EXHIBIT 13



       Annual Report to Stockholders for the year ended December 31, 2001





















<PAGE>

                                 [Photo Omitted]













                             Committed to Community
                               Dedicated to Growth
















                         Virginia Commerce Bancorp, Inc.
                               2001 Annual Report


             [Internal pagination of Edgar version of Annual Report
                 does not match pagination of printed document]



<PAGE>



                         Virginia Commerce Bancorp, Inc.



                                                                       Contents

                               Five Year Financial Summary - inside front cover
                                Letter to Stockholders, Customers and Friends 5
                               Management's Discussion and Analysis of
                               Financial Condition and Results of Operations 12
                                                Independent Auditor's Report 26
                                           Consolidated Financial Statements 27
                                  Notes to Consolidated Financial Statements 32
       Board of Directors, Executive Officers, and Officers - inside back cover




<TABLE>
<CAPTION>

                                                   Bank Services

----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                    <C>
Checking Accounts                        Mortgage Loans- Residential and        Bank-by-Mail
NOW Accounts                             Commercial/Investment                  Merchant Bankcard Services
Money Market Accounts                    Construction Loans -                   Credit Cards
Savings Accounts                         Residential and Commercial             Telephone Banking
Certificates of Deposit                  Equipment leasing                      VISA Debit Cards
IRAs                                     Overdraft Lines of Credit              Lockbox Services
Repurchase Agreements                    Letters of Credit                      Internet Banking
Cash Management Services                 Safe Deposit Boxes                     PC-Based Banking for Business
Personal and Commercial Loans and        Automated Teller Machines and ATM      ACH
Lines of Credit                          Cards (Star and Cirrus)                Commercial Insurance
Home Equity Loans and Lines of Credit    Cashier's Checks
                                         Money Orders
                                         Traveler's Checks
----------------------------------------------------------------------------------------------------------------------
</TABLE>


-------------------------------------------------------------------------------
About Our Bank

Virginia Commerce Bank, a wholly-owned subsidiary of Virginia Commerce Bancorp,
Inc., is a full-service community bank headquartered in Northern Virginia. With
our wide array of business and consumer products, we continue to be one of the
fastest growing banks in our market, and for good reason. From 1988, when we
opened our first branch in Clarendon, until today, with twelve branches, two
mortgage loan offices and nearly $500 million in assets, we have maintained a
clear focus of providing "community banking at its best" while delivering. . .

                             Exceptional Service.  Every Customer.  Every Time.



                                       2
<PAGE>


                          [Map of Northern Virginia and
                            office locations omitted]

<TABLE>
<CAPTION>

<S>                                         <C>                                 <C>
1414 Prince Street                          13881G Metrotech Drive              Residential
Alexandria, Virginia                        Chantilly, Virginia  20151          Mortgage Lending
703-739-3242                                703-378-9556

5140 Duke Street                            10777 Main Street                   374 Maple Avenue East
Alexandria, Virginia  22304                 Fairfax, Virginia  22030            Vienna, Virginia  22180
703-751-4400                                703-273-9111                        703-319-4001

506 King Street                             2030 Old Bridge Road                54 E. Lee Street, Suite 120
Alexandria, Virginia  22314                 Lake Ridge, Virginia  22192         Warrenton, Virginia  20186
703-684-4390                                703-492-7440                        540-341-3001

4230 John Marr Drive                        1356 Chain Bridge Road
Annandale, Virginia  22003                  McLean, Virginia  22101
703-256-8889                                703-448-9800

MAIN OFFICE/
EXECUTIVE OFFICE                            11820 Spectrum Center
5350 Lee Highway                            Reston, Virginia 20171
Arlington, Virginia  22207                  (Opening Spring 2002)
703-534-1382 (Branch)
703-564-0700 (Switchboard)                  374 Maple Avenue East
                                            Vienna, Virginia  22180
2930 Wilson Boulevard                       703-319-4150
Arlington, Virginia  22201
703-525-4601

6500 Williamsburg Boulevard
Arlington, Virginia  22213
703-237-8050
</TABLE>




                                       3
<PAGE>


FIVE YEAR FINANCIAL SUMMARY

(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                        2001            2000              1999               1998           1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>                <C>               <C>             <C>
SELECTED YEAR-END BALANCES
Total assets                                        $  489,511      $  371,182         $  282,575        $  222,442      $  165,119
Total stockholders' equity                              26,220          21,166             17,489            15,832          11,273
Total loans (net)                                      410,950         305,717            205,171           149,440         100,917
Total deposits                                         406,922         310,934            243,044           188,743         142,428
------------------------------------------------------------------------------------------------------------------------------------
SUMMARY RESULTS OF OPERATIONS
Interest income                                     $   33,897      $   26,776         $   18,851        $   15,266      $   11,135
Interest expense                                        15,991          12,861              8,679             7,511           5,168
   Net interest income                              $   17,906      $   13,915         $   10,172        $    7,755      $    5,967
Provision for loan losses                                1,572             947                480               451             262
   Net interest income after
     provision for loan losses                      $   16,334      $   12,968         $    9,692        $    7,304      $    5,705
Non-interest income                                      4,704           2,599              1,999               632             478
Non-interest expense                                    13,982          10,636              8,397             5,648           4,465
   Income before taxes                              $    7,056      $    4,931         $    3,294        $    2,288      $    1,718
Income tax expense                                       2,391           1,681              1,128               784             586
   Net income                                       $    4,665      $    3,250         $    2,166        $    1,504      $    1,132
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (1)
   Net income, basic                                $     1.72      $     1.20         $     0.80        $     0.57      $     0.48
   Net income, diluted                              $     1.57      $     1.13         $     0.75        $     0.53      $     0.45
   Book value                                       $     9.64      $     7.82         $     6.46        $     5.86      $     4.76
   Average number of shares outstanding              2,711,550       2,706,917          2,705,299         2,645,598       2,368,207
------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND SIGNIFICANT RATIOS
   % Change in net income                                43.54%          50.06%             44.04%            32.78%           7.25%
   % Change in assets                                    31.88%          31.36%             27.03%            34.72%          34.55%
   % Change in loans                                     34.42%          49.01%             37.29%            48.08%          32.24%
   % Change in deposits                                  30.87%          27.93%             28.77%            32.52%          37.32%
   % Change in equity                                    23.88%          21.02%             10.47%            40.44%          12.12%
   Equity to asset ratio                                  5.36%           5.70%              6.19%             7.12%           6.83%
   Return on average assets                               1.05%           1.00%              0.87%             0.75%           0.81%
   Return on average equity                              19.37%          17.04%             13.03%            10.37%          10.53%
   Average equity to average assets                       5.44%           5.87%              6.65%             7.25%           7.74%
   Efficiency ratio (2)                                  61.84%          64.41%             68.99%            67.35%          69.28%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Adjusted for all years presented giving retroactive effect to10% stock
     dividends paid in 1997 and 2000, a 35% stock split in the form of a
     dividend in 1997, a change in par value in 1998, a 10% stock restructuring
     in 1998 and 1999, and a 25% stock split in the form of a dividend in 2001.

(2)  Computed by dividing non-interest expense by the sum of net interest income
     on a tax equivalent basis and non-interest income, net of securities gains
     or losses.

Graphic presentation of following data omitted:
<TABLE>
<CAPTION>

 -------------------------------------------------------------------------------------------------------------------
 Net Income                    Total Assets                 Net Loans                   Total Deposits
 (Dollars in thousands)        (Dollars in thousands)       (Dollars in thousands)      (Dollars in thousands)
 <S>     <C>                   <C>     <C>                  <C>     <C>                 <C>     <C>
 2001    4,665                 2001    489,511              2001    410,950             2001    406,922
 2000    3,250                 2000    371,182              2000    305,717             2000    310,934
 1999    2,166                 1999    282,575              1999    205,171             1999    243,044
 1998    1,504                 1998    222,442              1998    149,440             1998    188,743
 1997    1,132                 1997    165,119              1997    100,917             1997    142,428
 -------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       4
<PAGE>


TO OUR STOCKHOLDERS, CUSTOMERS, AND FRIENDS

As the cover of this year's Annual Report proudly proclaims, Virginia Commerce
Bancorp, Inc. (the "Company") is "committed to community, dedicated to growth".
Our consistent focus on these pursuits explains to a large extent why the
Company continues to enjoy significant 703-319-4001 progress as we serve the
needs of our local market.

I am pleased to report that the year ending December 31, 2001 was noteworthy for
outstanding financial performance. It was our seventh consecutive year of record
earnings and solid balance sheet growth. Net income for 2001 was $4.7 million,
an increase of 43.5% over the $3.2 million earned the prior year. As a result,
basic and diluted earnings per share were $1.72 and $1.57 respectively, up 43.3%
and 38.9% over the comparable period in 2000. For the year, return on average
assets (ROA) rose to 1.05% while return on average equity (ROE) increased by
over 2% to 19.37%.

Net interest income for 2001 was $17.9 million, an increase of 28.8% over 2000,
as strong loan volume more than offset a decrease in the net interest margin
from 4.54% in 2000 to 4.23% this past year-end. Non-interest income for the year
rose 80.8% to $4.7 million, primarily due to increased fees and net gains on
home mortgage loans sold. Our residential mortgage production, like the rest of
the industry, benefited considerably from the low-rate environment this past
year. Mortgage originations increased from $80 million in 2000 to over $180
million last year, resulting in a 113% increase in fees and net gains to $3.4
million.

Non-interest expense for the year totalled $14 million, rising 31.5% over the
prior year. This increase primarily reflects overhead associated with the
Company's eleventh (Chantilly - opened November 2000) and twelfth (Lake Ridge -
opened April 2001) branches and higher levels of incentive compensation.
Nonetheless, our efficiency ratio, which measures how well we control
non-interest expense in generating income, improved to 61.8% in 2001 from 64.4%
the previous year.

In 2001, assets, loans, and deposits each grew by over 30%. Total assets as of
December 31, 2001 were $489.5 million, an increase of 31.9% from a year earlier
and funded primarily by growth in deposits of 30.9% to $406.9 million. Loans,
net of allowance for loan losses, rose to $410.9 million, a 34.4% increase over
the $305.7 million reported for the prior year-end.

This past year was a difficult one. Early in the year, our local economy slipped
into a recession which was compounded by the tragic events of September 11.
Notwithstanding these challenges, the Company again achieved strong financial
results, an affirmation of the solid foundation upon which our Bank has been
built.

In addition to the financial results, other highlights of the year include:

o    In mid-April, our twelfth branch office was opened in Lake Ridge at 2030
     Old Bridge Road. It is our first branch in Prince William County and has
     already exceeded $10 million in deposits in less than a year.
o    A 5-for-4 split of the Company's stock was distributed to stockholders on
     May 11, 2001, in the form of a 25% stock dividend. (On February 28, 2002,
     we announced another 25% stock dividend for stockholders of record on March
     15, 2002, payable April 12, 2002.)
o    On July 1, Kerry Donley was promoted to Executive Vice President, Retail
     Banking, with responsibility for all of our branches, marketing, and
     security. Kerry succeeded Laurie Barnwell, who held the position for seven
     years and was a major contributor to the Bank's success. Laurie moved out
     of the area last summer and will certainly be missed. Prior to assuming his
     new position, Kerry was the regional manager for our three Alexandria
     branches. We were fortunate to have an excellent internal candidate of his
     caliber to fill this key management position and contribute to the future
     success of the Bank.
o    In December, the Company concluded a refinance of its line of credit with a
     new $12 million facility from a correspondent bank. Borrowings under the
     line are used to downstream capital to the Bank to fund growth.
o    Over the course of the year, the Company's stock (traded on the National
     Nasdaq under the symbol, "VCBI" appreciated over 95%, adjusted for the 25%
     stock split in May.)

We believe our success continues to be attributable to our delivery of
"community banking at its best" through excellence in People, Product, Pricing,
and Personal Service. It may sound redundant to emphasize those four Ps time and
again, but they are the essence of our banking philosophy and evident in the
customer stories that follow. In the end, we are committed to providing value to
our stockholders, customers, employees, and the communities that we serve.
That's our bottom line. We are proud of our accomplishments and contributions
this past year. However, they would not have been possible without the
dedication and hard work of our employees, the counsel and involvement of our
Directors, and the support of our stockholders, customers, and friends. Thank
you.

/s/ Peter A. Converse
Peter A. Converse
President and Chief executive Officer
March 28, 2002



                                       5
<PAGE>


Virginia Commerce Bank provides a competitive array of banking services to meet
your personal and business needs. The delivery of these services is made
convenient through our twelve branch locations in Northern Virginia, ATMs, drive
through windows, and banking via Internet, PC and telephone.

Branch Banking Services

                            Earning trust one customer at a time. David Sattler,
                            Esq., a local attorney, has been a checking account
                            customer since 1992. While visiting our McLean
                            branch, Mr. Sattler noticed a banner advertising our
                            home equity lines of credit, and decided to apply.
                            Ricardo Balcells, Regional Manager for our Fairfax
                            County branches, assisted him with the application
                            process, impressing Mr. Sattler with his personal
                            attention and quick turnaround.

                            Over time, Mr. Sattler's law partners, as well as
                            his father (also an attorney), experienced our
                            service firsthand. Today, Brooks, Suiters, and
                            Sattler, P.C. maintains business and personal
                            banking relationships with VCB. Furthermore, Mr.
                            Sattler's father opened several accounts with the
                            Bank. And Mr. Sattler? He's now one of our Bank's
                            most enthusiastic shareholders.

                            [Photo Omitted]
                            [Caption -Attorney David Sattler (left) with
                            regional Manager Ricardo Balcells (center) and
                            Branch Manager Stacey Sim at the McLean branch.]


                                       6
<PAGE>


[Photo Omitted[
[Caption - Commercial Lender Greg Motheral (right) with pastor Lee earl (center)
and Church Treasurer Clarence Johnson (left) at Shiloh Baptist Church.


Providing growth opportunities to our growing communities.

Shiloh Baptist Church was chartered in 1865, and has been at its 1401 Duke
Street location since 1891. Always a dynamic congregation, the church has grown
dramatically since 1998, expanding from 442 to almost 1,200 members. Its members
wanted to stay in the community, but they needed more space.


Financial Services for Businesses,
Professionals, and Nonprofits

Virginia Commerce Bank provided a commercial mortgage to enable the church to
purchase a nearby four-story building. Once renovated, the space will house
church offices, a conference room, an adult and children's Sunday school, and a
fellowship and meeting hall for special events. Shiloh Baptist also maintains
its deposit relationship with VCB, and Pastor Lee Earl and other church members
are personal customers as well.

VCB is highly experienced in meeting the diversified and unique financial
requirements of small-to-medium size businesses, professionals and their firms,
and nonprofit organizations, by offering a wealth of specialized financial
products,

<TABLE>
<CAPTION>
<S>                                 <C>                                 <C>
Term loans                          Commercial mortgage, development,   Equipment financing and leasing
                                    and construction loans
Lines of credit                                                         Cash management
SBA loans                           Accounts receivable financing       Merchant bankcard services
Letters of credit                   Government contract financing
</TABLE>






                                       7
<PAGE>


From a first-time purchase to the refinance of a current mortgage, our loan
officers will work to find the best loan for each customer. To meet home
financing needs, Virginia Commerce Bank offers a complete and competitive array
of mortgage programs, including:

<TABLE>
<CAPTION>

<S>                                                <C>                               <C>
10, 15, 20, 25, and 30-year fixed-rate products    FHA & VA financing                Low and no documentation loans

Adjustable rate mortgages (ARMs) of all types      Mortgages for first-time buyers.  Mortgage financing for residences,
                                                   and self-employed individuals     second homes, and rental houses
No point, no closing cost programs
</TABLE>

[Photos Omitted]

GIVING HOMEOWNERS A GREAT DEAL TO COME HOME TO.
For first-time homebuyers Rigoberto Salgado and Maria Berrios, the dream of
homeownership came true after six long months of house hunting. Their mortgage
loan process, however, was quick and comfortable, thanks to Loan Officer Patty
Foster and VCB's hassle-free application process.


Residential Mortgages
                  For Lynda and Edwin Kuhn, Jr., owning their dream home meant
                  building it themselves. VCB provided construction financing,
                  and then converted it to a permanent mortgage when the house
                  was completed, all with our convenient, one-time closing. Then
                  another dream: last year's record-low interest rates. The
                  Kuhns refinanced with VCB and lowered their monthly payments
                  significantly. Ken O'Shea, Manager of the Residential Mortgage
                  Department, assisted the Kuhns with both mortgages.



[Caption - Ken O'Shea with Lynda and Edwin Kuhn, Jr. in front of their new home
(main). Patty Foster with first-time homebuyers Rigoberto Salgado and Maria
Berrios (inset).



                                       8
<PAGE>


Whether it's building your dream home, developing a neighborhood, or
constructing your business headquarters, Virginia Commerce Bank offers the
construction financing expertise and programs you need to complete a successful
project. Our programs include:

Construction-to-permanent loans             Builder construction loans

Commercial construction loans               Land development loans


Construction Financing

DEVELOPING RELATIONSHIPS THAT BUILD NORTHERN VIRGINIA COMMUNITIES.

Petra Builders is a local, woman-owned residential builder with an impressive
22-year history constructing homes in the Lake Manassas area of Gainesville,
Virginia. During those years, company president Sandra Bittner has turned to VCB
and Jamie Nalls, our Senior Vice President/Construction Lending, for financing.
Our support of Petra Builders keeps them on a firm foundation and has resulted
in expanded use of our services. Petra Builders maintains a full banking
relationship with VCB, including the personal accounts of Ms. Bittner and her
husband, Barry.







[Photo Omitted
[Caption - Sandra Bittner, of Petra Builders, with Construction Lenders Tom
Williams (center) and Jamie Nalls (right).



                                       9
<PAGE>


[Photo Omitted]
[Caption - Department head Michele Parker (left) and Lead Processor Jessica
Yamoah (right)in lockbox area (main). Vice Presidents Jose Castillo (left) and
Lynn Gonzalez of Electronic Banking Services reviewing Bank web site (inset).

Cash Management and e-Banking Services

                  INVESTING YOUR TIME AS WISELY AS YOUR MONEY.

                  Whether you are a small business seeking to improve your cash
                  management capabilities, or a large company looking for a
                  reasonably-priced solution to your sophisticated funds
                  management, Virginia Commerce Bank has the right product to
                  meet your needs. Our cash management services are designed to
                  reduce the amount of time spent on administrative tasks and
                  improve your cash flow and yield on idle funds. Through
                  personal service and up-to-date technology, we can tailor a
                  cash management solution to meet any business demands.


VCB cash management and e-banking services include:

<TABLE>
<CAPTION>

<S>                                <C>                                         <C>
Lockbox Services                   e-Banking                                   Cash Management
- Remittance processing            - Online banking                            - Sweep/repurchase agreements
- PC-based information reporting   - Fedwire transfers                         - ZBA (zero balance accounting)
- CD-ROM records storage           - ACH (automated clearinghouse) payments    - Merchant bankcard services
</TABLE>










                                       10
<PAGE>


[Photos Omitted]
[Caption - Volunteer Margie Reeder, Operations Manager of the Main Office
branch, tutoring children at the Claremont Campbell School (main). Chief lending
Officer Randy Anderson addressing the Arlington Chamber of Commerce as current
Chairman (inset).



Community Involvement

REACHING OUT TO OUR NEIGHBORS...AS AN ORGANIZATION AND AS INDIVIDUALS.

Throughout our history, Virginia Commerce Bank has committed itself to giving
something back to the communities where we do business. For us, this represents
more than just a financial commitment. Our employees also invest their time and
talents. They determine ways that their contributions can be the most effective.
Often, their efforts are visible in leadership roles in Chambers of Commerce and
service organizations in Northern Virginia. Other times, they're working behind
the scenes. Individual visibility does not motivate us. Making a visible
difference in our community does.

-------------------------------------------------------------------------------

VCB is proud of its involvement with these organizations:

<TABLE>
<CAPTION>

<S>                                 <C>                                         <C>
Ten Chambers of Commerce.           INOVA Alexandria Arlington                           Host Lions Club
        in Northern Virginia        Hospital Foundation                                  Potomac West Business Association
CrisisLink                          Leadership Arlington                                 Virginia Asset Finance Corporation
Make a Difference Foundation        Washington Area Housing Partnership                  McLean Symphony
Alexandria United Way               McLean Rotary                                        Hopkins House
Arlington Free Clinic               Virginia Hospital Center                             Alexandria Economic
Kiwanis Club                        Arlington County Schools:                             Development Partnership
YMCA                                Claremont-Campbell School                            Arlington Optimist Club

</TABLE>




                                       11
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This management's discussion and analysis and other portions of this report,
contain forward-looking statements within the meaning of the Securities and
Exchange Act of 1934, as amended, including statements of goals, intentions, and
expectations as to future trends, plans, events or results of Company operations
and policies and regarding general economic conditions. In some cases,
forward-looking statements can be identified by use of words such as "may,"
"will," "anticipates," "believes," "expects," "plans," "estimates," "potential,"
"continue," "should," and similar words or phrases. These statements are based
upon current and anticipated economic conditions, nationally and in the
Company's market, interest rates and interest rate policy, competitive factors,
and other conditions which by their nature, are not susceptible to accurate
forecast, and are subject to significant uncertainty. Because of these
uncertainties and the assumptions on which this discussion and the
forward-looking statements are based, actual future operations and results in
the future may differ materially from those indicated herein. Readers are
cautioned against placing undue reliance on any such forward-looking statements.
The Company does undertake to update any forward-looking statements to reflect
occurrences or events that may not have been anticipated as of the date of such
statements.

The following discussion provides information about the results of operations
and financial condition, liquidity, and capital resources of Virginia Commerce
Bancorp, Inc. and subsidiaries (the "Company"). This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, appearing elsewhere in the report.

GENERAL

On December 22, 1999, Virginia Commerce Bancorp, Inc. (the "Company") became a
bank holding company when it acquired all of the shares of Virginia Commerce
Bank (the "Bank") in a mandatory share exchange. The Bank received its charter
as a national banking association on May 16, 1988 from the Comptroller of the
Currency and opened for business at 3033 Wilson Boulevard, Arlington, Virginia.
On June 1, 1995, the Bank converted from a national banking association to a
Virginia state chartered bank as a member of the Federal Reserve System. The
main office of the Company is located at 5350 Lee Highway in Arlington,
Virginia. The Company also operates eleven branch locations in McLean, Arlington
(two branches), Alexandria (three branches), Annandale, Fairfax, Vienna,
Chantilly and Lake Ridge, Virginia and two mortgage loan offices in Vienna and
Warrenton, Virginia. The Company's common stock is traded on the Nasdaq National
Market under the symbol "VCBI".

The Company provides a full range of banking services (other than trust,
securities, brokerage, and international services) to businesses, professionals
and their firms, trade associations, investors and individuals in Northern
Virginia and increasingly to some extent throughout the Metropolitan Washington,
D.C. area. For businesses, the Company offers a complete selection of deposit
accounts, merchant bankcard services, electronic funds transfer, lock box
services, PC banking, lines of credit for working capital purposes, term loans
for expansion and capital expenditures, and commercial real estate and
construction loans, generally on income-producing properties. Services for
individuals include a wide array of deposit account products, home equity loans
and lines of credit, internet banking and bill payment services, telephone
banking, consumer installment loans for the purchase of automobiles and other
personal uses, overdraft and revolving lines of credit, and residential mortgage
and construction loans. The Company also provides cashier's checks, traveler's
checks, wire transfers, bank-by-mail services, safe deposit box facilities, ATM
cards, Visa debit cards and ATM machines at eleven of its branch locations.

RESULTS OF OPERATIONS

During 2001, the Company continued to experience significant growth as total
assets increased 31.9% from $371.2 million to $489.5 million over the prior
year-end. Growth was driven by a 30.9% increase in deposits from $310.9 million
to $406.9 million, a 45.9% increase in repurchase agreements and federal funds
purchased from $29.1 million to $42.5 million and a $4 million increase in other
borrowed funds from $7.4 million to $11.4 million. Total assets at December 31,
2000 of $371.2 million represented an increase of 31.4% from $282.6 million at
December 31, 1999. In 2000 growth was driven similarly to that of 2001 with
deposits increasing 27.9% from $243.0 million to $310.9 million, an $11.3
million increase in repurchase agreements and federal funds purchased from $17.8
million to $29.1 million and a $4.5 million increase in other borrowed funds
from $2.9 million to $7.4 million.

Earnings for 2001 were $4.7 million, an increase of 43.5%, compared to earnings
of $3.3 million in 2000. In 2000, earnings of $3.3 million represented an
increase of 50.1% compared to earnings of $2.2 million in 1999 and earnings in
1999 of $2.2 million increased 44.0% compared to earnings of $1.5 million in
1998. Diluted earnings per share were $1.57, $1.13, and $0.75 in 2001, 2000, and
1999, respectively. Return on average assets was 1.05% for 2001, as compared to
1.00% in 2000 and .87% in 1999. Return on average equity increased to 19.37% in
2001, as compared to 17.04% in 2000, and 13.03% in 1999.



                                       12
<PAGE>

Loan demand continued strong in 2001as total loans, net of allowance for loan
losses, increased 34.4% from $305.7 million at December 31, 2000 to $410.9
million at December 31, 2001. In 2000 total loans grew 49.0% from $205.2 million
at December 31, 1999 to $305.7 million at year-end. At December 31, 2001 loans
represented 101.0% of total deposits compared to 98.3% at December 31, 2000 and
84.4% at December 31, 1999. While loan growth occurred in all major
classifications of loans, growth in real estate construction loans has
represented the largest increase, rising $29.0 million, or 44.3% from $65.5
million at December 31, 2000 to $94.5 million at December 31, 2001 and
increasing 280.8% in 2000 from $17.2 million at December 31, 1999 to $65.5
million. Real estate mortgage loans increased $76.6 million, or 38.6% in 2001
from $198.5 million at December 31, 2000 to $275.1 million and rose $41.5
million, or 26.4% in 2000 from $157.0 million at December 31, 1999.

The growth in loans utilized the majority of deposit and repurchase agreement
funding sources as cash and cash equivalents increased $4.2 million in 2001 from
$11.0 million at December 31, 2000 to $15.2 million at December 31, 2001 and
declined by $11.7 million in 2000 from $22.7 million at December 31, 1999.
Investment securities, which are maintained as additional liquidity sources and
for various collateral needs, increased $7.7 million, or 17.0% from $45.3
million at December 31, 2000 to $53.0 million at December 31, 2001 and decreased
$1 million, or 2.2% from $46.3 million at December 31, 1999 to $45.3 million at
December 31, 2000.

Deposit growth, the Company's main funding source, included an $11.5 million
increase in non-interest-bearing demand deposits in 2001, a $28.9 million
increase in savings and interest-bearing demand deposits and a $55.5 million, or
36.5% increase in time deposits from $152.2 million at December 31, 2000 to
$207.7 million at December 31, 2001. In 2000, deposit growth included a $12.7
million increase in non-interest-bearing demand deposits, a $16.1 million
increase in savings and interest-bearing demand deposits, and a $39.l million
increase in time deposits.

Stockholders' equity increased $5.0 million from $21.2 million at December 31,
2000 to $26.2 at December 31, 2001 with earnings of $4.7 million and a $295
thousand increase in other comprehensive income, net of tax. In 2000,
stockholders' equity grew $3.7 million from $17.5 million at December 31, 1999
to $21.2 million at year-end due to earnings of $3.3 million and a $430 thousand
increase in other comprehensive income, net of tax. The total number of common
shares outstanding increased in 2001 by 555,129 with 541,230 shares issued due
to a twenty-five percent stock split in the form of a dividend in May 2001 and
the issuance of 13,899 shares in September 2001 as a result of exercised
options.

NET INTEREST INCOME

Net interest income is the excess of interest earned on loans and investments
over the interest paid on deposits and borrowings. The Company's net interest
income increased $4.0 million, or 28.8%, from $13.9 million in 2000 to $17.9
million in 2001 and increased $3.7 million, or 36.3%, from $10.2 million in 1999
to $13.9 million in 2000. In 1999, net interest income increased $2.4 million,
or 30.8%, from $7.8 million in 1998 to $10.2 million. For 2001, the average
yield on earning assets fell seventy-two basis points from 8.73% in 2000 to
8.01% while the average cost of interest bearing liabilities dropped fifty-two
basis points from 5.00% in 2000 to 4.48% in 2001. As a result, the net interest
margin on earning assets fell thirty-one basis points from 4.54% to 4.23%. The
narrowed margin is indicative of the Company's short term asset sensitive
position. Following Federal Reserve interest rate reductions of 475 basis points
during 2001, loans, the majority of which are floating or variable rate, and
investment securities repriced faster than interest-bearing liabilities, the
majority of which are one-year and eighteen-month certificates of deposit. With
expectations of no further rate reductions in the beginning of 2002, the Company
expects improvement in the margin as approximately $30.7 million in certificates
of deposit bearing rates from 200 to 275 basis points over offered rates as of
December 31, 2001 will reprice. In 2000, the net interest margin increased
nineteen basis points from 4.35% in 1999 to 4.54% and increased twenty-three
basis points in 1999 from 4.12% in 1998 to 4.35%.


                                       13
<PAGE>

TABLE 1: AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES

 The following table shows the average balance sheets for each of the years
 ended December 31, 2001, 2000, and 1999. In addition, the amounts of interest
 earned on earning assets, with related yields, and interest expense on
 interest-bearing liabilities, with related rates, are shown. Loans placed on a
 non-accrual status are included in the average balances. Net loan fees and late
 charges included in interest income on loans totaled $1.1 million, $702
 thousand and $378 thousand, for 2001, 2000, and 1999, respectively.
<TABLE>
<CAPTION>
                                                       2001                              2000
                                                       ----                              ----
                                                     Interest    Average                Interest    Average
                                         Average     Income-     Yields     Average     Income-     Yields
(Dollars in thousands)                   Balance     Expense     /Rates     Balance     Expense     /Rates
----------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>       <C>         <C>          <C>
ASSETS
Securities (1)                           $ 58,125    $  3,527     6.07%     $ 49,348    $  3,125     6.33%
Loans, before allowance for losses        349,586      29,720     8.50%      250,289      23,215     9.28%
Interest-bearing deposits with other
  banks                                        --          --       --           601          36     5.99%
Federal funds sold                         15,310         650     4.24%        6,377         400     6.27%
----------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS                     $423,021    $ 33,897     8.01%     $306,615    $ 26,776     8.73%
----------------------------------------------------------------------------------------------------------
Non-earning assets                         19,630                             18,457
----------------------------------------------------------------------------------------------------------
TOTAL ASSETS                             $442,651                           $325,072
----------------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits
    NOW accounts                         $ 72,231    $  2,189     3.03%     $ 61,010    $  2,499     4.10%
    Money market accounts                  37,970       1,253     3.30%       23,282         900     3.87%
    Savings accounts                       13,265         318     2.40%       12,771         439     3.44%
    Certificates of deposit               188,968      10,734     5.68%      132,263       7,588     5.74%
----------------------------------------------------------------------------------------------------------
Total interest-bearing deposits          $312,434    $ 14,494     4.64%     $229,326    $ 11,426     4.98%
----------------------------------------------------------------------------------------------------------
Fed Funds purchased, securities
  sold U/A to repurchase and other
  borrowed funds                           44,621       1,497     3.35%       27,966       1,435     5.13%
----------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES       $357,055    $ 15,991     4.48%     $257,292    $ 12,861     5.00%
----------------------------------------------------------------------------------------------------------
Demand deposits and other
  non-interest bearing liabilities         61,515                             48,703
----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                        $418,570                           $305,995
----------------------------------------------------------------------------------------------------------
Stockholders' equity                       24,081                             19,077
----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY                                 $442,651                           $325,072
----------------------------------------------------------------------------------------------------------
Interest rate spread                                              3.53%                              3.73%
Net interest income and margin                       $ 17,906     4.23%                 $ 13,915     4.54%
----------------------------------------------------------------------------------------------------------
</TABLE>
                                                      1999
                                                      ----
                                                     Interest   Average
                                         Average     Income-     Yields
(Dollars in thousands)                   Balance     Expense     /Rates
-----------------------------------------------------------------------

ASSETS
Securities (1)                           $ 46,682    $  2,855     6.12%
Loans, before allowance for losses        176,676      15,447     8.74%
Interest-bearing deposits with other
  banks                                       795          46     5.97%
Federal funds sold                          9,930         503     5.07%
-----------------------------------------------------------------------
TOTAL EARNING ASSETS                     $234,083    $ 18,851     8.05%
-----------------------------------------------------------------------
Non-earning assets                         15,796
-----------------------------------------------------------------------
TOTAL ASSETS                             $249,879
-----------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits
    NOW accounts                         $ 49,673    $  1,933     3.89%
    Money market accounts                  17,275         534     3.09%
    Savings accounts                       11,526         409     3.55%
    Certificates of deposit               102,140       5,177     5.07%
-----------------------------------------------------------------------
Total interest-bearing deposits          $180,614    $  8,053     4.46%
-----------------------------------------------------------------------
Fed Funds purchased, securities
  sold U/A to repurchase and other
  borrowed funds                           15,429         626     4.06%
-----------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES       $196,043    $  8,679     4.43%
-----------------------------------------------------------------------
Demand deposits and other
  non-interest bearing liabilitie          37,219
-----------------------------------------------------------------------
TOTAL LIABILITIES                        $233,262
-----------------------------------------------------------------------
Stockholders' equity                       16,617
-----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY                                 $249,879
-----------------------------------------------------------------------
Interest rate spread                                              3.62%
Net interest income and margin                       $ 10,172     4.35%
-----------------------------------------------------------------------

(1) Yields on securities available-for-sale have been calculated on the basis of
historical cost and do not give effect to changes in the fair value of those
securities, which are reflected as a component of stockholder's equity. Average
yields on securities are stated on a tax equivalent basis.


                                       14
<PAGE>


TABLE 2: RATE-VOLUME VARIANCE ANALYSIS

Interest income and expense are affected by changes in interest rates, by
changes in the volumes of earning assets and interest-bearing liabilities, and
by changes in the mix of these assets and liabilities. The following analysis
shows the year-to-year changes in the components of net interest income.
<TABLE>
<CAPTION>
                                            2001 compared to 2000               2000 compared to 1999
                                            ---------------------               ---------------------
                                            Increase   (Decrease)    Total      Increase   (Decrease)    Total
                                                  Due to            Increase          Due to            Increase
(Dollars in thousands)                      Volume       Rate      (Decrease)   Volume       Rate      (Decrease)
-------------------------------------- --------------------------------------------------------------------------
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>
INTEREST INCOME
Loans                                       $ 8,495     $(1,990)    $ 6,505     $ 6,828     $   940     $ 7,768
Securities                                      532        (130)        402         167         103         270
Federal funds sold                              384        (134)        250        (223)        120        (103)
Interest-bearing deposits in other banks        (36)         --         (36)        (10)         --         (10)
-------------------------------------- --------------------------------------------------------------------------
Total interest income                       $ 9,375     $(2,254)    $ 7,121     $ 6,762     $ 1,163     $ 7,925
-------------------------------------- --------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits
   NOW accounts                             $   340     $  (650)    $  (310)    $   462     $   104     $   566
   Money market accounts                        485        (132)        353         231         135         366
   Savings accounts                              12        (133)       (121)         43         (13)         30
   Certificates of deposit                    3,222         (76)      3,146       2,691         720       2,411
-------------------------------------- --------------------------------------------------------------------------
Total interest-bearing deposits             $ 4,059     $  (991)    $ 3,068     $ 2,427     $   946     $ 3,373
Other borrowings                                595        (533)         62         717          92         809
-------------------------------------- --------------------------------------------------------------------------
Total interest expense                      $ 4,654     $(1,524)    $ 3,130     $ 3,144     $ 1,038     $ 4,182
-------------------------------------- --------------------------------------------------------------------------
Change in Net Interest Income               $ 4,721     $  (730)    $ 3,991     $ 3,618     $   125     $ 3,743
-------------------------------------- --------------------------------------------------------------------------
</TABLE>

ASSET/LIABILITY MANAGEMENT AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

In the normal course of business, the Company is exposed to market risk, or
interest rate risk, as its net income is largely dependent on its net interest
income. Market risk is managed by the Company's Asset/Liability Management
Committee which formulates and monitors the performance of the Company based on
established levels of market risk as dictated by policy. In setting certain
tolerance levels, or limits on market risk, the Committee considers the impact
on earnings and capital, the level and general direction of interest rates,
liquidity, local economic conditions and other factors. Interest rate risk, or
interest sensitivity, can be defined as the amount of forecasted net interest
income that may be gained or lost due to favorable or unfavorable movements in
interest rates. Interest rate risk, or sensitivity, arises when the maturity or
repricing of interest-bearing assets differs from the maturing or repricing of
interest-bearing liabilities and as a result of the difference between total
interest-bearing assets and interest-bearing liabilities. The Company seeks to
manage interest sensitivity while enhancing net interest income by periodically
adjusting this asset/liability position.

One of the tools used by the Company to assess interest sensitivity on a monthly
basis is the static gap analysis which measures the cumulative differences
between the amounts of assets and liabilities maturing or repricing within
various time periods. It is the Company's goal to limit the one-year cumulative
difference to plus or minus 10% of total interest-earning assets in an attempt
to limit changes in future net interest income from sudden changes in market
interest rates. A gap analysis is shown in Table 3 below, and reflects the
earlier of the maturity or repricing dates for various assets and liabilities as
of December 31, 2001. At that point in time, the Company had a cumulative net
liability sensitive twelve-month gap position of $19.5 million, or a negative
4.2% of total interest-earning assets. This position would generally indicate
that earnings should decline in a rising interest rate environment as more
liabilities would reprice than assets; however, this measurement represents a
static position as of a single day and is not necessarily indicative of the
Company's position at any other point in time, does not take into account the
sensitivity of yields and costs of specific assets and liabilities to changes in
market rates, and does not take into account the specific timing of when changes
to a specific asset or liability will occur. More accurate measures of interest
sensitivity are provided to the Company using earnings simulation models.


                                       15
<PAGE>


TABLE 3: INTEREST SENSITIVITY-GAP ANALYSIS
<TABLE>
<CAPTION>
                                                                      Interest Sensitivity Periods
---------------------------------------------------------------------------------------------------------------------
December 31, 2001                                Within        91 to 365        1 to 5         Over
(Dollars in thousands)                          90 Days          Days            Years        5 Years         Total
---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>            <C>            <C>
EARNING ASSETS
Securities                                      $ 17,889       $  6,025        $ 13,579       $ 15,262       $ 52,755
Loans, net of unearned income                    172,850         53,026         167,321         22,109        415,306
---------------------------------------------------------------------------------------------------------------------
Total earning assets                            $190,739       $ 59,051        $180,900       $ 37,371       $468,061
---------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
NOW accounts                                    $ 61,324       $  4,799        $ 12,860             --       $ 78,983
Money market accounts                             27,241          7,406           4,887             --         39,534
Savings accounts                                   1,143          3,573           9,578             --         14,294
Certificates of deposit                           30,721         79,567          97,368              7        207,663
Other borrowings                                  53,452             --             400             --         53,852
---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities              $173,881       $ 95,345        $125,093       $      7       $394,326
---------------------------------------------------------------------------------------------------------------------
Cumulative maturity / interest sensitivity
  gap                                           $ 16,858       $(19,436)       $ 36,371       $ 73,735       $ 73,735
As % of total earnings assets                        3.6%          (4.2)%           7.8%          15.7%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

In order to more closely measure interest sensitivity, the Company uses earnings
simulation models on a quarterly basis. These models utilize the Company's
financial data and various management assumptions as to growth and earnings to
forecast a base level of net interest income and earnings over a one-year
period. This base level of earnings is then shocked assuming a sudden 200 basis
points increase or decrease in interest rates. At December 31, 2001, the model
projected net income would decrease by 5.6% if interest rates would immediately
rise by 200 basis points and decrease by 0.4% if interest rates suddenly fell by
200 basis points, as a majority of the Company's interest-bearing liabilities
would not reprice similarly to loans and investment securities due to their
already low rates. The Company has set a limit on this measurement of interest
sensitivity to a maximum decline in earnings of 20%. Since the earnings model
uses numerous assumptions regarding the effect of changes in interest rates on
the timing and extent of repricing characteristics, future cash flows and
customer behavior, the model cannot precisely estimate net income and the effect
on net income from sudden changes in interest rates. Actual results will differ
from simulated results due to the timing, magnitude and frequency of interest
rate changes and changes in market conditions and management strategies, among
other factors.

NON-INTEREST INCOME

Non-interest income increased $2.1 million, or 80.8%, from $2.6 million in 2000
to $4.7 million in 2001 and increased $600 thousand, or 30.1%, from $2 million
in 1999 to $2.6 million in 2000. In 1999, non-interest income increased $1.4
million from $632 thousand in 1998 to $2.0 million. Fees and net gains on
mortgage loans held-for-sale increased significantly in 2001, rising $1.8
million, or 113.1%, from $1.6 million in 2000 to $3.4 million in 2001, as lower
interest rates and a strong local housing market helped push total loans
originated for sale from $79.8 million in 2000 to $180.7 million in 2001. In
2000, fees and net gains on mortgage loans held-for-sale increased $321
thousand, or 25.4%, from $1.3 million in 1999 to $1.6 million. Adverse changes
in the local real estate market, consumer confidence, and interest rates could
adversely impact the level of loans originated for sale, and the resulting fees
and earnings thereon.

Deposit account service charges and fees, which include monthly account
maintenance charges, overdraft fees, ATM surcharges, safe deposit box rents and
merchant discount fee income, increased $291 thousand, or 29.7%, from $980
thousand in 2000 to $1.3 million in 2001, and increased $291 thousand, or 42.2%,
in 2000 from $689 thousand in 1999 to $980 thousand. In 1999, deposit account
service charges and fees increased $99 thousand from $590 thousand in 1998 to
$689 thousand. Growth in this category of non-interest income is directly
attributed to growth in total deposits.


                                       16
<PAGE>


NON-INTEREST EXPENSE

Non-interest expense increased $3.4 million, or 31.5%, from $10.6 million in
2000 to $14 million in 2001, and increased $2.2 million, or 26.7%, in 2000 from
$8.4 million in 1999 to $10.6 million, and increased $2.7 million, or 47.4%, in
1999. Salaries and benefits accounted for $2.3 million, or 69.3%, of the total
increase in non-interest expense in 2001, $1.3 million, or 56.6% in 2000, and
$1.6 million, or 59.3%, in 1999. Commissions associated with the significant
increases in total loans and loans originated for sale were the main reason for
these increases in salaries and benefits expense over the past three years as
well as other staff increases due to overall growth and branch expansion.

Occupancy expenses, which include rents, depreciation, and maintenance on
buildings, leaseholds and equipment, increased $391 thousand, or 20.1%, from
$1.9 million in 2000 to $2.3 million in 2001, and increased $328 thousand and
$492 thousand, or 20.3% and 43.7%, in 2000 and 1999, respectively. These
increases are due to additional facilities for the Company's mortgage lending
division that began operation in early 1999, its operations department due to
staff growth, and continued branch expansion. Data processing costs increased
$152 thousand, or 20.3%, from $750 thousand in 2000 to $902 thousand in 2001 and
increased $139 thousand and $149 thousand, or 22.8% and 32.3%, in 2000 and 1999,
respectively, due to growth in total loans and deposits.

Other operating expenses, which include advertising and public relations
expenses, bank franchise taxes, legal and professional fees, supplies and
postage, increased $485 thousand, or 22.8%, from $2.1 million in 2000 to $2.6
million in 2001 and increased $504, or 31.0%, in 2000 compared to an increase of
$467 thousand, or 40.4%, from $1.1 million in 1998 to $1.6 million in 1999.
Other non-interest expenses to which the Company is not currently subject, such
as deposit insurance premiums, which may be incurred in the future, could have
an adverse affect on earnings and results of operations in future periods.

INCOME TAXES

The Company's income tax provisions are adjusted for non-deductible expenses and
non-taxable interest after applying the U.S. federal income tax rate of 34%.
Provision for income taxes totaled $2.4 million, $1.7 million, and $1.1 million
for the years ended December 31, 2001, 2000, and 1999, respectively.

ASSET QUALITY- PROVISION AND ALLOWANCE FOR LOAN LOSSES

The provision for loan losses is based upon management's estimate of the amount
required to maintain an adequate allowance for loan losses reflective of the
risks in the loan portfolio. During 2001, charge-offs totaled $23 thousand
compared to $36 thousand and $40 thousand in 2000 and 1999, respectively. The
provision for loan loss expense in 2001 was $1.6 million compared to $947
thousand in 2000, and $480 thousand in 1999. The total allowance for loan losses
of $4.4 million at December 31, 2001, increased 55.4% from $2.8 million at
December 31, 2000, and increased 48.4% from $1.9 million at December 31, 1999 to
$2.8 million at December 31, 2000. Higher provisions in 2001 are reflective of
an increase in identified problem loans from $1.2 million at December 31, 2000
to $2.6 million as of December 31, 2001 and an increasing concentration of loans
in real estate mortgage and construction.

Management feels that the allowance for loan losses is adequate. There can be no
assurance, however, that additional provisions for loan losses will not be
required in the future, including as a result of possible changes in the
economic assumptions underlying management's estimates and judgments, adverse
developments in the economy, on a national basis or in the Company's market
area, or changes in the circumstances of particular borrowers.

The Company generates a monthly analysis of the allowance for loan losses, with
the objective of quantifying portfolio risk into a dollar figure of inherent
losses, thereby translating the subjective risk value into an objective number.
Emphasis is placed on independent external loan reviews and monthly internal
reviews. The determination of the allowance for loan losses is based on eight
qualitative factors, applying appropriate weight to separate types or categories
of loans. These factors include: levels and trends in delinquencies and
non-accruals, trends in volumes and terms of loans, effects of any changes in
lending policies, the experience, ability and depth of management, national and
local economic trends and conditions, concentrations of credit, quality of the
Company's loan review system and regulatory requirements.


                                       17
<PAGE>


TABLE 4: PROVISION AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands)                           2001         2000         1999         1998        1997
---------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>          <C>          <C>         <C>
Allowance, beginning of period                  $2,803       $1,889       $1,438       $  990      $  748
---------------------------------------------------------------------------------------------------------
CHARGE-OFFS
  Real estate loans                              $  --        $  --        $  --        $  --      $   --
  Commercial loans                                  --           --           --           --          23
  Consumer loans                                    23           36           40           23          --
---------------------------------------------------------------------------------------------------------
Total charge-offs                               $   23       $   36       $   40       $   23      $   23
---------------------------------------------------------------------------------------------------------
RECOVERIES
  Real estate loans                             $   --        $  --        $  --        $  --      $   --
  Commercial loans                                   2            1            7            3           3
  Consumer loans                                     2            2            4           17          --
---------------------------------------------------------------------------------------------------------
Total recoveries                                $    4       $    3       $   11       $   20      $    3
---------------------------------------------------------------------------------------------------------
Net charge-offs                                 $   19       $   33       $   29       $    3      $   20
---------------------------------------------------------------------------------------------------------
Provisions for loan losses                       1,572          947          480          451         262
---------------------------------------------------------------------------------------------------------
Allowance, end of period                        $4,356       $2,803       $1,889       $1,438      $  990
---------------------------------------------------------------------------------------------------------
Ratio of net charges-offs to average total
  loans outstanding during period                 0.01%        0.01%        0.02%       0.003%       0.02%
---------------------------------------------------------------------------------------------------------
</TABLE>


TABLE 5: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a general allowance applicable to all loan
categories; however, management has allocated the allowance to provide an
indication of the relative risk characteristics of the loan portfolio. The
allocation is an estimate and should not be interpreted as an indication that
charge-offs will occur in these amounts, or that the allocation indicates future
trends. The allocation of the allowance at December 31 for the years indicated
and the ratio of related outstanding loan balances to total loans are as
follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                         2001         2000         1999         1998        1997
---------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>          <C>          <C>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES:
Real estate - mortgage                        $1,957       $1,571       $1,206       $  870       $  683
Real estate - construction                       863          518          132          101           33
Commercial                                     1,482          628          477          409          262
Consumer                                          54           86           74           58           12
---------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,                         $4,356       $2,803       $1,889       $1,438       $  990
---------------------------------------------------------------------------------------------------------
RATIO OF LOANS TO TOTAL YEAR-END LOANS:
Real estate - mortgage                            66%          64%          76%          73%          75%
Real estate - construction                        23%          21%           8%           8%           4%
Commercial                                         9%          12%          13%          16%          19%
Consumer                                           2%           3%           3%           3%           2%
---------------------------------------------------------------------------------------------------------
                                                 100%         100%         100%         100%         100%
---------------------------------------------------------------------------------------------------------
</TABLE>


See Notes 1 and 4 to the Consolidated Financial Statements for additional
information regarding the provision and allowance for loan losses.


                                       18
<PAGE>


RISK ELEMENTS AND NON-PERFORMING ASSETS

The Company seeks to minimize its risk and enhance its profitability by focusing
on providing community-based financing and maintaining policies and procedures
ensuring safe and sound banking practices.

Non-performing assets consist of non-accrual loans, impaired loans, restructured
loans, and other real estate owned (foreclosed properties). The total
non-performing assets and loans that are 90 days or more past due and still
accruing interest increased 2.2% from $542 thousand at year-end 2000 to $554
thousand at year-end 2001, and increased 70.9% from $317 thousand at year-end
1999 to $542 thousand at year-end 2000.

Loans are placed in non-accrual status when in the opinion of management the
collection of additional interest is unlikely or a specific loan meets the
criteria for non-accrual status established by regulatory authorities. No
interest is taken into income on non-accrual loans. A loan remains on
non-accrual status until the loan is current as to both principal and interest
or the borrower demonstrates the ability to pay and remain current, or both.

At December 31, 2001, the Bank has $45.8 million of construction loans to
commercial builders of single family housing in the Northern Virginia market,
representing 11.0% of total loans. These loans are made to a number of unrelated
entities and generally have a term of less than one year. Adverse developments
in the Northern Virginia real estate market or economy could have an adverse
impact on this portfolio of loans and the Bank's income and financial position.
At December 31, 2001, the Company had no other concentrations of loans in any
one industry exceeding 10% of its total loan portfolio. An industry for this
purpose is defined as a group of counterparts that are engaged in similar
activities and have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly affected by changes in
economic or other conditions. Loans secured by nonfarm nonresidential real
estate totaled $179.5 million at December 31, 2001 and represent 43.2% of total
loans.

Foreclosed real properties include properties that have been substantively
repossessed or acquired in complete or partial satisfaction of debt. Such
properties, which are held for resale, are carried at the lower of cost or fair
value, including a reduction for the estimated selling expenses, or principal
balance of the related loan. As of December 31, 2001 and 2000, the Company held
no foreclosed real properties.

The ratio of non-performing assets and past due loans to total loans decreased
from .18% at December 31, 2000 to .13% at December 31, 2001 and increased from
..15% at December 31, 1999 to .18% at December 31, 2000. This ratio is expected
to remain at its low level relative to the Company's peers; however, it may
increase from its current level. This expectation is based on identified problem
loans on December 31, 2001. As of December 31, 2001, there were $2.6 million of
loans for which management has identified risk factors which could impair
repayment in accordance with their terms, compared to $1.2 million at December
31, 2000. These loans are primarily well-secured and currently performing. See
Notes 1 and 4 to the Consolidated Financial Statements for additional
information regarding the Company's non-performing assets.


TABLE 6: NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
(Dollars in thousands)                                 2001         2000         1999         1998         1997
------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>          <C>          <C>
Non-accrual loans                                   $  106       $  117       $  106       $  121       $  111
Impaired loans                                         119          107          143          213          140
Restructured loans                                      --           --           --           --           --
Foreclosed properties                                   --           --           --           --           --
------------------------------------------------------------------------------------------------------------------
     Total non-performing assets                    $  225       $  224       $  249       $  334       $  251
------------------------------------------------------------------------------------------------------------------
Loans past due 90 days and still accruing              329          318           68           --           --
------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS AND PAST DUE LOANS      $  554       $  542       $  317       $  334       $  251
------------------------------------------------------------------------------------------------------------------
Allowance for loan losses to total loans              1.05%         .91%         .91%         .95%         .97%
Allowance for loan losses to
  non-performing loans                             1,936.0      1,251.3        758.6        430.5        394.4
Non-performing assets and past due loans to
  total loans                                         0.13         0.18         0.15         0.22         0.25
Non-performing assets and past due loans to
  total assets                                        0.11         0.15         0.11         0.15         0.15
------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>


LOAN PORTFOLIO

At December 31, 2001, loans including loans held-for-sale, net of unearned
income and allowance for loan losses, totaled $410.9 million an increase of
34.4% over the 2000 year-end total of $305.7 million. In 2000, net loans
increased 49.0% from a year-end 1999 total of $205.2 million. The increase in
loans in 2001 included an increase in real estate construction loans of $29.0
million, or 44.3%, and an increase in real estate mortgage loans of $76.6
million, or 38.6%. In 2000, real estate construction loans increased $48.2
million, or 279.7%, while real estate mortgage loans increased $41.5 million, or
26.2%. The increases in real estate construction loans are the direct result of
the Company's increased focus in this area and the hiring of loan officers
specializing in residential construction lending. At December 31, 2001, $45.8
million of real estate construction loans were to commercial builders of
single-family homes, $22.9 million to individuals and $25.8 million related to
construction of commercial properties. The Company does not expect that the
level of real estate construction loans will continue to grow at the rate
experienced in 2000 and 2001, although there can be no assurance.

The Company's lending activities are its principal source of income. Real estate
loans, including residential permanents and construction, and commercial
permanents, represent the major portion of the Company's loan portfolio.

Tables 7 and 8 present information pertaining to the composition of the loan
portfolio including unearned income, allowance for loan losses, and the
maturity/ repricing of selected loans.


TABLE 7: SUMMARY OF TOTAL LOANS
<TABLE>
<CAPTION>
Year-end December 31,
(Dollars in thousands)                2001          2000          1999          1998           1997
----------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>           <C>           <C>           <C>
Real estate - mortgage              $275,141      $198,541      $156,998      $109,774      $ 76,458
Real estate -construction             94,452        65,460        17,238        12,794         4,081
Commercial                            39,153        37,406        26,423        23,514        19,076
Consumer                               8,004         7,995         6,968         4,983         2,588
----------------------------------------------------------------------------------------------------
Total loans                         $416,750      $309,403      $207,627      $151,065      $102,203
Less unearned income                   1,444           883           567           187           296
Less allowance for loan losses         4,356         2,803         1,889         1,438           990
----------------------------------------------------------------------------------------------------
Loans, net                          $410,950      $305,717      $205,171      $149,440      $100,917
----------------------------------------------------------------------------------------------------
</TABLE>


TABLE 8: MATURITY/REPRICING SCHEDULE OF SELECTED LOANS
<TABLE>
<CAPTION>
As of December 31, 2001
(Dollars in thousands)        Real estate-mortgage    Real estate-construction         Commercial                 Consumer
--------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                       <C>                       <C>                       <C>
VARIABLE:
     Within 1 year                  $ 71,174                  $ 52,016                  $ 22,739                  $  2,317
     1-to-5 years                    115,847                    16,585                       558                        --
     After 5 years                     9,284                        --                        --                        --
FIXED RATE:
     Within 1 year                     9,916                    17,834                     4,807                     1,937
     1-to-5 years                     31,523                     8,017                     8,932                     3,593
     After 5 years                    37,397                        --                     2,117                       157
--------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS                         $275,141                  $ 94,452                  $ 39,153                  $  8,004
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


At December 31, 2001, the aggregate amount of loans due after one year which
have fixed rates was approximately $142.3 million, and the amount with variable
or adjustable rates was approximately $91.7 million.


                                       20
<PAGE>


SECURITIES

The securities portfolio plays a primary role in the management of the interest
rate sensitivity of the Company, provides additional interest income, serves as
a source of liquidity, and is used as needed to meet certain collateral
requirements.

The securities portfolio consists of two components, securities held-to-maturity
and securities available-for-sale. Securities are classified as held-to-maturity
based on management's intent and the Company's ability, at the time of purchase,
to hold such securities to maturity. These securities are carried at amortized
cost. Securities which may be sold in response to changes in market interest
rates, changes in the securities' prepayment risk, increased loan demand,
general liquidity needs, and other similar factors are classified as
available-for-sale and are carried at estimated fair value.

In 2001, total securities increased $7.7 million, or 17.1%, to $53.0 million
from $45.3 million and decreased $1 million, or 2.3%, from $46.3 million at
year-end 1999 to $45.3 million at year-end 2000. Securities of U.S. Government
Agencies represent the majority of the portfolio while obligations of
states/political subdivisions have increased. Table 9 provides information
regarding the composition of the securities portfolio and Table 10 details the
maturities and weighted average yields (on a tax equivalent basis) at the dates
indicated. See Note 2 to the Consolidated Financial Statements for additional
information regarding the securities portfolio.

TABLE 9: SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
Year-end December 31,                             2001                       2000                        1999
                                                  ----                       ----                        ----
                                          Book          Percent       Book          Percent       Book          Percent
(Dollars in thousands)                    Value        of total       Value        of total       Value        of total
-----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>         <C>             <C>         <C>             <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations       $40,619         76.62%      $29,406         64.98%      $27,440         59.24%
Obligations of states/political
  subdivisions                               275           .52%          270           .60%           --            --
Federal Reserve Bank stock                   392           .74%          392           .87%          391           .84%
Federal Home Loan Bank stock                 732          1.38%          667          1.47%          667          1.44%
Community Bankers' Bank stock                 55           .10%           55           .12%           55           .12%
-----------------------------------------------------------------------------------------------------------------------
                                         $42,073         79.36%      $30,790         68.04%      $28,553         61.64%
-----------------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY:
-----------------------------------------------------------------------------------------------------------------------
U.S. Government Agency obligations       $ 6,017         11.35%      $13,992         30.92%      $17,772         38.36%
Obligations of states/political
  subdivisions                             3,945          7.44%           --            --            --            --
Domestic corporate debt obligations          979          1.85%          472          1.04%           --            --
-----------------------------------------------------------------------------------------------------------------------
                                         $10,941         20.64%      $14,464         31.96%      $17,772         38.36%
-----------------------------------------------------------------------------------------------------------------------
                                         $53,014        100.00%      $45,254        100.00%      $46,325        100.00%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       21
<PAGE>


TABLE 10: MATURITY OF SECURITIES

<TABLE>
<CAPTION>
Year-end December 31,                                2001                          2000                         1999
                                                     ----                          ----                         ----
-----------------------------------------------------------------------------------------------------------------------------
                                                          Weighted                      Weighted                     Weighted
                                            Book           Average        Book           Average       Booke          Average
                                            Value           Yield         Value           Yield        Value           Yield
(Dollars in thousands)
<S>                                        <C>              <C>          <C>              <C>         <C>              <C>
Maturing within one year                   $    --            --         $ 3,725          6.07%       $    --            --
Maturing after one through five years       16,533          4.71%         22,314          5.87%        19,226          5.79%
Maturing after five through ten years        7,738          6.29%          8,113          6.87%        11,858          6.43%
Maturing after ten years                    28,743          6.65%         11,102          6.66%        15,241          6.87%
-----------------------------------------------------------------------------------------------------------------------------
                                           $53,014          5.99%        $45,254          6.26%       $46,325          6.31%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


DEPOSITS

The Company's principal source of funds is depository accounts comprised of
demand deposits, savings and money market accounts, and time deposits. Deposits
are provided by individuals and businesses located within the communities
served.

Total deposits increased $96.0 million, or 30.9%, in 2001 to $406.9 million at
year-end from $310.9 million at year-end 2000, and increased $67.9 million, or
27.9%, from $243.0 million at year-end 1999 to $310.9 million at year-end 2000.
In 2001, growth by deposit category included a 21.0% increase in non-interest
bearing deposits, a 27.9% increase in savings accounts and interest-bearing
demand deposits, and a 36.5% increase in time deposits. The average rate paid on
interest-bearing deposits declined thirty-four basis points from 4.98% for the
year ended December 31, 2000, to 4.64% for the year ended December 31, 2001, and
increased fifty-two basis points from 4.46% in 1999 to 4.98% in 2000. The
average rate on interest-bearing deposits is expected to decline further in the
first quarter of 2002 as $30.7 million in certificates of deposit bearing rates
ranging from 200 to 275 basis points over rates offered as of December 31, 2001,
will reprice. Table 11 details maturities of certificates of deposit with
balances of $100,000 and over. See Note 6 to the Consolidated Financial
Statements for additional information regarding the maturities of certificates
of deposit.


TABLE 11: MATURITIES OF CERTIFICATES OF DEPOSIT WITH BALANCES $100,000 OR MORE

 (Dollars in thousands)            2001            2000           1999
------------------------------------------------------------------------
3 months or less                 $ 11,900        $  2,159       $  2,470
3-6 months                          9,029           3,960          3,904
6-12 months                        21,075          22,509          7,390
Over 12 months                     43,204          27,730         27,109
------------------------------------------------------------------------
Total                            $ 85,208        $ 56,358       $ 40,873
------------------------------------------------------------------------

SHORT-TERM BORROWINGS

Short-term borrowings consist of securities sold under agreements to repurchase
which are secured transactions with customers and generally mature the day
following the date sold. Short-term borrowings also include Federal funds
purchased, which are unsecured overnight borrowings from other financial
institutions. Table 12 provides information as to the balances and interest
rates on short-term borrowings for the years ended December 31, 2001 and 2000
(dollars in thousands):


                                       22
<PAGE>


TABLE 12: SHORT-TERM BORROWINGS

-----------------------------------------------------------------------------
                                                      2001              2000
-----------------------------------------------------------------------------
Securities sold under agreement to repurchase       $32,931           $28,097
Federal funds purchased                               9,521             1,000
-----------------------------------------------------------------------------
  Total                                             $42,452           $29,097
Weighted interest rate                                 1.05%             5.06%

Averages for the year ended December 31:
Outstanding                                         $35,851           $23,537
Interest rate                                         2.72%              4.57%

Maximum month-end outstanding                       $42,452           $30,280
------------------------------------------------------------------------------


LIQUIDITY

The Company's principal sources of liquidity and funding are its deposit base.
The level and maturity of deposits necessary to support the Company's lending
and investment activities is determined through monitoring loan demand.
Considerations in managing the Company's liquidity position include, but are not
limited to, scheduled cash flows from existing loans and investment securities,
anticipated deposit activity, and projected needs from anticipated extensions of
credit. The Company's liquidity position is monitored daily by management to
maintain a level of liquidity conducive to efficiently meet current needs and is
evaluated for both current and longer term needs as part of the asset/liability
management process.

The Company measures total liquidity through cash and cash equivalents,
securities available-for-sale, mortgage loans held-for-sale, other loans and
investment securities maturing within one year, less securities pledged as
collateral for repurchase agreements, public deposits and other purposes, and
less any outstanding federal funds purchased. These liquidity sources increased
$27 million, or 27.5%, from $98.3 million at December 31, 2000, to $125.3
million at December 31, 2001, and increased $53 million from $45.3 million at
December 31, 1999, to $98.3 million at December 31, 2000.

Additional sources of liquidity available to the Company include the capacity to
borrow funds through established lines of credit with various correspondent
banks, and the Federal Home Loan Bank of Atlanta, although the Company's ability
to utilize FHLB borrowings is restricted under the terms of its line of credit
agreement with a correspondent bank. See Note 13 to the Consolidated Financial
Statements for further information regarding these additional liquidity sources.

CAPITAL

The assessment of capital adequacy depends on a number of factors such as asset
quality, liquidity, earnings performance, and changing competitive conditions
and economic forces. The adequacy of the Company's capital is reviewed by
management on an ongoing basis. Management seeks to maintain a capital structure
that will assure an adequate level of capital to support anticipated asset
growth and to absorb potential losses.

The capital position of the Company's wholly-owned subsidiary, Virginia Commerce
Bank (the "Bank), continues to meet regulatory requirements. The primary
indicators relied on by bank regulators in measuring the capital position are
the Tier 1 risk-based capital, total risk-based capital, and leverage ratios.
Tier 1 capital consists of common and qualifying preferred stockholders' equity
less goodwill. Total risk-based capital consists of Tier 1 capital, qualifying
subordinated debt, and a portion of the allowance for loan losses. Risk-based
capital ratios are calculated with reference to risk-weighted assets. The
leverage ratio compares Tier 1 capital to total average assets. The Bank's Tier
1 risk-based capital ratio was 6.32% at December 31, 2001, compared to 6.90% at
December 31, 2000. The total risk-based capital ratio was 10.09% at December 31,
2001, compared to 10.07% at December 31, 2000. These ratios are in excess of the
mandated minimum requirement of 4.00% and 8.00%, respectively. The Bank's
leverage ratio was 5.41% at December 31, 2001 compared to 5.82% at December 31,
2000. The Company's Tier 1 risk-based capital ratio, total risk-based capital
ratio, and leverage ratio was 6.35%, 7.41% and 5.44%, respectively, at December
31, 2001.

During 2001, the Company continued to borrow funds under a $12 million line of
credit with a correspondent bank in order to provide capital to fund growth and
expansion at the Bank. At December 31, 2001, the amount outstanding under the
line of credit was $11.0 million, as compared to $7.0 million at December 31,
2000. The Company believes that borrowing under the line of credit results in
enhanced results of operations and returns for existing shareholders as compared
to those that would result from the sale of additional common stock. The Company
was required to repay $500 thousand of the outstanding amount by January 31,
2002, and is restricted beyond that date to a total outstanding amount of $10.5
million until such time as a participating lender has agreed to purchase a one


                                       23
<PAGE>

third interest in existing and future advances under the line of credit. If a
participating lender has not agreed to purchase an interest by April 30, 2002,
then the Company must pay down the amount outstanding to an amount no greater
than $8 million on or before June 30, 2002. While the Company is confident that
a participating lender or alternative sources of financing will be available,
there can be no assurance that the Company will be able to fund growth with
borrowed funds, that funds will continue to be available on attractive terms, or
that the Company's financing costs will not increase.

The ability of the Company to continue growth is dependent on its ability to
obtain additional funds for contribution to the Bank's capital, through
additional borrowing, the sale of additional common stock, or otherwise. In the
event that the Company is unable to obtain additional capital for the Bank on a
timely basis, including obtaining a participating or alternative lender for its
existing line of credit used to supplement the Bank's capital, the growth of the
Company and the Bank may be curtailed, and the Company and the Bank may be
required to reduce their level of assets in order to maintain compliance with
regulatory capital requirements. Under those circumstances net income and the
rate of growth of net income may be adversely affected.


DIVIDENDS

The Company has not paid cash dividends since 1995, electing to retain earnings
for funding the growth of the Company and its business. The Company currently
anticipates continuing the policy of retaining earnings to fund growth. The
ability of the Company to pay dividends, should it elect to do so, depends
largely upon the ability of the Bank to declare and pay dividends to the
Company, as the principal source of the Company's revenue is dividends paid by
the Bank. Future dividends will depend primarily upon the Bank's earnings,
financial condition, and need for funds, as well as governmental policies and
regulations applicable to the Company and the Bank, which limit the amount that
may be paid as dividends without prior approval.


MARKET PRICE OF STOCK AND DIVIDENDS

The Company's stock is traded on the NASDAQ National Market under the symbol
"VCBI". The following table sets forth the range of high and low sales prices
(adjusted for stock dividends and splits) known to the Company for each full
quarterly period within the two most recent fiscal years.


MARKET PRICE OF STOCK AND DIVIDENDS

                         2001                          2000
Quarter           High           Low            High           Low
-------------------------------------------------------------------
First            $15.15        $10.60          $10.80        $ 9.45
Second            16.00         14.00           11.20         10.20
Third             21.00         15.55           11.20         10.50
Fourth            21.05         16.65           11.20         10.60

The approximate number of the Company's stockholders at December 31, 2001, is
750. Information regarding stock dividends and splits in 2001, 2000, and 1999 is
as follows:

1.   A 25% stock split in the form of a dividend was declared on February 28,
     2001, for stockholders of record on April 16, 2001, and was paid on May 11,
     2001.

2.   A stock dividend of 10% was declared on April 26, 2000, for stockholders of
     record on May 12, 2000, and was paid on May 26, 2000.

3.   On April 28, 1999, stockholders approved a change to the Articles of
     Incorporation to subdivide each share of common stock into one and one-
     tenth shares of common stock.


ANNUAL MEETING OF STOCKHOLDERS

The annual meeting of stockholders of Virginia Commerce Bancorp, Inc. (the
"Company") will be held at 4:00 pm on Wednesday, April 24, 2002 at "The
Washington Golf and Country Club", 3017 North Glebe Road, Arlington, Virginia.


                                       24
<PAGE>


ANNUAL REPORT ON FORM 10-K

A copy of Form 10-K as filed with the Securities and Exchange Commission is
available without charge to stockholders upon written request to: William K.
Beauchesne, Treasurer and Chief Financial Officer, Virginia Commerce Bancorp,
Inc., 14201 Sullyfield Circle #500, Chantilly, VA 20151


                                       25
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Directors
Virginia Commerce Bancorp, Inc. and subsidiaries
Arlington, Virginia

                  We have audited the accompanying consolidated balance sheets
of Virginia Commerce Bancorp, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, changes in
stockholder's equity and cash flows for the years ended December 31, 2001, 2000
and 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

                  We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Virginia Commerce Bancorp, Inc. and subsidiaries as of December 31, 2001 and
2000, and the results of their operations and their cash flows for the years
ended December 31, 2001, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Yount, Hyde & Barbour, P.C.

Winchester Virginia
February 21, 2002


                                       26
<PAGE>


CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

December 31,                                                2001         2000
--------------------------------------------------------------------------------
ASSETS
Cash and due from banks                                  $  15,155    $  10,952
Securities (fair value: 2001, $53,143; 2000, $45,265)       53,014       45,254
Loans held-for-sale                                         15,842        4,918
Loans, net of allowance for loan losses of $4,356
  in 2001 and $2,803 in 2000                               395,108      300,799
Bank premises and equipment, net                             6,238        5,741
Accrued interest receivable                                  2,211        2,042
Other assets                                                 1,943        1,476
--------------------------------------------------------------------------------
   Total assets                                          $ 489,511    $ 371,182
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
   Non-interest bearing demand deposits                  $  66,448    $  54,899
   Savings and interest-bearing demand deposits            132,811      103,857
   Time deposits                                           207,663      152,178
--------------------------------------------------------------------------------
   Total deposits                                        $ 406,922    $ 310,934
Securities sold under agreement to repurchase and
  federal funds purchased                                   42,452       29,097
Other borrowed funds                                        11,400        7,400
Accrued interest payable                                     1,301        1,309
Other liabilities                                            1,216        1,276
Commitments and contingent liabilities                          --           --
--------------------------------------------------------------------------------
   Total liabilities                                     $ 463,291    $ 350,016
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $5.00 par, 1,000,000 shares
  authorized of which no shares have been issued         $      --    $      --
Common stock, $1.00 par, 5,000,000 shares
  authorized, issued and outstanding 2001,
  2,720,816; 2000, 2,165,687                                 2,721        2,166
Surplus                                                     13,190       13,648
Retained Earnings                                           10,138        5,476
Accumulated other comprehensive income (loss)                  171         (124)
--------------------------------------------------------------------------------
   Total stockholders' equity                            $  26,220    $  21,166
--------------------------------------------------------------------------------
   Total liabilities and stockholders' equity            $ 489,511    $ 371,182
--------------------------------------------------------------------------------


See Notes to Consolidated Financial Statements.


                                       27
<PAGE>


CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,                                       2001        2000          1999
----------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>          <C>
INTEREST AND DIVIDEND INCOME:
    Interest and fees on loans                               $29,720      $23,215      $15,447
    Interest and dividends on investment securities:
        U.S. Treasury securities and agency obligations        3,336        3,035        2,783
        Other securities                                         190           90           72
    Interest on federal funds sold                               650          400          503
    Interest on deposits with other banks                          1           36           46
----------------------------------------------------------------------------------------------
   Total interest and dividend income                        $33,897      $26,776      $18,851
----------------------------------------------------------------------------------------------
INTEREST EXPENSE:
     Deposits                                                $14,494      $11,425      $ 8,053
     Securities sold under agreement to repurchase and
       federal funds purchased                                   976        1,076          571
     Other borrowed funds                                        521          360           55
----------------------------------------------------------------------------------------------
    Total interest expense                                   $15,991      $12,861      $ 8,679
----------------------------------------------------------------------------------------------
    Net interest income                                      $17,906      $13,915      $10,172
    Provision for loan losses                                  1,572          947          480
----------------------------------------------------------------------------------------------
    Net interest income after provision for loan losses      $16,334      $12,968      $ 9,692
----------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
     Service charges and other fees                          $ 1,271      $   980      $   689
     Fees and net gains on loans held-for-sale                 3,379        1,586        1,265
     Gains on sale of securities                                  13           --           --
     Other                                                        41           33           45
----------------------------------------------------------------------------------------------
     Total non-interest income                               $ 4,704      $ 2,599      $ 1,999
----------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
     Salaries and employee benefits                          $ 8,130      $ 5,812      $ 4,544
     Occupancy expense                                         2,337        1,946        1,618
     Data processing                                             902          750          611
     Other operating expense                                   2,613        2,128        1,624
----------------------------------------------------------------------------------------------
     Total non-interest expense                              $13,982      $10,636      $ 8,397
----------------------------------------------------------------------------------------------
     Income before taxes on income                           $ 7,056      $ 4,931      $ 3,294
     Provision for income taxes                                2,391        1,681        1,128
----------------------------------------------------------------------------------------------
NET INCOME                                                   $ 4,665      $ 3,250      $ 2,166
----------------------------------------------------------------------------------------------
   Earnings per common share, basic                          $  1.72      $  1.20      $  0.80
----------------------------------------------------------------------------------------------
   Earnings per common share, diluted                        $  1.57      $  1.13      $  0.75
----------------------------------------------------------------------------------------------
</TABLE>

  See Notes to Consolidated Financial Statements.


                                       28
<PAGE>


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                    Accumulated
                                                                                    Other                         Total
                                          Preferred   Common              Retained  Comprehensive  Comprehensive  Stockholders'
                                          Stock       Stock     Surplus   Earnings  Income (Loss)  Income         Equity
-------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>       <C>       <C>          <C>            <C>            <C>
BALANCE, DECEMBER 31,1998                 $    --     $ 1,787   $11,240   $ 2,820      $   (15)                      $15,832
-------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 1999                                                             2,166                     $ 2,166          2,166
Other comprehensive income, net of
  tax, unrealized holding losses
  arising during the period (net of tax
  of $277)                                                                                (539)          (539)          (539)
-------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                                                                            $ 1,627
-------------------------------------------------------------------------------------------------------------------------------
Capital restructure                            --         179      (179)       --           --                            --
Cash paid in lieu of fractional shares         --          --        --        (3)          --                            (3)
Stock options exercised                        --           4        29        --           --                            33
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999                $    --     $ 1,970   $11,090   $ 4,983      $  (554)                      $17,489
-------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 2000                                                             3,250                     $ 3,250          3,250
Other comprehensive income, net of
  tax, unrealized holding gains arising
  during the period (net of tax of $221)                                                   430            430            430
-------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                                                                            $ 3,680
-------------------------------------------------------------------------------------------------------------------------------
10% stock dividend                             --         196     2,558    (2,754)          --                            --
Cash paid in lieu of fractional shares         --          --        --        (3)          --                            (3)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000                $    --     $ 2,166   $13,648   $ 5,476      $  (124)                      $21,166
-------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 2001                                                             4,665                      $4,665          4,665
Other comprehensive income, net of
  tax, unrealized holding gains arising
  during the period (net of tax of $156)                                                                  304
Less reclassification adjustment,
  (net of tax of $4)                                                                                       (9)
Total other comprehensive income                                                           295            295            295
-------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                                                                            $ 4,960
-------------------------------------------------------------------------------------------------------------------------------
25% stock split in form of a dividend          --         541      (541)       --           --                            --
Cash paid in lieu of fractional shares         --          --        --        (3)          --                            (3)
Stock options exercised                        --          14        83        --           --                            97
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001                $    --     $ 2,721   $13,190   $10,138      $   171                       $26,220
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       29
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                2001            2000            1999
 ------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>             <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
 Interest received                                           $  33,719       $  26,066       $  18,763
 Other income received                                           4,691           2,599           1,999
 Net change in loans held-for-sale                             (10,924)         (3,458)           (658)
 Interest paid                                                 (15,999)        (12,228)         (8,631)
 Cash paid to suppliers and employees                          (12,720)         (9,709)         (7,747)
 Income taxes paid                                              (3,454)         (1,519)         (1,262)
 ------------------------------------------------------------------------------------------------------
     Net cash provided by (used in) operating activities     $  (4,687)      $   1,751       $   2,464
 ------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from maturities and principal payments on
    securities held-to-maturity                              $   9,009       $   4,040       $  12,434
 Proceeds from maturities and principal payments on
     securities available-for-sale                              47,367           5,156           1,268
 Proceeds from sales of securities available-for-sale           14,016              --              --
 Purchases of securities held-to-maturity                       (5,446)           (743)         (4,933)
 Purchases of securities available-for-sale                    (72,238)         (6,756)         (1,171)
 Net increase in loans made to customers                       (95,880)        (98,035)        (55,553)
 Purchase of bank premises and equipment                        (1,375)           (823)         (1,388)
 ------------------------------------------------------------------------------------------------------
     Net cash used in investing activities                   $(104,547)      $ (97,161)      $ (49,343)
 ------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
 Net increase in demand, NOW, money market and savings
     accounts                                                $  40,503       $  28,819       $  35,746
 Net increase in time deposits                                  55,485          39,071          18,556
 Net increase in securities sold under agreement to
     repurchase and federal funds purchased                     13,355          11,260           2,110
 Net increase in other borrowed funds                            4,000           4,500           1,900
 Net proceeds from issuance of capital stock                        97              --              33
 Cash paid in lieu of fractional shares                             (3)             (3)             (3)
 ------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities               $ 113,437       $  83,647       $  58,342
 ------------------------------------------------------------------------------------------------------
     Increase (decrease) in cash and cash equivalents        $   4,203       $ (11,763)      $  11,463
 ------------------------------------------------------------------------------------------------------
 CASH AND CASH EQUIVALENTS:
     Beginning                                                  10,952          22,715          11,252
     Ending                                                  $  15,155       $  10,952       $  22,715
 ------------------------------------------------------------------------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements.


                                       30
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED  BY (USED IN) OPERATING ACTIVITIES:                                  2001            2000            1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>             <C>
Net income                                                                 $   4,665       $   3,250       $   2,166
---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
 activities:
   Depreciation and amortization                                                 878             801             646
   Provision for loan losses                                                   1,572             947             480
   Deferred tax benefit                                                         (566)           (339)           (192)
   Amortization of security premiums and
     accretion of discounts                                                       (9)             25              67
   Origination of loans held-for-sale                                       (180,737)        (79,831)        (73,738)
   Sale of loans                                                             169,813          76,373          73,080
   Gain on sale of securities available-for-sale                                 (13)             --              --
   Increase in other assets                                                      (54)            (18)            (50)
   (Decrease) increase in other liabilities                                      (59)            646             113
   Increase in accrued interest receivable                                      (169)           (736)           (156)
   (Decrease) increase in accrued interest
     payable                                                                      (8)            633              48
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                        $  (4,687)      $   1,751       $   2,464
---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
   Unrealized gain (loss) on securities                                    $     447       $     651       $    (816)
</TABLE>


                                       31
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BANKING ACTIVITIES AND ACCOUNTING POLICIES

BUSINESS

On December 22, 1999, Virginia Commerce Bancorp, Inc. (the "Company") became the
holding company for Virginia Commerce Bank (the "Bank"). The Company acquired
the Bank through a share exchange in which the stockholders of the Bank received
one share of the Company for each share of the Bank. The exchange was a tax-free
transaction for federal income tax purposes. The merger was accounted for on the
same basis as a pooling-of-interests.

The Company provides loan and deposit products to commercial and retail
customers in the Washington Metropolitan Area, with the primary emphasis on
Northern Virginia. The loan portfolio is generally collateralized by assets of
the customers and is expected to be repaid from cash flows or proceeds from the
sale of selected assets of the borrowers.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, the Bank and Northeast Land and Investment
Company. In consolidation, all significant intercompany accounts and
transactions have been eliminated.

RISKS AND UNCERTAINTIES

In its normal course of business, the Company encounters two significant types
of risk: economic and regulatory. There are three main components of economic
risk: interest rate risk, credit risk and market risk. The Company is subject to
interest rate risk to the degree that its interest-bearing liabilities mature or
reprice more rapidly or on a different basis than its interest-earning assets.
Credit risk is the risk of default on the Company's loan portfolio that results
from the borrowers' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral underlying
loans receivable and the valuation of real estate held by the Company.

The determination of the allowance for loan losses is based on estimates that
are particularly susceptible to significant changes in the economic environment
and market conditions. Management believes that, as of December 31, 2001, the
allowance for loan losses is adequate based on information currently available.
A worsening or protracted economic decline or substantial increase in interest
rates, would increase the likelihood of losses due to credit and market risks
and could create the need for substantial increases to the allowance for loan
losses. The Company is subject to the regulations of various regulatory
agencies, which can change significantly from year to year. In addition, the
Company undergoes periodic examinations by regulatory agencies, which may
subject it to further changes based on the regulators' judgments about
information available to them at the time of their examination.

SECURITIES

Debt securities that management has the positive intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized cost.
Securities not classified as held-to-maturity, including equity securities with
readily determinable fair values, are classified as available-for-sale and
recorded at fair value, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income.

Purchased premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.

LOANS HELD-FOR-SALE

Loans held-for-sale are carried at the lower of cost or market, determined in
the aggregate. Market value considers commitment agreements with investors and
prevailing market prices. All loans originated by the mortgage banking operation
are pre-sold and held-for-sale to outside investors.


                                       32
<PAGE>


LOANS

The Company grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by real estate loans.
The ability of the Company's debtors to honor their contracts is dependent upon
the real estate and general economic conditions of the Company's market area.

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for the allowance for loan losses and any
deferred fees or costs on originated loans. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of certain origination
costs, are deferred and recognized as an adjustment of the related loan yield
using the interest method.

The accrual of interest on real estate and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the credit is well-secured and in
the process of collection. Installment loans are typically charged-off no later
than 180 days past due. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is
considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual
or charged-off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all principal and
interest amounts contractually due are brought current and future payments are
reasonably assured.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.

Large groups of smaller balance, homogeneous loans are collectively evaluated
for impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.

Bank Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Premises and equipment are depreciated over their estimated useful
lives; leasehold improvements are amortized over the lives of the respective
leases or the estimated useful life of the leasehold improvement, whichever is
less. Depreciation and amortization are recorded on the straight-line and
declining-balance methods.

Costs of maintenance and repairs are charged to expense as incurred. The costs
of replacing structural parts of major units are considered individually and are
expended or capitalized as the facts dictate.

INCOME TAXES

Deferred income tax assets and liabilities are determined using the liability
(or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences
between book and tax bases of the various balance sheet assets and liabilities
and gives current recognition to changes in tax rates and laws.


                                       33
<PAGE>


LEASE ACQUISITION COSTS

Lease acquisition costs are being amortized over ten years using the
straight-line method.

ADVERTISING COST

The Company follows the policy of charging the production costs of advertising
to expense as incurred.

USE OF ESTIMATES

In preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses, and the valuation of foreclosed real estate
and deferred tax assets.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are sold and purchased for one-day periods.

EARNINGS PER SHARE

Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and warrants, and are determined using the treasury
method.

COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.

RECENT ACCOUNTING PRONOUNCEMENTS

In July, 2001, the Financial Accounting Standards Board issued two statements -
Statement 141, Business Combinations, and Statement 142, Goodwill and Other
Intangible Assets, which will potentially impact the accounting for goodwill and
other intangible assets. Statement 141 eliminates the pooling method of
accounting for business combinations and requires that intangible assets that
meet certain criteria be reported separately from goodwill. The Statement also
requires negative goodwill arising from a business combination to be recorded as
an extraordinary gain. Statement 142 eliminates the amortization of goodwill and
other intangibles that are determined to have an indefinite life. The Statement
requires, at a minimum, annual impairment tests for goodwill and other
intangible assets that are determined to have an indefinite life.

Upon adoption of these Statements, an organization is required to re-evaluate
goodwill and other intangible assets that arose from business combinations
entered into before July 1, 2001. If the recorded other intangibles assets do
not meet the criteria for recognition, they should be classified as goodwill.
Similarly, if there are other intangible assets that meet the criteria for
recognition but were not separately recorded from goodwill, they should be
reclassified from goodwill. An organization also must reassess the useful lives
of intangible assets and adjust the remaining amortization periods accordingly.
Any negative goodwill must be written-off.

The standards generally are required to be implemented by the Bank in its 2002
financial statements. The adoption of these standards will not have a material
impact on the financial statements.

In June 2001, the Financial Accounting Standards Board issued Statement 143,
Accounting for Asset Retirement Obligations. This Statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and associated retirement costs. It requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred and the associated asset retirement costs be
capitalized as part of the carrying amount of the long-lived asset. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Statement is not expected to have a material
effect on the Company's financial statements.


                                       34
<PAGE>


In August 2001, the Financial Accounting Standards Board issued Statement 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. It also establishes a single accounting model for long-lived
assets to be disposed of by sale, which includes long-lived assets that are part
of a discontinued operation. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after December
15, 2001. The Statement is not expected to have a material effect on the
Company's financial statements.

STOCKHOLDERS' EQUITY

A five-for-four stock split in the form of a 25% stock dividend was declared on
February 28, 2001. This transaction was recorded by increasing common stock by
$541 thousand and decreasing surplus by $541 thousand.

A stock dividend of 10% was declared on April 26, 2000. This transaction was
recorded by increasing common stock by $196 thousand, increasing surplus by $2.5
million and decreasing retained earnings by $2.7 million.

On April 28, 1999, the stockholders approved an amendment to the Articles of
Incorporation to subdivide each share of the common stock outstanding into one
and one-tenth shares. This transaction was recorded by increasing common stock
by $179 thousand and decreasing surplus by $179 thousand.

NOTE 2.  SECURITIES

Amortized cost and fair value of the securities available-for-sale and
held-to-maturity as of December 31, 2001 and 2000, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                    GROSS          GROSS
                                                     AMORTIZED      UNREALIZED     UNREALIZED
DECEMBER 31, 2001                                    COST           GAINS          (LOSSES)       FAIR VALUE
-------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>            <C>            <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations                    $ 40,365      $    256       $     (2)      $ 40,619
Obligations of states and political subdivisions           270             5             --            275
Federal Reserve Bank stock                                 392            --             --            392
Federal Home Loan Bank stock                               732            --             --            732
Community Bankers' Bank stock                               55            --             --             55
-------------------------------------------------------------------------------------------------------------
                                                      $ 41,814      $    261       $     (2)      $ 42,073

HELD-TO-MATURITY:
U.S. Government Agency obligations                    $  6,017      $    127           $ --       $  6,144
Obligations of state and political subdivisions          3,945            16            (43)         3,918
Domestic corporate debt obligations                        979            32             (3)         1,008
-------------------------------------------------------------------------------------------------------------
                                                      $ 10,941      $    175       $    (46)      $ 11,070
-------------------------------------------------------------------------------------------------------------
</TABLE>


                                       35
<PAGE>


<TABLE>
<CAPTION>
DECEMBER 31, 2000
-------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>            <C>            <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations                    $ 29,594      $     28       $   (216)      $ 29,406
Obligations of states and political subdivisions           270            --             --            270
Federal Reserve Bank stock                                 392            --             --            392
Federal Home Loan Bank stock                               667            --             --            667
Community Bankers' Bank stock                               55            --             --             55
-------------------------------------------------------------------------------------------------------------
                                                      $ 30,978      $     28       $   (216)      $ 30,790

HELD-TO-MATURITY:
U.S. Government Agency obligations                    $ 13,992      $     59       $    (62)      $ 13,989
Domestic corporate debt obligations                        472            14             --            486
-------------------------------------------------------------------------------------------------------------
                                                      $ 14,464      $     73       $    (62)      $ 14,475
-------------------------------------------------------------------------------------------------------------
</TABLE>


Amortized cost and fair value of the securities as of December 31, 2001, by
contractual maturity, are shown below (dollars in thousands):


-----------------------------------------------------------------------------
DECEMBER 31, 2001                              AMORTIZED COST      FAIR VALUE
-----------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
Due after one year through five years             $16,014            $16,056
Due after five years through ten years              6,669              6,767
Due after ten years                                17,952             18,071
Federal Reserve Bank stock                            392                392
Federal Home Loan Bank stock                          732                732
Community Bankers' Bank stock                          55                 55
-----------------------------------------------------------------------------
                                                  $41,814            $42,073
HELD-TO-MATURITY:
Due after one year through five years             $   477            $   510
Due after five years through ten years                971                959
Due after ten years                                 9,493              9,601
-----------------------------------------------------------------------------
                                                  $10,941            $11,070
-----------------------------------------------------------------------------

The amortized cost of securities pledged as collateral for repurchase
agreements, certain public deposits, and other purposes were $40.6 million and
$33.6 million at December 31, 2001 and 2000, respectively.


                                       36
<PAGE>


NOTE 3. LOANS

Major classifications of loans are summarized as follows (dollars in thousands):

-----------------------------------------------------------------
                                             2001          2000
-----------------------------------------------------------------
Commercial                                 $ 39,153      $ 37,406
Real estate - 1-4 family residential         60,493        36,532
Real estate - multifamily residential        19,323        18,565
Real estate - nonfarm, nonresidential       179,483       138,527
Real estate - construction                   94,452        65,460
Consumer                                      8,004         7,995
-----------------------------------------------------------------
Total Loans                                $400,908      $304,485
-----------------------------------------------------------------
Less unearned income                          1,444           883
Less allowance for loan losses                4,356         2,803
-----------------------------------------------------------------
Loans, net                                 $395,108      $300,799
-----------------------------------------------------------------


NOTE 4.  ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses is shown below for the years ended
December 31, (dollars in thousands):

---------------------------------------------------------------------------
                                         2001          2000          1999
---------------------------------------------------------------------------
Allowance, at beginning of period      $ 2,803       $ 1,889       $ 1,438
Provision charged against income         1,572           947           480
Recoveries added to reserve                  4             3            11
Losses charged to reserve                  (23)          (36)          (40)
---------------------------------------------------------------------------
Allowance, at end of period            $ 4,356       $ 2,803       $ 1,889
---------------------------------------------------------------------------

Information about impaired loans as of and for the years ended December 31,
2001, 2000 and 1999, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                                     2001      2000      1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>       <C>       <C>
Impaired loans for which an allowance has been provided                              $119      $107      $143
Impaired loans for which no allowance has been provided                                --        --        --
-------------------------------------------------------------------------------------------------------------
    Total impaired loans                                                             $119      $107      $143
-------------------------------------------------------------------------------------------------------------
Allowance provided for impaired loans, included in the allowance for loan losses       16        17        13
Average balance in impaired loans                                                    $113      $125      $178
-------------------------------------------------------------------------------------------------------------
Interest income recognized                                                             --        --        --
-------------------------------------------------------------------------------------------------------------
</TABLE>


Non-accrual loans excluded from impaired loan disclosure under FASB 114 amounted
to $106 thousand, $117 thousand and $107 thousand at December 31, 2001, 2000 and
1999, respectively. If interest on these loans had been accrued as interest
income, such income would have approximated $17 thousand, $13 thousand and $10
thousand for the years ended December 31, 2001, 2000 and 1999, respectively.


                                       37
<PAGE>


NOTE 5. BANK PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost less accumulated depreciation at
December 31, 2001 and 2000, as follows (dollars in thousands):

------------------------------------------------------------------------
                                                      2001         2000
------------------------------------------------------------------------
Land                                                $ 1,839      $ 1,839
Buildings                                             2,361        2,117
Furniture, fixtures and equipment                     4,713        3,832
Leasehold improvements                                1,257        1,007
------------------------------------------------------------------------
Total Cost                                          $10,170      $ 8,795
Less accumulated depreciation and amortization        3,932        3,054
------------------------------------------------------------------------
Net premises and equipment                          $ 6,238      $ 5,741
------------------------------------------------------------------------

Depreciation and amortization expense on premises and equipment amounted to $878
thousand, $801 thousand and $646 thousand in 2001, 2000 and 1999, respectively.


NOTE 6. TIME DEPOSITS

The aggregate amount of time deposits with a minimum denomination of $100,000
each, was approximately $85,208 and $56,358 at December 31, 2001 and 2000,
respectively. Scheduled maturities of all time deposits at December 31, 2001,
are as follows (dollars in thousands):

------------------------------------------------
2002                                    $110,288
2003                                      88,278
2004                                       2,341
2005                                       5,004
2006 and thereafter                        1,752
------------------------------------------------
                                        $207,663
------------------------------------------------


NOTE 7. INCOME TAXES

Net deferred tax assets consist of the following components at December 31, 2001
and 2000 (dollars in thousands):

-----------------------------------------------------
                                     2001       2000
-----------------------------------------------------
DEFERRED TAX ASSETS:
Allowance for loan losses          $1,458      $  923
Non-accrual loans                      32          27
Organization costs                      6           8
Deferred loan fees                     83          83
Bank premises and equipment            94          66
Securities available-for-sale          --          64
-----------------------------------------------------
                                   $1,673      $1,171
-----------------------------------------------------
DEFERRED TAX LIABILITIES:
Securities available-for-sale          88          --
Federal Home Loan Bank stock            2           2
                                   $   90      $    2
-----------------------------------------------------
NET DEFERRED TAX ASSETS            $1,583      $1,169
-----------------------------------------------------


                                       38
<PAGE>

The provision for income tax and its components for the years ending December
31, 2001, 2000, and 1999 are as follows (dollars in thousands):


---------------------------------------------------------------
DECEMBER 31,                 2001          2000          1999
---------------------------------------------------------------
Current tax expense        $ 2,957       $ 2,020       $ 1,320
Deferred tax  benefit         (566)         (339)         (192)
---------------------------------------------------------------
                           $ 2,391       $ 1,681       $ 1,128
---------------------------------------------------------------

The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended December 31, 2001, 2000, and 1999, due to the
following (dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
DECEMBER 31,                                               2001          2000         1999
-------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>          <C>
Computed "expected" tax expense                          $ 2,399       $ 1,676      $ 1,120
Increase (decrease) in income taxes resulting from:
  Nondeductible expense                                        6             5            8
  Nontaxable income                                          (14)           --           --
-------------------------------------------------------------------------------------------
                                                         $ 2,391       $ 1,681      $ 1,128
-------------------------------------------------------------------------------------------
</TABLE>


NOTE 8. EARNINGS PER SHARE

The following shows the weighted average number of shares used in computing
earnings per share and the effect on the weighted average number of shares of
diluted potential common stock. The weighted average number of shares, for all
years reported, have been adjusted to give effect to stock dividends and splits.
Potential dilutive common stock had no effect on income available to common
stockholders.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                           2001                        2000                       1999
----------------------------------------------------------------------------------------------------------------
                                                Per Share                  Per Share                   Per Share
                                   Shares        Amount        Shares        Amount        Shares        Amount
----------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>          <C>            <C>          <C>            <C>
Basic earnings per share          2,711,550      $ 1.72       2,706,917      $ 1.20       2,705,299      $ 0.80
Effect of dilutive securities:
  Stock options                     147,935                      80,096                      78,713
  Warrants                          113,728                      91,830                      95,037
----------------------------------------------------------------------------------------------------------------
Diluted earnings per share        2,973,213      $ 1.57       2,878,843     $  1.13       2,879,049      $ 0.75
----------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 9. COMMITMENTS AND CONTINGENCIES

The Company leases office space for nine of its branch locations, its
operations, mortgage lending, and construction lending departments. In addition,
the Company has entered into a non-cancellable lease for another branch
tentatively scheduled to open in April 2002. These non-cancellable agreements,
which expire through April 2017, in some instances require payment of certain
operating charges. Generally, all leases contain renewal options of one to two
additional five-year terms.

The Company also leases seven pieces of equipment under noncancellable
agreements that expire through February 2004. All seven leases contain purchase
options that are available at the end of the lease term.


                                       39
<PAGE>


The total minimum lease commitment, adjusted for the effect of annual fixed
increases or the Consumer Price Index, at December 31, 2001, is $6.3 million,
due as follows (dollars in thousands):

------------------------------------------------------------------
Due in the year ending December 31,      2002              $   953
                                         2003                  851
                                         2004                  802
                                         2005                  800
                                         2006                  484
                                         Thereafter          2,405
------------------------------------------------------------------

The total lease expense was $948 thousand, $651 thousand and $547 thousand in
2001, 2000, and 1999, respectively.

In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities that are not presented in the accompanying
financial statements. The Company does not anticipate any material losses as a
result of the commitments and contingent liabilities.


NOTE 10: LOANS TO OFFICERS AND DIRECTORS

Officers, directors and/or their related business interests are loan customers
in the ordinary course of business. In management's opinion, these loans are
made on substantially the same terms as those prevailing at the time for
comparable loans with other persons and do not involve more than normal risk of
collectibility or present other unfavorable features. The aggregate amount
outstanding on such loans at December 31, 2001and 2000, was $3.4 million and
$1.8 million, respectively. During 2001, new loans and advances amounted to $2.5
million and repayments of $948 thousand were made.


NOTE 11. STOCK-BASED COMPENSATION PLAN

The Company has a stock-based compensation plan that is described below. Grants
under this plan are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the stock option plan. Had compensation cost for the stock-based
compensation plan been determined based on the grant date fair values of awards
(the method described in FASB Statement No. 123), reported net income and
earnings per common share would have been reduced to the pro forma amounts shown
below:

-------------------------------------------------------------------------------
(Dollars in thousands except per share amounts)      2001      2000      1999
------------------------------------------------------------ ------------------
NET INCOME:
As reported                                         $ 4,665   $ 3,250   $ 2,166
Pro forma                                           $ 4,263   $ 2,951   $ 2,081

BASIC EARNINGS PER SHARE:
As reported                                         $  1.72   $  1.20   $  0.80
Pro forma                                           $  1.57   $  1.09   $  0.77

DILUTED EARNING PER SHARE:
As reported                                         $  1.57   $  1.13   $  0.75
Pro forma                                           $  1.43   $  1.03   $  0.72
-------------------------------------------------------------------------------

The current plan, adopted May 29, 1998, and amended in May 2001, is a qualified
Incentive Stock Option Plan which provides for the granting of options to
purchase up to 276,250 shares of common stock at a price to be determined by the
Board at the date of grant, but in any event, no less than 100% of the fair
market value. Options outstanding at the beginning of 1998, were granted under
the Company's plan adopted in 1988 which was replaced by the current plan. As of
December 31, 2001, 180,518 options had been granted under the current plan.
Options are awarded to employees and the Board of Directors of the Company at
the discretion of the Board of Directors. All options expire ten years from the
grant date. All options which have been granted under the current plan vest over
three years.

The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 2001, 2000, and 1999, respectively: price volatility
of 27.74%, 27.80% and 29.76%, risk-free interest rates of 5.04%, 6.95% and
6.50%, dividend rate of .02% and expected lives of 10 years.


                                       40
<PAGE>


A summary of the status of the plan at December 31, 2001, 2000 and 1999, and
changes during the years ended on those dates is as follows:
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
                                                     2001                    2000                       1999
                                                         Weighted                 Weighted                    Weighted
                                           Number        Average     Number       Average       Number        Average
                                           of            Exercise    of           Exercise      of            Exercise
                                           Shares          Price     Shares         Price       Shares          Price
----------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>        <C>           <C>          <C>             <C>
Outstanding at beginning of year           268,584        $ 7.78     174,528       $ 6.38       145,055         $ 5.64
Granted                                     56,600        $10.90      94,056       $10.39        34,342         $ 9.91
Exercised                                   13,899        $ 7.03          --           --         3,659         $ 9.02
Forfeited                                    7,051        $10.59          --           --         1,210         $ 9.84
Outstanding at end of year                 304,234        $ 8.37     268,584       $ 7.78       174,528         $ 6.38
Exercisable at end of year                 180,923                   152,441                    143,468
Pro forma weighted-average fair
 value per option of options
 granted during the year                     $5.52                     $6.83                      $7.38
----------------------------------------------------------------------------------------------------------------------
</TABLE>


A further summary about the options outstanding and exercisable at December 31,
2001 is as follows:

<TABLE>
<CAPTION>
                                      Options Outstanding                 Options Exercisable
                            --------------------------------------    --------------------------
                              Number                      Weighted       Number         Weighted
                            Outstanding     Remaining     Average     Exercisable at    Average
                            at December    Contractual    Exercise     December 31,     Exercise
Range of Exercise Prices     31, 2001          Life         Price         2001            Price
------------------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>          <C>              <C>
$3.62 to $4.87                 98,187        4.2 years      $ 4.31        98,187          $ 4.31
$9.02 to $10.25                65,328        6.6 years        9.48        52,998            9.39
$10.41 to $11.09              139,119        8.4 years       10.60        29,738           10.44
$17.25 to $20.00                1,600        9.8 years       18.19            --              --
------------------------------------------------------------------------------------------------
$3.62 to $20.00               304,234        6.6 years      $ 8.37       180,923          $ 6.81
</TABLE>

All options granted, available under the current Plan, and exercisable have been
adjusted for all three years giving retroactive effect to the 10% stock
restructuring in 1999, the 10% stock dividend in 2000 and the 25% stock split in
the form of a dividend in 2001.


NOTE 12. DIRECTOR COMPENSATION PLAN

In April 1996, the Company granted 148,230 warrants at an exercise price of
$4.45 to six outside Directors. In January 1998, the Company granted 16,637
warrants at an exercise price of $9.02 to an additional outside Director. All
warrants have been restated for both years giving retroactive effect to the 10%
stock restructuring in 1998 and 1999, the 10% stock dividend in 2000 and the 25%
stock split in the form of a dividend in 2001. In addition, the seven outside
Directors were each awarded 6,875 options in January 2000, as adjusted for the
10% stock dividend in 2000 and the 25% stock split in the form of a dividend in
2001, under the Company's Incentive Option Plan.

NOTE 13. OTHER BORROWED MONEY AND LINES OF CREDIT

The Bank maintains a $73 million line of credit with the Federal Home Loan Bank
of Atlanta. The interest rate and term of each advance from the line is
dependent upon the advance and commitment type. Advances on the line are secured
by all of the Bank's qualifying first lien loans on one-to-four unit
single-family dwellings. As of December 31, 2001, the book value of these loans
totaled approximately $8.7 million. The amount of available credit is limited to
seventy-five percent of the qualifying loans. Advances on the line of credit, in
excess of total qualifying loans, require pledging of additional assets. Under
terms of a line of credit agreement from a nonaffiliated bank (described below)
the Bank is limited to $10 million in total outstanding advances from the
Federal Home Loan Bank at any time.

The Company maintains a $12,000,000 line of credit from a nonaffiliated bank
generally for the purpose of providing additional capital to the Bank. Under
terms of the agreement, outstanding advances are currently limited to $11
million through January 31, 2002 and $10.5 million from February 1, 2002 through
June 30, 2002. The agreement requires a participating lender to purchase a one
third interest in existing and future advances under the line. Once a
participating lender is obtained the limitations on outstanding advance amounts
would be lifted, if a participating lender has not been obtained by April 30,
2002, advances will be limited to $8 million as of June 30, 2002 and the Company
would be required to repay by that date any advances in excess of $8 million.
Advances under the line of credit are secured by all of the shares of common
stock of the Bank.


                                       41
<PAGE>

As of December 31, 2001, the Company had the following advances outstanding:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
    Creditor Advance Date        Interest Rate      Maturity     Outstanding Principal
--------------------------------------------------------------------------------------
<S>                                   <C>            <C>               <C>
FHLB                11-16-93          5.93%          11-16-03          $   400
--------------------------------------------------------------------------------------
Non Affiliated Bank 12-26-01          4.85%          12-31-04          $ 8,000
Non Affiliated Bank 12-26-01          4.85%          06-30-02            2,500
Non Affiliated Bank 12-31-01          4.85%          01-31-02              500
--------------------------------------------------------------------------------------
                                                                       $11,000
--------------------------------------------------------------------------------------
                                                                       $11,400
--------------------------------------------------------------------------------------
</TABLE>


The Bank has additional short term unused lines of credit totaling $9.2 million
with nonaffiliated banks at December 31, 2001.

NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheet. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual or notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.

A summary of the contract or notional amount of the Company's exposure to
off-balance-sheet risk as of December 31, 2001 and 2000, is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(Dollars in thousands)                                                   2001        2000
-------------------------------------------------------------------------------------------
<S>                                                                    <C>         <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit                                           $ 14,165    $  9,005
Standby letters of credit and financial guarantees written             $  8,328    $  3,256
Unfunded lines of credit                                               $ 84,764    $ 60,635
 ------------------------------------------------------------------------------------------
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies but may
include cash, marketable securities, accounts receivable, inventory, property
and equipment, residential real estate, and income-producing commercial
properties.

Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company holds certificates of deposit, marketable securities, and business
assets as collateral supporting those commitments for which collateral is deemed
necessary.


NOTE 15. FUND RESTRICTIONS AND RESERVE BALANCE

The transfer of funds from the Bank to the Company in the form of loans,
advances, and cash dividends are restricted by Federal and State regulatory
authorities. As of December 31, 2001, the aggregate amount of unrestricted funds
that could be transferred totaled approximately $6.7 million, or 25.75%, of the
consolidated net assets of the Company.


                                       42
<PAGE>


As members of the Federal Reserve System, the Company is required to maintain
certain average reserve balances. For the final weekly reporting period in the
years ended December 31, 2001 and 2000, the aggregate amounts of daily average
required balances were approximately $798 thousand and $489 thousand,
respectively.


NOTE 16.  EMPLOYEE BENEFITS

The Company has a 401(k) defined contribution plan covering substantially all
full-time employees and provides that an employee becomes eligible to
participate at the date he or she has reached the age of 21 and has completed
three months of service, whichever occurs last. Under the plan, a participant
may contribute up to 15% of his or her covered compensation for the year,
subject to certain limitations. The Company may also make, but is not required
to make, a discretionary contribution for each participant out of its current or
accumulated net profits. The amount of contribution, if any, is determined on an
annual basis by the Board of Directors. Contributions made by the Company
totaled $141 thousand, $107 thousand and $74 thousand for the years ended
December 31, 2001, 2000 and 1999, respectively.


NOTE 17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND INTEREST RATE
         RISK

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

CASH AND SHORT-TERM INVESTMENTS

For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.

SECURITIES

For securities held for investment purposes, fair values are based on quoted
market prices or dealer quotes.

LOANS HELD-FOR-SALE

Fair value is based on selling price arranged by arms-length contracts with
third parties.

LOAN RECEIVABLES

For certain homogeneous categories of loans, such as some residential mortgages,
and other consumer loans, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.

DEPOSITS AND BORROWINGS

The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. For all other
deposits and borrowings, the fair value is determined using the discounted cash
flow method. The discount rate was equal to the rate currently offered on
similar products.

ACCRUED INTEREST

The carrying amounts of accrued interest approximate fair value.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The fair value of commitments to extend credit is estimated using the fees
currently charged to enter similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.

The fair value of stand-by letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.

At December 31, 2001 and 2000, the carrying amounts of loan commitments and
stand-by letters of credit approximate fair values.


                                       43
<PAGE>


The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                       2001                        2000
                                              Carrying      Estimated     Carrying      Estimated
(Dollars in thousands)                         Amount       Fair Value     Amount       Fair Value
--------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>           <C>
FINANCIAL ASSETS:
Cash and short-term investments               $ 15,155      $ 15,155      $ 10,952      $ 10,952
Securities                                      53,014        53,143        45,254        45,265
Loans held-for-sale                             15,842        15,842         4,918         4,918
Loans                                          395,108       410,923       300,799       307,798
Accrued interest receivable                      2,211         2,211         2,042         2,042
--------------------------------------------------------------------------------------------------
   Total Financial assets                     $481,330      $497,274      $363,965      $370,975
--------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Deposits                                      $406,922      $412,783      $310,934      $312,608
Securities sold under agreement to              42,452        42,445        29,097        29,097
  repurchase and federal funds purchased
Other borrowed funds                            11,400        11,441         7,400         8,075
Accrued interest payable                         1,301         1,301         1,309         1,309
--------------------------------------------------------------------------------------------------
   Total Financial liabilities                $462,075      $467,970      $348,740      $351,089
--------------------------------------------------------------------------------------------------
</TABLE>


In the normal course of business, the Company is subject to market risk which
includes interest rate risk (the risk that general interest rate levels will
change) As a result, the fair values of the Company's financial instruments will
change when interest rate levels change and that change may be either favorable
or unfavorable to the Company. Management attempts to match maturities of assets
and liabilities to the extent believed necessary to minimize this risk.


NOTE 18.  CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct material effect
on the Company's and Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total capital and Tier 1 capital to risk-weighted
assets (as defined), and of Tier 1 capital to average assets. Management
believes, as of December 31, 2001 and 2000, that the Bank met all capital
adequacy requirements to which it is subject.

As of December 31, 2001, the Bank is categorized as "well-capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well-capitalized", the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since December 31, 2001 that management believes changed
the Bank's category. The Company's and the Bank's actual capital amounts and
ratios are also presented in the table.


                                       44
<PAGE>


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
     (Dollars in thousands)                                                           MINIMUM TO BE
                                                           MINIMUM CAPITAL    WELL-CAPITALIZED UNDER PROMPT
                                  ACTUAL CAPITAL             REQUIREMENT*     CORRECTIVE ACTION PROVISIONS
-----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2001:        Amount       Ratio       >Amount      >Ratio      >Amount      >Ratio
                                                         -            -           -            -
-----------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>          <C>           <C>        <C>          <C>
Total Capital
(to Risk-Weighted Assets)
      Company                  $30,381       7.41%       $32,801       8.00%      $   N/A        N/A%
      Bank                      41,357      10.09%        32,800       8.00%       41,000      10.00%
Tier 1 Capital
(to Risk-Weighted Assets)
      Company                  $26,026       6.35%       $16,401       4.00%      $   N/A        N/A%
      Bank                      25,902       6.32%        16,400       4.00%       24,600       6.00%
Tier 1 Capital
(to Average Assets)
      Company                  $26,026       5.44%       $19,152       4.00%      $   N/A        N/A%
      Bank                      25,902       5.41%        19,151       4.00%       23,939       5.00%
-----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2000:
-----------------------------------------------------------------------------------------------------------
Total Capital
(to Risk-Weighted Assets)
      Company                  $24,059       7.79%       $24,701       8.00%      $   N/A        N/A%
      Bank                      31,099      10.07%        24,705       8.00%       30,881      10.00%
Tier 1 Capital
(to Risk-Weighted Assets)
      Company                  $21,256       6.88%       $12,350       4.00%      $   N/A        N/A%
      Bank                      21,296       6.90%        12,352       4.00%       18,528       6.00%
Tier 1 Capital
(to Average Assets)
      Company                  $21,256       5.81%       $14,634       4.00%      $   N/A        N/A%
      Bank                      21,296       5.82%        14,636       4.00%       18,296       5.00%
-----------------------------------------------------------------------------------------------------------
</TABLE>


* The minimum capital requirement for the Company is a guideline.
(1)


                                       45
<PAGE>


NOTE 19. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
BALANCE SHEETS (in thousands)                    DECEMBER 31, 2001   DECEMBER 31, 2000
<S>                                                  <C>                <C>
Assets:
  Cash and due from banks                            $     1            $     3
  Investment in Virginia Commerce Bank                26,096             21,205
  Subordinated Debt in Virginia Commerce Bank         11,100              7,000
  Other Assets                                            31                143
--------------------------------------------------------------------------------------
    Total Assets                                     $37,228            $28,351
--------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity:
  Long Term Debt                                     $11,000            $ 7,000
  Other Liabilities                                        8                185
--------------------------------------------------------------------------------------
    Total Liabilities                                $11,008            $ 7,185
--------------------------------------------------------------------------------------
    Stockholders' Equity                              26,220             21,166
--------------------------------------------------------------------------------------
    Total Liabilities and Stockholders' Equity       $37,228            $28,351
--------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------
                                                            YEARS ENDED DECEMBER 31,
STATEMENTS OF INCOME (in thousands)                     2001          2000          1999
<S>                                                   <C>           <C>           <C>
Income:
  Interest on subordinated debt                       $   479       $   333       $     1
  Dividend from subsidiary                                 98            --            --
------------------------------------------------------------------------------------------
    Total Income                                          577           333             1
------------------------------------------------------------------------------------------
Expenses:
   Interest on long term debt                             491           336             1
   Organizational expense                                  --            --            29
   Other operating expense                                 32            20             3
------------------------------------------------------------------------------------------
    Total Expenses                                        523           356            33
------------------------------------------------------------------------------------------
Gain (loss) before income taxes (benefit) and
  equity in undistributed earnings of Virginia
  Commerce Bank                                       $    54       $   (23)      $   (32)
Income Tax (Benefit)                                      (15)           (8)          (11)
------------------------------------------------------------------------------------------
                                                           69           (15)          (21)
Equity in undistributed net income of
  Virginia Commerce Bank                                4,596         3,265         2,187
------------------------------------------------------------------------------------------
     Net Income                                       $ 4,665       $ 3,250       $ 2,166
------------------------------------------------------------------------------------------

<CAPTION>
-----------------------------------------------------------------------------------------
                                                           YEARS ENDED DECEMBER 31,
STATEMENTS OF CASH FLOWS (in thousands)                2001          2000          1999
<S>                                                  <C>           <C>           <C>
Cash Flows from Operating Activities
    Net Income                                       $ 4,665       $ 3,250       $ 2,166
Adjustments to reconcile net income to net cash
     provided by operating activities:
Equity in undistributed net income of Virginia
     Commerce Bank                                    (4,596)       (3,265)       (2,187)
Decrease (increase) in other assets                      112          (131)          (12)
(Decrease) increase in other liabilities                (177)          152            33
-----------------------------------------------------------------------------------------
Net cash provided by operating activities            $     4       $     6       $     0
-----------------------------------------------------------------------------------------
Cash Flows from Investing Activities
     Purchase of debt securities                      (4,100)       (4,500)       (2,500)
-----------------------------------------------------------------------------------------
Net cash (used in) investing activities              $(4,100)      $(4,500)      $(2,500)
-----------------------------------------------------------------------------------------
Cash Flows from Financing Activities
     Net increase in long term debt                    4,000         4,500         2,500
     Common stock issued                                  97            --            --
     Cash paid in lieu of fractional shares               (3)           (3)           --
-----------------------------------------------------------------------------------------
Net cash provided by financing activities            $ 4,094       $ 4,497       $ 2,500
-----------------------------------------------------------------------------------------
Change in cash and cash equivalents                  $    (2)      $     3       $     0
Beginning                                                  3             0             0
Ending                                               $     1       $     3       $     0
-----------------------------------------------------------------------------------------
</TABLE>


                                       46
<PAGE>


NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected financial information for the quarterly periods of 2001 and 2000 is
presented below (dollars in thousands except per share data):

                                                  2001 QUARTERS
                                    ------------------------------------------
                                    FIRST       SECOND      THIRD       FOURTH
                                    ------------------------------------------
Interest income                     $8,048      $8,436      $8,827      $8,586
Interest expense                     4,048       4,154       4,159       3,630
------------------------------------------------------------------------------
     Net interest income            $4,000      $4,282      $4,668      $4,956
Provision for loan losses              270         180         225         897
     Net interest income after
     provision for loan losses      $3,730      $4,102      $4,443      $4,059
Non-interest income                    880       1,135       1,237       1,452
Non-interest expense                 3,188       3,455       3,530       3,809
------------------------------------------------------------------------------
     Income before taxes            $1,422      $1,782      $2,150      $1,702
Income tax expense                     484         605         729         573
------------------------------------------------------------------------------
     Net income                     $  938      $1,177      $1,421      $1,129
------------------------------------------------------------------------------
Net income per common share:
     Basic                          $ 0.35      $ 0.43      $ 0.52      $ 0.42
     Diluted                        $ 0.33      $ 0.40      $ 0.47      $ 0.37


                                                  2000 QUARTERS
                                    ------------------------------------------
                                    FIRST       SECOND      THIRD       FOURTH
                                    ------------------------------------------
Interest income                     $5,637      $6,228      $7,083      $7,828
Interest expense                     2,578       2,891       3,500       3,892
------------------------------------------------------------------------------
     Net interest income            $3,059      $3,337      $3,583      $3,936
Provision for loan losses              165         165         290         327
     Net interest income after
     provision for loan losses      $2,894      $3,172      $3,293      $3,609
Non-interest income                    487         661         709         742
Non-interest expense                 2,435       2,563       2,529       3,109
------------------------------------------------------------------------------
     Income before taxes            $  946      $1,270      $1,473      $1,242
Income tax expense                     323         432         502         424
------------------------------------------------------------------------------
     Net income                     $  623      $  838      $  971      $  818
------------------------------------------------------------------------------
Net income per common share:
     Basic                          $ 0.23      $ 0.31      $ 0.36      $ 0.30
     Diluted                        $ 0.22      $ 0.29      $ 0.34      $ 0.28


                                       47
<PAGE>

<TABLE>
<CAPTION>
<S>                     <C>
                        Board of Directors
[photo omitted]         First Row (left to right)
                        Peter A. Converse, President and Chief Executive Officer;
                        W. Douglas Fisher; Chairman, David M. Guernsey, Vice Chairman

                        Second Row (left to right)
                        Arthur L. Walters, Vice Chairman; Leonard Adler; Norris E, Mitchell;
                        Frank L. Cowles, Jr.; Robert H. L'Hommedieu

                        Executive Officers
[photo omitted]         Left to right:

                        William K. Beauchesne, Executive Vice President and Chief
                        Financial Officer, Kerry J. Donley, Executive Vice President,
                        Retail Banking, Peter A. Converse, President and Chief Executive
                        Officer Richard B. Anderson, Jr., Executive Vice President and Chief
                        Lending Officer

<CAPTION>
<S>                                           <C>                           <C>                        <C>
Timothy M. Aldinger                           Lisa K. Bluntzer              Susan T. Johnson           Deborah A. Jones
Senior Vice President                         Vice President                Vice President             Assistant Vice President
Commercial Lending                            Loan Servicing                Facilities Manager         Residential Mortgage Lending

Ricardo Balcells                              J. Larry Caison               Edward W. Lull, Jr.        Tamara M. Mitchell
Vice President                                General Auditor               Vice President             Assistant Vice President
Regional Manager                                                            Commercial Lending         King Street Branch
                                              Matthew F. Cammarota
George L. Greco                               Vice President                Pamela D. McConnell        Stacey L. Sim
Senior Vice President Senior Credit Officer   Consumer Lending              Vice President             Assistant Vice President
                                                                            Community Banking          McLean Branch
Gregory A. Motheral                           Jose A. Castillo
Senior Vice President Commercial Lending      Vice President                Robert L. McCoy            Karen B. Daniels
                                              Electronic Banking Services   Vice President             Branch Officer
James R. Nalls                                                              Regional Manager           Williamsburg Blvd. Branch
Senior Vice President Construction Lending    Leslie E. Cerino
                                              Vice President                Suzie G. Spannuth          Barry L. Huitema
Kenneth L. O'Shea                             Regional Manager              Vice President             Branch Officer
Senior Vice President                                                       Deposit Operations         Chantilly Branch
Residential Mortgage Lending                  Wendy M. Clark
                                              Vice President                Karen M. Clinton           Shin Y. Koo
Patricia M. Ostrander                         Consumer Lending              Assistant Vice President   Branch Officer
Senior Vice President                                                       Consumer Lending           Annandale Branch
Director of Human Resources                   Robin P. Coracci
                                              Vice President                Glenn S. Cummings          Allison M. Leimbach
Richard M. Owen                               Branch Coordinator            Assistant Vice President   Consumer Lending Officer
Senior Vice President                                                       Security Officer
Commercial Lending                            Nancy K. Dishner                                         Kelly J. Perrault
                                              Vice President                Jacqueline A. Freeman      Branch Officer
Michele K. Parker                             Credit Administration         Assistant Vice President   Cameron Station Branch
Senior Vice President                                                       Training Officer
Cash Management Services                      James C. Elliot                                          Linda L. Trout
                                              Vice President                James D. Holter            Loan Servicing Officer
Thomas E. Williams                            Commercial Lending            Assistant Vice President
Senior Vice President                                                       Information Services
Real Estate Lending                           Lynn B. Gonzalez
                                              Vice President                Nancy Hong
Jo Ann Bell                                   Electronic Banking Services   Assistant Vice President
Vice President                                                              Clarendon Branch
Regional Manager                              Marcia J. Hopkins
                                              Vice President                Sharon L. Jackson
                                              Accounting                    Assistant Vice President
                                                                            Fairfax Branch

</TABLE>


                                       48

<PAGE>


VCBI               www.vcbonline.com              [FDIC Insurance Logo Omitted]
----
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