<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

 Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 2005

                        Commission file number: 000-28635

                         VIRGINIA COMMERCE BANCORP, INC.
             (Exact name of registrant as specified in its charter)

                 Virginia                                54-1964895
       (State or other jurisdiction         (I.R.S. Employer Identification No.)
     of incorporation or organization)

   5350 Lee Highway, Arlington, Virginia                   22207
 (Address of principal executive offices)                (Zip Code)

                   Registrant's telephone number: 703.534.0700

           Securities registered under Section 12(b) of the Act: None

       Securities registered under Section 12(g) of the Act: Common Stock,
                                 $1.00 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Section 405 of the Securities Act.  Yes |_|   No |X|

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |_|   Accelerated filer |X|   Non-accelerated filer |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes |_|   No |X|

The registrant's Common Stock is traded on the Nasdaq National Market under the
symbol VCBI. The aggregate market value of the approximately 9,664,461 shares of
Common Stock of the registrant issued and outstanding held by nonaffiliates on
June 30, 2005 was approximately $235.8 million, based on the closing sales price
of $24.40 per share on that date. For purposes of this calculation, the term
"affiliate" refers to all directors, executive officers and 10% shareholders of
the registrant.

As of the close of business on March 1, 2006, 14,190,064 shares of the
registrant's Common Stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders, to be held on April 26, 2006, are incorporated by reference in
part III hereof.
<PAGE>

FORM 10-K CROSS REFERENCE OF MATERIAL INCORPORATED BY REFERENCE

The following shows the location in this Annual Report on Form 10-K or the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
April 26, 2006, of the information required to be disclosed by the United States
Securities and Exchange Commission Form 10-K. References to pages only are to
pages in this report.

PART I    ITEM 1.    BUSINESS.  See "Business" at pages 53 through 62.

          ITEM 1A    RISK FACTORS.  See "Risk Factors" at pages 20 through 23.

          ITEM 1B    UNRESOLVED STAFF COMMENTS.  None.

          ITEM 2.    PROPERTIES.  See "Properties" at page 62.

          ITEM 3.    LEGAL PROCEEDINGS. From time to time the Company is a
                     participant in various legal proceedings incidental to its
                     business. In the opinion of management, the liabilities (if
                     any) resulting from such legal proceedings will not have a
                     material effect on the financial position of the Company.

          ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No
                     matter was submitted to a vote of the security holders of
                     the Company during the fourth quarter of 2005.

PART II   ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                     MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES. See
                     "Market Price of Stock and Dividends" at page 63.

          ITEM 6.    SELECTED FINANCIAL DATA.  See "Five Year Financial Summary"
                     at page 3.

          ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATION. See "Management's Discussion and
                     Analysis of Financial Condition and Results of Operation"
                     at pages 4 through 20.

          ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
                     See "Asset/Liability Management and Quantitative and
                     Qualitative Disclosures About Market Risk" at page 9.

          ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See
                     Consolidated Financial Statements at pages 27 through 52.

          ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                     AND FINANCIAL DISCLOSURE. None.

          ITEM 9A.   CONTROLS AND PROCEDURES.  See "Controls and Procedures" at
                     page 23 and "Management Report on Internal Control Over
                     Financial Reporting" at page 24.

          ITEM 9B.   OTHER INFORMATION.  None

PART III  ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
                     The information required by Item 10 is incorporated by
                     reference from the material under the caption "Election of
                     Directors" contained at pages 4 through 8, and under the
                     caption "Compliance with Section 16(a) of the Securities
                     Exchange Act of 1934" at page 15, of the Proxy Statement.
                     The Company has adopted a code of ethics that applies to
                     its Chief Executive Officer and Chief Financial Officer. A
                     copy of the code of ethics will be provided to any person,
                     without charge, upon written request directed to Lynda
                     Cornell, Assistant to the Chief Executive Officer, Virginia
                     Commerce Bancorp, Inc., 5350 Lee Highway, Arlington,
                     Virginia 22207.

          ITEM 11.   EXECUTIVE COMPENSATION. The information required by Item 11
                     is incorporated by reference from the material under the
                     caption "Executive Officer Compensation and Certain
                     Transactions," contained at pages 8 through 13 of the Proxy
                     Statement.

          ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                     MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information
                     required by Item 12 is incorporated by reference from the
                     material under the captions "Voting Securities and
                     Principal Holders Thereof" contained at page 3 of the Proxy
                     Statement, and included under the caption "Securities
                     Authorized for Issuance Under Equity Compensation Plans" at
                     page 63 hereof.

          ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The
                     information required by Item 13 is incorporated by
                     reference from the material under the caption "Transactions
                     with Management and Others" contained at page 11 of the
                     Proxy Statement.

          ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information
                     required by Item 14 is incorporated by reference from the
                     material under the caption "Independent Registered Public
                     Accounting Firm" contained at page 15 of the Proxy
                     Statement.

PART IV   ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. See "Financial
                     Statements and Exhibits" at page 64.

                                       2
<PAGE>

FIVE YEAR FINANCIAL SUMMARY

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                      ----------------------------------------------------------------
                                         2005         2004         2003         2002         2001
                                      -----------  -----------  -----------   ----------  ------------
                                             (Dollars in thousands, except per share amounts)
<S>                                   <C>          <C>            <C>          <C>           <C>
SELECTED YEAR-END BALANCES
Total assets                          $1,518,425   $1,139,353     $881,694     $663,457      $489,511
Total stockholders' equity               111,818       91,324       55,092       41,850        26,220
Total loans (net)                      1,270,255      925,782      654,851      516,900       395,108
Total deposits                         1,243,506      970,968      773,511      566,996       406,922
SUMMARY RESULTS OF OPERATIONS
Interest income                          $86,478      $57,998      $45,968      $38,998       $33,897
Interest expense                          29,811       16,331       13,893       14,128        15,991
  Net interest income                    $56,667      $41,667      $32,075      $24,870       $17,906
Provision for loan losses                  3,772        2,989        1,575        1,678         1,572
  Net interest income after
  provision for loan losses              $52,895      $38,678      $30,500      $23,192       $16,334
Non-interest income                        6,676        5,759        7,746        5,593         4,704
Non-interest expense                      29,466       22,807       20,820       17,217        13,982
   Income before taxes                   $30,105      $21,630      $17,426      $11,568        $7,056
Income tax expense                        10,438        7,401        5,880        3,892         2,391
  Net income                             $19,667      $14,229      $11,546       $7,676        $4,665
PER SHARE DATA (1)
Net income, basic                          $1.40        $1.08        $0.94        $0.69         $0.44
Net income, diluted                        $1.31        $0.99        $0.86        $0.62         $0.40
Book value                                 $7.96        $6.62        $4.49        $3.58         $2.47
Average number of shares
outstanding:
   BASIC                              14,010,688   13,212,621   12,166,805    11,124,241   10,591,215
  DILUTED                             14,989,143   14,330,169   13,300,713    12,491,041   11,766,980
GROWTH AND SIGNIFICANT RATIOS
% Change in net income                     38.22%       23.24%       50.42%       64.54%        43.54%
% Change in assets                         33.27%       29.22%       32.89%       35.53%        31.88%
% Change in loans (net)                    37.21%       41.37%       26.69%       30.82%        31.35%
% Change in deposits                       28.07%       25.53%       36.42%       39.34%        30.87%
% Change in equity                         22.44%       65.77%       31.64%       59.61%        23.88%
Equity to asset ratio                       7.36%        8.02%        6.25%        6.31%         5.36%
Return on average assets                    1.45%        1.39%        1.47%        1.32%         1.05%
Return on average equity                   19.44%       19.28%       23.71%       23.06%        19.37%
Average equity to average assets            7.47%        7.22%        6.21%        5.71%         5.44%
Efficiency ratio (2)                       46.52%       48.01%       52.17%       56.52%        61.84%
</TABLE>

(1)    Adjusted for all years presented giving retroactive effect to
       five-for- four stock splits in the form of 25% stock dividends in 2001
       and 2002, a two-for-one split in the form of a 100% stock dividend in
       2003, and five-for-four stock splits in the form of 25% stock dividends
       in 2004 and 2005.
(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. This is a non-GAAP financial measure, which
       we believe provides investors with important information regarding our
       operational efficiency. Comparison of our efficiency ratio with those of
       other companies may not be possible, because other companies may
       calculate the efficiency ratio differently.

                                       3
<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 may
differ materially from those indicated herein. Readers are cautioned against
placing undue reliance on any such forward-looking statements. The Company's
past results are not necessarily indicative of future performance.

NON-GAAP PRESENTATIONS

This management's discussion and analysis refers to the efficiency ratio, which
is computed by dividing non-interest expense by the sum of net interest income
on a tax equivalent basis and non-interest income. This is a non-GAAP financial
measure that we believe provides investors with important information regarding
our operational efficiency. Comparison of our efficiency ratio with those of
other companies may not be possible because other companies may calculate the
efficiency ratio differently. The Company, in referring to its net income, is
referring to income under accounting principles generally accepted in the United
States, or "GAAP".

GENERAL

The following presents management's discussion and analysis of the consolidated
financial condition and results of operations of Virginia Commerce Bancorp, Inc.
and subsidiaries (the "Company") as of the dates and for the periods indicated.
This discussion should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto, and other financial data appearing
elsewhere in this report. The Company is the parent bank holding company for
Virginia Commerce Bank (the "Bank"), a Virginia state-chartered bank that
commenced operations in May 1988. The Bank pursues a traditional community
banking strategy, offering a full range of business and consumer banking
services through nineteen branch offices, two residential mortgage offices and
one investment services office.

Headquartered in Arlington, Virginia, Virginia Commerce serves the Northern
Virginia suburbs of Washington, D.C., including Arlington, Fairfax, Fauquier,
Loudoun and Prince William Counties and the cities of Alexandria, Fairfax, Falls
Church, Manassas and Manassas Park. Its service area also covers, to a lesser
extent, Washington, D.C. and the nearby Maryland counties of Montgomery and
Prince Georges. The Bank's customer base includes small-to-medium sized
businesses including firms that have contracts with the U.S. government,
associations, retailers and industrial businesses, professionals and their
firms, business executives, investors and consumers. Additionally, the Bank has
strong market niches in commercial real estate and construction lending and
operates its residential mortgage lending division as its only business segment.
Over the past five years, the Company has experienced significant growth in
total assets, loans, deposits and net income.

CRITICAL ACCOUNTING POLICIES

During the year ended December 31, 2005, there were no changes in the Company's
critical accounting policies as reflected in the last report.

The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States (GAAP). The financial
information contained within our statements is, to a significant extent,
financial information that is based on measures of the financial effects of
transactions and events that have already occurred. A variety of factors could
affect the ultimate value that is obtained either when earning income,
recognizing an expense, recovering an asset or relieving a liability. We use
historical loss factors as one factor in determining the inherent loss that may
be present in our loan portfolio. Actual losses could differ significantly from
the historical factors that we use. In addition, GAAP itself may change from one
previously acceptable method to another method. Although the economics of our
transactions would be the same, the timing of events that would impact our
transactions could change.

                                       4
<PAGE>

The allowance for loan losses is an estimate of the losses that are inherent in
our loan portfolio. The allowance is based on two basic principles of
accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses
be accrued when they are probable of occurring and estimable and (ii) SFAS 114,
Accounting by Creditors for Impairment of a Loan, which requires that losses be
accrued based on the differences between the value of collateral, present value
of future cash flows or values that are observable in the secondary market and
the loan balance.

Our allowance for loan losses has three basic components: the specific
allowance, the formula allowance and the unallocated allowance. Each of these
components is determined based upon estimates that can and do change when the
actual events occur. The specific allowance is used to individually allocate an
allowance for loans identified as impaired. Impairment testing includes
consideration of the borrower's overall financial condition, resources and
payment record, support available from financial guarantors and the fair market
value of collateral. These factors are combined to estimate the probability and
severity of inherent losses. When impairment is identified, then a specific
reserve is established based on the Company's calculation of the loss embedded
in the individual loan. 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.
The formula allowance is used for estimating the loss on internally risk rated
loans exclusive of those identified as impaired. The loans meeting the criteria
for substandard, doubtful and loss, as well as impaired loans, are segregated
from performing loans within the portfolio. Internally classified loans are then
grouped by loan type (commercial, commercial real estate, commercial
construction, residential real estate, residential construction or installment).
Each loan type is assigned an allowance factor based on management's estimate of
the associated risk, complexity and size of the individual loans within the
particular loan category. Classified loans are assigned a higher allowance
factor than non-rated loans due to management's concerns regarding
collectibility or management's knowledge of particular elements surrounding the
borrower. Allowance factors grow with the worsening of the internal risk rating.
The unallocated formula is used to estimate the loss of non-classified loans.
These loans are also segregated by loan type and allowance factors are assigned
by management based on delinquencies, loss history, trends in volume and terms
of loans, effects of changes in lending policy, the experience and depth of
management, national and local economic trends, concentrations of credit,
quality of the loan review system and the effect of external factors (i.e.
competition and regulatory requirements). The factors assigned differ by loan
type. The unallocated allowance captures losses whose impact on the portfolio
has occurred but has yet to be recognized in either the formula or specific
allowance. Allowance factors and the overall size of the allowance may change
from period to period based on management's assessment of the factors described
above and the relative weights given to each factor. For further information
regarding the allowance for loan losses see Notes 1 and 4 to the Consolidated
Financial Statements and the discussion under the caption "Asset Quality -
Provision and Allowance for Loan Losses" at page 12.

FINANCIAL PERFORMANCE OVERVIEW

For the year ended December 31, 2005, total assets increased $379.1 million, or
33.3%, from $1.14 billion at December 31, 2004, to $1.52 billion, with loans,
net of the allowance for loan losses, increasing $344.5 million, or 37.2%, from
$925.8 million at December 31, 2004, to $1.27 billion at December 31, 2005. This
growth in loans and total assets was fueled by an increase in total deposits of
$272.5 million, or 28.1%, from $971.0 million at December 31, 2004, to $1.244
billion, a $58.6 million increase in repurchase agreements and federal funds
purchased, and $25.0 million in proceeds from the issuance of trust preferred
capital notes. Net income for the year ended December 31, 2005 was up $5.5
million, or 38.2%, from $14.2 million in 2004, to $19.7 million with a $15.0
million increase in net interest income, the Company's primary source of
revenue.

In 2004, total assets increased $257.7 million, or 29.2%, from $881.7 million at
December 31, 2003, to $1.14 billion, with loans increasing $270.9 million, or
41.4% from $654.9 million at December 31, 2003, to $925.8 million. As in 2005,
the majority of the growth in loans and total assets was funded by increases in
deposits, with total deposits rising $197.5 million, or 25.5%, from $773.5
million at December 31, 2003, to $971.0 million at the end of 2004. Additional
funding was provided by a $22.3 million increase in repurchase agreements and
$21.8 million in net proceeds from a follow-on public offering in May 2004. Net
income in 2004 was up $2.7 million, or 23.2%, from $11.5 million in 2003 to
$14.2 million with growth in net-interest income again being the primary factor.

                                       5
<PAGE>

As noted, the Company achieved significant growth in loans in 2005. Loans are
the Company's major asset and as a result the major contributor to interest
income. The majority of loan growth occurred in real estate mortgage loans,
which rose $173.4 million, or 28.6%, from $605.4 million at December 31, 2004,
to $778.8 million at December 31, 2005. Real estate construction loans
represented the second largest dollar increase rising $140.5 million, or 58.4%,
from $240.5 million at December 31, 2004, to $381.0 million, while a greater
emphasis by the Company on commercial lending, beginning in 2004, contributed to
a record level increase in commercial loans with total commercial loans
increasing $33.5 million, or 37.8%, from $88.7 million at December 31, 2004, to
$122.2 million at December 31, 2005. In 2004, growth by category was similar to
what was achieved in 2005, with real estate mortgage loans increasing $161.0
million, real estate construction loans representing the second largest increase
at $87.1 million, and commercial loans rising $27.5 million.

While loans are the Company's major asset, deposits are the Company's major
source of funding and as a result the major contributor to interest expense. In
2005, deposits increased by $272.5 million, or 28.1%, with non-interest-bearing
demand deposits increasing $40.5 million, or 27.3%, to $188.6 million, savings
and interest-bearing demand deposits increasing $17.2 million, or 5.2%, and time
deposits growing $214.9 million, or 43.8%, from $490.5 million at December 31,
2004, to $705.4 million. For the year ended December 31, 2004, deposit growth
included a $28.3 million increase in non-interest-bearing demand deposits, a
$7.7 million decline in savings and interest-bearing demand deposits, and a
$176.9 million increase in time deposits. In addition to the strong growth in
deposits, repurchase agreements which represent funds of numerous demand deposit
customers of the Bank, increased $31.6 million, or 59.4%, from $53.2 million at
December 31, 2004, to $84.8 million at December 31, 2005, and increased $22.3
million, or 72.3%, in 2004.

The Company's investment securities portfolio represents its second largest
asset and contributor to interest income and is generally maintained as a
primary source of liquidity. Particularly over the past two years as loan growth
outpaced deposits. In 2005, the portfolio increased by $9.9 million, or 6.0%,
from $163.2 million at December 31, 2004, to $173.1 million at December 31,
2005, with growth concentrated in short-term U.S. Government Agency obligations.
Growth was similar in 2004, with the portfolio increasing $14.0 million, or
9.4%, from $149.2 million at December 31, 2003, to $163.2 million, with growth
again concentrated in short-term U.S. Government Agency obligations and Treasury
securities.

For the year ended December 31, 2005, the Company achieved record earnings of
$19.7 million, an increase of 38.2% compared to earnings of $14.2 million for
the prior fiscal year as net interest income increased $15.0 million, or 36.0%,
from $41.7 million in 2004, to $56.7 million in 2005, non-interest income
increased $917 thousand, or 15.9%, from $5.8 million in 2004, to $6.7 million,
while provisions for loan losses were up $783 thousand, and non-interest expense
rose 29.2%, from $22.8 million in 2004, to $29.5 million. As a result, the
Company's efficiency ratio, as defined, improved from 48.0% for the year ended
December 31, 2004, to 46.5% in 2005. In 2004, earnings of $14.2 million
increased $2.7 million, or 23.2%, compared to earnings of $11.5 million in 2003
with net interest income increasing $9.6 million, or 29.9%, non-interest income
falling $1.9 million, or 25.7%, provisions for loan losses increasing $1.4
million, while non-interest expense rose by only $2.0 million, or 9.1%. For the
year ended December 31, 2003, earnings of $11.5 million, represented an increase
of 50.4% compared to earnings of $7.7 million in 2002. On a diluted per share
basis earnings were $1.31, $0.99, and $0.86 in 2005, 2004, and 2003,
respectively, while the Company's return on average assets was 1.45% for 2005,
as compared to 1.39% in 2004 and 1.47% in 2003. Return on average equity was
19.44% in 2005, 19.28% in 2004, and 23.71% in 2003.

Stockholders' equity increased by $20.5 million in 2005, or 22.4%, from $91.3
million at December 31, 2004, to $111.8 million, on earnings of $19.7 million
and $1.7 million in proceeds and tax benefits from the exercise of stock options
and warrants by Company directors and officers and the purchase of stock by
Company employees under an Employee Stock Purchase Plan. In 2004, stockholders'
equity increased $36.2 million, or 65.8%, from $55.1 million at December 31,
2003, to $91.3 million, on earnings of $14.2 million, $21.8 million in net
proceeds from the issuance of 1,392,578 shares of common stock (adjusted for
5-for-4 stock splits in 2004 and 2005) through a follow-on public offering in
May 2004, and $708 thousand in proceeds and tax benefits from the exercise of
stock options and warrants by Company directors and officers and the purchase of
stock by Company employees under an Employee Stock Purchase Plan. The total
number of common shares outstanding increased in 2005 by 3,003,180, with
2,797,374 shares issued due to a five-for-four stock split in the form of a
twenty-five percent stock dividend in May 2005, 194,710 shares issued as a
result of the exercise of stock options and warrants by Company directors and
officers and 11,096 shares issued to employees under the Company's Employee
Stock Purchase Plan.

                                       6
<PAGE>

NET INTEREST INCOME

Net interest income is the excess of interest earned on loans and investments
over the interest paid on deposits and borrowings and is the Company's primary
revenue source. Net interest income is thereby affected by overall balance sheet
growth, changes in interest rates and changes in the mix of investments, loans,
deposits and borrowings. In 2005, net interest income increased $15.0 million,
or 36.0%, from $41.7 million in 2004, to $56.7 million due to the significant
growth in loans and an increase in the net interest margin from 4.23% in 2004 to
4.30%. In 2004, net interest income increased $9.6 million, or 29.9%, from $32.1
million in 2003, to $41.7 million with most of the increase again attributable
to growth in loans. In 2003, net interest income increased $7.2 million, or
29.0%, from $24.9 million in 2002, to $32.1 million.

In January 2001, the Federal Reserve began reducing the fed funds target rate by
over five hundred basis points with its last reduction in June 2003 to a
historically low level of 1.00%. Along with these reductions came a similar
decline in the prime lending rate, to which the majority of the Company's
interest rates on loans are tied, and significantly lower rates on treasuries,
affecting the Company's investment securities portfolio. As a result, the
Company's average yield on loans declined from 8.50% in 2001, to 6.49% in 2004,
and its yield on investment securities fell from 6.07% in 2001, to 3.71% in
2004. Consequently the Company's overall yield on interest earning assets
decreased from 8.01% in 2001, to 5.89% in 2004. On the other side, the cost of
deposits and borrowings also fell during this period, from 4.48% in 2001 to
2.03% by the end of 2004.

On June 30, 2004, the Federal Reserve began increasing the fed funds target rate
and by the end of 2005 had increased it three-hundred and twenty-five basis
points to 4.25%. As a result the Company's yield on earning assets increased
from 5.89% in 2004 to 6.57% in 2005, while the cost of interest-bearing
liabilities also increased from 2.03% in 2004 to 2.79% in 2005. The result was a
decline in the interest rate spread; however, the overall net interest margin
increased from 4.23% in 2004 to 4.30% in 2005, as the level of average earning
assets to average interest bearing liabilities rose from 122.6% in 2004 to
123.5% in 2005.

With expectations for another twenty-five to fifty basis points increase in the
fed funds target rate in 2006, the Company expects further improvement in loan
yields; however, a fairly flat to slightly inverted yield curve along with
increased competition in the Company's market for deposits, especially in the
rates paid for time deposits, are expected to pressure the net interest margin
lower. Tables 1, 2 and 3 provide further information with regard to yields,
costs, the changes in net interest income and associated risk.

                                       7
<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, 2005, 2004, and 2003. 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 $4.0 million, $2.8 million and $2.1 million for
2005, 2004, and 2003, respectively.

<TABLE>
<CAPTION>
                                                 2005                           2004                             2003
                                    ------------------------------  ------------------------------  -------------------------------
(Dollars in thousands)                         Interest  Average              Interest  Average                 Interest  Average
                                     Average   Income-    Yields     Average  Income-    Yields      Average    Income-    Yields
                                     Balance   Expense    /Rates     Balance  Expense    /Rates      Balance    Expense    /Rates
                                    ------------------------------  ------------------------------  -------------------------------
<S>                                 <C>         <C>         <C>     <C>          <C>         <C>       <C>        <C>        <C>
ASSETS
Securities (1)                        $168,733    $6,167    3.70%     $159,833    $5,853     3.71%     $115,995    $4,526    3.98%

Loans, net of unearned income        1,128,801    79,614    7.05%      798,195    51,814     6.49%      595,816    41,065    6.89%
Interest-bearing deposits in
other banks                              1,020        30    2.95%          447        10     2.23%           --        --       --
Federal funds sold                      19,599       667    3.40%       27,748       321     1.16%       36,018       377    1.05%
                                    ------------------------------  ------------------------------  ------------------------------
TOTAL INTEREST-EARNING ASSETS       $1,318,153  $ 86,478    6.57%   $  986,223   $57,998     5.89%     $747,829   $45,968    6.16%
                                    ------------------------------  ------------------------------  ------------------------------
Other assets                            35,800                          36,455                           35,754
                                    ------------------------------  ------------------------------  ------------------------------
TOTAL ASSETS                        $1,353,953                      $1,022,678                         $783,583
                                    ==============================  ==============================  ==============================
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits
    NOW accounts                      $207,053    $3,422    1.65%     $209,617    $2,789     1.33%     $157,958    $2,415    1.53%
    Money market accounts              110,623     1,988    1.80%      119,963     1,667     1.39%       85,418     1,354    1.59%
    Savings accounts                    20,497       112    0.55%       20,255       111     0.55%       22,136       180    0.81%
    Time deposits                      633,572    20,910    3.30%      395,718    10,533     2.66%      299,752     8,965    2.99%
                                    ------------------------------  ------------------------------  ------------------------------
Total interest-bearing deposits       $971,745   $26,432    2.72%     $745,553   $15,100     2.03%     $565,264   $12,914    2.28%
                                    ------------------------------  ------------------------------  ------------------------------
Securities sold under agreement
to repurchase and federal funds
purchased                               63,342     1,710    2.70%       39,962       325     0.81%       32,963       123    0.37%
                                    ------------------------------  ------------------------------  ------------------------------
Other borrowed funds                    13,759       423    3.07%          733        15     2.00%          351        21    5.98%
                                    ------------------------------  ------------------------------  ------------------------------
Trust preferred capital notes           18,822     1,246    6.62%       18,000       891     4.95%       18,000       835    4.64%
                                    ------------------------------  ------------------------------  ------------------------------
TOTAL INTEREST-BEARING LIABILITIES  $1,067,668   $29,811    2.79%     $804,248   $16,331     2.03%     $616,578   $13,893    2.25%
                                    ------------------------------  ------------------------------  ------------------------------
Demand deposits and other
liabilities                            185,134                         144,617                          118,313
                                    ------------------------------  ------------------------------  ------------------------------
TOTAL LIABILITIES                   $1,252,802                        $948,865                         $734,891
                                    ------------------------------  ------------------------------  ------------------------------
Stockholders' equity                   101,151                          73,813                           48,692
                                    ------------------------------  ------------------------------  ------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY                              $1,353,953                      $1,022,678                         $783,583
                                    ==============================  ==============================  ==============================
Interest rate spread                                        3.78%                            3.86%                           3.91%
NET INTEREST INCOME AND MARGIN                   $56,667    4.30%                $41,667     4.23%                $32,075    4.30%
                                    ==============================  ==============================  ==============================
</TABLE>

(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 stockholders' equity. Average
yields on securities are stated on a tax equivalent basis, using a 35% rate for
2005 and 2004, and 34% for 2003.

                                       8
<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>
                                              2005 COMPARED TO 2004                  2004 COMPARED TO 2003
                                         --------------------------------------------------------------------------
                                          Increase/(Decrease)                    Increase/(Decrease)
                                                Due to            Total                Due to            Total
                                         ---------------------- Increase/     -----------------------  Increase/
(Dollars in thousands)                    Volume       Rate     (Decrease)       Volume       Rate     (Decrease)
                                         ---------- ----------- ----------    ----------- ----------- -------------
<S>                                        <C>        <C>          <C>           <C>        <C>              <C>
INTEREST INCOME
Loans                                      $23,318    $  4,482     $27,800       $13,137    $(2,388)        $10,749
Securities                                     335        (21)         314         1,638       (311)          1,327
Interest bearing deposits in other
banks                                           17           3          20            10          --             10
Federal funds sold                           (277)         623         346          (96)          40           (56)
                                         ---------- ----------- ----------    ----------- ----------- -------------
Total interest income                      $23,393    $  5,087     $28,480       $14,689    $(2,659)        $12,030
                                         ========== =========== ==========    =========== =========== =============
INTEREST EXPENSE
Interest-bearing deposits:
   NOW accounts                            $  (42)    $    675        $633       $   687    $  (313)        $   374
   Money market accounts                     (168)         489         321           480       (167)            313
   Savings accounts                              1          --           1          (10)        (59)           (69)
   Time deposits                             6,414       3,963      10,377         2,533       (965)          1,568
                                         ---------- ----------- ----------    ----------- ----------- -------------
Total interest-bearing deposits            $ 6,205    $  5,127     $11,332       $ 3,690    $(1,504)        $ 2,186
Securities sold under agreement to
  repurchase and federal funds
purchased                                      631         754       1,385            57         145            202
Other borrowed funds                           400           8         408             8        (14)            (6)
Trust preferred capital notes                   55         300         355            --          56             56
                                         ---------- ----------- ----------    ----------- ----------- -------------
Total interest expense                     $ 7,291    $  6,189     $13,480       $ 3,755    $(1,317)        $ 2,438
                                         ---------- ----------- ----------    ----------- ----------- -------------
CHANGE IN NET INTEREST INCOME              $16,102    $(1,102)     $15,000       $10,934    $(1,342)        $ 9,592
                                         ========== =========== ==========    =========== =========== =============
</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 that formulates and monitors the performance of the Company based on
established levels of market risk as dictated by policy. In setting 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 rate sensitivity while enhancing net interest income by
periodically adjusting this asset/liability position; however, in general the
Company has maintained a fairly balanced sensitivity to changes in interest
rates.

One of the tools used by the Company to assess interest sensitivity on a monthly
basis is the static gap analysis that 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 manage the one-year cumulative
difference, or gap, in an attempt to limit changes in future net interest income
from changes in market interest rates. A static gap analysis is shown in Table 3
below, and reflects the earlier of the maturity or repricing dates for various
assets, including prepayment and amortization estimates, and liabilities as of
December 31, 2005. At that point in time, the Company had a cumulative net asset
sensitive one-year gap position of $63.0 million, or a positive 4.3% of total
interest-earning assets.

This position would generally indicate that over a period of one-year net
interest earnings should increase in a rising interest rate environment as more
assets would reprice than liabilities and should decrease in a falling interest
rate environment. However, this measurement of interest rate risk sensitivity
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 differences in sensitivity of yields and costs on specific
assets and liabilities to changes in market rates, and it 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.

                                       9
<PAGE>

TABLE 3:  STATIC GAP ANALYSIS

<TABLE>
<CAPTION>
At December 31, 2005                                      INTEREST SENSITIVITY PERIODS
                                           -----------------------------------------------------------
(Dollars in thousands)                      Within     91 to 365   Over 1 to    Over 5
                                            90 Days      Days       5 Years      Years       Total
                                           -----------------------------------------------------------
<S>                                         <C>           <C>        <C>         <C>         <C>
INTEREST EARNING ASSETS
Securities, at amortized cost               $ 12,132     $ 30,441    $112,621    $ 20,223  $  175,417
Interest bearing deposits in other banks          --        1,035          --          --       1,035
Loans held-for-sale                           12,548           --          --          --      12,548
Loans, net of unearned income                510,481      237,010     467,276      69,309   1,284,076
                                           ---------- ------------ ----------- ----------- -----------
Total interest earning assets               $535,161     $268,486    $579,897    $ 89,532  $1,473,076
                                           ---------- ------------ ----------- ----------- -----------
INTEREST-BEARING LIABILITIES
NOW accounts                                $ 25,254     $ 25,254    $151,523    $     --    $202,031
Money market accounts                         15,961       15,961      95,766          --     127,688
Savings accounts                               2,481        2,481      14,885          --      19,847
Time deposits                                141,079      382,357     181,850         100     705,386
Securities sold under agreements to
 repurchase and federal funds purchased      111,794           --          --          --     111,794
Trust preferred capital notes                     --       18,000          --      25,000      43,000
                                           ---------- ------------ ----------- ----------- -----------
Total interest-bearing liabilities          $296,569     $444,053    $444,024    $ 25,100  $1,209,746
                                           ---------- ------------ ----------- ----------- -----------
CUMULATIVE MATURITY / INTEREST SENSITIVITY  $238,592     $  63,025   $198,898    $263,330  $  263,330
GAP
As % of total earnings assets                 16.20%         4.28%     13.50%      17.88%
                                           ========== ============ =========== =========== ===========
</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 balance sheet growth,
interest rates, operating expenses and other non-interest income sources to
forecast a base level of earnings over a one-year period. This base level of
earnings is then shocked assuming a 200 basis points higher and lower level of
interest rates over the forecasted period. The most recent earnings simulation
model was run based on data as December 31, 2005, and consistent with the
Company's belief from its static gap analysis that its balance sheet structure
was asset sensitive at that time, the model projected that forecasted earnings
over a one-year period would increase by 0.49% if interest rates were to be 200
basis points higher than expected, and forecasted earnings would decrease by
3.33% if interest rates were to be 200 basis points lower than expected.

Management believes the modeled results are consistent with the short duration
of its balance sheet and given the many variables that effect the actual timing
of when assets and liabilities will reprice. 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 the simulated results noted above 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

The Company's non-interest income sources include service charges and other fees
on deposit accounts, fee and net gains from loans originated and sold through
its mortgage lending division, commissions from non-deposit investment sales and
increases in the cash surrender value of Bank owned life insurance policies.
Non-interest income increased $917 thousand in 2005, or 15.9%, from $5.8 million
in 2004 to $6.7 million, and decreased $2.0 million, or 25.6%, from $7.7 million
in 2003, to $5.8 million in 2004. In 2003, non-interest income increased $2.1
million, or 38.5%, from $5.6 million in 2002, to $7.7 million. Fees and net
gains on mortgage loans held-for-sale accounted for the majority of the increase
in non-interest income in 2003 and the subsequent decrease in 2004 as lower
interest rates and a strong local housing market pushed production levels to new
highs in 2003, while in 2004 refinancing activity slowed considerably, and
consequently fees and net gains on mortgage loans held-for-sale declined. In
2005, fees and net gains were mostly unchanged, rising only $77 thousand
year-over-year.


                                       10
<PAGE>

The Company's mortgage lending division began operations in 1999 and in its
first two years originated an average of $76.7 million in mortgages for sale.
Over the next three years as mortgage rates began to fall, refinancing and home
purchases increased significantly with refinancing activity hitting record
levels in 2003. As a result, mortgages originated for sale increased to $180.7
million in 2001, $207.8 million in 2002 and to a record level of $287.8 million
in 2003. In 2004, due to lower levels of refinancing activity, originations fell
to $175.9 million, while in 2005 that number increased to $202.3 million;
however; pricing became more competitive and as noted above, fees and net gains
were mostly unchanged. Adverse changes in the local real estate market, consumer
confidence, and interest rates, as well as increased competition could adversely
impact the level of loans originated for sale, and the resulting fees and
earnings thereon. The Company continues to try to expand the level of loans
originated for sale and the resulting fees and net gains thereon, with the
hiring of additional commission based loan officers and expansion of its base of
correspondents to enhance product offerings.

Service charges and other fees, which include monthly deposit account
maintenance charges, overdraft fees, ATM fees and charges, debit card income,
safe deposit box rents, merchant discount fee income, and lock-box service fees,
increased $804 thousand, or 46.0%, from $1.7 million in 2004, to $2.6 million in
2005. In 2004, service charges and other fees were up $140 thousand, or 8.7%,
from $1.6 million to $1.7 million, while in 2003 they were mostly unchanged. The
increase in 2004 was due to higher lock-box service fees, debit card income and
ATM fees and charges, while in 2005 increases included $284 thousand in higher
overdraft fees associated with a new overdraft protection program for the
majority of the Bank's retail checking account customers and $348 thousand in
higher fees from lock-box operations as a result of increased activity in one
customer account related to donations for Hurricane Katrina. Management expects
continued improvement in the level of overdraft fees in 2006 while fees from
lock-box operations will be lower.

In seeking to improve non-interest income sources, the Company added non-deposit
investment services, through a third party arrangement, in 2002. This new
service provided for $202 thousand in additional income in 2003, $427 thousand
in 2004 and $456 thousand in 2005. No significant increases are expected in
2006.

Other non-interest income was mostly unchanged in 2005, while increasing by $89
thousand, or 33.6%, from $265 thousand in 2003, to $354 thousand in 2004, and
from $44 thousand in 2002, to $265 thousand in 2003. The majority of this income
source is related to the purchase of $6 million in Bank owned life insurance
policies in May 2003. These polices, which are recorded on the Company's balance
sheet under other assets, accounted for $259 thousand of the $361 thousand in
other income in 2005, and $282 thousand of the $354 thousand in other income in
2004. The Company does not anticipate additional purchases of this insurance in
2006. Income from Bank owned life insurance is non-taxable.

NON-INTEREST EXPENSE

In 2005, non-interest expense increased $6.7 million, or 29.2%, from $22.8
million in 2004, to $29.5 million, and increased $2.0 million, or 9.5%, from
$20.8 million in 2003 to $22.8 million in 2004. Salaries and benefits accounted
for $3.8 million, or 57.7%, of the total increase in non-interest expense in
2005, $916 thousand, or 46.1%, in 2004, and $2.4 million, or 66.7% in 2003.
Commissions and incentive compensation associated with the significant increases
in total loans and loans originated for sale, together with increased
compensation associated with additional employees added due to overall growth
and branch expansion were the reasons for the increases. The Company anticipates
that salaries and benefits expense will continue to be the largest single factor
in increased non-interest expenses in future periods due to branch expansion and
other staffing needs. In addition, the Company will begin expensing options in
2006 with an estimated impact of $232 thousand for the year.

Occupancy expenses, which include rents, depreciation, maintenance on buildings,
leaseholds and equipment, increased $1.2 million, or 38.2%, from $3.2 million in
2004, to $4.5 million in 2005, and increased only $50 thousand, or 1.6%, in
2004. In 2003, occupancy expense was up $275 thousand, or 9.4%. The significant
increase in expense in 2005 was due to the opening of five new branch locations
between August 2004 and June 2005 and expanded office facilities for lending
units, while in 2004, occupancy expense was mostly unchanged as two new branch
locations were opened in the later part of the year while depreciation expenses
associated with older branch locations were reduced. Occupancy is expected to
significantly increase again in 2006 as the Company anticipates three to five
new branches to be opened and additional facilities needed for expanding its
back office operations.

Data processing expense increased by $239 thousand, or 18.2%, in 2005, increased
by $75 thousand, or 6.1%, in 2004, and was up $160 thousand, or 14.8%, in 2003.
These increases are consistent with overall growth in the total number of loan
and deposit accounts processed.

                                       11
<PAGE>

Other operating expenses, which include advertising and public relations
expenses, bank franchise taxes, legal and professional fees, telecommunications,
supplies and postage, increased by $1.3 million, or 28.0%, from $4.8 million in
2004, to $6.1 million in 2005, and increased $946 thousand, or 24.7%, from $3.8
million in 2003 to $4.8 million in 2004. In 2003, other operating expenses
increased $765 thousand, or 25.0%. The increases over the years are generally
due to branch expansion and overall growth, while in 2005 advertising and public
relations expense accounted for $342 thousand of the total increase, and in
2004, $239 thousand of the increase was due to one-time professional fees
associated with initial Sarbanes/Oxley Section 404 compliance efforts. The
Company expects other operating expenses will continue to increase in future
periods; however, the percentage increases are likely to be lower.

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 35% in
2004 and 2005, and 34% in 2003. The provision for income taxes totaled $10.4
million, $7.4 million and $5.9 million, for the years ended December 31, 2005,
2004 and 2003, respectively. The effects of non-deductible expenses and
non-taxable interest on the Company's income tax provisions are minimal. For
further information regarding the provisions for income taxes see Note 8 to the
Consolidated Financial Statements.

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. In 2005, net charge-offs totaled $353 thousand
compared to $44 thousand and $42 thousand in 2004 and 2003, respectively. The
provision for loan loss expense in 2005 was $3.8 million compared to $3.0
million in 2004 and $1.6 million in 2003. As a result the total allowance for
loan losses increased $3.4 million, or 32.9%, from $10.4 million at December 31,
2004, to $13.8 million at December 31, 2005, increased $2.9 million, or 39.5%,
in 2004 and increased 25.9% in 2003. These increases in the total allowance for
loan losses are consistent with a 37.2% increase in loans in 2005, 41.4% in 2004
and 26.7% in 2003, along with a continuing low level of non-performing loans.

Management feels that the allowance for loan losses is adequate at December 31,
2005. However, there can be no assurance 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 quarterly 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 semi-annual independent external loan reviews and
monthly internal reviews. The determination of the allowance for loan losses is
based on applying and summing the results of eight qualitative factors and one
quantitative factor to each category of loans along with any specific allowance
for impaired and adversely classified loans within the particular category. Each
factor is assigned a percentage weight and that total weight is applied to each
loan category. The resulting sum from each loan category is then combined to
arrive at a total allowance for all categories. Factors are different for each
loan category. Qualitative 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. The total
allowance required thus changes as the percentage weight assigned to each factor
is increased or decreased due to its particular circumstance, as the various
types and categories of loans change as a percentage of total loans and as
specific allowances are required on impaired loans and higher allowance factors
are required on other adversely classified loans. For further information
regarding the allowance for loan losses see Notes 1 and 4 to the Consolidated
Financial Statements.

                                       12
<PAGE>

TABLE 4: PROVISION AND ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
(Dollars in thousands)                          2005         2004         2003        2002         2001
                                             ----------- ------------- ----------- ------------ ------------
<S>                                            <C>            <C>         <C>           <C>          <C>
Allowance, beginning of period                 $ 10,402       $ 7,457     $ 5,924       $4,356       $2,803
                                             ----------- ------------- ----------- ------------ ------------
CHARGE-OFFS
  Real estate loans                            $     --       $    --     $    --       $   --       $   --
  Commercial loans                                  341            --          30           87           --
  Consumer loans                                     21            62          26           68           23
                                             ----------- ------------- ----------- ------------ ------------
Total charge-offs                              $    362       $    62     $    56       $  155       $   23
                                             ----------- ------------- ----------- ------------ ------------
RECOVERIES
  Real estate loans                            $     --       $    --     $    --       $   --       $   --
  Commercial loans                                   --            12           2            5            2
  Consumer loans                                      9             6          12           40            2
                                             ----------- ------------- ----------- ------------ ------------
Total recoveries                               $      9       $    18     $    14       $   45       $    4
                                             ----------- ------------- ----------- ------------ ------------
Net charge-offs                                $    353       $    44     $    42       $  110       $   19
                                             ----------- ------------- ----------- ------------ ------------
PROVISION FOR LOAN LOSSES                         3,772         2,989       1,575        1,678        1,572
                                             ----------- ------------- ----------- ------------ ------------
Allowance, end of period                       $ 13,821       $10,402     $ 7,457       $5,924       $4,356
                                             =========== ============= =========== ============ ============
Ratio of net charges-offs to average total
  loans outstanding during period                 0.03%         0.01%       0.01%        0.02%        0.01%
</TABLE>

TABLE 5: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses includes specific allowances where impairment has
been identified and 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)                          2005        2004       2003      2002       2001
                                          ----------- ----------- ---------- --------- ----------
<S>                                          <C>         <C>         <C>       <C>        <C>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES:
Real estate - mortgage                       $ 7,298     $ 5,584     $4,188    $3,159     $1,957
Real estate - construction                     3,599       2,328      1,789     1,239        863
Commercial                                     2,865       2,422      1,434     1,469      1,482
Consumer                                          59          68         46        57         54
                                          ----------- ----------- ---------- --------- ----------
Balance, December 31,                        $13,821     $10,402     $7,457    $5,924     $4,356
                                          =========== =========== ========== ========= ==========
RATIO OF LOANS TO TOTAL YEAR-END LOANS:
Real estate - mortgage                           60%         65%        67%       70%        66%
Real estate - construction                       30%         25%        23%       21%        23%
Commercial                                        9%          9%         9%        8%         9%
Consumer                                          1%          1%         1%        1%         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.

                                       13
<PAGE>

RISK ELEMENTS AND NON-PERFORMING ASSETS

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 by $791 thousand, or 65.4%, from $1.2 million at
year-end 2004 to $2.1 million at year-end 2005, and decreased by $211 thousand,
or 14.8%, from $1.4 million at year-end 2003. The increase of $791 thousand in
2005 was due to the payoff of an impaired commercial loan for $1.1 million and
the addition of a $1.8 million impaired construction loan that is well-secured
by residential single-family property.

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.

The ratio of non-performing assets and past due loans to total loans increased
from .13% at December 31, 2004, to .15% at December 31, 2005, and decreased from
..21% at December 31, 2003, to .13% at December 31, 2004. As noted above, the
increase in the ratio in 2005 was due to the $1.8 million impaired loan on
residential single-family property. The Company expects its ratio of
non-performing assets to remain low relative to its peers, however, the ratio
could increase due to an aggregate of $4.6 million in other identified potential
problem loans, to six borrowers, as of December 31, 2005, for which management
has identified risk factors that may result in them not being repaid in
accordance with their terms although the loans are generally well secured and
are currently performing. At December 31, 2004, other identified potential
problem loans were $1.7 million and they were $2.2 million at December 31, 2003.
See Notes 1 and 4 to the Consolidated Financial Statements for additional
information regarding the Company's non-performing assets.

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. The Company held no foreclosed real properties for
any of the years presented.

TABLE 6: NON-PERFORMING ASSETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                              ------------------------------------------------------------
(Dollars in thousands)                           2005        2004         2003        2002        2001
                                              ----------- ------------ ----------- ----------- -----------
<S>                                               <C>          <C>         <C>         <C>           <C>
Non-accrual loans                                 $   14       $   18      $   46      $1,943        $106
Impaired loans                                     1,980        1,192         416         444         119
Restructured loans                                    --           --         875          --          --
Foreclosed properties                                 --           --          --          --          --
                                              ----------- ------------ ----------- ----------- -----------
     Total non-performing assets                  $1,994       $1,210      $1,337      $2,387        $225
                                              ----------- ------------ ----------- ----------- -----------
Loans past due 90 days and still accruing              7           --          84          --         329
                                              ----------- ------------ ----------- ----------- -----------
TOTAL NON-PERFORMING ASSETS AND PAST DUE
LOANS                                             $2,001       $1,210      $1,421      $2,387        $554
                                              =========== ============ =========== =========== ===========
Allowance for loan losses to total loans           1.07%        1.11%       1.13%       1.09%       1.05%
Allowance for loan losses to non-performing
  loans                                           693.1%       859.7%      557.7%      248.2%    1,936.0%
Non-performing assets and past due loans to
  total loans                                      0.15%        0.13%       0.21%       0.44%       0.13%
NON-PERFORMING ASSETS AND PAST DUE LOANS TO
  TOTAL ASSETS                                     0.13%        0.11%       0.16%       0.36%       0.11%
                                              =========== ============ =========== =========== ===========
</TABLE>

LOAN PORTFOLIO

The Bank'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 Bank's loan portfolio. Loans, net
of unearned income and the allowance for loan losses, increased $344.5 million,
or 37.2%, from $925.8 million at December 31, 2004, to $1.27 billion at December
31, 2005, and increased $270.9 million, or 41.4%, from $654.9 million at
December 31, 2003, to $925.8 million at year-end 2004. The increase in loans in
2005 included an increase in real estate mortgage loans of $173.4 million, or
28.6%, an increase in real estate construction loans of $140.5 million, or
58.4%, and an increase in commercial loans of $33.5 million, or 37.8%. In 2004
growth in loans by category was similar with real estate mortgage loans
increasing $161.0 million, or 36.2%, real estate construction loans increasing
$87.1 million, or 56.8%, and commercial loans increasing $27.5 million, or
45.0%. The majority of the increase in real estate mortgage loans is
concentrated in non-farm non-residential properties for which the Bank has had a
primary focus for years, while the majority of the increases in real estate
construction loans are attributable to commercial builders of single-family
housing. At December 31, 2005, $257.6 million of total real estate construction
loans were to these commercial builders of single-family housing, $21.4 million
were to individuals on single-family properties and $101.9 million were related
to commercial properties. At December 31, 2004, $163.3 million of real estate
construction loans were to commercial builders of single-family housing, $14.2
million were to individuals and $63.0 million were related to commercial
properties. The Bank expects that real estate construction loans will continue
to grow, but not at the pace experienced in 2004 and 2005, although there can be
no assurance. The Bank has also increased its focus on commercial lending over
the past two years with the hiring of several loan officers devoted to
developing that lending area. In addition, consumer lending, through home equity
lines of credit, which are included in total real estate mortgage loans, have
increased from $42.2 million at December 31, 2003, to $61.2 million at December
31, 2004, and increased $9.2 million, or 15.0%, to $70.4 million at December 31,
2005.

                                       14
<PAGE>

As noted above, the majority of the Bank's loan portfolio consists of
construction and commercial real estate loans. At December 31, 2005, the Bank
had $257.6 million of construction loans to commercial builders of single family
housing in the Northern Virginia market, representing 20.0% of total loans.
These loans are made to a number of unrelated entities and generally have a term
of twelve to eighteen months. Adverse developments in the Northern Virginia real
estate market or economy could have an adverse impact on this portfolio of loans
and the Company's income and financial position. In addition, the Bank had
$559.9 million, or 43.4% of the loan portfolio at December 31, 2005, secured by
non-farm non-residential properties. These loans represent obligations of a
diversified pool of borrowers across numerous businesses and industries in the
Northern Virginia market and include some loans that, although secured by
commercial real estate, are commercial purpose loans made based on the financial
condition of the underlying business. At December 31, 2005, 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
counterparties 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. The Bank
seeks to manage its concentrations of loans through the establishment of limits
on the level of its various loan types to total loans and to total capital. For
further information regarding concentrations of loans see Note 17 to the
Consolidated Financial Statements.

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

TABLE 7: SUMMARY OF TOTAL LOANS

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                              ---------------------------------------------------------------------
(Dollars in thousands)            2005          2004          2003          2002          2001
                              ---------------------------------------------------------------------
<S>                             <C>             <C>            <C>          <C>           <C>
Real estate - mortgage          $  778,788      $605,420       $444,411     $362,024      $259,299
Real estate - construction         380,997       240,469        153,400      111,333        94,452
Commercial                         122,243        88,725         61,178       44,559        39,153
Consumer                             7,386         5,879          6,061        6,941         8,004
                              ------------- ------------- -------------- ------------ -------------
Total loans                     $1,289,414      $940,493       $665,050     $524,857      $400,908
Less unearned income                 5,338         4,309          2,742        2,033         1,444
Less allowance for loan losses      13,821        10,402          7,457        5,924         4,356
                              ------------- ------------- -------------- ------------ -------------
LOANS, NET                      $1,270,255      $925,782       $654,851     $516,900      $395,108
                              ============= ============= ============== ============ =============

</TABLE>

                                       15
<PAGE>

TABLE 8: MATURITY/REPRICING SCHEDULE OF TOTAL LOANS

<TABLE>
<CAPTION>
At December 31, 2005             REAL ESTATE-      REAL ESTATE-
(Dollars in thousands)             MORTGAGE        CONSTRUCTION       COMMERCIAL        CONSUMER          TOTAL
                                ---------------- ---------------- --------------- --------------- ---------------
<S>                                    <C>              <C>             <C>               <C>         <C>
VARIABLE:
     Within 1 year                     $175,722         $301,215        $ 83,004          $3,114      $  563,055
     1-to-5 years                       249,612            5,747           1,856              --         257,215
     After 5 years                       15,582               --              --              --          15,582
                                ---------------- ---------------- --------------- --------------- ---------------
     Total                             $440,916         $306,962        $ 84,860          $3,114      $  835,852
                                ---------------- ---------------- --------------- --------------- ---------------
FIXED RATE:
     Within 1 year                     $ 29,916         $ 41,288        $  4,857          $1,862      $   77,923
     1-to-5 years                        91,747            7,875          13,358           1,776         114,756
     After 5 years                      216,209           24,872          19,168             634         260,883
                                ---------------- ---------------- --------------- --------------- ---------------
    Total                              $337,872         $ 74,035        $ 37,383          $4,272      $  453,562
                                ================ ================ =============== =============== ===============
TOTAL LOANS                            $778,788         $380,997        $122,243          $7,386      $1,289,414
                                ================ ================ =============== =============== ===============
</TABLE>

INVESTMENT SECURITIES

The securities portfolio serves as a primary source of liquidity, is used as
needed to meet certain collateral requirements, helps in the management of
interest rate risk, an provides additional interest income. 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.

Total securities increased $9.9 million, or 6.0%, from $163.2 million at
December 31, 2004, to $173.1 million at December 31, 2005, and increased $14.0
million, or 9.4%, from $149.2 million at December 31, 2003, to $163.2 million at
December 31, 2004. Securities of U.S. Government Agencies represent the majority
of the portfolio and have continued to shorten in terms of average maturity over
the past two years. 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.

At December 31, 2005, there were no single issuers, other than issuers who are
U.S. Government Agencies, whose securities owned by the Company had an aggregate
book value of more than 10% of total stockholder's equity of the Company.

TABLE 9: SECURITIES PORTFOLIO

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                           -----------------------------------------------------------------------
                                                    2005                    2004                    2003
                                           -----------------------------------------------------------------------
(Dollars in thousands)                                   Percent                 Percent                Percent
                                            Book Value   of total   Book Value   of total  Book Value   of total
                                           -----------------------------------------------------------------------
<S>                                            <C>         <C>         <C>         <C>        <C>         <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations             $116,624     67.39%     $100,093     61.32%     $93,274     62.48%
U.S. Treasuries                                      --      0.00%        9,930      6.08%          --         --
Domestic corporate debt obligations               6,043      3.49%        6,020      3.69%       5,995      4.02%
Obligations of states/political
subdivisions                                      1,352      0.78%        1,338      0.82%       1,295      0.87%
Federal Reserve Bank stock                        1,442      0.83%        1,442      0.88%         758      0.51%
Federal Home Loan Bank stock                      2,277      1.32%        1,761      1.08%       1,355      0.91%
Community Bankers' Bank stock                        55      0.03%           55      0.03%          55      0.04%
                                           -----------------------------------------------------------------------
                                               $127,793     73.84%     $120,639     73.90%    $102,732     68.83%
                                           -----------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                           -----------------------------------------------------------------------
                                                    2005                    2004                    2003
                                           -----------------------------------------------------------------------
(Dollars in thousands)                                   Percent                 Percent                Percent
                                            Book Value   of total   Book Value   of total  Book Value   of total
<S>                                            <C>         <C>         <C>         <C>        <C>         <C>
HELD-TO-MATURITY:
U.S. Government Agency obligations             $ 35,798     20.69%     $ 33,667     20.63%    $ 38,490     25.79%
Obligations of states/political
subdivisions                                      8,963      5.18%        8,433      5.17%       7,535      5.05%
Domestic corporate debt obligations                 499      0.29%          493      0.30%         488      0.33%
                                           -----------------------------------------------------------------------
                                               $ 45,260     26.16%     $ 42,593     26.10%    $ 46,513     31.17%
                                           =======================================================================
                                               $173,053    100.00%     $163,232    100.00%    $149,245    100.00%
                                           =======================================================================
</TABLE>

TABLE 10: MATURITY OF SECURITIES

<TABLE>
<CAPTION>
At December 31,                                  2005                      2004                       2003
                                        ------------------------ -------------------------- -------------------------
(Dollars in thousands)                               Weighted                   Weighted                  Weighted
                                                     Average                    Average                   Average
                                        Book Value     Yield     Book Value      Yield      Book Value     Yield
                                        ------------ ----------- ------------ ------------- ----------- -------------
<S>                                        <C>            <C>       <C>              <C>      <C>              <C>
Maturing within one year                   $ 25,708       2.58%     $ 14,944         1.91%    $  2,025         3.74%
Maturing after one through five years        92,673       3.78%       74,664         2.88%      62,640         2.79%
Maturing after five through ten years        34,741       4.73%       48,501         4.41%      54,670         4.34%
Maturing after ten years                     19,931       5.30%       25,123         4.85%      29,910         4.82%
                                        ------------ ----------- ------------ ------------- ----------- -------------
                                           $173,053       3.97%     $163,232         3.55%    $149,245         3.78%
                                        ============ =========== ============ ============= =========== =============
</TABLE>

DEPOSITS

The Company's principal source of funds is deposit accounts comprised of demand
deposits, savings and money market accounts, and time deposits. The majority of
the Bank's deposits are attracted from individuals and businesses in the
Northern Virginia and the Metropolitan, Washington D.C. area, and the interest
rates the Bank pays are generally near the top of the local market. In 2003, due
to historically low interest rates, many depositors held funds in savings and
interest-bearing demand deposits rather than in time deposits. As interest rates
started to climb in the second half of 2004, that trend changed and large sums
transferred into time deposits with terms less than 24 months as rates on those
instruments became more attractive.

Total deposits increased $272.5 million, or 28.1%, from $971.0 million at
December 31, 2004, to $1.24 billion at December 31, 2005, and increased $197.5
million, or 25.5%, from $773.5 million at December 31, 2003, to $971.0 million
at December 31, 2004. In 2005, growth by deposit category included a 27.3%
increase in demand deposits, a 5.2% increase in savings accounts and
interest-bearing demand deposits and a 43.8% increase in time deposits. In 2004,
growth included a 23.6% increase in demand deposits, a 2.3% decrease in savings
accounts and interest-bearing demand deposits and a 56.4% increase in time
deposits. The Company attributes its growth in deposits to a strong and affluent
local economy, the payment of interest rates at or near the highest in its
market, and a strong emphasis on customer service The average rate paid on
interest-bearing deposits rose sixty-nine basis points in 2005, from 2.03% in
2004, to 2.72%, and it fell twenty-five basis points from 2.28% for the year
ended December 31, 2003, to 2.03% in 2004. From early 2001, up until July 2004,
interest rates declined in all deposit account categories and in some cases
reached near floor levels. That trend reversed in the second half of 2004 and
interest rates have continued to climb since. The Company expects the average
rate paid on deposits will continue to climb in 2006 with expectations for even
higher rates and increased local competition for deposits. Table 11 details
maturities of time deposits with balances of $100,000 or more, which represent
47.9% of total time deposits as of December 31, 2005, compared to 51.6% at
December 31, 2004. Total time deposits represent 56.7% of total deposits as of
December 31, 2005, compared to 50.5% at December 31, 2004. See Note 6 to the
Consolidated Financial Statements and Tables 1 and 3 to this Management's
Discussion and Analysis for additional information regarding the maturities of
time deposits and average rates paid on all interest-bearing deposits.

                                       17
<PAGE>

TABLE 11: MATURITIES OF TIME DEPOSITS WITH BALANCES $100,000 OR MORE

<TABLE>
<CAPTION>
                                       DECEMBER 31,
                           --------------------------------------
(Dollars in thousands)        2005         2004         2003
                           ------------ ------------ ------------
<S>                           <C>          <C>          <C>
3 months or less              $ 61,115     $ 29,899     $ 26,580
3-6 months                      41,648       23,399       20,008
6-12 months                    165,738      123,054       40,431
Over 12 months                  69,679       76,829       53,662
                           ------------ ------------ ------------
TOTAL                         $338,180     $253,181     $140,681
                           ============ ============ ============
</TABLE>

SHORT-TERM BORROWINGS

Short-term borrowings consist of securities sold under agreements to repurchase
that are secured transactions with customers and generally mature the business
day following the date sold. These transactions are provided to several of the
Bank's demand deposit customers and are considered a core-funding source of the
Bank. Short-term borrowings also include Federal funds purchased, which are
unsecured overnight borrowings from other financial institutions and are
generally used to accommodate short-term liquidity needs. Table 12 provides
information on the balances and interest rates on short-term borrowings for the
years ended December 31, 2005, 2004 and 2003 (dollars in thousands):

TABLE 12: SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
  At December 31,                                           2005        2004         2003
                                                         ----------- ------------ -----------
<S>                                                        <C>           <C>         <C>
  Securities sold under agreement to repurchase            $ 84,791      $53,207     $30,887
  Federal funds purchased                                    27,003           --          --
                                                         ----------- ------------ -----------
     Total                                                 $111,794      $53,207     $30,887
  Weighted interest rate at year end                          3.71%        1.72%       0.36%

  Averages for the year ended December 31,
  Outstanding                                              $ 63,342      $39,962     $32,963
  Interest rate                                               2.70%        0.81%       0.37%

  Maximum month-end outstanding                            $111,794      $53,207     $36,657
                                                         =========== ============ ===========
</TABLE>

LIQUIDITY

The Company's principal sources of liquidity and funding are its deposit base.
The level of deposits necessary to support the Company's lending 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 including the maturity of time deposits, 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
$85.1 million, or 26.6%, from $320.8 million at December 31, 2004, to $405.9
million at December 31, 2005, and increased $49.3 million, or 18.2%, from $271.5
million at December 31, 2003, to $320.8 million at December 31, 2004. These
increases were due to higher levels of loans maturing within one-year as growth
in investment securities slowed. Additional sources of liquidity available to
the Bank include the capacity to borrow funds through established short-term
lines of credit with various correspondent banks and the Federal Home Loan Bank
of Atlanta. See Note 14 to the Consolidated Financial Statements for further
information regarding these additional liquidity sources.

                                       18
<PAGE>

CAPITAL

The assessment of capital adequacy depends on a number of factors such as asset
quality, liquidity, earnings performance, changing competitive conditions and
economic forces, and the overall level of growth. The Company's current and
future capital needs are monitored 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.

Both the Company's and the Bank's capital levels continue 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 8.12% at December
31, 2005, compared to 9.01% at December 31, 2004, and its total risk-based
capital ratio was 12.27% at December 31, 2005, compared to 11.82% at December
31, 2004. These ratios are in excess of the mandated minimum requirement of
4.00% and 8.00%, respectively. The Bank's leverage ratio was 7.45% at December
31, 2005, compared to 8.09% at December 31, 2004. The Company's Tier 1
risk-based capital ratio, total risk-based capital ratio, and leverage ratio was
10.97%, 12.42%, and 10.09%, respectively, at December 31, 2005, compared to
10.89%, 11.92%, and 9.76% at December 31, 2004. The increases in both the
Company's and Bank's capital ratios in 2005 was due to the issuance of $25
million in trust preferred securities, earnings of $19.7 million and $1.7
million in proceeds and tax benefits from the exercise of stock options and
warrants by company directors, officers and employees. Both the Company's and
Bank's capital positions reflect proceeds of the issuance $43 million in trust
preferred securities.

The ability of the Company to continue to grow is dependent on its earnings and
the ability to obtain additional funds for contribution to the Bank's capital,
through borrowing, the sale of additional common stock, or through the issuance
of additional trust preferred securities or other qualifying securities. In the
event that the Company is unable to obtain additional capital for the Bank on a
timely basis, 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. The Company believes that its current capital and access to sources of
additional capital is sufficient to meet anticipated growth, although there can
be no assurance.

The Federal Reserve has revised the capital treatment of trust preferred
securities in light of recent accounting pronouncements and interpretations
regarding variable interest entities, which have been read to encompass the
subsidiary trusts established to issue trust preferred securities, and to which
the Company issued subordinated debentures. As a result, the capital treatment
of trust preferred securities has been revised to provide that in the future,
such securities can be counted as Tier 1 capital at the holding company level,
together with certain other restricted core capital elements, up to 25% of total
capital (net of goodwill), and any excess as Tier 2 capital up to 50% of Tier 1
capital. At December 31, trust preferred capital notes represented 25% of the
Company's Tier 1 capital and 25.3% of its total risk-based capital. Should
future trust preferred issuances to increase holding company capital levels not
be available to the same extent as currently, the Company may be required to
raise additional equity capital, through the sale of common stock or otherwise,
sooner than it would otherwise do so. See Note 15 to the Consolidated Financial
Statements for further information regarding trust preferred capital notes.

CONTRACTUAL OBLIGATIONS

The Company has entered into certain contractual obligations including long term
debt, operating leases and obligations under service contracts. The following
table summarizes the Company's contractual cash obligations as of December 31,
2005.

                                       19
<PAGE>

TABLE 13: CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>
                                                                           Payments Due-By Period
                                                                                    Two To
                                                                      Within One     Three      Three To     After
(Dollars in thousands)                                    Total          Year        Years     Five Years  Five Years
------------------------------------------------------ ------------- ------------- ----------- ----------- -----------
<S>                                                        <C>           <C>           <C>         <C>        <C>
  Securities sold under agreements to repurchase and
   federal funds purchased                                 $111,794      $111,794      $   --      $   --     $    --
  Trust preferred capital notes                              43,000            --          --          --      43,000
  Operating leases                                           16,519         1,941       4,391       3,905       6,282
  Data processing services                                      625           625          --          --          --
------------------------------------------------------ ------------- ------------- ----------- ----------- -----------
    Total contractual cash obligations                     $171,938      $114,360      $4,391      $3,905     $49,282
------------------------------------------------------ ------------- ------------- ----------- ----------- -----------
</TABLE>

The obligation for data processing services represents estimates of early
termination charges. The table does not reflect deposit liabilities entered into
in the ordinary course of the Company's banking business. At December 31, 2005,
the Company had approximately $538.1 million of demand and savings deposits,
exclusive of interest, which have no stated maturity or payment date. The
Company also had approximately $705.4 million of time deposits, exclusive of
interest, the maturity distribution of which is set forth in Note 6 to the
Consolidated Financial Statements. For additional information about the
Company's deposit obligations, see "Net Interest Income" and "Deposits" above.
The trust preferred capital notes exclude $1.3 million of capital notes that
relate to the common securities of the issuing trusts, all of which are owned by
the Company. See Note 15 to the Consolidated Financial Statements for additional
information regarding the trust preferred capital notes.

OFF-BALANCE SHEET ARRANGEMENTS

The Company enters into certain off-balance sheet arrangements in the normal
course of business to meet the financing needs of its customers. These
off-balance sheet arrangements include commitments to extend credit, standby
letters of credit and financial guarantees which would impact the Company's
liquidity and capital resources to the extent customer's accept and or use these
commitments. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance sheet.
See Note 16 to the Consolidated Financial Statements for further discussion of
the nature, business purpose and elements of risk involved with these
off-balance sheet arrangements. With the exception of these off-balance sheet
arrangements, and the Company's obligations in connection with its trust
preferred capital notes, the Company has no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on the
Company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures, or capital
resources, that is material to investors. For further information, see Notes 15
and 16 to the Consolidated Financial Statements.

RISK FACTORS

         An investment in our common stock involves various risks. The following
is a summary of certain risks identified by us as affecting our business. You
should carefully consider the risk factors listed below, as well as other
cautionary statements made in this Annual Report, and risks and uncertainties
which we may identify in our other reports and documents filed with the
Securities and Exchange Commission or other public announcements. These risk
factors may cause our future earnings to be lower or our financial condition to
be less favorable than we expect. In addition, other risks of which we are not
aware, which relate to the banking and financial services industries in general,
or which we do not believe are material, may cause earnings to be lower, or hurt
our future financial condition. You should read this section together with the
other information in this Annual Report.

         WE MAY NOT BE ABLE TO MAINTAIN OUR HISTORICAL GROWTH RATE, WHICH MAY
ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

         Since the beginning of 2000, our asset level has increased rapidly,
including a 33.27% increase in 2005. Our diluted earnings per share have grown
at a compound annual rate of 35.2% from 2000 to 2005. We may not be able to
sustain our historical rate of growth, or grow at all. Various factors, such as
economic conditions, regulatory considerations and competition, may impede our
rate of growth and our branch expansion, or may make future growth or branching
less profitable or more expensive. If we experience a significant decrease in
our rate of growth as compared to our historic rate of growth, our income, or
our rate of income growth, may decline, and we may not be able to maintain or
reduce our expense levels and efficiency ratio, which will adversely affect our
results of operations and financial condition.

                                       20
<PAGE>

         OUR CONCENTRATIONS OF LOANS MAY CREATE A GREATER RISK OF LOAN DEFAULTS
AND LOSSES.

         We have a substantial amount of loans secured by real estate in the
Northern Virginia/Washington, D.C. metropolitan area, and substantially all of
our loans are to borrowers in that area. We also have a significant amount of
real estate construction loans and land related loans for residential and
commercial developments. At December 31, 2005, 89.5% of our total loans were
secured by real estate, primarily commercial real estate. Of these loans, $381
million, or 29.5% of total loans, were construction and land loans. An
additional 9.5% of total loans were commercial and industrial loans which are
not secured by real estate. These loans have a higher risk of default than other
types of loans, such as single family residential mortgage loans. In addition,
the repayments of these loans, often depends on the successful operation of a
business or the sale or development of the underlying property, and as a result
are more likely to be adversely affected by adverse conditions in the real
estate market or the economy in general. These concentrations expose us to the
risk that adverse developments in the real estate market, or in the general
economic conditions in the Northern Virginia/Washington, D.C. metropolitan area,
could increase the levels of non-performing loans and charge-offs, and reduce
loan demand. In that event, we would likely experience lower earnings or losses.
Additionally, if, for any reason, economic conditions in the area deteriorate,
or there is significant volatility or weakness in the economy or any significant
sector of the area's economy, our ability to develop our business relationships
may be diminished, the quality and collectibility of our loans may be adversely
affected, the value of collateral may decline and loan demand may be reduced.

         Commercial and commercial real estate and construction loans also
generally have larger balances than single family mortgages loans and other
consumer loans. Because the loan portfolio contains a significant number of
commercial and commercial real estate and construction loans with relatively
large balances, the deterioration of one or a few of these loans may cause a
significant increase in nonperforming assets. An increase in nonperforming loans
could result in: a loss of earnings from these loans, an increase in the
provision for loan losses, or an increase in loan charge-offs, which could have
an adverse impact on our results of operations and financial condition.

         LACK OF SEASONING OF OUR LOAN PORTFOLIO MAY INCREASE THE RISK OF CREDIT
DEFAULTS IN THE FUTURE.

         Due to the rapid growth of the Bank, a large portion of the loans in
our loan portfolio and of our lending relationships are of relatively recent
origin. In general, loans do not begin to show signs of credit deterioration or
default until they have been outstanding for some period of time, a process
referred to as "seasoning." As a result, a portfolio of older loans will usually
behave more predictably than a newer portfolio. Because a large portion of our
loan portfolio is relatively new, the current level of delinquencies and
defaults may not be representative of the level that will prevail when the
portfolio becomes more seasoned, which may be higher than current levels. If
delinquencies and defaults increase, we may be required to increase our
provision for loan losses, which would adversely affect our results of
operations and financial condition.

         OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD BE ADVERSELY
AFFECTED IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO ABSORB ACTUAL
LOSSES OR IF WE ARE REQUIRED TO INCREASE OUR ALLOWANCE FOR LOAN LOSSES.

         We have historically enjoyed a low level of non-performing assets and
net charge-offs, both in absolute dollars, as a percentage of loans and as
compared to other banking institutions. As a result of this historical
experience, we have incurred lower loan loss provision expenses, which has
positively impacted our earnings. However, experience in the banking industry
indicates that a portion of our loans will become delinquent, that some of our
loans may only be partially repaid or may never be repaid and we may experience
other losses for reasons beyond our control. Further, despite our underwriting
criteria and historical experience, we may be particularly susceptible to losses
due to: (1) the geographic concentration of our loans, (2) the concentration of
higher risk loans, such as commercial real estate, construction and commercial
and industrial loans, and (3) the relative lack of seasoning of certain of our
loans. As a result, there can be no assurance that we will be able to maintain
our low levels of non-performing assets and charge-offs. Although we believe
that our allowance for loan losses is maintained at a level adequate to absorb
any inherent losses in our loan portfolio, these estimates of loan losses are
necessarily subjective and their accuracy depends on the outcome of future
events. If we need to make significant and unanticipated increases in our loss
allowance in the future, our results of operations and financial condition would
be materially adversely affected at that time.

         While we strive to carefully monitor credit quality and to identify
loans that may become nonperforming, at any time there are loans included in the
portfolio that will result in losses, but that have not been identified as
nonperforming or potential problem loans. We cannot be sure that we will be able
to identify deteriorating loans before they become nonperforming assets, or that
we will be able to limit losses on those loans that are identified. As a result,
future additions to the allowance may be necessary.

                                       21
<PAGE>

         WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE CONTINUED GROWTH.

         We intend to seek further growth in the level of our assets and
deposits and the number of our branches. Our plans for 2006 include the
development or opening of three to five new branches, both within our existing
footprint and to expand our footprint in Northern Virginia. We cannot be certain
as to our ability to manage increased levels of assets and liabilities, and an
expanded branch system, without increased expenses and higher levels of
non-performing assets. We may be required to make additional investments in
equipment and personnel to manage higher asset levels and loan balances and a
larger branch network, which may adversely impact earnings, shareholder returns
and our efficiency ratio. Increases in operating expenses or non-performing
assets may have an adverse impact on the value of our common stock.

         OUR CONTINUED GROWTH DEPENDS ON OUR ABILITY TO MEET MINIMUM REGULATORY
CAPITAL LEVELS. GROWTH AND SHAREHOLDER RETURNS MAY BE ADVERSELY AFFECTED IF
SOURCES OF CAPITAL ARE NOT AVAILABLE TO HELP US MEET THEM.

         Since we became the holding company for the Bank, we have sought to
maximize shareholder returns by leveraging our capital. If earnings do not meet
our current estimates, if we incur unanticipated losses or expenses, or if we
grow faster than expected, we may need to obtain additional capital sooner than
expected, through borrowing, additional issuances of debt or equity securities,
or otherwise. If we do not have continued access to sufficient capital, we may
be required to reduce our level of assets or reduce our rate of growth in order
to maintain regulatory compliance. Under those circumstances net income and the
rate of growth of net income may be adversely affected. Additional issuances of
equity securities could have a dilutive effect on existing shareholders.

         THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO SUCCESSFULLY COMPETE WITH
OTHERS FOR BUSINESS.

         The Northern Virginia/Washington, D.C. metropolitan area in which we
operate is considered highly attractive from an economic and demographic
viewpoint, and is a highly competitive banking market. We compete for loans,
deposits, and investment dollars with numerous regional and national banks,
online divisions of out-of-market banks, and other community banking
institutions, as well as other kinds of financial institutions and enterprises,
such as securities firms, insurance companies, savings associations, credit
unions, mortgage brokers, and private lenders. Many competitors have
substantially greater resources than us, and operate under less stringent
regulatory environments. The differences in resources and regulations may make
it harder for us to compete profitably, reduce the rates that we can earn on
loans and investments, increase the rates we must offer on deposits and other
funds, and adversely affect our overall financial condition and earnings.

         TRADING IN OUR COMMON STOCK HAS BEEN RELATIVELY LIGHT. AS A RESULT,
SHAREHOLDERS MAY NOT BE ABLE TO QUICKLY AND EASILY SELL THEIR COMMON STOCK.

         Although our common stock is listed for trading on the Nasdaq National
Market System, and a number of brokers offer to make a market in the common
stock on a regular basis, trading volume to date has been relatively light,
averaging approximately 20,496 shares per day over the year ended December 31,
2005. There can be no assurance that an active and liquid market for the common
stock can be maintained. Accordingly, shareholders may find it difficult to sell
a significant number of shares at the prevailing market price.

         THE NUMBER OF SHARES OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS
COULD MAKE IT MORE DIFFICULT TO OBTAIN APPROVAL FOR SOME MATTERS SUBMITTED TO
SHAREHOLDER VOTE, INCLUDING MERGERS AND ACQUISITIONS.

         Our directors and executive officers and their affiliates own
approximately 30.2% of the outstanding common stock. By voting against a
proposal submitted to shareholders, the directors and officers, as a group, may
be able to make approval more difficult for proposals requiring the vote of
shareholders, such as some mergers, share exchanges, asset sales, and amendments
to the Articles of Incorporation. The results of the vote may be contrary to the
desires or interests of the public shareholders.

         CHANGES IN INTEREST RATES AND OTHER FACTORS BEYOND OUR CONTROL COULD
HAVE AN ADVERSE IMPACT ON OUR EARNINGS.

         Our operating income and net income depend to a great extent on our net
interest margin, i.e., the difference between the interest yields we receive on
loans, securities and other interest bearing assets and the interest rates we
pay on interest bearing deposits and other liabilities. Net interest margin is
affected by changes in market interest rates, because different types of assets
and liabilities may react differently, and at different times, to market
interest rate changes. When interest-bearing liabilities mature or reprice more
quickly than interest-earning assets in a period, an increase in market rates of
interest could reduce net interest income. Similarly, when interest-earning
assets mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could reduce net interest income These rates are highly sensitive
to many factors beyond our control, including competition, general economic
conditions and monetary and fiscal policies of various governmental and
regulatory authorities, including the Board of Governors of the Federal Reserve
System.

                                       22
<PAGE>

         We attempt to manage our risk from changes in market interest rates by
adjusting the rates, maturity, repricing, and balances of the different types of
interest-earning assets and interest-bearing liabilities, but interest rate risk
management techniques are not exact. As a result, a rapid increase or decrease
in interest rates could have an adverse effect on our net interest margin and
results of operations. The results of our interest rate sensitivity simulation
model depend upon a number of assumptions which may not prove to be accurate.
There can be no assurance that we will be able to successfully manage our
interest rate risk. Increases in market rates and adverse changes in the local
residential real estate market, the general economy or consumer confidence would
likely have a significant adverse impact on our non-interest income, as a result
of reduced demand for residential mortgage loans, which we make on a pre-sold
basis.

         Adverse changes in the real estate market in our market area could also
have an adverse affect on our cost of funds and net interest margin, as we have
a large amount of non-interest bearing deposits related to real estate sales and
development. While we expect that we would be able to replace the liquidity
provided by these deposits, the replacement funds would likely be more costly,
negatively impacting earnings.

         Additionally, changes in applicable law, if enacted, including those
that would permit banks to pay interest on checking and demand deposit accounts
established by businesses, could have a significant negative effect on net
interest income, net income, net interest margin, return on assets and return on
equity. At December 31, 2005, 15.2% of our deposits were non-interest bearing
demand deposits.

         Government policy relating to the deposit insurance funds may also
adversely affect our results of operations. Under current law and regulation, if
the reserve ratio of the Bank Insurance Fund falls below 1.25%, all insured
banks will be required to pay deposit insurance premiums. We do not currently
pay any deposit insurance premiums. Payment of deposit insurance premiums will
have an adverse effect on our earnings. These changes or other legislative or
regulatory developments could have a significant negative effect on our net
interest income, net income, net interest margin, return on assets and return on
equity.

         SUBSTANTIAL REGULATORY LIMITATIONS ON CHANGES OF CONTROL AND
ANTI-TAKEOVER PROVISIONS OF VIRGINIA LAW MAY MAKE IT MORE DIFFICULT FOR YOU TO
RECEIVE A CHANGE IN CONTROL PREMIUM.

         With certain limited exceptions, federal regulations prohibit a person
or company or a group of persons deemed to be "acting in concert" from, directly
or indirectly, acquiring more than 10% (5% if the acquiror is a bank holding
company) of any class of our voting stock or obtaining the ability to control in
any manner the election of a majority of our directors or otherwise direct the
management or policies of our company without prior notice or application to and
the approval of the Federal Reserve. There are comparable prior approval
requirements for changes in control under Virginia law. Also, Virginia corporate
law contains several provisions that may make it more difficult for a third
party to acquire control of us without the approval of our Board of Directors,
and may make it more difficult or expensive for a third party to acquire a
majority of our outstanding common stock.

CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer, evaluated, as of the
last day of the period covered by this report, the effectiveness of the design
and operation of the Company's disclosure controls and procedures, as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective. There were
no changes in the Company's internal control over financial reporting (as
defined in Rule 13a-15 under the Securities Act of 1934) during the quarter
ended December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.

                                       23
<PAGE>

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Virginia Commerce Bancorp, Inc. (the "Company") is responsible
for the preparation, integrity and fair presentation of the financial statements
included in this Annual Report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and reflect management's judgments and estimates concerning the effects
of events and transactions that are accounted for or disclosed.

Management is also responsible for establishing and maintaining an effective
internal control over financial reporting. The Company's internal control over
financial reporting includes those policies and procedures that pertain to the
Company's ability to record, process, summarize and report reliable financial
data. The internal control system contains monitoring mechanisms, and
appropriate actions are taken to correct identified deficiencies. Management
believes that internal controls over financial reporting, which are subject to
scrutiny by management and the Company's internal auditors, support the
integrity and reliability of the financial statements. Management recognizes
that there are inherent limitations in the effectiveness of any internal control
system, including the possibility of human error and the circumvention or
overriding of internal controls. Accordingly, even effective internal control
over financial reporting can provide only reasonable assurance with respect to
financial statement preparation. In addition, because of changes in conditions
and circumstances, the effectiveness of internal control over financial
reporting may vary over time.

Management assessed the Company's system of internal control over financial
reporting as of December 31, 2005. This assessment was conducted based on the
Committee of Sponsoring Organizations ("COSO") of the Treadway Commission
"Internal Control - Integrated Framework". Based on this assessment, management
believes that the Company maintained effective internal control over financial
reporting as of December 31, 2005. Management's assessment concluded that there
were no material weaknesses within the Company's internal control structure.

The 2005 end of year financial statements have been audited by the independent
accounting firm of Yount, Hyde & Barbour, P.C. ("YHB"). Personnel from YHB were
given unrestricted access to all financial records and related data, including
minutes of all meetings of the Board of Directors and Committees thereof.
Management believes that all representations made to the independent auditors
were valid and appropriate. The resulting report from YHB accompanies the
financial statements. YHB has also issued an attestation report on management's
assessment of the effectiveness of internal controls over financial reporting.
That report has also been made a part of this Annual Report.

The Board of Directors of the Company, acting through its Audit Committee (the
"Committee"), is responsible for the oversight of the Company's accounting
policies, financial reporting and internal control. The Audit Committee of the
Board of Directors is comprised entirely of outside directors who are
independent of management. The Audit Committee is responsible for the
appointment and compensation of the independent auditors and approves decisions
regarding the appointment or removal of members of the internal audit function.
The Committee meets periodically with management, the independent auditors, and
the internal auditors to insure that they are carrying out their
responsibilities. The Committee is also responsible for performing an oversight
role by reviewing and monitoring the financial, accounting, and auditing
procedures of the Company in addition to reviewing the Company's financial
reports. The independent auditors and the internal auditors have full and
unlimited access to the Audit Committee, with or without the presence of the
management of the Company, to discuss the adequacy of internal control over
financial reporting, and any other matters which they believe should be brought
to the attention of the Audit Committee.

/s/ Peter A. Converse                            /s/ William K. Beauchesne
Chief Executive Officer                          Chief Financial Officer

                                       24
<PAGE>

                YHB
    Yount, Hyde & Barbour, P.C.
   Certified Public Accountants
                and Consultants


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Virginia Commerce Bancorp, Inc.
Arlington, Virginia

We have audited the accompanying consolidated balance sheets of Virginia
Commerce Bancorp, Inc. and subsidiaries as of December 31, 2005 and 2004, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
2005. We also have audited management's assessment, included in the accompanying
Management Report on Internal Control over Financial Reporting, that Virginia
Commerce Bancorp, Inc. and subsidiaries maintained effective internal control
over financial reporting as of December 31, 2005, based on criteria established
in Internal Control-- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Virginia Commerce Bancorp, Inc.
and subsidiaries' management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for their
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements, an
opinion on management's assessment, and an opinion on the effectiveness of
Virginia Commerce Bancorp, Inc. and subsidiaries' internal control over
financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

                                       25
<PAGE>

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, 2005 and 2004, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion,
management's assessment that Virginia Commerce Bancorp, Inc. and subsidiaries
maintained effective internal control over financial reporting as of December
31, 2005, is fairly stated, in all material respects, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our
opinion, Virginia Commerce Bancorp, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).


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

Winchester, Virginia
February 3, 2006

                                       26
<PAGE>

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                    ---------------------------------
                                                                          2005             2004
                                                                    ----------------- ---------------
<S>                                                                       <C>            <C>
ASSETS
Cash and due from banks                                                  $    32,607     $    16,783
Interest-bearing deposits with other banks                                     1,035           1,009
Securities (fair value: 2005, $172,102; 2004, $163,477)                      173,053         163,232
Loans held-for-sale                                                           12,548           9,662
Loans, net of allowance for loan losses of $13,821 in 2005 and
  $10,402 in 2004                                                          1,270,255         925,782
Bank premises and equipment, net                                               7,534           6,692
Accrued interest receivable                                                    6,550           4,105
Other assets                                                                  14,843          12,088
                                                                    ----------------- ---------------
   Total assets                                                          $ 1,518,425     $ 1,139,353
                                                                    ================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
   Demand deposits                                                       $   188,554     $   148,063
   Savings and interest-bearing demand deposits                              349,566         332,385
   Time deposits                                                             705,386         490,520
                                                                    ----------------- ---------------
   Total deposits                                                        $ 1,243,506     $   970,968
Securities sold under agreement to repurchase and federal funds
  purchased                                                                  111,794          53,207
Trust preferred capital notes                                                 44,344          18,570
Accrued interest payable                                                       3,003           1,555
Other liabilities                                                              3,960           3,729
Commitments and contingent liabilities                                            --              --
                                                                    ----------------- ---------------
   Total liabilities                                                     $ 1,406,607     $ 1,048,029
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par, 1,000,000 shares authorized and
  unissued                                                               $        --     $        --
Common stock, $1.00 par, 20,000,000 shares authorized, issued and
  outstanding 2005, 14,049,602; 2004, 11,046,422                              14,050          11,046
Surplus                                                                       36,066          37,219
Retained earnings                                                             63,239          43,578
Accumulated other comprehensive loss, net                                     (1,537)           (519)
                                                                    ----------------- ---------------
   Total stockholders' equity                                            $   111,818     $    91,324
                                                                    ----------------- ---------------
   Total liabilities and stockholders' equity                            $ 1,518,425     $ 1,139,353
                                                                    ================= ===============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       27
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                ---------------------------------------------
                                                                     2005            2004           2003
                                                                --------------- --------------- -------------
<S>                                                                    <C>             <C>           <C>
INTEREST AND DIVIDEND INCOME:
    Interest and fees on loans                                         $79,614         $51,814       $41,065
    Interest and dividends on investment securities:
        Taxable                                                          5,726           5,479         4,154
        Tax-exempt                                                         238             250           277
        Dividends                                                          203             124            95
    Interest on deposits with other banks                                   30              10            --
    Interest on federal funds sold                                         667             321           377
                                                                --------------- --------------- -------------
   Total interest and dividend income                                  $86,478         $57,998       $45,968
                                                                --------------- --------------- -------------
INTEREST EXPENSE:
   Deposits                                                            $26,432         $15,100       $12,914
   Securities sold under agreement to repurchase and  federal
     funds purchased                                                     1,710             325           123
   Other borrowed funds                                                    423              15            21
   Trust preferred capital notes                                         1,246             891           835
                                                                --------------- --------------- -------------
   Total interest expense                                              $29,811         $16,331       $13,893
                                                                --------------- --------------- -------------
NET INTEREST INCOME                                                    $56,667         $41,667       $32,075
   Provision for loan losses                                             3,772           2,989         1,575
                                                                --------------- --------------- -------------
   Net interest income after provision for loan losses                 $52,895         $38,678       $30,500
                                                                --------------- --------------- -------------
NON-INTEREST INCOME:
   Service charges and other fees                                      $ 2,553         $ 1,749       $ 1,609
   Non-deposit investment services commissions                             456             427           202
   Fees and net gains on loans held-for-sale                             3,306           3,229         5,670
   Other                                                                   361             354           265
                                                                --------------- --------------- -------------
   Total non-interest income                                           $ 6,676         $ 5,759       $ 7,746
                                                                --------------- --------------- -------------
NON-INTEREST EXPENSE:
   Salaries and employee benefits                                      $17,321         $13,478       $12,562
   Occupancy expense                                                     4,479           3,240         3,190
   Data processing                                                       1,553           1,314         1,239
   Other operating expense                                               6,113           4,775         3,829
                                                                --------------- --------------- -------------
   Total non-interest expense                                          $29,466         $22,807       $20,820
                                                                --------------- --------------- -------------
   Income before taxes on income                                       $30,105         $21,630       $17,426
   Provision for income taxes                                           10,438           7,401         5,880
                                                                --------------- --------------- -------------
NET INCOME                                                             $19,667         $14,229       $11,546
                                                                =============== =============== =============
   Earnings per common share, basic                                    $  1.40         $  1.08       $  0.94
   Earnings per common share, diluted                                  $  1.31         $  0.99       $  0.86
                                                                =============== =============== =============
</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, 2002                 $ --     $ 3,739   $19,622     $17,808            $681                         $41,850
                                      ========== =========== ========= =========== =============== ================ ==============
Comprehensive Income:
Net Income 2003                                                            11,546                          $11,546         11,546
Other comprehensive income (loss),
  unrealized holding losses arising
  during the period (net of tax of
  $357)                                                                                     (694)            (694)          (694)
                                      ---------- ----------- --------- ----------- --------------- ---------------- --------------
Total comprehensive income                                                                                 $10,852
                                      ---------- ----------- --------- ----------- --------------- ---------------- --------------
Two-for-one stock split in form of           --       3,893    (3,893)         --              --                              --
  a 100% stock dividend
Stock options/warrants exercised             --         219     1,975          --              --                           2,194
Employee stock purchase plan                 --           9       187          --              --                             196
                                      ========== =========== ========= =========== =============== ================ ==============
BALANCE, DECEMBER 31, 2003                 $ --     $ 7,860   $17,891     $29,354           $(13)                         $55,092
                                      ========== =========== ========= =========== =============== ================ ==============
Comprehensive Income:
Net Income 2004                                                            14,229                          $14,229         14,229
Other comprehensive income(loss),
  unrealized holding losses arising
  during the period (net of tax of
  $274)                                                                                     (506)            (506)          (506)
                                      ---------- ----------- --------- ----------- --------------- ---------------- --------------
Total comprehensive income                                                                                 $13,723
                                      ---------- ----------- --------- ----------- --------------- ---------------- --------------
Five-for-four stock split in form
  of a 25% stock dividend                    --       2,206    (2,206)         --              --                              --
Cash paid in lieu of fractional
shares                                       --          --        --         (5)              --                             (5)
Follow-on offering, net                      --         891    20,915          --              --                          21,806
Stock options/warrants exercised             --          83       449          --              --                             532
Employee stock purchase plan                ---           6       170          --              --                             176
                                      ========== =========== ========= =========== =============== ================ ==============
BALANCE, DECEMBER 31, 2004                 $ --     $11,046   $37,219     $43,578          $(519)                         $91,324
                                      ========== =========== ========= =========== =============== ================ ==============
Comprehensive Income:
Net Income 2005                                                            19,667                          $19,667         19,667
Other comprehensive income(loss),
  unrealized holding losses arising
  during the period (net of tax of
  $548)                                                                                   (1,018)          (1,018)        (1,018)
                                      ---------- ----------- --------- ----------- --------------- ---------------- --------------
Total comprehensive income                                                                                 $18,649
                                      ---------- ----------- --------- ----------- --------------- ---------------- --------------
Five-for-four stock split in form
  of a 25% stock dividend                    --       2,797   (2,797)          --              --                              --
Cash paid in lieu of fractional                                                                                               (6)
shares                                       --          --        --         (6)              --
Stock options/warrants exercised             --         195     1,272          --              --                           1,467
Employee stock purchase plan                 --          12       211          --              --                             223
Stock option expense                         --          --       161          --              --                             161
                                      ========== =========== ========= =========== =============== ================ ==============
BALANCE, DECEMBER 31, 2005                 $ --     $14,050   $36,066     $63,239         $(1,537)                       $111,818
                                      ========== =========== ========= =========== =============== ================ ==============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       29
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                          --------------------------------------------
                                                               2005           2004           2003
                                                          --------------- -------------- -------------
<S>                                                          <C>            <C>            <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
 Interest received                                           $   83,840     $   57,076     $  45,021
 Other income received                                            6,676          5,759         7,746
 Net change in loans held-for-sale                               (2,886)        (6,149)       15,435
 Interest paid                                                  (28,363)       (15,800)      (14,140)
 Cash paid to suppliers and employees                           (29,165)       (21,540)      (25,243)
 Income tax benefit of stock options/warrants exercised            (914)          (279)       (1,402)
 Income taxes paid                                              (10,370)        (7,530)       (5,406)
                                                          --------------- -------------- -------------
    Net cash provided by operating activities                $   18,818     $   11,537     $  22,011
                                                          --------------- -------------- -------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from maturities and principal payments on
    securities held-to-maturity                              $    9,519     $    6,569     $  10,188
 Proceeds from maturities and principal payments on
    securities available-for-sale                                24,152         53,075        70,456
 Purchases of securities held-to-maturity                       (12,151)        (2,586)      (41,143)
 Purchases of securities available-for-sale                     (32,715)       (71,636)     (118,501)
 Net increase in loans made to customers                       (348,246)      (273,920)     (139,526)
 Purchase of bank premises and equipment                         (2,110)        (1,589)         (718)
                                                          --------------- -------------- -------------
     Net cash used in investing activities                   $ (361,551)    $ (290,087)    $(219,244)
                                                          --------------- -------------- -------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
 Net increase in demand, NOW, money market and
    savings accounts                                         $   57,672     $   20,541     $ 170,521
 Net increase in time deposits                                  214,866        176,916        35,994
 Net increase (decrease) in securities sold under
    agreement to repurchase and federal funds purchased          58,587         22,320        (1,194)
 Net decrease in other borrowed funds                                --             --          (400)
 Proceeds from issuance of trust preferred capital notes         25,774             --            --
 Proceeds from exercise of stock options and warrants             1,690            708         2,390
 Proceeds from issuance of capital stock                             --         21,806            --
 Cash paid in lieu of fractional shares                              (6)            (5)           --
                                                          --------------- -------------- -------------
     Net cash provided by financing activities               $  358,583     $  242,286     $ 207,311
                                                          --------------- -------------- -------------
    Increase (decrease) in cash and cash equivalents         $   15,850     $  (36,264)    $  10,078
 CASH AND CASH EQUIVALENTS:
 Beginning                                                       17,792         54,056        43,978
                                                          --------------- -------------- -------------
 Ending                                                      $   33,642     $   17,792     $  54,056
                                                          =============== ============== =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       30
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                         ---------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
   OPERATING ACTIVITIES:                                      2005            2004           2003
                                                         ---------------- -------------- -------------
<S>                                                             <C>            <C>           <C>
Net income                                                    $   19,667      $  14,229     $  11,546
                                                         ---------------- -------------- -------------

Adjustments to reconcile net income to net cash provided by operating
 activities:
   Depreciation and amortization                                   1,268          1,087         1,046
   Provision for loan losses                                       3,772          2,989         1,575
   Stock based compensation expense                                  161             --            --
   Deferred tax benefit                                           (1,196)        (1,051)         (600)

   Amortization of security premiums and accretion of
     discounts, net                                                 (193)          (189)          (64)
   Origination of loans held-for-sale                           (202,344)      (175,873)     (287,773)
   Sale of loans                                                 199,458        169,724       303,208
   Increase in other assets                                       (1,009)          (296)       (6,116)
   Increase in other liabilities                                     231          1,119           321
   Increase in accrued interest receivable                        (2,445)          (733)         (883)
   Increase (decrease) in accrued interest payable                 1,448            531          (249)
                                                         ---------------- -------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                     $   18,818      $  11,537     $  22,011
                                                         ================ ============== =============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
  ACTIVITIES:
Unrealized loss on securities                                 $   (1,566)     $    (780)    $  (1,051)
</TABLE>

See Notes to Consolidated Financial Statements.

                                       31
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT 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 re-paid 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, VCBI Capital Trust I, VCBI Capital
Trust II, VCBI Capital Trust III and Northeast Land and Investment Company. In
consolidation, all significant intercompany accounts and transactions have been
eliminated. FASB Interpretation No. 46 (R) requires that the Company no longer
eliminate through consolidation the equity investments in VCBI Capital Trust I,
II and III, by the parent company, Virginia Commerce Bancorp, Inc, which
approximated $1.3 million at December 31, 2005. The subordinated debt of the
trusts is reflected as a liability of the Company, and the common securities of
the trusts as an other asset.

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, 2005, 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. In estimating
other-than-temporary impairment losses, management considers (1) the length of
time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent
and ability of the Company to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in fair value.

                                       32
<PAGE>

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 Company's mortgage banking
division are pre-sold and held-for-sale to outside investors, servicing
released. Gains and losses on sales of mortgage loans are recognized based on
the difference between the selling price and the carrying value of the related
mortgage loans sold.

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 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.

Our allowance for loan losses has three basic components: the specific
allowance, the formula allowance and the unallocated allowance. Each of these
components is determined based upon estimates that can and do change when the
actual events occur. The specific allowance is used to individually allocate an
allowance for loans identified for impairment testing. Impairment testing
includes consideration of the borrower's overall financial condition, resources
and payment record, support available from financial guarantors and the fair
market value of collateral.

                                       33
<PAGE>

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. These factors are
combined to estimate the probability and severity of inherent losses. When
impairment is identified, then a specific reserve is established based on the
Company's calculation of the loss embedded in the individual loan. 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. The formula allowance is used for estimating
the loss on internally risk rated loans exclusive of those identified as
impaired. The loans meeting the criteria for substandard, doubtful and loss, as
well as impaired loans, are segregated from performing loans within the
portfolio. Internally classified loans are then grouped by loan type
(commercial, commercial real estate, commercial construction, residential real
estate, residential construction or installment). Each loan type is assigned an
allowance factor based on management's estimate of the associated risk,
complexity and size of the individual loans within the particular loan category.
Classified loans are assigned a higher allowance factor than non-rated loans due
to management's concerns regarding their collectibility or management's
knowledge of particular elements surrounding the borrower. Allowance factors
grow with the worsening of the internal risk rating. The unallocated formula is
used to estimate the loss of non-classified loans and loans identified for
impairment testing for which no impairment was identified. These un-criticized
loans are also segregated by loan type and allowance factors are assigned by
management based on delinquencies, loss history, trends in volume and terms of
loans, effects of changes in lending policy, the experience and depth of
management, national and local economic trends, concentrations of credit,
quality of the loan review system and the effect of external factors (i.e.
competition and regulatory requirements). The factors assigned differ by loan
type. The unallocated allowance captures losses whose impact on the portfolio
have occurred but have yet to be recognized in either the formula or specific
allowance. Allowance factors and the overall size of the allowance may change
from period to period based on management's assessment of the factors described
above and the relative weights given to each factor. See Note 4 for information
regarding the allowance for loan losses.

BANK PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Land is carried at cost. Furniture, fixtures, equipment and
computer software are depreciated over their estimated useful lives, generally
from three to seven years; leasehold improvements are amortized over the lives
of the respective leases or the estimated useful life of the leasehold
improvement, generally from five to ten years. 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
expensed 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.

ADVERTISING COST

The Company follows the policy of charging the production costs of advertising
to expense as incurred. Total advertising expense was $545 thousand, $283
thousand and $291 thousand in 2005, 2004 and 2003, respectively.

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 deferred tax assets.

                                       34
<PAGE>

RATE LOCK COMMITMENTS

The Company enters into commitments to originate mortgage loans whereby the
interest rate on the loans is determined prior to funding (rate lock
commitments). Rate lock commitments on mortgage loans that are intended to be
sold are considered to be derivatives. The period of time between issuance of a
loan commitment and closing and the sale of the loan generally ranges from
thirty to ninety days. The Company protects itself from changes in interest
rates through the use of best efforts forward delivery commitments, whereby the
Company commits to sell a loan at the time the borrower commits to an interest
rate with the intent that the buyer has assumed interest rate risk on the loan.
As a result, the Company is not exposed to losses nor will it realize
significant gains related to its rate lock commitments due to changes in
interest rates. The correlation between the rate lock commitments and the best
efforts contracts is very high due to their similarity. Because of this high
correlation, no gain or loss occurs on the rate lock commitments.

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.

STOCK COMPENSATION PLAN

At December 31, 2005, the Company has a stock-based compensation plan, which is
described more fully in Note 12. Through 2005, the Company has accounted for the
plan under the recognition and measurement principles of APB Opinion 25,
Accounting for Stock Issued to Employees, and related interpretations. As such,
no stock-based employee compensation cost was reflected in net income, as all
options granted under the plan had an exercise price equal to the market value
of the underlying common stock on the date of the grant. On December 29, 2005,
the Company accelerated the vesting of all outstanding options under the plan in
order to avoid a total of approximately $2.3 million in expense in future
periods following the adoption of FASB Statement No. 123 (R) effective January
1, 2006. Due to this modification of the vesting terms, the Company recognized
$161 thousand in stock based compensation expense in December 2005. The
following table illustrates the effect on net income and earnings per share for
the Company had the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, been adopted for prior years, including
the effect from the accelerated vesting in 2005.

<TABLE>
<CAPTION>
======================================================== ===================== =================== =====================
(Dollars in thousands except per share amounts)                          2005                2004                  2003
-------------------------------------------------------- --------------------- ------------------- ---------------------
<S>                                                                   <C>                 <C>                   <C>
NET INCOME, AS REPORTED                                               $19,667             $14,229               $11,546
Deduct: total stock-based employee compensation
 expense determined based on fair value
 method of awards, net of tax                                          (3,124)               (593)                 (368)
                                                         --------------------- ------------------- ---------------------
PRO FORMA NET INCOME                                                  $16,543             $13,636               $11,178
BASIC EARNINGS PER SHARE:
As reported                                                             $1.40               $1.08                 $0.94
Pro forma                                                               $1.18               $1.03                 $0.92

DILUTED EARNING PER SHARE:
As reported                                                             $1.31               $0.99                 $0.86
Pro forma                                                               $1.10               $0.95                 $0.84
-------------------------------------------------------- --------------------- ------------------- ---------------------
</TABLE>

                                       35
<PAGE>

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 2005, 2004, and 2003, respectively: price volatility
of 21.98%, 29.61% and 28.63%, risk-free interest rates of 4.22%, 4.37% and
4.02%, dividend rate of .02%, .03% and .02% and expected lives of 10 years. See
Note 12 to the Consolidated Financial Statements for further information
regarding the Company's stock-based compensation plan.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2005, FASB Staff Position (FSP) 115-1 "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments" was
issued. The FSP addresses the determination as to when an investment is
considered impaired, whether that impairment is other than temporary, and the
measurement of an impairment loss. This FSP also includes accounting
considerations subsequent to the recognition of an other-than-temporary
impairment and requires certain disclosures about unrealized losses that have
not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" and APB Opinion No. 18, "The Equity Method of Accounting
for Investments in Common Stock". The FSP applies to investments in debt and
equity securities and cost-method investments. The application guidance within
the FSP includes items to consider in determining whether an investment is
impaired, in evaluating if an impairment is other than temporary and recognizing
impairment losses equal to the difference between the investment's cost and its
fair value when an impairment is determined. The FSP is required for all
reporting periods beginning after December 15, 2005. Earlier application is
permitted. The Company does not anticipate the amendment will have a material
effect on its financial statements.

In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
No. 154, ("SFAS No. 154") "Accounting Changes and Error Corrections - A
Replacement of APB Opinion No. 20 and FASB Statement No. 3." The new standard
changes the requirements for the accounting for and reporting of a change in
accounting principle. Among other changes, SFAS No. 154 requires that a
voluntary change in accounting principle be applied retrospectively with all
prior period financial statements presented on the new accounting principle,
unless it is impracticable to do so. SFAS No. 154 also provides that (1) a
change in method of depreciating or amortizing a long-lived nonfinancial asset
be accounted for as a change in estimate (prospectively) that was effected by a
change in accounting principle, and (2) correction of errors in previously
issued financial statements should be termed a "restatement. " The new standard
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The Company does not anticipate this
revision will have a material effect on its financial statements.

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 (Revised 2004) (SFAS No. 123R) "Share-Based Payment", which
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements. SFAS No. 123R replaces SFAS No. 123,
"Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Share-based compensation
arrangements include share options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. SFAS No.
123R requires all share-based payments to employees to be valued using a fair
value method on the date of grant and expensed based on that fair value over the
applicable vesting period. SFAS No. 123R also amends SFAS No. 95 "Statement of
Cash Flows" requiring the benefits of tax deductions in excess of recognized
compensation cost be reported as financing instead of operating cash flows. The
Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No.
107 ("SAB 107"), which expresses the SEC's views regarding the interaction
between SFAS No. 123R and certain SEC rules and regulations. Additionally, SAB
No. 107 provides guidance related to share-based payment transactions for public
companies. The Company will be required to apply SFAS No. 123R as of the annual
reporting period that begins after September 15, 2005. On December 31, 2005, the
Company accelerated the vesting of all outstanding stock options in order to
avoid a total of approximately $2.3 million in compensation cost in future
periods, with the adoption of 123(R) effective January 1, 2006. The Company also
estimates a minimum of $232 thousand a year in share-based compensation cost
over the next five years based on options awarded in January 2006.

                                       36
<PAGE>

In December 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-3,
"Accounting for Certain Loans or Debt Securities Acquired in a Transfer" ("SOP
03-3"). SOP 03-3 addresses accounting for differences between contractual cash
flows and cash flows expected to be collected from an investor's initial
investment in loans or debt securities (loans) acquired in a transfer if those
differences are attributable, at least in part, to credit quality. It includes
loans purchased by the Company or acquired in business combinations. SOP 03-3
does not apply to loans originated by the Company. The Company adopted the
provisions of SOP 03-3 effective January 1, 2005. The initial implementation had
no 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
March 23, 2005. This transaction was recorded by increasing common stock by $2.8
million and decreasing surplus by $2.8 million.

A five-for-four stock split in the form of a 25% stock dividend was declared on
June 3, 2004. This transaction was recorded by increasing common stock by $2.2
million and decreasing surplus by $2.2 million.

A two-for-one stock split in the form of a 100% stock dividend was declared on
April 22, 2003. This transaction was recorded by increasing common stock by $3.9
million and decreasing surplus by $3.9 million.

NOTE 2.  SECURITIES

Amortized cost and fair value of the securities available-for-sale and
held-to-maturity as of December 31, 2005 and 2004, are as follows (dollars in
thousands):

<TABLE>
<CAPTION>
================================================== ============== ================= ============== ===================
                                                                          GROSS         GROSS
                                                     AMORTIZED          UNREALIZED    UNREALIZED
   DECEMBER 31, 2005                                   COST               GAINS        (LOSSES)         FAIR VALUE
================================================== ============== ================= ============== ===================
<S>                                                     <C>                <C>           <C>                 <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations                      $119,076           $   44        $ (2,496)           $116,624
Domestic corporate debt obligations                        6,000               43              --               6,043
Obligations of states and political subdivisions           1,307               45              --               1,352
Restricted stock:
  Federal Reserve Bank                                     1,442               --              --               1,442
  Federal Home Loan Bank                                   2,277               --              --               2,277
  Community Bankers' Bank                                     55               --              --                  55
                                                   -------------- ----------------- -------------- -------------------
                                                        $130,157           $  132        $ (2,496)           $127,793

HELD-TO-MATURITY:
U.S. Government Agency obligations                      $ 35,798           $   29        $   (898)            $34,929
Obligations of state and political subdivisions            8,963               59            (144)              8,878
Domestic corporate debt obligations                          499                3              --                 502
================================================== ============== ================= ============== ===================
                                                        $ 45,260           $   91        $ (1,042)            $44,309
================================================== ============== ================= ============== ===================
</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>
================================================== ============== ================= ============== ===================
                                                                                        GROSS
                                                     AMORTIZED         GROSS         UNREALIZED
   DECEMBER 31, 2004                                   COST       UNREALIZED GAINS     (LOSSES)          FAIR VALUE
================================================== ============== ================= ============== ===================
<S>                                                 <C>                  <C>           <C>               <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations                     $ 100,955        $     207       $  (1,069)        $ 100,093
U.S. Treasuries                                            9,962               --             (32)            9,930
Domestic corporate debt obligations                        6,000               20              --             6,020
Obligations of states and political subdivisions           1,263               75              --             1,338
Restricted stock:
  Federal Reserve Bank                                     1,442               --              --             1,442
  Federal Home Loan Bank                                   1,761               --              --             1,761
  Community Bankers' Bank                                     55               --              --                55
                                                   ------------------------------ --------------- ------------------
                                                       $ 121,438        $     302       $  (1,101)        $ 120,639

HELD-TO-MATURITY:
U.S. Government Agency obligations                     $  33,667        $     226       $     (23)        $  33,870
Obligations of state and political subdivisions            8,433              141            (124)            8,450
Domestic corporate debt obligations                          493               25              --               518
-------------------------------------------------- ------------------------------ -----------------------------------
                                                       $  42,593        $     392       $    (147)        $  42,838
================================================== ============ ================= ============= ====================
</TABLE>

The amortized cost and fair value of the securities, including restricted stock,
as of December 31, 2005 by contractual maturity, are shown below (dollars in
thousands):

<TABLE>
<CAPTION>
================================================== ================================ ===================================
DECEMBER 31, 2005                                                   AMORTIZED COST                          FAIR VALUE
-------------------------------------------------- -------------------------------- -----------------------------------
<S>                                                                       <C>                                 <C>
AVAILABLE-FOR-SALE:
Due within one year                                                      $  25,497                           $  25,209
Due after one year through five years                                       79,054                              77,229
Due after five years through ten years                                       7,578                               7,363
Due after ten years                                                         14,770                              14,734
Restricted Stock                                                             3,258                               3,258
-------------------------------------------------- -------------------------------- -----------------------------------
                                                                         $ 130,157                           $ 127,793
================================================== ================================ ===================================
HELD-TO-MATURITY:
Due within one year                                                      $     499                           $     502
Due after one year through five years                                       15,444                              15,081
Due after five years through ten years                                      27,378                              26,784
Due after ten years                                                          1,939                               1,942
-------------------------------------------------- -------------------------------- -----------------------------------
                                                                         $  45,260                           $  44,309
================================================== ================================ ===================================
</TABLE>

The amortized cost of securities pledged as collateral for repurchase
agreements, certain public deposits, and other purposes were $92.8 million and
$66.4 million at December 31, 2005 and 2004, respectively.

Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.

                                       38
<PAGE>

Provided below is a summary of securities which were in an unrealized loss
position at December 31, 2005, and 2004. Of the total securities in an
unrealized loss position at December 31, 2005, 96.0%, or fifty-three positions,
were U.S. Government Agency securities with maturities ranging from one month to
thirteen years. As the Company has the ability and intent to hold these
securities until maturity, or until such time as the value recovers, no declines
are deemed to be other-than-temporary. In addition, there has been no
deterioration in the ratings for any of the securities.

<TABLE>
<CAPTION>
--------------------------------------- ------------------------- ------------------------- -------------------------
At December 31, 2005                      LESS THAN 12 MONTHS       12 MONTHS OR LONGER              TOTAL
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
                                               Fair   Unrealized        Fair    Unrealized         Fair   Unrealized
(Dollars in thousands)                        Value       Losses       Value        Losses        Value       Losses
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
<S>                                         <C>           <C>        <C>          <C>          <C>          <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations          $42,157       $(424)     $73,006      $(2,072)     $115,163     $(2,496)
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
                                            $42,157       $(424)     $73,006      $(2,072)     $115,163     $(2,496)
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
HELD-TO-MATURITY:
U.S. Government Agency obligations          $34,140       $(898)     $    --      $    --      $ 34,140     $  (898)
Obligations of states/political
subdivisions                                  2,691         (22)       3,462         (122)        6,153        (144)
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
                                            $36,831       $(920)     $ 3,462      $  (122)     $ 40,293     $(1,042)
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------

<CAPTION>
--------------------------------------- ------------------------- ------------------------- -------------------------
At December 31, 2004                      LESS THAN 12 MONTHS       12 MONTHS OR LONGER              TOTAL
--------------------------------------- ----------- ------------- ----------- ------------- ------------ ------------
                                              Fair    Unrealized        Fair    Unrealized         Fair   Unrealized
(Dollars in thousands)                       Value        Losses       Value        Losses        Value       Losses
--------------------------------------- ----------- ------------- ----------- ------------- ------------ ------------
<S>                                        <C>          <C>                                     <C>         <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations         $81,350      $(1,069)          --            --      $81,350     $(1,069)
U.S. Treasuries                              9,930          (32)          --            --        9,930         (32)
--------------------------------------- ----------- ------------- ----------- ------------- ------------ ------------
                                           $91,280      $(1,101)          --            --      $91,280     $(1,101)
--------------------------------------- ----------- ------------- ----------- ------------- ------------ ------------
HELD-TO-MATURITY:
--------------------------------------- ----------- ------------- ----------- ------------- ------------ ------------
U.S. Government Agency obligations         $  4,977     $   (23)          --            --      $ 4,977     $   (23)
Obligations of states/political
subdivisions                                  3,457        (124)          --            --        3,457        (124)
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
                                           $  8,434     $  (147)          --            --      $ 8,434     $  (147)
--------------------------------------- ------------ ------------ ----------- ------------- ------------ ------------
</TABLE>

NOTE 3. LOANS

Major classifications of loans, excluding loans held-for-sale, are summarized as
follows (dollars in thousands):

<TABLE>
<CAPTION>
================================================= ================================ ===================================
                                                                                        2005                     2004
-------------------------------------------------------------------- ------------------------ ------------------------
<S>                                                                                <C>                       <C>
Commercial                                                                       $   122,243                $  88,725
Real estate - 1-4 family residential                                                 160,355                  125,089
Real estate - multifamily residential                                                 58,567                   43,798
Real estate - nonfarm, nonresidential                                                559,866                  436,533
Real estate - construction                                                           380,997                  240,469
Consumer                                                                               7,386                    5,879
-------------------------------------------------------------------- ------------------------ ------------------------
TOTAL LOANS                                                                      $ 1,289,414                $ 940,493
-------------------------------------------------------------------- ------------------------ ------------------------
Less unearned income                                                                   5,338                    4,309
Less allowance for loan losses                                                        13,821                   10,402
-------------------------------------------------------------------- ------------------------ ------------------------
LOANS, NET                                                                       $ 1,270,255                $ 925,782
================================================= ================================ ===================================
</TABLE>

As of December 31, 2005 and 2004, there were $591 thousand and $246 thousand,
respectively, in checking account overdrafts that were reclassified on the
balance sheet as loans.

                                       39
<PAGE>

NOTE 4.  ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses for the years ended December 31,
2005, 2004 and 2003 is shown below (dollars in thousands):

<TABLE>
<CAPTION>
================================================= ========================= ====================== ===================
                                                                      2005                   2004                2003
------------------------------------------------- ------------------------- ---------------------- -------------------
<S>                                                               <C>                     <C>                 <C>
Allowance, at beginning of period                                 $ 10,402                $ 7,457             $ 5,924
Provision charged against income                                     3,772                  2,989               1,575
Recoveries added to reserve                                              9                     18                  14
Losses charged to reserve                                            (362)                   (62)                (56)
------------------------------------------------- ------------------------- ---------------------- -------------------
ALLOWANCE, AT END OF PERIOD                                       $ 13,821                $10,402             $ 7,457
================================================= ========================= ====================== ===================
</TABLE>

Information about impaired loans as of and for the years ended December 31,
2005, 2004 and 2003, is as follows (dollars in thousands):

<TABLE>
<CAPTION>
============================================================================ ============== ============ =============
                                                                                      2005         2004          2003
---------------------------------------------------------------------------- -------------- ------------ -------------
<S>                                                                                <C>          <C>             <C>
Impaired loans for which an allowance has been provided                            $ 1,980      $ 1,177         $ 416
Impaired loans for which no allowance has been provided                                 --           15            --
---------------------------------------------------------------------------- -------------- ------------ -------------
    TOTAL IMPAIRED LOANS                                                           $ 1,980      $ 1,192         $ 416
---------------------------------------------------------------------------- -------------- ------------ -------------
Allowance provided for impaired loans, included in the allowance for loan
  losses                                                                               245          400            61
Average balance in impaired loans                                                  $ 2,035      $ 1,782         $ 216
---------------------------------------------------------------------------- -------------- ------------ -------------
Interest income recognized                                                              --           --            --
============================================================================ ============== ============ =============
</TABLE>

Non-accrual loans excluded from impaired loan disclosure under FASB 114 amounted
to $14 thousand, $18 thousand, and $46 thousand at December 31, 2005, 2004 and
2003, respectively. If interest on these loans had been accrued as interest
income, such income would have approximated $3 thousand, $1 thousand and $5
thousand for the years ended December 31, 2005, 2004 and 2003, respectively.
Loans past due 90 days or more, and still accruing interest totaled $7 thousand
at December 31, 2005, and $84 thousand at December 31, 2003. There were no loans
past due 90 days or more, and still accruing interest at December 31, 2004.

NOTE 5. BANK PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost less accumulated depreciation at
December 31, 2005 and 2004, as follows (dollars in thousands):

<TABLE>
<CAPTION>
================================================================== =========================== =======================
                                                                                         2005                    2004
------------------------------------------------------------------ --------------------------- -----------------------
<S>                                                                                    <C>                     <C>
Land                                                                                  $ 1,839                 $ 1,839
Buildings                                                                               2,275                   2,259
Furniture, fixtures and equipment                                                       8,713                   7,057
Leasehold improvements                                                                  2,799                   2,324
Construction in progress                                                                  242                     301
------------------------------------------------------------------ --------------------------- -----------------------
Total Cost                                                                            $15,868                 $13,780
Less accumulated depreciation and amortization                                          8,334                   7,088
------------------------------------------------------------------ --------------------------- -----------------------
Net premises and equipment                                                            $ 7,534                 $ 6,692
================================================================== =========================== =======================
</TABLE>

Depreciation and amortization expense on premises and equipment amounted to $1.3
million, $1.1 million and $1.1 million in 2005, 2004 and 2003, respectively.

                                       40
<PAGE>

NOTE 6. TIME DEPOSITS

The aggregate amount of time deposits with a minimum denomination of $100
thousand each, was approximately $338.2 million and $253.2 million at December
31, 2005 and 2004, respectively. Scheduled maturities of all time deposits at
December 31, 2005, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
============================================================= =========================================================
<S>                                                                                   <C>
     2006                                                                             $523,436
     2007                                                                               94,952
     2008                                                                               47,250
     2009                                                                               25,658
     2010                                                                               13,990
     2011 and thereafter                                                                   100
------------------------------------------------------------- ---------------------------------------------------------
                                                                                      $705,386
============================================================= =========================================================
</TABLE>

NOTE 7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase, which are classified as secured
borrowings, represent funds of numerous demand deposit customers, and mature one
day from the transaction date. Securities sold under agreements to repurchase
are reflected at the amount of cash received and are collateralized by
securities in the Company's investment securities portfolio.

NOTE 8. INCOME TAXES

Net deferred tax assets consist of the following components at December 31, 2005
and 2004 (dollars in thousands):

<TABLE>
<CAPTION>
=============================================================== =========================== ===========================
                                                                                      2005                        2004
--------------------------------------------------------------- --------------------------- ---------------------------
<S>                                                                                 <C>                         <C>
DEFERRED TAX ASSETS:
Allowance for loan losses                                                           $4,778                      $3,641
Non-accrual loans                                                                        6                          27
Securities available-for-sale                                                          828                         279
Bank premises and equipment                                                            347                         300
--------------------------------------------------------------- --------------------------- ---------------------------
                                                                                    $5,959                      $4,247
--------------------------------------------------------------- --------------------------- ---------------------------
DEFERRED TAX LIABILITIES:
Federal Home Loan Bank stock                                                             2                           2
Deferred loan fees                                                                       2                          --
--------------------------------------------------------------- --------------------------- ---------------------------
                                                                                         4                           2
--------------------------------------------------------------- --------------------------- ---------------------------
NET DEFERRED TAX ASSETS                                                             $5,955                      $4,245
--------------------------------------------------------------- --------------------------- ---------------------------
</TABLE>

The provision for income tax and its components for the years ending December
31, 2005, 2004, and 2003 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
=============================== ============================================ ===================== ====================
DECEMBER 31,                                                           2005                  2004                 2003
------------------------------- -------------------------------------------- --------------------- --------------------
<S>                                                                 <C>                    <C>                 <C>
Current tax expense                                                $11,634               $  8,452              $ 6,480
Deferred tax benefit                                                (1,196)                (1,051)                (600)
------------------------------- -------------------------------------------- --------------------- --------------------
                                                                   $10,438               $  7,401              $ 5,880
=============================== ============================================ ===================== ====================
</TABLE>

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, 2005, 2004, and 2003, due to the
following (dollars in thousands):

                                       41
<PAGE>

<TABLE>
<CAPTION>
===================================================== ====================== ===================== ====================
DECEMBER 31,                                                           2005                  2004                 2003
----------------------------------------------------- ---------------------- --------------------- --------------------
<S>                                                                <C>                    <C>                  <C>
Computed "expected" tax expense at 35% in 2005 and                 $ 10,536               $ 7,571              $ 5,925
2004, and 34% in 2003
Increase (decrease) in income taxes resulting from:
  Income at higher statutory rate (35%)                                  --                    --                   74
  Nondeductible expense                                                  75                    16                   40
  Nontaxable income                                                   (173)                 (186)                (159)
----------------------------------------------------- ---------------------- --------------------- --------------------
                                                                   $ 10,438               $ 7,401              $ 5,880
===================================================== ====================== ===================== ====================
</TABLE>

NOTE 9. 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. For the years reported, the weighted average
number of shares 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>
================================ ============================ ============================ =============================
                                            2005                         2004                          2003
-------------------------------- ---------------------------- ---------------------------- -----------------------------
                                                 Per Share                    Per Share                     Per Share
                                    Shares        Amount         Shares         Amount         Shares         Amount
-------------------------------- ------------- -------------- -------------- ------------- --------------- -------------
<S>                                <C>                 <C>       <C>                <C>        <C>                <C>
BASIC EARNINGS PER SHARE           14,010,688          $1.40     13,212,621         $1.08      12,166,805         $0.94
Effect of dilutive securities:
  Stock options                       978,455                     1,060,079                     1,080,589
  Warrants                                 --                        57,468                        53,318
-------------------------------- ------------- -------------- -------------- ------------- --------------- -------------
DILUTED EARNINGS PER SHARE         14,989,143          $1.31     14,330,168         $0.99      13,300,712         $0.86
================================ ============================ ============================ =============================
</TABLE>

Stock options for 1,250 shares of common stock were not included in computing
diluted earnings per share in 2003, because their effects were anti-dilutive.
There were no anti-dilutive shares in 2004 and 2005.

NOTE 10. COMMITMENTS AND CONTINGENCIES

The Company leases office space for sixteen of its branch locations, its
operations, mortgage lending, and construction lending departments and has
entered into leases for two additional branch locations in 2006. 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 total minimum
lease commitment, adjusted for the effect of annual fixed increases or the
Consumer Price Index, at December 31, 2005, is $16.5 million, due as follows
(dollars in thousands):

<TABLE>
<CAPTION>
=========================================== =============================== =========================================
<S>                                                             <C>                      <C>
Due in the year ending December 31,                                   2006               $1,941
                                                                      2007                2,224
                                                                      2008                2,167
                                                                      2009                1,973
                                                                      2010                1,932
                                                                Thereafter                6,282
=========================================== =============================== =========================================
</TABLE>

The total lease expense was $1.9 million, $1.3 million and $1.2 million in 2005,
2004, and 2003, 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 11: 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, 2005 and 2004, was $17.7 million and
$20.6 million, respectively. During 2005, new loans and advances amounted to
$1.1 million and repayments of $4.0 million were made.

                                       42
<PAGE>

NOTE 12. STOCK OPTIONS OUTSTANDING

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 1,469,110 shares of common stock at a price to be determined by
the Board of Directors at the date of grant, but in any event no less than 100%
of the fair market value. Options outstanding prior to May 29, 1998, were
granted under the Company's plan adopted in 1988 which was replaced by the
current plan. As of December 31, 2005, 1,313,261 options had been granted under
the current plan and 23,107 grants had been forfeited, leaving 178,956 options
available for future issuance under the plan. Options are awarded to employees
and the Board of Directors of the Company at the discretion of the Board of
Directors, and expire ten years from the grant date. Options granted under the
current plan, through December 31, 2002, vested over three years, while options
granted since December 31, 2002, vested over five years. On December 31, 2005,
the Company accelerated the vesting of all outstanding options under the current
plan in order to avoid a total of approximately $2.3 million in options expense
in future periods, with the adoption of FAS 123(R) effective January 1, 2006.
Due to this modification of the vesting terms, the Company recognized $161
thousand in option expense in December 2005. In January 2006, a total of 90,600
options were granted to fifty-two officers and six outside directors of the
Company at an exercise price of $30.42 per share and with a five year vesting
period.

A summary of the status of the plan at December 31, 2005, 2004 and 2003, and
changes during the years ended on those dates is as follows:

<TABLE>
<CAPTION>
-------------------------------------- --------------------------- -------------------------- ------------------------
                                                  2005                      2004                      2003
-------------------------------------- -------------- ------------ ------------ ------------- ----------- ------------
                                                       Weighted                 Weighted                    Weighted
                                                        Average                 Average                     Average
                                          Number       Exercise      Number     Exercise      Number of     Exercise
                                         of Shares       Price      of Shares     Price         Shares        Price
-------------------------------------- -------------- ------------ ------------ ------------- ----------- ------------
<S>                                        <C>             <C>       <C>              <C>      <C>             <C>
Outstanding at beginning of year           1,433,855      $  5.36    1,367,848       $  3.41   1,296,487       $ 2.73
Granted                                      153,258      $ 23.27      152,384       $ 19.47     152,823       $ 8.26
Exercised                                    165,432      $  2.43       82,888        $ 2.34      80,378       $ 3.70
Forfeited                                     11,483      $ 17.03        3,489       $ 12.83       1,084       $16.26
Outstanding at end of year                 1,410,198      $  7.56    1,433,855       $  5.36   1,367,848       $ 3.41
Exercisable at end of year                 1,410,198      $  7.56    1,068,221       $  2.72   1,028,280       $ 2.89
Pro forma weighted-average fair
value per option of options granted
during the year                               $10.00                     $9.71                     $3.94
====================================== ============== ============ ============ ============= =========== ============
</TABLE>

A further summary about the options outstanding and exercisable at December 31,
2005 is provided in the following table:

                      OPTIONS OUTSTANDING AND EXERCISABLE
<TABLE>
<CAPTION>
----------------------- --------------------- ---------------- ------------------
                                                 Remaining
  Range of Exercise                             Contractual    Weighted Average
        Prices           Number Of Options         Life         Exercise Price
----------------------- --------------------- ---------------- ------------------
<C>                                  <C>            <C>                    <C>
$  1.00 to $  2.31                   259,328        1.1 years             $ 1.50
$  2.32 to $  2.79                   344,778        3.8 years               2.63
$  2.80 to $  5.46                   172,890        5.1 years               2.80
$  5.47 to $  7.82                   160,461        6.1 years               5.47
$  7.83 to $28.89                    472,741        8.1 years              16.93
----------------------- --------------------- ---------------- ------------------
$  1.00 TO $28.89                  1,410,198        5.2 YEARS             $ 7.56
</TABLE>

                                       43
<PAGE>

All options granted, available under the current Plan, and exercisable have been
adjusted for all three years giving retroactive effect to five-for-four stock
splits in the form of 25% stock dividends in 2004 and 2005, and a two-for-one
stock split in the form of a 100% stock dividend in 2003.

In September 2003, the Company adopted an Employee Stock Purchase Plan. Under
the plan a total of 227,567 shares of common stock, as adjusted for stock
dividends and splits, were reserved for issuance to eligible employees at a
price equal to at least 85% of the fair market value of the shares of common
stock on the date of grant. Grants each year expire at the end of that fiscal
year if not exercised by the employee. On September 24, 2003, eligible employees
were granted the right to purchase 19,026 shares at a price of $23.18, as
adjusted, which was equal to 100% of the fair market value of the shares at that
time. Of the total grant, 8,433 shares were purchased. On January 10, 2004,
rights to purchase 27,954 shares of common stock were granted at a price of
$21.38, as adjusted, which was equal to 85% of the fair market value of the
shares at that time. Of the total grant, 6,058 were purchased. On January 18,
2005, rights to purchase 29,602 shares of common stock were granted at a price
of $19.72, as adjusted, which was equal to 85% of the fair market value of the
shares at that time. Of the total grant, 11,096 were purchased. On January 11,
2006, rights to purchase 26,432 shares of common stock were granted at a price
of $25.86, which was equal to 85% of the fair market value of the shares at that
time.

NOTE 13. DIRECTOR COMPENSATION PLAN

In April 1996, the Company granted an aggregate of 185,286 warrants at an
exercise price of $3.56 to the outside Directors. In January 1998, the Company
granted 51,990 warrants at an exercise price of $2.89 to an additional outside
Director. All warrants have been restated giving retroactive effect to all stock
splits and or stock dividends through their exercise date. Of the total warrants
granted in April 1996, 46,321 were exercised in 2002, and 138,965 were exercised
in 2003. The 51,990 warrants granted in January 1998 were exercised in January
2005.

In addition to the warrants, the outside Directors, have been awarded a total of
160,039, 60,414, 25,260, 42,900, 27,186 and 17,500 options under the Company's
Incentive Option Plan in 2000, 2001, 2002, 2003, 2004 and 2005 respectively, as
adjusted for all stock splits and or stock dividends through 2005. In January
2006, each of the outside Directors were awarded an additional 2,000 options.
All director options are included in the tables under Note 12.

NOTE 14. OTHER BORROWED MONEY AND LINES OF CREDIT

The Bank maintains a $227.5 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 liens and home equity lines-of-credit, on
one-to-four unit single-family dwellings. As of December 31, 2005, the book
value of these qualifying loans totaled approximately $89.2 million and the
amount of available credit using this collateral was $53.9 million. Advances on
the line of credit in excess of this amount require pledging of additional
assets, including other types of loans and investment securities. As of December
31, 2005 and 2004, the Bank had no advances outstanding. The Bank has additional
short-term lines of credit totaling $62 million with nonaffiliated banks at
December 31, 2005, on which $27.0 million was outstanding at that date.

NOTE 15. TRUST PREFERRED CAPITAL NOTES

On November 13, 2002, the Company completed a private placement issuance of $3.0
million of trust preferred securities through a newly formed, wholly-owned,
subsidiary trust (VCBI Capital Trust I) which issued $100 thousand in common
equity to the Company. The securities bear a floating rate of interest, adjusted
semi-annually, of 340 basis points over six month Libor, currently 7.95%, with a
maximum rate of 12.0% until November 15, 2007. The securities have a thirty year
term and are callable at par beginning November 15, 2007. On December 19, 2002,
the Company completed a private placement issuance of $15.0 million of trust
preferred securities through a newly formed, wholly-owned, subsidiary trust
(VCBI Capital Trust II) which issued $470 thousand in common equity to the
Company. These securities bear a floating rate of interest, adjusted
semi-annually, of 330 basis points over six month Libor, currently 7.99%, with a
maximum rate of 11.9% until December 30, 2007. These securities have a thirty
year term and are callable at par beginning December 30, 2007. On December 20,
2005, the Company completed a private placement of $25.0 million of trust
preferred securities through a newly formed, wholly-owned, subsidiary trust
(VCBI Capital Trust III) which issued $774 thousand in common equity to the
Company. These securities bear a fixed rate of interest of 6.19% until February
23, 2011, at which time they convert to a floating rate, adjusted quarterly, of
142 basis points over three month Libor. These securities also have a thirty
year term and are callable at par beginning February 23, 2011.

                                       44
<PAGE>

The principal asset of each trust is a similar amount of the Company's junior
subordinated debt securities with like maturities and interest rates to the
trust preferred securities. The obligations of the Company with respect to the
issuance of the trust preferred securities constitute a full and unconditional
guarantee by the Company of each Trust's obligations with respect to the trust
preferred securities to the extent set forth in the related guarantees. Subject
to certain exceptions and limitations, the Company may elect from time to time
to defer interest payments on the junior subordinated debt securities, resulting
in a deferral of distribution payments on the related trust preferred
securities.

The Trust Preferred Securities may be included in Tier 1 capital for regulatory
capital adequacy purposes up to 25.0% of Tier 1 capital after its inclusion. The
portion of the trust preferred securities not qualifying as Tier 1 capital may
be included as part of total qualifying capital in Tier 2 capital.

NOTE 16. 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. These 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, 2005 and 2004, is as follows:

<TABLE>
<CAPTION>
 ======================================================== ============================= ==========================
 (Dollars in thousands)                                               2005                        2004
 -------------------------------------------------------- ----------------------------- --------------------------
<S>                                                                 <C>                         <C>
 Financial instruments whose contract amounts represent
  credit risk:
 Commitments to extend credit                                       $ 55,097                    $ 34,853
 Standby letters of credit and financial guarantees
   written                                                          $ 29,564                    $ 18,277
 Unfunded lines of credit                                           $381,715                    $326,430
 ======================================================== ============================= ==========================
</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.

The Company originates loans for sale to secondary market investors subject to
contractually specified and limited recourse provisions. In 2005, the Company
originated $202.3 million and sold $199.5 million to investors, compared to
$175.9 million originated and $169.7 million sold in 2004. Most contracts with
investors contain certain recourse language that may vary from 90 days up to one
year. In general, the company may be required to repurchase a previously sold
mortgage loan or indemnify the investor if there is major non-compliance with
defined loan origination or documentation standards, including fraud, negligence
or material misstatement in the loan documents. Repurchase may also be required
if necessary governmental loan guarantees are canceled or never issued, or if an
investor is forced to buy back a loan after it has been re-sold as part of a
loan pool. In addition, the Company may have an obligation to repurchase a loan
if the mortgagor has defaulted early in the loan term. The potential default
period is approximately twelve months after sale of the loan to the investor.
Mortgages subject to recourse are collateralized by single-family residential
properties, have loan-to-value ratios of 80% or less, or have private mortgage
insurance or are insured or guaranteed by an agency of the United States
government.

                                       45
<PAGE>

At December 31, 2005, the Bank had rate lock commitments to originate and sell
mortgage loans amounting to $7.0 million and loans held-for-sale of $12.5
million. Risks arise from the possible inability of counterparties to meet the
terms of their contracts. The Bank does not expect any counterparty to fail to
meet its obligation.

NOTE 17. CONCENTRATIONS OF CREDIT RISK

The Bank does a general banking business, serving the commercial and personal
banking needs of its customers. The Bank's market area consists of the Northern
Virginia suburbs of Washington, D.C., including Arlington, Fairfax, Fauquier,
Loudoun and Prince William Counties, the cities of Alexandria, Fairfax, Falls
Church, Manassas and Manassas Park, and to some extent the Maryland suburbs and
the city of Washington D.C. Substantially all of the Company's loans are made
within its market area.

The ultimate collectibility of the Bank's loan portfolio and the ability to
realize the value of any underlying collateral, if needed, are influenced by the
economic conditions of the market area. The Company's operating results are
therefore closely related to the economic conditions and trends in the
Metropolitan Washington, D.C. area.

At December 31, 2005 and 2004, there were $999.4 million and $720.8 million, or
77.5% and 76.7%, respectively of total loans concentrated in commercial real
estate. Commercial real estate for purposes of this note includes all
construction loans, loans secured by 5+ family residential properties and loans
secured by non-farm, non-residential properties. At December 31, 2005 and 2004,
construction loans represented 29.5% and 25.6% of total loans, loans secured by
5+ family residential properties represented 4.5% and 4.7%, and loans secured by
non-farm, non-residential properties represented 43.4% and 46.4%, respectively.
Construction loans at December 31, 2005 and 2004 included $257.6 million and
$163.3 million in loans to commercial builders of single family housing in the
Northern Virginia market, representing 20.0% and 17.2% of total loans,
respectively.

The Bank has established formal policies relating to the credit and collateral
requirements in loan originations including policies that establish limits on
various loan types as a percentage of total loans and total capital. Loans to
purchase real property are generally collateralized by the related property with
limitations based on the property's appraised value. Credit approval is
primarily a function of collateral and the evaluation of the creditworthiness of
the individual borrower, guarantors and or the individual project. Management
considers the concentration of credit risk to be minimal due to the
diversification of borrowers over numerous business and industries.

NOTE 18. 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, 2005, the aggregate amount of unrestricted funds
that could be transferred in the form of a cash dividend totaled approximately
$46.6 million, or 41.6%, of the consolidated net assets of the Company.

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, 2005 and 2004, the aggregate amounts of daily average
required balances were approximately $3.2 million and $2.5 million,
respectively.

NOTE 19.  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 $294 thousand, $234 thousand and $212 thousand for the years ended
December 31, 2005, 2004 and 2003, respectively.

                                       46
<PAGE>

NOTE 20.  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. The carrying value of restricted stock
approximates fair value based on the redemption provisions of the issuers.

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, 2005 and 2004, the fair value of loan commitments and stand-by
letters of credit were deemed immaterial.


                                       47
<PAGE>

ing amounts and estimated fair values of the Company's financial
instruments are as follows:

<TABLE>
<CAPTION>
========================================= ================================== ====================================
                                                        2005                                 2004
----------------------------------------- -------------- ------------------- ----------------- ------------------
                                            Carrying      Estimated Fair                         Estimated Fair
(Dollars in thousands)                       Amount           Value          Carrying Amount          Value
----------------------------------------- -------------- ------------------- ----------------- ------------------
<S>                                           <C>                 <C>               <C>                <C>
FINANCIAL ASSETS:
Cash and short-term investments             $    33,642         $    33,642       $    17,792        $    17,792
Securities                                      173,053             172,102           163,232            163,477
Loans held-for-sale                              12,548              12,548             9,662              9,662
Loans                                         1,270,255           1,296,219           925,782            952,752
Accrued interest receivable                       6,550               6,550             4,105              4,105
----------------------------------------- -------------- ------------------- ----------------- ------------------
   Total Financial assets                   $ 1,496,048         $ 1,521,061       $ 1,120,573        $ 1,147,788
========================================= ============== =================== ================= ==================
</TABLE>

<TABLE>
<CAPTION>
========================================= ================================== ====================================
                                                        2005                                2004
----------------------------------------- -------------- ------------------- ----------------- ------------------
                                            Carrying       Estimated Fair                       Estimated Fair
(Dollars in thousands)                       Amount            Value         Carrying Amount         Value
----------------------------------------- -------------- ------------------- ----------------- ------------------
<S>                                         <C>                 <C>                 <C>                <C>
FINANCIAL LIABILITIES:
Deposits                                    $ 1,243,506         $ 1,213,934       $   970,968        $   969,861
Securities sold under agreements to
  repurchase and federal funds purchased        111,794             111,788            53,207             53,197
Trust preferred capital notes                    44,344              49,502            18,570             18,761
Accrued interest payable                          3,003               3,003             1,555              1,555
----------------------------------------- -------------- ------------------- ----------------- ------------------
   Total Financial liabilities              $ 1,402,647         $ 1,378,227       $ 1,044,300        $ 1,043,374
========================================= ============== =================== ================= ==================
</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 21.  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, Tier 1 Capital and Tier 1 Leverage
Capital. Total Capital and Tier 1 Capital ratios are in reference to
risk-weighted assets (as defined), and the Tier 1 Leverage Capital ratio is in
reference to average assets. Management believes, as of December 31, 2005 and
2004, that the Bank met all capital adequacy requirements to which it is
subject.

As of December 31, 2005, 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, 2005, 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.

                                       48
<PAGE>

<TABLE>
<CAPTION>
------------------------------- --------------------------- ------------------------ ----------------------------
                                                                                           Minimum To Be
                                                                                       Well-Capitalized Under
                                                                Minimum Capital       Prompt Corrective Action
                                       Actual Capital             Requirement*                Provisions
------------------------------- --------------------------- ------------------------ ----------------------------
AS OF DECEMBER 31, 2005:           AMOUNT        RATIO        AMOUNT       RATIO       AMOUNT         RATIO
------------------------------- ------------- ------------- ----------- ------------ ------------ ---------------
<S>                                 <C>             <C>       <C>             <C>          <C>
TOTAL CAPITAL:
Company                             $170,176        12.42%    $109,607        8.00%     $    N/A           N/A
Bank                                 167,975        12.27%     109,482        8.00%      136,853          10.00%
TIER 1 CAPITAL:
Company                             $150,355        10.97%    $ 54,803        4.00%     $    N/A           N/A
Bank                                 111,154         8.12%      54,741        4.00%       82,112           6.00%
TIER 1 LEVERAGE CAPITAL:
Company                             $150,355        10.09%    $ 59,583        4.00%     $    N/A           N/A
Bank                                 111,154         7.45%      59,689        4.00%       75,126           5.00%
<CAPTION>
------------------------------- ------------- ------------- ----------- ------------ ------------ ---------------
AS OF DECEMBER 31, 2004:           AMOUNT        RATIO        AMOUNT       RATIO       AMOUNT         RATIO
------------------------------- ------------- ------------- ----------- ------------ ------------ ---------------
<S>                                 <C>             <C>        <C>            <C>          <C>
TOTAL CAPITAL:
Company                             $120,244        11.92%     $80,693        8.00%     $    N/A           N/A
Bank                                 119,232        11.82%      80,667        8.00%      100,834          10.00%
TIER 1 CAPITAL:
Company                             $109,842        10.89%     $40,346        4.00%     $    N/A           N/A
Bank                                  90,830         9.01%      40,333        4.00%       60,500           6.00%
TIER 1 LEVERAGE CAPITAL
Company                             $109,842         9.76%     $45,017        4.00%     $    N/A           N/A
Bank                                  90,830         8.09%      44,910        4.00%       56,137           5.00%
------------------------------- ------------- ------------- ----------- ------------ ------------ ---------------
</TABLE>
  * The minimum capital requirement for the Company is a guideline.

NOTE 22. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

<TABLE>
<CAPTION>
===================================================== ============================ ==============================
BALANCE SHEETS (in thousands)                                DECEMBER 31, 2005             DECEMBER 31, 2004
                                                      ---------------------------- ------------------------------
<S>                                                              <C>                             <C>
Assets:
  Cash and due from banks                                         $   1,984                      $     686
  Investment in Subsidiaries                                        110,961                         90,882
  Subordinated Debt of Subsidiary                                    43,000                         18,000
  Other Assets                                                          302                            351
----------------------------------------------------- ---------------------------- ------------------------------
    TOTAL ASSETS                                                  $ 156,247                      $ 109,919
----------------------------------------------------- ---------------------------- ------------------------------

Liabilities and Stockholders' Equity:
  Trust preferred capital notes                                   $  43,344                      $  18,570
  Other Liabilities                                                      85                             25
----------------------------------------------------- ---------------------------- ------------------------------
    Total Liabilities                                             $  44,429                      $  18,595
----------------------------------------------------- ---------------------------- ------------------------------
    Stockholders' Equity                                            111,818                         91,324
----------------------------------------------------- ---------------------------- ------------------------------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $ 156,247                      $ 109,919
===================================================== ============================ ==============================
</TABLE>

                                       49
<PAGE>

<TABLE>
<CAPTION>
====================================================  ===========================================================
STATEMENTS OF INCOME (in thousands)                                    YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------------------------
                                                                      2005                2004              2003
                                                      --------------------- ------------------- -----------------
Income:
<S>                                                                <C>                   <C>               <C>
  Interest on subordinated debt                                    $ 1,036               $ 888             $ 879
----------------------------------------------------- --------------------- ------------------- -----------------
    Total Income                                                     1,036                 888               879
----------------------------------------------------- --------------------- ------------------- -----------------
Expenses:
  Interest on trust preferred capital notes                        $ 1,246               $ 892            $  835
  Other operating expense                                              714                 419               352
----------------------------------------------------- --------------------- ------------------- -----------------
    Total Expenses                                                   1,960               1,311             1,187
----------------------------------------------------- --------------------- ------------------- -----------------
Loss before income tax (benefit) and equity in
  undistributed earnings of subsidiary                             $ (924)             $ (423)           $ (308)
Income tax (benefit)                                                 (267)               (148)             (108)
----------------------------------------------------- --------------------- ------------------- -----------------
                                                                     (657)               (275)             (200)
Equity in undistributed net income of
  Virginia Commerce Bank                                            20,324              14,504            11,746
----------------------------------------------------- --------------------- ------------------- -----------------
     Net Income                                                   $ 19,667            $ 14,229          $ 11,546
===================================================== ===================== =================== =================

<CAPTION>
====================================================  ===========================================================
STATEMENTS OF CASH FLOWS (in thousands)                                  YEAR ENDED DECEMBER 31,
                                                          -------------------- ------------------ ---------------
                                                                         2005               2004            2003
                                                          -------------------- ------------------ ---------------
<S>                                                                  <C>                <C>             <C>
Cash Flows from Operating Activities:
    Net Income                                                     $ 19,667        $ 14,229        $ 11,546
Adjustments to reconcile net income to net cash
     used in operating activities:
Equity in undistributed net income of Virginia
     Commerce Bank                                                  (20,324)        (14,504)        (11,746)
Stock Option Expense                                                    161              --              --
Decrease in other assets                                                 50              79             112
Increase (decrease) in other liabilities                                 60              24             (43)
--------------------------------------------------------- ------------------- ------------------ ---------------
Net cash used in operating activities                              $   (386)       $   (172)       $   (131)
--------------------------------------------------------- ------------------- ------------------ ---------------
Cash Flows from Investing Activities:
--------------------------------------------------------- ------------------- ------------------ ---------------
     Purchase additional stock in subsidiary                           (774)        (22,000)         (6,000)
     Purchase of debt securities                                    (25,000)             --          (4,000)
--------------------------------------------------------- ------------------- ------------------ ---------------
Net cash used in investing activities                              $(25,774)       $(22,000)       $(10,000)
--------------------------------------------------------- ------------------- ------------------ ---------------
Cash Flows from Financing Activities:
     Net increase in junior subordinated capital notes               25,774              --              --
     Common stock issued                                              1,690          22,514           2,390
     Cash paid in lieu of fractional shares                              (6)             (5)             --
--------------------------------------------------------- ------------------- ------------------ ---------------
Net cash provided by financing activities                          $ 27,458        $ 22,509        $  2,390
--------------------------------------------------------- ------------------- ------------------ ---------------
Change in cash and cash equivalents                                $  1,298        $    337        $ (7,741)
Beginning                                                               686             349           8,090
Ending                                                             $  1,984        $    686        $    349
===================================================== ===================== =================== =================
</TABLE>

                                       50
<PAGE>

NOTE 23. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected financial information for the quarterly periods of 2005 and 2004 is
presented below (dollars in thousands except per share data):

<TABLE>
<CAPTION>
                                                       2005 QUARTERS
                                   -------------------------------------------------------
                                       FIRST         SECOND        THIRD        FOURTH
                                   -------------- ------------- ------------ -------------
<S>                                  <C>           <C>           <C>           <C>
Interest income                      $18,300       $20,422       $22,665       $25,091
Interest expense                       5,587         6,856         8,119         9,249
---------------------------------- -------------- ------------- ------------ -------------
     Net interest income             $12,713       $13,566       $14,546       $15,842
Provision for loan losses                831         1,031           950           960
     Net interest income after
     provision for loan losses       $11,882       $12,535       $13,596       $14,882
Non-interest income                    1,219         1,543         1,898         2,016
Non-interest expense                   6,514         7,271         7,395         8,286
---------------------------------- -------------- ------------- ------------ -------------
     Income before taxes             $ 6,587       $ 6,807       $ 8,099       $ 8,612
Income tax expense                     2,266         2,343         2,796         3,033
---------------------------------- -------------- ------------- ------------ -------------
     Net income                      $ 4,321       $ 4,464       $ 5,303       $ 5,579
---------------------------------- -------------- ------------- ------------ -------------
Net income per common share:
     Basic                           $  0.31       $  0.32       $  0.37       $  0.40
     Diluted                         $  0.29       $  0.30       $  0.35       $  0.37
</TABLE>

<TABLE>
<CAPTION>
                                                       2004 QUARTERS
                                   -------------------------------------------------------
                                       FIRST         SECOND        THIRD        FOURTH
                                   -------------- ------------- ------------ -------------
<S>                                  <C>           <C>           <C>           <C>
Interest income                      $12,533       $13,573       $15,152       $16,740
Interest expense                       3,534         3,853         4,262         4,682
---------------------------------- -------------- ------------- ------------ -------------
     Net interest income             $ 8,999       $ 9,720       $10,890       $12,058
Provision for loan losses                487           820           698           984
     Net interest income after
     provision for loan losses       $ 8,512       $ 8,900       $10,192       $11,074
Non-interest income                    1,209         1,602         1,518         1,430
Non-interest expense                   5,047         5,279         5,907         6,574
---------------------------------- -------------- ------------- ------------ -------------
     Income before taxes             $ 4,674       $ 5,223       $ 5,803       $ 5,930
Income tax expense                     1,588         1,785         1,992         2,036
---------------------------------- -------------- ------------- ------------ -------------
     Net income                      $ 3,086       $ 3,438       $ 3,811       $ 3,894
---------------------------------- -------------- ------------- ------------ -------------
Net income per common share:
     Basic                           $  0.26       $  0.26       $  0.28       $  0.28
     Diluted                         $  0.23       $  0.24       $  0.26       $  0.26
</TABLE>

NOTE 24: SEGMENT REPORTING

In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" the Company has two reportable segments, its community
banking operations and its mortgage banking division. Community banking
operations, the major segment, involves making loans and gathering deposits from
individuals and businesses in the Bank's market area, while the mortgage banking
division originates and sells mortgage loans servicing released, on one-to-four
family residential properties. Revenues from mortgage lending consist of
interest earned on mortgage loans held-for-sale, loan origination fees, and net
gains on the sale of loans in the secondary market. The Bank provides the
mortgage division with short term funds to originate loans and charges it
interest on the funds based on what the Bank earns on overnight funds. Expenses
include both fixed overhead and variable costs on originated loans such as loan
officer commissions, document preparation and courier fees. The following table
presents segment information for the years ended December 31, 2005, 2004 and
2003. Eliminations consist of overhead and interest charges by the Bank to the
mortgage lending division.

                                       51
<PAGE>

<TABLE>
<CAPTION>
================================================= ===================================================================
                                                                                 2005
================================================= ===================================================================
                                                     Community         Mortgage
(In thousands)                                        Banking          Lending        Eliminations        Total
------------------------------------------------- --------------- ------------------ --------------- ----------------
<S>                                                  <C>              <C>              <C>               <C>
  Interest income                                    $   85,879       $      599       $       --        $   86,478
  Non-interest income                                     3,370            3,306               --             6,676
------------------------------------------------- --------------- ------------------ --------------- ----------------
     Total operating income                          $   89,249       $    3,905       $       --        $   93,154

  Interest expense                                   $   29,811       $      348       $     (348)       $   29,811
  Provision for loan losses                               3,772               --               --             3,772
  Non-interest expense                                   26,538            2,977              (49)           29,466
     Total operating expense                         $   60,121       $    3,325       $     (397)       $   63,049
------------------------------------------------- --------------- ------------------ --------------- ----------------
Income before taxes on income                        $   29,128       $      580       $      397        $   30,105
Provision for income taxes                               10,234              204               --            10,438
------------------------------------------------- --------------- ------------------ --------------- ----------------
Net Income                                           $   18,894       $      376       $      397        $   19,667
------------------------------------------------- --------------- ------------------ --------------- ----------------

Total Assets                                         $1,505,751       $   12,674       $       --        $1,518,425
================================================= =============== ================== =============== ================

<CAPTION>
================================================= =============== ================== =============== ================
                                                                                 2004
------------------------------------------------- -------------------------------------------------------------------
                                                     Community         Mortgage
(In thousands)                                        Banking          Lending        Eliminations        Total
================================================= =============== ================== =============== ================
<S>                                                  <C>              <C>              <C>               <C>
  Interest income                                    $   57,591       $      407       $       --        $   57,998
  Non-interest income                                     2,530            3,229               --             5,759
------------------------------------------------- --------------- ------------------ --------------- ----------------
     Total operating income                          $   60,121       $    3,636       $       --        $   63,757

  Interest expense                                   $   16,331       $       85       $      (85)       $   16,331
  Provision for loan losses                               2,989               --               --             2,989
  Non-interest expense                                   20,326            2,529              (48)           22,807
     Total operating expense                         $   39,646       $    2,614       $     (133)       $   42,127
------------------------------------------------- --------------- ------------------ --------------- ----------------
Income before taxes on income                        $   20,475       $    1,022       $      133        $   21,630
Provision for income taxes                                7,043              358               --             7,401
------------------------------------------------- --------------- ------------------ --------------- ----------------
Net Income                                           $   13,432       $      664       $      133        $   14,229
------------------------------------------------- --------------- ------------------ --------------- ----------------

Total Assets                                         $1,129,587       $    9,766       $       --        $1,139,353
================================================= =============== ================== =============== ================

<CAPTION>
================================================= ===================================================================
                                                                                 2003
================================================= ===================================================================
                                                     Community         Mortgage
(In thousands)                                        Banking          Lending        Eliminations        Total
------------------------------------------------- --------------- ------------------ --------------- ----------------
<S>                                                   <C>             <C>             <C>              <C>
  Interest income                                     $ 45,216        $    752        $     --         $ 45,968
  Non-interest income                                    2,076           5,670              --            7,746
------------------------------------------------- --------------- ------------------ --------------- ----------------
     Total operating income                           $ 47,292        $  6,422        $     --         $ 53,714

  Interest expense                                    $ 13,893        $    120        $   (120)        $ 13,893
  Provision for loan losses                              1,575              --              --            1,575
  Non-interest expense                                  17,185           3,676             (41)          20,820
     Total operating expense                          $ 32,653        $  3,796        $   (161)        $ 36,288
------------------------------------------------- --------------- ------------------ --------------- ----------------
Income before taxes on income                         $ 14,639        $  2,626        $    161         $ 17,426
Provision for income taxes                               4,987             893              --            5,880
------------------------------------------------- --------------- ------------------ --------------- ----------------
Net Income                                            $  9,652        $  1,733        $    161         $ 11,546
------------------------------------------------- --------------- ------------------ --------------- ----------------

Total Assets                                          $878,032        $  3,662        $     --         $881,694
================================================= =============== ================== =============== ================
</TABLE>

                                       52
<PAGE>

BUSINESS

GENERAL

Virginia Commerce Bancorp, Inc. (the "Company") was organized under Virginia law
on November 5, 1999 to become the holding company for Virginia Commerce Bank
(the "Bank"). The Company acquired all of the outstanding shares of the Bank on
December 22, 1999, upon the effectiveness of the Agreement and Plan of Share
Exchange dated September 22, 1999 between the Company and the Bank. As a result
of the Agreement and Plan of Share Exchange, each share of the Bank's common
stock was automatically exchanged for and converted into one share of the
Company's common stock.

The Bank was organized as a national banking association and commenced
operations on May 16, 1988. On June 1, 1995, the Bank converted from a national
banking association to a Virginia chartered bank which is a member of the
Federal Reserve System. The Company's and the Bank's executive offices and main
branch are located at 5350 Lee Highway, Arlington, Virginia. The Bank currently
has eighteen additional full service branch offices throughout Northern
Virginia, an investment services office in Vienna, Virginia, and residential
mortgage lending offices in Vienna and Warrenton, Virginia. Additionally, the
Bank has entered into lease agreements for two additional branch office
locations to be opened in 2006.

The Company engages in a general commercial banking business through the Bank,
its sole direct operating subsidiary. The Bank's customer base includes
small-to-medium-sized businesses, including firms that have contracts with the
U.S. government, associations, retailers and industrial businesses,
professionals and business executives and consumers. The economic base of the
Bank's service area includes Arlington, Fairfax, Fauquier, Loudoun and Prince
William Counties and the City of Alexandria in Northern Virginia, and the
metropolitan Washington, D.C. area generally. Northern Virginia has experienced
significant population and economic growth during the past decade. The Bank
participated in this growth through its commercial and retail banking
activities.

The Bank's primary service area consists of the Northern Virginia suburbs of
Washington D.C., including Arlington Fairfax, Fauquier, Loudoun and Prince
William Counties and the cities of Alexandria, Fairfax, Falls Church, Manassas
and Manassas Park. This area's banking business is dominated by a small number
of large commercial banks with extensive branch networks. Most are branches of
national, state-wide or regional banks. The Bank's primary service area is also
served by a large number of other financial institutions, including savings
banks, credit unions and non-bank financial institutions such as securities
brokerage firms, insurance companies and mutual funds. The Bank's primary
service area is oriented toward independently owned small-to-medium-sized
businesses, light industry and firms specializing in government contracting. An
increasing number of new community banking organizations have been opened in the
Bank's market area, potentially representing an increased competitive threat to
the Bank.

The banking business in Virginia generally, and in the Bank's primary service
area specifically, is highly competitive with respect to both loans and
deposits, and is dominated by a relatively small number of major banks with many
offices operating over a wide geographic area. Among the advantages such major
banks have over the Bank are their ability to finance wide-ranging advertising
campaigns and to allocate their investment assets to regions of highest yield
and demand. Such banks offer certain services such as international banking,
which are not offered directly by the Bank (but are offered indirectly through
correspondent institutions) and, by virtue of their greater total
capitalization, such banks have substantially higher lending limits than the
Bank. The Bank competes for deposits and lendable funds with other commercial
banks, savings banks, credit unions and other governmental and corporate
entities which raise operating capital through the issuance of debt and equity
securities. The Bank also competes for available investment dollars with
non-bank financial institutions, such as brokerage firms, insurance companies
and mutual funds. With respect to loans, the Bank competes with other commercial
banks, savings banks, consumer finance companies, mortgage companies, credit
unions and other lending institutions. Additionally, as a result of enactment of
federal and Virginia interstate banking legislation, additional competitors
which are not currently operating in Virginia may enter the Bank's markets and
compete directly with the Bank. Recent legislation expanding the array of firms
that can own banks may also result in increased competition for the Company and
the Bank.

The majority of the Bank's deposits are attracted from individuals and business
in the Metropolitan Washington D.C. area, and as such, no material portion of
the Bank's deposits have been obtained from any single person, single entity, or
area outside the Metropolitan Washington D.C. area. The loss of any one or more
of the Bank's depositors would not have a materially adverse effect on the
business of the Bank. Although the Bank's loans are concentrated in its Northern
Virginia Market area, and a significant portion are secured by real property in
that market, the Bank's loans are not concentrated within a single industry or
group of related industries. See Note 17 to the Consolidated Financial
Statements for more information on concentrations of credit risk.

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The Bank provides businesses with a full range of deposit accounts, merchant
bankcard services, electronic funds transfer services, lock-box services,
on-line banking, lines of credit for working capital, term loans and commercial
real estate loans, and provides consumers with a wide array of deposit products,
home equity and revolving lines of credit, installment loans and internet
banking services. The Bank also offers investment services and provides safe
deposit boxes as well as other customary banking services. The Bank is not
authorized to offer trust services nor does it offer international services but
makes these services available to its customers through financial institutions
with which the Bank has correspondent banking relationships.

The Bank also offers a wide variety of residential mortgage loans through its
mortgage lending division which are originated on a pre-sold, servicing released
basis to numerous investors. Offered types include conventional single family
first trusts, FHA and VA mortgages for both purchase and refinance purposes. In
addition, the Bank offers construction loans to both individuals and commercial
builders on single family residential properties which are generally for terms
of twelve to eighteen months. Changes in the local real estate market and
interest rates could adversely impact the level of loans originated for sale and
the level of construction loans originated and outstanding, and the resulting
fees and earnings thereon.

The Bank does not depend upon seasonal business. The Bank relies substantially
on local promotional activity, personal contact by its officers, directors,
employees and stockholders, personalized service and its reputation in the
communities served to compete effectively.

The Bank has one wholly owned subsidiary, Northeast Land and Investment Company,
a Virginia corporation, organized to hold and market foreclosed real estate.

On December 31, 2005, the Company had 219 full-time equivalent employees,
including seven executive officers. None of the Company's employees presently is
represented by a union or covered under a collective bargaining agreement.
Management of the Company believes that its employee relations are satisfactory.
Other than its President, the Company does not have any employees that are not
also employees of the Bank.

Banking is dependent upon interest rate differentials. In general, the
difference between the interest rate paid by the Bank on its deposits and its
other borrowings and the interest rate earned by the Bank on loans, securities
and other interest-earning assets comprises the major source of the Bank's
earnings, while increasing fees and net gains on mortgage loans originated for
sale have made a significant contribution to the Bank's non-interest earnings.
Thus, the earnings and growth of the Bank are subject to the influence of
economic conditions generally, both domestic and foreign, and also of the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve Board. The Federal Reserve Board implements national
monetary policy, such as seeking to curb inflation and combat recession, by its
open-market activities in United States government securities, by adjusting the
required level of reserves for financial institutions subject to reserve
requirements and through adjustments to the discount rate applicable to
borrowings by banks which are members of the Federal Reserve System. The actions
of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates. The nature and timing
of any future changes in such policies and their impact on the Bank cannot be
predicted. In addition, adverse economic conditions could make a higher
provision for loan losses a prudent course and could cause higher loan loss
charge-offs, thus adversely affecting the Bank's net income.

From time to time, new legislation or regulations are adopted which increase the
cost of doing business, limit or expand permissible activities, or otherwise
affect the competitive balance between banks and other financial institutions.
Bills have been introduced in each of the last several Congresses which would
permit banks to pay interest on checking and demand deposit accounts established
by businesses, a practice which is currently prohibited by regulation. If the
legislation effectively permitting the payment of interest on business demand
deposits is enacted, of which there can be no assurance, it is likely that we
may be required to pay interest on some portion of our demand deposits in order
to compete against other banks. As a significant portion of our deposits are
demand deposits established by businesses, payment of interest on these deposits
could have a significant negative impact on our net income, net interest income,
interest margin, return on assets and equity, and other indices of financial
performance. We expect that other banks would be faced with similar negative
impacts. We also expect that the primary focus of competition would continue to
be based on other factors, such as quality of service. Additionally, various
proposals are under consideration and study for the reform or revision of
deposit insurance premium assessment system. Currently, we are not subject to
payment of deposit insurance premiums and generally have not been over the past
several years. If we are required to pay deposit insurance premiums, our
earnings will be adversely affected.

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Banks or bank holding companies which are undercapitalized and either have not
timely approved a capital plan or have failed to implement the plan become
subject to extraordinary powers pursuant to which the bank regulatory agencies
may close the bank, restrict its growth, force its sale, restrict interest rates
paid on deposits, and dismiss directors or senior executive officers. Each
agency has prescribed standards relating to internal controls and systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, and other operational and managerial standards.
The agencies have also adopted standards relating to asset quality, earnings,
valuation and compensation. Banks or bank holding companies which do not meet
such standards may be subject to restrictions and consequences comparable to
those which apply to undercapitalized banks and bank holding companies. Bank
regulatory authority to appoint a conservator or receiver for a bank is broad,
including grounds such as substantial dissipation of assets or earnings due to
violations of law or regulation or due to any unsafe or unsound practices, an
unsafe or unsound condition, and certain violations of law or regulation likely
to weaken the institution's condition.

Regulations promulgated by the Federal Reserve Board prohibit state member banks
such as the Bank from paying any dividend on common stock out of capital.
Dividends can be paid only to the extent of net profits then on hand, less
losses and bad debts. Without the prior approval of the Federal Reserve Board, a
state member bank cannot pay dividends in any calendar year in excess of the
retained net profits for the prior two years and the profits of the current
year, less any required transfers to surplus.

LENDING ACTIVITIES

The Bank offers a wide array of lending services to its customers, including
commercial loans, commercial real estate loans, lines of credit, equipment
financing, construction loans, letters of credit, residential mortgages,
personal loans, auto loans and home equity loans and lines of credit. Loan
terms, including interest rates, loan-to-value ratios, and maturities, are
tailored as much as possible to meet the needs of the borrower within prudent
lending guidelines in terms of interest rate risk and credit risk.

When considering loan requests, the primary factors taken into consideration are
the purpose, the cash flow and financial condition of the borrower, primary and
secondary repayment sources, the value of the underlying collateral, if
applicable, and the character and integrity of the borrower. These factors are
evaluated in a number of ways including an analysis of financial statements,
credit history, trade references and visits to the borrower's place of business.
The Bank has adopted a comprehensive loan policy manual to provide its loan
officers with underwriting, term, collateral, loan-to-value and pricing
guidelines.

The Bank's goal is to build and maintain a commercial loan portfolio consisting
of term loans, lines of credit, commercial real estate and construction loans
provided primarily to locally-based borrowers. Additionally, installment loans
and personal lines of credit, as well as residential mortgages, are made
available to consumer customers. Commercial loans are generally considered to
have a higher degree of risk of default or loss than other types of loans, such
as residential real estate loans, because repayment may be affected by general
economic conditions, interest rates, the quality of management of the business,
and other factors which may cause a borrower to be unable to repay its
obligations. General economic conditions can directly or indirectly affect the
quality of a small and mid-sized business loan portfolio. The Bank manages the
loan portfolio to avoid high concentrations of similar industry loan types
and/or property types in relation to total qualifying capital. Commercial
construction loans will make up 50-100% of total qualifying capital, residential
construction loans 125-250%, non-farm non-residential real estate loans
400-600%, residential mortgages and home equity loans 100-200%, commercial loans
100-200% and consumer installment and personal loans 50-100%. Overall, real
estate loans will not exceed 1,150% of total capital. There can however, be no
assurance that the Bank will be able to achieve or maintain this distribution of
loans. At December 31, 2005 the loan portfolio's actual composition compared to
total qualifying capital consisted of approximately 61% commercial construction
loans, 166% residential construction loans, 365% non-farm non-residential real
estate loans, 95% residential mortgages and home equity loans, 73% commercial
loans and 4% consumer installment and personal loans. Total real estate loans
were 627% of total qualifying capital.

The lending activities in which we engage carry the risk that borrowers will be
unable to perform on their obligations. As such, interest rate policies of the
Federal Reserve Board and general economic conditions, nationally and in our
primary market area will have a significant impact on our results of operations.
To the extent that economic conditions deteriorate, business and individual
borrowers may be less able to meet their obligations in a timely manner,
resulting in decreased earnings or losses to the Bank. To the extent that loans
are secured by real estate, adverse conditions in the real estate market may
reduce the ability of the borrower to generate the necessary cash flow for
repayment of the loan and reduce our ability to collect the full amount of the
loan upon a default. These same external factors could also negatively impact
collateral values. To the extent that the Bank makes fixed rate loans, general
increases in interest rates will tend to reduce our spread as the interest rates
we must pay for deposits increase. Interest rates may also adversely affect the
value of property pledged as security for loans.

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We constantly strive to mitigate risks in the event of unforeseen threats to the
loan portfolio as a result of an economic downturn or other negative influences.
Plans for mitigating inherent risks in managing loan assets include carefully
enforcing loan policies and procedures, evaluating each borrower's industry and
business plan during the underwriting process, identifying and monitoring
primary and alternative sources for repayment, obtaining collateral that is
margined to minimize loss in the event of liquidation, ongoing tests of borrower
credit worthiness and cash flow, ongoing collateral evaluations and site
inspections and monitoring of economic and market trends

Loan business is generated primarily through referrals and direct-calling
efforts. Referrals of loan business comes from directors, shareholders, current
customers and professionals such as lawyers, accountants and financial
intermediaries.

At December 31, 2005, the Banks statutory lending limit to any single borrower
was $25.2 million subject to certain exceptions provided under applicable law.
As of December 31, 2005, the Bank's maximum credit exposure to its largest
borrower was $19 million.

Commercial Loans: Commercial loans are written for any legitimate business
purpose including the financing of plant and equipment, interim working capital
pending collection of accounts receivable, permanent working capital for growth
and the acquisition and construction of real estate projects. There is a focus
in the Bank's loan portfolio on commercial real estate investment which
represents a predominant activity in the Bank's market area. The Bank's
commercial loan portfolio reflects a diverse group of borrowers with no
significant concentration in any borrower, or group of borrowers.

Commercial construction loans, residential construction loans to builders and
land acquisition and development loans are made to builders with established
track records of quality construction. Land loans are discouraged unless
underwritten in conjunction with a related construction loan or out-sale
contract. Typical advance rates are not greater than 65% of the lesser of cost
or appraisal for raw land, 75% of the value of finished lots for land
acquisition, and 80% of land cost and 100% of construction costs for
construction loans. In all cases, a minimum 10% equity contribution of total
project costs is required. Financing terms generally do not exceed 24 months.
Construction loans are subject to progress inspections and controlled advances.
Speculative construction loans are maintained to a minimum with a majority of
loans requiring pre-sale contracts or specified lease-up thresholds prior to
construction commencement. Personal guarantees by principals of borrowing
entities is a standard requirement and loans are typically priced to float at a
factor at or above the prime lending rate.

Commercial real estate loans will generally represent borrower occupied
transactions with a principal reliance on the borrowing businesses' ability to
repay or investor transactions focused on tenant quality, occupancy and expense
controls, as well as prudent guidelines for assessing real estate values. Risks
inherent in managing a commercial real estate portfolio relate to either sudden
or gradual drops in property values as a result of a general or local economic
downturn. A decline in real estate values can cause loan to value margins to
increase and diminish the Bank's equity cushion on both an individual and
portfolio basis. The Bank attempts to mitigate commercial real estate lending
risks by carefully underwriting each loan of this type to address the perceived
risks in the individual transaction. Generally, the Bank requires a
loan-to-value ratio of 80% of the lesser of cost or appraisal for owner occupied
transactions and 75% for investor transactions. A borrower's ability to repay is
carefully analyzed and policy calls for a minimum ongoing cash flow to debt
service requirement of 1.10 to 1 although most loans exceed this minimum. An
approved list of commercial real estate appraisers selected on the basis of a
reputation for quality and accuracy has been established. Each appraisal is
scrutinized in an effort to insure compliance with established appraisal
guidelines and conformity with current comparable market values. The Bank
generally requires personal guarantees on all loans to closely-held entities as
a matter of policy. Borrowers are required to provide, at a minimum, annual
corporate, partnership and personal financial statements to comply with Bank
policy. Interest rate risk to the Bank is mitigated by using either floating
interest rates or by fixing rates for an intermediate period of time, generally
less than five years. While loan amortizations may be approved for up to 360
months, loans generally have a call provision (maturity date) of 10 years or
less.

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Commercial term loans are used to provide funds for equipment and general
corporate needs. This loan category is designed to support borrowers who have a
proven ability to service debt over a term generally not to exceed 84 months.
The Bank typically requires a first lien position on the collateral financed and
other business assets and guarantees from owners having at least a 20% interest
in the business. Interest rates on commercial term loans generally float or are
fixed for a term not to exceed five years. Management carefully monitors
industry and collateral concentrations to avoid loan exposures to a large group
of similar industries and/or similar collateral. Commercial loans are evaluated
for historical and projected cash flow, balance sheet strength and primary and
secondary repayment sources. Commercial term loan documents include certain
financial and performance covenants and require borrowers to forward regular
financial information on both the business and on personal guarantors at least
annually. In certain cases, this information is required more frequently,
depending on the degree to which lenders desire information to monitor a
borrower's financial condition and compliance with loan covenants. Key person
life insurance is required as appropriate and as necessary to mitigate the risk
associated with the loss of a primary owner or manager.

Commercial lines of credit are used to finance a business borrower's short-term
or seasonal credit needs and advances are often based on a percentage of
eligible receivables and inventory. In addition to the risks inherent in term
loan facilities, line of credit borrowers typically require additional
monitoring to protect the lender against diminishing collateral values.
Commercial lines of credit are generally revolving in nature and payable on
demand. The Bank generally requires at least an annual rest period (for seasonal
borrowers) and regular financial information (monthly or quarterly financial
statements, monthly accounts receivable agings, borrowing base certificates,
etc.) for borrowers with rapid growth and permanent working capital financing
needs. Advances against collateral are generally margined, limiting advances on
eligible receivables to 75-80% of current accounts. Lines of credit and term
loans to the same borrowers are generally cross-defaulted and
cross-collateralized. Industry and collateral concentration disciplines are the
same as those used in managing the commercial term loan portfolio. Interest rate
charges on this group of loans generally float at a factor at or above the prime
lending rate. Generally, personal guarantees are also required on these loans.

Consumer Loans. Loans are considered for any worthwhile personal purpose on a
case-by-case basis, such as financing of tuition, household expenditures, home
and automobile financing. Consumer credit facilities are underwritten to focus
on the borrower's credit record, length and stability of employment, income to
service debt and quality of collateral. Residential real estate loans held in
portfolio are limited to advances of 90% of loan to appraised value. Maximum
debt to income ratio established by loan policy is 40% and maximum unsecured
revolving debt will not exceed 10% of net worth. Installment loan terms range
out to 72 months and are priced at fixed interest rate. Home equity loans
amortize over 5-15 years and are fixed rate while home equity lines are
revolving with 10-year maturities and have floating rates tied to the prime
rate.

Mortgage Lending. The Company originates residential mortgage loans, on a
pre-sold basis, for sale to secondary market purchasers, on a servicing released
basis. This produces benefits primarily in the form of gains on the sale of the
loans at a premium. Activity in the residential mortgage loan market is highly
sensitive to changes in interest rates. The loans are sold on a limited recourse
basis. Most contracts with investors contain recourse periods that may vary from
90 days up to one year. In general, the Company may be required to repurchase a
previously sold mortgage loan or indemnify the investor if there is major
non-compliance with defined loan origination or documentation standards,
including fraud, negligence or material misstatement in the loan documents.
Repurchase may also be required if necessary governmental loan guarantees are
canceled or never issued, or if an investor is forced to buy back a loan after
it has been re-sold as part of a loan pool. In addition, the Company may have an
obligation to repurchase a loan if the mortgagor has defaulted early in the loan
term. The potential default period is approximately twelve months after sale of
the loan to the investor. Mortgages subject to recourse are collateralized by
single-family residential properties, have loan-to-value ratios of 80% or less,
or have private mortgage insurance or are insured or guaranteed by an agency of
the United States government.

Loan Administration. As part of its internal loan administration process, the
Bank's Directors Loan Committee, comprised of directors, reviews all loans
30-days delinquent, loans on the watch list, loans rated special mention,
substandard, or doubtful and other loans of concern at least quarterly. The
Committee also reviews new loan production, credit concentrations, loan loss
reserves, declined loans, documentation exceptions, loan policy exceptions, new
products and pricing. The Committee commissions periodic documentation and
internal control reviews by outside vendors to complement internal audit and
credit administration oversight.

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REGULATION, SUPERVISION, AND GOVERNMENTAL POLICY

The Company. The Company is a bank holding company registered under Bank Holding
Company Act of 1956, as amended, (the "BHCA") and is subject to supervision by
the Federal Reserve Board. As a bank holding company, the Company is required to
file with the Federal Reserve Board an annual report and such other additional
information as the Federal Reserve Board may require pursuant to the BHCA. The
Federal Reserve Board may also make examinations of the Company and each of its
subsidiaries.

BHCA - Activities and other Limitations. The BHCA requires approval of the
Federal Reserve Board for, among other things, the acquisition by a proposed
bank holding company of control of more than five percent (5%) of the voting
shares, or substantially all the assets, of any bank or the merger or
consolidation by a bank holding company with another bank holding company. The
BHCA also generally permits the acquisition by a bank holding company of control
or substantially all the assets of any bank located in a state other than the
home state of the bank holding company, except where the bank has not been in
existence for the minimum period of time required by state law, but if the bank
is at least 5 years old, the Federal Reserve Board may approve the acquisition.

Under current law, with certain limited exceptions, a bank holding company is
prohibited from acquiring control of any voting shares of any company which is
not a bank or bank holding company and from engaging directly or indirectly in
any activity other than banking or managing or controlling banks or furnishing
services to or performing service for its authorized subsidiaries. A bank
holding company may, however, engage in or acquire an interest in, a company
that engages in activities which the Federal Reserve Board has determined by
order or regulation to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such a
determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the activities
that the Federal Reserve Board has determined by regulation to be closely
related to banking include making or servicing loans, performing certain data
processing services, acting as a fiduciary or investment or financial advisor,
and making investments in corporations or projects designed primarily to promote
community welfare.

Effective on March 11, 2000, the Gramm Leach Bliley Act of 1999 (the "GLB Act")
allows a bank holding company or other company to certify status as a financial
holding company, which allows such company to engage in activities that are
financial in nature, that are incidental to such activities, or are
complementary to such activities. The GLB Act enumerates certain activities that
are deemed financial in nature, such as underwriting insurance or acting as an
insurance principal, agent or broker, underwriting, dealing in or making markets
in securities, and engaging in merchant banking under certain restrictions. It
also authorizes the Federal Reserve Board to determine by regulation what other
activities are financial in nature, or incidental or complementary thereto.

Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to the bank
company or any of its subsidiaries, or investments in the stock or other
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. Further, a holding company and any subsidiary bank
are prohibited from engaging in certain tie-in arrangements in connection with
the extension of credit. A subsidiary bank may not extend credit, lease or sell
property, or furnish any services, or fix or vary the consideration for any of
the foregoing on the condition that: (i) the customer obtain or provide some
additional credit, property or services from or to such bank other than a loan,
discount, deposit or trust service; (ii) the customer obtain or provide some
additional credit, property or service from or to company or any other
subsidiary of the company; or (iii) the customer not obtain some other credit,
property or service from competitors, except for reasonable requirements to
assure the soundness of credit extended.

Commitments to Subsidiary Banks. Under Federal Reserve policy, the Company is
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances when it might not do so absent
such policy.

Limitations of Acquisitions of Common Stock. The federal Change in Bank Control
Act prohibits a person or group from acquiring "control" of a bank holding
company unless the Federal Reserve has been given 60 days' prior written notice
of such proposed acquisition and within that time period the Federal Reserve
Board has not issued a notice disapproving the proposed acquisition or extending
for up to another 30 days the period during which such a disapproval may be
issued. An acquisition may be made prior to expiration of the disapproval period
if the Federal Reserve issues written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the Federal Reserve, the
acquisition of 10% or more of a class of voting stock of a bank holding company
with a class of securities registered under Section 12 of the Exchange Act or
which would represent the single largest interest in the voting stock would,
under the circumstances set forth in the presumption, constitute the acquisition
of control.

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In addition, with limited exceptions, any "company" would be required to obtain
the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in
the case of an acquirer that is a bank holding company) or more of the
outstanding Common Stock of, or such lesser number of shares as constitute
control over, the Company. Such approval would be contingent upon, among other
things, the acquirer registering as a bank holding company, divesting all
impermissible holdings and ceasing any activities not permissible for a bank
holding company.

The Federal Reserve has adopted capital adequacy guidelines pursuant to which it
assesses the adequacy of an institution's capital. These guidelines are
substantially similar to those which are applicable to the Bank, discussed
below.

The Bank. The Bank, as a Virginia chartered commercial bank which is a member of
the Federal Reserve System (a "state member bank") and whose accounts are
insured by the Bank Insurance Fund of the FDIC up to the maximum legal limits of
the FDIC, is subject to regulation, supervision and regular examination by the
State Corporation Commission/Bureau of Financial Institutions and the Federal
Reserve Board. The regulations of these various agencies govern most aspects of
the Bank's business, including required reserves against deposits, loans,
investments, mergers and acquisitions, borrowing, dividends and location and
number of branch offices. The laws and regulations governing the Bank generally
have been promulgated to protect depositors and the deposit insurance funds, and
not for the purpose of protecting stockholders.

Competition among commercial banks, savings banks, and credit unions has
increased following enactment of legislation which greatly expanded the ability
of banks and bank holding companies to engage in interstate banking or
acquisition activities. As a result of federal and state legislation, banks in
the Washington D.C./Maryland/Virginia area can, subject to limited restrictions,
acquire or merge with a bank in another of the jurisdictions, and can branch de
novo in any of the jurisdictions. The GLB Act allows a wider array of companies
to own banks, which could result in companies with resources substantially in
excess of the Company's entering into competition with the Company and the Bank.

Branching and Interstate Banking. The federal banking agencies are authorized to
approve interstate bank merger transactions without regard to whether such
transaction is prohibited by the law of any state, unless the home state of one
of the banks has opted out of the interstate bank merger provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") by adopting a law after the date of enactment of the
Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Such interstate bank mergers and branch acquisitions are also subject to the
nationwide and statewide insured deposit concentration limitations described in
the Riegle-Neal Act.

The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks and
bank branches and permit out-of-state banks to establish de novo branches.

USA Patriot Act. Under the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly
referred to as the "USA Patriot Act" or the "Patriot Act", financial
institutions are subject to prohibitions against specified financial
transactions and account relationships, as well as enhanced due diligence
standards intended to detect, and prevent, the use of the United States
financial system for money laundering and terrorist financing activities. The
Patriot Act requires financial institutions, including banks, to establish
anti-money laundering programs, including employee training and independent
audit requirements, meet minimum standards specified by the act, follow minimum
standards for customer identification and maintenance of customer identification
records, and regularly compare customer lists against lists of suspected
terrorists, terrorist organizations and money launderers. The costs or other
effects of the compliance burdens imposed by the Patriot Act or future
anti-terrorist, homeland security or anti-money laundering legislation or
regulations cannot be predicted with certainty.

Capital Adequacy Guidelines. The Federal Reserve Board and the FDIC have adopted
risk based capital adequacy guidelines pursuant to which they assess the
adequacy of capital in examining and supervising banks and bank holding
companies and in analyzing bank regulatory applications. Risk-based capital
requirements determine the adequacy of capital based on the risk inherent in
various classes of assets and off-balance sheet items.

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<PAGE>

State member banks are expected to meet a minimum ratio of total qualifying
capital (the sum of core capital (Tier 1) and supplementary capital (Tier 2)) to
risk weighted assets of 8%. At least half of this amount (4%) should be in the
form of core capital. Tier 1 Capital generally consists of the sum of common
stockholders' equity and perpetual preferred stock (subject in the case of the
latter to limitations on the kind and amount of such stock which may be included
as Tier 1 Capital), less goodwill, without adjustment for changes in the market
value of securities classified as "available-for-sale" in accordance with FAS
115. Tier 2 Capital consists of the following: hybrid capital instruments;
perpetual preferred stock which is not otherwise eligible to be included as Tier
1 Capital; term subordinated debt and intermediate-term preferred stock; and,
subject to limitations, general allowances for loan losses. Assets are adjusted
under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash and certain U.S. government and agency
securities, to 100% for the bulk of assets which are typically held by a bank
holding company, including commercial real estate loans, commercial business
loans and consumer loans. Residential first mortgage loans on one-to-four family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting standards are assigned a
50% level in the risk-weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.

In addition to the risk-based capital requirements, the Federal Reserve Board
has established a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total
adjusted assets) requirement for the most highly-rated banks, with an additional
cushion of at least 100 to 200 basis points for all other banks, which
effectively increases the minimum Leverage Capital Ratio for such other banks to
4.0% - 5.0% or more. The highest-rated banks are those that are not anticipating
or experiencing significant growth and have well diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general, those which are considered a strong banking
organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply
with such requirement, submit a reasonable plan describing the means and timing
by which the bank shall achieve its minimum Leverage Capital Ratio requirement.
A bank which fails to file such plan is deemed to be operating in an unsafe and
unsound manner, and could subject a bank to a cease-and-desist order. Any
insured depository institution with a Leverage Capital Ratio that is less than
2.0% is deemed to be operating in an unsafe or unsound condition pursuant to
Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and is subject to
potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding solely on account of its capital
ratios, if it has entered into and is in compliance with a written agreement to
increase its Leverage Capital Ratio and to take such other action as may be
necessary for the institution to be operated in a safe and sound manner. The
capital regulations also provide, among other things, for the issuance of a
capital directive, which is a final order issued to a bank that fails to
maintain minimum capital or to restore its capital to the minimum capital
requirement within a specified time period. Such directive is enforceable in the
same manner as a final cease-and-desist order. At December 31, 2005, the Bank's
Tier 1 risk based capital ratio was 8.12%, its Total risk based capital ratio
was 12.27% and its Leverage Capital ratio was 7.45%. At December 31, 2005, the
Company's Tier 1 Capital was 10.97%, its Total Capital was 12.42% and its
Leverage Capital ratio was 10.09%.

Prompt Corrective Action. Under Section 38 of the FDIA, each federal banking
agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than 4.0% or a Leverage
Capital Ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.

                                       60
<PAGE>

An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency within
45 days of the date the institution receives notice or is deemed to have notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency. An
institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. Such guaranty shall be limited to the lesser of (i) an amount equal
to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions. At
December 31, 2005, the Company and Bank were considered to be a "well
capitalized" institution for purposes of Section 38 of the FDIA.

A "critically undercapitalized institution" is to be placed in conservatorship
or receivership within 90 days unless the FDIC formally determines that
forbearance from such action would better protect the deposit insurance fund.
Unless the FDIC or other appropriate federal banking regulatory agency makes
specific further findings and certifies that the institution is viable and is
not expected to fail, an institution that remains critically undercapitalized on
average during the fourth calendar quarter after the date it becomes critically
undercapitalized must be placed in receivership. The general rule is that the
FDIC will be appointed as receiver within 90 days after a bank becomes
critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into the bank except for certain technical requirements which may delay
the infusion for a period of time beyond the 90 day time period.

Immediately upon becoming undercapitalized, an institution shall become subject
to the provisions of Section 38 of the FDIA, which (i) restrict payment of
capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring
the institution to raise additional capital; restricting transactions with
affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.

Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may
be appointed for an institution where: (i) an institution's obligations exceed
its assets; (ii) there is substantial dissipation of the institution's assets or
earnings as a result of any violation of law or any unsafe or unsound practice;
(iii) the institution is in an unsafe or unsound condition; (iv) there is a
willful violation of a cease-and-desist order; (v) the institution is unable to
pay its obligations in the ordinary course of business; (vi) losses or
threatened losses deplete all or substantially all of an institution's capital,
and there is no reasonable prospect of becoming "adequately capitalized" without
assistance; (vii) there is any violation of law or unsafe or unsound practice or
condition that is likely to cause insolvency or substantial dissipation of
assets or earnings, weaken the institution's condition, or otherwise seriously
prejudice the interests of depositors or the insurance fund; (viii) an
institution ceases to be insured; (ix) the institution is undercapitalized and
has no reasonable prospect that it will become adequately capitalized, fails to
become adequately capitalized when required to do so, or fails to submit or
materially implement a capital restoration plan; or (x) the institution is
critically undercapitalized or otherwise has substantially insufficient capital.

Regulatory Enforcement Authority. Federal banking law grants substantial
enforcement powers to federal banking regulators. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease-and-desist or removal orders and to initiate injunctive actions
against banking organizations and institution-affiliated parties. In general,
these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with regulatory authorities.

                                       61
<PAGE>

Deposit Insurance Premiums. The FDIA establishes a risk based deposit insurance
assessment system. Under applicable regulations, deposit premium assessments are
determined based upon a matrix formed utilizing capital categories - well
capitalized, adequately capitalized and undercapitalized - defined in the same
manner as those categories are defined for purposes of Section 38 of the FDIA.
Each of these groups is then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications, with rates ranging from
0.04% of insured deposits for well capitalized institutions having the lowest
level of supervisory concern, to 0.31% of insured deposits for undercapitalized
institutions having the highest level of supervisory concern. In general, while
the Bank Insurance Fund of the FDIC ("BIF") maintains a reserve ratio of 1.25%
or greater, no deposit insurance premiums are required. When the BIF reserve
ratio falls below that level, all insured banks would be required to pay
premiums.

PROPERTIES

The Bank offers its services from its main office, located at 5350 Lee Highway
in Arlington, Virginia, and eighteen additional banking offices, two mortgage
lending offices, one investment services office and its bank operations center.
The main office consists of two connected red brick buildings, contains an
aggregate of approximately 18,000 square feet of space on three levels. The Bank
utilizes one of the buildings, containing approximately 10,000 square feet, as
the executive offices and a branch facility. In August 1995, the Bank sold the
connected building which it had previously leased out. The Bank operates a
branch located at 2930 Wilson Boulevard, Arlington, Virginia. That property,
which consists of a stand alone brick building containing approximately 2,400
square feet on a parcel of approximately 18,087 square feet, was purchased by
the Bank in April 1997. The Bank also operates a branch location at 5140 Duke
Street, Alexandria, Virginia. That property, which consists of a two story brick
building containing approximately 4,800 square feet on a parcel of approximately
16,800 square feet, was also purchased by the Bank in April 1997.

The Bank leases nineteen office locations: the Alexandria Office, located at
1414 Prince Street, Alexandria, Virginia, consists of 2,500 square feet; the
McLean Office, located at 1356 Chain Bridge Road, McLean, Virginia, consists of
1,625 square feet; the Williamsburg Boulevard Office, located at 6500
Williamsburg Road, Arlington, Virginia, consists of 1,781 square feet; the
Annandale Office, located at 4230 John Marr Drive, Annandale, Virginia, consists
of 2,400 square feet; the Fairfax Office, located at 10777 Main Street, Fairfax
Virginia, consists of 2,038 square feet; the Vienna Office, located at 374 Maple
Avenue, Vienna, Virginia, consists of 5,831 square feet; the King Street Office,
located at 506 King Street, Alexandria Virginia, consists of 1,484 square feet;
the Chantilly Office, located at 13881 G Metrotech Drive, Chantilly Virginia,
consists of 1,950 square feet; the Lake Ridge office, located at 2030 Old Bridge
Road, Lake Ridge, Virginia consists of 2,492 square feet; the Reston Office,
located at 11820 Spectrum Center, Reston Virginia consists of 3,700 square feet;
the Mount Vernon office, located at 7901 Richmond Highway, Alexandria, Virginia,
consists of 2,831 square feet; the Walney Road office, located at 4221Walney
Road, Chantilly, Virginia, consists of 2,661 square feet; the Del Ray office,
located at 2401 Mount Vernon Avenue, Alexandria, Virginia, consists of 1,750
square feet; the Tysons Corner office, located at 8251 Greensboro Drive, McLean,
Virginia, consists of 1,801 square feet; the Battlefield office, located at
10830 Balls Ford Road, Manassas, Virginia, consists of 7,409 square feet; the
Newington office (opened January 2006), located at 7830 Backlick Road,
Springfield, Virginia, consists of 2,778 square feet; the Fairfax Lending
office, located at 4221 Walney Road, Chantilly, Virginia, consists of 11,502
square feet; the Warrenton Mortgage Lending office, located at 54 East Lee
Street, Warrenton, Virginia, consists of 300 square feet; and the Bank's
operations center, located at 14201 Sullyfield Circle, Chantilly, Virginia
consists of 25,001 square feet. Generally the leases contain renewal option
clauses for one or two additional five-year terms, and in some instances require
payment of certain operating charges. In addition, the Bank has entered into
lease agreements for two additional offices to be opened in 2006. The total
rental expense under the leases was $1.9 million in 2005. The total minimum
rental commitment under the leases, including the two offices to be opened in
2006, as of December 31, 2005 is as follows: $1.9 million for 2006; $2.2 million
for 2007, $2.2 million for 2008, $2.0 million for 2009, $2.0 million for 2010
and $6.3 million for 2010 and beyond.

MARKET PRICE OF STOCK AND DIVIDENDS

The Company's stock is traded on the Nasdaq National Market under the symbol
"VCBI". Set forth below is 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.

                                       62
<PAGE>

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

<TABLE>
<CAPTION>
                                 2005                   2004
                          -------------------- -----------------------
Quarter                     High       Low       High         Low
------------------------- ---------- --------- ---------- ------------
<S>                          <C>       <C>        <C>          <C>
First                        $23.20    $20.91     $20.48       $18.80
Second                        25.00     20.80      20.10        16.00
Third                         28.00     24.20      22.26        18.28
Fourth                        29.85     25.65      24.00        21.15
</TABLE>

At December 31, 2005, the Company had 580 stockholders of record, and an
aggregate of approximately 2,536 beneficial owners. Information regarding stock
dividends and splits in 2005, 2004, and 2003 is as follows:

         1.    A five-for-four stock split in the form of a 25% stock dividend
               was declared on March 23, 2005, for stockholders of record on
               April 15, and was paid on May 9, 2005.

         2.    A five-for-four stock split in the form of a 25% stock dividend
               was declared on June 3, 2004, for stockholders of record on June
               15, 2004, and was paid on July 15, 2004.

         3.    A two-for-one stock split in the form of a 100% stock dividend
               was declared on April 22, 2003, for stockholders of record on May
               5, 2003, and was paid on May 30, 2003.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS. The
following table sets forth information regarding outstanding options and other
rights to purchase common stock granted under the Company's compensation plans
as of December 31, 2005:

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                  Number of securities to be                           Number of securities remaining
                                    issued upon exercise of      Weighted average      available for future issuance
                                          outstanding           exercise price of     under equity compensation plans
                                     options, warrants and     outstanding options,   (excluding securities reflected
          Plan category                     rights             warrants and rights             in column (a)
------------------------------------------------------------------------------------------------------------------------
                                              (a)                      (b)                          (c)
<S>                                        <C>                        <C>                         <C>
Equity compensation plans
approved by security holders (1)           1,410,198                  $7.56                       380,936
Equity compensation plans not
approved by security holders                   0                        0                            0
                                  --------------------------------------------------------------------------------------
              Total                        1,410,198                  $7.56                       380,936
</TABLE>

(1) Consists of the Company's 1989 and 1998 Stock Option Plans and the 2003
    Employee Stock Purchase Plan. For additional information, see Notes 12 and
    13 to the Consolidated Financial Statements.

ISSUER REPURCHASES OF COMMON STOCK. No shares of the Company's common stock were
repurchased by or on behalf of the Company during the fourth quarter of 2005.

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 26, 2006 at "The Tower
Club", 8000 Tower Crescent Drive, Suite 1700, Vienna, Virginia.

                                       63
<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:

LYNDA S. CORNELL
ASSISTANT TO THE CHIEF EXECUTIVE OFFICER
VIRGINIA COMMERCE BANCORP, INC.
5350 LEE HIGHWAY
ARLINGTON, VA 22207

INTERNET ACCESS TO COMPANY DOCUMENTS

The Company provides access to its SEC filings through the Bank's web site at
www.vcbonline.com. After accessing the web site, the filings are available upon
selecting "about us/stock information/financial information." Reports available
include the annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after the reports are electronically filed or furnished to the SEC.

FINANCIAL STATEMENTS AND EXHIBITS

The following financial statements are included in this report:

    Consolidated Balance Sheets at December 31, 2004 and 2005
    Consolidated Statements of Income for the years ended December 31, 2003,
    2004 and 2005
    Consolidated Statements of Cash Flows for the years ended December 31, 2003,
    2004 and 2005
    Consolidated Statements of Changes in Stockholders' Equity for the years
    ended December 31, 2003, 2004 and 2005
    Notes to the Consolidated Financial Statements
    Report of Independent Auditors

All financial statement schedules have been omitted as the required information
is either inapplicable or included in the consolidated financial statements or
related notes.

Exhibits

  Exhibit No.     Description
  -----------     -----------

      3.1         Articles of Incorporation of Virginia Commerce Bancorp,
                  Inc. (1)

      3.2         Bylaws of Virginia Commerce Bancorp, Inc. (1)

      4.1         Junior Subordinated Indenture, dated as of November 15, 2002
                  between Virginia Commerce Bancorp, Inc. and The Bank of New
                  York, as Trustee (2)

      4.2         Amended and Restated Declaration of Trust, dated as of
                  November 15, 2002 among Virginia Commerce Bancorp, Inc., The
                  Bank of New York, as Property Trustee, The Bank of New York
                  (Delaware), as Delaware Trustee, and Peter A. Converse,
                  William K. Beauchesne and Marcia J. Hopkins as Administrative
                  Trustees (2)

      4.3         Guarantee Agreement dated as of November 15, 2002, between
                  Virginia Commerce Bancorp, Inc. and The Bank of New York, as
                  Guarantee Trustee (2)

      4.4         Junior Subordinated Indenture, dated as of December 19, 2002
                  between Virginia Commerce Bancorp, Inc. and The Bank of New
                  York, as Indenture Trustee (2)

      4.5         Amended and Restated Declaration of Trust, dated as of
                  December 19, 2002 among Virginia Commerce Bancorp, Inc., The
                  Bank of New York, as Property Trustee, The Bank of New York
                  (Delaware), as Delaware Trustee, and Peter A. Converse,
                  William K. Beauchesne and Marcia J. Hopkins as Administrative
                  Trustees (2)

      4.6         Guarantee Agreement dated as of December 19, 2002, between
                  Virginia Commerce Bancorp, Inc. and The Bank of New York, as
                  Guarantee Trustee (2)

      4.7         Junior Subordinated Indenture, dated as of December 20, 2005
                  between Virginia Commerce Bancorp, Inc. and Wilmington Trust
                  Company, as Trustee, (2)

      4.8         Amended and Restated Declaration of Trust, dated as December
                  20, 2005, between Virginia Commerce Bancorp, Inc. and
                  Wilmington Trust Company, as Delaware Trustee and
                  Institutional Trustee, and Peter A. Converse, William K.
                  Beauchesne and Marcia J. Hopkins as Administrative Trustees
                  (2)

                                       64
<PAGE>

  Exhibit No.     Description
  -----------     -----------

      4.9         Guarantee Agreement dated as of December 20, 2005, between
                  Virginia Commerce Bancorp, Inc. and Wilmington Trust Company,
                  as Guarantee Trustee (2)

     10.1         1998 Stock Option Plan (1)

     10.2         2003 Employee Stock Purchase Plan (3)

      11          Statement Regarding Computation of Per Share Earnings
                  See Note 9 to the Consolidated Financial Statements

      21          Subsidiaries of the Registrant

      23          Consent of Yount, Hyde & Barbour, PC, Independent Registered
                  Public Accounting Firm

     31.1         Certification of Peter A. Converse, Chief Executive Officer

     31.2         Certification of William K. Beauchesne, Treasurer and Chief
                  Financial Officer

     32.1         Certification of Peter A. Converse, Chief Executive Officer

     32.2         Certification of William K. Beauchesne, Treasurer and Chief
                  Financial Officer

(1) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999.

(2) Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
Regulation S-K. Virginia Commerce Bancorp, Inc. agrees to provide a copy of
these documents to the Commission upon request.

(3) Incorporated by reference to exhibit 4 to the Company's Registration
Statement on Form S-8 (No. 333-109079).


                                       65
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                            VIRGINIA COMMERCE BANCORP, INC.


                            By:   /s/ Peter A. Converse
                                 -------------------------------------------
                                 Peter A. Converse, Chief Executive Officer

Dated:  March 8, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME                                        CAPACITY                                    DATE

<S>                                         <C>                                         <C>
 /s/ Leonard Adler                          Director                                    March 8, 2006
------------------------------------
Leonard Adler


/s/ Michael G. Anzilotti                    Director, President                         March 8, 2006
------------------------------------
Michael G. Anzilotti


 /s/ Peter A. Converse                      Director, Chief Executive Officer           March 8, 2006
------------------------------------
Peter A. Converse                           (Principal Executive Officer)


  /s/ W. Douglas Fisher                     Chairman of the Board of Directors          March 8, 2006
------------------------------------
W. Douglas Fisher


 /s/ David M. Guernsey                      Vice Chairman of the Board of Directors     March 8, 2006
------------------------------------
David M. Guernsey


 /s/ Robert H. L'Hommedieu                  Director                                    March 8, 2006
------------------------------------
Robert H. L'Hommedieu


 /s/ Norris E. Mitchell                     Director                                    March 8, 2006
------------------------------------
Norris E. Mitchell


 /s/ Arthur L. Walters                      Vice Chairman of the Board of Directors     March 8, 2006
------------------------------------
Arthur L. Walters


 /s/ William K. Beauchesne                  Treasurer and Chief Financial Officer       March 8, 2006
------------------------------------
William K. Beauchesne                       (Principal Financial and Accounting Officer)
</TABLE>

                                       66