report)31.1*
    
    CEO Certification Pursuant to Rule 13a-14(a)31.2*
    
    CFO Certification Pursuant to Rule 13a-14(a)32*
    
    CEO/CFO Certification Pursuant to § 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. § 1350)
 
 *
    
    filed herewith+
    
    indicates a management contract or compensatory plan or arrangement 78




---



##### 



SIGNATURES
  Access National Corporation(Registrant)Date: March 27, 2009
    
    By:
    
    /s/ Michael W. Clarke

     Michael W. ClarkePresident and Chief Executive OfficerDate: March 27, 2009
    
    By:
    
    /s/ Charles Wimer

     Charles WimerExecutive Vice President and Chief Financial Officer
 79




---



##### 



Signature
    
    Title
    
    Date/s/ J. Randolph BabbittJ. Randolph Babbitt
    
    Director
    
    March 12,
2009/s/ Michael W. ClarkeMichael W. Clarke
    
    Chairman,
President, Chief Executive
Officer &
    
    March 12,
2009Director(Principal Executive Officer)/s/ John W. Edgemond IVJohn W. Edgemond IV
    
    Director
    
    March 12, 2009/s/ James L. JadlosJames L. Jadlos
    
    Director
    
    March 12, 2009/s/ Thomas M. KodyThomas M. Kody
    
    Director
    
    March 12, 2009/s/ Robert C. ShoemakerRobert C. Shoemaker
    
    Director
    
    March 12, 2009/s/ Charles WimerCharles Wimer
    
    Executive
Vice President and Chief Financial
    
    March 12, 2009Officer(Principal Financial Officer and PrincipalAccounting Officer)
 80