FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



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

                  For the fiscal year ended December 31, 2003

                       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 whether the registrant; (1) 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 (S.S. 229.405 of this chapter) is not contained in this form,
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 an accelerated filer.

                             Yes [x]   No [ ]

The registrant's Common Stock is traded on the Nasdaq National Market under the
symbol VCBI. The aggregate market value of the approximately 4,681,084 shares of
Common Stock of the registrant issued and outstanding held by nonaffiliates on
June 30, 2003 was approximately $90.3 million, based on the closing sales price
of $19.29 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, 2004, 7,932,285 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 28, 2004 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 28, 2004, 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 48 through 57.

         ITEM 2.    PROPERTIES. See "Properties" at Page 57

         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 proceeding 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 2003.

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 20.

         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 22 through 47.

         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 57.

PART III ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The
                    information required by Item 10 is hereby incorporated
                    herein by reference from the material under the caption
                    "Election of Directors" contained at pages 4 through 7, and
                    under the caption "Compliance with Section 16(a) of the
                    Securities Exchange Act of 1934" at page 18, 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 President, Virginia Commerce
                    Bancorp, Inc., 5350 Lee Highway, Arlington, Virginia 22207.

         ITEM 11.   EXECUTIVE COMPENSATION. The information required by Item
                    11 is hereby incorporated herein by reference from the
                    material under the caption "Executive Officer Compensation
                    and Certain Transactions," contained at pages 8 through 14
                    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 hereby incorporated herein by
                    reference from the material under the captions "Voting
                    Securities and Principal Holders Thereof" contained at Page
                    3 of the Proxy Statement, and under the caption "Securities
                    Authorized for Issuance Under Equity Compensation Plans" at
                    page 11 of the Proxy Statement.

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

         ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES. The information
                    required by Item 14 is hereby incorporated herein by
                    reference from the material under the caption "Independent
                    Certified Public Accountants" contained at page 19 of the
                    Proxy Statement.

PART IV  ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                    8-K. See "Financial Statements, Exhibits and Reports on Form
                    8-K" at Page 58.

                                       2

<PAGE>

FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                      ----------------------------------------------------------------
                                         2003         2002         2001          2000         1999
                                      -----------  -----------  -----------   ----------  ------------
                                              (Dollars in thousand, except per share amounts)
<S>                                   <C>          <C>          <C>           <C>         <C>
SELECTED YEAR-END BALANCES
Total assets                          $   881,124  $   662,887  $   489,511   $  371,182   $   282,575
Total stockholders' equity                 55,092       41,850       26,220       21,166        17,489
Total loans (net)                         658,364      535,848      410,950      305,717       205,171
Total deposits                            773,511      566,996      406,922      310,934       243,044

SUMMARY RESULTS OF OPERATIONS
Interest income                       $    45,968  $    38,998  $    33,897   $   26,776   $    18,851
Interest expense                           13,893       14,128       15,991       12,861         8,679
  Net interest income                 $    32,075  $    24,870  $    17,906   $   13,915   $    10,172
Provision for loan losses                   1,575        1,678        1,572          947           480
  Net interest income after
  provision for loan losses           $    30,500  $    23,192  $    16,334   $   12,968   $     9,692
Non-interest income                         7,746        5,593        4,704        2,599         1,999
Non-interest expense                       20,820       17,217       13,982       10,636         8,397
   Income before taxes                $    17,426  $    11,568  $     7,056   $    4,931   $     3,294
Income tax expense                          5,880        3,892        2,391        1,681         1,128
  Net income                          $    11,546  $     7,676  $     4,665   $    3,250   $     2,166

PER SHARE DATA (1)
Net income, basic                     $      1.48  $      1.08  $      0.69   $     0.48   $      0.32
Net income, diluted                   $      1.36  $      0.96  $      0.63   $     0.45   $      0.30
Book value                            $      7.01  $      5.60  $      3.86   $     3.13   $      2.59
Average number of shares outstanding    7,786,755    7,119,494    6,778,378    6,766,796     6,762,750

GROWTH AND SIGNIFICANT RATIOS
% Change in net income                      50.42%       64.54%       43.54%       50.06%        44.04%
% Change in assets                          32.92%       35.42%       31.88%       31.36%        27.03%
% Change in loans                           22.86%       30.39%       34.42%       49.01%        37.29%
% Change in deposits                        36.42%       39.34%       30.87%       27.93%        28.77%
% Change in equity                          31.64%       59.61%       23.88%       21.02%        10.47%
Equity to asset ratio                        6.25%        6.31%        5.36%        5.70%         6.19%
Return on average assets                     1.47%        1.32%        1.05%        1.00%         0.87%
Return on average equity                    23.71%       23.06%       19.37%       17.04%        13.03%
Average equity to average assets             6.21%        5.71%        5.44%        5.87%         6.65%
Efficiency ratio (2)                        52.17%       56.52%       61.84%       64.41%        68.89%

</TABLE>

(1)  Adjusted for all years presented giving retroactive effect to a 10% stock
     restructuring in 1999, a 10% stock dividend in 2000, five-for-four stock
     splits in the form of 25% stock dividends in 2001and 2002, and a
     two-for-one split in the form of a 100% stock dividend in 2003.
(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 principals 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 thirteen 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 and Prince
William Counties and the cities of Alexandria, Falls Church and Manassas. 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 size 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,
construction and residential mortgage lending.

CRITICAL ACCOUNTING POLICIES

During the year ended December 31, 2003 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.

                                       4

<PAGE>

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.

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 estimatable and (ii) SFAS
114, Accounting by Creditors for Impairment of a Loan, which requires that
losses be accrued based on the differences between the value of collateral,
present value of future cash flows or values that are observable in the
secondary market and the loan balance.

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 special mention, 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 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 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.

OVERVIEW

In 2003, the Company continued to experience significant growth in total assets,
loans, deposits and net income. Total assets increased $218.2 million, or 32.9%,
from $662.9 million at December 31, 2002, to $881.1 million at December 31,
2003. Loans, including loans held-for-sale, net of allowance for loan losses,
increased $122.6 million, or 22.9%, from $535.8 million at December 31, 2002, to
$658.4 million at December 31, 2003. Total deposits increased $206.5 million, or
36.4%, from $567.0 million at December 31, 2002, to $773.5 million and net
income increased $3.8 million, or 50.4%, from $7.7 million for the fiscal year
ended December 31, 2002, to $11.5 million in 2003. In 2002, total assets
increased 35.4% from $489.5 million at December 31, 2001, to $662.9 million at
December 31, 2002, loans increased 30.4% from $410.9 million to $535.8 million
and deposits grew 39.3% from $406.9 million at December 31, 2002, to $567.0
million. Net income in 2002 was up $3.0 million, or 64.5% from $4.7 million in
2001 to $7.7 million.

As noted, the Company achieved significant growth in loans in 2003 with loans,
net of allowance for loan losses, increasing $122.6 million, or 22.9%, from
$535.8 million at December 31, 2002, to an outstanding balance of $658.4 million
at December 31, 2003. The majority of loan growth occurred in real estate
mortgage loans, which rose $66.9 million, or 17.6%, from $381.0 million at
December 31, 2002, to $447.9 million at December 31, 2003. Real estate
construction loans represented the second largest dollar increase rising $42.1
million, or 37.8%, from $111.3 million at December 31, 2002, to $153.4 million,
while a greater emphasis by the Company on commercial lending contributed to a
record level increase in commercial loans with total commercial loans increasing
$16.6 million, or 37.3%, from $44.6

                                       5

<PAGE>

million at December 31, 2002, to $61.2 million at December 31, 2003. Loan growth
in 2002 was similar in dollar size to what was achieved in 2003, with loans, net
of the allowance for loan losses, increasing $124.9 million from $410.9 million
at December 31, 2001, to $535.8 million at December 31, 2002. Growth by category
was similar in order with real estate mortgage loans increasing $105.8 million,
real estate construction loans increasing by $16.9 million and commercial loans
rising $5.4 million.

Deposit growth in 2003 of $206.5 million included a $21.2 million, or 21.5%,
increase in non-interest-bearing demand deposits from $98.6 million at December
31, 2002, to $119.8 million at December 31, 2003, a $149.3 million, or 78.3%,
increase in savings and interest-bearing demand deposits from $190.8 million at
December 31, 2002, to $340.1 million and a $36.0 million, or 13.0%, increase in
time deposits from $277.6 million at December 31, 2002, to $313.6 million at
December 31, 2003. In 2002, deposit growth included a $32.1 million increase in
non-interest-bearing demand deposits, a $58.0 million increase in savings and
interest-bearing demand deposits, and a $69.9 million increase in time deposits.
The majority of the Bank's deposits are attracted from individuals and
businesses in the Northern Virginia and the Metropolitan, Washington DC area.

While the Bank experienced strong growth in deposits other borrowed money and
repurchase agreements declined. Repurchase agreements, which are provided to
numerous demand deposit customers of the Bank, fell $1.2 million, or 3.7%, from
$32.1 million at December 31, 2002, to $30.9 million at December 31, 2003. Other
borrowed money, which represented an outstanding balance on the Bank's line of
credit with the Federal Home Loan Bank of Atlanta as of December 31, 2002 for
$400 thousand, was paid off in 2003. In 2002, repurchase agreements fell $10.4
million, or 24.4%, from $42.5 million at December 31, 2001, to $32.1 million at
December 31, 2002, and other borrowed money of $11.4 million at December 31,
2001 was reduced in 2002 by $11.0 million as the Company paid off its line of
credit with a correspondent bank that was used to supplement the Bank's capital
position. This pay off of the Company's line of credit was made possible with
the Company's successful completion of a $7.0 million rights offering in July
2002 and its issuance of $18.0 million in trust preferred securities in the
fourth quarter of 2002.

As the growth in loans in 2003 trailed deposit growth by $83.9 million,
investment securities, which are generally maintained as additional liquidity
sources and for various collateral needs, increased $78.0 million, or 109.5%,
from $71.2 million at December 31, 2002, to $149.2 million at December 31, 2003.
Growth was concentrated in short-term U.S. Government Agency obligations and
variable rate domestic corporate debt obligations in the available-for-sale
portfolio; however, at times during the year increases in long-term interest
rates and higher levels of liquidity provided the Company with some opportunity
for higher yields, and as a result approximately $30 million in seven to fifteen
year U.S. Government Agency obligations were added to the held-to-maturity
portfolio. The Bank generally avoided long-term investments in 2003 due to
historically low interest rates and its desire to maintain a low level of
interest rate risk to provide greater flexibility and opportunities when
interest rates rise. In 2002, investment securities increased $18.2 million, or
34.4%, from $53.0 million at December 31, 2001, to $71.2 million at December 31,
2002. The Bank also purchased $6.0 million in single premium bank-owned life
insurance policies in May 2003 through three highly rated carriers in order to
help offset the rising cost of employee health care benefits. These policies
were recorded on the balance sheet under other assets and contributed $178
thousand in non-interest income in 2003, on an after-tax basis.

For the year ended December 31, 2003, the Company achieved record earnings of
$11.5 million, an increase of 50.4% compared to earnings of $7.7 million for the
prior fiscal year as net interest income increased $7.2 million, or 29.0%, from
$24.9 million in 2002, to $32.1 million in 2003, non-interest income rose $2.1
million, or 38.5%, from $5.6 million in 2002, to $7.7 million and non-interest
expense was up 20.9% from $17.2 million in 2002, to $20.8 million in 2003. As a
result, the Company's efficiency ratio, as defined, improved from 56.5% for the
year ended December 31, 2002, to 52.2% in 2003. In 2002, earnings of $7.7
million increased $3.0 million, or 64.5%, compared to earnings of $4.7 million
in 2001 as net interest income increased $7.0 million, or 38.9%, non-interest
income rose $889 thousand and non-interest expense increased $3.2 million, or
23.1%. In 2001 the Company achieved earnings of $4.7 million, an increase of
43.5% compared to earnings of $3.3 million in 2000. On a diluted per share basis
earnings were $1.35, $0.96, and $0.63 in 2003, 2002, and 2001, respectively. The
Company's return on average assets was 1.47% for 2003, as compared to 1.32% in
2002 and 1.05% in 2001. Return on average equity increased to 23.71% in 2003, as
compared to 23.06% in 2002, and 19.37% in 2001.

Stockholders' equity increased $13.2 million, or 31.6%, from $41.8 million at
December 31, 2002, to $55.1 million at December 31, 2003, on earnings of $11.5
million, $2.4 million in proceeds and tax benefits from both the exercise of
stock options and warrants by Company directors and officers and the purchase of
stock by Company employees under an

                                       6

<PAGE>

Employee Stock Purchase Plan, and a decline in other comprehensive income of
$694 thousand, net of tax. In 2002, stockholders' equity grew $15.7 million from
$26.2 million at December 31, 2001, to $41.9 million at December 31, 2002, with
earnings of $7.7 million, $7.0 million in net proceeds from a rights offering in
July 2003, $493 thousand from the exercise of stock options and warrants by
Company directors and officers and a $510 thousand increase in other
comprehensive income, net of tax. The total number of common shares outstanding
increased in 2003 by 4,120,961with 3,893,185 shares issued due to a two-for-one
stock split in the form of a one hundred percent stock dividend in April 2003,
219,343 shares issued as a result of the exercise of stock options and warrants
by Company directors and officers and 8,433 shares issued to employees under the
Company's Employee Stock Purchase Plan adopted in September 2003.

NET INTEREST INCOME

Net interest income is the excess of interest earned on loans and investments
over the interest paid on deposits and borrowings. The Company's net interest
income increased $7.2 million, or 29.0%, from $24.9 million in 2002, to $32.1
million in 2003, with an increase of $7.7 million in net interest income due to
growth in earning assets and a decline in net interest income of $462 thousand
due to an eighteen basis point drop in the net interest margin from 4.48% in
2002 to 4.30%. In 2002, net interest income increased $7.0 million, or 38.9%,
from $17.9 million in 2001, to $24.9 million in 2002, with $6.2 million of the
increase attributable to growth in earning assets and $794 thousand due to a
twenty-five basis point increase in the net interest margin from 4.23% in 2001
to 4.48% in 2002. In 2001 net interest income increased $4.0 million, or 28.7%,
from $13.9 million in 2000 to $17.9 million in 2001.

Since January 2001, the Federal Reserve has reduced the fed funds target rate by
over five hundred basis points with its last reduction in June 2003 to a current
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 Bank's
investment securities portfolio. As a result the Company's average yield on
loans has steadily declined from 8.50% in 2001, to 6.89% in 2003, and its yield
on investment securities has fallen from 6.07% in 2001, to 3.98% in 2003.
Consequently the Company's yield on earnings assets fell ninety-nine basis
points in 2002, from 8.01% in 2001, to 7.02%, and it fell eighty-six basis
points in 2003, from 7.02% in 2002, to 6.16% in 2003. On the other side, the
cost of liabilities fell more significantly in 2002, falling one hundred and
forty-one basis points from 4.48% in 2001, to 3.07% in 2002, and slightly less
in 2003, falling eighty-two basis points from 3.07% in 2002, to 2.25% in 2003.
As a result the Company's net interest margin on earning assets increased in
2002 from 4.23% to 4.48% and declined in 2003 from 4.48% to 4.30%. With
expectations that interest rates will remain low, at least in the first half of
2004, the Company expects no significant improvement in its net interest margin
over the near term and may instead be slightly lower in the beginning of 2004
due to a decline in the net interest margin in the fourth quarter of 2003 to
4.21%.

                                       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, 2003, 2002, and 2001. 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 $2.1million, $1.6 million and $1.1 million for
2003, 2002, and 2001, respectively.

<TABLE>
<CAPTION>

                                                     2003                           2002                           2001
                                       ------------------------------ ------------------------------ ------------------------------
                                                  Interest   Average             Interest   Average             Interest   Average
                                        Average   Income-    Yields    Average   Income-    Yields    Average   Income-    Yields
(Dollars in thousands)                  Balance   Expense    /Rates    Balance   Expense    /Rates    Balance   Expense    /Rates
                                       ------------------------------ ------------------------------ ------------------------------
<S>                                    <C>         <C>         <C>    <C>         <C>         <C>    <C>         <C>         <C>
ASSETS
Securities (1)                         $115,995    $ 4,526     3.98%  $ 61,986    $ 3,152     5.16%  $ 58,125    $ 3,527     6.07%
Loans, net of unearned income           595,816     41,065     6.89%   471,924     35,491     7.52%   349,586     29,720     8.50%
Federal funds sold                       36,018        377     1.05%    22,165        355     1.60%    15,310        650     4.24%
                                       ------------------------------ ------------------------------ ------------------------------
TOTAL INTEREST-EARNING ASSETS          $747,829    $45,968     6.16%  $556,075    $38,998     7.02%  $423,021   $ 33,897     8.01%
                                       ------------------------------ ------------------------------ ------------------------------
Other assets                             35,754                         27,235                         19,630
                                       ------------------------------ ------------------------------ ------------------------------
TOTAL ASSETS                           $783,583                       $583,310                       $442,651
                                       ============================== ============================== ==============================
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits
    NOW accounts                       $157,958    $ 2,415     1.53%  $ 89,756    $ 1,847     2.06%  $ 72,231    $ 2,189     3.03%
    Money market accounts                85,418      1,354     1.59%    54,144      1,213     2.24%    37,970      1,253     3.30%
    Savings accounts                     22,136        180     0.81%    16,131        220     1.36%    13,265        318     2.40%
    Time deposits                       299,752      8,965     2.99%   255,875     10,061     3.93%   188,968     10,734     5.68%
                                       ------------------------------ ------------------------------ ------------------------------
Total interest-bearing deposits        $565,264    $12,914     2.28%  $415,906    $13,341     3.21%  $312,434    $14,494     4.64%
                                       ------------------------------ ------------------------------ ------------------------------
Securities sold under agreement
to repurchase and federal
funds purchased                          32,963        123     0.37%    33,791        245     0.73%    35,851        976     2.72%
                                       ------------------------------ ------------------------------ ------------------------------
Other borrowed funds                        351         21     5.98%    10,109        497     4.91%     8,770        521     5.94%
                                       ------------------------------ ------------------------------ ------------------------------
Trust preferred capital notes            18,000        835     4.64%       929         45     4.78%        --         --        --
                                       ------------------------------ ------------------------------ ------------------------------
TOTAL INTEREST-BEARING LIABILITIES     $616,578    $13,893     2.25%  $460,735    $14,128     3.07%  $357,055    $15,991     4.48%
                                       ------------------------------ ------------------------------ ------------------------------
Demand deposits and other liabilities   118,313                         89,293                         61,515
                                       ------------------------------ ------------------------------ ------------------------------
TOTAL LIABILITIES                      $734,891                       $550,028                       $418,570
                                       ------------------------------ ------------------------------ ------------------------------
Stockholders' equity                     48,692                         33,282                         24,081
                                       ------------------------------ ------------------------------ ------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY                                 $783,583                       $583,310                       $442,651
                                       ============================== ============================== ==============================
Interest rate spread                                           3.91%                          3.95%                          3.53%

NET INTEREST INCOME AND MARGIN                     $32,075     4.30%              $24,870     4.48%              $17,906     4.23%
                                       ============================== ============================== ==============================
</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 34% rate.

                                       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>

                                              2003 COMPARED TO 2002                  2002 COMPARED TO 2001
                                       ---------------------------------      ---------------------------------
                                        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                                   $ 8,539     $ (2,965)  $ 5,574         $ 9,200     $ (3,429)  $ 5,771
Securities                                2,108         (734)    1,374             196         (571)     (375)
Federal funds sold                          145         (123)       22             110         (405)     (295)
                                       ---------------------------------      ---------------------------------
Total interest income                   $10,792     $ (3,822)  $ 6,970         $ 9,506     $ (4,405)  $ 5,101
                                       ---------------------------------      ---------------------------------
INTEREST EXPENSE
Interest-bearing deposits:
   NOW accounts                         $ 1,043     $   (475)  $   568         $   361     $   (703)  $  (342)
   Money market accounts                    496         (355)      141             362         (402)      (40)
   Savings accounts                          49          (89)      (40)             39         (137)      (98)
   Time deposits                          1,328       (2,424)   (1,096)          2,480       (3,153)     (673)
                                       ---------------------------------      ---------------------------------
Total interest-bearing deposits         $ 2,916     $ (3,343)  $  (427)        $ 3,242     $ (4,395)  $ (1,153)
Securities sold under agreement to
  repurchase and federal funds
purchased                                   (3)         (119)     (122)            (15)        (716)     (731)
Other borrowed funds                      (579)          103      (476)             64          (88)      (24)
Trust preferred capital notes               791           (1)      790              45           --        45
                                       ---------------------------------      ---------------------------------
Total interest expense                  $ 3,125     $ (3,360)  $  (235)        $ 3,336     $ (5,199)  $ (1,863)
                                       ---------------------------------      ---------------------------------
CHANGE IN NET INTEREST INCOME           $ 7,667     $   (462)  $ 7,205         $ 6,170        $ 794    $6,964
                                       =================================      =================================
</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.

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 limit the one-year cumulative
difference to plus or minus 10% of total interest-earning assets in an attempt
to limit changes in future net interest income from sudden changes in market
interest rates. A gap analysis is shown in Table 3 below, and reflects the
earlier of the maturity or repricing dates for various assets and liabilities as
of December 31, 2003. At that point in time, the Company had a cumulative net
asset sensitive twelve-month gap position of $3.9 million, or a positive 0.46%
of total interest-earning assets.

This position would generally indicate that over a period of one-year earnings
should rise in a rising interest rate environment as more assets would reprice
than liabilities and should decline in a falling interest rate environment.
Importantly, 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
sensitivity of yields and costs of specific assets and liabilities to changes in
market rates, and it does not take into account the specific

                                       9

<PAGE>

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.

TABLE 3: INTEREST SENSITIVITY-GAP ANALYSIS

<TABLE>
<CAPTION>

At December 31, 2003                                               INTEREST SENSITIVITY PERIODS
                                             ------------------------------------------------------------------
                                                Within       91 to 365      Over 1 to      Over 5
(Dollars in thousands)                          90 Days         Days         5 Years       Years       Total
                                             ------------------------------------------------------------------
<S>                                            <C>            <C>            <C>         <C>         <C>
INTEREST EARNING ASSETS
Securities, at amortized cost                  $ 59,969       $ 37,042       $ 26,923    $ 25,331    $149,265
Federal funds sold                               31,622             --             --          --      31,622
Loans, net of unearned income                   288,779         95,153        258,264      23,625     665,821
                                             ------------------------------------------------------------------
Total interest earning assets                  $380,370       $132,195       $285,187    $ 48,956    $846,708
                                             ------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
NOW accounts                                   $ 92,357       $ 79,218       $ 37,222    $     --    $208,797
Money market accounts                            49,946         46,620         15,407          --     111,973
Savings accounts                                  1,548          4,838         12,966          --      19,352
Time deposits                                    58,507        126,708        128,379          10     313,604
Securities sold under agreement to               30,887             --             --          --      30,887
 repurchase and federal funds purchased
Trust preferred capital notes                        --         18,000             --          --      18,000
                                             ------------------------------------------------------------------
Total interest-bearing liabilities             $233,245       $275,384       $193,974    $     10    $702,613
                                             ------------------------------------------------------------------
CUMULATIVE MATURITY / INTEREST SENSITIVITY
GAP                                            $147,125       $  3,936       $ 95,149    $144,095    $144,095
As % of total earnings assets                     17.38%          0.46%         11.24%      17.02%
                                             ==================================================================
</TABLE>

In order to more closely measure interest sensitivity, the Company uses earnings
simulation models on a quarterly basis. These models utilize the Company's
financial data and various management assumptions as to growth and earnings to
forecast a base level of net interest income and earnings over a one-year
period. This base level of earnings is then shocked assuming a sudden 200 basis
points increase or decrease in interest rates. At December 31, 2003, even though
the Company's GAP analysis reflected an asset sensitive position within twelve
months, the earnings model projected that forecasted net income would decrease
by 14.6% if interest rates would immediately rise by 200 basis points. This is
due to $82.5 million in callable U.S. Government Agency securities, slotted on
the above GAP analysis as repricing within one-year, which would not reprice
upward as they would not be called if interest rates suddenly rose 200 basis
points, and projected declines in the level of fees and net gains on loans
originated-for-sale. If rates were to immediately fall by 200 basis points, the
model projected a slight increase in net income of 0.7%. The Company has set a
limit on this measurement of interest sensitivity to a maximum decline in
earnings of 20%. Since the earnings model uses numerous assumptions regarding
the effect of changes in interest rates on the timing and extent of repricing
characteristics, future cash flows and customer behavior, the model cannot
precisely estimate net income and the effect on net income from sudden changes
in interest rates. Actual results will differ from simulated results due to the
timing, magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.

NON-INTEREST INCOME

Non-interest income increased $2.1 million, or 38.5%, from $5.6 million in 2002,
to $7.7 million in 2003, and increased $889 thousand, or 18.9%, from $4.7
million in 2001, to $5.6 million in 2002. In 2001, non-interest income increased
$2.1 million, or 81.0%, from $2.6 million in 2000 to $4.7 million. Fees and net
gains on mortgage loans held-for-sale have accounted for the majority of the
increases over the years as lower interest rates and a strong local housing
market pushed production levels to new highs. In 2003, fees and net gains on
mortgage loans held-for-sale increased $1.8 million, or 44.6%, from $3.9 million
in 2002, to $5.7 million and in 2002 they increased $541 thousand, or 16.0%,
from $3.4 million in 2001, to $3.9 million. In 2001, fees and net gains on
mortgage loans held-for-sale increased $1.8 million, or 113.1%, from $1.6
million in 2000, to $3.4 million in 2001.

                                       10

<PAGE>

The Company's mortgage lending activities began in 1999 and in that first year
of operation originated $73.7 million in mortgages for sale. In 2000, results
were similar with $79.8 million in originations. In 2001 and 2002 as mortgage
rates began to fall, refinancing and home purchases increased significantly with
refinancing activity hitting record levels. As a result, mortgages originated
for sale increased to $180.7 million in 2001, $207.8 million in 2002 and a to an
even higher level of $287.8 million in 2003. Adverse changes in the local real
estate market, consumer confidence, and interest rates could adversely impact
the level of loans originated for sale, and the resulting fees and earnings
thereon. The Company anticipates that due to a slow down in refinancing activity
in the fourth quarter of 2003 and the possibility of higher interest rates, its
fees and net gains on mortgage loans originated for sale may be much lower in
2004.

Service charges and other fees, which include monthly deposit account
maintenance charges, overdraft fees, ATM fees and charges, safe deposit box
rents, merchant discount fee income, lock box service fees, and non-deposit
investment services commissions increased $181 thousand, or 11.1%, from slightly
over $1.6 million in 2002, to just over $1.8 million in 2003. In 2002, service
charges and other fees increased $359 thousand, or 28.3%, from slightly under
$1.3 million in 2001 to $1.6 million and in 2001, they increased $291 thousand,
or 29.7%, from $980 thousand in 2000, to $1.3 million.

The increases in 2001 and 2002 were a result of lower interest rates that pushed
down earnings credits on customer demand deposit accounts and consequently
increased the level of service charges actually charged. As this decline in the
earnings credit stabilized in 2003 the incremental increases in charges slowed.
The Company continues to seek to improve non-interest income having added
non-deposit investment services, through a third party arrangement in 2002.
These activities provided $14 thousand in income in 2002, and $202 thousand in
2003. It is expected that the amount of commissions will continue to increase,
although there can be no assurance.

Other non-interest income increased $221 thousand, or 502.3%, from $44 thousand
in 2002 to $265 thousand in 2003 due 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, contributed $178 thousand of the
$221 thousand increase in other non-interest income. The Company does not
anticipate additional purchases of this insurance in 2004.

NON-INTEREST EXPENSE

Non-interest expense increased $3.6 million, or 20.9%, from $17.2 million in
2002, to $20.8 million in 2003, and increased $3.2 million, or 23.1%, from $14.0
million in 2001 to $17.2 million in 2002. In 2001, non-interest expense was up
$3.3 million, or 31.5%, from $10.6 million in 2000 to $14.0 million. Salaries
and benefits accounted for $2.4 million, or 66.7%, of the total increase in
non-interest expense in 2003, $2.0 million, or 62.7%, in 2002, and $2.3 million,
or 69.3% in 2001. Commissions and incentive compensation associated with the
significant increases in total loans and loans originated for sale were the main
reason for these increases in salaries and benefits expense over the past three
years. Also contributing to increased compensation expenses were other staff
increases due to overall growth and branch expansion. The Company anticipates a
lesser increase in salaries and benefits expense in 2004 with the expectation of
lower levels of commissions on mortgage loans originated-for-sale.

Occupancy expenses, which include rents, depreciation, maintenance on buildings,
leaseholds and equipment, increased $275 thousand, or 9.4%, from $2.9 million in
2002, to $3.2 million in 2003, and increased $578 thousand, or 24.7%, from $2.3
million in 2001 to $2.9 million in 2002. In 2001, occupancy expense was up $391
thousand, or 20.1%. The increases in 2001 and 2002 were due to the opening of
the Bank's twelve and thirteenth branch locations along with additional
facilities for the Company's operations department due to growth. In 2003,
increased expense was due to general maintenance and higher levels of
depreciation associated with computer systems expansion.

Data processing expense increased $160 thousand, or 14.8%, from $1.1 million in
2002 to just over $1.2 million in 2003, and increased $177 thousand, or 19.6%,
in 2002 and $152 thousand, or 20.3% in 2001. Increases were due to growth in
total loans and deposits along with added services, such as Internet banking.

Other operating expenses, which include advertising and public relations
expenses, bank franchise taxes, legal and professional fees, supplies and
postage, increased $765 thousand, or 25.0%, from $3.1 million in 2002, to $3.8
million in 2003, and increased $451 thousand, or 17.3%, from $2.6 million in
2001 to $3.1 million in 2002. In 2001, other operating expenses increased $485
thousand, or 22.8%. The increase over the years is due to overall growth and in
2003 due to expanded amounts of advertising and public relations expenses. Other
non-interest expenses to which the

                                       11

<PAGE>

Company is not currently subject, such as deposit insurance premiums, which may
be incurred in the future, could have an adverse affect on earnings and results
of operations in future periods.

INCOME TAXES

The Company's income tax provisions are adjusted for non-deductible expenses and
non-taxable interest after applying the U.S. federal income tax rate of 34% on
the Company's first $10 million in pre-tax earnings and 35% for amounts in
excess of $10 million. The provision for income taxes totaled $5.9 million, $3.9
million, $2.4 million, for the years ended December 31, 2003, 2002, and 2001,
respectively. The effects of non-deductible expenses and non-taxable interest on
the Company's income tax provisions are minimal.

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 2003, net charge-offs totaled $42 thousand
compared to $110 thousand and $19 thousand in 2002 and 2001, respectively. The
provision for loan loss expense in 2003 was $1.6 million compared to $1.7
million in 2002 and $1.6 million in 2001. The total allowance for loan losses of
$7.5 million at December 31, 2003 increased 25.9% from $5.9 million at December
31, 2002, and increased 36.0% from $4.4 million at December 31, 2001 to $5.9
million at December 31, 2002. Slightly lower provisions in 2003 were reflective
of a lower level of net charge-offs and a decrease in non-performing assets from
$2.4 million at December 31, 2002 to $1.4 million at December 31, 2003.

Management feels that the allowance for loan losses is adequate. 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 due to an increase in impaired and 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)                          2003         2002         2001        2000         1999
                                             ---------------------------------------------------------------
<S>                                            <C>           <C>         <C>           <C>           <C>

Allowance, beginning of period                 $  5,924      $  4,356    $  2,803      $ 1,889       $1,438
                                             ---------------------------------------------------------------
CHARGE-OFFS
  Real estate loans                            $     --      $     --    $     --      $    --       $   --
  Commercial loans                                   30            87          --           --           --
  Consumer loans                                     26            68          23           36           40
                                             ---------------------------------------------------------------
Total charge-offs                              $     56      $    155    $     23      $    36       $   40
                                             ---------------------------------------------------------------
RECOVERIES
  Real estate loans                            $     --      $     --    $     --      $    --       $   --
  Commercial loans                                    2             5           2            1            7
  Consumer loans                                     12            40           2            2            4
                                             ---------------------------------------------------------------
Total recoveries                               $     14      $     45    $      4      $     3       $   11
                                             ---------------------------------------------------------------
Net charge-offs                                $     42      $    110    $     19      $    33       $   29
                                             ---------------------------------------------------------------
PROVISIONS FOR LOAN LOSSES                        1,575         1,678       1,572          947          480
                                             ---------------------------------------------------------------
Allowance, end of period                       $  7,457      $  5,924    $  4,356      $ 2,803       $1,889
                                             ===============================================================
Ratio of net charges-offs to average total
  loans outstanding during period                 0.01%         0.02%       0.01%        0.01%        0.02%
                                             ===============================================================
</TABLE>

TABLE 5: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

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


<TABLE>
<CAPTION>

(Dollars in thousands)                          2003        2002       2001      2000       1999
                                           ------------------------------------------------------
<S>                                           <C>         <C>        <C>       <C>        <C>

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES:
Real estate - mortgage                        $4,188      $3,159     $1,957    $1,571     $1,206
Real estate - construction                     1,789       1,239        863       518        132
Commercial                                     1,434       1,469      1,482       628        477
Consumer                                          46          57         54        86         74
                                          ------------------------------------------------------
Balance, December 31,                         $7,457      $5,924     $4,356    $2,803     $1,889
                                          ======================================================

RATIO OF LOANS TO TOTAL YEAR-END LOANS:
Real estate - mortgage                           67%         70%        66%       64%        76%
Real estate - construction                       23%         21%        23%       21%         8%
Commercial                                        9%          8%         9%       12%        13%
Consumer                                          1%          1%         2%        3%         3%
                                          ------------------------------------------------------
                                                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.

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

                                       13

<PAGE>

interest decreased $966 thousand, or 40.5% from $2.4 million at year-end 2002 to
$1.4 million at year-end 2003, and increased $1.8 million, or 330.9%, from $554
thousand at year-end 2001, to $2.4 million at December 31, 2002. Both the
increase of $1.8 million in non-performing assets in 2002 and the decline of
$966 thousand in 2003 were attributable to two mortgages on residential
single-family properties. Of the two loans, one for $1.0 million was fully
repaid in 2003, while the other loan for $875 thousand was restructured in April
2003. That loan is well secured and is performing in accordance with its new
terms.

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 decreased
from .44% at December 31, 2002, to .21% at December 31, 2003, and increased from
..13% at December 31, 2001, to .44% at December 31, 2002. The increase in 2002,
and decline in 2003 was due to the two loans on single-family residential
properties noted above. The Company expects its ratio of non-performing assets
to total loans to improve as the restructured loan for $875 thousand is removed
from classification as non-performing in the first half of 2004. However, the
ratio could increase due to $2.2 million in other identified potential problem
loans as of December 31, 2003, 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, 2002, other identified potential problem loans were $1.9 million and they
were $2.6 million at December 31, 2001. 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>

(Dollars in thousands)                           2003        2002         2001        2000        1999
                                              ------------------------------------------------------------
<S>                                               <C>          <C>           <C>        <C>        <C>

Non-accrual loans                                 $   46       $1,943        $106       $ 117       $ 106
Impaired loans                                       416          444         119         107         143
Restructured loans                                   875           --          --          --          --
Foreclosed properties                                 --           --          --          --          --
                                              ------------------------------------------------------------
     Total non-performing assets                  $1,337       $2,387        $225        $224       $ 249
                                              ------------------------------------------------------------
Loans past due 90 days and still accruing             84           --         329         318          68
                                              ------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS AND PAST DUE
  LOANS                                           $1,421       $2,387        $554       $ 542       $ 317
                                              ============================================================
Allowance for loan losses to total loans            1.12%        1.09%       1.05%       0.91%       0.91%
Allowance for loan losses to non-performing
  loans                                            524.8%       248.2%    1,936.0%    1,251.3%      758.6%
Non-performing assets and past due loans to
  total loans                                       0.21%        0.44%       0.13%       0.18%       0.15%
NON-PERFORMING ASSETS AND PAST DUE LOANS TO
  TOTAL ASSETS                                      0.16%        0.36%       0.11%       0.15%       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, including loans held-for-sale, net of unearned income and the allowance
for loan losses, increased $122.6 million, or 22.9%, from $535.8 million at
December 31, 2002, to $658.4 million at December 31, 2003, and increased $124.9
million, or 30.4%, from $410.9 million at December 31, 2001, to $535.8 million
at year-end 2002. The increase in loans in 2003 included an increase in real
estate mortgage loans of $66.9 million, or 17.6%, an increase in real estate

                                       14

<PAGE>

construction loans of $42.1 million, or 37.8%, and an increase in commercial
loans of $16.6 million, or 37.3%. In 2002 growth in loans by category was
similar with real estate mortgage loans increasing $105.8 million, or 38.5%,
real estate construction loans increasing $16.8 million, or 17.9%, and
commercial loans increasing $5.4 million, or 13.8%. 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
increases in real estate construction loans over the past two years are the
direct result of the an increased focus in this area and the hiring of loan
officers specializing in residential construction lending. At December 31, 2003,
$110.5 million of real estate construction loans were to commercial builders of
single-family homes, $13.1 million were to individuals on single-family
properties and $29.8 million were related to commercial properties. In 2002,
$69.5 million of real estate construction loans were to commercial builders of
single-family homes, $18.8 million were to individuals and $23.1 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 2002 and 2003,
although there can be no assurance.

The majority of the Bank's loan portfolio consists of construction and
commercial real estate loans. At December 31, 2003, the Bank had $110.5 million
of construction loans to commercial builders of single family housing in the
Northern Virginia market, representing 16.5% 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 $325.7
million, or 48.7% of the loan portfolio at December 31, 2003, 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, 2003, 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 16 to the
Consolidated Financial Statements.

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

TABLE 7: SUMMARY OF TOTAL LOANS

<TABLE>
<CAPTION>


                                                         DECEMBER 31,
                              ---------------------------------------------------------------------
(Dollars in thousands)            2003          2002          2001          2000          1999
                              ---------------------------------------------------------------------
<S>                              <C>           <C>             <C>         <C>           <C>
Real estate - mortgage           $ 447,924     $ 380,972      $ 275,141    $ 198,541     $ 156,998
Real estate - construction         153,400       111,333         94,452       65,460        17,238
Commercial                          61,178        44,559         39,153       37,406        26,423
Consumer                             6,061         6,941          8,004        7,995         6,968
                              ---------------------------------------------------------------------
Total loans                      $ 668,563     $ 543,805      $ 416,750    $ 309,403     $ 207,627
Less unearned income                 2,742         2,033          1,444          883           567
Less allowance for loan losses       7,457         5,924          4,356        2,803         1,889
                              ---------------------------------------------------------------------
LOANS, NET                       $ 658,364     $ 535,848      $ 410,950    $ 305,717     $ 205,171
                              =====================================================================

</TABLE>


                                       15

<PAGE>

TABLE 8: MATURITY/REPRICING SCHEDULE OF SELECTED LOANS

At December 31, 2003      REAL ESTATE-   REAL ESTATE-
(Dollars in thousands)      MORTGAGE     CONSTRUCTION   COMMERCIAL   CONSUMER
                          ---------------------------------------------------
VARIABLE:
     Within 1 year         $  92,955      $  23,359      $ 13,333     $ 1,322
     1-to-5 years            163,043            197         3,823          --
     After 5 years            14,525             --            --          --
FIXED RATE:
     Within 1 year           107,844         89,451        21,661       1,602
     1-to-5 years             62,032         34,930        20,695       2,788
     After 5 years             7,525          5,462         1,666         349
                          ---------------------------------------------------
TOTAL LOANS                $ 447,924      $ 153,400      $ 61,178     $ 6,061
                          ===================================================

At December 31, 2003, the aggregate amount of loans due after one year that have
fixed rates was approximately $135.4 million, and the amount with variable or
adjustable rates was approximately $181.6 million.

SECURITIES

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

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

Total securities increased $78.0 million, or 109.5%, from $71.2 million at
December 31, 2002, to $149.2 million at December 31, 2003, and increased $18.2
million, or 34.4%, from $53.0 million at December 31, 2001, to $71.2 million at
December 31, 2002. Securities of U.S. Government Agencies represent the majority
of the portfolio while obligations of states and or political subdivisions, and
domestic corporate debt obligations have increased 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, 2003, 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,
                                     ------------------------------------------------------------------------
                                               2003                    2002                    2001
                                     ------------------------------------------------------------------------
                                                    Percent                 Percent                Percent
(Dollars in thousands)                 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       $ 93,274     62.48%     $ 52,661     73.92%    $ 40,619      76.62%
Domestic corporate debt obligations         5,995      4.02%           --         --          --         --
Obligations of states/political
subdivisions                                1,295       .87%        1,229      1.73%         275       .52%
Federal Reserve Bank stock                    758       .51%          542       .76%         392       .74%
Federal Home Loan Bank stock                1,355       .91%        1,194      1.68%         732      1.38%
Community Bankers' Bank stock                  55       .04%           55       .08%          55       .10%
                                     ========================================================================
                                         $102,732     68.83%     $ 55,681     78.17%    $ 42,073     79.36%
                                     ========================================================================
</TABLE>

                                       16

<PAGE>

<TABLE>
<CAPTION>

                                                                        DECEMBER 31,
                                          ------------------------------------------------------------------------
                                                    2003                    2002                    2001
                                          ------------------------------------------------------------------------
                                                         Percent                 Percent                Percent
(Dollars in thousands)                      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            $ 38,490     25.79%     $  8,534     11.98%    $  6,017     11.35%
Obligations of states/political
subdivisions                                     7,535      5.05%        6,534      9.17%       3,945      7.44%
Domestic corporate debt obligations                488       .33%          482       .68%         979      1.85%
                                          ------------------------------------------------------------------------
                                              $ 46,513     31.17%     $ 15,550     21.83%    $ 10,941     20.64%
                                          ========================================================================
                                              $149,245    100.00%     $ 71,231    100.00%    $ 53,014    100.00%
                                          ========================================================================
</TABLE>

TABLE 10: MATURITY OF SECURITIES

<TABLE>
<CAPTION>

At December 31,                                  2003                      2002                       2001
                                        ----------------------- -------------------------- -------------------------
                                                       Weighted                  Weighted                  Weighted
                                                       Average                   Average                   Average
(Dollars in thousands)                   Book Value     Yield      Book Value     Yield      Book Value     Yield
                                        ----------------------------------------------------------------------------
<S>                                        <C>           <C>         <C>           <C>         <C>           <C>
Maturing within one year                   $  2,025      3.74%       $     --         --       $     --         --
Maturing after one through five years        62,640      2.79%         38,549      3.77%         16,533      4.71%
Maturing after five through ten years        54,670      4.34%         12,966      4.87%          7,738      6.29%
Maturing after ten years                     29,910      4.82%         19,716      5.96%         28,743      6.65%
                                        ----------------------------------------------------------------------------
                                           $149,245      3.78%       $ 71,231      4.58%       $ 53,014      5.99%
                                        ============================================================================
</TABLE>

DEPOSITS

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

Total deposits increased $206.5 million, or 36.4%, from $567.0 million at
December 31, 2002, to $773.5 million at December 31, 2003, and increased $160.1
million, or 39.3%, from $406.9 million at December 31, 2001, to $567.0 million
at December 31, 2002. In 2003, growth by deposit category included a 21.5%
increase in demand deposits, a 78.3% increase in savings accounts and
interest-bearing demand deposits and a 13.0% increase in time deposits. In 2002,
growth included a 48.4% increase in demand deposits, a 43.7% increase in savings
accounts and interest-bearing demand deposits and a 33.7% 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, bank consolidation and recently to some extent to the downturn in the
stock market in 2001 and 2002. The average rate paid on interest-bearing
deposits fell ninety-three basis points in 2003, from 3.21% in 2002, to 2.28%,
and it fell one hundred and forty-three basis points from 4.64% for the year
ended December 31, 2001, to 3.21% in 2002. Since early 2001, interest rates have
declined in all deposit account categories and in some cases have now reached
near floor levels. As a result, the Bank expects that further declines in the
average rates paid on deposits will be more difficult to achieve over the near
term. Table 11 details maturities of time deposits with balances of $100,000,
which represent 44.9% of total time deposits as of December 31, 2003, compared
to 39.9% at December 31, 2002. See Note 6 to the Consolidated Financial
Statements and Table 3 to this Management's Discussion and Analysis for
additional information regarding the maturities of time deposit.

                                       17

<PAGE>

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

                                       DECEMBER 31,
                           --------------------------------------
(Dollars in thousands)        2003         2002         2001
                           --------------------------------------
3 months or less             $  26,580    $  18,477     $ 11,900
3-6 months                      20,008       10,831        9,029
6-12 months                     40,431       44,289       21,075
Over 12 months                  53,662       37,104       43,204
                           --------------------------------------
TOTAL                        $ 140,681    $ 110,701     $ 85,208
                           ======================================

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, 2003, 2002 and 2001 (dollars in thousands):

TABLE 12: SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>

  At December 31,                                    2003        2002         2001
                                                  ------------------------------------
<S>                                                  <C>         <C>          <C>

  Securities sold under agreement to repurchase      $30,887     $32,081      $32,931
  Federal funds purchased                                 --          --        9,521
                                                  ------------------------------------
    Total                                            $30,887     $32,081      $42,452
  Weighted interest rate at year end                    0.36%       0.37%        1.05%

  Averages for the year ended December 31,
  Outstanding                                        $32,963     $33,791      $35,851
  Interest rate                                         0.37%       0.73%        2.72%
  Maximum month-end outstanding                      $36,657     $40,251      $42,452
                                                  ====================================
</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
$52.7 million, or 24.1%, from $218.8 million at December 31, 2002, to $271.5
million at December 31, 2003, and increased $93.5 million, or 74.6%, from $125.3
million at December 31, 2001, to $218.8 million at December 31, 2002. The
increase in 2003 was due to higher levels of loans maturing within one-year and
a substantial increase in the amount of available-for-sale securities as the
Bank continued to structure its balance sheet for possibly higher interest
rates. Additional sources of liquidity available to the Bank include the
capacity to borrow funds

                                       18

<PAGE>

through established short-term lines of credit with various correspondent banks
and the Federal Home Loan Bank of Atlanta. See Note 13 to the Consolidated
Financial Statements for further information regarding these additional
liquidity sources.

CAPITAL

The assessment of capital adequacy depends on a number of factors such as asset
quality, liquidity, earnings performance, 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 7.51% at December
31, 2003, compared to 6.69% at December 31, 2002, and its total risk-based
capital ratio was 11.03% at December 31, 2003, compared to 10.33% at December
31, 2002. These ratios are in excess of the mandated minimum requirement of
4.00% and 8.00%, respectively. The Bank's leverage ratio was 6.33% at December
31, 2003, compared to 5.72% at December 31, 2002. The Company's Tier 1
risk-based capital ratio, total risk-based capital ratio, and leverage ratio was
10.10%, 11.13% and 8.49%, respectively, at December 31, 2003, compared to
10.03%, 11.89%, and 8.52% at December 31, 2002. The increases in the Bank's
capital ratios in 2003 were primarily due to $4 million in additional capital
contributions from the Company and $6 million in additional subordinated debt
issued to the Company. These funds were obtained by the Company through its $18
million in trust preferred capital notes issued in the fourth quarter of 2002,
and from $2.4 million in proceeds on the exercise of options and warrants by
company directors and officers in 2003. While all the Bank's capital ratios
improved in 2003, the Company's total risk-based capital ratio and leverage
ratio declined due to the significant level of growth in total assets.

During 2002, the Company continued to borrow funds under a line of credit with a
correspondent bank in order to provide capital to fund growth and expansion at
the Bank. At December 31, 2001, the amount outstanding under the line of credit
was $11.0 million and it was reduced to $8.0 million by September 30, 2002. With
continued strong asset growth in 2002, the Company provided additional capital
through a $7.0 million rights offering to existing stockholders in July 2002.
Although the offering was successful, the Company believed that additional
capital would be necessary to fund future growth. In November and December 2002
the Company formed two financing subsidiaries in order to issue $18.0 million in
trust preferred securities through a private placement to unrelated parties. As
the $18.0 million in proceeds were in excess of current needs, the Company
repaid the $8.0 million outstanding on its line of credit, down-streamed $2.0 to
the Bank in the form of additional capital, and down-steamed the remaining $8.0
million to the Bank in January 2003 as capital contributions and subordinated
debt.

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. In the event that the Company is
unable to obtain additional capital for the Bank on a timely basis, or there is
a change in the regulatory treatment of trust preferred securities as capital,
the growth of the Company and the Bank may be curtailed, and the Company and the
Bank may be required to reduce their level of assets in order to maintain
compliance with regulatory capital requirements. Under those circumstances net
income and the rate of growth of net income may be adversely affected. The
Company believes that its current level of capital is sufficient to meet
anticipated growth, although there can be no assurance.

The Federal Reserve is currently reviewing 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 of such
review, the capital treatment of trust preferred securities, which can be
counted as Tier 1 capital at the holding company level, up to 25% of total
capital, may be adversely affected. At December 31, trust preferred securities
represented 24.6% of the Company's tier one capital and 22.3% of its total
capital. Future trust preferred issuances to increase holding company capital
levels may not be available. In the event of adverse changes in the capital
treatment for

                                       19

<PAGE>

trust preferred securities, 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.

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
31,2003.

TABLE 13: CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>

=================================================================================================================
                                                                      Payments Due-By Period
-----------------------------------------------------------------------------------------------------------------
                                                     TOTAL      LESS THAN     ONE TO      FOUR TO     AFTER
                                                                ONE YEAR      THREE       FIVE        FIVE
(In thousands)                                                                YEARS       YEARS       YEARS
-----------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>           <C>         <C>         <C>
  Securities sold under agreement to repurchase     $ 30,887    $ 30,887      $   --      $   --      $    --
  Trust preferred capital notes                       18,000          --          --          --       18,000
  Operating leases                                     5,603       1,087       1,800       1,265        1,451
  Data processing services                             1,017       1,017          --          --           --
-----------------------------------------------------------------------------------------------------------------
Total contractual cash obligations                  $ 55,507    $ 32,991      $1,800      $1,265      $19,451
=================================================================================================================

</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, 2004,
the Company had approximately $459.9 million of demand and savings deposits,
exclusive of interest, which have no stated maturity or payment date. The
Company also had approximately $313.6 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.

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 15 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 securities, 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 14
and 15 to the consolidated financial statements.

MARKET PRICE OF STOCK AND DIVIDENDS

The Company's stock is traded on the Nasdaq National Market under the symbol
"VCBI". Table 14 sets forth the range of high and low sales prices (adjusted for
stock dividends and splits) known to the Company for each full quarterly period
within the two most recent fiscal years.

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.

                                       20

<PAGE>

TABLE 14: MARKET PRICE OF STOCK

                                 2003                   2002
                          --------------------------------------------
Quarter                     High       Low       High         Low
----------------------------------------------------------------------
First                       $17.63     $11.83    $11.10       $ 8.40
Second                       20.75      16.80     13.85         9.64
Third                        24.75      18.57     13.22        10.63
Fourth                       33.30      22.90     12.53        11.26

At December 31, 2003, the Company had 594 stockholders of record, and
representing approximately 1,300 beneficial owners. Information regarding stock
dividends and splits in 2003, 2002, and 2001 is as follows:

     1. 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.

     2. A five-for-four stock split in the form of a 25% stock dividend was
        declared on February 28, 2002, for stockholders of record on March 15,
        2002, and was paid on April 12, 2002.

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

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 28, 2004 at "The Tower
Club", 8000 Towers Crescent Drive, Suite 1700, Vienna, Virginia.

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 PRESIDENT
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.

                                       21

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT




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

                    We have audited the accompanying consolidated balance sheets
of Virginia Commerce Bancorp, Inc. and subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 2003, 2002
and 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

                    In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Virginia Commerce Bancorp, Inc. and subsidiaries as of December 31,
2003 and 2002, and the results of their operations and their cash flows for the
years ended December 31, 2003, 2002 and 2001, in conformity with accounting
principles generally accepted in the United States of America.

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

Winchester Virginia
February 12, 2004

                                       22

<PAGE>

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)

                                                              DECEMBER 31,
                                                    --------------------------
                                                       2003         2002
                                                    --------------------------
ASSETS
Cash and due from banks                                $ 22,434    $ 19,907
Securities (fair value: 2003, $149,894;
   2002, $71,766)                                       149,245      71,231
Federal funds sold                                       31,622      24,071
Loans held-for-sale                                       3,513      18,948
Loans, net of allowance for loan losses of
 $7,457 in 2003 and $5,924 in 2002                      654,851     516,900
Bank premises and equipment, net                          6,189       6,517
Accrued interest receivable                               3,372       2,489
Other assets                                              9,898       2,824
                                                    --------------------------
   Total assets                                        $881,124    $662,887
                                                    ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
   Demand deposits                                     $119,785    $ 98,575
   Savings and interest-bearing demand deposits         340,122     190,811
   Time deposits                                        313,604     277,610
                                                    --------------------------
   Total deposits                                      $773,511    $566,996
Securities sold under agreement to repurchase
   and federal funds purchased                           30,887      32,081
 Other borrowed funds                                        --         400
Trust preferred capital notes                            18,000      18,000
Accrued interest payable                                  1,024       1,271
Other liabilities                                         2,610       2,289
Commitments and contingent liabilities                       --          --
                                                    --------------------------
   Total liabilities                                   $826,032    $621,037
                                                    ==========================
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 2003,
 7,860,291; 2002, 3,739,330                                7,860      3,739
Surplus                                                   17,891     19,622
Retained earnings                                         29,354     17,808
Accumulated other comprehensive income (loss), net           (13)       681
                                                    --------------------------
   Total stockholders' equity                           $ 55,092   $ 41,850
                                                    --------------------------
   Total liabilities and stockholders' equity           $881,124   $662,887
                                                    ==========================

See Notes to Consolidated Financial Statements.

                                       23

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                                ---------------------------------------------
                                                                     2003            2002           2001
                                                                ---------------------------------------------
<S>                                                                  <C>             <C>           <C>
INTEREST AND DIVIDEND INCOME:
    Interest and fees on loans                                       $41,065         $35,491       $29,720
    Interest and dividends on investment securities:
        Taxable                                                        4,154           2,905         3,406
        Tax-exempt                                                       277             162            48
        Dividends                                                         95              85            73
   Interest on federal funds sold                                        377             355           650
                                                                ---------------------------------------------
   Total interest and dividend income                                $45,968         $38,998       $33,897
                                                                ---------------------------------------------
INTEREST EXPENSE:
   Deposits                                                          $12,914         $13,341       $14,494
   Securities sold under agreement to repurchase and  federal
     funds purchased                                                     123             245           976
   Other borrowed funds                                                   21             497           521
   Trust preferred capital notes                                         835              45            --
                                                               ---------------------------------------------
     Total interest expense                                          $13,893         $14,128       $15,991
                                                                ---------------------------------------------
NET INTEREST INCOME                                                  $32,075         $24,870       $17,906
   Provision for loan losses                                           1,575           1,678         1,572
                                                                ---------------------------------------------
    Net interest income after provision for loan losses              $30,500         $23,192       $16,334
                                                                ---------------------------------------------
NON-INTEREST INCOME:
     Service charges and other fees                                  $ 1,609         $ 1,616       $ 1,271
     Non-deposit investment services commissions                         202              14            --
     Fees and net gains on loans held-for-sale                         5,670           3,920         3,379
     Gain (loss) on sale of securities                                    --              (1)           13
     Other                                                               265              44            41
                                                                ---------------------------------------------
     Total non-interest income                                       $ 7,746         $ 5,593       $ 4,704
                                                                ---------------------------------------------
NON-INTEREST EXPENSE:
     Salaries and employee benefits                                  $12,562         $10,159       $ 8,130
     Occupancy expense                                                 3,190           2,915         2,337
     Data processing                                                   1,239           1,079           902
     Other operating expense                                           3,829           3,064         2,613
                                                                ---------------------------------------------
     Total non-interest expense                                      $20,820         $17,217       $13,982
                                                                ---------------------------------------------
     Income before taxes on income                                   $17,426         $11,568       $ 7,056
   Provision for income taxes                                          5,880           3,892         2,391
                                                                =============================================
NET INCOME                                                           $11,546         $ 7,676       $ 4,665
                                                                =============================================
   Earnings per common share, basic                                  $  1.48         $  1.08       $  0.69
   Earnings per common share, diluted                                $  1.36         $  0.96       $  0.63
                                                                =============================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       24

<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, 2000              $ --      $2,166      $13,648    $5,476       $(124)                           $21,166
                                      ============================================================================================
Comprehensive Income:
Net Income 2001                                                           4,665                        $4,665            4,665
Other comprehensive income, net of
tax, unrealized holding gains
arising
during the period (net of tax of
$156)                                                                                                     304
Less reclassification adjustment,
(net of tax of $4)                                                                                         (9)
                                      --------------------------------------------------------------------------------------------
Total other comprehensive income                                                        295               295              295
                                      --------------------------------------------------------------------------------------------
Total comprehensive income                                                                             $4,960
                                      --------------------------------------------------------------------------------------------
Five-for-four  stock split in form
of a 25% stock dividend                   --         541         (541)       --          --                                 --
Cash paid in lieu of fractional           --          --                                 --                                 (3)
shares                                                             --         (3)
Stock options exercised                   --          14                                 --                                 97
                                                                   83         --
                                      ============================================================================================
BALANCE, DECEMBER 31, 2001              $ --      $2,721      $13,190    $10,138       $171                            $26,220
                                      ============================================================================================
Comprehensive Income:
Net Income 2002                                                            7,676                       $7,676            7,676
Other comprehensive income, net of
tax, unrealized holding gains
arising
during the period (net of tax of
$263)                                                                                   510               510              510
                                      --------------------------------------------------------------------------------------------
Total comprehensive income                                                                             $8,186
                                      --------------------------------------------------------------------------------------------
Five-for-four stock split in form         --         680         (680)        --         --                                 --
of a 25% stock dividend
Cash paid in lieu of fractional
shares                                    --          --           --         (6)        --                                 (6)
Rights offering, net of costs of $45      --         291        6,666         --         --                              6,957
Stock options/warrants exercised          --          47          446         --         --                                493

                                      ============================================================================================
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, net of
tax, 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          --         228        2,162         --         --                              2,390
                                      --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003              $ --      $7,860      $17,891    $29,354       $(13)                           $55,092
                                      --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.


                                       25
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                         --------------------------------------------
                                                               2003           2002           2001
                                                         --------------------------------------------
<S>                                                          <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Interest received                                           $  45,021      $  38,709     $  33,719
 Other income received                                           7,746          5,594         4,691
 Net change in loans held-for-sale                              15,435         (3,106)      (10,924)
 Interest paid                                                 (14,140)       (14,159)      (15,999)
 Cash paid to suppliers and employees                          (25,243)       (16,293)      (12,720)
 Income tax benefit of stock options/warrants exercised         (1,402)          (323)           --
 Income taxes paid                                              (5,406)        (3,538)       (3,454)
                                                         --------------------------------------------
    Net cash provided by (used in) operating activities      $  22,011      $   6,884     $  (4,687)
                                                         --------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from maturities and principal payments on
    securities held-to-maturity                              $  10,188      $   3,358     $   9,009
 Proceeds from maturities and principal payments on
    securities available-for-sale                               70,456         44,531        47,367
 Proceeds from sales of securities available-for-sale               --          1,350        14,016
 Purchases of securities held-to-maturity                      (41,143)        (7,975)       (5,446)
 Purchases of securities available-for-sale                   (118,501)       (58,699)      (72,238)
 Net increase in loans made to customers                      (139,526)      (123,470)      (95,880)
 Purchase of bank premises and equipment                          (718)        (1,303)       (1,375)
                                                         --------------------------------------------
     Net cash used in investing activities                   $(219,244)     $(142,208)    $(104,547)
                                                         --------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
 Net increase in demand, NOW, money market and               $ 170,521      $  90,127     $  40,503
    savings accounts
 Net increase in time deposits                                  35,994         69,947        55,485
 Net increase (decrease) in securities sold under               (1,194)       (10,371)       13,355
    agreement to repurchase and federal funds purchased
 Net increase (decrease) in other borrowed funds                  (400)       (11,000)        4,000
 Proceeds from issuance of trust preferred capital notes            --         18,000            --
 Proceeds from issuance of capital stock                         2,390          7,450            97
 Cash paid in lieu of fractional shares                             --             (6)           (3)
                                                         --------------------------------------------
     Net cash provided by financing activities                $207,311      $ 164,147     $ 113,437
                                                         --------------------------------------------
    Increase in cash and cash equivalents                    $  10,078      $  28,823     $   4,203
                                                         --------------------------------------------
 CASH AND CASH EQUIVALENTS:
 Beginning                                                      43,978         15,155        10,952
 Ending                                                      $  54,056      $  43,978     $  15,155
                                                         ============================================
</TABLE>

See Notes to Consolidated Financial Statements.



                                       26


<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                         ---------------------------------------------
<S>                                                           <C>             <C>            <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY          2003            2002           2001
  (USED IN) OPERATING ACTIVITIES:
                                                         ---------------------------------------------
Net income                                                    $ 11,546        $ 7,676        $4,665
                                                         ---------------------------------------------
Adjustments to reconcile net income to net cash provided
 by (used in) operating activities:

   Depreciation and amortization                                 1,046          1,024           878
   Provision for loan losses                                     1,575          1,678         1,572
   Deferred tax benefit                                           (600)          (609)         (566)
   Amortization of security premiums and accretion of              (64)           (11)           (9)
     discounts
   Origination of loans held-for-sale                         (287,773)      (207,817)     (180,737)
   Sale of loans                                               303,208        204,711       169,813
   Gain (loss) on sale of securities available-for-sale             --              1           (13)
   Increase in other assets                                     (6,116)          (534)          (54)
   Increase (decrease) in other liabilities                        321          1,073           (59)
   Increase in accrued interest receivable                        (883)          (278)         (169)
   Decrease in accrued interest payable                           (249)           (30)           (8)
                                                         =============================================
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES           $ 22,011       $  6,884       $(4,687)
                                                         =============================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 ACTIVITIES:

Unrealized gain (loss) on securities                          $ (1,051)      $    773        $  447
</TABLE>

See Notes to Consolidated Financial Statements.


                                       27


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BANKING ACTIVITIES AND ACCOUNTING POLICIES

BUSINESS

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

The Company provides loan and deposit products to commercial and retail
customers in the Washington Metropolitan Area, with the primary emphasis on
Northern Virginia. The loan portfolio is generally collateralized by assets of
the customers and is expected to be 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 and Northeast Land and Investment Company. In consolidation, all
significant intercompany accounts and transactions have been eliminated.

RISKS AND UNCERTAINTIES

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

The determination of the allowance for loan losses is based on estimates that
are particularly susceptible to significant changes in the economic environment
and market conditions. Management believes that, as of December 31, 2003, the
allowance for loan losses is adequate based on information currently available.
A worsening or protracted economic decline or substantial increase in interest
rates, would increase the likelihood of losses due to credit and market risks
and could create the need for substantial increases to the allowance for loan
losses. The Company is subject to the regulations of various regulatory
agencies, which can change significantly from year to year. In addition, the
Company undergoes periodic examinations by regulatory agencies, which may
subject it to further changes based on the regulators' judgments about
information available to them at the time of their examination.

SECURITIES

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

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

LOANS HELD-FOR-SALE

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



                                       28


<PAGE>


LOANS

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

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off 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.

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
for impairment testing. The loans meeting the criteria for special mention,
substandard, doubtful and loss, as well as impaired loans are segregated from
performing loans within the



                                       29


<PAGE>


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. 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
expended or capitalized as the facts dictate.

INCOME TAXES

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

LEASE ACQUISITION COSTS

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

ADVERTISING COST

The Company follows the policy of charging the production costs of advertising
to expense as incurred. Total advertising expense was $291 thousand, $245
thousand and $180 thousand in 2003, 2002 and 2001, 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 foreclosed real estate
and deferred tax assets.

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 issuances of a
loan commitment and closing and the sale of the loan generally



                                       30


<PAGE>


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, 2003, the Company has a stock-based compensation plan, which is
described more fully in Note 11. The Company accounts for the plan under the
recognition and measurement principles of APB Opinion 25, Accounting for Stock
Issued to Employees, and related interpretations. No stock-based employee
compensation cost is 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. 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.

<TABLE>
<CAPTION>

===========================================================================================
(Dollars in thousands except per share amounts)          2003          2002          2001
-------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>           <C>

NET INCOME, AS REPORTED                               $11,546        $7,676        $4,665
Deduct: total stock-based employee compensation
 expense determined based on fair value
 method of awards, net of tax                            (368)         (419)         (351)
                                                          ---           ---           ---

PRO FORMA NET INCOME                                  $11,178        $7,257        $4,315

BASIC EARNINGS PER SHARE:
As reported                                             $1.48         $1.08         $0.69
Pro forma                                               $1.44         $1.02         $0.64

DILUTED EARNING PER SHARE:
As reported                                             $1.36         $0.96         $0.63
Pro Forma                                               $1.31         $0.91         $0.58
===========================================================================================

</TABLE>

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 2003, 2002, and 2001, respectively: price volatility
of 28.63%, 21.48% and 27.89%, risk-free interest rates of 4.02%, 5.43% and
5.04%, dividend rate of .02% and expected lives of 10 years. See Note 11 to the
Consolidated Financial Statements for further information regarding the
Company's stock-based compensation plan.



                                       31


<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which amends SFAS No. 123
to provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. The provisions of the Statement were effective December 31, 2002.
Management currently intends to continue to account for stock-based compensation
under the intrinsic value method set forth in Accounting Principles Board
("APB") Opinion 25 and related interpretations. For this reason, the transition
guidance of SFAS No. 148 does not have an impact on the Company's consolidated
financial position or consolidated results of operations. The Statement does
amend existing guidance with respect to required disclosures, regardless of the
method of accounting used. The revised disclosure requirements are presented
herein.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). The Interpretation elaborates
on the disclosures to be made by a guarantor in its financial statements under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The recognition
requirements of the Interpretation were effective beginning January 1, 2003. The
initial adoption of the Interpretation did not materially affect the Company,
and management does not anticipate that the recognition requirements of this
Interpretation will have a materially adverse impact on either the Company's
consolidated financial position or consolidated results of operations in the
future.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This Interpretation provides guidance
with respect to the identification of variable interest entities and when the
assets, liabilities, non-controlling interests, and results of operations of a
variable interest entity need to be included in a company's consolidated
financial statements. The Interpretation requires consolidation by business
enterprises of variable interest entities in cases where (a) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
which is provided through other interests that will absorb some or all of the
expected losses of the entity, or (b) in cases where the equity investors lack
one or more of the essential characteristics of a controlling financial
interest, which include the ability to make decisions about the entity's
activities through voting rights, the obligations to absorb the expected losses
of the entity if they occur, or the right to receive the expected residual
returns of the entity if they occur. Management has evaluated the Company's
investments in variable interest entities and potential variable interest
entities or transactions, particularly in limited liability partnerships
involved in low-income housing development and trust preferred securities
structures. The implementation of FIN 46 did not have a significant impact on
either the Company's consolidated financial position or consolidated results of
operations. Interpretive guidance relating to FIN 46 is continuing to evolve and
the Company's management will continue to assess various aspects of
consolidations and variable interest entity accounting as additional guidance
becomes available.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement is effective for contracts entered into
or modified after June 30, 2003, with certain exceptions, and for hedging
relationships designated after June 30, 2003 and is not expected to have an
impact on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of these instruments
were previously classified as equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatory redeemable financial instruments of nonpublic
entities. Adoption of the Statement did not result in an impact on the Company's
consolidated financial statements.

In November 2003, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on a new disclosure requirement related to unrealized losses on
investment securities. The new disclosure requires a table of securities which



                                       32


<PAGE>


have unrealized losses as of the reporting date. The table must distinguish
between those securities which have been in a continuous unrealized loss
position for twelve months or more and those securities which have been in a
continuous unrealized loss position for less than twelve months. The table is to
include the aggregate unrealized losses of securities whose fair values are
below book values as of the reporting date, and the aggregate fair value of
securities whose fair values are below book values as of the reporting date. In
addition to the quantitative disclosure, FASB requires a narrative discussion
that provides sufficient information to allow financial statement users to
understand the quantitative disclosures and the information that was considered
in determining whether impairment was not other-than-temporary. The new
disclosure requirements apply to fiscal years ending after December 15, 2003.
The Company has included the required disclosures in their consolidated
financial statements.

In December 2003, the FASB issued a revised version of SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits an amendment of
FASB Statements No. 87, 88 and 106." This Statement revises employers'
disclosures about pension plans and other postretirement benefits. It does not
change the measurement or recognition of those plans required by FASB Statements
No. 87, No. 88, and No. 106. This Statement retains the disclosure requirements
contained in the original FASB Statement No. 132, which it replaces. However, it
requires additional disclosures to those in the original Statement 132 about the
assets, obligations, cash flows, and net periodic benefit costs of defined
benefit pension plans and other defined benefit postretirement plans. The
required information should be provided separately for pension plans and for
other postretirement benefit plans. The disclosures for earlier annual periods
presented for comparative purposes are required to be restated for (a) the
percentages of each major category of plan assets held, (b) the accumulated
benefit obligation, and (c) the assumptions used in the accounting for the
plans. This Statement is effective for financial statements with fiscal years
ending after December 15, 2003. The interim-period disclosures required by this
Statement are effective for interim periods beginning after December 15, 2003.
The Company has no pensions or post retirement benefits requiring these
disclosures.

STOCKHOLDERS' EQUITY

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.

A five-for-four stock split in the form of a 25% stock dividend was declared on
February 28, 2002. This transaction was recorded by increasing common stock by
$680 thousand and decreasing surplus by $680 thousand.

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

NOTE 2. SECURITIES

Amortized cost and fair value of the securities available-for-sale and
held-to-maturity as of December 31, 2003 and 2002, are as follows (dollars in
thousands):

<TABLE>
<CAPTION>

==================================================================================================================
                                                                      GROSS           GROSS
                                                     AMORTIZED      UNREALIZED      UNREALIZED
DECEMBER 31, 2003                                      COST           GAINS          (LOSSES)      FAIR VALUE
==================================================================================================================
<S>                                                    <C>               <C>            <C>             <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations                     $ 93,363          $ 466          $(555)          $ 93,274
Domestic corporate debt obligations                       6,000             --             (5)             5,995
Obligations of states and political subdivisions          1,220             75             --              1,295
Restricted stock:
 Federal Reserve Bank                                       758             --             --                758
 Federal Home Loan Bank                                   1,355             --             --              1,355
 Community Bankers' Bank                                     55             --             --                 55

                                                   ---------------------------------------------------------------
                                                       $102,751          $ 541         $ (560)          $102,732
</TABLE>



                                       33


<PAGE>



<TABLE>
<CAPTION>
HELD-TO-MATURITY:

                                                                         GROSS          GROSS
                                                      AMORTIZED        EALIZED     UNREALIZED
 DECEMBER 31, 2003                                         COST          GAINS        (LOSSES)        FAIR VALUE
<S>                                                    <C>               <C>             <C>            <C>
U.S. Government Agency obligations                     $ 38,490          $ 476           $ --           $ 38,966
Obligations of state and political subdivisions           7,535            155            (38)             7,652
Domestic corporate debt obligations                         488             56             --                544
------------------------------------------------------------------------------------------------------------------
                                                       $ 46,513          $ 687           $(38)          $ 47,162
==================================================================================================================

</TABLE>


<TABLE>
<CAPTION>

==================================================================================================================
                                                                      GROSS          GROSS
                                                     AMORTIZED      UNREALIZED     UNREALIZED
DECEMBER 31, 2002                                      COST           GAINS         (LOSSES)        FAIR VALUE
==================================================================================================================
<S>                                                    <C>                <C>            <C>             <C>
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations                     $ 51,679           $982           $ --            $52,661
Obligations of states and political subdivisions          1,179             50             --              1,229
Restricted stock:
 Federal Reserve Bank                                       542             --             --                542
 Federal Home Loan Bank                                   1,194             --             --              1,194
 Community Bankers' Bank                                     55             --             --                 55

                                                   ---------------------------------------------------------------
                                                       $ 54,649         $1,032           $ --            $55,681

HELD-TO-MATURITY:
U.S. Government Agency obligations                     $  8,534         $  341           $ --            $ 8,875
Obligations of state and political subdivisions           6,534            130             --              6,664
Domestic corporate debt obligations                         482             64             --                546

------------------------------------------------------------------------------------------------------------------
                                                        $15,550         $  535           $ --            $16,085
==================================================================================================================

</TABLE>

The amortized cost and fair value of the securities, including restricted stock,
as of December 31, 2003 by contractual maturity, are shown below (dollars in
thousands):

<TABLE>
<CAPTION>

==================================================================================================================
DECEMBER 31, 2003                                               AMORTIZED COST                          FAIR VALUE
------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
<S>                                                                  <C>                                 <C>
Due within one year                                                  $   2,000                           $   2,025
Due after one year through five years                                   61,483                              61,997
Due after five years through ten years                                  17,197                              17,629
Due after ten years                                                     22,071                              21,081
------------------------------------------------------------------------------------------------------------------
                                                                     $ 102,751                           $ 102,732

HELD-TO-MATURITY:

Due after one year through five years                                $     643                           $     732
Due after five years through ten years                                  37,041                              37,507
Due after ten years                                                      8,829                               8,923

------------------------------------------------------------------------------------------------------------------
                                                                     $  46,513                           $  47,162
==================================================================================================================

</TABLE>

The amortized cost of securities pledged as collateral for repurchase
agreements, certain public deposits, and other purposes were $56.5 million and
$38.8 million at December 31, 2003 and 2002, respectively.

Provided below is a summary of securities which were in an unrealized loss
position at December 31, 2003. Of the total securities in an unrealized loss
position for less than twelve months, 94.0%, or twenty positions, were U.S.
Government



                                       34


<PAGE>


Agency securities with maturities ranging from eighteen months to ten
years. The Company has the ability and intent to hold these securities until
such time as the value recovers or the securities mature. These unrealized
losses are attributable to changes in market interest rates and not the credit
quality of the issuer.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
At December 31, 2003                     LESS THAN 12 MONTHS        12 MONTHS OF LONGER         TOTAL
-----------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>             <C>         <C>      <C>           <C>
                                        Fair        Unrealized      Fair     Unrealized    Fair       Unrealized
(Dollars in thousands)                  Value       Losses          Value    Losses        Value      Losses
-----------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Government Agency obligations      $46,444       $(555)          --          --       $46,444       $(555)
Domestic corporate debt obligations       1,995          (5)          --          --         1,995          (5)
-----------------------------------------------------------------------------------------------------------------
                                        $48,439       $(560)          --          --       $48,439       $(560)
-----------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY:
-----------------------------------------------------------------------------------------------------------------
Obligations of states/political
subdivisions                            $   953       $ (38)          --          --       $   953       $ (38)
-----------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 3. LOANS

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

================================================================================
                                                 2003                     2002
--------------------------------------------------------------------------------

Commercial                                  $  61,178                 $ 44,559
Real estate - 1-4 family residential           88,789                   67,061
Real estate - multifamily residential          29,954                   29,269
Real estate - nonfarm, nonresidential         325,668                  265,694
Real estate - construction                    153,400                  111,333
Consumer                                        6,061                    6,941
--------------------------------------------------------------------------------
TOTAL LOANS                                 $ 665,050                $ 524,857
--------------------------------------------------------------------------------
Less unearned income                            2,742                    2,033
Less allowance for loan losses                  7,457                    5,924
--------------------------------------------------------------------------------
LOANS, NET                                  $ 654,851                $ 516,900
================================================================================

As of December 31, 2003 and 2002, there were $275 thousand and $966 thousand,
respectively, in checking account overdrafts that were reclassified on the
balance sheet as loans.

NOTE 4.  ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
<CAPTION>

=========================================================================================================
                                                 2003                     2002                     2001
---------------------------------------------------------------------------------------------------------
<S>                                             <C>                    <C>                      <C>
Allowance, at beginning of period             $ 5,924                  $ 4,356                  $ 2,803

Provision charged against income                1,575                    1,678                    1,572
Recoveries added to reserve                        14                       45                        4
Losses charged to reserve                         (56)                    (155)                     (23)
---------------------------------------------------------------------------------------------------------
ALLOWANCE, AT END OF PERIOD                   $ 7,457                  $ 5,924                  $ 4,356
=========================================================================================================

</TABLE>

Information about impaired loans as of and for the years ended December 31,
2003, 2002 and 2001, is as follows (dollars in thousands):



                                       35


<PAGE>


<TABLE>
<CAPTION>

=========================================================================================================
                                                 2003                     2002                     2001
---------------------------------------------------------------------------------------------------------
<S>                                             <C>                      <C>                      <C>
Impaired loans for which an allowance has
 been provided                                  $ 416                    $ 444                    $ 119
Impaired loans for which no allowance has
 been provided                                     --                       --                       --
---------------------------------------------------------------------------------------------------------
    TOTAL IMPAIRED LOANS                        $ 416                    $ 444                    $ 119
---------------------------------------------------------------------------------------------------------
Allowance provided for impaired loans,
included in the allowance for loan losses          61                       59                       16
Average balance in impaired loans               $ 216                    $ 281                    $ 113
---------------------------------------------------------------------------------------------------------
Interest income recognized                         --                       --                       --
=========================================================================================================

</TABLE>

Non-accrual loans excluded from impaired loan disclosure under FASB 114 amounted
to $46 thousand, $1.9 million, and $106 thousand at December 31, 2003, 2002 and
2001, respectively. If interest on these loans had been accrued as interest
income, such income would have approximated $5 thousand, $33 thousand and $17
thousand for the years ended December 31, 2003, 2002 and 2001, respectively.
Loan past due 90 days or more, and still accruing interest totaled $84 thousand
at December 31, 2003, and $329 thousand at December 31,2001. There were no loans
past due 90 days or more, and still accruing interest at December 31, 2002.

NOTE 5. BANK PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost less accumulated depreciation at
December 31, 2003 and 2002, as follows (dollars in thousands):

<TABLE>
<CAPTION>

======================================================================================
                                                        2003                     2002
--------------------------------------------------------------------------------------
<S>                                                     <C>                     <C>
Land                                                   $1,839                  $1,839
Buildings                                               2,193                   2,193
Furniture, fixtures and equipment                       6,110                   5,444
Leasehold improvements                                  2,050                   1,997
--------------------------------------------------------------------------------------
Total Cost                                            $12,192                 $11,473
Less accumulated depreciation and amortization          6,003                   4,956
--------------------------------------------------------------------------------------
Net premises and equipment                             $6,189                  $6,517
======================================================================================
</TABLE>

Depreciation and amortization expense on premises and equipment amounted to $1.1
million, $1.0 million and $878 thousand in 2003, 2002 and 2001,respectively.

NOTE 6. TIME DEPOSITS

The aggregate amount of time deposits with a minimum denomination of $100
thousand each, was approximately $140.7 million and $110.7 million at December
31, 2003 and 2002, respectively. Scheduled maturities of all time deposits at
December 31, 2003, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
================================================================================
<S>  <C>                                                    <C>
     2004                                                   $185,215
     2005                                                     56,797
     2006                                                      8,452
     2007                                                     21,850
     2008                                                     41,280
     2009 and thereafter                                          10
--------------------------------------------------------------------------------
                                                            $313,604
================================================================================
</TABLE>

                                       36

<PAGE>

NOTE 7. INCOME TAXES

Net deferred tax assets consist of the following components at December 31, 2003
and 2002 (dollars in thousands):

<TABLE>
<CAPTION>

==========================================================================================
                                                         2003                        2002
------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:

<S>                                                    <C>                         <C>
Allowance for loan losses                              $2,536                      $2,014
Non-accrual loans                                          33                          27
Organization costs                                          2                           4
Deferred loan fees                                         83                          83
Securities available-for-sale                               6                          --
Bank premises and equipment                               229                         154
------------------------------------------------------------------------------------------
                                                       $2,889                      $2,282
------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:

Securities available-for-sale                              --                         351
Federal Home Loan Bank stock                                2                           2
------------------------------------------------------------------------------------------
                                                        $   2                       $ 353
------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS                                $2,887                      $1,929
------------------------------------------------------------------------------------------
</TABLE>

The provision for income tax and its components for the years ending December
31, 2003, 2002, and 2001 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
=======================================================================================================================
DECEMBER 31,                                                           2003                  2002                 2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C>                  <C>
Current tax expense                                                 $ 6,480               $ 4,501              $ 2,957
Deferred tax benefit                                                   (600)                 (609)                (566)
-----------------------------------------------------------------------------------------------------------------------
                                                                    $ 5,880               $ 3,892              $ 2,391
=======================================================================================================================
</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, 2003, 2002, and 2001, due to the
following (dollars in thousands):

<TABLE>
<CAPTION>
=======================================================================================================================
DECEMBER 31,                                                           2003                   2002                2001
-----------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                 <C>                   <C>                   <C>
Computed "expected" tax expense (34%)                               $ 5,925               $ 3,917               $ 2,399

Increase (decrease) in income taxes resulting from:

  Income at higher statutory rate (35%)                                  74                    16                    --
  Nondeductible expense                                                  40                     8                     6
  Nontaxable income                                                   (159)                  (49)                  (14)
                                                                    $ 5,880               $ 3,892               $ 2,391
=======================================================================================================================
</TABLE>

                                       37

<PAGE>

NOTE 8. EARNINGS PER SHARE

The following shows the weighted average number of shares used in computing
earnings per share and the effect on the weighted average number of shares of
diluted potential common stock. 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>
=======================================================================================================================
                                            2003                         2002                          2001
-----------------------------------------------------------------------------------------------------------------------
                                                 Per Share                    Per Share                     Per Share
                                    Shares        Amount         Shares         Amount         Shares         Amount
-----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                <C>        <C>               <C>         <C>               <C>
BASIC EARNINGS PER SHARE            7,786,755          $1.48      7,119,514         $1.08       6,778,378         $0.69

Effect of dilutive securities:

  Stock options                       691,577                       560,612                       364,332

  Warrants                             34,124                       313,714                       284,222
-----------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE          8,512,456          $1.36      7,993,840         $0.96       7,426,932         $0.63
=======================================================================================================================

</TABLE>

Stock options for 250 shares of common stock were not included in computing
diluted earnings per share in 2003, because their effects were anti-dilutive.

NOTE 9. COMMITMENTS AND CONTINGENCIES

The Company leases office space for ten of its branch locations, its operations,
mortgage lending, and construction lending departments. These non-cancellable
agreements, which expire through April 2017, in some instances require payment
of certain operating charges. Generally, all leases contain renewal options of
one to two additional five-year terms.

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

The total minimum lease commitment, adjusted for the effect of annual fixed
increases or the Consumer Price Index, at December 31, 2003, is $5.6 million,
due as follows (dollars in thousands):
<TABLE>
<CAPTION>

===================================================================================================
<S>                                                                 <C>                <C>
Due in the year ending December 31,                                   2004               $1,087

                                                                      2005                1,097

                                                                      2006                  703

                                                                      2007                  688

                                                                      2008                  577

                                                                Thereafter                1,451
===================================================================================================

</TABLE>

The total lease expense was $1.2 million, $1.2 million and $948 thousand in
2003, 2002, and 2001, respectively. In the normal course of business, the
Company makes various commitments and incurs certain contingent liabilities that
are not presented in the accompanying financial statements. The Company does not
anticipate any material losses as a result of the commitments and contingent
liabilities.

NOTE 10: LOANS TO OFFICERS AND DIRECTORS

Officers, directors and/or their related business interests are loan customers
in the ordinary course of business. In management's opinion, these loans are
made on substantially the same terms as those prevailing at the time for
comparable loans with other persons and do not involve more than normal risk of
collectibility or present other unfavorable features. The aggregate amount
outstanding on such loans at December 31, 2003 and 2002, was $5.9 million and
$3.9 million, respectively. During 2003, new loans and advances amounted to $2.3
million and repayments of $310 thousand were made.

NOTE 11. 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 990,624 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

                                       38
<PAGE>

under the Company's plan adopted in 1988 which was replaced by the current plan.
As of December 31, 2003, 665,622 options had been granted under the current
plan. Options are awarded to employees and the Board of Directors of the Company
at the discretion of the Board of Directors. All options expire ten years from
the grant date. Options granted under the current plan, through December 31,
2002, vest over three years, while options granted since December 31, 2002, vest
over five years. In January 2004, 75,250 options were granted to forty-three
officers and seven outside directors of the Company at an exercise price of
$31.44 per share.

A summary of the status of the plan at December 31, 2003, 2002 and 2001, and
changes during the years ended on those dates is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                2003                      2002                       2001
----------------------------------------------------------------------------------------------------------------------
                                                     Weighted                 Weighted                   Weighted
                                                      Average                  Average                   Average
                                         Number      Exercise    Number of    Exercise       Number of   Exercise
                                       of Shares       Price       Shares       Price         Shares      Price
----------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>       <C>              <C>        <C>          <C>
Outstanding at beginning of year           860,030        $4.02     745,328          $3.32      634,573      $ 3.12

Granted                                    111,250       $12.84     115,202          $8.55      132,007      $ 4.40

Exercised                                   80,378        $3.70         500          $3.62       13,899      $ 3.52

Forfeited                                    1,084        $9.42          --             --        7,353      $ 5.08

Outstanding at end of year                 889,818        $5.23     860,030          $4.02      745,328      $ 3.32

Exercisable at end of year                 658,085                  595,888                     452,038

Pro forma weighted-average fair
value per option of options
granted during the year                      $6.15                    $4.06                       $2.24
======================================================================================================================
</TABLE>

A further summary about the options outstanding and exercisable at December 31,
2003 is provided in the following table:

<TABLE>
<CAPTION>

                                          OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
----------------------------------------------------------------------------------------------------------------------
  Range of Exercise      Number Outstanding      Remaining         Weighted      Number Exercisable     Weighted
                                                Contractual         Average       at December 31,        Average
        Prices          at December 31, 2003       Life         Exercise Price          2003           Exercise Price
----------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>              <C>             <C>                 <C>
$ 1.45 to $ 1.95                   196,294        2.2 years        $1.71           196,294             $ 1.71
$ 3.61 to $ 4.10                   155,502        4.6 years         3.79           155,502               3.79
$ 4.16 to $ 4.37                   312,609        6.4 years         4.24           269,892               4.22
$ 7.39 to $12.24                   219,413        8.5 years        10.31            36,397               8.54
$19.38 to $33.05                     6,000        9.6 years        23.45                --                 --
----------------------------------------------------------------------------------------------------------------------
$  1.45 TO $33.05                  889,818        5.7 YEARS        $5.23           658,085             $ 3.61
</TABLE>


All options granted, available under the current Plan, and exercisable have been
adjusted for all three years giving retroactive effect to the five-for-four
stock splits in the form of 25% stock dividends in 2001 and 2002, and the
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, subject
to approval of the stockholders at the Company's Annual Meeting to be held on
April 28, 2004. Under the plan a total of 150,000 shares of common stock 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 per share, 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, and the rights to purchase the remaining 10,593 shares
expired. On January 10, 2004, rights to purchase 18,255 shares were granted at a
price of $26.72 which was equal to 85% of the fair market value of the shares at
that time. Those grants must be exercised by December 31, 2004 or they will
expire.

                                       39
<PAGE>

NOTE 12. DIRECTOR COMPENSATION PLAN

In April 1996, the Company granted 185,286 warrants at an exercise price of
$3.56 to six outside Directors. In January 1998, the Company granted 41,592
warrants at an exercise price of $3.61 to an additional outside Director. All
warrants have been restated giving retroactive effect to the 10% stock
restructurings in 1998 and 1999, the 10% stock dividend in 2000, and the
five-for-four stock splits in the form of 25% stock dividends in 2001 and 2002,
while the warrants granted in January 1998 were also restated giving retroactive
effect to the two-for-one stock split in the form of a 100% stock dividend in
2003. Of the total warrants granted in April 1996, 46,321 were exercised in
2002, and 138,965 were exercised in 2003. The warrants granted in January 1998
are still outstanding and expire January 1, 2005.

In addition to the warrants, the seven outside Directors have each been awarded
17,186, 6,250, 2500, and 4,000 options under the Company's Incentive Option Plan
in 2000, 2001, 2002, and 2003 respectively and as adjusted for the 10% stock
dividend in 2000, the five-for-four stock splits in the form of 25% stock
dividends in 2001 and 2002, and the two-for-one stock split in the form of a
100% stock dividend in 2003. In January 2004 each of the seven outside Directors
were awarded an additional 2,500 options.

NOTE 13. OTHER BORROWED MONEY AND LINES OF CREDIT

The Bank maintains a $132.1 million line of credit with the Federal Home Loan
Bank of Atlanta. The interest rate and term of each advance from the line is
dependent upon the advance and commitment type. Advances on the line are secured
by all of the Bank's qualifying first lien loans on one-to-four unit
single-family dwellings. As of December 31, 2003, the book value of these loans
totaled approximately $23.7 million. The amount of available credit is limited
to seventy-five percent of the qualifying loans. Advances on the line of credit,
in excess of total qualifying loans, require pledging of additional assets
including other types of loans and investment securities. At December 31, 2002,
the Bank had one advance outstanding in the amount of $400 thousand, at an
interest rate of 5.93%. That advance matured on November 16, 2003, and as of
December 31, 2003, the Bank had no advances outstanding. The Bank has additional
short term unused lines of credit totaling $22 million with nonaffiliated banks
at December 31, 2003.

NOTE: 14. 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). The securities bear a floating rate of
interest, adjusted semi-annually, of 340 basis points over six month Libor,
currently 4.67%, 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 separate private
placement issuance of $15.0 million of trust preferred securities through
another newly formed, wholly-owned, subsidiary trust (VCBI Capital Trust II).
These securities bear a floating rate of interest, adjusted semi-annually, of
330 basis points over six month Libor, currently 4.53%, with a maximum rate of
11.9% until December 30, 2007. These securities also have a thirty year term and
are callable at par beginning December 30, 2007. 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 15. 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

                                       40
<PAGE>

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, 2003 and 2002, is as follows:

<TABLE>
<CAPTION>
 =================================================================================================================
 (Dollars in thousands)                                               2003                        2002
 -----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                         <C>
 Financial instruments whose contract amounts represent
   credit risk:

 Commitments to extend credit                                       $ 26,944                    $ 10,230

 Standby letters of credit and financial
   guarantees                                                       $ 14,732                    $ 11,298

 Unfunded lines of credit                                           $182,761                    $132,909
 =================================================================================================================
</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 2003, the Company
originated $287.8 million and sold $303.2 million to investors, compared to
$207.8 million originated and $204.7 million sold in 2002. 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.

At December 31, 2003, the Bank had locked-rate commitments to originate and sell
mortgage loans amounting to $8.5 million and loans held-for-sale of $3.5
million. The Bank has entered into commitments on a best-effort basis to sell
approximately $12 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.


                                       41

<PAGE>


NOTE 16. 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, DC, including Arlington County, the City of
Alexandria, Fairfax County and Prince William County, and to some extent the
Maryland suburbs and the city of Washington DC. 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, DC area.

At December 31, 2003 and 2002, there were $509.2 million and $406.3 million, or
76.5% and 77.4%, 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, 2003 and 2002
construction loans represented 23.1% and 21.2% of total loans, loans secured by
5+ family residential properties represented 4.5% and 5.6%, and loans secured by
non-farm, non-residential properties represented 49.0% and 50.6%, respectively.
Construction loans at December 31, 2003 and 2002 included $110.5 million and
$69.5 million in loans to commercial builders of single family housing in the
Northern Virginia market, representing 16.6% and 13.2% 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 17. 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, 2003, the aggregate amount of unrestricted funds
that could be transferred totaled approximately $20.0 million, or 36.30%, 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, 2003 and 2002, the aggregate amounts of daily average
required balances were approximately $2.2 million and $3.9 million,
respectively.

NOTE 18.  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 $212 thousand, $182 thousand and $141 thousand for the years ended
December 31, 2003, 2002 and 2001, respectively.

NOTE 19. 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.

                                       42
<PAGE>

SECURITIES

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

LOANS HELD-FOR-SALE

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

LOAN RECEIVABLES

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

DEPOSITS AND BORROWINGS

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

ACCRUED INTEREST

The carrying amounts of accrued interest approximate fair value.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The fair value of commitments to extend credit is estimated using the fees
currently charged to enter similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of stand-by letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.

At December 31, 2003 and 2002, the fair value of loan commitments and stand-by
letters of credit were deemed immaterial.

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

<TABLE>
<CAPTION>
=================================================================================================================
                                                        2003                                 2002
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                      Carrying      Estimated Fair     Carrying Amount     Estimated Fair
                                             Amount           Value                                   Value
-----------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                <C>                <C>
FINANCIAL ASSETS:

Cash and short-term investments                 $54,056            $ 54,056           $43,978            $43,978

Securities                                      149,245             149,894            71,231             71,766

Loans held-for-sale                               3,513               3,513            18,948             18,948

Loans                                           654,851             682,969           516,900            542,880

Accrued interest receivable                       3,372               3,372             2,489              2,489
-----------------------------------------------------------------------------------------------------------------
   Total Financial assets                     $ 865,037           $ 893,804         $ 653,546          $ 680,061
=================================================================================================================
FINANCIAL LIABILITIES:

Deposits                                      $ 773,511           $ 776,672         $ 566,996          $ 572,909

Securities sold under agreement to
  repurchase and federal funds purchased         30,887              30,882            32,081             32,073

Other borrowed funds                             18,000              18,086            18,400             18,364
Accrued interest payable                          1,024               1,024             1,271              1,271
-----------------------------------------------------------------------------------------------------------------
   Total Financial liabilities                $ 823,422           $ 826,664         $ 618,748          $ 624,617
=================================================================================================================
</TABLE>

                                       43
<PAGE>

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 20.  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, 2003 and
2002, that the Bank met all capital adequacy requirements to which it is
subject.

As of December 31, 2003, 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, 2003 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.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                                                                            Minimum To Be
                                                                                       Well-Capitalized Under
                                                               Minimum Capital        Prompt Corrective Action
                                       Actual Capital            Requirement*                Provisions
-----------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2003:           AMOUNT        RATIO        AMOUNT       RATIO       AMOUNT         RATIO
-----------------------------------------------------------------------------------------------------------------
<S>                              <C>            <C>        <C>            <C>          <C>            <C>
TOTAL CAPITAL:

Company                          $80,558        11.13%     $57,911        8.00%        $ N/A           N/A

Bank                              79,781        11.03%      57,877        8.00%       72,346          10.00%

TIER 1 CAPITAL:
Company                          $73,101        10.10%     $28,956        4.00%        $ N/A           N/A

Bank                              54,323         7.51%      28,938        4.00%       43,408           6.00%

TIER 1 LEVERAGE CAPITAL:
Company                          $73,101         8.49%     $34,441        4.00%        $ N/A           N/A

Bank                              54,324         6.33%      34,327        4.00%       42,909           5.00%
-----------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2002:
-----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL:

Company                          $65,079        11.89%     $43,774        8.00%        $ N/A           N/A

Bank                              56,492        10.33%      43,731        8.00%       54,664          10.00%

TIER 1 CAPITAL:

Company                          $54,873        10.03%     $21,887        4.00%        $ N/A           N/A

Bank                              36,567         6.69%      21,865        4.00%       32,798           6.00%

TIER 1 LEVERAGE CAPITAL

Company                          $54,873         8.52%     $25,762        4.00%        $ N/A           N/A

Bank                              36,567         5.72%      25,571        4.00%       31,964           5.00%
-----------------------------------------------------------------------------------------------------------------
  * The minimum capital requirement for the Company is a guideline.
</TABLE>

                                       44

<PAGE>


NOTE 21. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

<TABLE>
<CAPTION>

===================================================================================================================
BALANCE SHEETS (IN THOUSANDS)                                  DECEMBER 31, 2003             DECEMBER 31, 2002
                                                       ------------------------------------------------------------
<S>                                                                    <C>                           <C>
Assets:
  Cash and due from banks                                              $  349                        $ 8,090
  Investment in Subsidiary                                             54,884                         37,832
  Subordinated Debt in Subsidiary                                      18,000                         14,000
  Other Assets                                                            430                            542
-------------------------------------------------------------------------------------------------------------------
    TOTAL ASSETS                                                     $ 73,663                       $ 60,464
-------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity:
  Junior subordinated capital notes                                  $ 18,570                       $ 18,570
  Other Liabilities                                                         1                             44
-------------------------------------------------------------------------------------------------------------------
    Total Liabilities                                                $ 18,571                       $ 18,614
-------------------------------------------------------------------------------------------------------------------
    Stockholders' Equity                                               55,092                         41,850
-------------------------------------------------------------------------------------------------------------------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $ 73,663                       $ 60,464
===================================================================================================================

===================================================================================================================
STATEMENTS OF INCOME (IN THOUSANDS)                                      YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------------------------
                                                                       2003                2002               2001
                                                       ------------------------------------------------------------
<CAPTION>
<S>                                                                   <C>                 <C>                <C>
Income:
  Interest on subordinated debt                                       $ 879               $ 615              $ 479
  Dividend from subsidiary                                               --               4,017                 98
-------------------------------------------------------------------------------------------------------------------
    Total Income                                                        879               4,632                577
-------------------------------------------------------------------------------------------------------------------
Expenses:

  Interest on trust preferred capital notes                          $  835               $  44                 --
  Interest on long term debt                                             --                 472                491
  Other operating expense                                               352                  94                 32
-------------------------------------------------------------------------------------------------------------------
    Total Expenses                                                    1,187                 610                523
-------------------------------------------------------------------------------------------------------------------
Gain (loss) before income taxes (benefit) and equity
in undistributed earnings of subsidiary                             $ (308)              $4,022              $  54
Income Tax (Benefit)                                                  (108)                   2                (15)
-------------------------------------------------------------------------------------------------------------------
                                                                      (200)               4,020                 69

Equity in undistributed net income of
  Virginia Commerce Bank                                             11,746               3,656              4,596
-------------------------------------------------------------------------------------------------------------------
     Net Income                                                    $ 11,546              $7,676            $ 4,665
===================================================================================================================
</TABLE>


<TABLE>
<CAPTION>

===================================================================================================================
STATEMENTS OF CASH FLOWS (IN THOUSANDS)                                    YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------------
                                                                          2003               2002             2001
                                                            -------------------------------------------------------
<S>                                                                   <C>                 <C>                <C>
Cash Flows from Operating Activities
    Net Income                                                       $ 11,546             $7,676          $ 4,665
Adjustments to reconcile net income to net cash
     Provided by (used in) operating activities:
Equity in undistributed net income of Virginia
     Commerce Bank                                                    (11,746)            (3,656)          (4,596)
Decrease (increase) in other assets                                       112               (511)             112
Increase (decrease) in other liabilities                                  (43)                36             (177)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in ) operating activities                  $  (131)            $ 3,545            $   4
-------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
-------------------------------------------------------------------------------------------------------------------
     Purchase additional stock in subsidiary                           (6,000)            (7,570)               --
     Purchase of debt securities                                       (4,000)            (2,900)          (4,100)
-------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities                             $ (10,000)          $(10,470)         $(4,100)
-------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
     Net (decrease) increase in long term debt                              --           (11,000)            4,000
     Net increase in junior subordinated capital notes                      --             18,570               --
     Common stock issued                                                 2,390              7,450               97
     Cash paid in lieu of fractional shares                                 --                (6)              (3)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                              $ 2,390           $ 15,014           $4,094
-------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents                                   $(7,741)            $ 8,089           $  (2)
Beginning                                                                8,090                  1                3
Ending                                                                  $  349            $ 8,090            $   1
===================================================================================================================

</TABLE>

                                       45

<PAGE>


NOTE 22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected financial information for the quarterly periods of 2003 and 2002 is
presented below (dollars in thousands except per share data):

<TABLE>
<CAPTION>

                                                       2003 QUARTERS
                                   -------------------------------------------------------
                                       FIRST         SECOND        THIRD        FOURTH
                                   -------------------------------------------------------
<S>                                      <C>           <C>          <C>           <C>
Interest income                          $10,588       $11,293      $11,758       $12,329
Interest expense                           3,387         3,584        3,496         3,426
------------------------------------------------------------------------------------------
     Net interest income                  $7,201        $7,709       $8,262        $8,903
Provision for loan losses                    356           408          323           488
     Net interest income after
     provision for loan losses            $6,845        $7,301       $7,939        $8,415
Non-interest income                        1,743         1,989        2,457         1,557
Non-interest expense                       4,918         5,032        5,481         5,389
------------------------------------------------------------------------------------------
     Income before taxes                  $3,670        $4,258       $4,915        $4,583
Income tax expense                         1,252         1,421        1,651         1,556
------------------------------------------------------------------------------------------
     Net income                           $2,418        $2,837       $3,264        $3,027
------------------------------------------------------------------------------------------
Net income per common share:

     Basic                                $ 0.32        $ 0.36       $ 0.42        $ 0.38
     Diluted                              $ 0.29        $ 0.33       $ 0.38        $ 0.36
</TABLE>

<TABLE>
<CAPTION>

                                                       2002 QUARTERS
                                   -------------------------------------------------------
                                       FIRST         SECOND        THIRD        FOURTH
                                   -------------------------------------------------------
<S>                                       <C>           <C>         <C>           <C>
Interest income                           $8,748        $9,634      $10,225       $10,391
Interest expense                           3,377         3,563        3,643         3,545
------------------------------------------------------------------------------------------
     Net interest income                  $5,371        $6,071       $6,582        $6,846
Provision for loan losses                    521           322          571           264
     Net interest income after
     provision for loan losses            $4,850        $5,749       $6,011        $6,582
Non-interest income                        1,267         1,194        1,368         1,764
Non-interest expense                       4,065         4,116        4,235         4,801
------------------------------------------------------------------------------------------
     Income before taxes                  $2,052        $2,827       $3,144        $3,545
Income tax expense                           689           952        1,058         1,193
------------------------------------------------------------------------------------------
     Net income                           $1,363        $1,875       $2,086        $2,352
------------------------------------------------------------------------------------------
Net income per common share:
     Basic                                $ 0.20        $ 0.28       $ 0.28        $ 0.32
     Diluted                              $ 0.18        $ 0.24       $ 0.25        $ 0.29
</TABLE>

NOTE 23: 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, serving 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, 2003, 2002 and
2001. Eliminations consist of overhead and interest charges by the Bank to the
mortgage lending division.


                                       46
<PAGE>

<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                 2003
---------------------------------------------------------------------------------------------------------------------
(In thousands)                                          Community           Mortgage      Eliminations        Total
                                                         Banking            Lending
---------------------------------------------------------------------------------------------------------------------
<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                                           $ 877,462            $ 3,662           $  --        $ 881,124
=====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                 2002
=====================================================================================================================
(In thousands)                                          Community           Mortgage      Eliminations        Total
                                                         Banking            Lending
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>             <C>           <C>
  Interest income                                       $ 38,430              $ 568          $  --          $ 38,998
  Non-interest income                                      1,673              3,920             --             5,593
---------------------------------------------------------------------------------------------------------------------
     Total operating income                             $ 40,103            $ 4,488          $  --          $ 44,591

  Interest expense                                      $ 14,128              $ 121          $(121)         $ 14,128
  Provision for loan losses                                1,678                 --             --             1,678
  Non-interest expense                                    14,594              2,662            (39)           17,217
     Total operating expense                            $ 30,400            $ 2,783          $(160)         $ 33,023
---------------------------------------------------------------------------------------------------------------------
Income before taxes on income                            $ 9,703            $ 1,705          $ 160          $ 11,568
Provision for income taxes                                 3,314                578             --             3,892
---------------------------------------------------------------------------------------------------------------------
Net Income                                               $ 6,389            $ 1,127          $ 160           $ 7,676
---------------------------------------------------------------------------------------------------------------------

Total Assets                                           $ 643,743           $ 19,144          $  --         $ 662,887
=====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                 2001
=====================================================================================================================
(In thousands)                                          Community           Mortgage      Eliminations        Total
                                                         Banking            Lending
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>             <C>           <C>
  Interest income                                       $ 33,380              $ 517           $  --         $ 33,897
  Non-interest income                                      1,325              3,379              --            4,704
---------------------------------------------------------------------------------------------------------------------
     Total operating income                             $ 34,705            $ 3,896           $  --         $ 38,601

  Interest expense                                      $ 15,991              $ 252           $(252)        $ 15,991
  Provision for loan losses                                1,572                 --              --            1,572
  Non-interest expense                                    11,793              2,227             (38)          13,982
     Total operating expense                            $ 29,356            $ 2,479           $(290)        $ 31,545
---------------------------------------------------------------------------------------------------------------------
Income before taxes on income                            $ 5,349            $ 1,417           $ 290          $ 7,056
Provision for income taxes                                 1,909                482              --            2,391
---------------------------------------------------------------------------------------------------------------------
Net Income                                               $ 3,440              $ 935           $ 290          $ 4,665
---------------------------------------------------------------------------------------------------------------------

Total Assets                                           $ 473,488           $ 16,023           $  --        $ 489,511
=====================================================================================================================
</TABLE>

                                       47
<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 shares 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, a branch with a drive-in
facility, and an investments services office are located at 5350 Lee Highway,
Arlington, Virginia. The Bank has twelve additional full service branch offices,
located at: 2930 Wilson Boulevard and 6500 Williamsburg Boulevard, both in
Arlington, Virginia; 1414 Prince Street, 5140 Duke Street and 506 King Street in
Alexandria, Virginia, 1356 Chain Bridge Road in McLean, Virginia, 4230 John Marr
Drive in Annandale, Virginia, 10777 Main Street in Fairfax, Virginia, 374 Maple
Avenue East in Vienna, Virginia, 13881 G Metrotech Drive in Chantilly, Virginia,
2030 Old Bridge Road in Lake Ridge, Virginia, and 11820 Spectrum Center in
Reston, Virginia. Additionally, the Bank maintains residential mortgage lending
offices, located in Vienna and Warrenton, Virginia.

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 is Arlington and Fairfax Counties and the City of Alexandria
in Northern Virginia, and the metropolitan Washington, DC 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 DC, including Arlington County, the City of Alexandria, Fairfax
County and Prince William County. 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.

                                       48
<PAGE>

The majority of the Bank's deposits are attracted from individuals and business
in the Metropolitan Washington DC 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 DC 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. The Bank's loans are not concentrated within a single industry or
group of related industries.

The Bank provides businesses with a full range of deposit accounts, merchant
bankcard services, electronic funds transfer services, lock-box services, PC
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 insurance and 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, 2003, the Company had 168 full-time equivalent employees,
including four 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.
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

                                       49
<PAGE>

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.

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 capital. Commercial construction
loans will make up 50-100% of total 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,
2003 the loan portfolio's actual composition compared to qualified capital
consisted of approximately 37% commercial construction loans, 155% residential
construction loans, 446% non-farm non-residential real estate loans, 111%
residential mortgages and home equity loans, 77% commercial loans and 8%
consumer installment and personal loans. Total real estate loans were 749%.

                                       50

<PAGE>

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.

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, 2003, the Banks statutory lending limit to any single borrower
was $11,967,953 subject to certain exceptions provided under applicable law. As
of December 31, 2003, the Bank's credit exposure to its largest borrower did not
exceed $7,500,000.

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

                                       51
<PAGE>

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.

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

                                       52
<PAGE>

products and pricing. The Committee commissions periodic documentation and
internal control reviews by outside vendors to complement internal audit and
credit administration oversight.

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.

                                       53

<PAGE>

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.

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
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 DC/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.

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.

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.

                                       54
<PAGE>

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, 2003, the Bank's Tier 1 risk based capital ratio was 7.71%, its
Total risk based capital ratio was 11.03% and its Leverage Capital ratio was
6.33%. At December 31, 2003, the Company's Tier 1 Capital was 10.10%, its Total
Capital was 11.13% and its Leverage Capital ratio was 8.49%.

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%.

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

                                       55

<PAGE>

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, 2003, the Bank was 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.

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

                                       56

<PAGE>

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 twelve additional banking offices, 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 ten 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,
and the Bank's operations center, located at 14201 Sullyfield Circle, Chantilly,
Virginia consists of 14,756 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. The total rental expense under the
leases was $1.2 million in 2003. The total minimum rental commitment under the
leases as of December 31, 2003 is as follows: $1.1 million for 2004; $1.1
million for 2005, $703 thousand for 2006, $688 thousand for 2007, $577 thousand
for 2008 and $1.5 million for 2009 and beyond.

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 he 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 adequate. 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, 2003 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.

FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K

The following financial statements are included in this report:
         Consolidated Balance Sheets at December 31, 2002 and 2003
         Consolidated Statements of Income for the years ended December 31,
           2001, 2002 and 2003
         Consolidated Statements of Cash Flows for the years ended December 31,
           2001, 2002 and 2003
         Consolidated Statements of Changes in Stockholders' Equity for the
           years ended December 31, 2001, 2002 and 2003
         Notes to the Consolidated Financial Statements
         Report of Independent Auditors

                                       57

<PAGE>

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
<TABLE>
<CAPTION>

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

<S>    <C>         <C>
       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)
      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 8 to the Consolidated Financial Statements
       21           Subsidiaries of the Registrant
       23           Consent of Yount, Hyde & Barbour, PC, Independent Auditors
      31.1          Certification of Peter A. Converse, President and Chief Executive Officer
      31.2          Certification of William K. Beauchesne, Treasurer and Chief Financial Officer
      32.1          Certification of Peter A. Converse, President and Chief Executive Officer
      32.2          Certification of William K. Beauchesne, Treasurer and Chief Financial Officer
<FN>
(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).
</FN>
</TABLE>

Reports on Form 8-K

On October 8, 2003, the Company filed a current report on form 8-K, under item 5
thereof, reflecting the announcement of earnings for the period ended September
30, 2003.

                                       58

<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, President

Dated:  March 15, 2004

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 15, 2004
----------------------------
Leonard Adler


 /s/ Peter A. Converse                               Director, President and Chief Executive     March 15, 2004
----------------------------                         Officer (Principal Executive Officer)
Peter A. Converse

 /s/Frank L. Cowles, Jr.                             Director                                    March 15, 2004
----------------------------
Frank L. Cowles, Jr.


 /s/ W. Douglas Fisher                               Chairman of the Board of Directors          March 15, 2004
----------------------------
W. Douglas Fisher


 /s/ David M. Guernsey                               Vice Chairman of the Board of Directors     March 15, 2004
----------------------------
David M. Guernsey


 /s/ Robert H. L'Hommedieu                           Director                                    March 15, 2004
----------------------------
Robert H. L'Hommedieu


 /s/ Norris E. Mitchell                              Director                                    March 15, 2004
----------------------------
Norris E. Mitchell


 /s/ Arthur L. Walters                               Vice Chairman of the Board of Directors     March 15, 2004
----------------------------
Arthur L. Walters


 /s/ William K. Beauchesne                           Treasurer and Chief Financial Officer       March 15, 2004
----------------------------                         (Principal Financial and Accounting Officer)
William K. Beauchesne

</TABLE>


                                       59