<PAGE>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the quarterly period ended September 30, 2004

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

     For the transition period from _______________ to _______________

                        Commission file number 000-32641

                           JAMES MONROE BANCORP, INC.
        (Exact Name of Small Business Issuer as Specified in its Charter)

                 VIRGINIA                               54-1941875
       (State or Other Jurisdiction         (I.R.S. Employer Identification No.)
     of Incorporation or Organization)

                  3033 WILSON BLVD., ARLINGTON, VIRGINIA 22201
                    (Address of Principal Executive Offices)

                                  703-707-8855
                (Issuer's Telephone Number, Including Area Code)

                                       N/A
              (Former Name, Former Address and Former Fiscal Year,
                          If Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ].

State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 31, 2004.

            Common stock, $1 par value--4,437,869 shares outstanding.

            Transitional Small Business Disclosure Format. Yes [ ] No [X].
<PAGE>

                           JAMES MONROE BANCORP, INC.
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                     Page No.
                                                                                     --------
<S>         <C>                                                                         <C>
Part I.     Financial Information

            Item 1.  Financial Statements
                     Consolidated Balance Sheets at September 30, 2004,
                      December 31, 2003, and September 30, 2003                          3
                     Consolidated Statements of Income for the three months and
                      nine months ended September 30, 2004 and 2003                      4
                     Consolidated Statements of Changes in Stockholders'
                      Equity for the nine months ended September 30, 2004 and 2003       5
                     Consolidated Statements of Cash Flows for the nine months
                      ended September 30, 2004 and 2003                                  6
                     Notes to Interim Consolidated Financial Statements                  7

            Item 2.  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                               13

            Item 3.  Controls and Procedures                                            28

Part II.    Other Information

            Item 1.  Legal Proceedings                                                  29

            Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds        29

            Item 3.  Defaults Upon Senior Securities                                    29

            Item 4.  Submission of Matters to a Vote of Security Holders                29

            Item 5.  Other Information                                                  29

            Item 6.  Exhibits                                                           29
</TABLE>

                                        2
<PAGE>

                          PART I. Financial Information

Item 1. Financial Statements
                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
          September 30, 2004, December 31, 2003, and September 30, 2003
                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                          (Unaudited)      (Audited)      (Unaudited)
                                                         SEPTEMBER 30,    DECEMBER 31,   SEPTEMBER 30,
                                                             2004            2003            2003
                                                         -------------   -------------   -------------
<S>                                                      <C>             <C>             <C>
ASSETS
Cash and due from banks                                  $      14,831   $      11,908   $      14,282
Interest bearing deposits in banks                               1,668               -             266
Federal funds sold                                              48,275               -          12,581
Securities available for sale, at fair value                   118,053         122,328         105,292
Mortgages held for sale                                            549             561             808
Loans, net of allowance for loan losses of $2,577
 at September 30, 2004, $1,955 at December 31,
 2003 and $1,765 at September 30, 2003                         227,527         167,092         152,247
Bank premises and equipment, net                                 2,357           1,388           1,390
Accrued interest receivable                                      1,746           1,336           1,250
Other assets                                                     1,428           1,038             798
                                                         -------------   -------------   -------------
TOTAL ASSETS                                             $     416,434   $     305,651   $     288,914
                                                         =============   =============   =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
  Noninterest bearing deposits                           $     102,054   $      65,598   $      80,982
  Interest bearing deposits                                    268,565         189,518         177,545
                                                         -------------   -------------   -------------
Total deposits                                                 370,619         255,116         258,527
Federal funds purchased                                              -           6,886               -
Trust preferred capital notes                                    9,000           9,000           9,000
Accrued interest payable and other liabilities                     643             758             692
                                                         -------------   -------------   -------------
  Total liabilities                                            380,262         271,760         268,219
                                                         -------------   -------------   -------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized
 10,000,000 shares; issued and outstanding
 4,437,869 at September 30, 2004, 2,943,802 shares
 at December 31, 2003, 2,333,642 at September 30, 2003           4,438           2,944           2,334
Capital surplus                                                 24,204          25,425          13,215
Retained earnings                                                7,633           5,491           4,698
Accumulated other comprehensive income(loss)                      (103)             31             448
                                                         -------------   -------------   -------------
  Total stockholders' equity                                    36,172          33,891          20,695
                                                         -------------   -------------   -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $     416,434   $     305,651   $     288,914
                                                         =============   =============   =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                        3
<PAGE>

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                          (Unaudited)                         (Unaudited)
                                               THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,
                                               ---------------------------------   ---------------------------------
                                                    2004              2003               2004              2003
                                               ---------------   ---------------   ---------------   ---------------
<S>                                            <C>               <C>               <C>               <C>
INTEREST AND DIVIDEND INCOME:
  Loans, including fees                        $         3,318   $         2,500   $         9,128   $         7,073
  Loans held for sale                                        8                27                26                52
  Securities, taxable                                      988               786             2,813             2,176
  Federal funds sold                                       112                58               162               157
  Other interest income                                      -                 -                 -                 1
                                               ---------------   ---------------   ---------------   ---------------
Total interest and dividend income                       4,426             3,371            12,129             9,459
INTEREST EXPENSE:
  Deposits                                               1,120               786             2,838             2,436
  Borrowed funds                                           117                90               363               217
                                               ---------------   ---------------   ---------------   ---------------
Total interest expense                                   1,237               876             3,201             2,653
                                               ---------------   ---------------   ---------------   ---------------
Net interest income                                      3,189             2,495             8,928             6,806
PROVISION FOR LOAN LOSSES                                  273               123               766               472
                                               ---------------   ---------------   ---------------   ---------------
Net interest income after provision for loan
 losses                                                  2,916             2,372             8,162             6,334
NONINTEREST INCOME:
  Service charges and fees                                  72                66               254               221
  Gain on sale of securities                                 -               101                54               157
  Gain on sale of mortgage loans                            77               106               248               191
  Other                                                     82                85               265               218
                                               ---------------   ---------------   ---------------   ---------------
Total noninterest income                                   231               358               821               787
NONINTEREST EXPENSES:
  Salaries and wages                                       905               723             2,721             1,951
  Employee benefits                                        178               240               520               449
  Occupancy expenses                                       265               149               593               452
  Equipment expenses                                       138               106               304               306
  Other operating expenses                                 589               390             1,575             1,238
                                               ---------------   ---------------   ---------------   ---------------
Total noninterest expenses                               2,075             1,608             5,713             4,396
                                               ---------------   ---------------   ---------------   ---------------
Income before income taxes                               1,072             1,122             3,270             2,725
PROVISION FOR INCOME TAXES                                 367               387             1,125               916
                                               ---------------   ---------------   ---------------   ---------------
Net income                                     $           705   $           735   $         2,145   $         1,809
                                               ===============   ===============   ===============   ===============

EARNINGS PER SHARE, basic                      $          0.16   $          0.21   $          0.48   $          0.52
EARNINGS PER SHARE, diluted                    $          0.15   $          0.19   $          0.46   $          0.49
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                        4
<PAGE>

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              For the Nine Months Ended September 30, 2004 and 2003
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   ACCUMULATED
                                                                                      OTHER                             TOTAL
                                        COMMON       CAPITAL        RETAINED      COMPREHENSIVE    COMPREHENSIVE    STOCKHOLDERS'
                                         STOCK       SURPLUS        EARNINGS       INCOME (LOSS)       INCOME           EQUITY
                                       ---------    ---------    --------------   --------------   -------------    --------------
<S>                                    <C>          <C>          <C>              <C>              <C>              <C>
BALANCE, JANUARY 1, 2003               $   1,841    $  13,354    $        2,894   $        1,106                    $      19,195
Comprehensive income:
  Net income                                                              1,809                    $       1,809            1,809
  Net change in unrealized gain
   on available for sale securities,
   net of deferred taxes of $339                                                            (658)           (658)            (658)
                                                                                                   -------------
  Total comprehensive income                                                                       $       1,151
                                                                                                   =============
  Issuance of common stock                     2           64                                                                  66
  Effect of stock split                      460         (460)                                                                  -
  Exercise of stock options                   31          257                                                                 288
  Cash paid in lieu of fractional
   shares                                                                    (5)                                               (5)
                                       ---------    ---------    --------------   --------------                    -------------
BALANCE, SEPTEMBER 30, 2003            $   2,334    $  13,215    $        4,698   $          448                    $      20,695
                                       =========    =========    ==============   ==============                    =============
</TABLE>

<TABLE>
<CAPTION>
                                                                                   ACCUMULATED
                                                                                      OTHER                             TOTAL
                                        COMMON       CAPITAL        RETAINED      COMPREHENSIVE    COMPREHENSIVE    STOCKHOLDERS'
                                         STOCK       SURPLUS        EARNINGS       INCOME (LOSS)       INCOME           EQUITY
                                       ---------    ---------    --------------   --------------   --------------   -------------
<S>                                    <C>          <C>          <C>              <C>              <C>              <C>
BALANCE, JANUARY 1, 2004               $   2,944    $  25,425    $        5,491   $           31                    $      33,891
Comprehensive income:
  Net income                                                              2,145                    $       2,145            2,145
  Net change in unrealized gain
   (loss) on available for sale
   securities, net of deferred taxes
   of $69                                                                                   (134)           (134)            (134)
                                                                                                   -------------
  Total comprehensive income                                                                       $       2,011
                                                                                                   =============
  Exercise of stock options                   13          186                                                                 199
  Issuance of common stock                     3           71                                                                  74
  Effect of stock split                    1,478       (1,478)                                                                  -
  Cash paid in lieu of fractional
   shares                                                                    (3)                                               (3)
                                       ---------    ---------    --------------   --------------                    -------------
BALANCE, SEPTEMBER 30, 2004            $   4,438    $  24,204    $        7,633   $         (103)                   $      36,172
                                       =========    =========    ==============   ==============                    =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                        5
<PAGE>

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Nine Months Ended September 30, 2004 and 2003
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                                        -------------------------------
                                                             2004             2003
                                                        --------------   --------------
<S>                                                     <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                              $        2,145   $        1,809
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                                    257              237
  Provision for loan losses                                        766              472
  Amortization of bond premium                                     243                -
  Accretion of bond discount                                       (62)             (58)
  Realized (gain) on sales of securities
   available for sale                                              (54)            (157)
  Realized (gain) on sales of mortgage loans
   held-for-sale                                                  (248)            (191)
  Originiation of mortgage loans held-for-sale                 (12,724)         (34,556)
  Proceeds from sales of mortgage loans
   held-for-sale                                                12,984           33,939
  Deferred income tax (benefit)                                   (340)               -
  (Increase) in accrued interest receivable                       (410)            (334)
  (Increase) decrease in other assets                              (50)             167
  (Decrease) in accrued interest payable and
   other liabilities                                              (115)             (36)
                                                        --------------   --------------
    Net cash provided by operating activities           $        2,392   $        1,292
                                                        --------------   --------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of securities available for sale            $      (50,349)  $      (94,557)
  Proceeds from calls and maturities of securities
   available for sale                                           18,197           15,646
  Proceeds from sales of securities available
   for sale                                                     36,169           48,566
  Purchases of premises and equipment                           (1,226)            (294)
  (Increase) decrease in interest bearing cash
   balances                                                     (1,668)               -
  (Increase) decrease in Federal funds sold                    (48,275)          16,634
  Net (increase) in loans                                      (61,201)         (33,062)
                                                        --------------   --------------
    Net cash (used in) investing activities             $     (108,353)  $      (47,067)
                                                        --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in demand deposits, savings
   deposits and money market accounts                   $      109,905   $       39,069
  Net increase in time deposits                                  5,598            5,588
  Net (decrease) in Federal funds purchased                     (6,886)               -
  Proceeds from issuance of common stock                           273              354
  Proceeds from issuance of trust preferred
   capital notes                                                     -            4,000
  Cash paid in lieu of fractional shares                            (3)              (5)
                                                        --------------   --------------
    Net cash provided by financing activities           $      108,887   $       49,006
                                                        --------------   --------------

Increase in cash and due from banks                     $        2,926   $        3,231
CASH AND DUE FROM BANKS
  Beginning                                             $       11,908   $       11,051
                                                        --------------   --------------
  Ending                                                $       14,834   $       14,282
                                                        ==============   ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid on deposits and borrowed funds          $        3,383   $        2,699
                                                        ==============   ==============
  Income taxes paid                                     $        1,218   $          966
                                                        ==============   ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
  Unrealized (loss) on securities available for sale    $         (198)  $         (997)
                                                        ==============   ==============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                        6
<PAGE>

                   JAMES MONROE BANCORP, INC. AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.

Organization. James Monroe Bancorp, Inc. was incorporated under the laws of the
Commonwealth of Virginia on April 9, 1999 to be the holding company for James
Monroe Bank. James Monroe Bancorp acquired all of the shares of James Monroe
Bank on July 1, 1999 in a mandatory share exchange under which each outstanding
share of common stock of James Monroe Bank was exchanged for one share of James
Monroe Bancorp common stock. James Monroe Bank, a Virginia chartered commercial
bank, which is a member of the Federal Reserve System, is James Monroe Bancorp's
sole operating subsidiary. James Monroe Bank commenced banking operations on
June 8, 1998. As of September 30, 2004 the Company operated the main office in
Arlington, Virginia, one branch in Annandale, Virginia, one branch and a
drive-up facility in Leesburg, Virginia, one branch in Fairfax City, Virginia,
one branch in Chantilly, Virginia, and one branch in Manassas, Virginia.

Basis of Presentation. In the opinion of management, the accompanying unaudited
consolidated financial statements of James Monroe Bancorp, Inc. and Subsidiaries
(the Company) have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments and reclassifications
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 2004 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2004, or any other period. The unaudited interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes for the year ended December 31, 2003.

Stock Compensation Plans. At September 30, 2004, the Company had three stock
based compensation plans. The Company accounts for these plans under the
recognition and measurement principles of APB Opinion No. 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 those
plans 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 if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock Based Compensation,
to stock based employee compensation. The per share calculations have been
restated to reflect the 3-for-2 stock split discussed in Note 7 and all
preceding stock splits.

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED       NINE MONTHS ENDED
                                                         SEPTEMBER 30,            SEPTEMBER 30,
                                                    ---------------------   -----------------------
(Dollars in thousands, except per share data)          2004        2003        2004         2003
-------------------------------------------------   ---------   ---------   ----------   ----------
<S>                                                 <C>         <C>         <C>          <C>
Net income, as reported                             $     705   $     735   $    2,145   $    1,809
Deduct:Total stock-based employee compensation
 expense determined under fair value based method
 for all awards                                          (114)       (177)        (556)        (195)
                                                    ---------   ---------   ----------   ----------
Pro forma net income                                $     591   $     558   $    1,589   $    1,614
                                                    =========   =========   ==========   ==========
Earnings per share:
  Basic- as reported                                     0.16        0.21         0.48         0.52
                                                    =========   =========   ==========   ==========
  Basic- pro forma                                       0.13        0.16         0.36         0.47
                                                    =========   =========   ==========   ==========
  Diluted- as reported                                   0.15        0.19         0.46         0.49
                                                    =========   =========   ==========   ==========
  Diluted- pro forma                                     0.13        0.15         0.34         0.43
                                                    =========   =========   ==========   ==========
</TABLE>

                                        7
<PAGE>

        The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
results:

                                                   2004
                                                ---------
           Dividend yield                           0.00%
           Expected life                        8.1 years
           Expected volatility                     37.54%
           Risk free interest rate                  3.88%

NOTE 2.

Earnings Per Share. The following table discloses the calculation of basic and
diluted earnings per share for the three months and nine months ended September
30, 2004 and 2003. The average shares outstanding and per share calculations
have been restated to reflect the 3-for-2 stock split discussed in Note 7 and
all preceding stock splits.

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED           NINE MONTHS ENDED
                                                     SEPTEMBER 30,                SEPTEMBER 30,
                                               -------------------------   -------------------------
(Dollars in thousands, except per share data)     2004           2003         2004           2003
---------------------------------------------  -----------   -----------   -----------   -----------
<S>                                            <C>           <C>           <C>           <C>
Net Income                                     $       705   $       735   $     2,145   $     1,809
                                               ===========   ===========   ===========   ===========
Weighted average shares outstanding--basic       4,437,527     3,499,775     4,434,214     3,467,888
Common share equivalents for stock options         240,809       238,542       238,316       242,653
                                               -----------   -----------   -----------   -----------
Weighted average shares outstanding--diluted     4,678,336     3,738,317     4,672,530     3,710,540
                                               ===========   ===========   ===========   ===========
Earnings per share-basic                       $      0.16   $      0.21   $      0.48   $      0.52
                                               ===========   ===========   ===========   ===========
Earnings per share-diluted                     $      0.15   $      0.19   $      0.46   $      0.49
                                               ===========   ===========   ===========   ===========
</TABLE>

                                        8
<PAGE>

NOTE 3.

Securities available for sale. Securities available for sale are reported at
fair value with unrealized gains and losses (net of income taxes) recorded in
stockholders' equity as a component of "accumulated other comprehensive income
(loss)." Actual gains and losses on the sales of these securities, if any, are
computed using the specific identification method and included in "gain (loss)
on sale of securities" on the income statement. The amortized cost and carrying
value (estimated market value) of securities available for sale at September 30,
2004, December 31, 2003, and September 30, 2003, are summarized in the tables
that follow. The Company classifies all securities as available for sale.

<TABLE>
<CAPTION>
                                                 (Dollars in thousands)
                                                   September 30, 2004
                                     -------------------------------------------------
                                                     Gross        Gross      Estimated
                                      Amortized   Unrealized   Unrealized     Market
                                        Cost         Gains       Losses        Value
                                     ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>
U.S. Government and federal agency   $   97,718   $      356   $     (503)  $   97,571
Mortgage-backed securities               17,289          165         (197)      17,257
Corporate notes                           2,154           45          (22)       2,177
Restricted Stock                          1,048            -            -        1,048
                                     ----------   ----------   ----------   ----------
                                     $  118,209   $      566   $     (722)  $  118,053
                                     ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                   December 31, 2003
                                     -------------------------------------------------
                                                     Gross        Gross     Estimated
                                      Amortized   Unrealized   Unrealized     Market
                                        Cost         Gains       Losses       Value
                                     ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>
U.S. Government and federal agency   $   95,196   $      322   $     (589)  $   94,929
Mortgage-backed securities               19,883          206         (162)      19,927
Corporate notes                           6,301          279           (9)       6,571
Restricted Stock                            901            -            -          901
                                     ----------   ----------   ----------   ----------
                                     $  122,281   $      807   $     (760)  $  122,328
                                     ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                   September 30, 2003
                                     -------------------------------------------------
                                                     Gross        Gross     Estimated
                                      Amortized   Unrealized   Unrealized     Market
                                        Cost         Gains       Losses       Value
                                     ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>
U.S. Government and federal agency   $   68,349   $      416   $     (325)  $   68,440
Mortgage-backed securities               24,465          235         (125)      24,575
Corporate notes                          10,899          477            -       11,376
Restricted Stock                            901            -            -          901
                                     ----------   ----------   ----------   ----------
                                     $  104,614   $    1,128   $     (450)  $  105,292
                                     ==========   ==========   ==========   ==========
</TABLE>

                                        9
<PAGE>

NOTE 4.

Loans. Major classifications of loans at September 30, 2004, December 31, 2003,
and September 30, 2003 are summarized in the following table.

<TABLE>
<CAPTION>
                                               SEPTEMBER 30,      DECEMBER 31,     SEPTEMBER 30,
        (Dollars in thousands)                     2004               2003             2003
        ----------------------------------   -----------------   -------------   -----------------
        <S>                                  <C>                 <C>             <C>
        Construction loans                   $          30,163   $      18,130   $          15,522
        Commercial loans                                32,519          24,885              25,160
        Commercial real estate loans                   154,286         113,316             101,401
        Real estate-1-4 family residential               1,607           3,801               1,720
        Home equity loans                                5,242           3,193               3,145
        Consumer loans                                   6,230           5,691               6,852
        Deposit overdrafts                                  57              31                 212
                                             -----------------   -------------   ------------------
                                                       230,104         169,047             154,012
        Less allowance for loan losses                  (2,577)         (1,955)             (1,765)
                                             -----------------   -------------   ------------------
        Net Loans                            $         227,527   $     167,092   $         152,247
                                             =================   =============   ==================
</TABLE>

        Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                             NINE MONTHS ENDED     YEAR ENDED     NINE MONTHS ENDED
                                                SEPTEMBER 30,     DECEMBER 31,      SEPTEMBER 30,
        (Dollars in thousands)                      2004               2003             2003
        ---------------------------------    -----------------   -------------   -----------------
        <S>                                  <C>                 <C>             <C>
        Beginning balance                    $           1,955   $       1,390   $           1,390
        Loan charge-offs:
          Commercial                                      (135)            (71)                (71)
          Consumer                                         (10)            (41)                (41)
                                             -----------------   -------------   -----------------
            Total charge-offs                             (145)           (112)               (112)
        Recoveries of loans previously
         charged-off:
          Commercial                                         -              15                  15
          Consumer                                           1               -                   -
                                             -----------------   -------------   -----------------
            Total recoveries                                 1              15                  15
                                             -----------------   -------------   -----------------
          Net charge-offs                                 (144)            (97)                (97)
                                             -----------------   -------------   -----------------
        Provision for loan losses                          766             662                 472
                                             -----------------   -------------   -----------------
        Ending balance                       $           2,577   $       1,955   $           1,765
                                             =================   =============   =================
</TABLE>

                                       10
<PAGE>

        The following table presents the amounts of nonperforming assets at the
        dates indicated.

<TABLE>
<CAPTION>
                                                   SEPTEMBER 30,    DECEMBER 31,   SEPTEMBER 30,
        (Dollars in thousands)                         2004             2003            2003
        ----------------------------------------   -------------   -------------   -------------
        <S>                                        <C>             <C>             <C>
        Nonaccrual loans
          Commercial                               $         354   $         510   $         376
          Consumer                                             -               -              31
                                                   -------------   -------------   -------------
            Total nonaccrual loans                           354             510             407
        Loans past-due 90-days or more
          Commercial                                          40               -               -
          Consumer                                             7              34               -
                                                   -------------   -------------   -------------
            Total loans past-due 90-days or more              47              34               -
        Restructured loans                                     -               -               -
                                                   -------------   -------------   -------------
          Total nonperforming assets               $         401   $         544   $         407
                                                   =============   =============   =============
</TABLE>

NOTE 5.

Deposits. Interest bearing deposits consist of the following:

<TABLE>
<CAPTION>
                                                    SEPTEMBER 30,   DECEMBER 31,    SEPTEMBER 30,
        (Dollars in thousands)                          2004            2003            2003
        -----------------------------------------   -------------   -------------   -------------
        <S>                                         <C>             <C>             <C>
        NOW accounts                                $      14,209   $      12,068   $      12,254
        Savings accounts                                    4,421           2,846           2,253
        Money market accounts                             195,824         126,091         119,129
        Certificates of deposit under $100,000             11,637          13,115          13,271
        Certificates of deposit $100,000 and over          40,991          33,694          28,926
        Individual retirement accounts                      1,483           1,704           1,712
                                                    -------------   -------------   -------------
                                                    $     268,565   $     189,518   $     177,545
                                                    =============   =============   =============
</TABLE>

NOTE 6.

Trust Preferred Capital Securities. On March 25, 2002, James Monroe Statutory
Trust I, a subsidiary of the Company, was formed for the purpose of issuing
redeemable trust preferred securities and purchasing the Company's junior
subordinated debentures, which are its sole assets. The Company owns all of
Trust I's outstanding common securities. On March 26, 2002, $5 million of the
trust preferred securities were issued in a pooled underwriting totaling
approximately $500 million. The securities bear interest at a rate equal to the
three month LIBOR plus 360 basis points, subject to a cap of 11% which is set
and payable on a quarterly basis. During 2003, the interest rates ranged from
5.00% to 4.61%. The interest rate from June 26, 2004 through September 25, 2004
was 5.19%. The interest rate for the period September 26, 2004 through December
25, 2004 is 5.55%. The securities have a maturity date of March 25, 2032, and
are subject to varying call provisions beginning March 26, 2007.

On July 16, 2003, James Monroe Statutory Trust II, a subsidiary of the Company,
was formed for the purpose of issuing redeemable trust preferred securities and
purchasing the Company's junior subordinated debentures, which are its sole
assets. The Company owns all of Trust II's outstanding common securities. On
July 31, 2003, $4 million of the trust preferred securities were issued in a
private placement transaction. The securities bear interest at a rate equal to
the three month LIBOR plus 310 basis points, subject to a cap of 12% which is
set and payable on a quarterly basis. During 2003, the interest rates ranged
from 4.21% to 4.24%. The interest rate from June 30, 2004 through September 29,
2004 was 4.69%. The interest rate for the period September 28, 2004 through
December 30, 2004 is 5.08%. The securities have a maturity date of July 31,
2033, and are subject to ranging call provisions beginning July 31, 2008.

                                       11
<PAGE>

The trust preferred securities may be included in Tier 1 capital for regulatory
capital adequacy determination purposes up to 25% of Tier 1 capital. The portion
of the securities not considered as Tier 1 capital will be included in Tier 2
capital. At September 30, 2004, all of the trust preferred securities qualified
as Tier 1 capital.

The Company and the Trusts believe that, taken together, the Company's
obligations under the junior subordinated debentures, the Indentures, the Trust
Declarations and the Guarantees entered into in connection with the issuance of
the trust preferred securities constitute a full and unconditional guarantee by
the Company of the Trusts' respective obligations with respect to the trust
preferred securities.

Subject to certain exceptions and limitations, the Company may elect from time
to time to defer interest payments on the junior subordinated debt securities,
which would result in a deferral of distribution payments on the related trust
preferred securities.

NOTE 7.

Common Stock Split. On June 1, 2004 the Company issued 1,478,317 additional
shares necessary to effect a 3-for-2 common stock split for shareholders of
record on May 14, 2004. The earnings per common share for all periods presented
have been restated to reflect the stock split.

On May 16, 2003, the Company issued 459,968 additional shares necessary to
effect a 5-for-4 common stock split for shareholders of record April 25, 2003.
The earnings per common share for all periods prior to May 2003 have been
restated to reflect the stock split.

                                       12
<PAGE>

ITEM 2. 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
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 such words as "may," "will,"
"anticipate," "believes," "expects," "plans," "estimates," "potential,"
"continue," "should," and similar words or phases. These statements are based
upon current and anticipated economic conditions, nationally and in the
Company's market, interest rates and interest rate policies, competitive
factors, government agencies and other third parties, which by their nature are
not susceptible to accurate forecast, and are subject to significant
uncertainty. Because of these uncertainties and the assumptions on which this
discussion and the forward looking statements are based, actual future
operations and results in the future may differ materially from those indicated
herein. Readers are cautioned against placing undue reliance on any such forward
looking statement.

INTRODUCTION

        This Management's Discussion and Analysis reviews the financial
condition and results of operations of the Company and its subsidiaries as of
and for the three and nine months ended September 30, 2004 and 2003. Some tables
cover more than these periods to comply with Securities and Exchange Commission
disclosure requirements or to illustrate trends over a period of time. When
reading this discussion, reference should be made to the consolidated financial
statements and related notes that appear herein and to our consolidated
financial statements and footnotes thereto for the year ended December 31, 2003.

CRITICAL ACCOUNTING POLICIES

        There were no changes to the Company's critical accounting policies in
the third quarter of 2004. Critical accounting policies are those applications
of accounting principles or practices that require considerable judgment,
estimation, or sensitivity analysis by management. In the financial service
industry, examples, albeit not an all inclusive list, of disclosures that may
fall within this definition are the determination of the adequacy of the
allowance for loan losses, valuation of mortgage servicing rights, valuation of
derivatives or securities without a readily determinable market value, and the
valuation of the fair value of intangibles and goodwill. Except for the
determination of the adequacy of the allowance for loan losses, the Company does
not believe there are other practices or policies that require significant
sensitivity analysis, judgments, or estimations.

        Allowance for Loan Losses. The Company has developed a methodology to
determine, on a quarterly basis, an allowance to absorb probable loan losses
inherent in the portfolio based on evaluations of the collectibility of loans,
historical loss experience, peer bank loss experience, delinquency trends,
economic conditions, portfolio composition, and specific loss estimates for
loans considered substandard or doubtful. All commercial and commercial real
estate loans that exhibit probable or observed credit weaknesses are subject to
individual review. If necessary, reserves would be allocated to individual loans
based on management's estimate of the borrower's ability to repay the loan given
the availability of collateral and other sources of cash flow. Any reserves for
impaired loans are measured based on the present rate or fair value of the
underlying collateral. The Company evaluates the collectibility of both
principal and interest when assessing the need for a loss accrual. A composite
allowance factor that considers the Company's and other peer bank loss
experience ratios, delinquency trends, economic conditions, and portfolio
composition are applied to the total of commercial and commercial real estate
loans not specifically evaluated. A percentage of this composite allowance
factor is also applied to the aggregate of unused commercial lines of credit
which the Company has an obligation to honor but where the borrower has not
elected to draw on their lines of credit.

        Homogeneous loans, such as consumer installment, residential mortgage
loans, home equity loans, and smaller consumer loans are not individually risk
graded. Reserves are established for each homogeneous pool of loans based on the
expected net charge offs from a current trend in delinquencies, losses or
historical experience and general economic conditions. The Company has no
material delinquencies in these types of loans, and has not, since inception,
had a trend or an indication of a trend that would guide the Company in expected
material losses in these types of homogeneous pools of loans.

                                       13
<PAGE>

        The Company's allowance for loan losses is determined based upon a
methodology developed by management as described above and is approved by the
board of directors each quarter.

COMPANY HIGHLIGHTS SINCE DECEMBER 31, 2003 ARE:

            o   Assets grew $110.8 million (36%).
            o   Loans grew $60.4 million (36%).
            o   Deposits grew $115.5 million (45%).
            o   Net interest margin was 3.78% for the nine months of 2004
                compared to 3.73% for the full year 2003 and 3.76% during the
                nine months of 2003.
            o   Asset quality remained strong as nonperforming assets decreased
                $143 thousand to $401 thousand. The allowance for loan losses
                totaled 1.12% of total loans outstanding at September 30, 2004.
            o   The Company ended the quarter with excellent liquidity and
                adequate capital to support further growth.
            o   The Company opened a sixth banking office in Chantilly, Virginia
                on July 26, 2004. In addition to the branch site, the Company
                leased 7,000 square feet of space on the second floor of the
                branch building to accommodate expanding administrative,
                operational support and mortgage services departments. The move
                into the new operations space was accomplished on July 10,
                enabling the Bank to maintain its focus on excellent customer
                service while continuing to grow at a rapid rate.
            o   The Company opened a seventh banking office in Manassas,
                Virginia on September 27, 2004. The Bank has hired three lenders
                who have spent a significant part of their banking careers
                working in the Manassas market.
            o   The Company's expansion into the Chantilly and Manassas markets,
                along with the opening of the new operations center, are growth
                oriented initiatives taken after additional capital was raised
                in the fourth quarter of 2003. While these pro-active
                initiatives have increased operating expenses, as evidenced by
                the rise in the Bank's efficiency ratio to 62% for the third
                quarter of 2004, the Company's focus remains on a long term
                strategy of expanding our franchise throughout the Northern
                Virginia market.
            o   The Company issued a three-for-two stock split for shareholders
                of record on May 14, 2004, payable June 1, 2004.

FINANCIAL OVERVIEW

        The following discussion provides information about the results of
operations and financial condition, liquidity, and capital resources of Bancorp
and should be read in conjunction with our consolidated financial statements and
notes thereto for the year ended December 31, 2003.

BALANCE SHEET

        September 30, 2004 vs. December 31, 2003 and September 30, 2003. Total
assets increased to $416.4 million at September 30, 2004, an increase of $110.8
million from December 31, 2003, and an increase of $127.5 million from September
30, 2003. The increase in assets since December 31, 2003 resulted from the
Company's emphasis on deposit generation as much as loan generation. During the
nine months ended September 30, 2004, deposits increased $115.5 million over
December 31, 2003, with noninterest bearing deposits increasing $36.5 million,
and interest bearing deposits increasing $79.0 million. With the growth in
deposits, the Company was able to fund $60.4 million net increase in loans.
Securities declined $4.3 million due to a combination of the sale of securities
and the call of a number of government agency securities, resulting in the short
term liquidity position of the Company improving $52.9 million. Net loans
increased $75.3 million at September 30, 2004 from September 30, 2003, as
deposits increased $112.1 million between the same periods. During the three
months ended September 30, 2004, loans increased $25.2 million as deposits
increased $56.4 million.

RESULTS OF OPERATIONS

        Nine Months 2004 vs. Nine Months 2003. For the nine months ended
September 30, 2004, the Company had net income of $2.15 million, or $.46 per
diluted share, compared to $1.81 million, or $.49 per diluted share, for the
comparable period of 2003. The comparable earnings per share are impacted by the
600,000 shares issued in November 2003, coupled with the 3-for-2 stock split
this year, resulting in approximately 900,000 more shares outstanding in
computing the 2004 earnings per share. Annualized return on average assets was
..85% for the nine months ended September 30, 2004,

                                       14
<PAGE>

compared to .94% for the same nine month period in 2003. Return on average
equity was 8.14% for the nine months ended September 30, 2004, compared with
12.15% for the same nine month period in 2003. The substantial increase in
capital resulting from the completion of the November 2003 offering and the time
lag until such additional capital can be fully leveraged significantly
contributed to the reduced returns on equity in 2004.

        Third Quarter 2004 vs. Third Quarter 2003. For the quarter ended
September 30, 2004, the Company had net income of $705 thousand, or $.15 per
diluted share, compared to $735 thousand, or $.19 per diluted share, for the
comparable quarter of 2003. As mentioned above, comparable earnings per share
are impacted by shares issued in November 2003, coupled with the 3-for-2 stock
split this year, resulting in more shares outstanding in computing the 2004
earnings per share. Annualized return on average assets was .76% for the three
months ended September 30, 2004, compared to 1.01% for the same quarter in 2003.
Return on average equity was 7.89% for the quarter ended September 30, 2004,
compared with 14.50% for the third quarter of 2003.

        During the third quarter of 2004, the Company continued to focus on
managing its net interest margin, especially in light of the continuing low
interest rate environment. Beginning in 2001 through June 2003, the Federal
Reserve reduced the federal funds target rate an aggregate of 550 basis points.
These dramatic reductions over a relatively short period continued to impact the
loan and investment portfolios in 2003 and 2004, as loans repriced on a delayed
basis or renewed at lower interest rates, and as investment securities matured
or were called, and were reinvested at lower rates. This was partially offset by
continued repricing upon renewal of certificates of deposit. While the Federal
Reserve began to reverse the rate reductions, through a series of three
increases aggregating 75 basis points, beginning on June 30, 2004, and
continuing in August and September 2004, the rate reductions and continuing low
rate environment has resulted in a reduction in the net interest margin
throughout the period, from 5.09% in 2000 to 4.56% in 2001 to 3.90% in 2002 to
3.73% in 2003. Despite these reductions, the Company's practice of managing its
interest rate risk process has mitigated the negative effect of such a severely
declining and low rate environment. As the rate increases have begun to impact
the Company, the net interest margin improved in the third quarter of 2004
compared to the third quarter of 2003, increasing to 3.67%. The Company expects
that continued increases in the federal funds target rate will further
contribute to increased margin as earning assets reprice, while repricing of
deposits lags. However, as discussed further under "Liquidity and Interest Rate
Sensitivity Management," as a result of competitive factors, market conditions,
customer preferences and other factors, the Company may not be able to benefit
from further increases in market interest rates.

        Although the Company has continued to grow in asset size since its
inception in 1998 it has been able to control its operating efficiency. Within
the past six months the Company expanded into the Chantilly and Manassas markets
and opened a new operations center. These are growth oriented initiatives taken
after additional capital was raised in the fourth quarter of 2003. While these
pro-active initiatives have increased operating expenses, as evidenced by the
rise in the bank's efficiency ratio to 62% for the third quarter of 2004, the
Company's focus remains on a long term strategy of expanding our franchise
throughout the Northern Virginia market. The efficiency ratio is a non-GAAP
financial measure, which we believe provides investors with important
information regarding our operational efficiency. We compute our efficiency
ratio by dividing noninterest expense by the sum of net interest income on a tax
equivalent basis and noninterest income, which includes securities gains or
losses and gains or losses on the sale of mortgage loans. Comparison of our
efficiency ratio with those of other companies may not be possible, because
other companies may calculate the efficiency ratio differently.

                                       15
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                2004                                   2003
                                           ---------------------------------------------   -----------------------------
(Dollars in thousands except share data)       THIRD          SECOND           FIRST           FOURTH          THIRD
----------------------------------------   -------------   -------------   -------------   -------------   -------------
<S>                                        <C>             <C>             <C>             <C>             <C>
RESULTS OF OPERATIONS:
Net interest income                        $       3,189   $       2,878   $       2,861   $       2,602   $       2,495
Provision for loan losses                            273             194             299             190             123
Other income                                         232             309             281             360             358
Noninterest expense                                2,075           1,941           1,697           1,568           1,608
Income before taxes                                1,072           1,052           1,146           1,204           1,122
Net income                                           705             686             754             792             735
PER SHARE DATA:
Earnings per share, basic /1/              $        0.16   $        0.15   $        0.17   $        0.21   $        0.21
Earnings per share, diluted /1/            $        0.15   $        0.15   $        0.16   $        0.19   $        0.19
Weighted average shares /1/
 outstanding - basic                           4,437,527       4,435,638       4,429,442       3,956,060       3,499,775
             - diluted                         4,678,247       4,676,515       4,662,740       4,187,978       3,738,317
AT PERIOD END
Loans                                      $     230,104   $     204,625   $     189,314   $     169,047   $     154,012
Earning assets                                   398,649         331,879         316,427         291,936         272,959
Total assets                                     416,382         358,469         334,104         305,651         288,914
Deposits                                         370,619         314,221         283,381         255,116         258,527
Stockholders' equity                              36,172          34,545          35,581          33,891          20,696
Book value per share /1/                   $        8.15   $        7.79   $        8.02   $        7.67   $        5.91
Shares outstanding /1/                         4,437,869       4,437,369       4,435,331       4,415,703       3,500,463
PERFORMANCE RATIOS:
Return on average assets                            0.76%           0.84%           0.98%           1.05%           1.01%
Return on average equity                            7.89%           7.85%           8.70%          11.50%          14.50%
Net interest margin                                 3.67%           3.81%           3.91%           3.64%           3.65%
Efficiency ratio /2/                               62.07%          60.90%          54.01%          52.93%          56.36%
OTHER RATIOS:
Allowance for loan losses to total loans            1.12%           1.13%           1.12%           1.16%           1.15%
Equity to assets                                    8.69%           9.64%          10.66%          11.09%           7.16%
Nonperforming loans to total loans                  0.17%           0.18%           0.18%           0.30%           0.27%
Net charge-offs to total loans                      0.00%           0.00%           0.08%           0.07%           0.02%
Risk adjusted capital ratios:
  Tier 1                                            17.4%           19.4%           20.4%           21.9%           14.7%
  Total                                             18.3%           20.4%           21.4%           22.9%           16.9%
  Leverage ratio                                    12.3%           13.6%           14.2%           14.3%            9.4%
</TABLE>

/1/ Information has been adjusted to reflect the 3-for-2 stock split paid on
June 1, 2004, and the 5-for-4 stock split paid on May 16, 2003.

/2/ Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, including securities gains or
losses and gains or losses on the sale of loans. 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.

                                       16
<PAGE>

NET INTEREST INCOME, AVERAGE BALANCES AND YIELDS

        Net interest income is the difference between interest and fees earned
on assets and the interest paid on deposits and borrowings. Net interest income
is one of the major determining factors in the Bank's performance as it is the
principal source of revenue and earnings. Unlike the larger regional or
mega-banks that have significant sources of fee income, community banks, such as
James Monroe Bank, rely on net interest income from traditional banking
activities as the primary revenue source.

        Tables 1 and 2 provide certain information relating to the Company's
average consolidated statements of financial condition and reflect the interest
income on interest earning assets and interest expense of interest bearing
liabilities for the nine months and quarters ended September 30, 2004 and 2003
and the average yields earned and rates paid during those periods. These yields
and costs are derived by dividing income or expense by the average daily balance
of the related asset or liability for the periods presented. The Company did not
have any tax exempt income during any of the periods presented in Tables 1 and
2. Nonaccrual loans have been included in the average balances of loans
receivable.

        Nine Months 2004 vs. Nine Months 2003. For the nine month period ended
September 30, 2004, net interest income increased $2.1 million, or 31%, to $8.9
million from $6.8 million earned during the same period in 2003. This was
primarily a result of the increase in the volume of earning assets, and
partially offset by the effect of declining interest rates, loan repricing, and
short term investments. During the nine months ended September 30, 2004, total
average earning assets increased by $73.4 million, or 30%, from the same period
of 2003. Average loans outstanding grew by $57.8 million, or 41%, during the
nine months of 2004 compared to the same period in 2003, but, at the same time,
the yield on such loans decreased by 60 basis points. Average securities
increased $19.9 million, or 25%, during the nine months of 2004 compared to the
same period in 2003 while the yield on the securities portfolio increased by 12
basis points. Additional securities were purchased from the liquidity generated
throughout the past year and invested in securities at yields greater than
federal funds, but less than yields generated by loans.

        During the nine months ended September 30, 2004, average interest
bearing liabilities increased $54.2 million, or 32% from the same period of
2003. Interest bearing deposits increased $47.4 million and borrowings, which
includes fed funds purchased and trust preferred capital notes, increased $6.8
million. Interest expense paid on these liabilities for the nine months of 2004
was $3.2 million compared with $2.7 million for the same period of 2003.

        The yield on earning assets declined 9 basis points from 5.23% for the
nine month period ending September 30, 2004 to 5.14% during the same period in
2004 reflecting the overall decline in interest rates from the nine months of
2003 to the same period this year. The overall yield on loans dropped 60 basis
points while the securities portfolio increased 12 basis points. The cost of
funds declined 18 basis points from 2.11% for the nine month period ending
September 30, 2003 to 1.93% during the same period in 2004.

        The resulting effect of the changes in interest rates between the nine
month periods ended September 30, 2004 and 2003, offset by changes in the volume
and mix of earning assets and interest bearing liabilities resulted in a
virtually stable net interest margin of 3.78% in 2004 versus 3.76% in 2003.
Management believes this stability is indicative of the Company's interest rate
risk management process.

                                       17
<PAGE>

TABLE 1: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, AND YIELDS/RATES

<TABLE>
<CAPTION>
                                                  Nine Months Ended                    Nine Months Ended
                                                  September 30, 2004                   September 30, 2003
                                       ------------------------------------   ------------------------------------
                                        Average                    Yield/       Average                   Yield/
(Dollars in thousands)                  Balance      Interest       Rate        Balance     Interest       Rate
------------------------------------   ----------   ----------   ----------   ----------   ----------   ----------
<S>                                    <C>          <C>                <C>    <C>          <C>                <C>
ASSETS
Loans:
  Commercial                           $   51,720   $    2,342         6.05%  $   37,598   $    1,849         6.58%
  Commercial real estate                  132,019        6,208         6.28%      87,636        4,561         6.96%
  Consumer                                 13,833          578         5.58%      14,524          663         6.10%
                                       ----------   ----------   ----------   ----------   ----------   ----------
    Total loans                           197,572        9,128         6.17%     139,758        7,073         6.77%
Mortgage loans held for sale                  619           26         5.61%       1,481           52         4.69%
Taxable securities                         99,390        2,813         3.78%      79,493        2,177         3.66%
Federal funds sold and cash
 equivalents                               17,874          162         1.21%      21,300          157         0.99%
                                       ----------   ----------   ----------   ----------   ----------   ----------
    TOTAL EARNING ASSETS                  315,455       12,129         5.14%     242,032        9,459         5.23%
Less allowance for loan losses             (2,209)                                (1,577)
Cash and due from banks                    17,077                                 13,365
Premises and equipment, net                 1,951                                  1,394
Other assets                                2,932                                  1,748
                                       ----------                             ----------
    TOTAL ASSETS                       $  335,206                             $  256,962
                                       ==========                             ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits       $   12,950   $       62         0.64%  $   10,330   $       66         0.85%
Money market deposit accounts             143,447        1,909         1.78%     108,736        1,512         1.86%
Savings accounts                            3,441           32         1.24%       1,801           18         1.34%
Time deposits                              49,532          835         2.25%      41,090          840         2.73%
Trust preferred capital notes               9,000          327         4.85%       5,908          217         4.91%
Other borrowed funds                        3,715           36         1.30%           -            -         0.00%
                                       ----------   ----------   ----------   ----------   ----------   ----------
    TOTAL INTEREST-BEARING
     LIABILITIES                          222,085        3,201         1.93%     167,865        2,653         2.11%
                                       ----------   ----------   ----------   ----------   ----------   ----------
Net interest income and net yield
 on interest earning assets                         $    8,928         3.78%               $    6,806         3.76%
                                                    ==========   ==========                ==========   ==========
Noninterest-bearing demand deposits        76,853                                 68,387
Other liabilities                           1,090                                    796
Stockholders' equity                       35,178                                 19,914
                                       ----------                             ----------
    TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUTIY              $  335,206                             $  256,962
                                       ==========                             ==========
</TABLE>

                                       18
<PAGE>

        Third Quarter 2004 vs. Third Quarter 2003. For the quarter ended
September 30, 2004, net interest income increased $694 thousand, or 28%, to $3.2
million from $2.5 million earned during the same period in 2003. This was
primarily a result of the increase in the volume of earning assets, and
partially offset by the effect of declining loan yields. During the quarter
ended September 30, 2004, total average earning assets increased by $74.8
million, or 28%, from the same period of 2003. Average loans outstanding grew by
$66.6 million, or 44%, during the third quarter of 2004 compared to the same
period in 2003, but, at the same time, the yield on such loans decreased by 52
basis points. Average securities increased $3.9 million, or 4%, during the third
quarter of 2004 compared to the same period in 2003 while the yield on the
securities portfolio increased by 71 basis points.

        During the quarter ended September 30, 2004, average interest bearing
liabilities increased $66.2 million, or 37% from the same period of 2003.
Interest bearing deposits increased $64.9 million and borrowings, which includes
fed funds purchased and trust preferred capital notes, increased $1.3 million.
Interest expense paid on these liabilities during the third quarter of 2004 was
$1.2 million compared with $900 thousand for the same period of 2003.

        The yield on earning assets increased 16 basis points from 4.93% for the
quarter ending September 30, 2004 to 5.09% during the same period in 2004. The
overall yield on loans dropped 52 basis points reflecting the overall decline in
loan rates as higher yielding loans repriced or were paid off during the
quarter. The cost of funds increased 7 basis points from 1.93% for the quarter
ending September 30, 2003 to 2.00% during the same period in 2004 as higher
yielding money market accounts grew at a faster pace than savings or interest
bearing checking accounts. Rates on other borrowed funds increased 53 basis
points.

        The resulting effect of the changes in interest rates between the
quarters ended September 30, 2004 and 2003, offset by changes in the volume and
mix of earning assets and interest bearing liabilities resulted in a virtually
stable net interest margin of 3.68% in 2004 versus 3.65% in 2003.

                                       19
<PAGE>

TABLE 2: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, AND YIELDS/RATES

<TABLE>
<CAPTION>
                                                Three Months Ended                         Three Months Ended
                                                September 30, 2004                         September 30, 2003
                                       ---------------------------------------    -------------------------------------
                                         Average                      Yield/        Average                    Yield/
(Dollars in thousands)                   Balance      Interest         Rate         Balance      Interest       Rate
------------------------------------   ----------    ----------     ----------    ----------    ----------   ----------
<S>                                    <C>           <C>                  <C>     <C>           <C>                <C>
ASSETS
Loans:
  Commercial                           $   56,959    $      850           5.94%   $   36,608    $      605         6.56%
  Commercial real estate                  145,003         2,267           6.22%       98,488         1,672         6.74%
  Consumer                                 14,694           201           5.44%       14,938           223         5.92%
                                       ----------    ----------     ----------    ----------    ----------   ----------
    Total loans                           216,656         3,318           6.09%      150,034         2,500         6.61%
Mortgage loans held for sale                  550             8           5.79%        2,246            27         4.77%
Taxable securities                         96,850           988           4.06%       92,965           786         3.35%
Federal funds sold and cash
 equivalents                               32,074           112           1.39%       26,115            58         0.88%
                                       ----------    ----------     ----------    ----------    ----------   ----------
    TOTAL EARNING ASSETS                  346,130         4,426           5.09%      271,360         3,371         4.93%
Less allowance for loan losses             (2,410)                                    (1,714)
Cash and due from banks                    17,748                                     15,468
Premises and equipment, net                 2,548                                      1,410
Other assets                                2,974                                      2,070
                                       ----------                                 ----------
    TOTAL ASSETS                       $  366,990                                 $  288,594
                                       ==========                                 ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits       $   13,169    $       22           0.66%   $   13,079    $       26         0.79%
Money market deposit accounts             167,999           792           1.88%      115,454           484         1.66%
Savings accounts                            4,185            13           1.24%        2,461             8         1.29%
Time deposits                              52,019           293           2.24%       41,431           268         2.57%
Trust preferred capital notes               9,000           117           5.17%        7,696            90         4.64%
Other borrowed funds                            -             -              -             -             -            -
                                       ----------    ----------     ----------    ----------    ----------   ----------
  TOTAL INTEREST-BEARING LIABILITIES      246,372         1,237           2.00%      180,121           876         1.93%
                                       ----------    ----------     ----------    ----------    ----------   ----------
Net interest income and net yield
 on interest earning assets                          $    3,189           3.68%                 $    2,495         3.65%
                                                     ==========     ==========                  ==========   ==========
Noninterest-bearing demand deposits        84,064                                     87,605
Other liabilities                           1,002                                        751
Stockholders' equity                       35,552                                     20,117
                                       ----------                                 ----------
    TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUTIY              $  366,990                                 $  288,594
                                       ==========                                 ==========
</TABLE>

                                       20
<PAGE>

        Table 3 shows the composition of the net change in net interest income
for the periods indicated, as allocated between the change in net interest
income due to changes in the volume of average earning assets and interest
bearing liabilities, and the changes in net interest income due to changes in
interest rates. As the table shows, the increase in net interest income of $694
thousand for the three months ended September 30, 2004, as compared to the three
months ended September 30, 2003, is due to the growth in the volume of earning
assets and interest bearing liabilities. While the decrease in interest rates
has, to date, affected total interest income, and to a lesser extent, total
interest expense, management has controlled its exposure to changes in interest
rates such that the negative effect of the decline in interest rates and the
decline in loan yields, as adjustable rate loans have repriced downward over the
past several years, resulted in a modest $65 thousand reduction of net interest
income, whereas the growth in earning assets and deposits resulted in an
increase of $759 thousand to net interest income. Interest expense during these
comparable quarters increased $361 thousand or 41%, from $876 thousand in
interest expense in 2003 to $1.2 million in interest expense in 2004. The
overall cost of interest bearing liabilities increased 7 basis points from 1.93%
in 2003 to 2.00% in 2004.

        The increase in net interest income of $2.1 million for the nine months
ended September 30, 2004, as compared to the nine months ended September 30,
2003, is due in large part to growth in earning assets and interest bearing
liabilities and to a lesser extent an increase in rates. Interest income during
the first nine months of 2004 as compared to the same period of 2003 increased
$2.7 million. Interest expense during the first nine months of 2004 compared to
the same period in 2003 grew $548 thousand primarily as a result of growth in
the volume of deposits.

TABLE 3

<TABLE>
<CAPTION>
                                          Three Months Ended September 30,           Nine Months Ended September 30,
                                                    2004 vs. 2003                             2004 vs. 2003
                                       --------------------------------------    --------------------------------------
                                                           Due to Change                             Due to Change
                                        Increase            in Average            Increase            in Average
                                           or        ------------------------        or        ------------------------
(Dollars in thousands)                 (Decrease)      Volume         Rate       (Decrease)      Volume         Rate
------------------------------------   ----------    ----------    ----------    ----------    ----------    ----------
<S>                                    <C>           <C>           <C>           <C>           <C>           <C>
EARNING ASSETS:
Loans                                  $      818    $    1,101    $     (283)   $    2,055    $    1,957    $       98
Mortgage loans                                (19)          (81)           62           (26)          (20)           (6)
Taxable securities                            202            33           169           636           364           272
Federal funds sold and cash
 equivalents                                   54            13            41             5           (17)           22
                                       ----------    ----------    ----------    ----------    ----------    ----------
  Total interest income                     1,055         1,066           (11)        2,670         2,284           386

INTEREST BEARING LIABILITIES:
Interest bearing demand deposits               (4)            -            (4)           (4)           11           (15)
Money market deposit accounts                 308           218            90           397           323            74
Savings deposits                                5             6            (1)           14            11             3
Time deposits                                  25            68           (43)           (5)          115          (120)
Borrowed funds                                 27            15            12           146            76            70
                                       ----------    ----------    ----------    ----------    ----------    ----------
  Total interest expense                      361           307            54           548           536            12
                                       ----------    ----------    ----------    ----------    ----------    ----------
    Net interest income                $      694    $      759    $      (65)   $    2,122    $    1,748    $      374
                                       ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

                                       21
<PAGE>

PROVISION AND ALLOWANCE FOR LOAN LOSSES

        The provision for loan losses is based upon a methodology that includes
among other factors, a specific evaluation of commercial and commercial real
estate loans that are considered special mention, substandard or doubtful. All
other loans are then categorized in pools of loans with common characteristics.
A potential loss factor is applied to these loans which considers the historical
charge off history of the Company and its peer group, trends in delinquencies
and loan grading, current economic conditions, and factors that include the
composition of the Company's loan portfolio. At September 30, 2004, the Company
had a $184 thousand impaired loan on nonaccrual status and an additional
$217,000 in loans on nonaccrual status or past due 90 days or more and still
accruing. See Note 4 to the unaudited consolidated financial statements for
additional information regarding the Company's asset quality and allowance for
loan losses.

        A methodology established in 2003 determining an appropriate allowance
for loan losses was approved by the Audit Committee and the Board of Directors.
The quarterly provision is approved by the Board. The methodology is reevaluated
on a quarterly basis. Pending the development of a negative trend with respect
to past due loans or charge offs or significant changes in economic conditions,
the Company continues to maintain an allowance it believes is adequate.

        As reflected in Table 4 below, the allowance is allocated among the
various categories of loans based upon the methodology described herein.

TABLE 4

        The following table shows the allocation of the allowance for loan
losses at the dates indicated. The allocation of portions of the allowance to
specific categories of loans is not intended to be indicative of future losses,
and does not restrict the use of the allowance to absorb losses in any category
of loans. See Note 4 to the unaudited consolidated financial statements included
in this report for additional information regarding the allowance for loan
losses and nonperforming assets.

<TABLE>
<CAPTION>
                                          SEPTEMBER 30, 2004         DECEMBER 31, 2003         SEPTEMBER 30, 2003
                                       -----------------------    -----------------------    -----------------------
                                                     Percent                     Percent                   Percent
                                                     Of Total                   Of Total                   Of Total
(Dollars in thousands)                   Amount       Loans         Amount       Loans         Amount       Loans
------------------------------------   ----------   ----------    ----------   ----------    ----------   ----------
<S>                                    <C>                <C>     <C>                <C>     <C>                <C>
Construction loans                     $       78         13.1%   $       50         10.8%   $       44         10.1%
Commercial loans                            1,237         14.1%          984         14.7%          830         16.5%
Commercial real estate loans                1,205         67.1%          823         67.0%          794         65.6%
Real estate 1-4 family residential             14          0.7%            4          2.2%            5          1.1%
Home equity loans                              18          2.3%            9          1.9%           10          2.0%
Consumer loans                                 25          2.7%           85          3.4%           82          4.6%
                                       ----------   ----------    ----------   ----------    ----------   ----------
Balance end of the period              $    2,577          100%   $    1,955          100%   $    1,765          100%
                                       ==========   ==========    ==========   ==========    ==========   ==========
</TABLE>

LOANS

        The loan portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At September 30,
2004, total loans were $230.1 million, a 49.4% increase from the $154.0 million
in loans outstanding at September 30, 2003. Total loans at September 30, 2004
represented a 36.1% increase from the $169.0 million of loans at December 31,
2003. In general, loans are internally generated with the exception of a small
percentage of participation loans purchased from other local community banks.
Lending activity is largely confined to our market of Northern Virginia. We do
not engage in highly leveraged transactions or foreign lending activities.

        Loans in the commercial category, as well as commercial real estate
mortgages, consist primarily of short term (five year or less final maturity)
and/or floating or adjustable rate commercial loans made to small to medium
sized companies. We do not have any agricultural loans in the portfolio. There
are no substantial loan concentrations to any one industry or to any one
borrower.

                                       22
<PAGE>

        Virtually all of the Company's commercial real estate mortgage and
development loans, which account for approximately 67% of our total loans at
September 30, 2004, relate to property in the Northern Virginia market. As such,
they are subject to risks relating to the general economic conditions in that
market, and the market for real estate in particular. While the region has
experienced some decline in economic activity during 2002 and 2003, the local
real estate market remains generally strong, and the Company attempts to
mitigate risk though careful underwriting, including primary reliance on the
borrower's financial capacity and ability to repay without resort to the
property, and lends primarily with respect to properties occupied or managed by
the owner.

        The Company's 1-4 family residential real estate loans are generally not
the typical purchase money first mortgage loan or refinancing, but are loans
made for other purposes and the collateral obtained is a first deed of trust on
the residential property of the borrower. The underlying loan would have a final
maturity much shorter than the typical first mortgage and may be a variable or
fixed rate loan. As reflected in Table 5, 30% of the Company's loans are fixed
rate loans and 97% of the Company's loans reprice or have a maturity date that
falls within five years.

        Consumer loans consist primarily of secured installment credits to
individuals. The consumer portfolio, which includes consumer loans, home equity
loans, and 1-4 family residential loans, represents 5.7% of the loan portfolio
at September 30, 2004, as compared to 7.7% at September 30, 2003 and 7.5% at
December 31, 2003.

TABLE 5

        Table 5 shows the maturities of the loan portfolio and the sensitivity
of loans to interest rate fluctuations at September 30, 2004. Maturities are
based on the earlier of contractual maturity or repricing date. Demand loans,
loans with no contractual maturity and overdrafts are represented in one year or
less.

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30, 2004
                                             -----------------------------------------------------
                                                           AFTER ONE
                                               WITHIN     YEAR THROUGH    AFTER FIVE
        (Dollars in thousands)                ONE YEAR     FIVE YEARS        YEARS         TOTAL
        ----------------------------------   ---------   -------------   -------------   ---------
        <S>                                  <C>         <C>             <C>             <C>
        Construction loans                   $  30,163   $           -   $           -   $  30,163
        Commercial loans                        27,799           4,720               -      32,519
        Commercial real estate loans            62,511          86,145           5,630     154,286
        Real estate 1-4 family residential         341             948             318       1,607
        Home equity loans                        5,242               -               -       5,242
        Consumer loans                           4,853           1,377               -       6,230
        Deposit overdrafts                          57               -               -          57
                                             ---------   -------------   -------------   ---------
          Total                              $ 130,966   $      93,190   $       5,948   $ 230,104
                                             =========   =============   =============   =========
</TABLE>

<TABLE>
<CAPTION>
                                                           AFTER ONE
                                               WITHIN     YEAR THROUGH    AFTER FIVE
        (Dollars in thousands)                ONE YEAR     FIVE YEARS        YEARS         TOTAL
        ----------------------------------   ---------   -------------   -------------   ---------
        <S>                                  <C>         <C>             <C>             <C>
        Fixed rate                           $  26,590   $      36,745   $       5,948   $  69,283
        Variable/Adjustable rate               104,375          56,446               -     160,821
                                             ---------   -------------   -------------   ---------
          Total                              $ 130,966   $      93,190   $       5,948   $ 230,104
                                             =========   =============   =============   =========
</TABLE>

INVESTMENT SECURITIES

        The Company currently, and for all periods shown, classifies its entire
securities portfolio as available for sale. Increases in the portfolio have
occurred whenever deposit growth has outpaced loan demand and the forecast for
loan growth is such that the investment of excess liquidity in investment
securities (as opposed to short term investments such as federal funds) is
warranted. In general, our investment philosophy is to acquire high quality
government agency securities or high grade corporate bonds, with a maturity of
five to six years or less in the case of fixed rate securities. In the case of
mortgage backed securities, the policy is to invest only in those securities
whose average expected life is projected to be

                                       23
<PAGE>

approximately five to six years or less. Mortgage backed securities with a
maturity of ten years or more are either adjustable rate securities or the
expected life of the mortgage pool is generally no more than five or six years.
To the extent possible, we attempt to "ladder" the one time call dates for all
our securities. The Company's investment policy is driven by its interest rate
risk process and the need to minimize the effect of changing interest rates to
the entire balance sheet.

        The following table provides information regarding the composition of
our investment portfolio at the dates indicated.

TABLE 6

<TABLE>
<CAPTION>
                                                        AT SEPTEMBER 30, 2004     AT SEPTEMBER 30, 2003
                                                       -----------------------   -----------------------
                                                                    Percent of                Percent of
        (Dollars in thousands)                           Balance     Portfolio     Balance     Portfolio
        --------------------------------------------   ----------   ----------   ----------   ----------
        <S>                                            <C>               <C>     <C>               <C>
        AVAILABLE FOR SALE (FAIR VALUE):
          U.S. Agency                                  $   97,571         82.7%  $   68,440         65.0%
          Mortgage-backed securities                       15,472         13.1%      20,469         19.5%
          Adjustable rate mortgage-backed securities        1,785          1.5%       4,106          3.9%
          Corporate bonds                                   2,177          1.8%      11,376         10.7%
          Restricted stock                                  1,048          0.9%         901          0.9%
                                                       ----------   ----------   ----------   ----------
        TOTAL                                          $  118,053        100.0%  $  105,292        100.0%
                                                       ==========   ==========   ==========   ==========
</TABLE>

TABLE 7

         The following table provides information regarding the maturity
composition of our investment portfolio, at fair value, at September 30, 2004.

                             MATURITY OF SECURITIES
                                Years to Maturity

<TABLE>
<CAPTION>
                                   Within          Over 1 Year       Over 5 Years             Over
                                   1 Year        through 5 Years   through 10 Years         10 Years                 Total
                             ----------------   ----------------   ----------------   --------------------   --------------------
(Dollars in thousands)        Amount    Yield    Amount    Yield    Amount    Yield    Amount      Yield      Amount      Yield
--------------------------   --------   -----   --------   -----   --------   -----   --------    --------   --------    --------
<S>                          <C>         <C>    <C>         <C>    <C>         <C>    <C>            <C>     <C>             <C>
AVAILABLE FOR SALE
 (FAIR VALUE):
U. S. Agency                 $ 54,915    3.73%  $ 42,656    4.14%  $      -       -   $      -           -   $  97,571       3.91%
Mortgage-backed securities         15    6.54%       962    4.49%     2,447    4.19%    12,048        4.79%     15,472       4.68%
Adjustable rate mortgage-
 backed securities                  -       -          -       -          -       -      1,784        3.85%      1,784       3.85%
Corporate bonds                     -       -      2,178    5.36%         -       -          -           -       2,178       5.36%
Restricted stock                    -       -          -                  -       -      1,048        5.38%      1,048       5.38%
                             --------           --------           --------           --------               ---------
  Total debt securities
   Available for sale        $ 54,930    3.73%  $ 45,796    4.21%  $  2,447    4.19%  $ 14,880        4.72%  $ 118,053        4.05%
                             ========           ========           ========           ========               =========
</TABLE>

                                       24
<PAGE>

LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT

        The primary objectives of asset and liability management are to provide
for the safety of depositor and investor funds, assure adequate liquidity, and
maintain an appropriate balance between interest sensitive earning assets and
interest bearing liabilities. Liquidity management involves the ability to meet
the cash flow requirements of customers, who may be depositors wanting to
withdraw funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs.

        We define liquidity for these purposes as the ability to raise cash
quickly at a reasonable cost without principal loss. The primary liquidity
measurement we utilize is called the Basic Surplus, which captures the adequacy
of our access to reliable sources of cash relative to the stability of our
funding mix of deposits. Accordingly, we have established borrowing facilities
with other banks (Federal funds) and the Federal Home Loan Bank as sources of
liquidity in addition to the deposits.

        The Basic Surplus approach enables us to adequately manage liquidity
from both tactical and contingency perspectives. At September 30, 2004, our
Basic Surplus ratio (net access to cash and secured borrowings as a percentage
of total assets) was approximately 10.7% compared to the present internal
minimum guideline range of 5% to 10%.

        Financial institutions utilize a number of methods to evaluate interest
rate risk. Methods range from the original static gap analysis (the difference
between interest sensitive assets and interest sensitive liabilities repricing
during the same period, measured at a specific point in time), to running
multiple simulations of potential interest rate scenarios, to rate shock
analysis, to highly complicated duration analysis.

        One tool that we utilize in managing our interest rate risk is the
matched funding matrix. The matrix arrays repricing opportunities along a time
line for both assets and liabilities. The longer term, more fixed rate sources
are presented in the upper left hand corner while the shorter term, more
variable rate items, are at the lower left. Similarly, uses of funds, such as
assets, are arranged across the top moving from left to right.

        The body of the matrix is derived by allocating the longest fixed rate
funding sources to the longest fixed rate assets and shorter term variable
sources to shorter term variable uses. The result is a graphical depiction of
the time periods over which we expect to experience exposure to rising or
falling rates. Since the scales of the liability and assets sides are identical,
all numbers in the matrix would fall within the diagonal lines if we were
perfectly matched across all repricing time frames. Numbers outside the diagonal
lines represent two general types of mismatches: liability sensitive in time
frames when numbers are to the left of the diagonal line and asset sensitive in
time frames when numbers are to the right of the diagonal line.

        At September 30, 2004, we were modestly liability sensitive in the short
term and then we become asset sensitive out beyond two years. This is primarily
caused by the assumptions used in allocating a repricing term to nonmaturity
deposits--demand deposits, savings accounts, and money market deposit accounts.
The actual impact due to changes in interest rates is difficult to quantify in
that the administrative ability to change rates on these products is influenced
by competitive market conditions in changing rate environments, prepayments of
loans, customer demands, and many other factors. These products may not reprice
consistently with assets such as variable rate commercial loans or other loans
that immediately reprice as the prime rate changes. While the traditional gap
analysis and the matched funding matrix show a general picture of our potential
sensitivity to changes in interest rates, it cannot quantify the actual impact
of interest rate changes.

        Thus, the Company manages its exposure to possible changes in interest
rates by simulation modeling or "what if" scenarios to quantify the potential
financial implications of changes in interest rates. In practice, each quarter
approximately 14 different "what if" scenarios are evaluated which include the
following scenarios: Static Rates, Most Likely Rate Projection, Rising Rate
Environment, Declining Rate Environment, Ramp Up 100bp and 200bp over 12-months,
and Ramp Down 100bp and 200bp over 12-months scenarios. In addition, 8 rate
shock scenarios are modeled at 50bp up and 50bp down increments but not below
zero. At September 30, 2004, the following 12-month impact on net interest
income is estimated to range from a positive impact of 7.9% in a rising rate
scenario, to a negative impact of (4.8)% if rates decline 100 basis points from
current levels. The Company believes these ranges of exposure to changes in
interest rates to be well within acceptable range given a wide variety of
potential rate change scenarios. This process is performed each quarter to
ensure the Company is not materially at risk to possible changes in interest
rates.

                                       25
<PAGE>

        The following are the projected potential percentage impact on the
Company's net interest income over the next 12 months for the most likely to
occur scenarios, but measured against a static interest rate environment as of
September 30, 2004. The Company is positioned to improve earnings if rates
continue to rise. With respect to further reductions in rates, the Company would
experience further negative implications on margins and earnings; however, the
Company does not believe that a 200 basis point decline is realistic given the
already extremely low interest rates. Thus management believes the exposure to
further changes in interest rates would not have a material negative effect on
the results of operations.

                  Static Rates                                     -0-%
                  Most Likely Rates                              (0.2)%
                  Ramp Up 100bp- 12 months                       (1.2)%
                  Ramp Up 200bp- 12 months                        0.9%
                  Ramp Down 100bp- 12 months                     (4.8)%
                  Rising Rate Scenario                            7.9%
                  Low Rate Environment                            3.3%

NONINTEREST INCOME AND EXPENSE

        Noninterest income consists primarily of services charges on deposit
accounts and fees and other charges for banking services. Noninterest expense
consists primarily of salary and benefit costs and occupancy and equipment
expense. To date, the company has not been required to pay any premiums for
deposit insurance. To the extent that deposit premiums may become required, the
Company's results of operations will be adversely affected.

        The following table shows the detail of noninterest income for the three
and nine month periods ended September 30, 2004 and 2003.

TABLE 8

        The categories of noninterest income that exceed 1% of operating revenue
are as follows:

<TABLE>
<CAPTION>
                                                THREE-MONTHS ENDED SEPTEMBER 30,    NINE-MONTHS ENDED SEPTEMBER 30,
                                               ---------------------------------   ---------------------------------
(Dollars in thousands)                               2004              2003              2004              2003
                                               ---------------   ---------------   ---------------   ---------------
<S>                                            <C>               <C>               <C>               <C>
Service charges on deposit accounts            $            72   $            66   $           254   $           221
Cash management fees                                        27                30                75                84
Other fee income                                            55                55               190               134
Gain on sale of mortgages                                   77               106               248               191
Gain on sale of securities                                   -               101                54               157
                                               ---------------   ---------------   ---------------   ---------------
Total noninterest income                       $           231   $           358   $           821   $           787
                                               ===============   ===============   ===============   ===============
</TABLE>

        The decrease in noninterest income during the three month period ended
September 30, 2004 compared to the same period last year is due in large part to
a decline in the gain on sale of securities as no securities were sold during
the third quarter of 2004. In addition, gains on sales of mortgages declined in
the third quarter of 2004 compared to the same period last year. During the nine
month period ended September 30, 2004 compared to the same period last year non
interest income increased $34 thousand due in large part to an increase in the
gain on sale of mortgages. During the second quarter of 2003, we began
originating conforming residential mortgage loans on a pre-sold basis, for sale
to secondary market investors, servicing released.

TABLE 9

        The categories of noninterest expense that exceed 1% of operating
revenue are as follows:

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                THREE-MONTHS ENDED SEPTEMBER 30,    NINE-MONTHS ENDED SEPTEMBER 30,
                                               ---------------------------------   ---------------------------------
(Dollars in thousands)                               2004              2003              2004              2003
--------------------------------------------   ---------------   ---------------   ---------------   ---------------
<S>                                            <C>               <C>               <C>               <C>
Salaries and benefits                          $         1,083   $           963   $         3,241   $         2,400
Occupancy cost, net                                        265               149               593               452
Equipment expense                                          138               106               304               306
Professional fees                                           38                31               101               103
Data processing costs                                      192               139               523               382
Courier and express services                                32                42               108               101
Advertising and public relations                            66                25               171                84
State franchise tax                                         66                60               197               153
Director fees                                               41                23               127                76
Compliance expense                                          26                 -                26                 -
Other                                                      128                70               322               339
                                               ---------------   ---------------   ---------------   ---------------
  Other noninterest expense                    $         2,075   $         1,608   $         5,713    $        4,396
                                               ===============   ===============   ===============   ===============
</TABLE>

        Noninterest expense increased $1.3 million or 30% from $4.4 million to
$5.7 million for the nine months of 2004, as compared to the same period in
2003. Approximately 64% of this increase is in salary and benefit costs. During
2004 the Company added personnel to staff the newly opened branches and
administrative staff to support the growth in customers and transactions being
processed. The increase in state franchise tax is due to the increased capital
of the Bank from earnings retention and capital infusions in 2004. Noninterest
expense increased $467 thousand or 29% from $1.6 million to $2.1 million for the
third quarter of 2004 as compared to the same period in 2003. Approximately 25%
of this increase is in salary and benefit costs.

DEPOSITS AND OTHER BORROWINGS

        The principal sources of funds for the Bank are core deposits (demand
deposits, NOW accounts, money market accounts, savings accounts and certificates
of deposit less than $100,000) from the local market areas surrounding the
Bank's offices. The Bank's deposit base includes transaction accounts, time and
savings accounts and accounts which customers use for cash management and which
provide the Bank with a source of fee income and cross marketing opportunities
as well as a low cost source of funds. Time and savings accounts, including
money market deposit accounts, also provide a relatively stable and low cost
source of funding.

TABLE 10

        The following table reflects deposits by category for the periods
indicated.

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED SEPTEMBER 30,
                                                               ----------------------------------------------------------------
                                                                            2004                            2003
                                                               -------------------------------  --------------------------------
                                                                  Average           Average         Average           Average
          (Dollars in thousands)                                  Balance            Rate           Balance            Rate
          --------------------------------------------------   --------------   --------------   --------------   --------------
          <S>                                                  <C>                        <C>    <C>                        <C>
          Deposits
            Noninterest-bearing demand                         $       84,064                -%  $       87,605                -%
            Interest-bearing demand                                    13,169             0.66           13,079             0.79
            Money Market                                              167,999             1.88          115,454             1.66
            Savings                                                     4,185             1.24            2,461             1.29
            Certificates of deposit of $100,000 or more                38,665             2.22           26,372             2.57
            Other time                                                 13,354             2.30           15,059             2.56
                                                               --------------   --------------   --------------   --------------
          Total interest bearing deposits                             237,372             1.88%         172,425             1.81%
                                                               --------------                    --------------
          Total deposits                                       $      321,436                    $      260,030
                                                               ==============                    ==============
</TABLE>

                                       27
<PAGE>

TABLE 11

        The following table indicates the amount of certificates of deposit of
less than $100,000 and $100,000 or more, and their remaining maturities as of
September 30, 2004.

<TABLE>
<CAPTION>
                                                      3 MONTHS     4 TO 6     7 TO 12     OVER 12
(Dollars in thousands)                                OR LESS      MONTHS      MONTHS      MONTHS      TOTAL
---------------------------------------------------  ---------   ---------   ---------   ---------   ---------
<S>                                                  <C>         <C>         <C>         <C>         <C>
Certificates of deposit less than $100,000           $   3,586   $   3,181   $   6,741   $   2,086   $  15,594
Certificates of deposit of $100,000 or more              7,832       7,001      20,659       3,024      38,516
                                                     ---------   ---------   ---------   ---------   ---------
                                                     $  11,418   $  10,182   $  27,400   $   5,110   $  54,110
                                                     =========   =========   =========   =========   =========
</TABLE>

CAPITAL MANAGEMENT

        Management monitors historical and projected earnings, asset growth, as
well as its liquidity and various balance sheet risks in order to determine
appropriate capital levels. At September 30, 2004, stockholders' equity
increased $15.5 million to $36.2 million from the $20.7 million in equity at
September 30, 2003 as a result of the $2.9 million increase in retained earnings
over the past twelve months and the $12.8 million net proceeds from the equity
sold in November 2003, offset by a decline in other comprehensive income of $551
thousand resulting from unrealized gains and losses on securities.

        Capital Requirement. A comparison of the Company's and the Bank's
regulatory capital at September 30, 2004, compared to minimum regulatory capital
guidelines is shown in the table that follows.

TABLE 12

<TABLE>
<CAPTION>
                                                       Minimum            Minimum To Be
                                  Actual             Guidelines        "Well Capitalized"
                            ------------------   ------------------    ------------------
<S>                               <C>                   <C>                  <C>
Total Risk-Based Capital
  Company                         18.3%                 8.0%                  N/A
  Bank                            12.3%                 8.0%                 10.0%

Tier 1 Risk-Based Capital
  Company                         17.4%                 4.0%                  N/A
  Bank                            11.3%                 4.0%                  6.0%

Tier 1 Leverage Ratio
  Company                         12.3%                 4.0%                  N/A
  Bank                             8.3%                 4.0%                  5.0%
</TABLE>

ITEM 3.  CONTROLS AND PROCEDURES

        The Company's management, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer,
evaluated, as of the last day of the period covered by this report, the
effectiveness of the design and operation of the Company's disclosure controls
and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were adequate. There were no changes in the Bank's internal control
over financial reporting (as defined in Rule 13a-15 under the Securities Act of
1934) during the quarter ended September 30, 2004 that has materially affected,
or is reasonably likely to materially affect, the Bank's internal control over
financial reporting.

                                       28
<PAGE>

                           PART II. Other Information

Item 1.  Legal Proceedings
         None

Item 2 - Unregistered Sale of Equity Securities and Use of Proceeds.

         (a)    Sales of Unregistered Securities.                None

         (b)    Use of Proceeds.                                 Not Applicable.

         (c)    Small Business Issuer Purchases of Securities.   None

Item 3.  Defaults Upon Senior Securities                         None

Item 4.  Submission of Matters to a Vote of Security Holders     None

Item 5.  Other Information

         (a)    Required Form 8-K Disclosures                    None

         (b)    Changes in Procedures for Director Nominations
                by Security Holders.                             None

Item 6.  Exhibits

Number          Description
------          ------------
3(a)            Articles of Incorporation of James Monroe Bancorp (1)
3(b)            Bylaws of James Monroe Bancorp (2)
4(a)            Indenture, dated as of March 26, 2002 between James Monroe
                Bancorp, Inc. and State Street Bank and Trust Company of
                Connecticut, National Association, as trustee (3)
4(b)            Amended and Restated Declaration of Trust, dated as of March 26,
                2002 among James Monroe Bancorp, Inc., State Street Bank and
                Trust Company of Connecticut, National Association, as
                Institutional Trustee, and John R. Maxwell, David W. Pijor and
                Richard I. Linhart as Administrators (3)
4(c)            Guarantee Agreement dated as of March 26, 2002, between James
                Monroe Bancorp, Inc. and State Street Bank and Trust Company of
                Connecticut, National Association, as trustee (3)
4(d)            Indenture, dated as of July 31, 2003 between James Monroe
                Bancorp, Inc. and U.S. Bank, National Association, as trustee
                (3)
4(e)            Amended and Restated Declaration of Trust, dated as of July 31,
                2003 among James Monroe Bancorp, Inc., U.S. Bank, National
                Association, as Institutional Trustee, and John R. Maxwell,
                David W. Pijor and Richard I. Linhart as Administrators (3)
4(f)            Guarantee Agreement dated as of July 31, 2003, between James
                Monroe Bancorp, Inc. and U.S. Bank, National Association, as
                trustee (3)
10(a)           Employment contract between James Monroe Bancorp and John R.
                Maxwell(4)
10(b)           Employment contract between James Monroe Bancorp and Richard I.
                Linhart (5)
10(c)           James Monroe Bancorp 1998 Management Incentive Stock Option Plan
                (6)
10(d)           James Monroe Bancorp 2000 Director's Stock Option Plan (7)
10(e)           James Monroe Bancorp, Inc. 2003 Equity Compensation Plan (8)
11              Statement re: Computation of Per Share Earnings
                         Please refer to Note 2 to the financial statements
                         included in this report.
21              Subsidiaries of the Registrant
31(a)           Certification of Chief Executive Officer
31(b)           Certification of Chief Financial Officer
32(a)           Certification of Chief Executive Officer
32(b)           Certification of Chief Financial Officer

                                       29
<PAGE>

----------
(1)  Incorporated by reference to exhibit 3(a) to the Company's Quarterly Report
     on Form 10-QSB for the quarter ended March 31, 2004.
(2)  Incorporated by reference to exhibit 3(b) to the Company's registration
     statement on Form SB-2 (No. 333-38098).
(3)  Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
     Regulation SK. The Company agrees to provide a copy of these documents to
     the Commission upon request.
(4)  Incorporated by reference to exhibit of same number to the Company's Annual
     Report on Form 10-KSB for the year ended December 31, 2002.
(5)  Incorporated by reference to exhibit of same number to the Company's Annual
     Report on Form 10-KSB for the year ended December 31, 2003.
(6)  Incorporated by reference to exhibit 10(b) to the Company's registration
     statement on Form SB-2 (No. 333-38098).
(7)  Incorporated by reference to exhibit 10(c) to the Company's registration
     statement on Form SB-2 (No. 333-38098).
(8)  Incorporated by reference to exhibit 10(e) to the Company's Quarterly
     Report on Form 10-QSB for the quarter ended June 30, 2003.

                                       30
<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.

Date: November 12, 2004                   BY: /s/John R. Maxwell
                                              ----------------------------------
                                              John R. Maxwell, President &
                                              Chief Executive Officer

Date: November 12, 2004                   BY: /s/ Richard I. Linhart
                                              ----------------------------------
                                              Richard I. Linhart, Executive Vice
                                              President & Chief Operating and
                                              Financial Officer

                                       31