Investors Can Bank on Access National

Seven years have passed since the financial crisis, but many investors still won’t have anything to do with banks because of the key role “too-big-to-fail” institutions played in trashing the economy. Trouble is, though, banks are among the companies that stand to benefit most as the Federal Reserve gradually hikes interest rates.

So what’s today’s bank-phobic investor to do? We say go regional.

Regional banks are more conservative, typically carrying much less debt and avoiding the types of high-risk fixed-income trades that have lost the big banks many billions. And since they focus mainly on making loans and taking deposits, regional banks can better profit from higher interest rates in ways that don’t expose shareholders to undue risk.

A regional bank every investor should consider: a small-cap called Access National (Nasdaq: ANCX), the holding company for Virginia-based Access National Bank. Through its banking operations, Access is a leading provider of credit, deposit, mortgage and wealth management services to businesses and professionals in the Washington, D.C. area.

The bank is nothing if not reliable, consistently generating annual revenue of $55 to $65 million the past five years and once even going well beyond that range ($86 million in 2012). Margins expanded considerably during that time, helping Access nearly double earnings to $1.43 per share and boost dividends 15-fold to $0.60 a share. Its stock currently yields 2.8%.

In an October 13 press release, Access reported third-quarter net income of $3.9 million—the 61st quarterly profit in the bank’s 63-quarter history (it was founded in 1999). Net interest income, the main source of profits, rose 11% from last year’s third quarter to $10.1 million.

Such results echo especially strong growth in Access’s portfolio of loans held for investment—those the bank intends to keep for the long-term rather than sell off for quick cash. This portfolio, which includes real estate construction loans and various types of commercial real estate mortgages, grew at an annualized 12.4% during the first three quarters of the year.

In Access’s latest quarterly filing, management expressed concern about a key profitability metric: net interest margin, the difference between what the bank charges on loans and what it pays depositors:

The historically low interest rate environment continues to negatively impact yields of variable loans and the securities portfolio. The Corporation’s net interest margin for the three months ended September 30, 2015 decreased to 3.70% from the three months ended September 30, 2014 percentage of 3.78%. While there is no certainty to the magnitude of any impact, the continued extended period of low short-term interest rates, as presently forecasted by the Federal Reserve, will continue to have an adverse effect on the net interest margin.

Still, in Access’s case, this metric is substantially better than the banking industry average of just under 3%. And with the odds of Fed tightening now much higher than they were just a month or two ago, net interest margin pressures could soon begin to ease.